Decarbonizing Your Supply Chain Should be the Goal of Procurement
Martin Pahulje - October 05, 2021
Supply chains are one of the most prominent contributors to carbon emissions in our global economy. Following the Paris Agreement in 2015, governments, regulators, and consumers have an increased demand for business sustainability. Beyond the pressure from these parties, more regulations and laws have been made concerning businesses' carbon emissions. As a result, companies worldwide are taking strides to decarbonize their supply chains while maintaining a thriving business. A significant volume of carbon emissions is produced during the procurement process, so companies must refine this process to preserve their reputation while complying with new regulations.
Carbon dioxide is a significant contributor to climate change, and each year our global economy increases its output of CO2. To combat this, governments have enforced stricter regulations regarding commercial carbon emissions to reduce further damage to the climate. Many organizations have embraced these changes, reinventing their business to be more sustainable and reduce their carbon footprint. Typically, the sustainable commitments made by companies have been focused on the Greenhouse Gas Protocol's Scope 1 and 2 emissions. Recently, however, an increasing number of businesses are pledging to reduce their Scope 3 emissions.
- Scope 1: emissions produced directly by companies and owned resources.
- Scope 2: emissions produced indirectly through the purchase of energy.
- Scope 3: emissions produced indirectly in the upstream and downstream of supply chains.
The recent pursuit of reducing Scope 3 emissions, in addition to 1 and 2, is significant. Scope 3 emissions account for more than half of companies’ overall climate impact. For this reason, companies must decarbonize every branch of their supply chains – no matter how indirect. While achieving net 0 for Scope 1 and 2 emissions is a challenging goal, it is feasible. Unfortunately, eliminating Scope 3 emissions adds a level of complexity to the decarbonization process. Still, it is a worthy challenge that must be overcome to achieve sustainability.
A major component of reducing Scope 3 emissions entails carbon accounting and tracking practices, in addition to working closely with customers, supply networks, and industry groups. As procured materials are responsible for a considerable portion of Scope 3 emissions, this process must be adjusted with decarbonization in mind.
Gearing Procurement Towards Sustainability
The procurement of materials is an essential process in supply chains. To obtain the materials needed for production, the supply chain must procure specific materials from the earth. This process is prevalent in the sourcing of materials such as lithium, cobalt, and nickel – all of which are materials necessary for the production of EV batteries. Many automotive companies have made the transition to rechargeable batteries to achieve sustainability, but these alternative batteries create environmental issues of their own. The procurement of such materials can be highly damaging to the countries they are extracted from. The mining process necessary to extract materials is harmful to the earth and emits considerable CO2 from the equipment used.
Over the past year, procurement-related processes have become integrated into nearly all parts of our global economy. It can be challenging for countries to balance compliance and sustainability with their business needs, but with the help of government leaders, sustainable sourcing practices can be promoted. If world leaders implement an international standard of procurement sustainability, companies can continue to procure necessary production materials while decarbonizing their supply chains.
By regulating the procurement process, companies will be forced to find more environmentally sustainable methods of extracting and obtaining materials. An instrumental new practice involves giving used materials a second life in the supply chain process. In using recycled or previously used materials, companies can limit their procurement of new resources, thus minimizing the damage and emissions of procurement. Additionally, seeking new materials with a less invasive procurement process can drastically decarbonize the procurement process. While it will not be an easy transition, gearing procurement towards sustainability is critical for the modern supply chain.
Procurement is necessary within the supply chain industry, but companies can implement more sustainable practices when procuring materials to achieve decarbonization. Each year, new technology is deployed that optimizes how supply chains operate, leading to faster and more efficient processes. These same systems and practices can be applied to achieve decarbonization within the supply chain.
Before you can begin working towards decarbonization, you must understand your current level of carbon emissions. Supply chains have ample opportunity to reduce their carbon emissions, but they need to know where to start. If you aren’t already, you need to be tracking your carbon emissions. In doing so, you can identify where your most significant contributors lie and work to reduce them. The most efficient method of tracking emissions is by implementing Industry 4.0 technology. With interoperable technology, your systems can track supply chain outputs simultaneously, ensuring that you have an accurate insight into your emissions. Once you determine your current emission output level, you can begin to set new sustainability targets.
Optimized supply chain technology is vital for balancing carbon emissions against other supply chain KPIs. After all, supply chains are complex, and there are countless factors to track in addition to emissions. Integrating current KPIs with your sustainability goals is critical in ensuring that all operations contribute to decarbonization.
An instrumental method of achieving decarbonization through procurement is the utilization of machine learning. With ML, companies can test procurement methods, such as battery mineral exploration, without performing a physical exploration. Through this process, companies can locate materials without harming our environment – reducing carbon emissions and damage to the land. Additionally, this process can introduce supply chains to alternative materials to be used instead of the scarce and inaccessible resources currently being procured. If companies successfully identify and procure alternative materials, products such as batteries can be optimized to be more recyclable. Not only is this a significant cost-saver for companies, but it also means less procurement in the future and thus reduced carbon emissions.
AI Decision Making
Hand-in-hand with machine learning, AI-driven optimization software is vital for companies looking to reduce their carbon emissions. In addition to procurement, a significant portion of carbon emissions come from fuel consumption and transportation of goods. With AI software, companies can optimize their transport logistics. Companies can significantly reduce their carbon emissions by ensuring that shipments are delivered accurately, and that empty runs are minimized.
Additionally, AI-enabled planning algorithms allow companies to make better business decisions regarding sustainability. By utilizing “what if” scenarios, businesses can optimize their decision-making process with scenario planning. This software will predict unexpected events, allowing supply chain planners to make more accurate decisions and manage resources more efficiently - creating ample opportunity to reduce carbon emissions.
Decarbonization is Essential
Years ago, sustainability was a marketing tactic for organizations to appeal to their environmentally-friendly consumers. Today, transitioning to sustainable business practices is critical to the longevity of our environment and businesses – in addition to remaining in compliance with growing government regulations. As supply chains are one of the most significant contributors to carbon emissions, they must implement decarbonization practices, particularly concerning procurement.
Historically, supply chains have relied on the procurement of scarce materials to conduct production, but today that is not necessarily the case. By seeking alternative resources, tracking emissions, and implementing Industry 4.0 technology, achieving decarbonization within supply chains is possible. Decarbonization is no longer an option but a critical action that must be taken by all supply chains in our global economy.
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