How supply chain visibility improves sustainability in SCM

The imperative for addressing sustainability in SCM (supply chain management) has never been more critical. More than half of annual greenhouse gas (GHG) emissions come from just eight global industries, with more of these emissions coming from supply chain activities than from actual manufacturing.

And it’s not just the impact on the environments. When your sourcing team chooses what to buy and who to buy from, are you selecting vendors who share the same social values as your brand? When your manufacturing plants produce goods, are you minimizing waste and effectively using finite resources? When fulfilling orders for customers, do you know how your packaging and shipping decisions impact the environment? Your customers, employees and shareholders want to know you have a plan to address supply chain sustainability.

Supply chain sustainability is defined as embedding environmental, social or corporate governance considerations as raw materials are sourced, converted to products and delivered to market. But the supply chain doesn’t end when the product hits the market, and neither does supply chain sustainability.

Supply chain sustainability challenges

Developing a sustainable supply chain is imperative. However, there are many obstacles that an supply chain organization needs to overcome to actually implement it.

Complexity in Supply Chains

The visibility of vendors’ performance is one of the most significant issues in ensuring green supply chains. For instance, a multinational company may have thousands of first, second, and third-tier suppliers, and it is not easy to control their mode of operations.

Realizing transparency in every stage of a company’s supply chain network is complex. For most of the companies, their lowest-level suppliers are from undeveloped countries where the governments are not enforcing sustainability initiatives, and they are only driven by cost. Identifying such suppliers and correcting their processes or replacing them with green suppliers will consume time, and that action can often cause supply chain disruptions.

Invisible supply chains are always an issue, and sophisticated software is essential to monitor them. Thanks to new technologies such as Artificial Intelligence and Machine Learning which helped develop supplier performance management software to improve supply chain visibility.

Inadequate Resources for Implementation

Cost, quality, and lead time were the key pillars that drove traditional supply chains. But, increased concern about climatic change and global warming forced everyone to rethink it. That is how the idea of a green supply chain has evolved. Undoubtfully, once a sustainable supply chain is implemented, it will add indefinite value to the business while keeping the negative impact on the planet at a minimum.

Nonetheless, the implementation process will be arduous due to the absence of proper resources. The unavailability of solid strategies, lack of human resources experienced in sustainability methodology, etc., are some excellent examples that could contribute to this situation. Businesses have to invest in new technologies and people development by giving them appropriate training to build their future workforce in the field of sustainability. Governments across the world understand this requirement, and thus they support organizations by giving them training grants or incentives.

Non-Availability of Suitable Technologies

The green supply chain is a field that takes a lot of traction around the world. Switching from a traditional supply chain to a green supply chain is not easy, since it requires a radical change in an organization’s mode of operation. Adopting sustainable philosophy in the supply chain will make a company to re-look into its existing technologies and software to incorporate sustainability principles. Companies embrace various technologies nowadays, such as artificial intelligence (AI), big data analytics, supply and demand forecasting algorithms, and cloud computing. However, the unavailability of properly defined technologies is a challenge for any business that wants to venture into this field. Considering the dynamic nature of sustainability regulations and requirements, companies learn from real-life challenges, and their systems are susceptible to changes. The fluidity in requirements adversely affects how software is being developed to serve the field.

Sustainability in SCM Starts with Visibility

Improvements in technology for visibility into extended supply chains are now providing an opportunity to improve collaboration and the efficiency of the working relationship between customers, manufacturers and suppliers, which benefits both the businesses and the environment.

Resource efficiency with better forecast

Imagine if these supply chain organizations are equipped with new solutions that allow them to have better visibility into customer orders and into supplier performance. These solutions should enable ongoing bidirectional communication so manufacturers can be more agile in responding to the inevitable changes in supply and demand without incurring waste. For example, manufacturers can get earlier and clearer visibility into forecasts and purchase orders from their customers and suppliers. In turn, their customers can get a clearer picture of future capacity to better manage orders for products and materials, permitting more efficient production with higher order quantities, or earlier ordering to enable more fuel-efficient full truckload transportation.

Proactive decisions to avoid expensive waste

Most importantly, when the unexpected occurs and all of these plans go out the window, these solutions enable not only real-time visibility into what is happening with inventory, equipment, labor, and production; they also provide a platform to drive decisions so that adjustments can be made early — and even predictively with the use of artificial intelligence and advanced data analytics — to avoid delays that necessitate wasteful expediting, to avoid material obsolescence, and to avoid the most expensive waste of all: human capital spent redoing work or toiling with manual processes rather than finding ways to reduce waste in the first place.

Initiatives to leverage visibility to achieve sustainability in SCM

Stop underproducing or overproducing with more visibility

In industries with complex supply chains, such as aerospace manufacturing, there is a vast amount of data to manage. By storing all operational data in one central platform, teams can easily access information without switching between various systems and apps. This saves time and improves efficiency, allowing teams to focus on proactive measures rather than corrective measures to prevent supply issues such as parts shortages.

For example, a production controller can instantly know which parts are critical to source, which suppliers to contact, and which customer orders to potentially delay, which enables them to take the necessary actions in a timely manner.

Digitalization enables analysis for continuous improvement. You spend less time fighting fires and sifting data, and more time using it to make improvements to collaboration and processes. And with much more visibility into factory and supply chain visibility, you can achieve sustainability in scm by reducing the bullwhip effect:

  • Underproducing, which causes inefficiency from less than minimum order quantity (MOQ), higher transportation costs from expediting, costly labor overtime, and rushing (which incites mistakes, recalls, and rework).

  • Overproducing, which creates materials waste through product obsolescence, as well as waste of human capital.

Leverage historical data to facilitate improvement & reduce further waste

When it comes to supply chain visibility, staying in the know is crucial. But sometimes, the past can be just as important as the present - especially in the age of advanced data analytics. By using historical and contextual data about suppliers, equipment, machines, bills of materials, and customers, you can create accurate forecasts for future shortages and risks, reducing further waste.

But that's not all. To truly excel in supply chain management, it's essential to have a comprehensive history of issues and solutions for every object in your chain. This knowledge can be invaluable in solving future problems quickly and effectively. By leveraging this wealth of information, you can stay one step ahead of issues and keep your supply chain running like a resource-efficient machine. By efficiently managing the supply chain, organizations can optimize resource utilization, reduce energy consumption, and minimize the overall environmental footprint of their operations.

Wei Zhao
Gülşah Keleş
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Pelico's factory operations management platform empowers factory teams with the agility and resilience to quickly respond to any supply chain disruptions by having streamlined data-based collaboration.
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