Intelligent Supply Chains to promote a Circular Economy
During informal chats with clients, we sometimes have spirited debates on the topic of ‘profitability of sustainability’. Yes, sustainability is an imperative today and everyone from consumers to governments wants to do something about it. But how do manufacturers – an important driver of trade – thrive in a circular economy?
Much has been spoken, analysed and written about the circular economy. It began in the 1970’s as a way to close the manufacturing loop by allowing consumers to return dated, faulty and unused products to producers to help alleviate the planet’s waste crisis. In recent years though, it has acquired new dimensions by addressing areas such as product innovation, sustainable packaging, renewable energy use, and responsible consumption – all of which can be strategic drivers for differentiation.
A key tenet of the circular economy and one of the United Nations’ sustainable development goals is using renewable energy across the supply chain. Brands like Tesla, Volkswagen, and Intel etc. are already leading the pack in this space. Typically, supply chain management involves measuring KPIs like order cycle times, fulfilment rates, lead delivery times, inventory, resource utilization, etc. But when it comes to building sustainable supply chains for a circular economy, I find that resource utilization is emerging as a vital metric that is capable of delivering critical insights. On the one hand, manufacturers can analyse how renewable energy resources (such as water) are being mined; on the other, it can accurately track how effluents (like carbon emissions) are being managed.
For example, on the back of recommendations by platforms like the International Energy Agency and Kyoto Protocol, many manufacturers already measure how their activities contribute to climate change, carbon dioxide levels, and greenhouse gas emissions. Strong regulations have led to carbon taxes, decreasing carbon cap limits and carbon emissions trading.
When other key metrics – like waste data, water footprints, and virtual water data – are integrated with carbon footprint data, it can bring home strategic insights for sustainable manufacturing processes in a circular economy. For instance, a discussion paper presented at a 2016 European Commission workshop showed that flowers produced in Kenya have a carbon footprint that is 15 times lower than flowers produced in the Netherlands. However, Kenyan flowers utilize high amounts of water from a land that is water-scare, leading to a hidden virtual water trade. In a circular economy, this kind of insight is vital to close the loop by returning the most important resource (water) to the point of production (Kenya).
The challenge with many of these metrics is that the current methods of measuring them are not precise. This is where the role of disruptive technology comes into play. Innovations from IT companies must go beyond the purview of solving business challenges to finding new and profitable ways of dealing with environmental ones. Part of the disruption we see in the digital age is about bringing more and more relevant and actionable information readily and accurately to the fingertips of users. As consumers, what if we could know the total environmental cost of a product right at the point of purchase that would enable us to become responsible consumers? What if manufacturers could cost-effectively provide this information to us – allowing them to become responsible producers? And what if governments had easy access to this information so they could create effective policies on which manufacturing industries to support based on their environmental costs – allowing them to become responsible leaders?
One solution approach is leveraging emerging technologies like big data, cloud computing, sensors, and the Internet-of-Things to accurately track real-time data of the above metrics across all production touchpoints – from suppliers to the final delivery. Such solutions can even be used in reverse supply chain logistics to fast-track product return to manufacturers.
This brings me to perhaps the most significant question for businesses: how does this boost profitability? By becoming aware of their environmental costs, local manufacturers can make sustainable decisions on what to produce. Global manufacturers can base their expansion strategy for new plants based on a nation’s virtual water cost, water footprint, waste management facilities, etc., thereby reducing the environmental cost of production. Finally, precise and real-time data from these solutions can be used to create effective governmental policies to regulate trade and manufacturing. One example here is the case of China that imports large amounts of soybeans, each ton of which comprises over 2000 cubic meters of water. This virtual water trade allows China to conserve its own local water resources and reduce its own manufacturing costs.
Technology is the great leveller of our times. It helps us sense and process information, from the past and in real-time, to respond intelligently to our environment. Infosys calls companies that leverage such technology ‘live enterprises’ – ones that find new opportunities in existing challenges and effectively adapt to change. I believe that when technology companies design integrated solutions that empower manufacturers, suppliers and partners to think out-of-the-box and prioritize sustainability with profitability, it gets us one more step closer to fostering the circular economy.