The business case for a more rounded approach

This may initially sound counter intuitive, but if we see Net Zero as a standalone objective, we are not using our capital and resources efficiently.

Many companies have falled into this trap and have built out teams that are dedicated to Net Zero objectives. We have written a seperate article on why this is a mistake and why we should be building more integrated teams that are lead by the business.

If we take a step back for a moment and look at how our supply chains have progressed over the years, they have been heavily focussed on cost and speed, and have delivered on these objectives well. Rarely have we ever had to any other factor other than speed and cost.

The world has changed significantly and we need consider a much broader set of factors that include social, economic and environmental factors.

Making change to supply chains comes with a level of cost and risk, so when change is being considered, we must ensure that we are considering the full range of factors that are important to the business, and making one single change to contain the cost.

If we continue on the path of focussing on Net Zero as a standalone objective, we run the risk of evaluating suppliers that may not be members of the supply chain in the future due to other considerations, and this is a complete waste of time and resources.

Consider, back in 2018, someone told you that there would be an event that would cause China to close its borders to the world. It would have been laughed at, but it happened during the Covid pandemic. The net effect was many supply chains just stopped, either because they were sourced from China or had dependencies on input materials from China. Many companies truely believe that they understand their supply chains, but when a global event like this happens it proves the point that companies really dont have this level of understanding. One of the worlds largest electronic device manufacturers who produces in China tried to move production to India during the pandemic but realised that many of the input components where from China resulting in the move to India not being possible.

This is lack of depth of understanding of the supply chain is not uncommon, and we see this in many companies. The result is that when a global event happens, the supply chain is not resilient enough to cope with the change. It highlights the need to have much more resilience in the supply chain than we have ever considered before, which for many, is a totally new operating model.

No longer can we rely on a single supplier or a single country to source our products from. We need to create balance for many reasons:

• What happens if a country closes its borders? A pandemic, social unrest, war, natural disaster are real events that need to be planned for.
• What happends if a tariff gets applied to a country? This can have a significant impact on the cost of goods.
• Can we nearshore sourcing closer to the consumer? This can reduce the carbon footprint of the product but we have to consider any cost changes that may occur.
• Do we have ciruclar movements of goods that can be optimised?
• Are we manufacturing in countries that could be potentially affected by social or political unrest? Bangladesh is a very good example. A systemically important country for the garment industry, but it has a history of social unrest and political instability. It would seem that the country is on the cusp of a major event.
• Are we using countries that are cheap but have dependencies on fossil fuels from their power source production? This is a major issue for many couuntries in Asia Pacific that are significantly behind Europe in green energy faciltiies.
• What is the longest leg of the supply chain? How long would it take to restock and how does this affect our inventory strategy within the supply chain? How dynamic and unpredicatable are our sales?

And this balance is complex. It requires a lot of data and a lot of analysis to get right. We built Zero Pro to help companies with this and to simplify the amount of work and resources that need allocating. With the right framework, a lot of the inputs into this decision making can be autoamted.

Do we really understand Net Zero?

Companies have been working on Net Zero for many years now, but do we really understand what it means? Do we really understand the impact of Net Zero on our supply chains? Do we really understand what we should be implementing? I think in most cases the answer is no.

We have to really understand what Net Zero means for supply chains and what the impact is on your business before we go anywhere near change. Surprisingly, many companies are view Net Zero incorrectly.

Net Zero is not about blinding eliminating carbon from our supply chains. Whilst the overall direction is to make supply chains less pollutive, in reality we need to acheive this in harmony with keeping the business running and making a profit. It is this balance that seems to be missing for many companies.

Net Zero should be seen as a carbon tax. What carbon remains after we have optimized our supply chain will need to be mitigated using a carbon offset. This is what the ‘Net’ in Net Zero means and to maintain profitability, we must ensure that unncessary carbon is removed from the supply chain as in the end, carbon offsets will cost money.

Sometimes we need to keep high carbon items within the supply chain

We have to consider the impact of carbon reduction on the business as part of our evaluation process. Take air frieght as an example. Air freight is a high carbon activity, but it is also a very fast way of getting goods to market. If we were to remove air freight from the supply chain in favour of sea shipment, we would have to consider the cost of holding inventory on someones balance sheet for longer and whether the goods can be delivered in time to meet sales expectations.

In situations like this we may have to consider keeping the high carbon item and critically looka at other areas of the supply chain where we can make changes to reduce carbon. This is a much more balanced approach to Net Zero and one that is going to require a lot more input from various areas of the business to get right. No longer can we see Net Zero in isolation.