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Companies need transparency across their supply chains if they want to live up to their sustainability commitments. It’s not only important for the environment but also for companies to succeed, as a Bain & Company study found sustainability drives profitability. And there can be reputational damage for companies if they are not consistent in their policies; for instance, Procter & Gamble recently upset environmentalists by removing forest degradation from its paper supply policy.
It takes serious commitment in the current macroeconomic environment, where companies are forced to strike a carefully considered balance between sustainability goals and other business imperatives. As businesses grapple with supply chain shortages and rising global costs, some organizations have put sustainability on the backburner. CEOs spoke about economic uncertainty three times as often as sustainability in their Q1 earnings calls, but many still don’t realize that by focusing on sustainability, they can benefit both their all-important bottom and top line as well as their green line, which has faced ample scrutiny in recent years.
For big companies working with numerous logistics partners, achieving sustainability goals is rewarding but extremely complicated. It’s why CFOs often view supply chain transparency with trepidation.
The good news is that companies and their executives today can achieve transparency for all the operational procedures that impact their sustainability commitments. Here are a few steps on how to get there.
1. Adopt a process-minded approach.
Without data sophistication, companies will struggle today on nearly any level of their business, including supply chain sustainability. To be on par or exceed the work of industry rivals, companies need to identify all carbon emissions for each individual product along the entire supply chain. If this sounds complicated, it is but can be simplified if companies have X-ray-like visibility into each part of the supply chain.
For companies that sell tactile products, it’s imperative they have a comprehensive understanding of their suppliers as well as both outgoing and incoming deliveries. To do this, companies can adopt process mining, which is defined by the consultancy Gartner as “a technique designed to discover, monitor, and improve real processes by extracting readily available knowledge from the event logs of information systems.”
Process optimization is already used to help improve performance for cost and revenue performance across the value chain that also lies at the heart of sustainability strategies. For instance, how you source products from responsible and reliable suppliers, how you make products with minimal waste, how you move products efficiently, and how you ship products on-time with minimal emissions. A process perspective helps balance the green line alongside the top and bottom line with the same unprecedented degree of granular visibility and capabilities to take action.
Processes get you from corporate accounting to product accounting, from top-down to bottom-up sustainability management, from goals to operational action. The process mindset is gaining traction across industries: a Forrester Consulting survey found that 61% of decision-makers will use or are evaluating process mining to improve operations.
It’s a data-driven approach, leaving no stone unturned and allowing companies to see their carbon footprint on a granular level and across supply chain areas. Further, it can turn the “sustainability blame game” into a green game-changer for companies.
2. Suss out transportation inefficiencies.
Data-based process optimization can help companies meet the required standards for ESG (environmental, social, governance) in a number of ways, including the shipping or transportation part of the process—which has an outsized impact on the environment.
The transport sector contributes to around a quarter of global greenhouse gas emissions. Freight transport, the transportation of goods and commodities, is the largest contributor. These transport emissions are part of Scope 3 emission which represents a massive chunk of a company’s total emissions and is also the most challenging to quantify and reduce. To achieve net zero and reach the 1.5C Paris climate goals, we need to tackle this problem strategically.
Transportation teams need to go beyond optimizing lead times and delivery costs. Yet those teams also get requests from their sustainability teams to help them get the data to calculate shipping emissions.
But they face challenges such as siloed data, which is hard to collect and integrate data between companies, suppliers and carriers. It is not a secret that currently most companies are still using Excel and manual calculations to quantify their emissions. And there’s no single source of truth: Unlike financial data that is widely available in a company ERP, carbon emissions data is not readily available across the business—let alone in logistics operations.
This all makes it difficult to create action: Although all companies know that they want to reduce emissions, it is hard to identify the root causes and implement reduction measures in their logistics.
So, it’s both a big problem and a huge opportunity for improvement. Process mining can help companies zero in on relatively granular elements of the supply chain, such as the shipping type and weight for the individual products while keeping a record of emissions. For example, non-necessary empty runs—which occur when a transport vehicle makes an unplanned trip without freight—and underutilized cargo spaces can be sussed out with process mining.
Companies are becoming increasingly aware of how process excellence can improve their supply chain visibility and, therefore, sustainability efforts. As just one example, Heineken is focused on decreasing carbon emissions in Europe throughout the product distribution process, partnering with logistics, cooling and packaging suppliers on net zero innovations, among other measures. The overarching goal: a 90% reduction in scope 1 and 2 emissions, as well as a 21% reduction in scope 3 emissions by the year 2030.
3. Identify high-ranking Scope 3 performers
Companies are increasingly tasked to evaluate and reduce their greenhouse gas emissions. For instance, California recently proposed a sweeping mandate to require businesses that operate in the state with annual revenues of $1 billion or more to report their direct and indirect emissions.
Value chain emissions, commonly known as Scope 3 emissions, frequently represent most of a brand’s overall greenhouse gas (GHG) emissions. So, identifying scope 3 emission hotspots is a huge step in pulling the cover off of a brand’s carbon footprint and making needed improvements. It also allows companies to amplify their environmental impact by addressing indirect emissions across the value chain. This includes emissions related to suppliers and purchased materials and requires highly ranked ESG performers among the supplier base of a brand.
Together, they can enhance stability and reduce disruptions caused by environmental challenges. This resilience ensures consistent product availability and customer satisfaction.
In closing, achieving transparency in the supply chain is pivotal for companies’ sustainability goals. A process-minded approach, addressing transportation inefficiencies, identifying scope 3 emission hotspots and collaborating with strong ESG performers pave the way for a green supply chain that aligns with both environmental values and business success.
The post Why Transparency Across Supply Chain Partners Is Essential appeared first on ChiefExecutive.net.
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