Sunday, January 29, 2023

Decarbonisation of supply chain by getting to the source

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No matter what the decarbonisation effort is from the industrial sectors, the key lies in decarbonisation in the supply chain source.

Anything any company produces in any part of the world is most likely to have a natural resource component that must be extracted from the planet – that is often the biggest source of carbon emissions. Per a latest Accenture research, it is now possible to identify that source, which is the upstream supplier base of the company, that is difficult to detect and therefore comes in the way of creating a sustainable supply chain operation. This lack of visibility prevents companies from taking the actions necessary to accelerate their progress in reducing these emissions, increasing supply chain sustainability and lowering their overall carbon footprint.

The new research promises to change the equation. Through its analysis, the firm claims that it can provide supply chain network visibility beyond Tier 1 suppliers. These are the suppliers that companies work with directly. Accenture makes a bold promise that it can provide visibility all the way up to the extraction of natural resources. This has led to deep insights into the main drivers of upstream emissions—”hot spots”—by value chains across industries and geographies. Research provides a new lens that allows companies to see what’s strategically important to the supply chain and where to focus their efforts.

The research produced three new insights:

  1. Network complexity strongly influences emissions strategies. In some industries, most of their upstream emissions are concentrated in suppliers closer to the purchasing company. These sectors include energy, utilities and natural resources. In others, upstream emissions are concentrated in suppliers further up the supply chain. Aerospace and defence, high tech, and automotive are good examples. Consider high-tech. Upstream emissions in this industry are a significant portion of its total. On average, 80% of high-tech companies’ upstream emissions come from Tier 2+ suppliers. High tech also has a complex, multi-tier supplier network. This means less visibility of the sources of upstream emissions.

Sources of emissions vary significantly by industry sector. For some industries, hot spots are power generation. For others, it may be raw materials and transportation. And importantly, those hot spots also could vary within the same industry depending on where in the supply chain a supplier sits. As a result, companies need to identify and target the right set of hot spots to make the largest impact. This requires visibility across multi-tier suppliers beyond those in Tier 1. Without it, companies may end up focusing and spending resources on actions for different sources that ultimately may not have much of an impact on reducing overall Scope 3 emissions.

  1. The same industry faces different emissions challenges in different regions. Nearly all supply chains depend on global supplier networks. But the degree of dependency on local versus global suppliers varies by country, even in the same industry. For example, for the Chinese high-tech industry, most of the upstream emissions—79% of the total—across multi-tier suppliers are generated within China. That figure drops to 59% and 46% for Japan and the US and UK high-tech industries, respectively. With most of the upstream coming from suppliers outside their home countries, these industries will find it more difficult to gain the required visibility to trace and audit those emissions.
  2. Within an industry, a supplier’s location has a big impact on its emissions. Understanding the exposure to the emissions profiles of different countries across the supplier base is vital to creating supplier selection strategies to avoid exposure to increased emissions due to geography. For example, when comparing the Indian and US metals industries, it becomes clear the consumption of energy raw materials (petroleum and natural gas and coal) by the Indian metals industry is far greater than the corresponding industry in the United States. That’s because the iron and steel industry—the main metal production industry in both countries—is powered by different sources in each. In India, the energy raw material (mainly coal) supplying industry comprises 77% of all upstream emissions. In the United States, it’s only 10%.

With these insights, companies can, according to Accenture, identify where and how they should allocate their time and resources to reduce emissions. They can determine how to embed visibility into their broader supply chain capabilities. They can more effectively integrate sustainability into their supply chain sourcing activities, including category planning and supplier selection. And they can understand how to work together with others to reduce emissions and create a more resilient supply chain.

The challenge of reducing emissions is enormous. But it’s not insurmountable. With the right combination of visibility, actions and collaboration, we can reach our goals and create far better supply chains. Organizations can build supply chains that are good not just for business but also for society and the planet.

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