The Supply Chain Paradox: Sustainability vs Profitability

By: Zhijing Niu, Vice President of Cainiao’s Public Communications and Marketing, and Environmental Social and Governance (ESG) Initiative

ECommerce sales in Asia Pacific is expected to nearly double by 2025 as it continues to be the largest eCommerce market in the world. This has inevitably led to the surge in plastic waste associated with packaging, which highlights the opportunity for organizations and the broader community to come together to bring about a more eco-conscious way of consuming online retail.

Over the past few years, it has been heartening to witness shifts within organizations to prioritize environmental, social, and governance (ESG) goals, with increasing emphasis placed on enforcing a more pervasive and integrated sustainability program across the business, particularly in the supply chain and logistics segment. However, a challenge lies in identifying the right resources and abilities internally to accurately determine carbon footprint while navigating the complexities of the value chain.

Daniel Klier, CEO of ESG Book revealed that pressure on supply chains is the biggest driver of carbon emissions in Asia. In the region, a business’ sustainability roadmap is very much dependent on their long-term business goals and the policies of the respective markets in which they operate. It is to the latter where organizations are under more pressure than ever to meet sustainability goals as regulated by the local authorities.

As organizations first embark on their sustainability planning and journey, initiatives are largely implemented in siloes or as standalone programs. But the ultimate goal should be to introduce a more holistic plan that addresses every aspect of the business across the organization and to garner executive sponsorships to champion the cause in the long run. What companies can do is to bridge the gaps through effective use of digital technology along the entire value chain to instill greater agility and transparency for a greener and more sustainable supply chain.

The role of technology in driving greater sustainability in logistics

The logistics sector has undergone a great deal of stress in the past few years. While more companies are undergoing digital transformation to become more efficient and reduce overall operating costs in the competitive landscape, the use of technologies will also result in a more resilient value chain. The adoption of robotics and automation, for instance, will strengthen bottom lines in the long run, but more importantly, provide organizations with the data and insights they need for sustainable growth.

The unique nature of our business model which combines owned and partner resources — more than 3,000 local and international logistics companies as well as more than 3 million couriers — has allowed us to take on a birds’ eye view of the ecosystem and implement smart logistics technologies along different nodes of the value chain to bring about industry-wide impact:

1. Digital transformation in logistics with digitalized services and products

To attain full chain visibility and control, digitizing each parcel is the first step. This gave rise to electronic shipping labels which not only offers real-time tracking and anomaly detection, its smaller form also meant reducing the amount of paper used per parcel. In the area of packaging, smart packaging algorithms can be applied to allocate the smallest possible carton to each product to minimize packaging waste. In the area of last mile logistics, for instance, machine learning can be used to analyze consumer demand to predict where to locate your logistics network and inventory to reduce transportation distance between delivery nodes and popular consumer destinations.

2. AI-based smart route management to reduce carbon emissions

The fragmented nature of logistics, especially in the last mile, is characterized by many companies with their own systems and resources. This has a direct impact on the efficiencies of parcel management and deliveries, especially as last mile logistics is often the most expensive and time-consuming part of supply chain management. In fact, due to its complexities, urban last mile delivery emissions and traffic congestion alone are on track to increase by over 30 percent by 2030. This is the result of various inefficiencies in the form of idle resources, mismatched allocation of vehicle types to parcel volume and size, longer routes taken etc. While improving delivery efficiency is a real challenge that requires nuanced solutions, technology is a significant mitigator in identifying limitations and gaps in order to foster greater efficiency in the near-term.

Logistics providers can leverage IoT and big data smart route management to analyze the best routes, to cut down travelling distance, time, cost and increase accuracy of delivery time.

3. Smart warehousing

Growing internet and smart device penetration should encourage commensurate progress in smart warehousing, where autonomous robots, smart sorting systems, and energy-efficient vehicles equipped with GPS systems for better data collection and route management are the norm. Digital solutions like the real-time, end-to-end tracking of parcels via electronic shipping labels, and other data-driven solutions can transform traditional logistics operations. For instance, Cainiao’s Wuxi smart warehouse is home to nearly 1,000 automated guided vehicles (AGV) robots that are working flexible combinations to improve operational efficiency.

Conclusion

The logistics sector has undergone tremendous transformation in the recent years but there is more to be accomplished if we want to create a sustainable ecosystem that supports growth. The case to build a sustainable supply chain is clear. Organizations that embed sustainability in their supply chains can reduce costs, increase productivity, innovate, differentiate, and improve societal outcomes. As organizations seek to transform their business for sustainability and resilience, it is time to place their supply chains at the core of their plan.

Adopting the right mindset and attitude towards sustainability — viewing it as an opportunity for growth instead of an obligation — is key. To build a successful and resilient business, leaders must realize that sustainability goes beyond decarbonization, it also includes a commitment to stakeholders of the value chain on social responsibility.

The article is also published in Technode

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