What are the challenges faced by companies in implementing the supply chain decarbonization?

Supply chain decarbonization is a key factor in achieving net zero emissions. However it is full of challenges. Several factors are responsible for this: Lack of transparency with in the company about the emissions, lack of transparency amongst the suppliers, emissions spread across the globe etc. A comprehensive list of challenges is given in the table below:

Lack of transparency:

Companies are not able to track their emissions properly. There is no proper scope defined. They also face challenge accurately determining their suppliers beyond the tier 1 suppliers. Procurement teams need to be cognizant of the low carbon emission alternatives while selecting the suppliers. Sometimes, intensive long-term contracts are required to get suppliers on board, which is a huge task for the procurement teams. For companies with lot of products and many suppliers this problem becomes manifold. A functional and universally acceptable infrastructure for this kind of data sharing is still in developmental stages resulting in inaccurate data from the suppliers.

Lack of support from industry ecosystem

In Industry where it cost of reduction of carbon emissions are high, one company may not be willing to take the risk of investing in decarbonization of itself and suppliers. Lack of government policies and guidelines often prove to be challenging as well.

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9 steps companies can do to decarbonize the supply chain

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1.?????Create Transparency-

a. Create a baseline value chain emissions and communicate this data with suppliers

b. Set targets for carbon reduction and publish them

2.?????Optimize for Carbon di oxide

a.?????Redesign products with focus on sustainability

b.?????Design value chain and sourcing strategy keeping in mind sustainability

3.?????Engage with suppliers

a.?????Integrate emission metrics in procurement and track them

b.?????Work with suppliers to reduce their carbon emissions

4.?????Create ecosystems:

a.?????Develop initiatives for best practices, certifications etc

b.?????Scale up “buying groups” for demand side commitments

5.?????Empower your organization

a.?????Introduce low carbon governance and align incentives within the organization

?These steps are explained below:

Create Transparency:

Create a baseline value chain emissions and communicate this data with suppliers-

Companies should focus on establishing a baseline emission. These should be calculated at different levels of granularity. This should be shared with the suppliers.

Set targets for carbon reduction and publish them

Once the base line emissions have been set then companies should focus on setting target reduction across all emission scopes and focus achieving them and publishing them

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Optimize for Carbon di oxide:

Redesign products with focus on sustainability-

Redesigning the products will help bring down supply chain emissions.?In the products which are already existing and difficult to redesign, focus should be on to reduce the emissions in the supplier operations and increase the share of recycled material. For new products while development, companies can focus on designing them in sustainable manner, using green technology, reduce waste, improving manufacturing processes etc.

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Design value chain and sourcing strategy keeping in mind sustainability

Companies should also consider emissions in their value chain design choices. Like rethinking make or buy decisions. Limiting long range logistics.

Engage Suppliers:

Integrate emission metrics in procurement and track them

Setting up emission standards for the suppliers is the most powerful way of reducing the emissions. Companies can opt two ways. They can define standards for the suppliers or they can ask suppliers to set standards.

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Work with suppliers to reduce their carbon emissions

This requires intensive collaboration with suppliers. It is needed to educate them about the decarbonization levers, provide them with technical advice, set up monitoring, draft contracts etc.

In case where financial commitments are needed companies can share the risk with the suppliers.

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Create ecosystem:

Develop initiatives for best practices, certifications etc

Companies should put pressure on the industry bodies or government to establish sector wide targets for emission norms

Empower your organization

Introduce low carbon governance and align incentives within the organization

Companies should focus on developing KPIs linked to decarbonization within the organization. Appropriate fund allocation for these initiatives must be done. Targets should be embedded in the purchasing strategy and decarbonization targets are disseminated across the organization.

Reference - https://www3.weforum.org/docs/WEF_Net_Zero_Challenge_The_Supply_Chain_Opportunity_2021.pdf