Sustainable Transformation is Accelerating
In past IDC blog posts, we’ve spoken about the increasing importance of sustainability in the supply chain, with sustainable transformation accelerating thanks to digitalization and the role of profitability in driving the sustainability agenda.
Manufacturers in Asia/Pacific* are already starting their Environmental, Social and Governance (ESG) efforts, with the top areas of focus for sustainability initiatives1 currently being on:
- Optimization of energy efficiency of products and operations
- Reduction in waste and driving cost efficiencies
- Incorporating circular economy principles (repair/remanufacture/recycle) in operations, including design and production processes, waste reuse, local sourcing of resources, etc
- Maintain customer relationships (external requests/requirements to meet ESG criteria)
- Incorporating responsible sourcing principles into the supply chain
As a result, manufacturers are initially focusing on short-term sustainability and ESG efforts in areas that increase efficiency and impact cost savings, pushing the profitability agenda. However, as organizations are required to comply with regulatory requirements, receive additional requests from customers, and realize further benefits from ESG initiatives, the scope for these projects is increasing. As a result, supply chains are moving from a traditional model of lowest cost to serve to one that is fit for the future, with an eye on risk mitigation, service levels, and sustainability.
According to the IDC 2021 Asia/Pacific Manufacturing Insights Survey, critical areas of technology adoption will drive sustainable outcomes for Asia/Pacific manufacturers over the next two years. The top three have implications for the organization and its supply chain, and they are:
- Dashboards, data analytics, and business intelligence
- Enterprise Resource Planning (ERP)
- Supply Chain Management (SCM)applications (supply chain network planning, supplier management, control towers, logistics)
Dashboards, Data Analytics, and Business Intelligence
The use of data, analytics, and artificial intelligence (AI) is shaping the future of sustainability across the supply chain. By leveraging insights from supply chain data, organizations can enable transparency, visibility, and agility. In addition, these insights can help increase the understanding of product lifecycles, materials origin, and energy consumption. As a result, organizations can take steps to optimize inventory levels and asset use, resulting in a more sustainable supply chain.
Organizations can utilize data, business intelligence, and AI/ML to support sustainability outcomes through:
Enabling visibility to determine impact
Data from internal operations allow organizations to gauge their direct environmental impact, including scope 1 emissions (those that are owned or controlled directly). However, the effect of tier 1 suppliers and their suppliers (tier 2 and beyond) is often unknown. Ecosystem partners can share data to increase visibility to determine environmental impact, including scope 3 emissions incurred in a company’s value chain. This sharing can result in opportunities to collaborate on solutions to optimize energy and resource use or support closed-loop product design.
Data enables efficiency
Inefficient asset and resource use can increase emissions. Data beyond the organization, such as economic and consumer trends, weather patterns, demand forecasts, and supply constraints, can be used to optimize resource usage. For example, the use of AI in logistics platforms supports the optimization of transport routes. It improves scheduling and efficiency through shipment consolidation.
Some ERP solutions have expanded capabilities to support the tracking of environmental data. This functionality includes providing traceability of raw materials from suppliers to finished product creation, energy used in the process, and supplier management to support sustainable sourcing policies. In addition, organizations use this functionality as a repository for data collection to assist with non-financial reporting in meeting customer and regulatory requirements.
How can organizations use ERP systems to support sustainability initiatives?
- Use data from ERP systems to improve efficiency through analysis that identifies inefficient processes and removes duplicate handling.
- Improve reporting on sustainability outcomes through order and materials tracking and data storage that enables traceability.
- Integration with ecosystem partners to:
- improve collaboration to improve raw materials quality to reduce wastage and improve final product quality outcomes
- facilitate closed-loop product design, increasing recyclability and removing waste from products from conceptualization to commercialization
- Modules such as asset management, transportation management, and demand planning can assist with planning that can affect supply chain sustainability. For example, companies can improve asset utilization and efficiency, extend asset lifecycles, minimize waste, reduce freight miles, and reduce expediting costs with some of the functionality of ERP systems.
Supply Chain Management Applications
SCM orchestration enables a holistic approach to transparency, seeking to coordinate the information and product flows to ensure the efficient management and fulfillment of products. Organizations optimize for several metrics, including profitability, fulfillment cost and capacity, inventory risk, customer service, and sustainability outcomes from organizational and supply chain network inventory sources. This orchestration integrates capabilities in a single platform that converges supply chain network planning, supplier management, transportation management, and orchestration of logistics activities. This platform may also support supplier management, ensuring supply chain transparency, and optimizing asset usage and routes to minimize emissions and waste.
Organizations seek to have visibility into data related to products to anticipate and balance order fulfillment. In doing so, they aim to meet customer service levels and sustainability outcomes at a lower total cost to serve.
This is achieved through:
- Convergence of planning & execution. For example, coordinating transportation flows across supply chain ecosystems to meet requirements and constraints, including sustainability outcomes.
- Integrated, holistic visibility. For example, view in-transit inventory across inbound and outbound flows to coordinate volumes and to optimize for consolidation and order splitting to reduce empty shipping miles, CO2 emissions, and costs.
- Measurement for control and sustainability outcomes. For example, the collecting data across the supply chain to generate insights into KPIs and metrics that support sustainability outcomes such as emissions per unit of cargo moved.
- Returns management reinforces circular economy principles. For example, provide visibility into freight movements to expose backhaul options to eliminate empty miles by utilizing this space for efficient reverse logistics movements and the coordination of returns to increasing recyclability and waste removal.
ESG is a Growing Movement
ESG is a growing movement – one that is attractive to consumers, employees, and investors. To scale sustainability efforts to meet government and stakeholder requirements, organizations need to collaborate and integrate. Digitalization will allow for the information sharing to improve sustainability solutions, as well as document activities to ensure organizations can report on the visibility and traceability required. Organizations are already committing to environmentally sustainable business strategies, which will require reporting on initiatives and development of decision-making capabilities to improve on metrics and support improvements to achieve corporate sustainability and broader ESG objectives.
*excluding Japan; 1IDC 2021 Asia/Pacific Manufacturing Insights Survey