How to Create & Manage a Sustainable Supply Chain for Your Business

Tomáš Formánek, Co-Founder at inventory optimisation platform, Inventoro

“In the pursuit of creating a carbon-neutral society, the route to a sustainable supply chain is a vital chapter – or at least it should be. Surprisingly, very little is discussed about supply chain sustainability, despite the fact that global logistics is a massive polluter. Freight alone, without production, accounts for 7% of global CO2 production, according to OECD. This means that to reduce its impact is probably the most effective, cheapest, and fastest measure that society can take to reduce its carbon footprint. So why is it such an underdog topic?

To fully understand the nature of the supply chain it is vital to understand that it should never be spoken about in plural. There are no supply chains. There is just one, huge, interconnected flow of goods with no specific start or end. As such, any reduction in the supply chain is felt globally and immediately. It is all about not starting routes, which should never have been taken, and not producing goods which should never have been produced. If you make changes to how the supply chain operates and you are not reducing CO2, you are getting rid of it altogether. From 100 to zero in the blink of an eye. That’s why the sustainability of the supply chain is such an important topic to talk about, the implications are just enormous.

So how do you do it? How do you make the supply chain a sustainable chain of events, which only needs a minimum amount of energy to operate? The answer is by sharing knowledge and data. Despite all the just-in-time logistics technology which we have as a society at our disposal, the supply chain as a whole still remains highly secretive. There lies the biggest obstacle to removing waste from the process.

Consider the bullwhip effect. It is a phenomenon long known to supply chain experts, and describes the situation where a small disturbance on one side of the chain creates a massive leap on the other. Imagine an impromptu techno stage in a small village. The ravers, dying of thirst, go to the local shop and buy all the beer they have. The shop owner then sends a message to their wholesale company – send more beer! In this instance, the warehouse company begins to panic and orders an extra lorry or two of beer from the brewery, just in case the trend continues. The brewery management then sees some movement on their dashboards and adds an extra shift to production. Suddenly, beer is overproduced in excess, just because of an impromptu party. This is the nature of the bullwhip effect. Its traces can be seen just about anywhere on the global supply chain, and it creates massive waste for no reason at all.

The best way to avoid this issue is by sharing data. If anyone had stopped to ask the shop owner why there was such a big leap in demand, none of the aftermath would have happened. If you extrapolate this problem on a global scale, it will result in the need for large corporations, if not nation-states, to share their plans and open their numbers.

That is an easy and inexpensive thing to do, but difficult to put into practice because of ego and greed. As the need to shrink waste is unavoidable, these discussions will have to start taking place sooner or later – probably on a UN level as well.

However, a positive is that we don’t need to wait for the megacorporations to start behaving like global citizens and sacrifice small amounts of profit for the greater good. Each of us can take part, just as we do at Inventoro.

We create algorithmic sales forecasting, which is directly associated with reducing waste and making warehouses small and effective. As well as this, we see our customers sharing our work, and our forecasts, with their business partners. Essentially they are making their long-term plans known because they know, that only if they stop behaving secretively can they fully prepare for high seasons. It is a process that would have been unthinkable a couple of years ago, but is now becoming everyday business. Especially for SMEs, that need to cooperate in order to survive.

From this perspective, today’s post-COVID supply chain disruptions and raw material crises are a huge opportunity for everyone to change their mindset. Please do. The effects are positive, immediate, and substantial.”