McKinsey reported that most of the environmental impact associated with the consumer sector is embedded in the supply chain. In particular, 80% of greenhouse gas emissions are in the supply chain. However, consumer focus on sustainability and institutional regulations is growing, pushing companies to take steps to implement sustainable strategies, which cannot exclude the supply chain.
What is a supply chain and why a long supply chain is a problem?
A supply chain is the network of actors, processes and activities that are needed to bring a product or service from its origin to the consumer. It includes procurement, production, distribution and delivery stages. The more stages there are, the more complex the supply chain is.
Generally, longer supply chains show higher costs and lower efficiency due to cultural differences across countries, different levels of quality control, and technical aspects such as regulations and taxes. They are also more vulnerable to supply disruptions due to any number of factors, such as natural disasters, transport delays, political unrest or pandemics. And unforeseen supply chain disruptions can result in supply shortages which led to higher costs.
From an environmental point of view, supply chain emissions come mainly from transportation, since goods have to be shipped everywhere, continuously and quickly. Additionally, supply chain related waste is typically difficult to track and manage. This makes it hard to identify areas where efficiency gains can be implemented in order to reduce the environmental impact.
On the other hand, companies with short supply chains are typically more efficient, as they require fewer resources and less time to produce or deliver their products or services. This can result in lower production costs and higher profits.
Shorter supply chains also help reduce environmental impact by reducing emissions and other wastes. In addition, they are more resilient to supply disruptions, enabling companies to remain competitive in a rapidly changing market.
The circular supply chain
The supply chain can be either linear or circular.
A linear supply chain follows the traditional “take-make-dispose” model where resources are extracted, products are manufactured and then disposed of. A circular supply chain aims to minimise waste and virgin resource use by creating a closed-loop system in which resources are reused, recycled or repurposed instead of being discarded or sent to landfills. For example, companies can use renewable energy sources for production, utilise take-back scheme for products, reuse waste for production, cut overproduction or unnecessary packaging, and implement product-lifecycle management systems for materials.
Additionally, a circular supply chain can help reduce costs associated with supply chain operations as resources are reused and recycled instead of bought new on a regular basis. It also works to eliminate supply chain disruptions through automated processes.
Finally, developing a circular supply chain requires careful planning which offers beneficial organisational changes, from improved communication between departments to greater innovation in logistics and product design.
Ultimately, a circular supply chain creates a system that is less wasteful, resilient to market fluctuations and more sustainable to future generations - all while saving money at the same time.
What companies should do to set up a circular supply chain?
Companies aiming to have a sustainable supply chain should consider implementing a number of different strategies, such as:
- Incorporate renewable energy sources into production processes,
- Utilise resell-reuse-recycle models for products,
- Rethinking product and packaging design to reduce waste,
- Develop partnerships with suppliers that have sustainability initiatives in place,
- Utilise green supply chain technologies, such as digital tracking systems, cloud computing and artificial intelligence (AI).
Indeed, technology is essential for developing sustainable supply chain strategies that go beyond just reducing emissions and waste. For example:
- Adopt connected products and digital product passports to track and trace their products to provide transparent information that can be used to better analyse and optimise the supply chain.
- Companies can use data analytics to track supply chain performance and identify inefficiencies and areas where they can save costs,
- Blockchain-based supply chain management platforms to provide real-time visibility into inventory levels and order statuses, enabling faster delivery times and reducing the risk of supply chain disruptions,
- Automation technologies can help optimise supply chain processes and decision-making.