How green planning paves the way for a sustainable supply chain
Supply chain sustainability is taking center stage
Sustainability is no longer just a buzzword. In fact, it’s rapidly becoming business as usual, especially in supply chain management. While some companies see sustainability as a great opportunity to differentiate today, it will become imperative for any company’s long-term survival tomorrow. Sustainability goals will take center stage in supply chains, meaning that the risks and opportunities related to environmental, social, and governance criteria are receiving high priority.
How does that affect supply chain planning? Over the next few years, planning for sustainability – or what we call the green planning approach – will be increasingly adopted by forward-thinking companies as a practical solution for strengthening business and strategizing for the future. Here’s what to expect.
Supply chains as principal drivers of transformation
Supply chains are emerging as one of the principal pivot points in the transformation toward a carbon-neutral, circular, fair, and sustainable economy, which is essential for humanity’s future in the face of climate change, biodiversity loss, resource scarcity, and other environmental threats.
A major driver is the huge environmental footprint of the world’s supply chains. For example, the supply chain of consumer goods companies accounts for 80 percent of greenhouse gas emissions and more than 90 percent of the negative environmental impact on air, land, water, biodiversity, and geological resources, says a McKinsey study.
Reducing a supply chain’s environmental footprint involves several key considerations. What is being produced? How and where is it being produced? What materials are being sourced? What packaging is being used and discarded? How much energy is being consumed for logistics? Who is buying the products and how are they going to use them? What happens when the products reach end-of-life? The list is long but not impossible to address, with the right tools and support.
Managing the full scope of emissions, and much more
When it comes to environmental factors such as emissions, the footprint clearly extends beyond the so-called scope 1 and 2 emissions that are directly or indirectly owned or controlled by the company. It also includes scope 3 emissions from sources not owned or controlled by the company but still resulting from its activities.
In addition to environmental impact, supply chains touch on almost every challenge identified in the United Nation’s Sustainable Development Goals (SDG), which also encompass social and economic development targets. They are arenas of economic growth and social interaction, providing opportunities for action in areas such as diversity, well-being, personal development, equality, and more.
How can companies striving for supply chain sustainability get a grip on all this?
Green planning is planning for supply chain sustainability
It’s all about decision-making. The type of products that are made and the way they are sourced, produced, handled, recycled, and discarded result from decisions made within the company at a strategic, tactical, or operational level.
Supply chain planning is of crucial importance here. For example, the planning process allows companies to make sure that decisions are made with full consideration of the impact on carbon emissions and other parameters linked to climate change, biodiversity loss, and planetary boundaries. In general, the supply chain planning process can be used to optimize sustainability in supply chains while still accounting for the well-known business constraints of people, service, cost, and cash.
And that’s the green planning approach: the concept of deploying supply chain planning intelligence to maximize sustainability goals.
An actionable framework for sustainable supply chain decision-making
Green planning is not a substitute for current ways of addressing supply chain challenges through planning. Rather, it is the gradual introduction of sustainability criteria in the decision-making process of forward-thinking companies. On a strategic or tactical level, green planning provides answers to questions like:
- What if we rethink our purchase strategy— for example, by partially turning toward certified resources?
- What if we change our inventory policies?
- What if we reorganize our network of manufacturing, packaging, and distribution plants?
- What if we change means of transport?
- What if we move our upstream production to country x or state y?
Green planning builds on ESG criteria to answer such questions. It provides an actionable framework to integrate sustainability criteria into all levels of supply chain decision-making. This means that it supports the entire value chain from sourcing to delivery and that appropriate tools are available to guide both long-term and short-term decision-making.
Green planning is thus a perfect match for a full-scope end-to-end scenario-enabled supply chain planning solution such as Unison Planning™. It processes ESG-based sustainability metrics as a crucial element in the mix of decision-making tools plugged into the digital twin. At the same time, it can also be used to benchmark ESG reporting.
For green planning to be successful, it’s essential to look at the end-to-end supply chain because decisions made in one part of the supply chain typically have a significant impact on other parts. Ultimately, all players of the full supply chain will have to be involved, including players that reuse, repurpose, or recycle end-of-life products in a circular model.
Cascades of sustainability impacts
For green planning to work, additional sets of data need to be integrated into the system’s master data. These additional data sets must be structured in a way that allows the sustainability impact of decisions to be calculated and compared to one another, creating a cascade of potential impacts to consider. For example:
- What is the impact of using one material over the other?
- What is the impact of one km by truck or by train on carbon emissions and other ESG criteria?
- What is the environmental impact of moving production from one machine to the other, knowing that it might involve consuming different or additional materials, piling up products in different places, changing the mode of transportation, and other consequences?
- What is the impact of changing a production process, knowing that it brings about significant changes on different levels?
Data science helps to define reasonable values
While this may seem complex, the Unison Planning digital twin provides solutions to practically handle such cascades of impacts, notably through “telescopic” methods like data aggregation for different time horizons, market segments, and production units.
Not everything needs to be defined on a detailed level. If precise data are unavailable, the solution can still define reasonable values by looking at relevant historical data, data coming from similar production processes or products, and so on.
The telescopic digital twin is also a window into sustainability costs
Once these data are in the system, users can see the impact of plans or scenarios, and the telescopic digital twin allows them to drill down to the underlying details showing where the impact of certain decisions or constraints comes from. In the next step, the data will also be used as decision criteria, constraints, or factors in optimization algorithms.
Scenarios can be compared and benchmarked against each other, and this can be done on a strategic, tactical, or operational level. The management board can see where it’s smart to invest in new technologies. Sales and operations managers can evaluate and reduce the footprint of the next three-month cycle. And operational planners can tune their plans to sustainability criteria as well as operational considerations.
The move toward more sustainable supply chains comes with risks that could undermine the supply chain’s resilience or flexibility. Green Planning, therefore, empowers managers and planners to assess risks associated with decisions made for sustainability reasons.
A multidimensional tool for a multidimensional problem
The need to make supply chains sustainable is an inherently multidimensional problem requiring a wide range of intelligent tools that can act on multiple levels and offer the following functionalities:
- Reporting—This includes daily, weekly, or monthly standard reports as well as customizable reports and search engines with drill-down capabilities.
- Monitoring and alerting—This includes the calculation of indicators as well as alerting mechanisms that call for action in the event of deviations.
- Optimization—This includes mathematical and AI-based calculation engines that allow plans to be adjusted and fine-tuned (automatically or semi-automatically), as well as the development and evaluation of scenarios.
These functionalities are available on all time horizons, from the short-term scheduling of production activities to long-term strategic planning.
Organizational and digital maturity
Since green planning is in essence a particular implementation of end-to-end supply chain planning, companies that have already invested in such a solution for better visibility are able to embark on this journey relatively quickly. But it requires organizational maturity.
People, teams, and managers need to grow accustomed to putting sustainability considerations high on their priority list; otherwise, the effort will not produce the desired result.
In addition, planners and managers need to be fairly adept at using complex multidimensional digital solutions if they want to achieve tangible results. This is essential for any type of end-to-end planning, however.
A long-term necessity, a short-term opportunity
Are companies already embracing green planning? Sustainability is high on the agendas of senior executives. ESG compliance and actions to reach carbon neutrality in 2050 are business-critical and will continue to consume important resources in the foreseeable future.
Compliance will depend for a large part on the sustainability level of the end-to-end supply chain. It is a combination of the right strategic investments in the journey toward 2050 while taking advantage of significant opportunities in the short term. Sustainability will remain a key differentiator for many years to come, and green planning can help provide a competitive edge. Companies that are taking the lead today will also develop a better understanding of the possibilities, challenges, and necessities that come with making their supply chain 100% sustainable.
Do you want to know more about green planning and what it can do for your supply chain?