A new study from the Global Commerce Initiative and Capgemini suggests that taking a collaborative approach to supply chain sustainability could not only be good for the environment but could have benefits for the bottom line. Malory Davies looks at the key conclusions.
Going green is often presented as a purely altruistic exercise – being kind to small furry creatures, saving the planet for future generations, and so on.
However, there are more selfish benefits from adopting a sustainable approach to the supply chain, according to a new study by the Global Commerce Initiative and Capgemini. The study, entitled “Future Supply Chain 2016: Serving Consumers in a Sustainable Way”, says that the consumer goods industry’s supply chain strategy should give priority to new parameters.
And it presents a new, integrated supply chain model that takes into account sustainability parameters such as CO2 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.
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 study found that 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.
What makes this study particularly significant is the support from the industry – 24 market leaders including Black & Decker, Carrefour, Colgate-Palmolive, GlaxoSmithKline, Danone, Johnson & Johnson, Kellogg’s, Metro, Nestlé, Philips, Procter & Gamble, Reckitt Benckiser, Unilever and Wal-Mart.
“There is a real need for breakthrough change, as the past does not reflect the future the industry will face,” says AG Lafley, co-chairman of GCI and chairman, president and chief executive of Procter & Gamble. “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.”
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.
The study 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 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, collaborative warehousing, collaborative city distribution (including home delivery and pick-up), and collaborative non-urban distribution (including home delivery and pick-up).
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.
In addition, it could also improve on-shelf availability.
Collaboration is, of course, a problematic issue in its own right. It is often talked about, but examples of successful supply chain collaboration between major competitors are hard to find.
With pressure mounting to move to more sustainable models of working, perhaps we are moving towards an acceptance that greater collaboration in the supply chain is indeed the best way forward.