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Over the last two years, supply chains have moved front and center like never before, as the bullwhip effect that resulted from the pandemic made consumers more aware of how the goods they buy move across the world, and how challenges in one area can have a far-reaching ripple effect.
It showed that supply chains are global, interconnected systems, and they have a massive impact. But it goes beyond getting items to shelves. As we seek to build supply chains for the future, it’s important to also consider their impact on the planet.
On Sept. 29, GS1 US held an innovation summit to explore work taking place to create more sustainable supply chains. GS1 US is the American organization that provides unique barcodes to brands and retailers for tracking items throughout a supply chain. Through this, it works with partners across industries, and provides a link to a global network that make these standards universal.
It’s also uniquely positioned to identify what’s coming next, and the event put innovation in sustainability in focus.
“We cannot talk about supply chain resilience without factoring in circularity and sustainability, said Vivian Tai, director of innovation at GS1 US. “Making our supply chains more circular and sustainable will be a herculean undertaking, and we will need to collaborate to produce more responsibly, to lower the impact of trade on our planet, and to create positive handprints by the way we choose to consume. GS1 Standards serving as a common language will be an important enabler for the collaboration that will need to happen.”
It comes at a time when consumer demand for sustainability is growing as the impacts of climate change come to bear. Brands and retailers are putting sustainability forward in their mission and actions as a result. In listening to speakers throughout the event, it was clear that the companies behind the process of making and moving consumer goods all have a role to play.
Still, it’s worth considering: What do we really mean when we talk about sustainability? The event broke this down through a series of presentations and panels. Here’s a recap, which can double as a primer on the different levels to address sustainability in consumer goods:
Solving environmental challenges require addressing systems, and no one company or country can solve it alone.
That collective imperative came through as Shannon Bouton, CEO of environmental nonprofit Delterra, kicked off the day with a keynote talk about how her organization is working to grow recycling in areas of the world where citizens lack access to waste management. Launched in Indonesia and Argentina, the McKinsey-founded nonprofit’s Rethinking Recycling initiative is working on both the supply and demand side of the equation in communities. It is working to develop economically sustainable recycling programs in cities and training waste workers, while working with local companies to ensure there are large enough local markets to absorb recycling on an ongoing basis.
“You have to look at the whole system,” Bouton said. “You cannot solve this problem by focusing on any one piece of that value chain. I like to think of what we do as being acupuncture – targeted interventions at critical points that unlock the flow of materials across the whole system.”
Around the world, the system that is currently in place is largely informal. In fact, Bouton said the unsung heroes are waste pickers who collect recyclable materials from trash cans and dumps, then sell it into a stream of mostly informal aggregators.
“Finding the right set of incentives to bring these players into a transparent market and training them to use the tools to do so is the real crux of the challenge here,” Bouton said.
Increase traceability and transparency
The journey of a product can say a lot about where it has been, and whether it can find new life in a second use. Along with taking a systems-level view, tackling sustainability requires familiarizing oneself with the terminology used within the supply chain on the data level. GS1 US Senior Director of Traceability and Sustainability Timothy Marsh summed up three key terms.
- Traceability: The ability to trace the history, application or location of an object. It enables a person to tell a story about the journey of a product, answering questions like where it has been and who has handled it.
- Visibility is data that provides a holistic view of the supply chain, from where raw materials and packaging components are right now, to where they are heading.
- Transparency: In this context, the term refers to information about the origin of the product, processes used in its creation and the locations and parties involved in producing the product.
To be successful with sustainability, all three of these things are needed at many levels, from charting the path of a product to making the decisions that allow supply chains to balance environmental and business considerations. They also allow businesses to meet consumer demand for more information about the origins and journeys of products by providing data that can paint a full picture.
Developing standards can offer a “common language” that allows this data to be used by the many entities involved in the supply chain, said Maria Basso, platform curator with the World Economic Forum.
“There’s a world of information out there. It’s all in different formats, it’s all communicated in different ways and it’s begging for a standard way to communicate, so that every stakeholder can understand their impact, and can understand their ability to contribute and improve,” said Jeff Eason, senior manager for sustainability data and tech at Walmart Stores.
The journey in supply chains now reminds Eason of the early days of the internet, when protocols like HTTP were being developed to provide a common footing working on the decentralized networks.
“Imagine all the innovation and all of the advances that has been unlocked since that agreed-upon set of language” was developed, he said.
Address reverse logistics
Sustainability measures aren’t only required for a product’s journey to a sale. It must be taken into account after a purchase as well. Returns are one area that is especially in need of attention. According to Deloitte, the rise of ecommerce over the last decade has led to a 33% increase in the return rate for overall retail sales.
This growth has led to challenges in supply chains. Stores often don’t have space to hold returns, and find margins challenged by selling this inventory again. When moved, returns traverse their own path known as reverse logistics, which increases the carbon impact. Many returns are also destroyed or thrown out, instead of being resold.
But increased focus on the waste that is generated has led to a focus on sustainability, where previously there was a focus primarily on profitability.
Reuse and resale business models are emerging that keep existing goods in circulation. Webb referenced examples such as the apparel rental service Rent the Runway, Ikea’s furniture sell-back program and a refurbished program for medical imaging equipment run by Phillips.
These models are crossing packaging, products and company operations. At the event, Brian Bauer demonstrated how Algramo makes smart packaging that enables people to buy exactly the amount of a product they want, and access refilsl. Recurate CEO Adam Siegel talked about its integration powers resale channels on the websites of 50 brands and retailers like Steve Madden, Michael Kors and more. This allows shoppers to list an item for resale on the website of the brand where the item was originally purchased. It’s all designed to enable circularity.
“The most sustainable product you can buy is almost always a pre-owned product and our goal is to make that easier for buyers and sellers,” he said.
Companies must also consider the items they use to conduct normal business. According to Chief Impact Officer Garr Punnett, Rheaply provides software that brings more visibility to company asset management and facilities management departments to enable reuse of items like office tables and chairs within a company. When a business is ready to discard items, the company also reaches out to the community to extend the lifecycle of materials by finding a new home or resale outlet. The company wants to do everything it can to keep an item from going to the landfill.
Create reusable packaging
When seeking to increase sustainability, the materials that hold goods as they move from place to place are another important area to focus on. The EPA estimates that packaging accounts for 30% of waste annually, so offering more environmentally-friendly approaches that keep boxes and containers out of the landfill can move the needle.
Promotion of reusable bags and bottles, as well as innovation in edible packaging and plant-based packing peanuts are showing the way to a future where there is an alternative to single-use, plastic packaging.
Multiple levels of engagement are needed for a more circular future.
Education and communication are necessary. Scrapp Recycling CEO Evan Gwynne Davies talked about how the company’s app allows users to scan the barcode of an item, and tells them which parts of the product are recyclable according to local rules.
Brands and retailers are setting out ambitious sustainability goals, and must consider sustainable packaging that fits within their operations in order to meet them. Returnity works with brands and retailers to implement reusables in a way that makes sense for their supply chain, working with Rent the Runway, L’Oreal, and others, said CEO Mike Newman.
There are many different levers a company can pull strategically to make packaging more sustainable, as well, said Mike Stockman, of Delterra. That could be less packaging, or changing materials. The nonprofit makes a tool called PlasticIQ to help understand those different choices, and the implications of them over the long-term.
When it comes to sustainability, “There isn’t one size fits all approach,” Gwynne Davies said.
While there is lots of work to preserve items, not all materials are recyclable. Many that are discarded end up as waste. Alongside reusing what you can, an important consideration is reducing waste that is created.
Emerging areas are addressing this. Biomimicry is the study of organisms and their interactions to apply solutions that have already been created in nature to answering problems created in society through industries from apparel to healthcare. Regenerating fabrics are an example of an area in development.
At the same time, new methods are being developed to recover materials that were thrown out, including employing robots to mine landfills and recover reusable materials such as ewaste. Startups are also working on ways to take food waste products and turn them into consumable products such as flavors.
Through the chain
As products are manufactured, transported, used, discarded and then used again, data will become a powerful asset to provide a look at where a product came from, and where it might be heading.
“Global unique identification and standards-based data sharing will be essential for a more sustainable future,” said Melanie Nuce, Senior VP of Innovation and Partnerships at GS1 US.
As the organization that works to champion and spread those standards, GS1 is working with organizations on each level of the supply chain, and enabling collaboration to bring that future into view.
“Sustainability teams do not have to go at this alone. From trying to figure out how globally unique identifiers (that they have already invested in) could do more for them, to working with trading partners across their value chain to implement sustainability or circularity initiatives, we are here to partner with you,” Tai said. “Whether it is finding the right new emerging technology, trying out a new way to be accountable for carbon impact of products, or recovering materials through better traceability practices, the Innovation and Partnerships team at GS1 US is here to support pilots and further exploration with you.”
GS1 US will dive deeper into the digital supply chain at the Supply Chain Visibility Summit on Oct. 20.
Trending in Operations
The opening of a new Market Fulfillment Center highlights Walmart's plan to build a local, automated logistics network.
Walmart may never build a fulfillment operation with a footprint that rivals the sprawling network of Amazon, but it is still in position to build a similar engine of business growth from the bowels of the supply chain. That’s because the world’s largest retailer has a head start in one key area that the ecommerce leader currently lacks.
As executives at Walmart are known to repeat often, 90% of the U.S. population lives within 10 miles of a Walmart store. These brick-and-mortar behemoths provide built-in proximity that can not only provide convenience for consumers who are looking to easily shop in person, but also to the retailer as it seeks to ship digital orders out.
As Walmart emerges from two years of building ecommerce capabilities during the pandemic, it is now taking steps to make its digital business a cornerstone of future growth, and profitability.
Those plans include building new facilities throughout the supply chain, but the retailer is continuing to keep the store at the center of ecommerce.
The latest example arrived this week. Walmart said it is opening a new store-based fulfillment center in its hometown of Bentonville, Arkansas.
From Walmart’s news release:
The Market Fulfillment Center (MFC) is built within the store and is powered by a proprietary storage and retrieval system – named Alphabot. Walmart believes fulfillment through digitization and connecting its store and supply chain assets end to end will transform fulfillment. And along with it, customer satisfaction and associate opportunity.
While this is only Walmart’s second MFC, it points at the logistics model that the retailer is building. Rather than massive standalone fulfillment centers in each locality, Walmart is creating a network that includes stores, distribution centers and a fewer number of strategically located (and increasingly automated) fulfillment centers.
Walmart already has big box stores that resemble large warehouse facilities. Now, it is putting them to work as supply chain nodes. This makes sense, since Walmart’s sizable ecommerce growth is being driven by pickup and delivery. Those two fulfillment options are largely local, and originate at stores. So it's a massive strategic advantage to be located with 10 miles of the bulk of the U.S. population. Additionally, Walmart has a sizable grocery business, so it benefits from being able to colocate items within a store, rather than splitting inventory between in-store and ecommerce.
While combining a store and fulfillment center is a matter of space and real estate, Walmart said that technology is critical to making it all work. The Alphabot system detailed above is a key part of the retailer’s recently-revealed plans to have 65% of stores serviced by automation by 2026.
Alphabot is key to automating fulfillment. (Courtesy photo)
The shift to in-store fulfillment is designed to increase efficiency and help Walmart better serve customers. The company said that MFCs will help Walmart deliver more orders in a day, and increase accuracy. In the end, it will also increase delivery speed. As it continues to add fulfillment centers, the retailer has said that it can reach 95% of the U.S. population with next- or two-day shipping. By adding stores into the mix, it can offer same-day delivery to 80% of the U.S. population.
But for Walmart, the investment in automation is also an opportunity to draw on a new engine of growth. The retailer has said that unit cost averages could improve by 20% as a result of the automation initiatives it is implementing, and store-based fulfillment model.
While the upfront investment is likely significant, it is making use of existing assets. In the end, building now can help improve margins going forward. On the company’s recent earnings call, CFO John David Rainey outlined the company’s thinking on the ability of supply chain to increase returns for investors:
The third building block of the model includes improving returns by scaling proven high-return investments in our supply chain that drive operating leverage and improve incremental margins. We're investing capital to optimize our distribution and fulfillment nodes with automation that we expect will drive a significant improvement in unit economics in the coming years. Our capital structure and cash flow generation are an advantage, and we're allocating capital responsibly with a bias towards increasing returns.
While Walmart’s fulfillment operation may look different than Amazon’s, the retailer appears to have learned the lesson that an investment in infrastructure can transform the supply chain from a cost center into a profit driver.