Sustainability is not a new term, but where to start? A guide for Grocery Supply Chain Managers
Sustainability is not a new term, but a new must that companies should foresee, and workforce should embrace.
Most conventional retailers link value only to sales and business wealth to eternal growth. But this current normal is not sustainable anymore, as resources are finite and shared, and people are more conscious about the product they buy and the consequences it has for their own health and the planet.
Including natural capital into the income statement can be seen internally as a cost erosion, because to become a green retailer: products sold, processes, and technology needs to be adapted to the new sustainable normal, which could imply very likely an initial cost increase. However, fear or lack of knowledge to implement sustainability practices within business models will cause future loss of sales for the company in front of new actors or established actors that see sustainability as a competitive factor.
The previous assumption will gain importance as more strict ESG regulations appear in different markets where retailers operate. New non-financial EU regulations (NFRD) are a clear example. Although they will affect primarily larger companies who accomplish at least two of the following size criteria (more than 250 employees, min. €20m balance sheet total, min. €40m annual net revenues), it will also impact indirectly medium and small-scale companies to be compliance with larger ones (1).
Increasing our supply chain resilience and responsiveness to adapt to volatile, uncertain, complex, and ambiguous market contexts, like the one we are experiencing with COVID pandemic, means to start adopting conscious design strategies to progressively abandon financial capital and adopt natural capital.
To accomplish new Net Zero or sustainable strategies, supply chain managers should think of the following 8 action points:
1. Stimulate and assure sustainable business growth, in contrast to eternal growth (2,3).
2. Avoid current incremental development practices that cause silos and inefficiencies within the organization, establishing and following a holistic plan, performed in phases if needed.
3. Identify and grade the risks depending on the nature of the grocery retailer, i.e.: supermarket that provides food to final consumers through different kinds of facilities, online food retailer that needs to cover the last mile, food wholesaler that serves great volumes to B2B (e.g., restaurants or dark-kitchens), food-to-go retailers that have in their portfolio ready-made products (e.g., sandwich produced with products sourced from different suppliers), among others.
4. Stablish practices and measure ESG indicators to remain competitive while accomplishing UN global compact principles (4). Some examples of retailer’s impact:
a. Food waste: In 2019, around 931 million tonnes of food waste were generated, 13% coming from retail, 61% from households, and 26% from food service (5). Reductions in food waste will enable less land to be used to feed the same population. These reductions can be made for example by changing consumption habits or by reinforcing digitalization:
i. Track the lifecycle of products from the field to the consumer using blockchain technologies to increase transparency (origin and composition of food (i.e., chemicals, ingredients)) within the extended supply chain network.
Evaluating the lifecycle of best-sold and strategic products (current or new) in their supply chains is a way to assure that retailers remain competitive within the food sector, and helps to plan a more resilient strategy.
ii. Capture point of sales data (where retailers have a lot of power) and use AI technologies and advanced analytics to better predict demand behaviors and optimize inventories capturing seasonal patterns, demand volatility, or disruption risks (external factors).
iii. Share real-time data to balance production and demand (e.g., to avoid overproduction causing waste).
b. Climate change: reduce carbon emissions due to renovated farming practices (e.g., sustainable intensification practices like precision farming and improved seed varieties (6,7)) and logistics (e.g., applying transport network optimization techniques or truck-sharing).
Work with software vendors that include KPIs allowing to measure and track the entire supply chain carbon footprint, hence pursuing company carbon neutral objectives. It’s not only enough to assure a good availability of products at our supply chain nodes and stores but to rethink the portfolio to increase sales profit and attract new customers sensitive to sustainable products and practices.
c. Chemical Pollution: reduce waste generated by food packaging by rewarding clients when returning used products to pick-up points; increase the life cycle of products (8) (e.g., crystal bottles); reduce consumption of products that use nitrate and phosphate fertilizers that affect biogeochemical flows.
d. Food security: 2.4 billion people live in moderate and severe food insecurity (9). Retailers can buy from proximity suppliers to decrease the external dependency on essential products and can stimulate the consumption of products where the region has a competitive advantage and offset fluctuations in food production and prices.
5. Develop a holistic view of the retail supply chain and establish beneficial collaborations and partnerships with strategic stakeholders. For example, map suppliers and third parties using the BSR framework, assure that suppliers follow the retailer code of conduct (e.g., follow the UN global compact principles), and elaborate due diligence to control their compliance (e.g., evaluate their impact on food waste and profit due to inefficient deliveries on time or quantity; evaluate their impact in carbon emissions; transparency with their own sub-tier suppliers).
Stakeholder mapping practices are needed to stimulate trustful and long-term relationships with compliance suppliers and highlight if beneficial partnerships or collaborations can be extended to green organizations, global sourcing organizations, governments, and local communities, among others.
Also, supply chain managers should understand the power dynamics within their internal and external stakeholders.
6. Abandon financial capital and adopt natural capital. As introduced earlier in this article, food chain profit is driven by cost, profitability (when producing, supplying, or distributing products), time (from field to consumer), and quality. Value is realized from sale. But value is also created and disrupted by other external actors that retailers should care for, such as society and the environment. (10)
7. Evaluate sustainable and efficient ways to improve the current business model (e.g., stop growing only through expanding physical locations; adapt the supply chain warehouses to be competitive and afford to sell online; make online proof of concepts with sustainable products see how the market react and then extend the online portfolio to the physical channels making the most of the omnichannel; rethink the store planograms to assure a store availability that maximizes sales guided from new customer behaviors, among others).
8. Embrace the entire company to the green strategy: Human resources department, top management, and board of directors should incorporate in an easy and clear way the natural capital message to all workforce. Supply chain managers should provide mechanisms, as sustainable operative frameworks, to provide guidance to their teams. Because team members could fear losing their power position if there is a lack of knowledge (e.g., the sourcing department needs to know the environmental regulations and not just work by applying aggressive cost policy reductions to suppliers; demand planners should incorporate new AI knowledge to correctly manage the uncertainty of demand). Follow-up and cross-functional team meetings and tools can also help to share and evaluate the new company’s sustainable indicators.
References:
(1) Web article — Dr Katja Grimme — The tiger gets teeth: are you prepared as sustainability reporting in the EU picks up speed? Available at: URL link
(2) TED Talk — Kate Raworth: A healthy economy should be designed to thrive, not grow. Available at: URL link
(3) TED Talk — Johan Rockstrom: Let the environment guide our development. Available at: URL link
(4) The ten principles of the UN Global Compact. Available at: URL link
(5) Food waste index Report 2021, UN environmental programme.
(6) The Cambridge Natural Capital Leaders Platform, The best use of UK agricultural land, 2014.
(7) Nesta web — Precision farming. Available at: URL link
(8) Product design and business model strategies for a circular economy, Nancy M.P. Bocken, 2016. Available at: URL link
(9) Zero hunger, United Nations, Department of Economic and Social Affairs, Statistics Division. Available at: URL link
(10) Bocken et al., 2013:492
