Sustainable Transformation is Data Driven – Driving Profitable Supply Chains from Resources to Retailing
Introduction: The Importance of Sustainability in Asia/Pacific Supply Chains
Awareness about the impact of supply chains is growing of late, with recent disruptions highlighting the benefits of increased integration between supply chain partners, resulting in greater visibility and agility. Organisations seek visibility to support daily supply chain operations to increase speed, reliability, and responsiveness. This visibility also supports environmental, social, and corporate governance (ESG) initiatives while improving operational performance.
A survey conducted earlier this year by IDC Manufacturing Insights across Asia Pacific manufacturers found that organisations are currently focusing ESG efforts related to environmental sustainability on the following (1):
- Energy efficiency requirements of products and operations
- Incorporating circular economy principles throughout, from source to disposal
- Reduction in waste and driving cost efficiencies
- Incorporating responsible sourcing principles into the supply chain
These areas go beyond the four walls of the organisation, and have implications for the greater supply chain. This adds complexity and requires additional coordination. As a result, organisations are investing in foundational technologies to provide a system of record for traceability, product innovation platforms to enable ecosystem collaboration to support closed-loop design principles, and dashboards and analytics to optimise the use of resources.
Sustainable Transformation Requires Digitalisation
Manufacturers’ digital transformation (DX) efforts are typically focused on driving efficiencies, quality, and innovation. However, due to greater awareness of the need for mitigation of supply chain environmental impact, government regulatory requirements, consumer pressure, and employee engagement increased sustainability transformation efforts. In evaluating the actions required to support sustainable transformation, manufacturing organisations are realising that there is close alignment between productivity and quality improvements and the outcomes required by sustainability initiatives.
Optimisation and incremental improvements will only refine competitive position and support sustainability outcomes so far. Innovation is required to further organisational strength in the market, especially as supply chains become increasingly transparent and consumers become more discerning with regards to sustainable choices. Earlier this year, in IDC’s 2021 Supply Chain FutureScape (ApeJ implications), it was predicted:
Facing increased disruption, manufacturers will digitally transform and accelerate sustainable innovation to improve supply chain operations from concept to commerce, increasing revenue by 20% in 2025.
Sustainability initiatives require organisations to assure transparency and traceability, and the systems that support this lay the foundations for deeper insights and new opportunities. For example, with 35% of Asia/Pacific industrial organisations prioritising “as-a-service” (or servitisation) revenue models by 2024, there is a recognition that additional services can be offered that support efficiency and environmental outcomes. As-a-service business models can support sustainability initiatives, for example, by producing intelligent sensor-enabled equipment. Operational insights from continued services offer ensure uptime and increase efficient energy use, reducing energy costs.
Manufacturers are already adopting a connected platform approach to integrate suppliers and other ecosystem partners, utilise the capabilities such as generative design to accelerate the design and prototyping process, simulation to assists with materials decisions to ensure product recyclability, product lifecycle management (PLM) to virtually engage with ecosystem participants, and connected sensors to enable product lifecycle extension through monitoring and maintenance. In doing so, companies can achieve dual business and sustainability benefits that extend to the supply chain. For example, the ability to predict the failure of equipment, such as an air-conditioner, through embedded connected sensors allows for:
- The diagnosis of faults remotely
- Ordering, manufacturing and positioning of inventory in preparation for maintenance activities
- Scheduling of a single service call-out for repair activities, rather than one for diagnosis and one for the actual repair
- Feedback into design based on condition of usage for future product or component development to increase the lifecycle of the product
The opportunity for both business and sustainability outcomes exist. The reduction in trips saves time, costs and emissions, and the knowledge of parts malfunction enables inventory to be correctly positioned, reducing the need for double handling and excess production of spare parts inventory, reducing waste and emissions.
Organisations are increasingly required to report on environmental, social, and governance (ESG) efforts and increase transparency across the supply chain. Investment in these initiatives results in positive outcomes beyond traditional business outcomes, including risk mitigation, attracting and retaining talent, improvement of customer perception, and, based on IDC research, organisations that embrace sustainability and DX are outperforming their peers when it comes to revenue and profitability.
The need to report on ESG initiatives and increase transparency across the supply chain is increasing through government regulatory pressure, consumer preferences and employment attractiveness. Investment in digital and environmental sustainability transformation efforts results in gains beyond traditional business results, including risk mitigation, attracting and retaining talent, improved customer perception, and according to IDC research, improved revenue and profitability performance.
The focus for environmental sustainability efforts vary, addressing energy management and optimisation, regulatory compliance, carbon emissions, and supplier traceability. Efficiency is a common starting point for organisations, extending to integrate closed-loop product design that integrates supply chain ecosystem partners from raw material to the final product. PLM and supply chain management systems take these further through a digitalised, connected platform approach, including managing products to increase efficiency, reduce energy consumption, and increasing product longevity.
This is not something that is accomplished immediately. However, with sustainability-related IT investment over 10% for more than 50% of Asia/Pacific manufacturing organisations, companies are starting the journey. Those organisations that are first movers in digitalising their sustainability efforts and integrating supply chain ecosystem partners are already reaping benefits. With current sentiment and policies both regionally and globally, those that lag behind may find themselves forced to keep up to ensure they are able to remain competitive. It is now time to take advantage of the revenue, profitability and sustainability outcomes that integration and digitalisation can bring.
(1) IDC 2021 APeJ Manufacturing Insights Survey, n=947