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Recalibrating the supply chain for sustainability

Amid an exhaustive pandemic, companies are finding opportunities to boost overall sustainability through their supply chains using a steady integration of digital technology, smarter logistics strategies, and new incentives for green investment.

What are the major changes affecting the supply chain today?

The road to corporate sustainability is paved with good intentions — and a well-wired, collaborative supply chain.

The United Nations' 2015 report “Supply Chain Sustainability” could not be more clear: “Eighty percent of global trade passes through the supply chains and by working together, buyers and suppliers in global supply chains can advance many things such as human rights, labour rights, climate resilience, environmental protection, economic growth, and ethical business practices.”

Five years later, sustainability goals are even more pronounced, as organizations navigate full speed ahead amid a pandemic, making changes to their supply chains to boost sustainability and social change.

“That agenda has really accelerated, probably more than we anticipated,” Jules Oscar Kollmann, global lead, containers logistics at ING, says. “It is partly happening because of COVID and also because of a social change.” ING is at the vanguard of financing with sustainability in mind, something other financial institutions are doing as well.

Driving digitalization

Serving the supply chain and all of its stakeholders means supporting it with innovation and new digital technology. Digital technology adds an imperative for companies to operate their supply chain sustainably. Transportation assets such as shipping containers, railcars, and pallet loads of cargo can be outfitted with sensors, tags, and other devices that allow them to be monitored remotely via the Internet of Things. These devices feed a steady stream of data to a remote location, where it’s extrapolated and used to measure and monitor supply-chain operations. What’s more, such a data stream also serves to drive decisions specifically related to sustainability.

In addition to remote monitoring, blockchain technology will also be accelerated by digitalization of the supply chain. Blockchain is a distributed ledger that accounts for the goods in transit. According to projections by the World Economic Forum, 10% of the global gross domestic product will be stored on blockchain technology by 2027.

Uniquely, blockchain accounting enables transparency for all to see. This aids sustainability by adding efficient transactions, promoting food safety, and encouraging ethical trading partners. A supply chain has many moving parts. It, of course, starts with raw materials. Then finished goods are moved from their point of origin (the factory floor) to packaging, pallet, truck, warehouse, distribution centre, and through the last mile, ultimately to its destination. Long before a product is produced, digital technology begins to produce benefits.

“Digitalization and the sustainable operation are closely linked. They create more efficiency logistically.” 

- Jules Oscar Kollmann, global lead, containers logistics at ING

Digitalization further provides a clearer view of where goods are at any point in time. With artificial intelligence, for example, trade routes may be optimized to reduce energy consumption; containers and ships may be loaded optimally to ensure a minimal fuel consumption per distance. Assets such as trailers, aircraft, railcars, and warehouses may be coordinated so capacity is shared and optimized. With technology, data, and computing, we may discern the ultimate cost of goods to the planet, according to Kollmann. “It’s not just the cost of the transportation to bring it from A to B. It's also how it is being produced,” Kollmann says, adding that digitalization can help to ultimately monitor how goods are being produced or create a sustainability index for them.

“Digitalization and the sustainable operation are closely linked. They create more efficiency logistically,” he says. “It provides more insight on where goods are coming from and how they are transported to the ultimate customer.” That falls in line with the four P’s that drive many companies’ corporate social responsibility efforts these days: planet, profitability, people, and purpose. Kollmann points to the Port of Rotterdam, which he says is basically a completely digital operation — without any people.

“They are completely digitalized and fully electrified,” he says. “I think that are the things that you will see more and more happening into the future.” By allowing better insight and an in-depth look into specific shipment data, logistics play a key role in allowing different modes of the supply chain to communicate with each other and better align their activity for more optimal use of assets. A cargo manifest, for example, will have a detailed listing of products that specifies packaging, perishables, hazardous materials, and other details. Such data may be aggregated and used for better decisions to urge more sustainable logistical practices. “It’s all been registered and can be indexed,” Kollmann says. “That’s where people and governments can use such data to develop better decisions and policies. This will give it a completely different face.”

A pandemic opportunity?

The concerns of a pandemic weigh on everyone. The dynamics of supply and demand were knocked off-kilter as some industries suffered, while others saw unprecedented demand, exhilarating their supply chains. Before COVID-19 even entered our vocabulary, companies had set aggressive sustainability goals. Were such goals cast aside as coronavirus concerns took over? Hardly. Instead, the pandemic has served as an accelerant. A joint report, "State of Supply Chain Sustainability 2020," commissioned by MIT and the Council of Supply Chain Management Professionals said COVID-19 catalysed supply-chain management, for the better.

The report predicts COVID-19 will reset trajectories for supply-chain sustainability over the next few years. Corporate fervour in sustainability had peaked just a year earlier. Companies already began to mention sustainability in mission statements and annual reports. Big names including P&G, Nestlé, Mars, Marriott, and Coca-Cola all set sustainability goals, many with quantitative, aggressive objectives centred on climate change and their carbon footprints. But COVID-19 forced unprecedented disruption and stress to their supply chains, resulting in a reset. The pandemic provided opportunity. Businesses, despite being exasperated by the pandemic, carefully moved forward to redesign elements of their supply chains.

According to MIT’s report, 2021 will be for redesigning the supply chain as the focus shifts to recovery, and a true re-evaluation of the supply chain — including sustainability — may have to wait until 2022. In fact, the MIT report showed that 84% of executives surveyed agreed that sustainability was poised to become a core responsibility for supply-chain professionals. Events such as wildfires, hurricanes, blights, and many unforeseen circumstances can shock the supply chain. But the pandemic has caused supply chains to be more prescient. Companies are looking for ways to make the end-to-end supply chain the most resilient. They use assets more strategically, deploy digital technology (AI and blockchain, for example), use contactless transactions, and reuse material and resources with ingenuity.

COVID-19 has essentially sent out a battle cry for more flexible production lines. The consultant Bain and Co. cites an example of the fashion industry coming to the rescue of French and Italian healthcare systems by shifting production from products such as LVMH perfume to hand sanitizer.

“Giorgio Armani, Gucci, and Prada repurposed their designer clothing factories in Italy to churn out medical overalls, and Burberry harnessed a trench-coat plant to make face masks and nonsurgical gowns,” its report says. “It was more than a feat of factory retooling.” Such resilience owes much success to flexible supply chains. These played a crucial role in numerous ways: rapid raw-material sourcing and accommodating aggressive as well as erratic schedules of new product design, development, testing, and distribution. “The whole COVID crisis serves as an accelerator causing us to rethink how to organize the whole supply chain,” Kollmann says. “You see much more vertical and horizontal integration of activities, which ultimately will lead to a different type of market, clearly driven by different dynamics. Many parties seek to incorporate lessons learned into their operations and the strategies and activities they have been focused on.”

Investments go green

Just as the UN pointed to supply chains as a key ingredient to achieve sustainability, many financial institutions are facilitating greener investments through their financing models. ING, for example, helps its clients not only create a sustainable index to monitor and track sustainable activity but also share knowledge and collaborate on targets where everyone prospers. “The whole economy is in an enormous transition toward a new composition,” Kollmann says. “Efficiency alone is not the only factor which makes you successful. Greener investments, loans, and debt will be incentivized more with sustainable targets and indexes, suitable to fit within the overall sustainability policy of the world.”

This content was created by Insider Studios (Business Insider) with ING.