Toward a Sustainable Transformation of the Value Chain

There is no doubt today that supply chains have become more complex, particularly in the wake of the pandemic and recent geopolitical events, such as the war in Ukraine. According to the OECD, around 70 percent of international trade today, from trading services and raw materials to parts and components, passes through global value chains and across multiple borders to reach consumers around the world. 

These transactions, which involve relationships with multiple local and foreign suppliers, also represent significant challenges for companies, as their business becomes more prone to not only operational risks but also reputational risks in terms of compliance with environmental, social and governance (ESG) criteria. 

While supply chains are often evaluated on factors such as technical quality, speed, delivery reliability and profitability, their compliance with sustainability issues is increasingly under scrutiny. Consider, for example, some of the risks that value chains face today, such as environmental pollution, possible shortages of raw materials and/or natural resources, potential labor disputes, workplace safety incidents and transparency in the use of information.  

The need to minimize these potential risks, while taking full advantage of globalization opportunities and implementing ESG measures, has driven organizations not only to redesign their supply chains but also to comprehensively transform their business models. This is where digital transformation plays a pivotal role.

Digitalization: An Answer to ESG Challenges 

How can digitalization contribute to the creation of a more sustainable value chain? Undoubtedly, new technologies based on data analysis, such as artificial intelligence, machine learning, blockchain or the Internet of Things (IoT), play a fundamental role in the quest to make companies' operations more efficient but also in ensuring their commitment to environmental, social and governance issues.  

Currently, the 4.0 revolution allows organizations to automatically monitor each process in their chain, which results in a better understanding of specific areas for improvement and, therefore, in better planning and prioritization of tasks. 

Likewise, the streamlining of value chain processes and the decentralization of production help to reduce the consumption of resources, design more efficient routes and thus generate fuel savings and reduce time, in addition to a more accurate measurement of CO2 emissions, to name just a few benefits. It is, without a doubt, a win-win equation. 

The Impact of Automation

To remain competitive in this new environment — where companies are also expected to meet demanding service-level agreements (SLAs), manage exponential SKU (stock keeping unit) growth and meet high customer expectations — organizations require digital solutions that also help them achieve maximum performance. 

One solution  is automation, which can directly impact productivity based on tools such as the aforementioned (AI, IoT, blockchain, others). According to McKinsey, digitization can increase productivity globally between 0.8 percent and 1.4 percent per year, providing in parallel other great benefits, particularly for the supply chain:

• Greater agility in its operation, making it modular and flexible.

• Greater responsiveness: more and better information allows better follow-up and helps achieve greater traceability.

• More transparency: better interaction and visibility of all participants in the chain translates into greater control of processes. 

• Scalability, which can eventually result in a considerable reduction in costs and environmental impact.

Other Technologies That Contribute to the Chain

Robotization. Following the COVID-19 health contingency, which caused disruptions in the supply chain and boosted e-commerce and home deliveries, distribution centers are working at maximum capacity. 

Today, companies — particularly in the retail sector — are looking to use autonomous mobile robots (AMRs) to perform a range of tasks, from transporting goods via automated forklifts, picking, packing, sorting, and storing products, and  inventory management.

The benefits of robotization are multiple: not only does it decrease the physical/mental effort of human personnel, improving working conditions, but it also reduces error rates and increases operational efficiency. 

Augmented reality (AR) is another highly useful innovation for supply chain logistics operations. Some of its potential uses are: 

• Order picking: With AR, employees can have their hands free to pick items, as the list is displayed within the field of view, giving them greater speed, efficiency and accuracy.   

• Equipment repair: When identifying a fault in a specific piece of equipment, an expert can remotely see, through AR, what an employee sees in situ and can guide him or her through the repair process, helping to improve the employee's skills and resolve the fault more quickly. 

Challenges for the Future

Digitalization is impacting all areas of value chains, from supplier management to distribution, warehousing, and transportation use. Any investment made to achieve an effective digital transformation will be insufficient if it is not simultaneously designed with the objective of achieving greater sustainability, where data can allow, from verifying the provenance of raw materials to certifying the ethical behavior of all participants in the chain itself. This requires a management body and associates who are willing and ready to manage this change. There is still a long way to go but there is undoubtedly great optimism about the benefits to be achieved.  

Similarly, if Industry 4.0 is to evolve, most business processes will have to become even more digital. Finally, the challenge is to migrate traditional supply chains to a more connected, intelligent, and highly efficient ecosystem, while allowing us to pursue our ESG objectives, while using a CO2 cloud tracking system capable of measuring decarbonization efforts in an automated, credible and transparent way.