Supply Chain Sustainability & Decarbonizing Freight Transportation

Sustainability is increasingly governing consumer behavior and consumption, pushing companies to adapt business strategies to suit sustainable practices. As investors and shareholders increasingly demand more socially and environmentally responsible companies that account for their impacts on the planet for investment opportunities, businesses must take active measures. The DHL Logistics Trend Radar, 5th Edition states that 79% of institutional investors say environmental impact, social impact, and governance structure (ESG) are part of their fiduciary responsibility to clients.

To be effective, businesses must embed sustainable processes across entire supply chain ecosystems. These trends, compounded by COVID-19 and its staggering impact on global supply chains, have forced companies to re-evaluate operations and pivot towards risk mitigation, agility, sustainability, and resilience in supply chains.

Supply Chains and Climate Change

A BCG article on climate change and supply chains states that 8 global supply chains are responsible for more than 50% of greenhouse gas emissions (GHG). And only a fragment of these emissions is produced in the final stage of manufacturing, most of it is generated from the basic activities of agriculture and freight transport. Food accounts for the largest share at 25%,followed by construction at 10% of global emissions with fashion and FMCG following closely. Electronics, automotive production, professional services, and freight transportation follow next. 

BCG article on climate change and supply chains

Supply chains are often faced with multiple challenges in incorporating proper measuring, assessment, and reporting of GHG emissions. Supply chain emissions are generally spread across various touchpoints in a supply chain. Accounting supply chain emissions require awareness, intensive engagement with suppliers, transportation service providers and the willingness to commit to long-term goals of climate change and sustainable practices.

SAP and Supply Chain Sustainability

SAP defines a sustainable supply chain as “one that fully integrates ethical and environmentally responsible practices into a competitive and successful model. End-to-end supply chain transparency is critical; sustainability initiatives must extend from raw materials sourcing to last-mile logistics, and even to product returns and recycling processes.”

As businesses accelerate digitization initiatives, there is a growing need for information technology that provides visibility into upstream and downstream operations. A sustainable supply chain consists of the three main components of being green, transparent, and circular.

A green supply chain can mean integrating environmentally responsible and compliant practices into processes. Product design, sourcing, manufacturing, logistics, and end-of-life product management all come under the purview of green supply chain management.

A transparent supply chain essentially means the businesses are willing to disclose and report about their products and the impact on the environment from their operations. Global attention and climate change awareness has shifted focus on carbon emissions as a high-focus environmental goal.

A circular supply chain is based on the principles of circular economy and encourages the continual reuse of materials to minimize waste and burdening of natural resources for procuring raw materials. Gartner’s Future of Supply Chain Survey, 2020 found that 70% of supply chain leaders want to invest in a circular economy.

These three components can cover almost all dimensions from sustainably manufacturing products to sustainable engineering to delivering goods with the least possible environmental impact and providing after-sales support.

SAP’s Sustainability Vision

SAP emphasizes the importance of tangible actions to counter climate change and firmly believes that time is of the essence here to create an impact. David Schmid, Chief Sustainability Officer at SAP, believes that businesses need to reshape a more inclusive, resilient, and circular economy just as public policies need to drive sustainable recovery

Businesses must address climate change initiatives more than ever to be able to succeed in the long term. Evolving consumer behavior, the fact that sustainable practices drive purchase decisions and influence investors to look for new avenues to invest, Government policies and regulations are all contributing to this massive shift in how businesses are re-evaluating their priorities.

SAP is heavily invested in Environment Social Governance (ESG) initiatives and considers climate change, optimized utilization of resources, and impact on the environment in terms of working conditions in its business decisions.

What is SAP’s Climate 21 Program?

SAP’s Climate 21 program aims to address the immediate impacts of CO2 emissions and devise ways to reduce these GHG emissions by tapping into the expansive SAP ecosystem. Through the Climate 21 Program, SAP supports and enables businesses to sample, assess, and act on their carbon footprint along the entire value chain.

Sampling the CO2 emissions data across various touchpoints in business processes creates the transparency needed to understand the sources of CO2 emissions. The SAP Product Footprint Management converts transactional and master data in SAP S/4HANA into business activity metrics.

Secondly, by assessing the data obtained SAP can enable customers to visualize their emission inventory, conduct benchmarking studies, understand emission trends, and identify focus areas for investments to bring down emissions effectively.

Lastly, SAP provides integration tools to help customers take action and realize sustainable practices by employing solutions into their operational processes.

SAP and Carbon Neutrality Goals

By 2023 SAP aims to achieve a net-zero carbon footprint for its operations, including all direct, indirect, and selected categories of value chain greenhouse gas emissions (GHG). Novigo commits to support and expand existing SAP initiatives & programs to drive efficiency & innovation to avoid & reduce GHG emissions, following the principle of Avoid-Reduce-Compensate.

Avoid: Whenever possible, SAP aims to avoid the creation of GHG.

Reduce: If we cannot avoid GHG emissions, we aim to drive efficiency to reduce GHG emissions

Compensate: Compensating or offsetting is the last option where we extend our existing proven compensation models by enlarging our embedded internal carbon pricing model for CO2-free travel equivalent by train or airplane.

Sustainability and Transparency

Companies are facing increasing pressure to disclose sustainability data and reports. These compliance demands come from multiple and diverse stakeholders and growing requirements from regulators. Despite the mounting pressure on businesses, a significant number of organizations have failed to devise quantifiable supply chain sustainability goals, let alone report their findings. As SAP states plainly, “you can’t manage what you don’t measure”.

Closing the Logistics Emissions Disclosure Gap, an analysis of emissions disclosure to CDP by corporations worldwide, July 2020, states that freight transportation makes up roughly 8% of global Greenhouse Gas (GHG)1 emissions. This increases to approximately 11% if logistics sites like warehouses or ports are considered.

The paper further states that less than 20% of global freight emissions are disclosed, and the majority of that comes from aviation. Aviation makes up about 7% of global freight transport emissions, with a relatively high GHG intensity. To compound issues, the report further states how the demand for freight movement will triple by 2050, with an expected doubling of freight transport GHG emissions.

From an environmental perspective and a business standpoint, carbon emissions ranked highest as a high-focus goal. The other top high-focus environmental goals were energy management and waste or end-of-life product management. The focus on carbon emissions is quite evident given the immense global attention on climate change issues. And since freight transportation has a significant contribution to global carbon emissions due to fuel-dependent trucks, ships, and airplanes, added scrutiny is a given consequence. Thus, decarbonizing freight transportation can be seen as a top priority to meet global climate goals.

SAP + Tracks – The Novigo Imperative

As a leader in supply chain sustainability solutions, Novigo recently partnered with Tracks GmbH. This Berlin-based company uses artificial intelligence and big data to drive CO2 visibility and decarbonization initiatives in road freight. The partnership between Novigo and Tracks establishes innovative ways to report fleet CO2 emissions accurately and decarbonize road freight, enabling the transition to more sustainable supply chain operations.

Tracks is a pioneering digital product that helps measure, manage, and mitigate Scope 3 CO2 emissions. Accredited by the Global Logistics Emissions Council (GLEC), it is the only solution in the market that measures primary data directly from onboard telematics systems. Tracks makes emissions management easy, enabling businesses to export GLEC compliant reports automatically.

Novigo has developed a unique product that integrates Tracks' technology with SAP TM or SAP ECC backend. This solution helps make the CO2 footprint data accessible across platforms. With insightful dashboards, sustainability KPIs can be viewed even in the planning stage in the SAP TM.

Every new truck in Europe is equipped with a telematics system, and Tracks' hardware-free solution interfaces with these systems to measure Scope 3 CO2 emissions. This functionality enables companies to meet and exceed their sustainability targets by digitally streamlining data sharing between shippers and transportation service providers.

Tracks can be integrated with SAP TM for seamless visibility of emissions data and reporting. It will help logistics planners visualize carbon emission-related data, assess if their emission standards are within acceptable norms, and base operational decisions on a case-to-case analysis. The solution can be applied to all industries, and the data generated is near real-time. However, the real-time accuracy of this data also depends on carriers. For instance, if the data is received directly from telematics systems, it's closer to being real-time. However, if the carriers submit it manually and periodically, it's almost real-time data.

Watch this video to learn more about this innovative new solution.

The first step towards sustainable supply chain operations starts with collecting and measuring CO2 data to assess and analyze the findings. Tracks can collect the data, analyze it, and send it back to the SAP backend systems. Alternatively, we can feed the data into Tracks and then analyze it further to understand critical patterns. We can also create a digital clone and use Artificial Intelligence to simulate various situations to get a deeper dive into the issues with the collected data.

This innovative solution will help businesses understand critical patterns of emission inventory and aid essential decision-making. A simple decision of an optimized route selection considering CO2 emissions can deliver immense long-term benefits and significant cost savings. Moreover, businesses with more transparency over supply chain emissions can set ambitious net-zero carbon emissions targets and strive towards achieving them.

Setting standardized procurement norms for vendors can help address emission issues directly. Mandating a modern fleet and transparency in CO2 emissions data reporting can help businesses reach the net-zero targets more aggressively.

Sustainability is now at the core of designing supply chains. Especially since the pandemic has hit global trade, the need for sustainability has grown. The benefits of investing in developing sustainable supply chains are multifold. Doing so can build brand loyalty and image but also progressively help mitigate risks and vulnerabilities. Advanced technology and innovative solutions enforcing supply chain transparency can effectively filter out unscrupulous vendors and poor-quality standards.

Novigo can help you build a business case and design sustainable supply chain practices based on your specific requirement. In compliance with the value drivers retrieved from your business case, Novigo provides packaged and tailored offerings to address challenges specific to your business. To further explore the right approach of shifting to more sustainable supply chain operations, talk to an expert today!

Novigo's Tailored Supply Chain Sustainability Solutions