The Dynamics of Sustainable Supply Chain Planning
As part of Solutions Review’s Contributed Content Series—a collection of articles written by industry thought leaders in maturing software categories—Carlijn Goedhart, the Sustainability Lead at DELMIA, and Vincent Wiers, an Industry Process Expert at Dassault Systèmes, take a closer look at the dynamics of sustainable supply chain planning and the impact it can have on the world.
Sustainability requires people to plan their usage of scarce resources carefully. This includes the use of land and water to grow food; the use of space to live, commute, entertain, sport, and relax; the use of clean flowing water to clean; the use of fossil fuels to drive our cars, fly our planes and to generate electrical power. In all cases, it is about managing Earth’s scarce resources so that, in principle, countless future generations can enjoy life on our planet with the same quality as we can.
Many of Earth’s scarce resources are consumed by industrial processes and transport, which are the building blocks of today’s supply chains. According to the IPCC, about one-third of the global CO2 emissions are linked to industry and 15 percent to transport. Together, that’s almost half of the total CO2 emissions. The emissions generated to produce or transport can be significantly influenced by how supply chains are planned. For example, a route that is optimized so a truck needs to travel less distance to deliver the same number of packages or a production system that saves energy by efficiently batching products in furnaces. Therefore, supply chain planning can have enormous potential to reduce the environmental impact of production and transportation.
Four Levels of Maturity
Level 1: Sustainability as a spinoff from supply chain improvement
The good news is that, in many cases, better supply chain planning benefits sustainability targets. Supply chain planning projects usually aim to increase supply chain effectiveness—like delivery reliability and improving efficiency—by reducing stocks, production costs, and raw material usage.
There are many links between supply chain planning and sustainability goals, as illustrated by the following examples:
- Sales & Operations Planning (S&OP) aims to align demand and supply for the complete supply chain. This means that decisions are made about when and where to produce what products in the most efficient way. Optimizing this plan can have a positive impact on CO2 emissions;
- Master Production Scheduling (MPS) focuses on choosing resources that can be produced in an energy-efficient manner. It can also ensure that perishable products are processed on time to avoid waste.
- Production Scheduling can be used to avoid setup or cleaning between different products.f Logistics Planning enables companies to optimize routes and the loading of transportation (e.,g. trucks).
Level 2: Measure sustainability KPIs
“To measure is to know,” and “If you cannot measure it, you cannot improve it” are the words of Lord Kelvin. Improving the sustainability of a process starts by quantifying and measuring indicators (i.e., the amount of CO2 emitted). More than ten years ago, a producer of candy bars decided to print a transport’s CO2 emission on the packing slip to make customers and suppliers more aware of the environmental impact.
Although this initiative is welcomed, making a figure available alone will not enforce any decision-making changes. Packing slips are probably only read by employees that are working in warehouse operations, who do not have any decision-making power over the transports the warehouse handles. Similarly, a key performance indicator (KPI) that shows CO2 emissions on the screen of a planner does not guarantee that the planner will actually try to influence this in a positive way when the management is only interested in efficiency and timeliness of production. Hence, making sustainability KPIs available is necessary but not sufficient.
Level 3: Involve sustainability KPIs in trade-offs
As the examples in the first level illustrate, it often happens that companies get some sustainability effect ‘for free’ when focusing on ‘traditional’ supply chain planning objectives. However, in other cases, trade-offs need to be made between the objectives, which makes the puzzle harder to solve. This is where supply chain solutions planning engines will help. When using sustainability KPIs that are added to the optimizer, it is possible to trade off against traditional KPIs, including delivery reliability or stock targets. It might mean that, in some cases, a somewhat higher purchase price is accepted to save CO2 emissions.
For example, a European steel rolling factory has the possibility to buy steel slabs from different suppliers. Some suppliers are in Europe, whereas others are in Asia. Suppose that for a specific type of slab, the purchase price from the Asian supplier is lower. However, transporting the slab will incur a larger amount of CO2 emissions. Using the right weight for the mentioned KPIs, the planning application will suggest sourcing the slab from the European supplier.
Level 4: Set sustainability targets using standards
In sustainability efforts, it is often not clear what the objective should be. Should we sacrifice 10 percent of delivery reliability to avoid energy waste in the production process? Should we accept any deterioration for this objective, or should we stop producing specific products completely?
Repeating Lord Kelvin’s words: “To measure is to know,” Florence Verzelen, 3DS Executive VP of Industry, Marketing & Sustainability, highlights the measurement of carbon footprint as the number 1 action for companies to start walking the talk on sustainability. Once a company measures its carbon footprint, it can be mapped against standards like the GHG protocol. Ideally, companies set a target not only for the emission sources they control directly but also for the ones they do not own themselves (i.e., from suppliers). The Science Based Target Initiative (SBTi) can help companies set such targets for so-called Scope 1, 2, and 3 emissions that are in line with the Paris Agreement.
Becoming 100 percent sustainable is a utopia: sustainability is a journey rather than a destination. Nevertheless, Supply Chain Planning and Optimization can make a huge difference in reducing the environmental impact of manufacturing and transportation operations.