This year Earth Overshoot Day will be (or was) July 28th. Every day after, we’re stealing from future generations. 156 days. That’s how many days, this year, we are going to be stealing from future generations, unless we have the courage to do something about it. 
 
This year’s (2022) overshoot day will fall a day earlier than last year. This is the day by which humanity has used up all of the biological resources that the Earth generates during the whole year. So every day after – 156 in 2022 – we are in planetary deficit, using up resources that won’t be regenerated.  Put in a different way, in 2022 we’re on track to use 75% more resources than the world’s eco-systems can regenerate, equivalent to “1.75 Earths”. This deficit spending is the biggest it’s been since the world entered into ecological overshoot in the early 1970s.

What can and should be done? A fundamental mindset shift is needed to build Supply Chains and businesses that are fit for the future. It does also require a different mindset in terms of leadership to get us there. In this blogpost, we will have a look at how you develop your approach to Supply Chain Sustainable Leadership.

Let’s start by having a look at what we know about the Nordic companies.

What we know about Nordic Supply Chains

Around 80% of all Nordic firms have sustainability goals that they work towards.

Danish firms are best in the Nordics on setting a target on eliminating GHG emissions from their businesses (64%), followed by Sweden (57%), Finland (47%) and Norway (42%).

Although Norway lags behind when it comes to setting a target for reducing GHG emissions, the Norwegian firms that have a target also have the most ambitious time frame. 83% aim to reach their target within the coming ten years. The corresponding number in Denmark and Sweden is 81%. Finland lags behind on 64%.

It is most common that Nordic companies measures and report Scope 1, 2, and 3 emissions. Nordic companies include GHG emissions from transport and distribution, purchase of goods and services, waste management, and fuel and energy when measuring and reporting Scope 3. Companies that do not measure and report Scope 3 state that it is too costly and time-consuming, that they lack knowledge of how to do it, that their value chains are too complex with many suppliers, and that their customers do not demand it.

The key question is: How do Nordic companies make sustainable progress?

Ambitions are key

We have come a long way since 1970 when Milton Friedman became known for saying “The business of business is business”. We have by now acknowledged that companies play a vital role in social, political, environmental, and economic aspects of society and in the development of planet earth.

The hard truth is that the CSR and net-zero initiatives simply don’t go far enough. We now know that climate change is exponential: the worse it gets, the faster it goes. And when these approaches have the unintended consequence of lowering ambitions, masking incrementalism and letting companies off the hook for the speed and scale of change truly needed, they are actually part of the problem. 

It’s time we stop satisfying ourselves with insufficient and frankly timid ambitions that don’t meet the challenges at hand. If we are to once again live within our planetary boundaries we must divert the best of human ingenuity and collaboration towards transforming the systems by which we produce, use and consume.

Top leadership commitment is key

A company can plan for sustainable development and can continue to do with and without the consent of everyone working for the company. For sustainability really to have an impact it must be fully integrated into the company. This means that it must be a core part of the company’s DNA. The employees must, at the end of the day also need to understand and want to work with the integration of sustainability, otherwise, nothing happens.

A survey completed in 2010 made by the Network for Business Sustainability showed, that the top leadership engagement is the key factor for integrating sustainability. The employees are much more reluctant to show sustainable performance or act sustainably if the top leadership is driving the change. The survey showed that it outweighed personal values or individual environmental interests.

Purpose plays a vital role

Over the past 50 years, the predominant purpose of running a business has been to generate financial returns for the benefit of shareholders. When customers, resources, and the society that companies depend on suffer from inequality and environmental impact, the only right thing to do is to create a purpose-driven business.

Purpose-driven companies create value, not only for the shareholders but also for the stakeholder groups, including customers, suppliers, local communities, and employees who are engaged in the company. Does this mean that companies do not have to make money? No. The company can only thrive in a strong society, but that also applies the other way around.

Supply Chain plays a significant role in executing the strategy both in terms of employee involvement and commitment, cooperation with the ecosystem, and processing of the product portfolio. Supply Chain has historically been measured by its ability to keep costs as low as possible while providing profitable customer service.

 

Quite impractical, being purpose-driven means that additional stakeholders must be taken into account in the decision-making processes. This also means that the Supply Chain must not only think about delivering the product but they must to a large extent also think about how the product is delivered throughout the value chain. 

Employees demand purpose. Questions like: Why is the company working with sustainability? Supply Chain sustainability? How is it or will it be integrated into the business as well as what it exactly means for the company to achieve sustainable business results? Which activities will the company initiate and how will the company honor progress?

Key questions guiding your sustainable leadership approach

  • What are the company’s visions for employee engagement in the sustainable agenda? What are the key targets internally as well as the key story externally?
  • Where is the company’s vision for sustainability born and who owns it in the company – and perhaps also in the Supply Chain organization?
  • How can the employees take on responsibility for driving the sustainability agenda? What would the company like to achieve by their engagement?
  • How do you ensure that all relevant employees get engaged in the agenda?
  • Which governance processes and structures would need to be put in place to motivate and structure employee engagement in the sustainability agenda?
  • Who is responsible for securing progress?
  • Which tools could possibly support us in supporting employee engagement?
  • How do you ensure that the effort the employees contribute with is turned into something more tangible?

With inspiration from: Forretning for fremtiden, Succes med verdensmålene, Kristoffer Nilaus Tarp and Erik Thomas Johnsen, page 204

Around two thirds of all Nordic companies are working actively (albeit to varying degrees) with sustainability, Supply Chain sustainability, world goals, climate, etc. (1). Thus, many companies are still yet to adopt the sustainability agenda fully. There can be many reasons for this. It has not yet dawned on everyone that sustainability is here to stay. 

What barriers are there in companies? Some companies are afraid of being accused of and caught out greenwashing. Some people mistakenly think they have to work with the entire sustainability agenda – e.g., all 17 UN sustainability goals at once. But they should not. They only need to work with the sustainability goals relevant to their business. Some also think it is very expensive. But sustainability is an essential investment in the future of the company. In attracting and retaining employees in a time of significant labor shortages, meeting current and future legal requirements, etc. It is timely care.

Understand the planetary boundaries 

We must learn to understand the planetary boundaries of our Supply Chains. The planetary boundaries provide us with a quantitative framework within which humanity can continue to evolve and thrive in future generations.

It may sound a bit flippant to use the term ”planetary boundaries,” but it is an expression of the three environmental crises unfolding; temperature rises, pollution, and loss of biodiversity. Awareness and understanding of the planetary framework are central to ensuring the right decisions.

Understanding the effect of a company’s Supply Chain on the planetary framework requires data-driven work and analysis. One must understand the entire value chain’s CO2 emissions, water consumption, and waste volumes. In other words, one must understand sustainability in a broader sense.

Cascading sustainability down through the Supply Chain

In 2022 Optilon will publish a report based on a study about how the surveyed companies work to cascade green, sustainable initiatives down through their Supply Chains at a Nordic level.

A study on a more global level, ’Engaging the chain: Driving speed and scale, CDP Global Supply Chain report 2021’, shows that companies often restrict their work with sustainability to their part of the Supply Chain. Given that emissions outside one’s own Supply Chain are measured to be more than 11 times as large as one’s own emissions, it’s imperative to focus on the entire value chain.

It is very difficult to reach all the way out. The figures show that 71% of the companies in the survey work with scope 1 emissions, 55% work with scope 2, and 20% work with scope 3. In other words – the companies have so far only worked with a small part of the total emissions. (2)

The goals must be science based

One of the major drivers is that financial institutions and investors are increasingly focused on how companies manage their environmental risks and opportunities. In other words, how they respect the planetary framework.

It is no longer enough to set ambitions and goals that are not science based. Increasingly companies are joining the Science Based Target Initiative (SBTI). The fact that so many companies embrace the SBTI puts increasing pressure on the companies that have chosen not to go in this direction. Basically, the initiative is about setting Science Based Targets (SBT) that are in line with a 1.5° future (keeping total global warming below 1.5° temperature rise. Of the companies surveyed, 2.5% have Science Based Targets in place (2).

The challenge is that it can often take many years to set the right goals and take the right actions. Therefore, there is also a need for more people to commit to SBT and start work now – and not tomorrow.

Need for speed and scaling of supplier collaboration

Out of 11,457 companies surveyed, 28% say that they have launched ”low carbon” initiatives (2). To accelerate the companies’ focus on sustainability in Supply Chains, there is still a need to develop new procurement processes, train purchasers, and create greater collaboration with suppliers and stakeholders (the supply ecosystem). When it comes to utilizing technology, it is about finding solutions for setting better goals and being able to follow up on them. One possibility is to use simulation tools (e.g., digital twin solutions) to identify effective options for reducing emissions in a complex environment at a detailed level.

More and more companies are looking at their suppliers’ data as part of their environmental performance. It turns out that 28% of suppliers have launched plans for the green transformation, so there is enormous potential. 38% have launched initiatives with their suppliers. 62% have thus far not started work with their suppliers, which is exacerbated by the lack of suitable measurement results (2).

90% of the companies surveyed are prepared to work to a much greater extent with their suppliers, and 35% are ready to incorporate performance targets in their procurement processes or supplier Code of Conduct (2).

Life cycle analyzes are important

66% of the companies surveyed answered that life cycle analysis is one of the most essential tools for promoting the green agenda. Today, only 2% of respondents can report their emissions at the product level. Raising this level requires standards, the development of new methods, data exchange with suppliers and partners, and technologies that can help support companies (2).

In summary, it can be concluded that many companies have not yet initiated the change in their Supply Chain that is needed to lift us out of the three environmental crises. As Steen M. Andersen (1) points out in Børsen, there is a growing awareness in Denmark of the UN’s world goals, and there is communication about the companies’ focus on the various world goals, but this is not yet translated into, Science Based Targets. There is still a need to think about the entire supply ecosystem, develop new procurement processes, train purchasers and create greater collaboration with suppliers and stakeholders.

Sources:

(1) Børsen Bæredygtig, Bæredygtighed og erhvervslivet – hvad holder nogle tilbage, Af Steen M. Andersen, Direktør, FCG Global Goals, Tuesday, March 1, 2022 https://borsen.dk/nyheder/baeredygtig/baeredygtig-debat/baeredygtighed-og-erhvervslivet-hvad-holder-nogle-tilbage
(2) Engaging the chain: Driving speed and scale, CDP Global Supply Chain report 2021, (February 2022) https://cdn.cdp.net/cdp-production/cms/reports/documents/000/004/811/original/CDP_Supply_Chain_Report_Changing_the_Chain.pdf?1575882630

Facts:

Scope 1: Direct emissions due to vehicles, fuel consumption, and / or chemical leakage

Scope 2: Indirect emissions due to purchased electricity, cooling, heating, and / or steam

Scope 3: Other indirect emissions that occur in a company’s value chain and are not already included in scope 2 (such as emissions from purchased goods and services, transport, or business travel)

Circular transformation in Supply Chain is about developing Supply Loops. A transformation is needed because the current response to the global climate crisis represents an incomplete picture. The circular economy represents a nature-positive solutions framework, and it brings the answers to interconnected biodiversity and climate emergencies. Leading companies are starting to harness the opportunities it offers. And for some, scaling up circular innovations is now a priority. In this blog post, we will look at how the Supply Chain can harness the opportunities by transforming the Supply Chains into Supply Loops.

Why is there a need for Supply Loops?

Today’s efforts to combat climate change have focused mainly on the critical role of renewable energy and energy-efficiency measures. However, meeting climate targets will also require tackling the remaining 45% of emissions associated with making products. By 2050, the global demand for industrial materials such as steel, cement, aluminum, and plastics is projected to increase by two to four, while global food demand is projected to increase by 42%. This increase in demand will have significant implications for GHG emissions. Even with ambitious strategies to increase energy efficiency and move to zero-carbon energy sources, emissions from the production of steel, cement, aluminum, and plastics will exceed the remaining carbon budget for industry and energy emissions. Addressing emissions in industry and the food system presents a particularly complex challenge.

Our ”take-make-waste” linear economy is heavily extractive, resource-intensive, and produces greenhouse gases (GHGs), causing the climate crisis. Companies extract materials from the earth, apply energy and labor to manufacture a product, and sell it to an end-user, who then discard it when it no longer serves its purpose. This linear approach, which relies on fossil fuels, emits GHGs causing a global climate crisis.

To meet climate targets. A fundamental shift will be needed in how the economy functions and creates value. It will require moving away from today’s take-make-waste linear model towards a regenerative economy by design.

In such an economy, natural systems are regenerated, energy is from renewable sources, materials are safe and increasingly from renewable sources, and waste is avoided through the superior design of materials, products, and business models.

The Circular Economy is the answer

The circular economy completes the picture of what is required to tackle the climate crisis. It offers an approach powered by renewable energy and transforms the way products are designed and used. The framework cuts GHG emissions across the economy through strategies that reduce emissions across value chains, retain embodied energy in products, and sequester carbon in the soil. Circular economy principles present unique opportunities to help tackle the climate crisis by reducing GHG emissions.

Applying circular economy principles to transform the way goods and materials are produced and used in the economy would offer significant potential to reduce GHG emissions. Of course, the shift toward circular consumer behaviors is a critical driver of a successful transition to circularity. Circular consumer behaviors increase the number of goods that flow back into the cycle and signal demand to brands for circular products. There is a growing trend of consumers demanding sustainable products, with more than 50% of consumers are willing to pay more for sustainable development.

Circular Economy and Supply Loops

As circularity ultimately revolves around the movement and flow of goods, Supply Chains must be redesigned, and new Supply models must be developed. In other words, Circular Transformation requires the development of Circular Loops. In that aspect, two main challenges arise:

1) How can the company capture end-of-life products and unused items to re-introduce them into the cycle.

2) How to design products flows and cycles in the most suitable, efficient, and environmentally friendly way

To successfully engage both manufacturers and consumers while protecting the planet, Supply Chain must be designed cost-effectively and environmentally conscious.  

Supply Loops, in essence

What are we referring to when we say Circular flows and Supply Loops, and how will they influence the Supply Chain?

It is about designing for disassembly and material efficiency

Products and materials should be designed to be kept in use and regenerated into natural systems. To allow for the increased utilization and circulation of products, components, and materials, circular economy principles should be integrated at the design stage of goods to enable high-value recovery and develop new circular economy business models. This approach requires products to be designed for disassembly, modularity, repairability or biodegradability, reuse, remanufacturing refurbishment, or regeneration.

Design can play an essential role in eliminating waste. By designing for material efficiency, material input can be reduced. While planning for an optimized Supply chain can reduce waste generation. Both offer practical ways of lowering the amount of energy and materials used.

Apart from products, waste can also be designed out of systems. When it comes to Supply Chains, waste generation can be minimized by reducing the amount of material lost during production. For example, half of the aluminum produced each year does not reach the final product but becomes scrap. Using measures such as process automatization and emerging technologies such as 3D printing can reduce GHG emissions.

It is about substituting materials

Material substitution refers to renewable, low carbon, or secondary materials as alternative inputs to new production. These provide the same function but contribute to reducing emissions. The use of renewable materials can be particularly interesting for replacing inputs that are hard to make emissions-free.

It is about recirculating products and materials

The circular economy favors activities that preserve the value of energy, labor, and materials. This means employing reuse, remanufacturing, and recycling to keep products, components, and materials circulating in the economy. Circular systems effectively use renewable materials by encouraging many different economic services before returning safely to natural systems.

Reuse measures conserve the embodied energy and valuable resources used to manufacture products and components. The more a product is utilized, the larger the return on the resources embodied in the development, such as materials, labor, energy, and capital. By keeping products in use, GHG emissions associated with new production and end-of-life treatment are reduced while providing the same benefits.

Recirculation refers to the recycling of materials. GHG emissions are reduced from avoiding new virgin material production and end-of-life treatment, such as incineration and landfill. While measures that increase product utilization contribute the most to retaining the energy embodied in products, recycling still requires much less energy than the production of virgin materials.

If you would like to learn more about the Circular Economy and its impact on business, you can find on-demand webinars here.

How can technology support the Circular transformation?

Many companies realize how integral their network configuration is when embarking on the Circular journey. Also, they know that the increased complexity of a Circular Supply Chain requires visibility and orchestration. For many, the keywords are Supply Chain redesign, Supply Chain transparency, and transportation decarbonization.

Innovating the Supply Chain and creating Supply Loops could be a crucial initiative in order to transform into a more Circular business model. It would mean building reverse logistics solutions cost-effectively, creating new packaging, repair, refurbishment, asset collection, and sorting offerings: building capabilities and capacities for the increased quantity of Circular flows. Low emission solutions should be considered for the diverse set of future flows. 

Supply Chain Design, as a technology, could be a solution to the challenges mentioned. In Supply Chain design, you model your Supply Chain network in a digital twin and continuously optimize it as new questions or opportunities arise. Suppose the Circular transformation requires you to diversify the external supply base or look at localizing or regionalizing your manufacturing network. In that case, Supply Chain design can support you with scenario analysis and calculate the cost, risk, environmental impact, and consequences from a service point of view.

Supply Chain design can also support you if you want to create new Supply Loops, capturing the end-of-life product flows and unused items flow and re-introducing them into the cycle. Accessing end-of-life products will require convenient return flows and collection that incentivize consumers to participate. We must not forget that the volume of return flows will increase because of circularity, which means that return flows need to be well integrated into the existing Supply Chain. Furthermore, when designing specific flows, a decision on the optimal point, such as sorting, needs to be made from a process and a geographical perspective.

Optimal production planning and inventory management require adaptations to be ready for a circular world. Purchase scheduling of material inputs needs to be adjusted to the availability of recycled materials. Moreover, production processes naturally create waste such as leftover materials and wastewater. This, of course, needs to be minimized. Even when production processes are optimized for circularity, the often-remaining overproduction is one of the most significant issues. So what we will possibly see in the future is on-demand or demand-driven manufacturing processes. That would mean only producing when a customer has purchased it.

Sources: Delivering on circularity, Pathways for fashion and consumer electronics

The Optilon Supply Chain Sustainability Minifestival took place from February 21st to February 25th 2022. Watch or rewatch all the exciting sessions whenever you like.

Delivering on Circularity

Monday we had a great start with a very dynamic and knowledgeable speaker, Gitte Haar, from Center for Circular Economy who introduced us to the Circular Economy and the legislation which the EU is imposing as well. We looked at what impact it could possibly have on businesses.

After that, we had a very dynamic panel debate between Marcel Jacobs, Philip Morris, Gitte Haar, and Havard Jørgensen from Electrolux. You can watch the recording here. 

Supply Chain Design and Sustainability – Accelerating the Net Zero emissions journey

We had the pleasure of having Anders Remnebäck and Andreas Andersson on stage from Optilon. They are both very experienced when it comes to adding the Sustainability angle to Network Optimization/Supply Chain Design. They have in this webinar focus on how you can accelerate the journey to NetZero emissions. You can watch the recording here.

Supply Chain Sustainability Software Pitch-Contest

During this session we had invited 6 different start-ups from across Europe to do a pitch. All of them showcased how their company specifically is trying tol solve the Sustainability challenges with their software. The company Prewave won. You can watch the recording here.

Supply Chain Planning and Optimization from a Sustainability Perspective

During this session Optilon’s experts within Supply Chain Planning, John Wikstrom and Nathalie Johansson, introduced us to how you can use Supply Chain planning to reduce your carbon emissions. As Optilon has discovered in previous reports, 1/5 of what is in stock is unnecessary. You can watch the recording here.

The Regenerative Supply Chain

The terminology Regenerative Supply Chain is not yet widely recognized in the Supply Chain field. In this session we looked a little bit deeper into the terminology in order to try and understand what impact it could possibly have. Assistant professor at Århus University Henning De Haas gave an introduction to his understanding of the Regenerative Supply Chain. He put emphasis on the fact, that mental models play a vital role. After that, August Krogh From Slowforest Coffee introduced us the company he works for. They have already laid out the plans for their Regenerative Supply Chain. You can watch the recording here.

Companies must help prevent the worst impacts of climate change by reducing their green house gas emissions (GHG). It has to happen as quickly as possible and as far down the Supply Chain as possible. In this blogpost we will look further into what Supply Chain sustainability is all about and get a deeper understanding of what green house gas emissions is in a Supply Chain context. We will look into how accelerating the Net Zero journey with Supply Chain technology can help you create competitive advantages as well as help save the planet.

Green House Gas emissions (GHG) in Supply Chain
Supply Chain sustainability is the management of environmental, social, and economic impacts and the encouragement of good governance practices, throughout the lifecycles of goods and services. The objective of Supply Chain sustainability is to create, protect and grow long-term environmental, social, and economic value for all stakeholders involved.

The Supply Chains are responsible for the majority of global emissions and must do its part to meet the goals that were set at the 21st Conference of Parties. The aim is basically, to limit temperature increase to 1.5 degrees Celsius. Net zero refers to the balance between the amount of greenhouse gas produced and the amount removed from the atmosphere. We reach net zero when the amount we add is no more than the amount taken away.

According to the GHG Protocol, corporate emissions are categorized into three main groups: scope 1, scope 2 and scope 3. Scope 1 emissions are direct emissions produced by the burning of fuels of the emitter. Scope 2 emissions are indirect emissions generated by the electricity consumed and purchased by the emitter. Scope 3 emissions are indirect emissions produced by the emitter activity, but owned and controlled by a different emitter from the one who reports on the emissions.

Growing urgency to reduce GHG
There is a growing urgency to reduce GHG emissions wherever possible and this includes reducing scope 3 emissions in addition to scope 1 and 2 emissions. To date most companies have been focusing on reducing their emissions under their direct ownership or control (scope 1). As well as their purchase of electricity, heat and steam (scope 2). Indirect emissions upstream and downstream in a company’s value stream (scope 3) are often left unabated.

Scope 3 emissions are the largest source of a company’s emissions in many sectors and is the hardest to influence and control. Approximately 40% of global GHG emissions are driven, or influenced, by companies through their purchases of goods and services and through the products they sell.

Focusing on scope 3 emissions can reduce the impact on climate change and can lead to substantial business benefits. Companies can mitigate risks within their Supply Chains, unlock new innovations and collaborations, and respond to mounting pressure from investors, customers, and civil society. Also, by disclosing Supply Chain emissions, the company will earn trust from its stakeholders and potentially gain new customers that support the transformation. A Sustainable Supply Chain can be a competitive advantage.

How can Supply Chain technology help accelerate the journey to net zero?
To reduce or improve the scope 3 intensity an organization can initiate projects, programs, business decisions or other actions and set targets, that are in line with the percentage reduction of absolute GHG emissions required. 

  • Supply Chain reconfiguration Reconfiguring the Supply Chain can be a time-consuming and challenging exercise. Most often the amount of data is extensive. Also, the speed in developing a decision-making model can be limited to yearly or quarterly exercises because time limits it. Technology can help you solve the toughest problems across your industry with innovative algorithms in a speedy fashion.
  • New business model Meeting sustainability targets does for some companies mean developing new business models. Having a decision-making model can help you reduce development time.

  • Greening end-to-end planning Optimizing the company’s approach to end-to-end Supply Chain planning from a CO2, as well as a cost and performance perspective, is also a well-known approach. In practical terms it means, focusing on the stock-to service curve. This means having only the stock that is needed to serve the clients. Fewer but right goods ensure lower obsolescence. It also translates to fewer freight ton kilometers, as less goods need to be transported. Efficient inventory management creates a more sustainable approach to producing, transporting, and selling goods across the globe.

 

(Source: Supply Chain Sustainability – A Practical Guide for Continuous Improvement, Un Global Compact and BSR)

It can be challenging to understand what environmental Supply Chain sustainability is all about.

Sustainable Supply Chain management starts with being aware of your company’s environmental, social, and economic impact and, most importantly, making the necessary changes to lessen it. The process can involve everything from a warehouse’s source of power to transporting goods and beyond—recirculating components or ensuring that the biodiversity stays intact. The specter is, so to say, broad.

We define Supply Chain Sustainability as:  

”Efforts to consider the environmental and human impact of their products’ journey through the Supply Chain. From raw materials sourcing to production, storage, delivery and every transportation link in between”.

Environmental Sustainability
Environmental Sustainability aims to improve human welfare by protecting natural capital (land, air, water, minerals, etc.). Initiatives and programs are defined as environmentally sustainable when they ensure that the population’s needs are met without the risk of compromising the needs of future generations. Environmental Sustainability emphasizes how a business can achieve positive economic outcomes without doing any harm, in the short- or long term, to the environment. An environmentally sustainable business seeks to integrate all three sustainability pillars, and to reach this aim, each one needs to be treated equally.

Climate change refers more specifically to anthropogenic climate change, meaning the rapid rate at which the temperature of our planet and its atmosphere has increased over the past century due to human activity and can result in large-scale shifts in weather patterns. Some gases in our atmosphere make it work like a greenhouse, and we call them greenhouse gases (GHG). The higher their concentration, the more they trap heat. The greenhouse includes carbon dioxide, methane, ozone, nitrous oxide, etc.

Decarbonization in the Supply Chain
Since the industrial revolution, we have been burning fossil fuels such as oil, coal, and natural gas; therefore, our human activities have contributed to a 45% increase in the atmospheric concentration of carbon dioxide. There is a correlation between CO2 concentration and temperatures – when the CO2 emissions increase, so does the global average temperature on earth.

For many, environmental Supply Chain sustainability is primarily about the use of natural resources and the climate impact of the company’s actions. As a rule, it is not enough to look only at one’s value creation. After all, a typical consumer-goods company’s Supply Chain generates far greater environmental costs than in-house operations: for instance, it is responsible for more than 80 percent of greenhouse-gas emissions and more than 90 percent of the impact on air-land, water, biodiversity, and geological resources.

The term decarbonization of the Supply Chain means the reduction of carbon. It is the conversion to an economic system, a new way of operating, which sustainably reduces and compensates carbon dioxide emissions (CO₂).

Green House Gas emissions are divided into three scopes:

1. Scope 1: Direct emissions resulting from vehicles, fuel use, and/or chemical leakage

2. Scope 2: Indirect emissions resulting from bought electricity, cooling, heat, and/or steam

3. Scope 3: Other indirect emissions that occur in the value chain of a company and are not already included within scope 2 (such as emissions resulting from purchased goods and services, transport, or business travel)

According to Normative, 90% of a company’s emissions are in scope 3.

The role of the Supply Chain going forward
Companies face a huge environmental challenge if they intend to meet the current EU climate targets; they will have to more than halve their greenhouse-gas emissions by 2030.

Given that prosperity and consumption will continue to grow in the coming years, a fundamental change in thinking is required; new business models—especially those relating to the circular economy—will have to gain an increasingly firm footing.

It is essential to understand where emissions come from to figure out how a company can most effectively reduce emissions and which ones can and can’t be eliminated with the current approach and activities. Today we know that emissions come from many sectors, and we need many different solutions to decarbonize the economy. 

Supply Chain decarbonization is a multi-faceted challenge which means working closely with the suppliers. There is an urgent need to change how companies work with their suppliers to lower the carbon impact and improve the operational implications.

The task is hence to:

  • Create an environmental data baseline (including GHG scope 1, 2, 3)
  • Engage the suppliers in the action’s
  • Perhaps redesign the Supply Chain network, which could potentially also mean the flow of goods

The question from many Supply Chain leaders: How can you reduce waste with Supply Chain planning in order to progress on the company’s Sustainable Supply Chain matureness? This blog post reveals ways you can harness demand and inventory planning to take out waste. At the same time you can take out unnecessary expenses and maintain or improve service to customers. 

Start with a better demand forecast for optimal inventory levels
If you plan well from the start, you can avoid all sorts of costly, time-consuming activities down the road–or down the chain, so to speak.The place to start for a more efficient inventory stocking strategy is better understanding your demand so you can precisely predict how much goods you need, where and when. Your demand planning should understand and automatically adapt to the full spectrum of demand behavior in a SKU portfolio by factoring in order volume and frequency. This method is known as probability forecasting.

Combine this probability forecast with demand modeling for a fuller, more precise view of the various factors that influence demand, such as promotions, seasonality and product lifecycle behavior. This approach allows you to consistently place better inventory bets than your competitors for those harder-to-forecast items. And when you reduce overstocking and stockouts, you free up working capital and improve service levels at the same time. This tried and tested approach can provide a sustainable competitive advantage–and it can restore trust in your forecasting.

Having the right inventory in the right location brings with it a host of other waste-reduction benefits
When you better anticipate customer demand, you reduce the need to expedite with air freight along with expensive costs from warehouse to warehouse. Rush orders and transfers erode profit margins, and often companies fail to see that poor demand forecasting and inventory stocking are the origin of the problem. Solve the root cause to eliminate costly reactionary activities. Eliminating wasteful expediting and warehouse transfers means fewer carbon emissions from inefficient and unnecessary truck and rail transport. Read more about improving transportation efficiency in section #2.

It’s estimated that up to 22% of inventory is unnecessary. When you remove it with a smarter stock mix, you minimize the amount of space required for inventory and reduce overhead costs such as power, heat and real estate–and still meet or exceed service commitments.

You can download Optilon’s latest trendreport which explores more around the ”Unnecessities” which you can remove from your Supply Chain. 

Improve efficiency and timing of orders
Often companies focus singularly on inventory turns, and as a result may have inefficient order cycles. For example, it may be that placing orders every week may not be as efficient as every two weeks, even if inventory isn’t turning as frequently. This results in too many costly LTL shipments and requires extra labor to receive, cut purchase orders, store and pick the items. A better solution is to identify the optimum order cycle which is aligned with potential customer demand and tied to a service objective. This helps you maximize both space and profit. Ask yourself, how can you best satisfy customers with your available space?

Rethink your one-size-fits-all service strategy
Today consumers want more flexibility to reduce packaging and emissions or to choose alternate delivery options. As a result, fulfillment is changing, including direct to consumer, dark stores and city hubs. In-store fulfillment isn’t just grocery anymore. The key is having the analytical capability to position inventory across the network to fulfill changing demand. You need a richer, more credible demand signal to make it happen. It all comes back to understanding your customer demand, and delighting them by providing the items they want with the right level of service.

Improve transportation efficiency
There are plenty of ways you can improve transportation efficiency through better inventory optimization. 
A vehicle or container running empty or partially full is wasting space and fuel and generating excess carbon emissions. Larger companies with their own fleet can minimize empty return trips (deadheads) with backhauls. Instead of returning empty after drop-offs, your planning solution can help you group vendors for return pick-ups to make the most of available freight capacity, improve efficiency and balance inventories. Most companies will even provide an allowance when you provide the transportation. Planning technology can also help you take better advantage of economies of scale with international shipments. For example, your system can recommend how best to work with vendors and contractors to fill ocean containers and create balanced loads for optimized freight investments.

Work with your production efficiency
Better inventory planning has a beneficial effect on manufacturing efficiency too. It works as a “helper” to enable you to execute manufacturing better: more efficient production planning reduces the need for plant overtime to produce out-of-stock items, and also has a smoothing effect on production, minimizing peaks and troughs. Here are some specific ways to reduce waste in the manufacturing process.

Capacity planning is much more than simply calculating resource load based on production requirements and throughput rates. Your planning system must help you manage both constrained and excess capacity, effectively balancing the competing objectives of customer service and manufacturing. It works this way: when you consider the probabilities associated with demand, there is less of a “cost” to rescheduling some planned orders than others. When you have excess capacity, your planning system must pull forward the planned orders that can best contribute to service performance. When you have capacity constraints, you must manage the trade-offs across items to reduce the overall risk of a stockout or a shorted customer order. By managing over a longer horizon, you can better leverage available capacity to reduce the possibility of future shortfalls. This helps reduce the need for additional shifts or overtime.

Take shelf life into consideration
Inventory planning is complex in general, but even more so when products have a potential risk of obsolescence. In process manufacturing, grocery and other industries with shelf-life requirements, this typically results in high inventory write-offs as lots age out. In discrete industries, in which products are frequently updated with new models, the problem manifests in heavy discounting to liquidate stock of the original components when the new model is launched.

You can finally get ahead of lots that are at risk and avoiding overplanning stock by understanding the inventory you have and when it will expire. A more accurate forecast results in producing the right amount of goods to avoid sell-off. Next-gen inventory optimization defines an inventory mix that takes into account shelf life to maximize freshness and minimize risk of obsolescence. It does this by generating a stock to service curve that helps you understand how best to achieve service levels without risking obsolescence. You satisfy customers while minimizing the risk of having to throw out materials.

Use less human resources
You’re probably beginning to see a pattern: better planning = greater efficiency. This is also true with your human resources–the planners who orchestrate the plan that keeps your products stocked and your customers happy. Traditional supply chain solutions were not designed for today’s high variability demand. Inventory mixes and service levels get out of balance across the network—and out of line with business objectives. Trust in the planning process erodes. Planners are forced into reactive “firefighting” mode which all leads to a cycle of excessive costs, waste and obsolescence.

Elements of Supply Chain planning are ideal tasks to “outsource” to machines, which can execute analytical tasks and repetitive calculations faster and more accurately than humans. In other words, this isn’t a case of machines replacing people’s jobs: automation plugs a skills gap that humans can’t practically fulfill. Planning automation eliminates inefficient, reactionary activities and gives planners and buyers AI-generated insights about promotions, seasonality, and other external demand influencers. It is regenerative leadership.

This post is written with inspiration from our partner Toolsgroup.

Welcome to a Recap of The Optilon Supply Chain conference 2021, that was held on September 15th 2021.

The overall theme for this conference was: Thriving in uncertainty. Preparing for the future. 

Why is this topic interesting?
Supply Chains are typically designed for efficiency, cost, and proximity to markets, but not necessarily for transparency and resilience. Now they are operating in a world where disruptions are regular occurrences. Both business-to-consumer (B2C) and business-to-business (B2B) companies expect to see meaningful shifts in future demand. This will affect commercial models. Thriving in uncertainty and preparing for the future means building resiliency by improving the Supply Chain and transparency, minimizing exposure to shocks, and building the capacity to respond.

Below you will find an outline of the speakers of this conference:

Block 1:

Speaker Matt Britton on the topic of: Understanding the conscious consumers of tomorrow.
Matt is a true leader when it comes to connecting the dots between the brands of today and the consumers of tomorrow. Matt has inspired and educated the world’s leading brands, on the state of the new consumer and its effect on business models and consumer trends. Listen to this energetic talk and learn how your brand and business will be affected by the conscious consumer.

Speaker Thomas Bjørnsten on Improving business intelligence with human data.
One way of working with resiliency is to work with end-to-end transparency and demand shifts. Thomas Bjørnsten, Phd. works with human data at Innovation Lab. In his speeech he provides insights into facts and fantasies when it comes to the human factor in a data-driven business. He teaches about emotion computing and how feelings can become big (data) business. He also shares how the interactions will be between humans and machines and discuss the role of trust in adoption.

Speaker: Marketing Associate at Optilon John Wikström on the topic: The unredeemed Supply Chain potential in the Nordics. 
Nordic companies have a potential to redeem a significant potential when it comes to unnecessary inventory, tied up working capital and unnecessary square meters used for storage and distribution. Speaker: John introduces us to the report, which this year covered all the Nordic countries, named The unnecessary report 2021. John shares the possible actions that can be taken to redeem the potential.

Block 2:

Panel discussion on how you can realize the full potential of Supply Chain sustainability
In the panel we had Thought Leader and strategic advisor Alis Sindbjerg Hinrichsen from Optilon, Karl Orrling from Alfa Laval and Eva Grønbjerg Christensen from Sustainify.

Speaker: Manuel Maihofer on the topic of: Improve your end-to-end planning with a digital twin
Companies that utilize the digital capabilities of Supply Chain planning will be much more resilient and better equipped to handle challenges, as well as competing more effectively. What does that mean in practical terms? Manuel Maihofer, Business Analyst and Project Manager from SKF focuses on how a digital twin could be an enabler. Manuel Maihofer is convinced, that transparency, business intelligence and digitalization of processes are key facilitators to improve supply chains. Manuel manages agile IT development projects, establishes workflows and turns data into insights, from purchasing to customer service and from production planner to top management. He plays an important role in creating SKF’s digital twin, which fuels initiatives like Integrated Planning, Demand Management and S&OP.

Block 3:

Speaker: Andreas Wieland on the topic of: Transformative Supply Chain Management
Andreas Wieland is an Associate Professor of Supply Chain Management at Copenhagen Business School. He is the Program Director of CBS’s Graduate Diploma (HD) in Supply Chain Management. His current research reinterprets global Supply Chains as social–ecological systems. Global supply chains can be quite complex. Many managers have understood this. But maybe supply chains are even more fundamentally different from what we often imagine? In his talk, Andreas Wieland challenges the conventional assumptions we have about supply chains and supply chain management. He provides transformative solutions to futureproof supply chains in an era of crises.

Speaker: Andrew Spence on the topic of: Transforming the world of work with technology
Andrew talked about how organizations will be able to find the talent they need – when they need it – from a liquid workforce. Hence, they will require fewer full-time employees, and we will see the demise of the traditional job. The focus will be leading work, not employees. What does this mean in the short and long term?

The Unnecessary Report 2021 once again shows and enormous and unutilized potential for Nordic companies – every fifth stock item is unnecessary. More than a fifth of the inventory is unnecessary for Nordic companies, according to a new report released by Optilon. The average company has an untapped potential of EUR 48 million – which could instead be invested in more growth-promoting purposes. The total figure for the Nordic region’s 400 largest companies amounts to EUR 19 billion.

Effective inventory management and optimization can have a major impact on a company’s profitability. Optilon’s newest publication The Unnecessary report 2021 – which has studied 400 different companies across the Nordics show, that 22 percent of the items in stock are unnecessary for the average Nordic company. This means that they have more goods in stock than they need. 

Removing an unnecessary item from the warehouse means not only less tied-up capital, but also less warehouse space, reduced distribution and administration costs and obsolescence. By addressing this and implementing effective inventory management and optimization the average company among the Nordic region’s 400 largest companies will be able to gain around EUR 48 million. Supply Chain has perhaps never been more important. The covid-19 pandemic and the prevailing macroeconomic situation have demonstrated the importance of robust and sustainable supply chains. Having fewer but the right articles in stock gives you more optimization power as a company. You free up capital at the same time as you reduce costs and increase your revenue.

Effective inventory management is an underestimated success factor. It is one of the single biggest measures you can take as a company to maximize your competitiveness. It simply ensures that the resources are used in the right way and where they generate the most value.

In this article, we will look at why you, as a business leader, board member or Supply Chain professional should build a Circular Supply Chain. There are many challenges in building a circular Supply Chain. We will start by looking at why it is important to embark on this journey. We will look at it from a risk and innovation perspective but we will also look at, why it is so difficult for so many companies to get started. Throughout the article you can expect to get tips and tricks to embark on the Circular Supply Chain journey yourself. 

Continued dependence on scarce resources is a serious business risk
The growth model favored by economies, and indeed most companies for the last 250 years, is based on the availability of plentiful and inexpensive natural resources. It is living on borrowed time and, so are companies that rely on it. Since the industrial revolution, waste has constantly grown. This is because our economies have used a “take-make-consume and dispose” pattern of growth – a linear model, which assumes that resources are abundant, available and cheap to dispose of.

A circular economy is taking into consideration, that valuable materials are leaking from our economies. In a world, where demand and competition for finite and sometimes scarce resources will continue to increase, and pressure on resources is causing greater environmental degradation and fragility, we can benefit economically and environmentally from making better use of those resources.

For businesses, and their top executives responsible for setting the direction of their firms, this leads to one inescapable conclusion: Continued dependence on scarce natural resources for growth exposes a company’s tangible and intangible value to serious risks. Due to:

  • Revenue reduction: Supply uncertainties and changing consumer preferences could prevent companies from generating revenues and maintaining market share. For instance, companies that depend heavily on scarce resources might have to shut down production at times and be unable to deliver demanded volumes.

     

  • Cost increase: Companies whose growth is tightly tied to scarce resources, will find themselves at a competitive disadvantage. This is due to rising and volatile prices, that reduce their ability to forecast and compete with less resource intensive competitors.

     

  • Intangible assets: A company’s environmental footprint and resource dependence could erode brand value, as consumers shun companies with unsustainable business practices. And, as planetary bottlenecks and resource scarcity become more critical, policymakers likely will favor companies that can prove they have positive societal impact and can operate without depleting the country’s natural resources.

The Circular Supply Chain is expected tow grow
Looking back to January 2020, when the pandemic started, concerns began to emerge in relation to importing components or goods from certain geographies. Since then, stress on global supply chains has increased month by month, culminating in some supply chains actually collapsing. The more complex the Supply Chain, the more prone it becomes to vulnerability. This has caused a domino effect with respect to production and how goods are produced and the agility to change production. 

Furthermore, the unpredictability of the opening and closing of borders and government policy changing on a weekly (if not daily) basis, has forced numerous enterprises to rethink their Supply Chains with respect to how international they wish such Supply Chains to be. How much control, or lack of, do manufacturers, for example, wish to have over critical components or materials? 

In a linear economy where the fragility of Supply Chains has been exposed by the COVID-19 pandemic, manufacturers and suppliers are being forced to rethink their entire business models and consequently switch to circular models. The more unpredictable and indeed costly materials have become, due to global Supply Chain disruption, the greater the focus has been upon innovative solutions to keep materials in use, to prolong their lifespan, to upcycle etc. 

The pandemic has also illustrated that, when necessary, production processes can be much more agile that once thought. The necessity for economic survival resulting from global Supply Chain unpredictability has further fuelled an unforeseen circular economy transition that is expected to grow in 2021. Let’s have a look at what a Circular Supply chain is all about.

Adopting a circular Supply Chain requires a new mindset
In a circular economy, growth is decoupled from the use of scarce resources through disruptive technology and business models based on longevity, renewability, reuse, repair, upgrade, refurbishment, capacity sharing and dematerialization. Companies should no longer focus mainly on driving more volume and squeezing out costs through greater efficiency in Supply Chains, factories and organizations.

What should then be done?

Businesses should concentrate on rethinking products and services from the bottom up, to future proof their operations to prepare for inevitable resource constraints. They must build systems where products are recirculated and supports a circular production and material flow. The Supply Chain has to support the business in creating a more circular customer journey and circular products. Companies should stop producing specialized parts. Also they should stop trimming the production from a performance vs. cost tradeoff.

Why?  Seen from a design perspective it is important to create ”part commonality” and easy disassembling. So get as few parts as possible, but also use local sourcing. It is important to create a space, where the costs of reusing are low and the rawmaterials used are available both faster and cheaper.

What if companies do not change? The challenge for many companies is, that they have chosen a business strategy where they optimize the performance by creating specialized parts that has an added functionality. They have created economies of scale by creating big, centralized production units which share costs and who delivers to a larger geographical area. The challenge for many companies is, that it can become quite expensive to create this ”new logic”. 

The ”new logic” means, that these companies should stop using large production facilities. They must also stop using specialized parts so it becomes easier to recycle. New technologies such as 3D printing will definitely support the change. Also already exisiting, and well proven technologies, such as Supply Chain Design can help break down the complexity. It can also support in making the right decisions.

Collaboration across the ecosystem is key
Collaboration across the ecosystem is also key to enable a circular transformation. The Supply Chain has to facilitate that supply partnerships emerge from a pure cost orientation, towards a strong focus on joint collaboration and innovations. Who else? Supply chains are getting more complex every day in terms of the number of involved partners and the quality and degree of interdependency between them. One of the predictions in relation to the integration of a Circular Supply Chain is, that complexity will increase.

We must also remember, that businesses have to operate in a globalized world where the volatility of markets, the speed of technological progress and the pace of change, in the economic and business environments, will continue to rise rapidly. As a result product life cycles are getting shorter and market demands become more and more unpredictable.

Collaboration with all types of partners, and their willingness and ability to share their knowledge, will be crucial and key to a successful development and integration of circular thinking.  The risk to miss an important trend and the threat of being commoditized, has become the substantial risk of every company. This provides a great opportunity for Supply Chain to take on the lead on circular innovation.

In many companies it is typically a challenge to include suppliers in the front end of the innovation process. Procurement teams are often disconnected from the functions they serve and the markets they engage with. They are not fluent in the nuances of the business and hence lack experience and authority. Also in many companies, procurement is used to “innovation” being an internal capability and are hence not used to working together with external partners on delivering innovation.

Key questions to ask: How can Procurement or Supply Chain advance the collaboration with suppliers on circular thinking in an effective way? How can Procurement ensure that the suppliers are willing and able to share their knowledge? 
For Procurement and the Supply Chain to be successful in these innovation oriented supply partnerships, it requires new models for relationship building and collaboration. It also requires that the involved parties integrate across the whole organization.

Checkout Optilon’s oferings when it comes to Supply Chain sustainability.

Contact us to book a meeting

By clicking “Submit”, I agree to Optilons privacy policy.