By: Craig Coulter, Sustainability Leader, Global Advanced Manufacturing and Mobility at EY
According to The World Resources Institute, three of the most emissions-intensive sectors lie along the industrial manufacturing and supply chain. Since 1990, emissions from industrial processes have grown by 187%, followed by transportation (+79%) and manufacturing and construction (+56%). Despite these worrying numbers, the industrial sector continues to lag behind in developing sustainable practices.
As expectations ramp up from consumers, investors, regulators and employees, the industrial sector has begun to feel the pressure to prioritize their sustainability efforts, and leaders in the space are realizing the tangible business benefits and opportunities of taking a proactive sustainability stance. However, many organizations struggle to incorporate sustainability into their business strategy, and when they do, they struggle to evaluate progress.
From a sustainability standpoint, manufacturing and supply chains are more significant than people realize. On average, more than 90% of an organization’s greenhouse gas emissions are attributable to supply chains, according to the U.S. Environmental Protection Agency, making them a key target for successful ESG programs.
However, effective efforts in manufacturing and supply chains are often put on the backburner because of challenging requirements. By taking steps such as investing in the right technology, increasing visibility and including ecosystem partners in their efforts, the industrial sector can drive business value via a sustainable lens.
Digital is synonymous with sustainability technologies
Digital is the linchpin for driving value in manufacturing and supply chain sustainability. With the right investments, companies can identify significant value and unlock value.
Many industrial organizations have started or are in the middle of their digital transformation journey, but because these efforts are often siloed, the sustainability lens is frequently missed. Examples of digital technologies enhancing sustainability include digital twins, AI, and blockchain. A good example is manufacturers building sustainability metrics into their asset management systems to better identify efficiencies that drive reduced emissions and lower costs.
Embedding digital allows for increased visibility from the factory floor through the supply chain. As expectations for greater Scope 3 visibility increase, that push can also unlock value and greater efficiencies.
Visibility enables enterprises to understand their operations and track the progress they have made aligning sustainability goals with their core business strategy. The EY Supply Chain Sustainability Report revealed that increasing visibility is a top priority for supply chain executives, although it remains a work in progress, with only about four in 10 respondents having seen an increase.
Many companies have struggled to increase their supply chain visibility due to the constant stream of disruptions, such as the COVID-19 pandemic, while others struggle to answer questions such as what data their stakeholders want to see as well as how to manage that data confidentially.
Digital tools have the potential to help organizations capture metrics, set KPIs, and develop a holistic end-to-end view of the supply chain to help companies identify inefficiencies in their operations and resources. In particular, digital based visibility of supply chain logistics can yield excellent results both financially and with reduced emissions.
Firms in the industrial sector that are putting ESG efforts at the core of their operational strategies understand that they cannot make change happen on an island and are increasingly seeking partners across their ecosystems to do the same, making increased collaboration a priority.
Leaders are pursuing manufacturing and supply chain sustainability by raising requirements for vendors and working to implement accountability measures. Examples of this include third-party certifications that vendors carry out for certain ESG practices. When paired with ongoing measures such as audits and on-site inspections, it can reduce risks and costs while improving quality and transparency. Sometimes achieving sustainability goals requires a mindset shift for subcontractors, and there is value for industrial leaders to train and set expectations in sustainability even if they lack programs of their own.
Some companies have also focused on staying on the cutting edge of technology innovation via “collaborative innovation” through partnerships with universities, industry associations and research institutions.
Lastly, leaders are constantly working with customers to introduce new commercial models and encouraging the process by reminding both parties of the beneficial financial outcomes, such as reduced costs, risks, and emissions.
Reimagining entire value chains – not individual parts
As the industrial sector increasingly pursues process improvements to boost sustainability, leaders should assess all aspects of their manufacturing and supply chain operations, as well as the environmental footprint of their products post-sale. Depending on the nature of the offering, this may be straightforward or a complex undertaking.
Companies that successfully develop and maintain a sustainable supply chain can then expand their ROI measurements to include intangible outcomes. Thinking about business case drivers beyond reducing costs, such as revenue, market share and improved customer and employee loyalty, can significantly add to the case for change.
Additionally, leaders who move beyond superficial evaluations and are instead engaging deeply with their entire manufacturing and supply chain can better align this important element with their overall sustainability strategies.
Especially in a capital-intensive space like industrials, the road to sustainability success runs through the entire value chain, from the point of production to the point of sale and beyond. With more digital focus, transparency and greater collaboration, leaders of industry can illuminate the way forward to a more sustainable future.
About the Author
Craig Coulter is EY Global Advanced Manufacturing & Mobility, Strategy & Operations and Sustainability Leader, where he develops and drives the go-to-market strategic direction. At the same time, he focuses on developing and curating capabilities for environmental, social and governance (ESG) and decarbonization, as companies focus on systemic transition to a world where long-term growth is a critical component of financial success across advanced manufacturing and mobility.