How do supply chain professionals rise to the challenge of a decarbonised world?

As more and more companies across Oceania set hard net zero targets and consumers increasingly demand business steps up on sustainability, supply chain operators need to execute on both fronts.

Late-running Christmas purchases and the skyrocketing cost of building materials might have turned previously esoteric supply chain issues into everyday conversation. In the wake of COP26, supply chain professionals need to contend with more than sorting through their Covid 19-inspired logistics issues. Alongside the upstream disruption over the last 18 months, operations and commercial executives are increasingly having to grapple with the net zero targets that their boards are setting and allocating key capital to next year.

Companies are now setting hard, legitimate targets for their teams. More than simply announcing a policy, there is increasing rigour around how targets will be met.

At the same time that companies are allocating money to decarbonise, consumers are also demanding a more sustainable supply chain response. The 2021 EY Future Consumer Index revealed that almost 7 in 10 consumers expect companies to step up and lead the way on positive social and environmental outcomes. While the picture of the ‘sustainable consumer’ is complex, there is a clear expectation that companies provide consumers with the information they need to make an informed choice.

Supply chain professionals are seeing these two megatrends create an irresistible case for change. “Capital is flowing into the challenges of decarbonisation in a way that we haven’t seen before,” says Nathan Roost, EY Oceania Supply Chain & Operations Leader. “Even a year ago, there weren’t the net zero targets of today, especially shared so publicly. But now a whole host of companies across all sectors – consumer products, retail, telco, mining, real estate – are setting targets and telling everyone about it. Supply chain professionals need to get on board quickly and develop strategies that will drive decarbonisation efforts.”

Understanding energy is the key to delivering

Australian and New Zealand businesses always carry risks in their supply chains. We are small markets at the end of a long global supply chain, something that the pandemic has really illuminated. But as decarbonisation strategies and policies firm up into plans that must be executed, supply chain professionals will have to learn to do both things at once.

All businesses will be starting from different positions of maturity and complexity as they move towards their net zero targets. However, decarbonising a supply chain will be underpinned by the way a business uses energy. There are four key areas that an operations team should focus on:

• Fuel source: Understanding what fuel is being used across the supply chain and within operations is critical. Specifically, ask what fuels are being used within my business. Are they renewable, and if not, can they be transitioned over time? Once this understanding has been developed, then further analysis can be undertaken by understanding the fuel use of external, upstream partners such as logistics companies that are delivering materials into and from your business.
• Energy distribution: Energy use is generally well-understood at a high level, but companies need to more clearly understand where energy comes from, where it flows to and how it’s distributed or reused. There is a renewed focus on energy management in operations and companies need to understand what distribution losses exist across their business. 
• Energy storage: As battery technology improves, the capture and storage or energy becomes a key question that supply chain operators need to understand. Energy storage will also increasingly include the storage of newer, more widespread fuels such as hydrogen. 
• Demand response: Increasing your energy efficiency is one of the key means to lowering your energy usage. Companies need to renew their understanding of how they can reduce their energy usage.

Addressing these questions will sometimes require deep and detailed data that may not be easily obtained. For large companies with complex supply chains, avoiding being overwhelmed by “analysis paralysis” will turn on solutions that start small and are scaled up over time.