A green supply chain has become the Holy Grail of businesses. A 2021 study of the world’s 2,000 largest companies conducted by a UK-based non-profit and the University of Oxford shows that 21% have committed to meet net-zero targets. These companies, representing almost $14 trillion in sales, will miss their targets if they don’t obsess over a green supply chain. The pressure to go net-zero is real and has powerful business drivers: Investors and consumers are voting with their wallets for green, and that includes supply chains. Blackrock Chairman and CEO Larry Fink recently wrote a letter to investors saying that sustainability, and by implication “green” initiatives, would be at the center of their investment approach and clients should be prepared for “a significant reallocation of capital.” In one study, 49% of consumers said they would factor the environment and climate change into their buy decisions. The pressure from governments, media, activists and even employees is also rising. We must expect the spotlight on a green supply chain to intensify over the next few years. As that happens, we will also witness the demand for technology to enable, monitor, and measure supply chains for “green” practices.
It helps to clarify that “green” practices are a subset of sustainability practices. This distinction is significant. It brings clarity to the discussion. Sustainability practices address child labor, worker health and welfare, workplace safety, product safety, diversity and inclusion, end-of-life management, and “green” concerns centered around emission, biodiversity conservation, energy, water, and waste management. Sometimes, “green practices” are also conflated with “resilience.” This is inaccurate. Resilient supply chains deserve a discussion of their own.
There are tons of Green Supply Chain Management (GSCM) practices available. We did a Google search for GSCM practices and got billions of search returns. The challenge, therefore, is to identify the right GSCM practices and balance those with economic performance.
There are many opportunities within a product’s lifecycle to tweak its supply chain and adjust the positioning of the product, the brand, and the company. These range from fine-tuning product designs to changing suppliers for raw materials, manufacturing processes, distribution centers/warehouses, retailers, and the logistics between these functions. Businesses need to track fuel being consumed, emissions, operational efficiency, energy efficiency, water consumption, waste, resource utilization, and so on across their entire supply chain. From design to the end product, if every participant in this chain follows practices that yield a lower footprint of operations, the world will become a better place.
A consequence of the demand for green practices has been the emergence of public disclosure of environmental information. Two of the popular channels for disclosure are CDP and GRI, which lay down standards and processes for reporting green practices. However, of their own, reporting and disclosure are often inadequate.
Let’s examine the tools being used to implement green supply chains. The picture is awkward: The #1 tool used is a supplier code of conduct, closely followed by sustainability standards and certifications (CDP and GRI), supplier audits, third-party verification, and supplier training. These are necessary practices, but they make the case for using technology to ensure “green” supply chains even stronger. Many of the existing practices are impractical (for example, audits) as suppliers may be in different countries with the involvement of several sub-contractors and intermediaries, making it challenging to implement green standards. All said and done, these practices are difficult and expensive. Supply chains need deep change, and organizations must adopt intelligent technology to meet their goals without letting costs become a dissuasive factor.
Some of the technology used to build and monitor green supply chains are relatively straightforward. Electric Vehicles (EVs) backed by intelligent planning, and dynamic execution of logistics can make a dramatic impact on lowering carbon footprint and waste. Intelligent logistical systems using GPS platforms should be able to take decisions to optimize routes dynamically. The decision algorithms of these systems can use data on the product being transported, weather conditions, route changes forced by law, accidents, or unexpected maintenance work and balance it with cost.
Visibility, transparency, and traceability continue to be significant challenges in supply chains. Blockchain technology can store records for goods supplied by third parties. Blockchain is an almost inviolable technology, lending it the ability to guarantee certain green practices and reducing the need for expensive audits.
One of the most accessible technological interventions is demand forecasting. Organizations can use Artificial Intelligence (AI) trained on sales and distribution data combined with external data (example: weather changes, events such as the Olympics, political and economic conditions, social chatter, purchasing power/ currency values) to intelligently forecast demand with precision. These forecasts can adjust inventories and reduce supply-side waste.
Applying Industry 4.0 technologies such as robotics, AI, the Internet of Things (IoT)/ wireless sensor networks (WSN), and digital twins to the science of supply chains is at a nascent stage. But smart organizations understand the value of harnessing these technologies to optimize resource, material, and energy utilization, save time and curb waste.
Over the last decade, intelligent Industry 4.0 technologies have demonstrated their efficacy in diverse business functions. Now, they will increasingly shape and manage green supply chains as digitization gains ground across businesses. Over the next few years, organizations that explore the idea of infusing intelligence into their supply chains will find favor with investors, customers, governments, and society. That is a great reason to go green.
Digital Innovation & Strategy Principal, Marlabs