As global focus shifts toward addressing and combating the effects of climate change, the retail industry must adapt to meet demand while also adhering to environmentally sustainable practices. A key to reducing emissions and increasing sustainability lies in green supply chain management, or the incorporation of environmental concerns in retail supply chain organization and operation. In the push for improved environmental performance, a pressing question arises: How can retailers green their supply chains?
Although the task of integrating green practices into a traditional retail supply chain can seem daunting, the benefits are far-reaching—and the environment isn’t the only benefactor. Companies that adopt green supply chain solutions can cut costs, bolster brand image, and see an improved access to resources. In 2020, businesses with strong environmental, social, and governance practices had an 11 percent valuation premium over their competitors.
By adopting green supply chain management practices, companies can find success while lowering their carbon footprint. Agility can help businesses capitalize on the benefits of sustainable supply chain solutions.
Introducing the green supply chain
The green supply chain refers to the integration of environmental-minded practices into supply chain management. As resource depletion, pollutants, and the expanding human carbon footprint place stress on ecosystems, companies can address and reduce their impact on the environment with green supply chain management.
Greening the supply chain
A supply chain is the system by which companies develop a raw material into a product or service that they then deliver to consumers. In this system, various people and organizations exchange resources and information to take a material—oftentimes beginning with extracted natural resources—and develop it into a product or service. The size and composition of a supply chain varies from industry to industry and product to product.
No matter the structure, it is essential for a company to understand their own supply chain to ensure that they always have access to the materials they need from suppliers. Supply chain management necessitates the careful consideration of many factors, including procuring materials at a low cost, predicting trends to match supply and demand, optimizing the manufacturing process, and delivering the product to retailers.
At each step of a supply chain there is waste, whether it is time, money, or resources. When these failures and inefficiencies arise, they unnecessarily consume the natural resources used in a supply chain. Although these issues may seem small in isolation, waste at each stage of a supply chain can lead to significant costs. Efforts to minimize waste can not only save a business money but also have environmental benefits that allow for a more sustainable and streamlined supply chain.
Greening a supply chain refers to the incorporation of environmentally beneficial policies and objectives into the supply chain. As growing public and political attention focuses on the threat posed by climate change, the importance of finding green options for retail supply chains has grown. Companies must seek ways to lower carbon emissions, conserve resources, and safely dispose of waste.
Companies can employ the four key strategies of reverse logistics to meet these goals: reducing, reusing, recycling, and remanufacturing. These strategies track the supply chain from resource acquisition to product distribution. They then move the goods from a typical final destination back to a manufacturer in order to repurpose or dispose of them. By implementing these strategies, companies are able to reduce waste, slash emissions, and lower costs, effectively greening their supply chain.
What going green means for small and medium-sized businesses
Many large corporations are seeking to boost their environmental performance, paving the way for small and medium-sized businesses to green their supply chains. Although small and medium-sized businesses have less of an impact on the actions of their suppliers than large corporations do, they have the power to select suppliers with a lower environmental impact. For example, shipping emissions and costs from an overseas supplier far exceed those of a local supplier. This allows a small business to practice sustainability while cutting costs.
Small and medium-sized businesses can also commit to green purchasing, or the procurement of products that have a reduced impact on the environment. Green materials can lower costs associated with disposing of hazardous materials, operations, and employee safety. In addition, environmentally friendly products increasingly attract consumers. As such, small and medium-sized businesses can see an increase in consumer loyalty when they embrace green supply chain management.
Green supply chain versus sustainable supply chain
Although a green supply chain and a sustainable supply chain sound synonymous, there are crucial differences between the two. Green supply chain management focuses on integrating environmentally friendly practices into a supply chain. By contrast, sustainable supply chain management involves integrating socially, economically, and environmentally friendly practices in the supply chain. It is a broader term that encompasses green supply chain management; achieving a sustainable supply chain is impossible without green solutions. Essentially, all economic practices must be both environmentally and socially ethical.
Beyond the environmental practices that make up sustainable supply chain management, companies work to behave more ethically overall. Often, this relates to working conditions. Sustainable practices include eradicating child labor, ensuring safe working conditions, implementing appropriate working hours, and fairly compensating employees.
These practices must be present in the entirety of the supply chain, not just in the consumer company. For a supply chain to be sustainable, manufacturers and suppliers must also practice sustainability; therefore, a key element of sustainability is transparency. A company must be clear about its sustainability targets and work with suppliers to reach them. This helps to ensure that the ethical codes necessary to sustainability are apparent throughout the supply chain as a whole.
Importance of sustainability in a retail supply chain
As the number of consumers worldwide continues to grow—1.8 billion people will join the global consuming class by 2025—it becomes increasingly important for companies to expand their customer base while adhering to sustainable retail solutions. Practices that attract new customers often align with green retail solutions, emphasizing the importance of sustainability in the retail supply chain.
Why retail needs to be sustainable
The environmental benefits of retail supply chain sustainability are clear: companies can adopt practices to lower their carbon footprint by conserving natural resources and cutting emissions. As the destruction of ecosystems and natural resources can damage a supply chain by lowering productivity and raising costs, a greener supply chain is often in a company’s best interests. Due to deforestation, for example, 81 percent of agricultural product companies reported significant changes to operations, revenue, and expenditure.
Sustainable retail supply chains also result in better conditions for workers and less strain on the resources and energy sources in the communities surrounding warehouses and factories. Beyond the clear environmental and social benefits, however, sustainability in the retail supply chain can provide companies with tangible benefits relating to profits and business reputation.
Top impacts of having a sustainable supply chain
To remain competitive, businesses must keep costs low. By greening their supply chain, companies can lower operational costs while attracting consumers, thus boosting their business.
As sustainable retail solutions evolve and grow more accessible, they allow a company to cut costs found in a traditional supply chain. McKinsey analysis shows that a supply chain produces over 80 percent more carbon emissions and more than 90 percent of the impact on air, land, water, biodiversity, and geological resources than that of the consumer company. An unsustainable supply chain can pose a significant financial risk to a sustainable company.
By focusing on sustainable transportation solutions, companies can reduce the cost of fuel emissions. Localized suppliers and manufacturers can also cut unnecessary trips that result in costly fuel usage. This can streamline the shipment process as more full-load trips help place the right materials in the right place without overflow.
Certain environmentally friendly, renewable materials, such as bamboo, Tencel, linen, and cork, also require less power to harvest or create. As unsustainable product processing can be hazardous on top of requiring a significant amount of power, green materials provide an accessible solution. They help lower acquisition and production costs.
In addition, as the global focus turns toward green solutions, great costs are associated with a lack of adherence to laws and regulations relating to sustainability. Targets outlined in the Paris Agreement, for example, require companies to reduce global greenhouse gas emissions. There are numerous other laws and regulations that enforce sustainable practices. Companies that fail to adhere can see their value chipped away by worker health and safety issues and child labor law violations. All companies can see their profits affected by issues such as deforestation, air pollution, and water shortages.
In 2018, 81 percent of surveyed consumers expressed a strong belief that companies have an obligation to help improve the environment. This growing belief factors into purchasing decisions. Consumers who value improved environmental and social conditions will seek out companies with sustainable practices.
The growing appeal of sustainable purchasing also impacts first- and second-tier suppliers. Companies can face scandals and damaged reputations for boasting sustainability while relying on suppliers with detrimental environmental and social practices. Suppliers who do not follow sustainable practices could see a loss of business.
Green solutions for the retail supply chain
Companies seeking to green their retail supply chains have a number of solutions available to them. Due to the flexibility of these solutions, companies are able to select the green solutions that best fit their supply chains. Correctly implementing these solutions can allow companies to reap the benefits yielded by a more sustainable supply chain.
Top green solutions
There are a number of retail supply chain solutions that can enable companies to adopt green logistics. Although not every option is viable for every company, these solutions represent important first steps in greening a supply chain.
Measure the transportation’s carbon footprint
Companies can use ocean, truck, air, or rail transport as methods of transporting goods. For companies looking to reduce their negative environmental impact, ocean shipping is the most effective way to transport goods. Air freight produces the most carbon emissions at nearly forty to fifty times higher than ocean transport. In addition, ships built since 2013 have designs that make them 30 to 40 percent more carbon efficient than their predecessors.
Regardless of the transport method, it’s more environmentally efficient to ship full container loads as opposed to less-than-full container loads. Reducing shipment frequency by increasing shipment size also helps companies lower emissions.
Improve packaging options
By reexamining packaging options, companies can cut both costs and carbon emissions. Packaging solutions made from recyclable or biodegradable material, such as fabric packaging and recycled plastics, can reduce waste and a company’s carbon footprint.
Additionally, companies can cut down on packaging size, limiting bulk and waste. They can also help cut down on shipment size, enabling full container load shipments to carry more products.
Use efficient warehouses
Green warehouse solutions play a vital role in lowering costs and reducing resource consumption. LED lights, for example, are 90 percent more energy efficient than incandescent lights.
Companies such as Agility turn to green solutions—photovoltaic panels to generate electricity and updated air-conditioning solutions, for example—to limit the resource drain in surrounding communities. Warehouses can increase their overall sustainability by creating jobs without pulling energy from the local power grid and generating pollution.
Focus on renewable energy
Renewable energy sources, such as solar power, wind power, or hydropower, allow companies to reduce the waste and emissions associated with fossil fuel usage. These are naturally replenishing power sources that provide clean, reliable energy. A study by Bloomberg New Energy Finance projects that renewable, zero-emission energy sources will make up 60 percent of electricity generation by 2040.
Renewable resources are more accessible and affordable. Their usage allows companies to avoid the price fluctuations and regulatory changes associated with fossil fuels, resulting in lower costs.
Implementing green solutions
There is a wide array of green solutions, with some suiting certain companies better than others—due to size or financial constraints, for example, it may be impossible for some businesses to ship using biofuel. Regardless of the specific action that a company takes to green its supply chain, one of the most important tools in the implementation of green logistics is accountability.
Companies rely on a number of suppliers to produce goods. To increase supply chain sustainability, a company must identify environmental and social challenges among its suppliers. From there, the company can require suppliers to set their own goals that align with the company’s expectations.
To truly spark change, companies must also extend resources, such as training modules and conferences. This provides suppliers with the tools necessary to implement sustainable practices. Periodically, companies can also perform assessments to ensure that their suppliers are adhering to these practices.
To aid in these checks, Agility created a Carbon Trust–validated methodology to provide logistics customers with carbon footprint reports. These free reports allow companies to track carbon emissions throughout their supply chain, providing them with the information necessary to reduce emissions. With the availability of this information, consumer companies can also be sure they are partnering with the right suppliers.
Retailers leading by example in green solutions for supply chain logistics
By integrating sustainable practices in their supply chains, several major corporations established themselves as leaders in green logistics. They made significant steps toward green corporate offices, and they recognize their supply chains as a necessary part of achieving sustainability. Their advancements can serve as a model for other companies looking to green their retail supply chain.
Top retailers implementing green solutions
Many major retailers look to improve their environmental impact by shifting to renewable energy, cutting carbon emissions, and adopting sustainable practices. In recent years, Apple, Coca-Cola, and Volkswagen established themselves as leaders in this area through their green supply chain initiatives.
As one of the world’s leading tech companies, Apple has an extensive supply chain, with manufacturers worldwide. As the company expanded globally, it continuously sought ways to boost its supply chain sustainability.
The company’s sustainability drive focuses on climate change, resources, and smarter chemistry. Apple uses recycled materials to make products such as the MacBook and iPhone, with the MacBook Air and Mac made from 100 percent recycled aluminum. The innovative design enabled Apple to reduce its carbon footprint by 4.3 million metric tons in 2019.
Apple is also establishing methods for increasing energy efficiency throughout its supply chain. This is made possible through close partnerships with suppliers and by investing money in the sustainability of their suppliers. These partnerships educate suppliers on sustainability, enabling them to limit waste while manufacturing Apple products. In addition, by upgrading their buildings, Apple lowered their operational energy by nearly one-fifth.
The company also invests in renewable energy. At this time, renewable energy powers 100 percent of Apple’s facilities. With innovation, Apple hopes to shift more of its supply chain to rely on clean energy. In 2020, Apple forged agreements with seventy suppliers to use 100 percent renewable energy for Apple production. This will cut approximately 14.3 million metric tons of carbon emissions each year.
Although Apple’s corporate operations are already carbon-neutral, the company plans to be entirely carbon-neutral across its supply chain and product life cycle by 2030.
Coca-Cola is the world’s largest beverage manufacturer and boasts one of the globe’s largest supply chains. The supply chain is responsible for the company’s procurement, planning, manufacturing, and engineering. Coca-Cola focuses on the need for sustainability at all points of the supply chain, from sourcing the raw materials to distributing a finished product to customers. In 2017, the company appointed Beatriz Perez as its first-ever chief sustainability officer, demonstrating its commitment to green supply chain management.
Coca-Cola invests in advanced technologies to help digitalize its supply chain operations. This will help optimize its existing infrastructure while also saving energy and water. In 2019, these technologies helped the company cut its water usage by 22 percent and total energy consumption by 31 percent.
The company also places a great deal of focus on the sustainable sourcing of raw materials. It developed an approach to sustainable agriculture, which it shares with its suppliers, providing guidance on protecting the environment, enforcing workplace rights, and building sustainable communities. This approach ensures that the company sustainably sources the key ingredients in its beverages. To further enforce this, Coca-Cola developed supplier guiding principles, which its suppliers must adhere to.
The close relationship that the company fosters with its suppliers helps Coca-Cola work toward its 2025 goal of cutting its 2017 emissions level by 30 percent.
Volkswagen is one of the world’s foremost automobile and commercial vehicle manufacturers. The company has built close relationships with its suppliers so that it can carry out its three-pronged approach to creating sustainable supply chains: prevention, detection, and reaction.
Inspiration for Volkswagen’s sustainability initiative comes from the goals set in the Paris Agreement. To reach these goals, Volkswagen focuses on its suppliers, with sustainability requirements written into their contracts. Based on its vehicles’ life cycle assessment data, the company is able to identify the most significant sources of emissions across the supply chain. The company then collaborates with suppliers to reduce these emissions.
Volkswagen also promotes resource cycle management, a process that reuses raw materials from old vehicles. This can cut energy consumption by 80 percent. Volkswagen also has a closed-loop cycle for aluminum in which press shops return scraps of aluminum to the distributor, who then recycles them.
To further its commitment to sustainability, Volkswagen has a strong human rights initiative. The close focus on human rights means that the company’s initiatives are not only green but also sustainable.
Benefits of green solutions
The green supply chain logistics these three companies adopted led to impressive financial gains. This, coupled with the positive environmental impact of their initiatives, demonstrates the benefits of green supply chain management.
Climate change has a growing impact on the cost of materials necessary for business operations. Coca-Cola noted an uptick in the price of water, energy, and raw materials. This is due to water stress, carbon taxation, and resource disruption caused by severe weather conditions. As such, the company plans to cut costs by reducing the water per liter by 20 percent in 2025.
Apple found comparable benefits in shifting to environmentally friendly initiatives. In 2019, for example, Apple’s investments in energy-efficient technology in new and existing buildings allowed the company to cut $27 million in electricity costs.
Similarly, Volkswagen’s commitment to reverse supply chain logistics by remanufacturing products such as turbochargers, differentials, coolant pumps, and alternators allowed the company to cut costs by 30 percent per part.
The final benefit these three companies attain by greening their supply chain is a boost to their reputation. By demonstrating their commitment to more sustainable practices, these brands earn the trust of consumers. Additionally, they pave the way for and encourage other businesses to adopt green supply chains.
How you can implement similar methods in your supply chain
The green supply chain methods developed by Apple, Coca-Cola, and Volkswagen provide a model for other businesses. Although these are major retailers, their sustainability initiatives are a valuable framework for small and medium-sized businesses.
Apple, Coca-Cola, and Volkswagen dedicated time and resources to sustainable supply chain management. Although not every company can make significant investments into greening their suppliers or appointing a chief sustainability officer, it is important to set goals relating to green supply chain management. These demonstrate a company’s commitment to an improved environmental performance and streamline the path ahead.
By tracking a supply chain and identifying areas of waste, a company can construct its idea of success as it relates to green supply chain management. From there, a company can lay out the steps necessary to reaching these goals. As Apple, Coca-Cola, and Volkswagen did, companies can turn to solutions such as sustainably sourcing raw materials, remanufacturing material, expanding recycling programs, and relying on green energy sources.
Another key to Apple’s, Coca-Cola’s, and Volkswagen’s success in supply chain management comes from their commitment to improving sustainability among their suppliers. Companies can also share their set goals with suppliers in order to ensure their whole supply chain is working toward a lessened environmental impact.
How Agility can help
As green solutions become a more pressing necessity, retailers must seek out methods that allow them to optimize their supply chain while practicing green supply chain management. The green supply chain integrates practices that lower carbon emissions, conserve resources, and safely dispose of waste. These practices can also enable companies to streamline their supply chain. While the environmental benefits of green supply chains are numerous, companies can also reap the rewards of lowered costs and a bolstered reputation when they shift to green supply chain management.
Agility has solutions to help companies set and achieve their sustainability goals. We work with shippers, carriers, and other partners in the supply chain to lower carbon emissions, allowing companies to capitalize on the benefits of a green supply chain. Contact Agility to boost sustainability and optimize your supply chain.