Businesses are under increasing pressure from environmentally conscious consumers and regulators to meet their net zero commitments for greenhouse gas emissions from their supply chains. But they still have a long way to go.
A recent report by the Intergovernmental Panel on Climate Change (IPCC) outlined the stark reality of the climate crisis and the disparity between where businesses are in their current efforts to "be green" and what this means for the success of climate change goals.
Too often we see a temptation to focus on passive solutions such as carbon offsets that provide instant gratification, with little emphasis on the long-term effectiveness of such solutions. Technology investments that try to reshape the supply chain are more effective in the long run, but businesses often overlook them in favor of this quick fix.
The answer lies in a third way: a transformative solution that can be quickly deployed and integrated with both short-term and long-term results.
The supply chain is a huge factor in an organization's sustainability, and logistics and transportation are unsurprisingly the biggest contributors to its carbon footprint. The 2016 McKinsey report found that more than 80% of a business's greenhouse gas emissions come from its supply chain. There is a tremendous opportunity for business leaders to implement positive change towards achieving sustainability goals by changing their supply chain strategies. Still, the challenge is quite complex and requires access to multiple datasets from multiple sources.
For a supply chain manager, this level of complexity provides too many variables for individuals to calculate. It is impossible for a human brain to quickly adapt to changing information received from hundreds of suppliers and other stakeholders in a typical supply chain. The list of datasets is endless: operational capacity, prior performance, availability of “green” modes of transport, carrier prices, estimated shipping times, and the possibility of route disruptions are just a few. The only way a business can effectively measure this volume of data is with the help of artificial intelligence (AI) technology.
Using Artificial Intelligence to Improve Sustainability
Using these datasets, AI technology can rank and identify the biggest levers for reducing carbon footprint. Perhaps surprisingly, it is the position of fulfillment that emerges as the most important. Choosing the right one has the potential to reduce a business's carbon footprint by almost 30% and has a huge impact on other factors as well. Storing the right products or services close to the end user means vehicles travel less distance for delivery and loads are lighter; both are highly effective factors in reducing the carbon footprint.
However, fulfillment sites are only one component of the supply chain. AI can also help calculate the least mileage and least delays for shipments on polluted modes of transport. Businesses can also adopt a multi-carrier strategy where AI automatically selects the carrier with the greenest fleet (though it should be noted that this only has a 7% impact on overall emissions) and automate carrier switching when problems arise.
Balancing Sustainability and Cost
For many companies, reducing carbon emissions and costs is seen as isolated, with a bias towards the latter. After all, the business needs to be profitable and the shareholders were happy.
It is possible for a business to align its ESG and business goals. Historically, business leaders have been in the dark about how much reducing their carbon footprint will affect their bottom line, but through AI they can find the ideal balance.
In a simulation of a fictional pharmaceutical business, we found that for every $1300 spent on last mile logistics, they should emit no more than 284 pounds of carbon dioxide equivalent. This will vary between businesses, but AI is finally allowing business leaders to accurately estimate the cost of being green.
It may be tempting to look at the supply chain at a granular level, but optimizing it and reducing costs can only be achieved by taking a holistic, data-first approach to logistics. Third-party AI-powered logistics platforms are easily integrated into existing systems and can help supply chain managers make key decisions in real time.
Businesses can also create digital twins, which are artificial intelligence-driven virtual depictions of supply chain components, including warehouses, suppliers, and inventory. They provide further insight into supply chain behavior by running fast and comprehensive simulations that can effectively calculate the cost of being green.
Climate regulations will only continue to increase, but business leaders no longer have to choose between planet or profits. There is a real opportunity to reap the benefits of AI technology and start making immediate and effective changes to supply chains.