Sustainability in supply chain

JOS VAN HILLEGERSBERG: This session is about sustainability– sustainability of the end product and the supply chain that has produced that product. Sustainability has become a really important topic, and something that is really relevant for studying and designing supply chains. Sustainability is not just about the production of the product, but also about the distribution. And consumers are more and more interested in the sustainability of the products they buy. This is not only the case for products produced by large corporations that find themselves in the spotlights, of the media, but also smaller corporations can make use of sustainability to position their products in niche markets, and attract consumers that really care a lot about the sustainability of the products.

There are many interesting examples of large corporations that have invested a lot of attention into communicating and caring about sustainability in their supply chain. A famous example is McDonald’s. McDonald’s was under a lot of media attention and criticism around 2011 when a lot of people started to question the quality of their products, the sustainability at which these products were produced. Of course, the people started to ask the question, how is this meat in the famous Big Mac hamburger actually produced? McDonald’s has put a lot of effort into this question. And you will see it’s not a very easy one to answer, because sustainability is about so many aspects. It is about the production process.

It is about the distribution and the storage. But it’s also about where the cattle has lived– the farms where the cows grew up. So McDonald’s cannot solve this issue by itself. It has to work together with all these companies around the world. And we’re talking about hundreds of thousands of companies. Since sustainability is about many things, first they have to establish a standard. What do we see as sustainability? It’s about quality. It’s about working conditions. It’s about energy consumption. These things have to be defined in order to be communicated with the different producers, measured, monitored, and eventually communicated to the customer.

So it’s important to establish these standards in groups, conglomerates of companies, discussing these standards together, and then implementing them. And this is a long process. And also it’s really important to then communicate it effectively to the consumer, so that the consumer can make informed decisions. Sometimes these standards are developed with the help of government or standardisation organisations. Sometimes the industry itself sets standards for this process. To assess the sustainability, we have to look at the entire supply chain, and follow the product, and measure the product from the beginning– the source– to the shop.

And then we can assess all these different items– like energy use, the waste produced, the living conditions, the working conditions, and so on, and measure this in a standardised way. You can imagine you need a lot of technology to make this happen, and to monitor and communicate all this information. But fortunately, this technology is becoming available. Think of sensors that monitor the product and monitor the energy use. Think of technology standards that we can implement to measure all this different information.

And think also of what we call product life cycle information systems, where we monitor all the components that were used in a product, and the production process, and the way eventually these products are used so that we can document and measure the entire footprint of a product. In the case of McDonald’s, you could see that they have implemented a lot of systems– monitoring systems– and also have established standards, work together to make big improvement steps. In the restaurants now they try to communicate the sustainability through various games and apps on mobile phones so that the consumer knows what they are buying. But of course, it’s not yet finished.

There’s many more steps to do to make a complete supply chain– food supply chain– visible and monitor-able, and communicated effectively to the end consumer. Another way to achieve sustainability and make it relatively easier to achieve is to create a full vertically integrated company. Some companies try to do this. So they own the raw material production sites– for example, the farms, in the case of food. They have their own distribution centres, their own logistics, their own processing centres. They try to own the entire supply chain. This is, however, very often not feasible. Sometimes it’s just too expensive. Or sometimes you cannot compete with these vertically integrated companies versus the more agile and more dynamic supply chain networks.

But it’s very interesting to see these two alternative designs. And if the responsibility for sustainability and quality is very, very high, then it may be a feasible route, because then at least you can enforce the standards, and the information systems you need throughout your entire supply chain, since you own it. When this is not an option, the only thing you can do is work together really closely with the network of suppliers and your network of customers, and make sure you get a good visibility of the entire supply chain, and agree on standards to really get a reliable footprint in place.

Where in the past we had to rely on just estimates of the sustainability of a product based on average scores, on average energy consumption, on assumptions about, for example, the cost of transport, or assumptions about the quality, this is no longer good enough, and it’s also now possible to get actual metrics and actual data on the sustainability of a product. This is made possible by a combination of information technologies.

The emergence of the Internet of Things and sensor technology makes it possible that we actually monitor from the very early steps in the supply chain to the actual usage, and even throughout the life cycle all the data that are generated as part of the production and distribution and storage and use of products. All this data is communicated and collected in information systems so that we can make very reliable metrics, and get a very good insight into what has happened through the product lifetime.

The combination of large sensor networks and big data sets, and all the analytics that we have now to make reliable metrics really work, give us the insight in these complex supply chain, and also allows us to make decisions into designing more sustainable supply chains. If the consumer is not changing behaviour, then all this effort is not really useful. So another set of information technologies may be really interesting for supply chains to have the consumer really buy the most sustainable service and product. Think of apps and games that are used to give the consumer really insight into the product he’s using and buying, and also change his behaviour into more sustainable ways.

Think also of information to help the consumer in using the product better, and also repairing it if it’s broken, or get a good repair service. Think also, for example, 3D printing technologies that can be used to create spare parts almost on the fly, and very close to where the products are used. So information technology has really a huge potential to make sustainable supply chains happen. Traditionally, supply chains were designed at let’s say a more network level, and they could end up in really complex structures with a lot of transport over many, many miles. Information technology also makes the local-to-local model much more feasible.

think of the information as a platform where you really effectively can dynamically design a supply chain where you combine local capacity and local demand in a very dynamic way. This can prevent unnecessary transport. And we see this model happen more and more often. For example, in the case of the hamburgers, why not combine demand of local consumers, and then see if local production can meet it before we try to get it from elsewhere? In that case, we can prevent a lot of unnecessary transport storage, and combine local communities again, like many centuries ago it used to be the case.