"Supply chains compete, not companies"

"Supply chains compete, not companies"

Creating the "Resource-Lite" Supply Chain

Perhaps one of the biggest issues to rise to prominence in the opening years of the 21st Century has been ‘sustainability’.  The growing concern with the environment, in particular the possibility of climate change through global warming, has led to a focus on how human and economic activity has the potential to adversely impact the long term sustainability of the planet.

Because the supply chain underpins the efficient and effective running of the business it can provide a useful framework for exploring opportunities for enhancing sustainability.  If we take as the starting point the idea that the supply chain ‘begins on the drawing board’ i.e. that product design decisions impact subsequent supply chain costs and resource requirements, it becomes apparent that a total product life cycle approach to supply chain design is increasingly desirable.  In other words, we need to understand the impact on sustainability and resource depletion of everything we do from product design to end-of-life disposal.

Beyond the Carbon Footprint
Whilst there is an understandable concern that the supply chain’s carbon footprint should be minimised, it must also be recognised that supply chain decisions have a wider impact on resources generally.  Rather than limiting the focus attention to reducing greenhouse gas emissions, it is important to recognise the effect of economic activity on the use of scarce resources across the supply chain as a whole.  Decisions that are taken at every stage in a company’s value chain can have significant implications for resource requirements and for the wider environment.  Some examples of the resource implications of supply chain decisions are:

We previously suggested that the supply chain ‘begins on the drawing board’.  This is particularly true when considering the supply chain’s ‘resource footprint’.  For example a growing number of companies are actively seeking to reduce the amount of packaging material that is used; but there can be other, less obvious, ways to improve resource sustainability.  If those managers responsible for new product development are not aware of the resource implications of their design decisions, this may lead to the launch of products with a bigger than desirable resource footprint.  For example, many high-tech products rely for their functionality on scarce materials such as the so-called ‘rare-earth metals’ (such as dysprosium and neodymium) whose future availability may increasingly be limited.

‘Sustainable sourcing’ is emerging as a fundamental element of best practice procurement.  One reason for this is that it is estimated that for a manufacturer somewhere between 40% and 60% of their total carbon footprint lies upstream of their operations, for retailers it can be as high as 80%.  Depending on where and how those upstream materials and products are sourced and made, there can be major differences in resource consumption.  For example, SABMiller, one of the world’s biggest beer producers, compared its ‘water footprint’ in two different countries – South Africa and the Czech Republic.  It found that the water used in crop production accounted for the vast majority of the total water footprint, but the South African footprint was greater than the Czech footprint because of a greater reliance on irrigation required to grow the crops used in South Africa.  It actually required 155 litres of water to produce a litre of beer in South Africa against 45 litres of water required to produce a litre of beer in the Czech Republic.

Manufacturing processes impact the resource footprint primarily through their use of energy, their relative efficiency and the creation and disposal of waste and toxic materials/effluents.  In this age of out-sourcing and offshore manufacturing it may not always be apparent to the customer what impact manufacturing decisions can have on supply chain sustainability.  However, it is evident that there are big differences in the energy efficiency of different factories and also in the waste they generate and how they dispose of it.  Even the source of energy has sustainability implications.  For example a study conducted by the UK Carbon Trust looked the different footprints created by a UK national daily newspaper when it used newsprint produced in Sweden compared to newsprint made in the UK.  Because newsprint production is a highly energy-intensive manufacturing process and since most electricity generated in Sweden is from renewable hydro sources – unlike in the UK where most electricity is generated from coal or gas – the most sustainable manufacturing source was Sweden, not the UK!

Clearly decisions on the mode of transport will affect the carbon footprint of a supply chain as will the extent to which transport capacity is efficiently used.  However, the nature of the delivery network (i.e. the number, location and design of distribution centres, the use of hub and spoke arrangements, the extent of cross-docking etc.) can have a wider impact on supply chain sustainability. Many companies have used network optimisation models to help determine the shape of their distribution arrangements.  However, these models tend to optimise on a narrow definition of cost rather than taking into account the wider resource footprint that is created by the network.  A new generation of network optimisation tools is now emerging which take account of the carbon footprint as well as the more conventional costs.

‘Reverse Logistics’ is the term usually used to describe the process of bringing products back, normally at the end-of-life, but also for recall and repair.  In the past, little attention was paid to the challenge of reverse logistics, often resulting in extremely high costs being incurred.  Now, partly driven by increasingly stringent regulations – particularly on product disposal and re-use/re-cycling requirements – the issue has moved much higher up the agenda.

Essentially the challenge today is to create ‘closed-loop’ supply chains that will enable a much higher level of re-use and re-cycling.  Clearly products must be designed with their end-of-life in mind, bur also the logistics network employed must minimise the use of resources.  Reverse logistics provides a major opportunity for companies to impact both their costs and their carbon footprint and should be viewed as an opportunity rather than a threat.