- Summary:
- A discussion of how supply chain practitioners can build towards a circular economy, fostering transparent reporting and collaboration with suppliers to improve sustainability
There's plenty enough evidence of broken supply chains in the world at the moment. But even if these perhaps temporary setbacks can be fixed, there's an even bigger challenge looming on the horizon. Humanity's carbon emissions are out of control, and our consumption of finite natural resources is storing up problems for the future. Everyone has a role to play in meeting this challenge, but the role of supply chain professionals could be pivotal, according to speakers at last week's Big Ideas in Supply Chain virtual event. In conversation with Kinaxis CEO John Sicard during the opening keynote, the company's Chief Strategy Officer Anne Robinson set the tone:
Supply chains, by definition, are consumers of the Earth's natural resources, from raw materials through finished product. Any improvements in efficiency and execution of the supply chain are ultimately better for the planet. I believe that sustainability will become one of the most important topics for supply chain practitioners over the coming months.
Stirring words, but what can the supply chain profession actually do to make a real impact? That was the subject of a panel discussion later in the day. It ranged across topics such as fostering a circular economy, establishing traceability, and improving carbon accounting, including some real-world examples of steps already taken by Microsoft in its data center supply chain. But speakers also acknowledged the scale of the challenge. Polly Mitchell-Guthrie, Vice-President of Industry Outreach and Thought Leadership at Kinaxis, quoted two contrasting statistics. First of all, she noted:
We know that anywhere from 60-80% of a company's greenhouse gas emissions come from its supply chain. And that doesn't even account for other scarce raw materials and water usage.
Yet most companies have not even started to involve their supply chain teams in sustainability efforts. She continued:
80% of supply chain managers, according to the Chartered Institute for Procurement and Supply, said that they either had had no involvement in planning for sustainability, little involvement, or were unaware of any corporate sustainability strategy.
Towards a circular economy
Set that starting point against the enormity of the task, which, at its most ambitious, is no less than reversing two-and-a-half centuries of custom and practice. That's according to Sandy Rodger, who is currently doing PhD research in the circular economy at Cranfield University, following a more than 25-year career at Unilever and Diageo. He explained:
Since the Industrial Revolution, so let's say 250 years, we have built supply chains, built whole industries, which are, as we would say, linear. In other words, we take resources, we turn them into some kind of product, we use the product, typically just once, and then it becomes waste. And more than 90% of the economy works that way today.
That's not the way things worked before. Nature is a perfect circular economy, where everything decays down and becomes food for something else. But in our great wisdom as humans, we spent 250 years building this rather different model of the linear economy. So the circular economy, basically, is the antidote to that. Instead of having minerals and valuable materials just becoming waste, recover them and keep using them.
As an example, Rodger cited the food chain, where he is focusing his research into the circular economy. Industrialization has created a one-way chain, infused with petroleum-based products — fertilizers made with natural gas, diesel to operate farm machinery, plastic wrapping around the products delivered to shops. He commented:
We have taken this biological system and just wrapped it in petroleum, and that makes it linear. So we've got to unwrap the food system and get it back to a more circular, more biological form.
Reuse as an alternative source
While there are many obstacles to making this a reality, the panel did hear some encouraging examples of what's already being done in some cases. Paul Clark, General Manager of Cloud Engineering and Supply Chain Sustainability at Microsoft, said that the company has established dedicated Circular Centers at its data centers with the aim of reusing electronic waste. As a result, four-fifths of servers go to reuse after decommissioning. In one particular case, it sells redundant DIMM chips from its old servers directly to a toy manufacturer in Taiwan. Clark commented:
For us, it's millions of dollars in revenue. For them, it's millions of dollars in cost savings, because they're buying a secondary product versus a net-new product from a manufacturer.
These markets exist for just about anything that's out there. It really just takes a desire to find out.
This is all part of his brief to drive a 55% reduction in emissions across the Azure Cloud supply chain. Designing for sustainability is also important. He said:
Since Microsoft designs our own servers, we're in control of what goes into our data centre that makes up the cloud. And as we do design for sustainability, if I was just to increase the amount of recycled steel by 10% in our server fleet, our server fleet's carbon count would drop by 15%.
Recent disruptions to supply chains have increased interest in alternative sourcing, and recovering raw materials from discarded products is an obvious place to look. Jack Allen, Head of Supply Chain Sustainability, Circular Economy, Security, Risk and Resiliency at Cisco Systems, pointed out that there's as much gold in a shoebox full of cellphones as there is in a ton of raw ore. We don't have a good way of mining that gold today, but he believes that will change. He predicted:
The future is that it will be much easier and much more cost-effective to actually mine our waste, and be able to create value from those chemicals and those materials that we're getting out of things that we have thrown away, then it will be to go out and actually dig down into the earth and get more.
Traceability and accountability
Better traceability and accountability from suppliers is another important contributor to a more sustainable supply chain. Historically, there's been a resistance to sharing information, either because suppliers feel it puts them at a disadvantage, or because they don't want to be accountable. Louis Roy, President and Founder of Optel Group, which supplies supply chain traceability software, recounted one prospect conversation:
One potential customer said, 'I don't want to know the problem in my supply chain. Because if I know, I might be legally bound because I knew that I had a problem like child labur or intense deforestation.'
This needs to change ... Check your supply chain, your tier one, tier two, or tier three, and make them collaborate. If they don't want to collaborate, well find some other supplier.
Microsoft's spend on data center hardware of over a billion dollars a year gives it a lot of clout with its suppliers. The company puts a sustainability clause in all of its contracts and is starting to ask suppliers to provide carbon data, to be able to account for carbon right back to the source. For the top ten suppliers by carbon count, the company has engaged with each one individually to build roadmaps to reduce their carbon emissions — one has already commmitted to reduce emissions by a third for all of the products it supplies to Microsoft. Clark explained:
We sit down and we look at factory locations, and what type of electricity the factory is running on, and are there alternative manufacturing locations? We look at the manufacturing process, we look at logistics and shipping and containers for products, with the goal of getting that carbon score down as much as possible over time.
He believes that incentives to share this information also come from external factors, such as the concerns of employees and consumers. As awareness rises of the importance of reducing emissions, he sees suppliers being able to charge a premium for more sustainable materials. He said:
I see the entire model is going to shift ... When you look at the cost of gold and all of the ore that comes out of the ground, there may be a premium paid for recycled gold, a premium paid for recycled steel ... In a circular model, there will be different incentives along the way that drive new revenue sources for our suppliers as well as our company.
Standards in carbon accounting
It's also going to be important to make progress on standardization. There's currently no accepted standard for carbon accounting, for example. This means that each supplier in a multi-step supply chain could be using a different model, rendering the result meaningless. To counteract this, Microsoft has developed an online calculator where it invites its suppliers to upload and model their data so that it is processed in a standardized way. But there's more that should be done at an industry level. Clark elaborated:
Every product from every supplier to every raw material is going to have to be tracked throughout its lifecycle and throughout its use cases, so that carbon accounting can be attributed from one company on one product to the next, and the next.
We're also going to need greater transparency. And we're going to have to be able to report these things openly — share our calculations, be open for scrutiny. So that all companies can come together and actually drive the standard that we can measure and that we can improve along the way.
Given the scale of these challenges, all the panelists agreed that the important thing is to make a start. They also agreed on the value of co-operation at an industry level — tapping into the expertise, knowledge and innovation of many participants. Rodger commmented:
There are very few businesses that are able to close a loop to create a circle by themselves. Those may be the easiest places to start with the circular economy, but we need to set our our ambition much higher than that. Pretty much every industry sector has got its version of the circular economy, [with] different technologies and materials and so on. So I think the the need to work within the ecosystem of each industry is there.
The thing to remember is, the knowledge that's needed here is 98% the knowledge that these industries already have, including the supply chain people in these industries. All you're doing is bending the supply chain, making it a circle instead of a straight line.
Allen added that people should think of the circular economy as just another approach to supply chain management, like just-in-time, which demands new thinking. He explained:
Reshape [your] thinking around that new paradigm of, I'm not going to take it out of the ground and throw it away later. I'm going to take it out of the ground, and now what do I do with it later? Just asking that question, about what do I do with it later, yields all kinds of new paradigms, new thinking and new ideas that I think are really going to reshape everyone's company, frankly.
My take
A timely discussion on a topic of growing importance, and one that shows just how much work is needed to make real progress on this issue.
For more diginomica stories from Big Ideas in Supply Chain Fall Event 2021 visit our Big Ideas in Supply Chain Fall 21 event hub. The virtual event runs from October 5-6th and sessions will be available afterwards to view on-demand until further notice. Click here to register and view now.
Disclosure - Kinaxis is a diginomica event hub partner at time of writing.
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