Economic and Human Sustainability in the Supply Chain. Is digitization enough?

In an increasingly competitive world, companies must do everything to stay ahead of the curve.

Many companies rightly see digitization as one of the ways to do this, as it enables them to optimize the supply chain while reducing costs and increasing productivity. Above all, because the time associated with finding and processing data is reduced and as a result a number of transactional decisions and operations along the entire value chain are expedited.

However, digitization alone is not enough to ensure human, economic and supply chain sustainability.

To achieve a sustainable supply chain, it is still increasingly necessary to eliminate the waste that lurks within the organization, in management processes and often in the “unsustainable” way of thinking of many people.
We know from the literature that any activity that does not add value to the final product or service is considered waste.

Speaking of waste, we cannot remain indifferent to the staggering figures of waste in the queen of Supply Chains: the food chain.
According to theUNEP Food Waste Index 2021, some 931 million tons of food waste were generated in 2019, coming to the conclusion that 17 percent of global food production is in fact not used and becomes, therefore, waste.
In the European Union alone, 10% of all food produced is not used, it is wasted. Paradoxical, if we think that at the same time, again in Europe, some 36.2 million people cannot afford a quality meal every other day.

Causes of waste in production

Among the causes of this waste we can find factors related to improper supply chain management:

• Inventory management issues for manufacturers and retailers;
• Overproduction or lack of demand for certain products at certain times of the year;
• Production errors;
• Inadequate storage/transport at all stages of the food chain.

How to achieve a sustainable supply chain?

Eliminating waste in the supply chain is one of the most effective ways to ensure a sustainable supply chain. Eliminating waste in the supply chain can help companies to:

• reduce costs,
• Improve the quality of products and services,
• Increasing productivity,
• Reduce environmental impact,
• Reduce production interruptions,
• Increase customer satisfaction,
• Increase profitability,
• Improve corporate reputation and become more competitive.

In the area of logistics and supply chain, we can unfortunately find frequent macroscopic errors. In Italy, many companies treat suppliers as “commodities,” and often their main goal in purchasing negotiations is simply the lowest price.

In a project, led with my company Lenovys, for a multinational big process manufacturer (678M turnover in Italy) brilliant results were achieved in terms of improving line efficiency and reducing waste in production, key drivers for corporate economic sustainability.
The project also had expansion in the logistics and supply chain area. Actions have been put in place to reduce stocks nationwide in a way that is sustainable over time-that is, by solving the root of the problems that made them necessary.

Is reducing inventories in the company possible?

How was it possible to reduce the company’s stocks?

• Step 1: Insight into the problem
  Detailed inventory analysis to identify causes and waste along the supply chain
• Step 2: “Deployment” i.e., decomposition of stocks according to their respective causes
  What are the “justified” stock levels? Which stocks need to be eliminated?
• Step 3: Analysis of stock values
  Problem solving to analyze in depth the individual root causes generating high stock levels and
  identify possible countermeasures
• Step 4: Definition of critical areas and articulated development of solutions
  – Inter-functional improvement teams were chosen to apply problem solving and
  – PDCA cycles so as to identify in detail causes of waste and define countermeasures

These in-depth analysis steps led the team to see waste that was not previously apparent and allowed them to clearly identify priorities for action.
Initially, everyone was convinced that the main reason why the current level of stock was essential was related to production or delivery batches, which were too high to allow for reduced inventories; however, by quantifying these root causes, the team realized that this factor weighed only a small percentage of the total value in stock!
Far more important, however, were the unoptimized planning process and its operating parameters, such as planning frequencies and safety stocks.

Results of inventory reduction in Supply Chain

In the first year of countermeasures implementation alone, thecompany reduced stocks by 25 percent in raw materials and in finished product by 33 percent. This improvement has also been appreciated in subsequent years, securing new opportunities for the company.

Human, economic and environmental sustainability is a top priority for many companies.
If companies adopted sustainable practices, they could help reduce environmental impact, increase productivity and improve the quality of life for workers. In addition, inventory optimization, in-depth supply chain analysis, and some countermeasures to eliminate overproduction can help companies better manage resources, reduce costs, and increase security of supply. This can help create a more sustainable future for all.

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• Photo credits: Pexel & AI Dall-E