The industrial economy is coming to an end and a very different economy is emerging – with new technologies, new business models, new roles, and a new mindset. The next economy will be focused on solutions, that are constantly changing and reconfigured in response to end users’ changing needs. A shift that is also driven by a mixture of the necessity to become sustainable and rapid technological development. What will this mean to the Supply Chain?

 

A new underlying logic for running the business

In the 19th and 20th centuries, the machine was a metaphor for society. Industrialization was based on automated, mechanical mass production, and capitalism with its focus on money and growth was the underlying logic of the economy. Then came computers, and with digitization came an economy that was based on bits and information – increasingly virtual and detached from the limitations of the physical world. The next transformation is moving toward a technological paradigm characterized by living systems and biology, which can support our well-being in the future in a stable and sustainable way. We will mobilize biology to deliver what we currently produce with fossil energy, chemistry, and mechanics.

 

Three connected transitions

According to Peter Hesseldahl, journalist, and author of the book “When technology comes alive, and life becomes technology” we will see three connected transitions when transitioning to the future.

  • Our relationship with technology: New powerful technologies like artificial intelligence and biotechnology will change humans’ relationships with technology.

  • Our relationship with nature: Our relationship with nature and the ecosystem must change from domination to partnership.

  • Our relationship with each other: At the same time, we are leaving the industrial society and logic and moving towards a new economy based on other values than just money, and in which the distribution of power and wealth must be renegotiated.

The whole idea or basis for the above three transitions is, that they must turn out well for the entire transition to succeed in creating a thriving world.

Supply Chain to be seen as a living system

Digitization is reshaping the fundamentals of the Supply Chain. It changes the culture to one which is more adaptive, resilient, innovative, and customer-centric. The organization must be seen and function as a living system – not just a mechanical one.

Living systems are ecosystems. There must be a balanced interaction between the many different parts of the system, otherwise, it will collapse. If one wants to thrive in the long run, one must ensure that all other elements of the system thrive as well. Therefore, concepts such as circularity, resilience, and regeneration become essential. There is a wide range of characteristics and principles that recur in all living systems. Often, they are almost the opposite of the rules of the game we have created in the mechanical and digital economy. Also in the Supply Chain, as well as in the business in general, we must start acting in accordance with the principles of ecosystems.


Principles for re-imagining

How can we learn from how living systems work and use them as principles that are relevant to guiding and shaping the future approach? Here are a couple of examples that can help you re-imagine the Supply Chain in the living economy:

Example 1: Resources kept within the limitations of the ecosystem

An organization cannot function in isolation. It is supposed to be in constant interaction with the environment. The world consists of interconnected and interacting systems. Just disassembling and examining individual components will not provide an understanding of the relations and interactions. That could potentially mean that the Supply Chain must be configured within the limitations of the ecosystem. As opposed to today where resources are seen as abundant and inexhaustible.


Example 2: Ecosystems are circular

The waste from one process becomes raw material in other processes. An ecosystem consists of a multitude of creatures and organisms, each evolved to play a specific part in the vast streams that transform materials and energy into everchanging forms. It is a balanced interaction where everyone plays a part so as not to break the chain.

It would most likely mean an end to mass production and standardized solutions. Instead, it is time to invent instances- solutions for specific contexts. It will also mean an end to scaling and providing similar solutions to the whole world. We will see more diverse, decentralized, and local solutions. Manufacturing, and running of the operations in general, will be done on flexible platforms as opposed to fixed platforms, as we see it today.

Example 3: Reconnecting with each other is key

On the more social side, we will see an urge to reconnect with each other – and nature. An economic model where one simply gobbles up nature and spits out the waste is not sustainable- and likewise, an economy that consumes people to create money is not a durable strategy. The system needs to be balanced to create long-term well-being for everyone. We will hence see an urge to regain individual freedom to compete and create but in a new format expressed as responsibility and accountability. Humanity, empathy, and creativity are crucial competencies.


Welcome to the living economy

So, as mentioned in the beginning: The industrial economy is coming to an end and a very different economy is emerging – with new technologies, new business models, new roles, and a new mindset. The next economy will be focused on solutions, that are constantly changing and reconfigured in response to end users’ changing needs. It is also an economy shaped by very strong demands to reduce CO2 emissions and impact on the environment. It is a highly complex economy, which connects large numbers of players by using extreme amounts of data.

Interestingly, all of this leads to solutions that can best be described using mechanisms and concepts found in biology and living systems: Ecosystems, circularity, balance, feedback and tipping points, and adaptability. This has implications for Supply Chains, production, retail, and recycling: Atoms – physical products and materials will increasingly become local. Bits and data will be global.

Source: With inspiration from Peter Hesseldahl’s  “When technology comes alive, and life becomes technology” published in Mandag Morgen and as a book.

Peter Hesseldahl is a journalist and editor of digital transformation at Ugebrevet Mandag Morgen – a weekly Danish business magazine. As an in-house futurist, Hesseldahl has previously worked with trends, scenarios, and strategies for LEGO and Danfoss. He has also consulted extensively on future issues for ministries and large companies such as BNP Paribas and Shell. Hesseldahl is the author of 7 books, most recently “Transition to the Future. When technology comes alive, and life becomes technology”.

For many decades we have understood disruption from technology and feared the changes disruption requires of us. For only a couple of years, however, have we understood that disruptions today, happen faster and faster, and from places, we never even knew existed. The question is: what are we disrupting for?

Supply Chain volatility has increased

It is obvious to everyone. The Supply Chain is changing. Changes that have the potential to change the entire business. The technological advances that we have seen over the past several decades have finally driven us to a tipping point. We are now on the precipice of a fourth industrial revolution that will truly transform business and all stakeholder relationships. The push toward the fourth industrial revolution has accelerated over the past two years. Not only are technological advances occurring at a fast and furious rate, but the level of volatility in the Supply Chain has also increased.

Persistent challenges from increasing customer demands, disruptive competitors, and economic fluctuations make the optimization of Supply Chain designs harder. Various megatrends mean that Supply Chain complexity and risk are growing. Decision-making speed and quality need to increase to enable faster recovery from disruptions. At the same time, there is a need to handle real-time data and complex business requirements across multiple networks – and balance risks and trade-offs.

Need for new capabilities across all timeframes

In the face of these raised levels of volatility, we have no choice option but to lead transformative changes to reach a Supply Chain Future-Fit stage. Simply going through the motions of change is no longer an option. Companies that make changes simply to make them – without having the desired endpoint in mind or following a systematic process will never achieve success.

The only way forward is to change most if not all the settings in the company at both the human and technical levels. Achieving a highly resilient company that can grow and prosper in todays’ uncertain environment will require new advanced capabilities across both the strategic (two to five years), tactical (one to 24 months), and operational (one to 30 days out) timeframes.

Reimagining the Supply Chain is key

The challenge is to achieve the ideals of fully integrated, efficient, and effective Supply Chains capable of creating and sustaining competitive advantages. Downward cost pressures must be balanced as well as the need to manage effective ways to manage the demands of market-driven service requirements. At the same time, there is a need for a resilient and transparent Supply Chain.

It could potentially mean reimagining and reconfiguring the network in terms of capacity, sourcing mix and location, manufacturing capacity, and location. It could potentially also mean adding to their classical S&OP processes a tactical scenario testing capability to be used during times of serious disruption. In other words, when conventional forecasting processes become unworkable and unreliable, it will allow the company to become more agile and resilient. Supported by end-to-end visibility and the ability to make decisions fast. Fast decision-making enhances the resilience of the entire company.

Technologies such as AI are transforming how decisions are made. More people no matter what their roles are can now have real-time access to the information and perspectives that they need to do their job. As a result, individuals and teams will be better able to manage themselves, work together, and the types of decisions without the involvement of management. Companies will not need to organize themselves in the traditional way. I.e., there is no need to ensure that decisions are aligned around its goals because that happens automatically.

The Supply Chain to be seen as a living system

Digitization is re-shaping the Future-Fit Supply Chain. It changes the culture to one which is more adaptive, resilient, innovative, and customer-centric. In other words, an organization that functions as a living system – not just a mechanical one. What’s standing in the way?

According to an article written by John Gattorna and Pat Mclagan in Supply Chain Quarterly, under the title: Supply Chain, the platform for driving true business transformation, three powerful mindsets continue to sustain the norms and behaviors that drive old cultures. Command and control relationships, silo identities, and the application of engineering approach. These powerful mindsets work against creating an environment that fosters initiative-taking, creativity, cooperation, and rapid problem-solving. These mindsets belong to the early 1900’s when the goals were efficiency and control, and people were viewed as machines whose behavior had to be controlled.  

Supply Chain executives must change their mindsets

Supply Chains are in a powerful position to drive this deep transformation in both the hard (structural and technical) as well as the soft (human and cultural) dimensions of the business. This is because they are the focal point for the artificial intelligence/digital/internet of things disruption. They contain and control the main activities that add value for the customers, and account for about 80% of the business costs and associated risks.

The challenge is often that Supply Chains are marginalized, lacking representation in the c-suite. Supply Chain leaders must become active change agents for both their end-to-end value streams and the overall business that supports them. Supply Chain leaders will need to develop new decision-making capabilities, transform their Supply Chain organizational structures, and get rid of old, non-productive mindsets. Most importantly though they must make sure to understand what they are disrupting for.

With inspiration from: Supply Chains, the platform for driving true business transformation brought in Supply Chain Quarterly Q4, 2021. Page 44 and onwards.

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

Today’s challenges in production companies

The typical business or Supply Chain operates in a world where the ”new normal” is increased instability, brought about by a multitude of causes. Supply Chains must become more agile, resilient, automated, and efficient. This is also true within production. 

Do you encounter the following challenges in your production?

  • Are your service levels low?
  • Do you have a high inventory and capital tied up in stock
  • Is it cumbersome to reschedule the production plan?
  • Do you have a low level of automation in your processes?
  • Are you lacking an overview and one joint production plan?
  • Are you able to simulate?

Where and how much to produce
It is essential for the business to address when, where, and how much to produce to maximize service levels and production efficiency while minimizing inventory and production costs. Effective plans are enabled with Supply Chain Production Planning technology. 

In the mid-to-long-term perspective, a feasible and leveled production plan supports production management for capacity/manning decisions and the requirements of purchase materials. In the short term, a realistic production schedule is created to support production supervisors/operators in producing the right order at the right time, ensuring high service levels and minimized set-up times.

Real-time simulations
In other words, a Supply Chain Production planning solution helps effectively and timely govern the core processes of advanced planning, scheduling, and manufacturing execution. The lean, flexible and interactive tool is designed to run real-time simulations and thoroughly analyze results, following intuitive and streamlined workflows.

At Optilon, we can help you implement effective processes through cutting-edge technology to:

  • Obtain a high degree of automation and reduce manual work for planners
  • Reschedule plans faster when prerequisites changes
  • Obtain higher service levels and reliability of promised delivery time
  • Get a lower inventory and capital tied up in stock
  • Minimize set-up time and production costs – and increase resource efficiency.
  • One common plan. Better overview and company-wide decision and communication platform.
  • To be able to work more proactively and see future problems in advance.

The typical business or Supply Chain operates in a world where the “new normal” is increased instability, brought about by a multitude of causes. Supply Chains must become more agile, resilient, automated, and efficient and this is also true for the production. environment.

Many companies are challenged by cumbersome processes to reschedule production plans, high inventory and capital tied up in stock, low level of automation, no simulation possibilities and a lack of overview and a lack of one common production plan.

Cases

Absolut company
An increased production complexity made The Absolut Company look for a better and more efficient way to manage the production of the most exported food and beverage product in Sweden. With the purchase of the company from the Swedish government in 2008, Pernod Ricard initiated a transformation of the brand. This had a large impact on the manufacturing process. Check out the case here.

Orthex company
Orthex  Group,  a  leading  manufacturer  of  household  products  in  the  Nordic, operates in a sector where the customers have high demands on short lead times and on-time delivery. When unexpected large orders are common and the company growth  increases Supply Chain complexity, it puts pressure on the production planning process and the planners involved. By implementing technology Orthex has been able to take a big step towards 100% planning control Check out the case here.

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