Decarbonization of supply chain: Successfully reducing Scope-3-emissions

Conscious consumers and legal requirements such as ESG reporting are increasingly calling on companies to decarbonize the entire value chain. However, many companies have so far only monitored their Scope-1 and Scope-2-emissions: direct CO2 emissions within their own company and indirect emissions from energy suppliers. The Scope-3-emissions of the upstream and downstream supply chain, on the other hand, are still insufficiently recorded. The reason: Controlling and managing the CO2 emissions of a supply chain is a complex process in which many variables need to be addressed at the same time. We present a number of examples to show where companies can start and what measures they can take.

Supply chain emissions determine environmental footprint

A 2021 study conducted by Boston Consulting Group shows that Scope-3-emissions account for more than half of the world’ s greenhouse gas emissions and are responsible for up to 80 percent of a product’ s carbon footprint. Consequently, a company can only succeed in reducing its ecological footprint if it includes not only its own business area but also the entire supply chain in its sustainability efforts.

How decarbonizing of the supply chain succeeds:

1. Rethinking purchasing and procurement

Decarbonizing the supply chain is much more challenging than decarbonizing your own business unit. By its very nature, a supply chain consists of a multitude of companies acting as suppliers at different tier levels – each of which contributes to the carbon footprint of the buyer or end manufacturer. Consequently, there is limited ability for companies at the end of the supply chain to track emissions or influence emitters in the supply chain.

At this point, successful Scope-3 reduction requires:

• The inclusion of CO2 tracking and emissions control as a fixed requirement in the selection of direct suppliers.

• Strategic supplier development that aims to measure and manage Scope-1 and 2-emissions among suppliers.
• Joint target agreements that aim to reduce Scope-3-emissions down to all parts of the downstream supply chain
• A consistent development of the digital supply chain with the aim of collaborative emissions tracking
  
• The development of a high level of cooperation between supply chain actors

2. Designing logistics efficiently

The choice of means of transport and the length of the transport route are decisive criteria for decarbonizing the supply chain. The movement of goods on the long, often intercontinental route by sea or air freight in particular generates a large proportion of Scope 3 emissions. This is where companies can exert a direct influence by continuously analyzing and optimizing the individual transport sections in terms of their respective emissions. This can be done, for example, by improving the utilization of containers – efficient freight management plays a key role in this context.

Effective opportunities in road transport:

• According to tests, the use of long trucks with more load capacity enables CO2 savings of up to 20 percent.
• Optimal utilization of vehicle capacity leads to lower traffic volumes and thus reduced emissions. For example, to fully utilize the volumes of large trucks with a height of 2.60 meters, consideration can be given to switching from a pallet loading height of 1.05 meters according to the CCG1 standard to 1.20-meter-high pallets according to the EUL1 standard.
• An increased switch to rail and inland waterway transport to container seaports also have a positive impact on reducing Scope-3 emissions.
• The transformation to fossil-free fuels through increasing use of electromobility and hydrogen fuel cells in logistics is a crucial component of decarbonization.

3. Use supply chain management and CO2 tracking

To enable CO2 management of the entire supply chain, methodologically sound CO2 tracking is essential. Reliable results require the highest possible transparency and certified calculation logic. One proven approach is to combine an SCM platform with a business intelligence tool. A detailed analysis of the individual sections of the supply chain is followed by the development of a suitable catalog of measures for CO2 reduction. With the help of the supply chain management platform, the choice of transport modes can then be optimally aligned with sustainability criteria and controlled.

4. Driving digital transformation forward

A significant factor in decarbonization is the control of processes using digital approaches. One example is the Digital Twin, which is used to create a digital model of the physical supply chain from raw material extraction to disposal. Using the data collected end-to-end, the Digital Twin can be used to develop an energy- and emission-saving supply model without direct intervention in the ongoing processes. The optimized delivery model helps to reduce the environmental footprint of products throughout the value chain. Based on this, it is possible to optimize production in terms of waste and capacity utilization, and to align the supply chain according to resource utilization and sustainability criteria. 

5. Use modern production processes

The shorter the supply chain, the lower the emissions. However, relocating production back to geographically closer regions is not always possible due to production costs. An alternative is offered by modern technologies such as additive manufacturing, which allows products to be manufactured locally in a cost-effective manner via 3D printing. The method contributes to a significant shortening of the supply chain and reduces material consumption, as only quantities that are actually necessary are used. According to a study by the digital association Bitkom, for example, almost every second German company with 100 or more employees will be using 3D printing in 2021 in production, thus ensuring lower raw material use and less transport over long distances.

6. Develop circular economy

On the way to low-waste and CO2-reduced manufacturing, the transformation from linear to circular procurement models is an important milestone. For example, one of the goals of the European Green Deal includes the Circular Economy Action Plan, which calls for recycling and reduction targets in the use and consumption of materials by 2030. Within the context of Circular Economy, materials contained in products are reintegrated into the material cycle instead of being disposed of. This also means that fewer raw materials and precursors have to be transported over long distances – which also ensures less CO2-intensive deliveries and thus reduces the company’s Scope-3-emissions.

7. Embedding transformation in corporate strategy

Successful decarbonization of the supply chain and effective reduction of Scope-3-emissions requires, not least, a common definition of goals by all actors in the supply chain. This includes firmly anchoring emissions control and reduction in strategic corporate goals. Only by taking a holistic view of the company and its supply chain, the transformation to an environmentally conscious value creation be achieved.