Category Archives: Sustainability

Will a Circular Economy Work with Leakage?

Sustainability is one of the big buzzwords, and the biggest verbal pushes, in today’s Procurement. (In practicality, most organizations won’t put their money where their mouth is and if the more sustainable solution is more than a point or two more cost-wise, environmentally damaging sweat-shop production, here we come!) We need to get there, because only an idiot would deny global warming (the last 13 years have seen 10 of the hottest year on record), and no one can deny the correlation between carbon emission, atmospheric carbon increase, and global warming. (You can argue just how much is due to carbon emission and how much due to other factors, many of which are indirectly caused by warming, but not that carbon is a problem.) Thus, even though we don’t know how much carbon reduction will help, we know it will, so we need to get there.

One big way to reduce carbon is to reduce production, which can done by reducing waste, which can be done through more refurbishment, repair, re-use, recycling, and reclamation — which are all part of the circular economy. Which is where we really need to get to (because waste is a problem — in addition to overflowing landfills that can pollute nearby water suppliers and make nearby land unfarmable, and even uninhabitable, think of the great pacific garbage patch and the containers of e-waste being sent to India, which has been a problem for well over a decade, see this 2010 article on the Times of India, and you start to get a grip on the magnitude of the problem).

But how efficient does the circular economy have to be to be effective? Theoretically, anything more that we do is one step better than what we are doing today, but, given that most products weren’t designed for recycle and reclamation, technologies for recycling and reclamation are immature and possibly carbon/generating themselves (especially if the answer is extract what we can, bury or burn the rest), and that there are breaks in the chain, is this leading to new waste that could possibly offset (or exceed) the expected (carbon) savings?

It’s a question Karolina Safarzynska, Lorenzo Di Domenico, and Marco Raberto recently tackled in an open-access paper on how the leakage effect may undermine the circular economy efforts available on nature.com. In the paper, the authors examine the impact of the circular economy on global resource extraction by way of an input-output analysis using an agent-based model of the capital sector. Through a detailed analysis they find that an appropriately structured circular economy economy can significantly reduce the extraction of iron, aluminum, and nonferrous metals if
implemented globally but the leakage effect may also cause some metal-intensive industries to relocate outside the EU, offsetting the circular economy efforts because an overlooked requirement for the circular economy is not just a reduction of waste, but a reduction of transport as transportation (air, rail, truck, and ship) contributes a significant amount of global carbon. In fact, if you go to Our World in Data, in the United States, the transportation sector accounts, like the energy (electricity and heat) sector, for approximately 30% of transportation emissions. The statistics right now are similar for the EU (24% for transportation and 28% for energy). So, if all of a sudden products need to be shipped halfway around the world to be recycled and reclaimed and the core materials shipped back, transportation-based emissions would increase significantly and possibly even overtake the extraction and raw material processing emissions!

In all fairness, we should note that the paper is pretty technical and metric heavy, and this is a bit of a simplification, but it’s the core idea we need to be aware of. It’s not an improvement if the carbon you take out of one segment is exceeded by changes in another. Just like we need to home/near-source for anything we can grow/mine/make at/near home, we also need to home/near reduce/reuse/refurbish/remanufacture/recycle whatever we can. It might be that the rare earths can only be mined in certain areas, but that doesn’t mean they have to be reclaimed and re-used there.

ERP at the Center of Sustainability and Human Impact?

ERP Today recently ran a brief editorial insight entitled ERP at the Center of Sustainability and Human Impact which caught my eye because ERP is generally not at the center of anything that is not manufacturing but yet should be at the center of sustainability data because it’s the ONE system that should be accessed, or at least be accessible, organization wide. However, in most organizations, all it stores is the manufacturing / order data, purchase orders, and invoices.

The article states that, within some organizations, they are providing the financial clarity to drive meaningful environmental and human impacts, however it only lists TWO (2) (Blue Marine Foundation and Oracle), and the doctor‘s experience, which is similar to other analysts he’s worked with, is that, for the vast majority of companies, this is JUST not happening.

Why? A few reasons, but the main ones are:

  • most ERPs don’t store complete financials; they’ll store POs and Inventory, but the complete financials will be in the organization’s AP/I2P/P2P systems
  • most ERP’s don’t store/calculate ANY sustainability data and
  • most ERP’s weren’t/aren’t configured to store ANY sustainability data

This means that, for an ERP system to provide financial clarity around meaningful environmental and human impacts, an organization needs to

  • integrate it’s accounting systems with the ERP and push all invoices and payments into the ERP
  • get subscriptions to third parties with the sustainability data and push that into the ERP after
  • updating the ERP configuration to store all of the relevant data around sustainability and responsibility that the organization wants to track

And while this will be doable with most modern ERPs, it could be expensive and force an organization to use another platform, such as a modern SRM (Supplier Relationship Management) platform as its core sustainability and responsibility platform instead. But it would be nice if the ERP could be the one platform that at least stores all of the organization’s golden records, because data warehouse, lakes, and lakehouses aren’t the answer (as all they do is duplicate data and make it harder to find the single source of truth) — the answer is a central source of sustainability and responsibility data that is, or could be, accessible organization wide so everyone can know the impacts of their (financial/supply) decisions. And while it could be the ERP, given the sheer cost of any customization work on any of the big ERPs, the doctor doesn’t think it’s very likely.

How Do You Sustain Sustainability When True Value is Long Term …

… and the brunt of the cost is short term?

AlixPartners recently published an article over on Mondaq on how The Fourth Dimension In Strategic Sourcing, Sustainability, Can Drive Value which caught our attention because Sustainability can drive value, but most organizations under cost pressures, which are rampant in our current inflationary economy, don’t choose the sustainable option as it’s typically a higher expense in the short-term.

Moreover, the big value is investing in suppliers that invest in new technologies that will be more sustainable in the long run. However, due to the cost of implementing these new technologies, the up-front costs are higher as the suppliers have to stay in business until the new technologies start to deliver returns. For example, the following are major improvements to sustainability:

  • suppliers utilizing, investing in, or building their own renewable energy grids (solar, wind) to avoid using the energy produced by the local coal/oil burning plants
  • suppliers re-designing production lines and methods to minimize waste (through cutting of metal, processing of food, etc.) and to ensure any waste they create can be used as an input to another production line (melting and re-fab of metal scraps, animal feed, etc.)
  • suppliers investing in their own water purification technology to re-use water in the manufacturing process
  • suppliers investing in product redesign research to minimize use of scarce rare earth minerals/metals and to increase use of reclaimed minerals/metals
  • suppliers investing in reclamation technology to maximize recycling of products created with metals/minerals

… and the following, highlighted in the article, are minor improvements …

  • sustainable supplier selection as everyone is going to try and secure the most sustainable supplier of the lowest cost suppliers, leaving less sustainable suppliers or more sustainable suppliers at a higher cost that the CFO/CEO will not let Procurement pay for the majority of organizations (the small, sustainable, suppliers cannot massively scale overnight)
  • eco-friendly packaging and waste reduction as this is not new and many organizations are already be doing this to the extent eco-friendly packaging is available
  • energy-efficient products and services as this is not new either and as companies replace end-of-life products, they have been choosing more energy efficient products for a while now with the increase in energy prices over the last five to ten years, and the truth is that this is usually a small dent on their total energy footprint
  • carbon footprint reduction as that is the goal, not a specific action that can reduce carbon footprint, and. most importantly, significant reduction requires significant investment (reducing travel and forcing the CEO to give up the private jet and fly first class only goes so far)
  • collaboration and reporting because while you need to understand your footprint, and sometimes shaming goes further than incentivizeation, reporting doesn’t actually increase sustainability unless action is taken …

IF PE firms, with billion dollar funds, won’t actually invest in supply chain (which includes sustainability) improvements, because you typically don’t realize the bulk of the value until you (significantly) pass the five (5) year mark, how can you expect short-term thinking CEOs and CFOs, trying to impress Wall Street or attract PE funding, to actually put their money with their big mouths are and invest in true sustainability?

If you have answers, we’d love to hear them — comment on the LinkedIn post.

Digging into Manufacturing Sustainability

In our article on Solving the Sustainability of the Supply Chain is Systematically Strenuous and Surprisingly Serpentine, we noted that while there are easy two-word answers for reconfiguring the global supply chain for greater supply chain assurance and more sustainability at the 30,000 foot level, when you dig into the details, it’s not so easy as you have dozens of facets to get right to truly optimize sustainability across:

  • Support
  • Sales
  • Logistics
  • Procurement
  • Manufacturing
  • Materials

Manufacturing sustainability is much more involved than just choosing sustainable materials and focussing on sustainable design. When you are manufacturing you have to think about all of the following:

  • Materials: are the materials renewable, reclaimable, recyclable, or compostable — if not, the materials are not sustainable
  • Design: is the design using as many sustainable materials as possible; minimizing the use of non-renewable materials in minimal supply; ensuring the product is designed so that non-renewable materials can be fully reclaimed / recycled; ensuring the product can be produced in a sustainable manner? etc.
  • Production: are the lines modern, minimizing energy and MRO material usage (fluids, parts that wear out, etc.), efficient, etc.
  • Waste: does the chosen production method minimize waste, i.e. if cutting, how much waste metal or wood, and can it be reused/reclaimed?
  • Energy all energy production and transmission has a Carbon cost, even solar, as there was an initial carbon production in producing the panels, thus, the production method should minimize energy utilization (especially if producing EVs … considering a battery pack can produce between 2.5 and 16 metric tonnes of carbon in its production, it’s critical all production be energy efficient)
  • Water for cooling and cleaning should be minimized as well, and, if directly reusable, reused, and then reclaimed for future reuse (through an energy efficient processing plant)
  • Workforce as there needs to be a sufficient workforce and training in place to make sure they are suitably skilled for, and efficient at, the job to minimize errors and the resulting waste that comes from every human error

Furthermore, how you think about many of these requirements differs for every type of product you are producing, and often requires extremely specialized expertise to address the design, materials, production process, and waste. Manufacturing sustainability is not easy, but if you can’t ensure your manufacturers are sustainable, then you definitely can’t claim to have sustainable Procurement.

Digging into Logistics Sustainability

In our article on Solving the Sustainability of the Supply Chain is Systematically Strenuous and Surprisingly Serpentine, we noted that while there are easy two-word answers for reconfiguring the global supply chain for greater supply chain assurance and more sustainability at the 30,000 foot level, when you dig into the details, it’s not so easy as you have dozens of facets to get right to truly optimize sustainability across:

  • Support
  • Sales
  • Logistics
  • Procurement
  • Manufacturing
  • Materials

Logistics sustainability is much more involved than just “green transportation” and using “zero emission“*1 electric vehicles, because there’s a lot more to logistics than the plane, train, boat, or truck. There’s also the:

  • Packaging – is the packaging reusable, reclaimable, recyclable, or compostable; minimal?
  • Warehousing – are the warehouse operations sustainable?
  • Routing – is the routing designed to minimize unnecessary distance, handling, and environmental impact?

Let’s dive into each of these:

Packaging involves ensuring that the following are sustainable:

  • Materials as the only trace of us millions of years in the future — after the “right to be stupid” crowd manages to vote in the greedy, power-hungry, self-nominated populist con-artist candidate in enough first world countries*2 — will likely be microplastics*3 and plastic molecules which, even after millions of years, will never fully dissolve (and which are already so omnipresent that microplastics are even in all of our bodies now)
  • Manufacturing as the packaging needs to be manufactured just like the product
  • Logistics as the packaging has to be shipped to the product manufacturer
  • Packaging as the packaging needs to be packaged to be shipped to the product manufacturer

Warehousing involves ensuring that the following are sustainable:

  • Heating & Cooling since most warehouses are built super cheap (thin metal structures) and, thus, require ridiculous amount of carbon-based energy production*4 to heat or cool
  • Operations since warehouses use forklifts and robotic automation — which are not necessarily green, energy efficient, and/or well designed
  • Workforce since there needs to be a sufficient workforce and there needs to be training in place to make sure they workforce is suitably skilled for the job

Routing involves ensuring that the following are sustainable:

  • Transportation Modes as most international shipments are multi-modal (and involve at least two different means of transportation, and usually three)
  • Cross-Docking as shipments will need to be unloaded from ships and trains at ports and yards and loaded onto trucks and unloaded from big trucks onto smaller trucks at local depots
  • Leg-Routings as ships can’t disrupt whale schools, dolphin pods, or fish colonies (which might also be needed for food); planes shouldn’t fly low through wildlife/bird reserves; trains shouldn’t pollute the forests they run through; etc.

In other words, there’s a lot more to logistics sustainability than green transportation, which isn’t exactly green to begin with!

*“Green” vehicles aren’t anywhere close to zero emission when you consider all of the emissions created in the production of those electric vehicles and those battery packs! For example, as quoted on the MIT Climate Portal, building the 82 kWh lithium-ion battery found in a Tesla Model 3 creates between 2.5 and 16 metric tons of CO2 (exactly how much depends greatly on what energy source is used to do the heating). This intensive battery manufacturing means that building a new EV can produce around 80% more emissions than building a comparable gas-powered car. And then you have to consider all of the emissions produced by your energy provider to produce the electricity that recharges your battery pack every few hundred kilometers (or 0.6214 miles for you Americans). If your local power plant is still burning dirty coal, then you could be responsible for the creation of 950 grams of CO2 per kWH. So if you’re driving a new AWD Performance Tesla, you’re producing 77.9 kg of CO2 for every 567 km you drive. In comparison, if you’re driving a Toyota Yaris that gives you an average of 36 mpg, or 58 kpg, you’re burning 9.78 gallons and producing roughly 86.9 kg of CO2 for the same 567 km. In other words, you’re only about 10% more green on a per-tank basis driving that Tesla 3 if your local power provider burns dirty coal!

In other words, “green” transportation isn’t necessarily green if you don’t consider the energy product or the up-front production. If the battery production emits 16,000 kgs of CO2, all other vehicle production related emissions are equal, and you are using electricity produced from dirty coal to charge the battery, you don’t see the first drop of CO2 savings until you drive almost 1,780 tanks or 1,000,000 kms! And then you only see a 10% if, and only if, as stated above, the production of the remainder of the vehicle has about the same CO2 production as an average vehicle for its size.  (Which means, at the end of those warrantied 192,000 kms, that green Tesla won’t even be Carbon Neutral!  It won’t even be one fifth of the way!)

*2 greedy, power-hungry con-artists who will repeal all environmental laws, take away all our basic human rights, and even start wars that could not only end all wars but end us (assuming the AI they are using to replace us doesn’t end us first)

*3 after the last last satellite has plummeted back to earth (and burned up), the last skyscraper has crumbled, and the last pyramid has turned to dust, traces of certain microplastic molecules that do not occur naturally in nature will still be found in the soils and at the bottom of the ocean where there are no lifeforms to break them down

*4 even renewable energy such as solar, wind, and hydro has a carbon footprint as the panels need to be manufactured, the turbines need to be manufactured, and the dams need to be built and all that involves carbon production with today’s technology