Resilience for Supply Chain Decarbonisation

Resilience for Supply Chain Decarbonisation

by Dr. Shereen Nassar, Global Director of Logistics Studies and Director of MSc Logistics and Supply Chain Management Suite at Heriot-Watt University Dubai

Global supply chain disruption has become commonplace, forcing the industry to see beyond the traditional means of working. Especially the COVID-19 pandemic has changed the way the industry operates. The reasons for such shifts have been to eliminate bottlenecks, enhance productivity, eliminate waste, remove duplication, and drive cost improvements. However, while the changes have been phenomenal and much needed, decarbonisation is one important aspect that demands serious attention by all stakeholders to mitigate the ongoing disruption caused by climate change which enforced the introduction of global and local carbon neutralisation goals and measures. As a result, organisations are consciously moving towards reducing carbon footprints while also managing costs, profitability, employee retention, and growth.

 

Increasing the pressure of Net Zero Carbon future challenges supply chains

Decarbonisation is inevitable and a fact that many industries are now focusing on. Government agendas create clear pathways for industries to relook at their carbon emissions and commit to the net-zero agendas. COP 26, held in 2021, successfully showcased renewed vigor for countries to accelerate action towards the goals of the Paris Agreement and the UN Framework Convention on Climate Change. The UAE has launched UAE Net Zero by 2050, which aligns with the Paris Agreement. The Ministry of Climate Change and Environment (MOCCAE) will lead and coordinate efforts to execute the UAE Net Zero by 2050 strategic initiative and ensure collaboration at a national level to fulfill this objective. Stakeholders in key sectors, such as energy, economy, industry, infrastructure, transport, waste, agriculture, and the environment, will update relevant strategies, plans and policies and implement initiatives and projects to achieve net zero by 2050 in line with their needs and growth requirements.

Logistics and supply chain operations are common activities across different businesses that directly impact their environmental performance and response to the net-zero growing pressure. However, it is far more challenging when considering the network and stakeholders perspectives in the discussion of decarbonisation and net-zero goals. This is because supply chains can be exceptionally intricate; they are multitiered, sometimes spanning multiple geographies. Due to the ever-increasing complexities of supply chains, they are susceptible to lack of transparency and a weakened level of control. Across the supply chain, organisations struggle to foresee and control risks, such as varying regulatory environments, political landscapes, national cultures and behavior patterns, and societal expectations. Putting added pressure on the industry to create better pathways into decarbonisation and sustainability.

According to a 2021 report by World Economic Forum and BCG, eight global supply chains account for more than 50 per cent of annual greenhouse gas emissions. These includes Food, construction, fashion, fast-moving consumer goods, electronics, automotive, professional services and freight The reports say that only a small proportion of these emissions are produced during final manufacturing and that most are embedded in the supply chain. For example, base materials, agriculture, and freight transport are needed to move goods around the world.

There are many ways in which the industry can implement changes. For example, as transportation contributes heavily to greenhouse gas emissions, adopting sustainable fuels—could be key to reaching net-zero targets. Sustainable fuels include biofuels such as hydrotreated vegetable oil (HVO) or bioethanol and synthetic fuels (synfuels) such as ammonia or methanol. Additionally, the use of electric vehicles can also significantly contribute to the industry’s sustainability. These activities will allow for faster decarbonisation of fleets in the short term. However, the industry has been slow in adopting alternative fuels due to the high costs of sustainable fuels, which are not yet feasible and is augmented by the complex nature of logistics and supply chain activities. However, the long-term net-zero goals are phenomenal.

 

Supply chain resilience principles are the foundation of carbon neutralisation

While the supply chain industry has a long road toward achieving carbon neutrality, readiness and preparedness must be developed faster before it is too late from the environmental and regulatory perspectives. The maturity level of a supply chain is a key indicator for the carbon neutrality adoption plan and performance. Early adopters of decarbonisation practices are from supply chains with high maturity levels, such as Apple and DHL, which apply best practices in managing their supply chains considering the network design and stakeholders approach and they are equipped with the technical, economic and managerial capabilities to make the required change at high success rate. This was easily evident in the business response to COVID-19 disruption. Well-established global supply chains were able to recover faster and to maintain sustainable growth. That was not the case for many other supply chains. The recent large disruption taught us that resilience is core for mitigating risks. It needs to be not only the main supply chain and business strategy but an integral part of the business culture and values. Decarbonisation is a different source of risk for businesses and requires a proactive response. A resilient supply chain is core to achieving carbon neutrality; the same principles apply here.

A resilient supply chain is agile, flexible, and responsive. Supply chain agility, flexibility and responsiveness can positively impact the sector. For example, an agile supply chain support responsiveness, flexibility, and swiftness to manage how well a supply chain entity operates daily. Flexibility and agility will help the supply chain to respond to changes and unforeseen circumstances within short notice. Agility and responsiveness will significantly impact and continue to impact net-zero goals by recognising risks that can be managed before they negatively impact sustainability goals in the long term. To this end, a resilient supply chain requires a collaborative approach among its partners to achieve decarbonisation goals, rethinking supply chain network design in a way that can reduce carbon emissions and a culture that nurtures risk management.

 

Map the supply chain to guide your decarbonisation journey

Moreover, the companies must have clear pathways to their decarbonisation ambitions and actively map the journey. Most businesses focus on Scope 1 & 2 emissions of the Greenhouse gas (GHG) protocol which are mainly related to the direct emissions produced by the company and the indirect emissions via the purchase of energy; here the focus is individual company perspective. However, businesses need to clearly understand their supply chains and the sources of high carbon footprint as bottlenecks towards net-zero value chain. This should cover Scope 3 emissions of the GHG’s protocol which is the toughest carbon emissions to capture. This is because it covers emissions from activities related to upstream and downstream supply chain, i.e., those not under direct control. According to McKinsey & Company June 2021, Scope 3 emissions represent the majority of carbon footprint for most companies that could be as high as 80 -90 per cent in some cases. The aim is to achieve an end-to-end carbon emissions transparency that is challenging to attain due to the lack of mature carbon capture and transparency mechanisms in the upstream supply chain.

Closer collaboration and increased transparency among those involved in the supply chain operations including customers, suppliers and other stakeholders are required to build a more tight-knit outlook toward sustainability. The way to achieve such goals is never single-handedly managed. It requires the entire group of contributors to buy in on the concept and to be engaged to make headways into achieving those ambitions. Although tracking carbon emissions under Scope 3 is challenging, advanced technology could be an enabler and can help organisations to capture and track their carbon emissions throughout the supply chain with the help of artificial intelligence and internet of things powered tools that are now available. These tools allow those involved in the supply chain, including logistics companies, manufacturers, transportation organisations, exporters, and importers, to have a clear view of their environmental impact, providing them the chance to course correct. The utilisation of advanced technologies need to be scaffolded by supply chain governance mechanisms that nurture carbon emissions transparency through supplier engagement in these initiatives as core for carbon emission reductions.

Supply chain carbon emissions optimisation requires designing/redesigning for sustainability that covers products, value chain and sourcing strategy. In addition, a wider engagement in the industry and sector initiatives should support higher commitments, sharing best practices and certification. The industry no doubt needs a full-fledged plan to support its net-zero pathway and ambitions. While it cannot be achieved alone, global governments and the industry are continuously looking for ways to improve sustainability while also building efficiency and positively contributing to the country’s economy. This instigates the urgent call for developing carbon capturing and tracking mechanisms, accounting and regulatory foundations that should guide implementation plans.About the Author” heading_tag=”h5″ alignment=”left”]

Dr Shereen Nassar is the Global Director of Logistics Studies and the Director of the MSc Logistics and Supply Chain Management programmes at Heriot-Watt University Dubai.

Dr Nassar’s main research interest is sustainability and supply chain resilience. She has published a number of research papers and book chapters in areas such as automotive recall risk and social sustainable supply chain performance, sustainable maritime logistics, supply chain information security, contemporary disruptive business applications of blockchain technology, smart cities and implementation challenges.[vc_text_separator title=”MORE FROM THIS EDITION” border=”no”][vc_single_image image=”18668″ img_size=”medium” qode_css_animation=””][ult_layout layout_style=”4″ list_style=”6″ s_image=”0″ s_excerpt=”0″ s_categories=”0″ s_metas_o=”0″ s_metas_t=”0″ quick_view=”0″ taxonomies=”post_tag” price_font_weight=”” atcb_font_weight=”” title_font_weight=”normal” title_font_style=”normal” title_text_transform=”capitalize” metas_font_weight=”” excerpt_font_weight=”” filter_font_weight=”” tab_font_weight=”” pagination_font_weight=”” title_font=”Lato” title_font_size=”12pt” i_taxonomies=”340, 341″ d_i_filter=”340″]