Green Supply Chain – Moving the Sustainable Needle
Green Supply Chain – Moving the Sustainable Needle
Feature Article by John Lash – Vice President Product Marketing at E2open
There has never been as much awareness and urgency, locally and globally, to drive sustainability. Climate change is now recognised as an existential crisis that is starting to affect everyone and it will only get worse unless people, business and governments truly work together to make positive change.
Commitments to aggressive emissions reductions targets by 2030, with net zero by mid-century, are now accepted as base requirements in our pursuit to keep planetary warming within 1.5 degrees Celsius.
The science is clear. Broad-brush strokes on how to get there are understood and include phasing out coal in favour of renewables, enabling a wide scale adoption of electric vehicles and curtailing deforestation. We cannot address this crisis without public policy. At the same time, if history is any gauge, we cannot rely on the hope of policy moving fast enough or deep enough to keep planetary temperatures within acceptable boundaries to avert a climate disaster.
Hope is not a strategy. There is a clear way forward to kickstart the process and catalyse action through the private sector as corporations have both the will and ability to move fast—much faster than governments.
Green Really Is Green
The private sector is a key stakeholder in finding a balance to live within planetary boundaries. This is especially true for the manufacturers of the world because they build the stuff that keeps the global economy going. According to McKinsey Global Institute, Asian consumers are expected to account for half of global consumption growth in the next decade – equivalent to a $10 trillion opportunity.
Globally, one of every two upper-middle-income and above households is expected to be in Asia, and one of every two consumer transactions is likely to occur in the region. The catch is consumers no longer want to buy just anything. Consumer demand for sustainable goods has grown exponentially in recent years, putting enormous pressure on manufacturers. It’s no longer a trade-off between price or sustainability. Consumers expect them both and are voting in the most capitalist way possible – with their spending dollars.
Progressive manufacturers recognised this trend and got ahead of it to capture market share. More importantly, these leaders were also playing a long game, betting that sustainability at scale will lower overall costs and mitigate business risk from predictable climate-related events such as water shortages, constrained materials and impending carbon taxes. Simply put, you cannot run a factory without water or raw materials, and the prospect of a price on carbon changes the risk dynamics in favour of companies with sustainable practices.
There will be big winners and losers in the coming years and proactive CEOs have leaned into sustainability, recognising that green is really green.
Getting To The Core
In the same way that nations are making net zero pledges and setting ambitious emissions reduction targets, so too are companies in the private sector. Just like their public sector counterparts, private sector firms recognise that the devil is in the details when it comes to visibility, reporting and compliance regarding carbon emissions and water use for manufacturers. Unfortunately it is also an area that is ripe for greenwashing. Some initiatives have more marketing or investor relations value than achieving meaningful reductions to stay within planetary boundaries. While achieving net zero on a manufacturing facility sounds impressive—and is an important step—it does not shift the needle for manufacturers in terms of their actual environmental footprint.
Sustainability leading companies have long published life cycle analysis (LCA) reports that assess the full end-to-end footprint of their products. The visibility that comes from the LCA reports is an essential part of making meaningful change. However, few outside sustainability circles understand the implications of these assessments. Most people fail to grasp that direct manufacturing operations only account for a few percentage points of the total footprint for large manufacturers. Most of the footprint is hidden within indirect supply chain activities and consumer use. In fact, 95% of the footprint of many manufacturers comes from global supply chains or waste from their products.
On a macro-level, supply chains drive the economy and at a company level, CEOs realise that supply chains drive the core business. As such, any sustainability program that fails to consider the full footprint of the end-to-end supply chain is missing the mark.
Most Emissions Are Hidden Outside Of The Enterprise
Scope 1 emissions encompass the direct footprint of a manufacturer’s operations and facilities, such as factories, warehouses, truck fleets, etc. Scope 2 is the indirect footprint used to power its operations and facilities, such as electricity generated by dirty coal or clean renewables. Therefore Scope 1 and 2 emissions are enterprise-centric and in the direct control of manufacturers – the easy part of controlling supply chain emissions.
Scope 3 represents all other indirect footprint contributions in a company’s value chain. This includes all upstream and downstream activities, including consumer use and recycling. Upstream activities encompass all supply-related emissions, including those at each tier subcontractor or co-packers, for all raw materials or components and transportation.
Naturally, some industries have more complex upstream footprints and others have more complex downstream footprints. Regardless, the simple fact is that the scale of Scope 3 emissions dwarf Scope 1 and 2 for virtually any company that produces and distributes physical goods.
Scope 3 Is Inherently A Multi-Enterprise Challenge
Making a meaningful difference in private sector footprints means tackling the Scope 3 emissions of the indirect supply chain. In the past few decades, the average size of the indirect supply chain has become larger and more complex. Today, global manufacturers across sectors typically outsource between 60 and 100% of their manufacturing, distribution and transportation to hundreds or thousands of external partners around the world. This makes tackling Scope 3 emissions a multi-enterprise problem.
The real challenge is to address the Scope 3 emissions beyond your enterprise – remembering that these emissions represent 95% or more of your entire product footprint. This requires bigger thinking for a multi-enterprise ESG system of record— to gain end-to-end visibility of emissions, use this to make trade-offs and optimise decisions, orchestrate actions across all parties, learn for next time, report on corporate and partner targets and comply with all regulatory requirements in all relevant jurisdictions.
While no vendor currently offers a multi-enterprise ESG system of record, the ones best positioned to make this a reality are those that have a proven multi-enterprise financial system of record. Again, the devil is in the details. Multi-enterprise systems of record that span hundreds or thousands of external parties are complex, and it takes decades to build software that works at scale. While adding carbon and water to an end-to-end platform is not a trivial task, it’s far easier when the base platform is already multi-enterprise with years of proven performance at scale.
The Time Is Now
There is a misperception that sustainable practices are inherently more expensive. This is largely untrue when it comes to supply chain. In the end-to-end supply chain, there are many opportunities to remove structural waste and improve productivity and service, while at the same time reducing costs and carbon footprint. The key to unlocking value is to understand, manage and empower users to actively reduce ESG risk within the day-to-day activities that drive their core business – this can’t be done with an overlay.
To actively reduce emissions footprint, E2open recently released new supply chain sustainability innovation – new technology which empowers users to make ESG-informed decisions in all day-to-day transportation and logistics activities driving the core business.
The new ESG capability proactively reduces greenhouse gas emissions when planning or tendering freight moves in any region by making ESG-informed trade-offs and decisions that consider cost, transit time and now emissions. A new interactive timeline view lets dispatchers monitor route plans and make alternative plans where necessary to help ensure customer commitments and delivery restrictions are met.
Measuring and reporting carbon emissions related to supply chains is just the first step. It creates a baseline to assess your footprint and an ongoing measure to track against net-zero commitments or regulatory compliance. Yet, it falls short of the larger goal of systematically reducing a company’s carbon footprint. By surfacing emissions information during logistics planning and tendering, companies can now make ESG-informed trade-offs and decisions that consider carbon impact, as well as cost, delivery and carrier options.
The new sustainability-focussed E2open technology complements existing global emissions tracking capabilities in its transportation management solution, empowering users to actively lower their greenhouse gas footprint when planning or moving goods. This capability will compel more organisations to act now, helping to make more effective business decisions to achieve their financial, service and environmental goals. Looking to the future, this is about more organisations utilising the innovation available to them, to create greener supply chains and helping to move the sustainable needle forward.