Individuals, companies and nations must move to adopt more sustainable supply chains, begin to measure against a new set of sustainability KPI s and report progress on their reduction.

Today the industry faces issues that remain difficult to solve. For example, companies are still challenged to put full truckloads on the road. Out-of-stocks continue to be a perennial problem. Results from a recent ECR Europe study on out-of-stocks show that the loss of revenue for all grocery stores in France alone is estimated at €200 million per quarter. The industry’s infrastructure remains complex. Energy costs continue to rise as the price of a barrel of oil increases. Urban distribution remains an issue, because the model is outdated: New infrastructures and new rules such as congestion charges will lead to major adjustments in managing flows.

These issues have changed little in the past 10 years, yet real solutions have not been found and implemented. It’s clear that the current way of working is not sufficient and that the industry must take a new approach.

The Future Value Chain

The broad-based supply chain perspective that starts with sourcing, progressing to manufacturing, then through distribution to the retailer and consumer.3

Key aspects of this vision are as follows: The overarching goal is to greatly reduce the lead time from source to the consumer by treating the value chain as a whole, not as a sequence of separated silos.

This requires re-evaluation of the physical layout of the supply chain and improved mechanisms to synchronise production with actual demand.

Real-time, flexible and standardised information sharing along the value chain is foundational for this, with consumer-driven demand data as the

starting point. Home shopping and neighbourhood distribution will emerge in co-existence with the evolved store-oriented supply chain.

New Measurements Required

Achieving this vision of the future value chain will require a different approach to measurement that must be designed for new parameters. Most supply chains today are measured by Key Performance Indicators (KPIs) such as availability to the consumer (percent in-stock) and cost reduction, as well as financial KPIs like return on investment (ROI), return on brand equity and inventory.

Although current KPIs can be used to measure supply chain efficiency, they do not adequately address supply chain sustainability. For this purpose, additional KPIs such as energy consumption, CO2 emissions, traffic congestion and infrastructure simplification have also been incorporated into the development of the future supply chain model.

This set of KPIs will address the current and future sustainability issues as well as on-shelf availability and business cost.

Energy consumption. Companies and organizations must strive to use more renewable energy sources and use less energy overall in their operations. According to the International Energy Outlook 2007 (IEO2007) report, total marketed world energy consumption is projected to increase 57% from 2004 to 2030.

CO2 emissions are measured in tonnes of CO2. For transportation, the amount of CO2 emitted is directly attributed to weight, mode and distance travelled. For warehouse and store locations, the amount of CO2 emitted is directly attributed to the type of energy consumed to operate the facilities.

Future supply chains will have to demonstrate their reliability even in larger and complex collaborative modes. Increasingly, governments are making commitments and legislation to drive reduction in CO2 emissions.

Traffic congestion is a new measure that is being used by various governments and regulatory bodies as a disincentive for urban traffic congestion and pollution. Several cities of varying sizes have adopted programmes where vehicles are taxed or entirely prohibited from entering urban geographic regions.

Water consumption will be a big issue in the future. Access to drinking water will become increasingly scarce and environmental changes will occur as a result. Governments and non-governmental organisations have implemented awareness programmes and policies to address the growing concern.

Security compliance will also be a key focus in the coming years. Recovery action plans both for information and physical processes must be integrated into everyday procedures. Security requirements in warehousing and transport must be reinforced for the safety of people and the traceability of goods in compliance with regulations. Future supply chains will have to demonstrate their reliability even in larger and complex collaborative modes. Companies should monitor their level of compliance.

Infrastructure simplification is a measure in cubic metres of a company’s physical footprint so that going forward a base case can be established and measured against. The goal would be to optimise the overall space occupied and relocate warehouses and distribution centres in more appropriate locations.

Now that we have defined and considered the changes that should be applied to the physical supply chain, we turn to the solutions available to make this happen. The next section introduces the toolkit for making the desired changes to the supply chain.

Major Sustainability Activities and Regulations

A number of global events and recent regulations make clear the urgency of addressing sustainability issues. Consider a few examples: Kyoto Protocol, December 1997. This treaty was signed by 36 industrial countries in 1997 in Kyoto, Japan, and called for all industrialised nations to reduce their collective emissions of greenhouse gases by 5.2% versus 1990 levels. The goal was to lower average emissions of CO2 and five other greenhouse gases.

United Nations Climate Meeting, Bali, December 2007. Twelve thousand delegates from 190 nations gathered in Bali for two weeks of talks on climate change. A decision was finally reached to approve a “roadmap” for two years of negotiations on a broad pact to succeed the Kyoto Protocol from January 1, 2013.

EU Directive on Renewable Energy, January 2008. On January 23, 2008 the European Commission put forth an integrated proposal for climate action. This includes a directive that sets an overall binding target for the European Union of 20% renewable energy by 2020 and a 10% minimum target for the market share of biofuels by 2020, to be observed by all member states.