Profit and Planet Two Sides of the Same Supply Chain Coin

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Profit and Planet: Two Sides of the Same Supply Chain Coin

  • Profit and Planet Two Sides of the Same Supply Chain Coin
2 minute read

A Gartner survey found that more than two-thirds of chief supply chain officers (CSCOs) are still recovering from the last major disruption when the next one comes along. These executives face a continuous barrage of challenges that proves unresponsive supply chains are going to struggle in a state of constant volatility. Businesses must respond proactively to disruptions by implementing processes and technologies that enable them to not only spot risks or disruption much earlier, but also act upon them in the most efficient and sustainable way possible.

The current level of supply chain disruption and complexity represents the culmination of decades of supply chain evolution. New innovations, changing customer expectations and a growing understanding of environmental concerns have added to today’s complexity and volatility.

Supply chain management started with the establishment of long, low-cost supply chains that remain the foundation of most manufacturing and retail business operations to this day. Fast-forward to the global financial crisis. While businesses got their first taste of the volatility that was to come, the basic supply chain model didn’t really change. There wasn’t an air of anticipation that these inherently inflexible supply chains would become operationally, financially and environmentally unsustainable.

However, all three pressures materialized during the COVID-19 pandemic. This unprecedented global event exposed vulnerabilities and led to the realization that organizations needed to adapt their supply chains to become more financially and environmentally resilient.

That magic word “resilience” has been joined by another aspirational word — “agility” — to guide business strategy in the pandemic’s aftermath. The need to balance investment in operational cost efficiency, service improvement, product profitability and growth and environmental sustainability — while simultaneously making supply chains more resilient to disruption — is the new holy grail.

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The growing importance of sustainability

Simultaneously, sustainability has emerged as a strategic priority. But resilience and environmental stewardship are closely aligned. Building a sustainable and resilient supply chain means laying down strategies to predict and respond to disruptions efficiently, with an acceptable impact on both profit and planet.

So far, this has largely involved organizations building knowledge of financial and environmental impacts into their decision-making tools — for example, calculating the carbon outputs and fuel cost savings of various transportation options, including not just the route but also the vehicle itself. Given that road transportation from trucks and vans accounts for 65% of the total emissions from transportation, according to the Organization for Economic Co-operation and Development (OECD), the potential for optimization is enormous.

Waste reduction is another route to addressing both profit and planet. For example, in a highly reactive sector such as short shelf-life foods, predictive artificial intelligence (AI) is being used to develop forecast models based on external variables like weather, seasons, competitor behavior and advertising. This granular level of forecasting improves accuracy, which allows the supply chain to meet demand without creating excess inventory. Forecast accuracy offers the added benefit of maintaining profit margin by minimizing price reductions and clearance events. A study by McKinsey, The Ellen MacArthur Foundation and Google identified that AI can unlock $127 billion per year through food waste reduction.

Finally, enabling the inclusion of CO2 emissions in mid-term planning processes allows a similar optimization of supply chain activities for both environmental and financial advantage. By using optimization capabilities that consider multiple objectives concurrently, companies can achieve balance in their decision-making, where financial performance has traditionally been at the expense of environmental impact.

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