In the first part of this series, we looked at the role of supply chains in our lives, focusing on how AI technologies can increase resilience through improved demand planning and supply management. Here, we will delve into the rise of supply-chain sustainability as stakeholders increasingly hold companies accountable for environmental, social, and governance (ESG) practices. We’ll also offer a broad overview of some AI applications that can help companies meet these ESG standards and become more resilient by:
There are several compelling reasons for companies to invest in sustainability, not least of which are the escalating demands from diverse stakeholders for ESG transparency, disclosure, and accountability. In the 2021 State of Supply Chain Sustainability Report, respondents indicated that pressure from a wide array of sources—ranging from investors and corporate buyers to end consumers, mass media, and current and prospective employees—has increased since 2019. Beyond stakeholder sentiment, mounting regulatory compliance and reporting imperatives underscore the need for companies to track and address their impact on the environment and communities.
While we often think mostly of environmental impact when we talk about corporate sustainability practices, sustainability is also a measure of an organization’s impact on people and overall resilience. It makes sense that a company’s long-term health would be tied to its capacity to limit depletion of critical resources, maintain financial stability, and support the well-being of its workforce and broader community.
Sustainability goals are especially important for supply chains, which are often where companies are most vulnerable to ESG transgressions. For example, the 2020 CDP Global Supply Chain Report estimated that supply-chain greenhouse gas emissions are on average 11.4 times as high as operational emissions and projected that environmental risks—including climate change, water insecurity, and deforestation—would create an estimated $120 billion in direct costs within the ensuing five years. In addition, an Accenture study reports that supply chains account for 60 percent of global carbon emissions. Transportation and shipping take second place for the highest rate of workplace injuries, followed by manufacturing and production.
For companies navigating the increasing demand for supply-chain sustainability and resilience, current technologies offer promising solutions. Today’s AI-enabled tools can empower them to boost their productivity, efficiency, and endurance while limiting negative social and environmental impact. Here are some ways AI can help:
Reducing Emissions
AI solutions provide real-time visibility into loading, processing, and transportation activities. IoT sensors embedded throughout the supply chain can capture immediate insights into these areas to inform procedural improvements that help companies make the most efficient use of vehicle space, develop optimal shipping routes, and ultimately increase fuel efficiency while decreasing emissions. With empty trucks accounting for an estimated 20 percent of freight trucking miles driven, there is much room for improved efficiency in these areas.
Companies can also implement AI technologies to project the carbon footprint of a given plan. By using machine learning (ML) algorithms, they can develop digital twins and scenario modeling that provide insights into energy efficiency metrics and help them gauge potential environment impact. In addition, AI-driven insights can provide greater visibility into the supplier field to guide companies as they diversify their supplier options and potentially shorten their freight hauls.
Increasing Safety
AI algorithms use data gathered by IoT sensors to help supply-chain managers monitor warehouse and transit conditions and make critical adjustments in real time. These tools can reveal patterns in safety-related incidents, generate hazard alerts, prescribe predictive maintenance for equipment, and produce timely recommendations for mitigation measures. AI models can also perform predictive analytics to increase the supply chain’s safety and efficiency while reducing its carbon footprint by optimizing warehouse staffing, shipping routes, and driver scheduling.
In addition, AI-driven technologies can automate some of the more perilous tasks in warehouses and other supply-chain facilities. These advances can protect the workforce not only by reducing their risk of on-site accidents, but by making it possible for machines to maintain operational continuity in many areas, which helps minimize employee exposure in the event of a pandemic.
Reducing ESG-Related Supplier Risk
In addition to implementing responsible practices internally, companies are increasingly expected to select their vendors, contractors, and suppliers based on ESG criteria and hold them to defined standards. This intensified scrutiny of third parties requires increased visibility and transparency across multiple tiers of the supply chain. As it happens, expanded vigilance regarding suppliers also supports the supply chain’s overall resilience. The Sustainable Procurement Barometer 2021 found that 63% of buyers believed that sustainable procurement programs helped them endure the pandemic. Likewise, 73% of suppliers said that sustainable practices contributed to their pandemic resilience. With AI tools, companies can track existing suppliers and vet prospective suppliers in multiple tiers of the supply chain to make sure their practices meet established benchmarks for ESG standards. AI-enabled natural language processing (NLP) can also help companies monitor unstructured data, such as social media, for insights into perceptions about suppliers’ fiscal health and ESG practices.
So compelling is the case for sustainable business practices that, despite the extraordinary obstacles the pandemic imposed across supply chains, many companies continued to prioritize their supply-chain sustainability goals during that challenging time. According to the 2021 State of Supply Chain Sustainability Report, for the second year in a row, roughly 80% of North American respondents said that the pandemic did not derail their firms’ commitment to sustainability goals. Some companies even increased their commitment, crediting their resilience during the pandemic in part to their dedication to promoting social and environmental responsibility over profit.
In a climate that is reliably uncertain, there are a few scenarios we will likely see play out on the business horizon. First, supply chains will be tested again and again. Second, the companies that are embracing AI and other technologies now will be best prepared for the next wave of supply-chain turbulence. Finally, companies that use these technologies to reach their sustainability goals will be equipped to successfully endure future tempests and thrive in the years to come.
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