There is a strong correlation between sustainability and the future supply chain of the consumer products and retail industry, according to a new study by the Global Commerce Initiative together with Capgemini.
The study, entitled “Future Supply Chain 2016: Serving Consumers in a Sustainable Way,” sets out a new integrated supply chain model that takes into account sustainability parameters such as carbon dioxide emissions reduction, reduced energy consumption, better traceability and reduced traffic congestion, as well as traditional measures like on-shelf availability, cost reduction and financial performance.
It identifies a number of characteristics for the 2016 future supply chain including:
- The future model will be based on multi-partner information sharing among key stakeholders: consumers (the originators of the demand signal, either from home or from a store), suppliers, manufacturers, logistics service providers and retailers.
- After production the products will be shipped to collaborative warehouses in which multiple manufacturers store their products.
- Collaborative transport from the collaborative warehouse will deliver to city hubs and to regional consolidation centres.
- Warehouse locations on the edge of cities will be reshaped to function as hubs where cross-docking will take place for final distribution.
- Non-urban areas will have regional consolidation centres in which products will be cross-docked for final distribution.
- Final distribution to stores, pick-up points and homes in urban and non-urban areas will take place via consolidated deliveries using efficient assets.
The total potential impact of this supply chain redesign is significant, including reduction in transport costs per pallet, reduction of handling costs per pallet, reduction of lead time, lower CO2 emissions per pallet and improved on-shelf availability.
José Luis Duran, chairman of the management board, Carrefour, and co-chairman of GCI, said: “Regulations as well as resource scarcity, climate change, security, require new thinking, new approaches and new collaboration on infrastructures.”
AG Lafley, chairman, president and chief executive of Procter & Gamble, and GCI co-chairman said: “The future supply chain report makes a strong case for change by identifying the innovation that currently exists in the form of new solutions, leading practices, example supply chains and new ways to calculate the impact of the new parameters on the supply chain.”
This study follows an earlier report titled “2016: The Future Value Chain,” published by GCI, Capgemini and Intel and presents the tangible expression of the vision outlined in this earlier report: the integrated future supply chain model.
It points out that current supply chain designs are primarily aimed at improving on-shelf availability, reducing cost and supporting sound financial figures (like ROI or return on brand equity) but in the future, the industry must design for additional parameters like carbon dioxide emissions reduction, reduced energy consumption, better traceability and reduced traffic congestion. The impact of these new parameters on the current bottom line may not yet be substantial but will grow in the coming years and efficiency improvements will almost certainly be realised.
Supply chain strategy needs to look ahead and give priority to these parameters, it says. All stakeholders in the supply chain will need to play their part to accomplish this change. Consumer awareness and demand for new products and services will also accelerate the adoption of new practices.
The report sets out seven key solution areas:
- In-Store Logistics: includes in-store visibility, shelf-ready products, shopper interaction
- Collaborative Physical Logistics: shared transport, shared warehouse, shared infrastructure
- Reverse Logistics: product recycling, packaging recycling, returnable assets
- Demand Fluctuation Management: joint planning, execution and monitoring
- Identification and Labelling
- Efficient Assets: alternative forms of energy, efficient/aerodynamic vehicles, switching modes, green buildings
- Joint Scorecard and Business Plan
Examples of existing leading practices are integrated into the model to show how they help to address these solutions areas, and simplified supply chains are used to demonstrate how the new supply chain model can work and how it can be adapted to individual companies.
The study also looks at new ways to calculate the impact on the supply chain using new parameters. Integrating these improvement solutions together with collaboration concepts into a cohesive model will provide the future supply chain architecture that will help bring new efficiency and cost reduction for the industry, the report says.
This analysis demonstrates how the different solutions should be considered in relation to each other, the report says, and makes it clear that a big impact on the parameters can be made when the following concepts are merged and implemented:
- Information sharing – driving the collaborative supply chain
- Collaborative warehousing
- Collaborative city distribution (including home delivery and pick-up)
- Collaborative non-urban distribution (including home delivery and pick-up)
While individual examples of these concepts already exist, the key to their broader implementation across the industry will be improved collaboration, the report says. Improving such collaboration demands new ways of working together in the physical supply chain, a framework for which has been developed by GCI and is being addressed by a separate work team.
The total impact of this supply chain redesign (even taking into account the usage of current transport and storage technology) could potentially reduce transport costs per pallet to the order of more than 30 per cent, cut handling costs per pallet to the order of 20 per cent, reduce lead time by 40 per cent and lower carbon dioxide emissions per pallet to the order of 25 per cent, while also improving on-shelf availability.
The report suggests a number of steps that need to be taken:
Establish buy-in on the vision by a group of key stakeholders (such as leading retailers and manufacturers, mayors of big cities).
Check the concept’s business case with the involvement of all key stakeholders. Pilot the concept (or possibly leverage and enhance existing pilots).
Evaluate the implementation and share learning.
* The Future Supply Chain project is led by GCI, together with Capgemini and involves 24 retail and consumer packaged goods companies and several industry and standards organisations. It addresses the sustainability challenges that will lead companies to change their operation.
Participating organisations included AIM/ECR Europe, Black & Decker, British American Tobacco, Carrefour, Colgate-Palmolive, Crown Europe, Freudenberg Household Products, GlaxoSmithKline, Groupe Danone, GS1US, Johnson & Johnson, Kellogg Europe, Kraft Foods, Loblaw Companies Ltd, L’Oreal, MGL METRO Group Logistics GmbH, Nestlé, Philips, Procter & Gamble, Reckitt Benckiser, Royal Ahold, Sara Lee International, SCA Packaging, Symrise, Unilever, Wal-Mart Stores, Inc. and Capgemini.