Over the past several decades, businesses have become adept at leveraging expertise from all corners of the globe to make and distribute their products. However, there is growing recognition that this production model comes with a steep environmental price tag. According to the climate disclosures to not-for-profit CDP, greenhouse gas emissions from companies’ supply chains are five times greater than those from direct operations. As the transition to a low-carbon economy progresses, scrutiny of companies’ supply chain practices will only grow more intense.
In response to this shift, corporate sustainability champions are vowing to root out poor environmental practices in their supplier networks. For example, as part of its commitment to be carbon negative by 2030, Microsoft is integrating emissions goals into procurement processes and launching a technology initiative to improve supplier practices. Yet despite the ambitious commitments from leaders like Microsoft and Walmart, overall momentum is lacking. In fact, CDP’s 2020 Global Supply Chain Report shows only 29% of suppliers reported an absolute decrease in annual emissions. It appears supply chain sustainability is still considered by many as a “nice to have.”
From Commitments To Action
Not only is the slow pace of progress concerning, but it also makes bad business sense. Even placing concerns for the well-being of our planet aside, there is a compelling business case for sustainable sourcing. Climate-related impacts are already a reality for many industries, with the total cost estimated at nearly $1 trillion over the next five years. In the long term, laggards face the risk of regulatory action, legal liability and divestment. With Covid-19 prompting concerns about supply chains’ resilience, the need to address climate risks is obvious.
Yet it would also be a mistake to frame sustainability primarily as a risk management issue. In fact, the transition to a greener economy is the business opportunity of the century. There is now broad consensus that efforts to improve environmental performance can also enhance business outcomes. For example, Unilever’s goal to power its manufacturing operations using renewable energy is explicitly tied to opportunities to lower operational costs, improve resilience and spur growth.
Data: The Missing Link In A Sustainable Supply Chain
Data, or the lack of it, is a critical challenge. It is far easier to address a company’s direct impacts than gauge the unknown footprint of partners. Even if direct vendors provide environmental data, information from their suppliers is typically scarce. In fact, most companies still lack visibility into their supply chain beyond the first tier. Even leading companies have difficulty enforcing standards with subcontracted suppliers.
Even with the right data in hand, it can be hard to make sense of it all. There is still no universal sustainability reporting standard, meaning purchasing teams need to have a nuanced understanding of common voluntary frameworks (CDP, GRI, SASB, ISO) and local regulations. This fragmented environment makes it difficult to establish comparable benchmarks within and across sectors. Instead, companies monitor their vendors’ sustainability progress in a vacuum, with only arbitrary, piecemeal data as a guide.
Data And AI To The Rescue
It is clear that businesses need to do more to address their suppliers’ environmental practices. But the lack of transparency and reporting systems creates roadblocks for all but the largest companies and most advanced sustainability leaders. How can the rest catch up?
Technology is bridging this gap. Today’s artificial intelligence (AI) and analytics solutions provide data-driven insights to inform everything from setting environmental policies to rerouting supply lines. Here are the capabilities that decision-makers should prioritize in a digital approach to supply chain sustainability:
• Benchmarking: Identifying the sustainability issues material to a business or industry is a straightforward process. From there, companies can set benchmarks to compare supplier performance on relevant chosen metrics that matter early on in their processes.
AI-powered supplier discovery tools can then integrate these benchmarks into the automated process of narrowing down all potential suppliers into longlists. These tools can display environmental data together with conventional metrics on a single dashboard, enabling buyers to prioritize sustainable choices earlier rather than waiting until most buying considerations are already applied. Only when we have sufficient sustainable opportunities at hand (for example, 10 suppliers identified instead of only two) can sustainability become a real factor. Otherwise, price will be what finalists compete on.
• Transport and demand planning optimization: A significant portion of global greenhouse gas emissions comes from freight transportation. Transportation can also drain a company’s financial resources, such as inefficient shipping routes or vehicles driving empty.
Advanced data analytics can help reduce these impacts by enabling teams to calibrate production according to fluctuations in variables like weather and continually updated demand forecasts. In addition to charting efficient transport routes, AI-enabled logistics platforms can make recommendations for other ways to improve efficiency, such as consolidating shipments.
• Diversification: Given the difficulty in decarbonizing long-haul transport, some are advocating greater reshoring of supply chains. Companies may also factor in local environmental regulations when making sourcing decisions.
AI can help streamline this process. Bypassing human limitations such as language barriers, AI can provide visibility into the entire supply market of qualified vendors worldwide, illuminating innovative options and shortening the scouting process from months to days. Furthermore, as AI frees teams from these manual tasks, it gives procurement leaders more time to focus on valuable tasks like collaborating with suppliers.
The Way Forward
If sustainability is a journey, many are still operating blind, peering deep into supply chains that were not designed with transparency and the environment in mind. Fortunately, data can help chart the path. With AI as their guide, many companies can become more resilient, innovative and respected along the way.