Supply Chain and the Transition to Net-Zero
As sustainability moves further up the supply chain agenda, Supply Chain Insights finds out how organisations can reduce their carbon footprint while increasing profits, efficiency and customer service.
According to a report by the Government’s Climate Change Authority, the transport sector accounts for 16% of Australia’s greenhouse gas emissions, which makes the sector the third largest source of greenhouse gas emissions in Australia. It’s also rising at the highest rate of any other sector in Australia.
Greenhouse gas emissions from transport come primarily from fossil fuels combusted in vehicles. Personal vehicles equate for around half of these emissions, with the remaining produced by freight and logistics operations nationwide.
It’s also predicted that transport emissions are set to increase in the period to 2030, as demand continues to outpace efficiency improvements. This has been exasperated by the dramatic shift to online shopping, as a result of almost two years of lockdowns and physical retail closures due to the coronavirus pandemic.
Earlier this month, world leaders gathered in Glasgow, Scotland for the United Nation’s COP26 conference to set out their plans for reducing carbon emissions and creating a more sustainable future.
One of the most significant climate change events to take place since the signing of the Paris Agreement in 2015, COP26 saw leaders from every corner of the world commit to making the world a more sustainable place in the next decade. Those in attendance included Australian Prime Minister Scott Morrison – who committed to targeting net-zero emissions by 2050 in Australia.
While climate change and sustainability has been high on the political agenda for some time, the shift to a more sustainable future is also being driven by consumer demand and behaviour and this is having a huge impact on supply chain and retail operations.
If Australia is to meet its net-zero emissions target, then supply chain has a significant role to play in creating a more sustainable future.
The need to act now
A new research report ‘Sustainability in the Australian Retail Supply Chain’ commissioned by Manhattan Associates, Shippit and Greener – in partnership with the National Retail Association and NORA, revealed 60% of Australian consumers are open to receiving a delivery at a later date if it meant it was delivered more sustainably.
“Cost, customer satisfaction and sustainability all get tackled by making smarter decisions with the right tools and technology,” Raghav Sibal
According to Raghav Sibal, managing director, ANZ at Manhattan Associates, consumers want to see a clear message from the companies they shop with on what they are doing to improve sustainability.
“Consumers are not prepared to just accept the convenience of delivery at the cost of the environment, and they are increasingly aware of the growing impact the eCommerce sector is having on CO2 emissions,” he says.
Similarly, Mark Delaney, thought leader & retail strategist at Zebra Technologies says the impact of the pandemic has shifted consumer priorities away from price and speed, to sustainability and safety.
“Everything is on the table right now and it’s a fascinating time to be looking at retail and tech,” Mark Delaney
“If it wasn’t for the pandemic, I don’t think we would have seen this shift. But with habits forever changed, consumers are increasingly focused on the sustainability of their order. Furthermore, the global pandemic has made consumers more concerned of the safety of associates and customers,” he says.
While sustainability is impacting most organisations, the focus on sustainability in supply chain is driven by an increase in innovation and experimentation since the onset of the pandemic.
“We’re seeing proofs of concepts that would usually take a year to 18 months now happening in four to six weeks. There is an incredible wave of innovation happening right now and this is driving advances in sustainability,” says Mark
Jamie Dixon, director at TMX says one positive to come out of the pandemic is that everyone realised how important supply chain is, and with that came a drive to increase efficiencies and improve operations.
“A lot of the work we’re doing when optimising networks and better utilising resources, network footprint and assets has a significant flow on effect in reducing carbon emissions,” says Jamie.
But it’s not just consumers who are putting the pressure on retailers and logistics providers to improve sustainability and reduce carbon emissions, it’s investors too.
“What we’re going to see in the very near future is investors making a requirement that a company is committed to net-zero emissions. They are starting to ask, are you a good corporate citizen?” says Jamie.
With pressure from consumers and investors alike, retailers and logistics providers are faced with the urgent issue of improving sustainability in their supply chains.
The pursuit of true end-to-end sustainability
As more organisations focus on improving sustainability, organisations are asking how they can better report on, as well as better control their assets. But it’s not just about improving sustainability across an organisation’s own assets, but also any partner organisations – such as 3PLs.
“Any desire to improve sustainability has to also take into consideration, and improve, Scope 3 emissions. This includes any outsourcing of logistics or the production of raw materials,” says Jamie. “If you’re a large FMCG business and you outsource to a 3PL, all of those emissions are now your total responsibility. Just like the Chain of Responsibility includes safety and quality, it also includes sustainability.”
With the right tools and systems, retailers can calculate what their sustainability requirements are at both a strategic level as well as a day-to-day operation level. “This could be fuel type, vehicle type, route, transport mode and more,” says Jamie.
“What we’re going to see in the very near future is investors making a requirement that a company is committed to net-zero emissions. They are starting to ask, are you a good corporate citizen?” Jamie says. “If you’re a large FMCG business and you outsource to a 3PL, all of those emissions are now your total responsibility. Just like the Chain of Responsibility includes safety and quality, it also includes sustainability,” Jamie Dixon
This shift to a more sustainable operation is having a significant impact on 3PL operations, with retailers now looking to include sustainability requirements in contracts and service agreements. “Many larger retailers will no longer engage with a transport company who isn’t committed to reducing emissions,” warns Jamie.
Australia’s tyranny of distance
With a large reliance on road freight and the challenge of long distances and a geographically spread population, Australia has its own unique challenges when it comes to improving sustainability in the supply chain.
“Retail organisations in Australia have to deal with the fact that they need to create more points of distribution closer to the population, this is very difficult for a retail operation that utilises a centralised distribution model,” says Manhattan’s Raghav.
However, while Australia’s geography can be a disadvantage, Raghav says larger retailers in Australia have an established store network that can be utilised to fulfil eCommerce orders in a more sustainable way. Major retailers such as Kmart have already attempted this pivot during COVID-19 lockdowns, and he says this will be a regular feature as organisations attempt to improve sustainability in eCommerce.
Furthermore, technology has a huge role to play. “Cost, customer satisfaction and sustainability all get tackled by making smarter decisions with the right tools and technology,” says Raghav.
Jamie emphasises the importance of a true digital supply chain to ensure full visibility and control of inventory. “It’s about optimising your assets, spreading driver hours, ensuring vehicles are full, minimising split orders – all of these things not only improve sustainability but efficiency as well.”
Grasping the opportunity
According to Mark at Zebra Technologies, we’re set to see some radical innovation in the route to net-zero.
“I’ve seen companies start to explore the use of drones in remote areas, which could be relevant in Australia. They are very energy efficient and could be a great solution to deliver small packages. Everything is on the table right now and it’s a fascinating time to be looking at retail and tech,” says Mark.
Jamie also references a trend that is starting to take off in Asia in response to the sustainable impact of returns logistics – the consumer-to-consumer supply chain.
“What we might start to see is instead of returning products to a retailer, consumers might reuse and recycle the goods themselves through an online marketplace. Consumers with a sustainability focus will start to ask if there is a smarter way to return goods than sending them halfway across the country if someone in the same suburb can utilise them,” he says.
For Raghav, utilising the right tech to pick, pack and ship goods and to optimise routes and transport operations is critical when looking to more sustainable modes of transport. “While there is a trade off with slower, more sustainable modes of transport, if you have the right technology in place, you can ensure you are planning efficiently and make sure you continue to deliver a great experience to your customers regardless of the mode of transport you choose.”
Whichever route organisations take to improving sustainability in their supply chain, Zebra’s Mark says one thing is for certain: “to attract the future shopper, investor or employee, your messaging and commitment to sustainable practices will need to be very clear.”
