Supply chain sustainability is a higher priority than ever. In MIT’s State of Supply Chain Sustainability 2021, 80% of executives surveyed said the pandemic either had no impact on their commitment or increased it. PwC reports that almost half of assets under management are held by investment firms committed to decarbonization. Investor concern about material risks from climate change have created new reporting frameworks, such as those by the Sustainability Accounting Standards Board (SASB) and the Task Force on Climate-related Financial Disclosures (TCFD). From many different angles, supply chain sustainability matters, so how do we get there and what is the role of planning?
The greenest mile
Years ago, I thought we’d found the perfect rental house and didn’t blink that it was heated with oil, which was rare. It was a rude surprise when I learned it would cost $100 to fill the tank. On our budget then, this felt like a fortune and fueled my interest in energy policy. I was drawn to Hunter and Amory Lovins, who advocated a strategy pairing energy efficiency with renewables, long before its current popularity. After all, what’s the point of installing solar panels only to waste the greener energy produced?
Similarly, UPS has strong commitments to sustainability and invests in many options, such as alternative fuel vehicles, e-cycles in dense cities, and carbon offsets for purchase with shipping. But they’ve also invested in route optimization, which uses algorithms to save up to 10 million gallons of fuel annually by reducing miles driven in the US. UPS saves time and money at a level worth reporting on earnings calls, but they are also more sustainable. As my friend Jack Levis, who led this project until his recent retirement, likes to say, “the greenest mile is the mile not traveled.”
We must plan, source, make, and deliver differently for supply chain sustainability
Leading supply chains tackle sustainability in a variety of ways. For example, confectioner Mars is building deeper relationships with fewer palm oil suppliers to increase their ability to monitor and impact deforestation. Pharmaceutical manufacturer Amgen built a new biomanufacturing plant in Singapore that uses 70% less carbon than traditional facilities. Schneider Electric has committed to convert its 14,000 fleet vehicles to electric by 2030. These examples address the source, make, and deliver areas of supply chain. But what about the role of planning?
Net zero goals require us to transform our supply chains and do different things. But as we do different things to get to net zero – like Mars, Amgen, and Schneider Electric – we must do these different things differently. If we don’t plan better, efforts in procuring sustainable palm oil, making medicine with less carbon, or delivering to customers with electric vehicles can still be built on top of inefficient processes that waste the savings we made. As UPS puts more electric trucks on the road, they are simultaneously planning for those trucks to travel fewer miles. Similarly, increasing the efficiency of planning and reducing waste will lay a firm foundation for greener sourcing, manufacturing and delivery.
Buffering creates waste
Information trade-offs made to absorb unpredictable volatility force supply chains to buffer. While buffers provide optionality, they also serve only in bad times, not good, and can create waste. Siloed planning, information latency, disconnected processes, and lack of transparency all illustrate problems with poor information. When teams lack the information needed to collaborate, can’t get access to it in a timely manner, and are incentivized based on what’s good for their silo and not the entire supply chain the result is poor planning.
Technicolor, which makes high tech equipment for the connected home, found their sales team drove the business but created havoc by entering new requirements or cancelling them too late for operations to keep up, so inventories grew. Concurrent planning gets rid of silos, connects functions together, gives them a platform upon which to collaborate, and helps them see the impact of any decision upon the whole supply chain. Using this approach, Technicolor was able to forecast more accurately for Q1/22 and bring inventory down by $120 million.
Reducing inventory saves money but also reduces waste, because obsolete inventory becomes another problem. Proper disposal can cause downstream issues. Regulatory standards govern disposal in many industries, because of toxicity in the raw materials, controlled substances in drugs, counterfeiting, etc. This end-of-life disposal is time-consuming and expensive, so reducing waste that must be managed matters.
Moving from linear to circular planning to go beyond incrementalism
Better planning saves money, reduces waste, and is the foundation upon which we must start, but it is not enough. With the foundation built, we can collaborate more effectively end to end with both suppliers and customers to make better, more sustainable decisions. We must measure our progress against commitments like fewer expedites or inventory that must be destroyed so we can do better. And best yet is moving toward the circular economy. The greenest miles in planning are those not driven but also scarce raw materials we didn’t use, expedites we didn’t make, obsolete inventory we didn’t have to dispose, hours we didn’t waste.
To get to these greenest miles and achieve the changes necessary to combat climate change we must transform our supply chains to a circular model. Planning for circularity makes good business sense, because it mitigates risk from the scarcity of raw materials, volatile prices of those materials, and regulatory restrictions on disposal, among others. But it also turns the tables from managing risk to building stronger, longer relationships with customers, such as by building an item once but selling it many times, as circular economy expert Sandy Rodger explains.
The circular economy involves flows familiar to supply chain planners but done in new ways, which calls for new ways of working together. Some ways are internal, because too many companies have their sustainability efforts siloed from their supply chain. As we use fewer and/or renewable materials at the beginning of the process all the way to planning more effectively for returns at the end we will need cross-functional cooperation. But for circularity to scale we will also need new markets, which means commitments between customers and suppliers and potentially even coopetition. Accenture argues that the circular economy represents at least a $4.5 trillion economic opportunity, so there is money on the table for those willing to do differently.
The work needed to do different things and to do them differently is not for the faint-hearted. But climate change is not for the faint-hearted either. And those of us in supply chain planning, accustomed to putting out fires and getting yelled at, are the opposite of faint-hearted. The last year has shown the kind of courage, drive, and commitment we have within us. Supply chain leaders have signaled this kind of commitment to supply chain sustainability, and planning has a key role in making that happen, in driving us toward the greenest miles.
Polly Mitchell-Guthrie is the VP of Industry Outreach and Thought Leadership at Kinaxis, the leader in empowering people to make confident supply chain decisions. Previously she served in roles as director of Analytical Consulting Services at the University of North Carolina Health Care System, senior manager of the Advanced Analytics Customer Liaison Group in SAS’ Research and Development Division, and Director of the SAS Global Academic Program.
Mitchell-Guthrie has an MBA from the Kenan-Flagler Business School of the University of North Carolina at Chapel Hill, where she also received her BA in political science as a Morehead Scholar. She has been active in many roles within INFORMS (the Institute for Operations Research and Management Sciences), including serving as the chair and vice chair of the Analytics Certification Board and secretary of the Analytics Society.