There are three distinct categories of company when it comes to progress towards Net Zero.
Unfortunately for the world, the majority of companies fall into the second or third category.
In this article we layout what we believe to be the blueprint for a company to get up and running towards their Net Zero goals.
The first step is to be clear and realistic about what you are trying to achieve. Do not put unnecessary pressure on yourself by committing to solve the whole Net Zero challenge in one go. We need to work logically and pragmatically and learn along the way.
Evaluate your product catalogue and identify a product that is meaningful to revenue but not overly complex. We are looking for a product that allows us to demonstrate relevance but is not so complex that we run an early risk of failing to deliver. When we have learnt more about the process, defined ways of communicating with suppliers and educating the internal stakeholders we can start to tackle more complex products.
The product that we are looking for should have a limited number of involved suppliers. This will allow us to gather the data quickly.
If the product is sold in multiple variants, we should start with a single variant for now. We will cover variants later on. For example, if we are evaluating an item of apparel, we should start with the mid point size and a single colour.
Now we have understood the product we are going to focus on, we need to map out the supply chain.
We should already know who the tier one supplier/finishing factory is. If we don’t, we need to find out. Look at the trade documentation that should have been received with the last shipment. This should tell us where the goods came from, the supplier name, the method of transportation and the commodity code of the product. These are all critical pieces of information we require.
If this information is not available we should talk to the supplier directly and obtain it.
The next stage is to find out who the suppliers suppliers are. Continuing the apparel theme, where do they get the cotton yarn from? Is it dyed already or do they dye it themselves? Where do the buy the buttons, zippers, cotton thread, labels, packaging etc from?
They should have all of this information in the trade documentation they receive from their suppliers.
Once we have all of this data, we can start to build out the supply chain map. There is little value going any deeper in the supplier chain at this stage. We need to evaluate what we have so far and see if this is inline with delivering on the objectives.
The next stage is to compare the data contained in the supply chain map with the data we had about the supply chain.
How accurate is the existing data? It will help us understand how reliable the existing data is and whether we can trust it. Most companies will find out that their existing data is not as complete as they thought, when compared to the data we have just gathered.
Dont forget that this data can be used to improve the compliance data, or if using a platform like Zero Pro, the compliance team can use the platform for their own compliance activities in the future.
Now we have the supply chain map, we need to evaluate it. Where are the goods actually sourced from and how are the goods transported to us?
If the goods are exported by sea, is the manufacturing site close to the sea port?
If the goods are exported by air, which airport is being used as the port of origin and is the flight direct? If not, how many stops are there?
When we are happy with this tier of suppliers, we can start moving to the next tier of suppliers and repeat the process.
Whilst we are doing this, we need to understand more about the current tier of suppliers. What infrastructure and equipment is used during the value add process? How are these items powered etc?
We should run a calculation on the impact of the data we have so far. This will help us build a picture of the impact of the product we are evaluating.
We need to repeat this process, moving one layer down the supply chain at a time, until we have a complete picture of the supply chain. We should be able to see all of the suppliers involved in the product, how the goods are transported from the raw material supplier to us and all of the equipment/infrastructure used at each stage.
When we reach the end point of the supply chain, the data we have collected should allow us to run a calculation on the impact of the product we are evaluating.
This is our product baseline. This baseline data is critical as it is the data point that we will measure against after we have optimized the supply chain.
As part of this baseline, we need to understand what the potential costs of carbon mitigation is on the product and what this will potentially do to the product margins.
Now we have the baseline data, we can start to look at how we can optimize the supply chain.
We need to engage a wider set of stakeholders within the business to help with this process. Procurement, logistics, sales and finance are all critical to the process.
The first priority is to decide on the location of the suppliers in our future supply chain.
It could be that the current locations are optimal, but this will not be the case in most instances.
It is likely that the tier one supplier/finishing factories are in the right location but underneath we may find there is unnecessary movement of goods. This is often due to prioritizing suppliers based on unit price. We may find that a finishing factory in China, sources input materials from an ASEAN country but the raw materials are in China. This means there is a potentially two unnecessary international movements of goods. If the input materials can also come from China it would mean the supply chain becomes domestic.
Cost needs to be factored into this decision. It maybe the ASEAN supplier can do it cheaper than the Chinese supplier on a unit price basis, but if we factor in the other costs such as transportation, tariffs, working capital and carbon mitigiation, does the same cost equation still stand?
If we are to make the downward supply chain more domestic, are the suppliers close to each other and also close to a transportation hub that meets our needs? If this is possible, we can start to demonstrate progress towards a lower carbon product impact.
Do we have unnecessary airfreight in the supply chain? If we do, can we eliminate it? Airfreight is often used because of the speed it provides. If we can accept a longer lead time, we can replace air freight with sea options? This will have a significant impact on the carbon impact of the product.
We need to consider where we manufacturer and where we sell our products. Do we have consumers that are close to the finishing factory? If so, what is the value in putting a distribution centre close to this location that can optimize the sales fulfilment process?
If we have truely global sales, what is the cost of delivering product from a single location to all of the sales regions? What would be the benefits of having suppliers in each region that can supply the local markets?
If we are changing supply locations, especially to a different country, we must consider the performance of the target countries national grid and the availability of renewable energy compared to the current country. If the value add process is energy intensive, this could have a significant impact on the carbon impact of the product.
Once we are happy with the transportation strategy, we should have a reasonable idea of the location of the suppliers in our future supply chain.
The next stage is to identify any legacy equipment that is being used during the value add process and whether more modern equipment is available that can reduce the carbon impact of the process. Suppliers will look to sweat equipment to the end of its useful life but technology has moved forward at such a pace, improved time and energy efficient equipment could be available that speeds up the manufacturing process whilst consuming less power.
What are the options and what costs are involved with obtaining power from renewable sources or installing renewable energy generation on site? For energy intensive processes, this could have a significant impact on the carbon impact of the product. For countries like Bangladesh who have a significantly high carbon impact per KwH this could provide a significant benefit.
For the current UN 2030 objectives, we are targetting a 43% reduction against a baseline of 2019. Not many companies have a 2019 baseline, so if we create our product baseline now and can be sure that the process we use today is the same as the process in 2019, we can start to backsolve the benefits to the 2019 data. In cases where significant energy is consumed, this wil glean significant savings as most countries have reduced the carbon impact of their national grid supplies over the lasts 6 years.
If things have changed and we can gain surety over the prior process we can look to set that model as the baseline and apply the current baseline changes to it.
If we were discussing this 5 years ago, the answer would have been no. Suppliers were not interested in discussing environmental impact as they saw it as a cost centre and a distraction from their core business. They now see this as a critical part of doing business going forwards so going through this process not only solves the brands requirement, it gives them all of the information they need for their own reporting.
In fact, suppliers are now actively looking for brands to work with them on this process as they see it as a competitive advantage. Those brands that are engaging with their suppliers on this topic will see overall improvements in the relationship.
Some buyers are taking a much stronger stance on this topic. If a supplier is not willing to engage on this topic, they are being removed from the approved supplier list. This is a very strong message to send to suppliers and it is one that is being used more and more.
We should be looking to see material progress every 30 days. This is the way we can continue to build momentum and keep the internal stakeholders engaged. What we are trying to do here is not complex and with the right engagement from the suppliers, every 30 days is very achievable.
Quite often our product catalogue will have multiple variants of the same underlying product. For example, an item of apparel may have multiple sizes and colours.
Some variants will not have a material change on the carbon impact of the product. For example, a polo shirt that is available in 10 colours and the cotton yarn used for each colour is from the same supplier, the dyeing process is the same and the dying material comes from the same supplier, then the colour should not impact the carbon imapct of the product overall. We can evalute one colour and create 9 variants of it.
For sizes, we can take a similar approach. If the material used in a size small is 1.5sqm and the size large is 2.0sqm, we can create a variant of the base product that is 33% larger. It is not as scientific as evaluating each size independently but it is a reasonable approach to take and one that can simplify the task in hand. We can always go back later on when we have more time and conduct full evaluations on some of these variants.
Zero Pro has been designed to provide the entire framework to support this process. It provides the tools to map the supply chain, gather the data, run the calculations and model the changes. It provides the reference data required to run the calculations which can be modified if required.
It provides the tools to communicate with suppliers and gather data from them in a structured way. It provides the tools to report on progress internally and externally. It provides the tools to manage the project and ensure progress is being made.
Consumers can also be engaged in the process to help them understand the impact of their purchasing decisions using QR Codes on product labels that can link back to the Zero Pro platform.
It will provide recommendations on what you should prioritize next based on the data you have gathered. It will give you market specific insights that will help you understand the dynamics of your supply chain.
Zero Pro will significantly reduce your operational costs (based on trying to achieve the same manually), manage the risks associated with this process and will accelerate the time it takes to see material progress.
We would love to hear from you. You can email us at hello@zeropro.co