Supply chain consultants at Optilon have been helping Nordic companies become the most competitive in the world since 2005. After years of growth and an increased Finnish demand for the company’s services, Optilon is now opening its new office in Finland.
Optilon helps companies use their resources where they are most useful by combining leading technology and Nordic expertise in supply chain management. This includes simplifying and strengthening complex distribution chains and creating more optimal product flows, which in turn leads to less unnecessary resource consumption, less carbon footprint, and increased profitability and a smaller environmental impact. This has become increasingly sought after at a time when global trade and global distribution chains have been challenged by pandemics and Russia’s invasion of Ukraine.
Since its inception, Optilon has experienced strong growth, with steadily increasing sales figures. To meet customer needs, the company is now opening a new office in Helsinki, Finland.
– We have worked with Finnish companies for many years, but now we are scaling up our ambitions even further. Our goal is to double our turnover in Finland. By opening our first physical office in Helsinki, we can even better meet the needs of our existing customers, while fully focusing on winning new assignments. With this, we are also in need of recruiting new talents to the Finnish market, says John Wikström, Sales & Account Manager Finland at Optilon, responsible for establishing the company in Finland.
Supply chain management has risen higher on the agenda as many companies actively work to create more robust and sustainable flows. In fact, value chain emissions account for up to 70% of a company’s greenhouse gas emissions, according to UN estimates. Therefore, Optilon is now also strengthening its sustainability offering.
– We want to be where our customers are and help them solve their biggest challenges. For many, it is specifically reducing emissions from the supply chain. By measuring and including their emissions data from the start, designing with that in mind, and constantly optimizing their supply chain to reduce emissions, a company can make enormous climate gains. And we want to help them with that, both in Finland and in the Nordics, says John Wikström.
About Optilon:
Optilon is a consulting firm that helps its customers use their resources where they are most useful by combining world-leading technology with Nordic expertise in supply chain management. Optilon was founded in 2005 and is today active throughout the Nordic region with offices in Sweden, Denmark, and Finland. www.optilon.com
That supply chains are not only the backbone of any business, but fundamental for success, has become evident in the past few years. Staying up to date with trends is imperative for any Nordic business to plan for the future and stay competitive in the global market. In this article, I share 7 global supply chain trends in 2023 to help you out.
1. Shifting focus from only cost to also risk
Looking back at the past decade, the majority of companies in Scandinavia and Northern Europe have been characterized by outsourcing their production to low-cost countries such as China. The same goes for sourcing raw materials and components. But in the past few years, the world as we know it was turned upside down. The dramatic events of the COVID-19 pandemic, the Suez Canal blockage, and the invasion of Ukraine all caused significant disruption to global supply chains.
As a result, Scandinavia and Northern European companies have started to realize that although cost-efficient, single sourcing from Asia is not very resilient to changes – regardless of size – may they be massive, like a pandemic, or small, such as fluctuation in market demand. This has now led to more companies shifting focus from only cost to also risk. And minimizing those risks has rapidly risen to the top of their agendas.
2. Reshoring – bringing production home
As part of this shift, Scandinavian and Northern European companies that are outsourcing from Asia are considering buying a return ticket. In fact, we are already starting to see examples of reshoring in Scandinavia and the Nordic countries where businesses are bringing their entire or parts of their production home.
By moving their entire production home or sourcing from both Asia and Europe, they are looking to increase their chances of withstanding failure in the primary supply chain and reduce their overall supply chain vulnerability. However, to do that, it is important to have the right tools in place for efficient supply chain planning and smart use of resources.
3. Moving towards differentiation
In the aftermath of the pandemic and invasion of Ukraine, we are also seeing an increased focus on differentiation, where companies are looking to set themselves apart from the competition through new price points and inventory strategies.
With inflation pressures, consumer behaviors and customer demands are shifting from high-end products to more affordable ones. At the same time, businesses are focusing on cost efficiency to prevent their capital from going through the roof.
To meet the demands for availability and service level – while at the same time keeping inventory costs under control – companies realize they need to become more granular and specific in how they control and optimize their inventories.
As a result, we are now seeing more businesses moving away from manual and semi-manual processes and using “one size fits all” types of rules toward differentiation, digitalization, and automation.
4. Prioritising supply chain design
Another strong trend that has emerged as a result of the increased supply chain awareness is the need for companies to improve their supply chain design. This is particularly noticeable in companies with high supply chain complexity.
Supply chain complexity can arise from several sources – network nodes and links, internal and external processes, product and service range, product design and development, supplier integration, and information and organizational complexity.
While companies are adding the cost and risk dimensions into their supply chain design, two more dimensions need to be considered to secure resiliency. The first is service level, which includes the ability to offer short lead time to customers. The second is sustainability, which includes the ability to map the current CO2 footprint and find new supply chain set-ups that will reduce CO2 emissions without a large negative impact – or even reduction – on cost or other dimensions. As the global market for emissions credits matures, this will also be part of the equation.
Companies must review their supply chain based on all four dimensions to create a shared view of the supply chain and find their trade-off. If companies can do that, their chances of securing continued competitiveness and obtaining sales will increase.
5. Creating a digital twin of the supply chain
More companies are embracing digital technologies to help them design their supply chains and outsmart disruption. One critical component of this shift is using a digital twin. A digital twin is a digital representation of a company’s end-to-end supply chain network.
You can look at it as a sandbox extension of your supply chain: By recreating your real supply chain in a virtual world, you can apply what-if scenarios and create versions of the future to model alternative scenarios for uncertain areas within your business. This enables you to efficiently make trade-offs between risks and potential gains and conclude under which pre-conditions to use which supply chain setup or strategy.
Instead of assessing your supply chain every third year, you can use your digital twin to review your setup annually, semi-annually, or even quarterly, as well as ad-hoc. Slowly but surely, the digital twin is becoming a key component of future supply chains. It will be the common playground for sales, sourcing, supply chain, and sustainability to gather around. It will also help companies break silos and adopt a more holistic approach.
6. Supply chain automation, robotics, and AI
Tapping into digitalization and technology, the use of automation, robotics, and AI in supply chains continues to be a strong trend. Automated solutions for supply chain tracking, inventory and warehouse management, and back-office tasks have allowed for leaps forward in labor productivity performance. The shortage of truck drivers has catapulted the transport industry into the forefront of AI and autonomous vehicles.
Although these new technologies have the potential to reshape the entire supply chain, many of them, especially AI, haven’t fully matured and reached their full potential yet. Inserting AI into a data system (ERP or similar) will not automatically generate a ready-made business strategy. As with any other data analysis, it still takes a lot of work to collect the data, transform it, and ensure it is high-quality and connected. Once that is done, you can start accessing all the business value AI can bring.
While there are efficient AI solutions today for forecasting, promotion planning, and data correction, for example, we will see more and better applications of AI, machine learning, and reinforcement learning for various supply chain problems in the future.
7. Sustainability and transparency in focus
The future consumer market will be shaped by millennials and Gen Z. If a business wants to survive in the next century, its strategies must align with the priorities and values of these consumers. Millennials and Gen Z expect companies to be more visible, active, and transparent. They don’t settle for less than proof and demand sustainable supply chain practices addressing climate change, human rights, and corruption.
As a result, the tracking trend is intensifying. More companies are using RFID tags, QR codes, and blockchain technology to identify and track the entire chain of movement on the way to the end consumer. Tracking also provides companies with better data for improving supply chain operations, reducing costs, and proving a product’s origin.
With the increasing demand from millennials and Gen Z, we are also seeing companies shifting from linear supply chains to circular supply chains to minimize waste and environmental impact. This shift is a no-brainer for some companies, while others struggle to find a suitable circular supply chain model.
How efficiently do you use your resources?
Supply chains are no longer a marginal concern for businesses. Today, supply chain knowledge and experience should have a given place in the boardroom as more companies realize supply chain is about much more than merely cost reduction. It is a possibility to differentiate, create strong offers, and stand out from the competition. At Optilon, we believe Nordic companies have the potential to be the most competitive in the world. They just need to use their recourses more efficiently than their competitors to get there.
Welcome to a Recap of The Optilon Supply Chain conference 2022, held on September 8, 2021.
Disruptions come in many forms, and in recent years Supply Chains have faced numerous highly disruptive risk events. Supply Chains are also influenced by sustainability, customer demand precision, and customization in delivery.
A proactive response requires visibility, adaptability, and agility. For many companies, this means re-imagining the Supply Chain and balancing the tradeoffs in new and effective ways.
This year’s topics
SUSTAINABILITY
DATA-DRIVEN
DISRUPTION
TALENT DEVELOPMENT
COLLABORATION
About the event
This premium event is dedicated to helping optimize the business through the Supply Chain. Our emphasis is on enhancing experiences and embracing disruption and innovation to re-imagine the Supply Chain and build competitive advantages.
Join leading thinkers and practitioners at the Optilon Supply Chain conference to explore best practices, opportunities, and challenges of optimizing the business through the Supply Chain.
Why watch the recording?
You will get an insight into:
How do Nordic companies perform compared to others in terms of sustainability?
How mature are my organization’s current capabilities?
What could I gain by better collaborating with my network?
How is customer behavior changing, and how do my relationships with customers need to change due to disruption?
Key-Take-Aways
While trying to re-imagine the future Supply Chain – at this conference, Optilon would like to support your journey with inspiration on:
Why is there a need to disrupt our current way of living, working, and being
How you can harness the power of data and create competitive advantages
How can you empower and engage your employees in the sustainable agenda and ensure progress
Why collaborating with the broader ecosystem is key to responding to the broader ecosystem
This year’s conference was again carried out in a dynamic environment with inspirational speakers worldwide. Come and join us. It is free and online!
Covid-19, labor shortages, and disruptions, in general, have created global Supply Chain nightmares and revealed a need to modernize the Supply Chain with modern technologies and data-driven approaches, especially within the planning area. The utilization of AI and machine learning is helping to modernize the Supply Chain. More can though be done. A recent report is stating that only 8% (1) of the companies are able to mitigate Supply Chain disruptions due to their maturity. The key question is: How does the leader succeed with technology and a data-driven approach when maturity is low?
Cultural change is critical
Companies and Supply Chains have been working to become more data-driven for many years. Some have done this with mixed results. Everyone understands by now that those that are able to utilize data to make more informed decisions will stand out in the competition compared to those who do not. The biggest challenge for organizations working on their data-driven approach might not have to do with technology at all. Cultural change is the most critical business imperative. Becoming data-driven is about the ability of people and organizations to adapt to change. Long-established companies, which have been successful over generations or centuries, are unlikely to change overnight. Becoming data-driven represents a business transformation that is playing out over the course of a generation.
Barriers to becoming data-driven
Achieving data-driven leadership remains an aspiration for most organizations — just 26.5% of organizations report having established a data-driven organization (1). Second, becoming data-driven requires an organizational focus on cultural change. According to the report, 91.9% of executives cite cultural obstacles as the greatest barrier to becoming data-driven.
1. Understand the stakeholders
It is not a technology issue. It is a people challenge. The task of being data-driven keeps getting harder. Today, companies encounter vast new volumes of data, as well as new sources of data. Data cuts across traditional organizational boundaries, often without clear ownership. The fluidity of data compounds the complexity of managing this asset in a way that consistently delivers business value.
2. Adopt a new mental mindset
Becoming a data-driven organization is a journey, which unfolds over time, measured in years, and sometimes decades. Becoming data-driven requires a different mindset. Organizations must be prepared to think differently. There is no shortage of analytic algorithms. These need to be matched by critical thinking, human judgment, as well as creative innovation.
3. Fail fast, learn faster
Leaders must understand that individuals and organizations learn through experience, which often entails trial and error. It has been said that failure is a foundation of innovation. Companies that are prepared for faster iterative learning — fail fast, learn faster — will gain insight and knowledge before their competitors.
4. Focus on the long-term
Data leaders appreciate that the data journey is a transformation effort that unfolds over time. Becoming data-driven is a process. The French writer Voltaire famously said, “Perfect is the enemy of good.” (2) Perfection is rarely achievable. Data-driven companies recognize that success is achieved iteratively. Successful organizations expect to be at this for a while. They focus on the long-term.
As many as 85% of companies want to have a digital Supply Chain in place within five years. But companies’ roadmaps often only have a three-year horizon. And all the disruptions of the past few years have only intensified the short-term focus (3).
5. Decide whether it is optimization or transformation
Many companies confuse digital optimization with digital transformation. As an example of digital optimization, you have retailers which implement technologies where you can shop without physically having to pay at checkout. Instead, smart technology registers what they take off the shelves and the amount is debited automatically. This is not a new business model, so it’s not a digital transformation.
Companies that enable consumers to use an app to order groceries for home delivery have introduced a new value proposition that can help them to attract new customers. This could even be linked to a new revenue model, such as a subscription. This is indeed a new business model, and it also has a major impact on the Supply Chain. The key question here is, what do you want to achieve – digital optimization or digital transformation?
New technologies can help to reduce costs because they allow for example planners to create a schedule faster. They can also be used to improve the quality of decisions or to plan things that were impossible to plan in the past. The key thing to do though is to determine where you currently stand in terms of maturity and which steps you need to take to improve it.
Reducing Emissions in the Supply Chain is Crucial to Tackle Climate Change
Climate change is the biggest challenge of our time. To meet the Paris Agreement and limit global warming to well below 1.5 degrees, there is an urgent need to decarbonize global emissions. This has been a well-established fact for several years. And when it comes to driving global change, companies of all sizes have an important role to play.
As a result of the increased focus on sustainability in recent years, expectations on companies to monitor and reduce their environmental impact have also increased drastically. We have, therefore, asked 400 Nordic companies how they work with these issues. Our study shows that most companies (two out of three) already measure and report at least one out of the three Scopes of greenhouse gas emissions. But many seem to underestimate the share of emissions from their value chain (Scope 3 emissions).
Emissions from the value chain account for more than 70 percent of a company’s total greenhouse gas emissions. Underestimating the share of Scope 3 emissions thus imply a risk in a company’s way towards reduced emissions. This is something that needs to be highlighted to drive change on a large scale. Focusing only on emissions from the own operation is not enough. Rather, companies can improve their climate footprint substantially by optimizing their supply chain.
In our first-of-a-kind report, we have taken a closer look at how Nordic small and medium-sized companies (SME:s) and large companies within different sectors work with targets for eliminating greenhouse gas emissions, what Scopes of emissions they measure and report, and how they work to reduce emissions from their value chain. We have also collected our best advice on how to create a more sustainable supply chain.
Some of our Key Takeaways from the report
More than four out of five Nordic companies have set sustainability goals that they work towards.
Up to half of Nordic companies have set a target for eliminating emissions.
Four out of five Nordic companies with a target for eliminating emissions plan on doing so within the next ten years.
Large companies are more likely than SME:s to set targets for eliminating emissions
There is a clear similarity among the Nordic countries although they all vary in mindset and focus.
Read about all the findings and more from the report below.
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.
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.
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
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