Sustainability in the Supply Chain – What Framework Should We Use?

Decision Framework

The first step in this framework is to think about every stage of the supply chain. Companies often have their own stages, but for the purposes of this post, we use the following eight stages for aftersales supply chains:

1. Production & Sourcing
2. Packaging
3. Inbound Transportation (to the aftersales network)
4. Warehousing
5. Outbound Packaging
6. Outbound Transportation
7. Customer Use
8. End of Life

Each stage of the supply chain has a cost, both at its current state, and at a potential future state, if the company were to make changes to increase sustainability across any of the sustainability metrics we have focused on. In the next section, we walk through how a company can quickly plug in its data and current state metrics to gain an increased understanding of the impact of more sustainable practices on their supply chain costs.

Current State Assessment

The first step of this process is an assessment of current state. The cost of each stage of the supply chain, at current state, goes into the matrix on the top row. We’ve inserted variables at present. Then, assess the impact on the supply chain on a scale from very poor to very good – it is important to think critically about the impacts from a sustainability perspective. Take a look at each KPI within the first supply chain stage and think about how each sub-component (like Percent of Water Recycled / Re-Used) is impacted by your companies’ current production and sourcing operations. Once you have a sense of the score, insert that in the table. Then, we can continue to the right and look at each of the other stages of the supply chain and evaluate the KPIs.

Current State	Production & Sourcint	Packaging	Inbound Trans.	Warehousing	Outbound Packaging	Outbound Trans.	Customer Use	End of Life
Current Cost	C_1	C_2	C_3	C_4	C_5	C_6	C_7	C_8
Raw	Very Poor	Poor	Very Poor	N/A	N/A	Very Poor	N/A	N/A
Energy / Emissions	Very Poor	Poor	Very Poor	Poor	Poor	Very Poor	Poor	Poor
Water Footprint	Very Poor	Poor	Good	Neutral	Poor	Good	Neutral	Neutral
Reclamation	Very Poor	Very Poor	N/A	Very Poor	Very Poor	N/A	Very Poor	Very Poor
Human Cost	Very Poor	Neutral	Poor	Neutral	Neutral	Poor	Very Poor	Poor

To view this in a quantitative fashion, we can apply numerical values from 1 through 5 for the environmental impact assessment scores of Very Poor (1), Poor (2), Neutral (3), Good (4), and Very Good (5). We then sum each row and multiply by a scaling value to get an overall sustainability factor or score.

Current State	Production & Sourcint	Packaging	Inbound Trans.	Warehousing	Outbound Packaging	Outbound Trans.	Customer Use	End of Life	Row Sum	Pillar Weight	Score
Current Cost	C_1	C_2	C_3	C_4	C_5	C_6	C_7	C_8	N/A	N/A	N/A
Raw	1	2	1	N/A	N/A	1	N/A	N/A	5	0.15	0.75
Energy / Emissions	1	2	1	2	2	1	2	2	13	0.6	7.8
Water Footprint	1	2	4	3	2	4	3	3	22	0.1	2.2
Reclamation	1	1	N/A	1	1	N/A	1	1	6	0.1	0.6
Human Cost	1	3	2	3	3	2	1	2	17	0.05	0.85

In this case, our sustainability score is a 12.2.

Potential Future State Assessment

Then, we can re-assess based on a potential future state. We adjust the costs up or down, depending on our estimates. In the table below, we’ve adjusted each one by a factor – for example, production and sourcing costs are 1.8x the previous state. We also adjust the sustainability scores (from very poor to good). We then re-score the “future state” the same way as we did the current state.

Future State	Production & Sourcint	Packaging	Inbound Trans.	Warehousing	Outbound Packaging	Outbound Trans.	Customer Use	End of Life
Current Cost	1.8 x C_1	1.3 x C_2	0.9 x C_3	0.9 x C_4	1.3 x C_5	0.9 x C_6	C_7	1.3 x C_8
Raw	Good	Very Good	Neutral	N/A	N/A	Neutral	N/A	N/A
Energy / Emissions	Good	Very Good	Neutral	Neutral	Very Good	Neutral	Neutral	Neutral
Water Footprint	Good	Neutral	Good	Neutral	Neutral	Good	Neutral	Neutral
Reclamation	Good	Very Good	N/A	Good	Very Good	N/A	Neutral	Very Good
Human Cost	Neutral	Neutral	Poor	Neutral	Neutral	Neutral	Neutral	Neutral

In this case, our potential future state score is a 26.1.

Conclusion

We created this methodology to be simple enough that it is quick and easy to execute. There are upsides and downsides to this model that are important to discuss:

Upside – This methodology can be fast and gives companies a quick sense of current state and potential future state across all the sustainability KPIs and throughout each stage of the supply chain. Companies can use either real data or gut feel to input the scores from very poor to very good.

Downside – This methodology outputs a “score” that is only useful when comparing two options. It doesn’t output a score that can be summed across the organization to come up with a total. This is useful for speedy decision-making but is not as granular as other more time-consuming scoring systems.

Every company has different capabilities and priorities, but taking sustainability into account is becoming essential to the success of businesses across the board. Establishing this decision framework is a good first step toward making sustainability a factor in aftersales supply chain decisions at every stage.

In Our Next Post…

We’ve shared a simple to use framework to evaluate an organization’s current state sustainability impacts vs. a potential future state. This type of framework helps companies begin the conversation and decision-making process to understand how to factor in sustainability into broad-scale strategies and initiatives. In our final segment of this four-part series, we will explore case studies of companies that have effectively improved their supply chain processes from a sustainability perspective. We will also wrap up with some key takeaways and action items for those that are interested in optimizing their supply chains from both a cost and sustainability perspective.

Authors

Nate Chenenko

Director