Evaluating Sustainability Metrics with Supply Chain Modeling

By John Ames, Jr., vice president business development, OptilogicThis post originally appeared in Supply & Demand Chain ExecutiveIn today's business world, sustainability is more than a buzzword. It's a business necessity. Thriving in the 21st century requires a sustainable approach to supply chain design, and understanding—and addressing—greenhouse gas emissions within your supply chain is not only vital for the environment but is also a strategic business imperative.Historically, companies have made supply chain design decisions based strictly on service and cost. This meant they were primarily focusing on how the company ships, where it produces, its desired service goals, its distribution, and its profit and cost goals.Today, however, the scope of supply chain design considers financials, risk, service, and sustainability metrics. This means the modern approach to making supply chain decisions can also consider scope 1-3 CO2 emissions, water usage, power sources, recycling flows and landfill impact, and fair-trade certified sources, etc. As a result, a growing number of supply chain leaders are starting to quantify their sustainability metrics when making important supply chain design decisions.

What Is Supply Chain Design?

Supply chain design is the process of creating digital models of your future-state supply chain to accurately predict the performance of each design in terms of service, financials, and risk. Designing and redesigning the supply chain requires deciding what’s most important: the designer must weigh the trade-offs across financials, service, risk, and sustainability and decide which design will best support the enterprise’s long-term objectives.The World Economic Forum identified three primary challenges that are impacting today’s supply chain emission reductions, in a recent survey: A lack of standardization, a lack of scaled solutions, and competing organizational objectives. Because there isn’t an overarching standard for reporting emissions yet—although many organizations are still required to report them in various ways—it can be challenging to compare and contrast carbon emission rates. Also, legacy technology simply can’t keep up with the rate at which most large organizations want to scale; because these antiquated solutions don’t deliver a truly scalable framework, they are often limited in their ability to consider significant impacts when it comes to environmental sustainability. Finally, it can be difficult, if not impossible, to sell the need to invest in sustainable supply chain design to many stakeholders who are not actively involved in the organization’s supply chain or up to speed on these issues.While many companies are up against these challenges, the good news is that tackling sustainability in any supply chain through modeling doesn’t actually require a massive investment of time or money.

Why Consider Sustainability in Supply Chain Design?

Here are four reasons why companies need to consider sustainability metrics when modeling future supply chains.

1. Economic Impact – Climate and weather disasters cost the U.S. over $165 billion last year, according to the National Oceanic and Atmospheric Administration (NOAA). Yes, billions. It was the third most costly year on record. The companies operating in these regions faced supply disruptions, demand shifts, productivity slowdowns, and increased costs to rebuild or re-deploy assets. Companies can easily mitigate supply disruptions caused by these kinds of events in the future by taking proactive measures now to address how natural disasters could seriously compromise their supply chain—and profitability.
2. Customer Demand – According to a 2021 survey, 80% of consumers across seven major industrial countries prioritize corporate net zero commitments, saying it is “important or very important” that corporations fully commit to becoming net zero. The same survey shows this is even truer when it comes to younger generations. Their purchasing decisions largely hinge on an organization’s environmental stances, which heavily influence their overall willingness to buy goods from a given company.
3. Regulatory Compliance – There are many hefty fines that agencies like the Environmental Protection Agency in the U.S. inflict on companies that fail to be compliant. For example, Clean Air Act violations can be doled out at a staggering rate of $37,500 per day, per violation. These large fines are then inevitably passed along to clients, which further drives up the cost of doing business with any producers that are slow to adopt emissions reduction techniques.
4. Cost Savings – By taking steps to reduce emissions now, companies can also uncover hidden cost savings in transportation, distribution, and sourcing that could have a significant impact on their bottom line. New partnerships with eco-forward suppliers and service providers are one way to achieve this. But supply chain design modeling can also help organizations compare various scenarios that could ultimately reveal overall cost savings that could be gained by changing transportation routes, relocating distribution centers, or reconsidering where to source raw materials.

Sustainability Elements to Include in Supply Chain Design

There are five key elements to take into consideration when designing a sustainable supply chain:

1. CO2 Emissions – Measuring and reducing carbon emissions is usually the first step in improving a supply chain’s overall sustainability, and it’s quantifiable from warehousing and production to general operations and shipping.
2. Measuring Critical Resource Usage – Another key step toward improving a supply chain’s sustainability is to evaluate and reduce the use of (or reuse) critical resources such as aluminum, water, copper, steel, copper, and other commodities that were once considered abundant in supply but are now less readily available.
3. Consider Alternative Power Sources – By investigating alternative sources of power, companies can also improve the sustainability of their supply chains. For example, wind or solar energy might be able to power warehouses, plants, and office buildings instead of electricity.
4. Analyze Recycling Flows and Landfill Impact – Another approach to improving sustainability involves carefully analyzing recycling flows and landfill impacts. Forward and reverse supply chains are frequently part of a smart supply chain workflow.
5. Quantify Internal and External Risk Factors – Understanding how risky a supply chain is in terms of both internal and external factors is also important. After examining these risk factors, companies can more easily identify alternate approaches that reduce risk within the supply chain, to help mitigate the impact of serious threats, if and when disruptions occur.

Adopting a proactive approach to supply chain design that fosters both sustainability and profitability is more achievable than ever, thanks to advanced solutions that can model sustainability risk factors and assess the long-term environmental and financial impacts of different supply chain decisions. By evaluating sourcing and manufacturing options, according to numerous risk factors like economic resiliency risk as well as natural- and climate-related risk, companies can better understand how risky their supply chain is, across a number of metrics, and develop a plan to minimize the risk of each point of pain—or volatility.Doing so frequently presents companies with insights that may also prompt them to reconsider their decisions when it comes to supplier choices, distribution locations, transportation details, natural disaster risks and recycling and re-use processes. Read the Full Article in Supply & Demand Chain Executive