How software is turning supply chains green
Price fluctuations, port congestion, trucker strikes, pandemics, war, and the relentless quest for next day delivery; over the last few years all of these factors have shone a light on the fragility of global supply chains like never before. Supply chain insight is a large and complicated problem that touches any business dealing with physical products. Over the past few years there’s been significant progress, particularly around the efficiency of supply chain operations, but when it comes to sustainability and risk management there’s still a long way to go.
A new set of urgent questions have emerged for businesses to consider. Questions like: can I assure my stakeholders about the provenance of my product? Does my supply chain have the resilience to respond to known and unknown crises in future? Am I able to track all sustainability factors across my supply chain, including carbon, water usage and waste production?
Pitchbook recently reported that funding for supply chain tech start ups has tapered off, in line with broader trends in venture capita (with the total value of deals declining 40% quarter-on-quarter – 39% down year-on-year from record highs in 2021). But at Octopus Ventures, we believe there is still a huge opportunity for software to support supply chains in becoming more sustainable and resilient, and helping them to mitigate risk.
Here are just a few of the ways future-facing businesses might think about engaging with the problem. To offer a bit of context, let’s view this in terms of the supply chain journey of a humble, cotton shirt.
Turning the invisible, visible
Supply chains comprise of hundreds of different tiers of suppliers, spread around the world. These tiers are highly kinetic, so it can be extremely difficult for companies to keep track of what comes from where.
Traceability solutions offer a snapshot of a product’s entire journey, and come in different forms. Some solutions, like the one supplied by Octopus Ventures’ portfolio company, Contingent (link to website), attach to the supplier. Others, like QR codes or DNA tracking of materials, attach to the product itself. In the case of the cotton shirt, traceability at the supplier level might involve ensuring the full supplier base meets adequate labour standards. At the product level, it might mean verifying that samples of cotton within the shirt don’t come from the sanctioned Xinjiang region in China (origin of around 20% of the world’s supply of cotton).
Finding the right traceability solution will depend on the dynamics of a supply chain. Take blockchain, with its immutable record of transactions. It works well for the diamond industry, where keeping conflict materials out of the supply chain is essential. But it’s less effective for supply chains that require constant iteration, e.g. perishable or broken goods for FMCG business, where digital markings may be more appropriate.
Measure the unmeasured
Supply chains are often the biggest source of a company’s carbon emissions accounting for as much as 80%. This is because of the number of parties involved, and the sheer scale of taking a product from raw material through to distribution of the end product. Today, only 16% of companies are able to fully measure the environmental impact across their value chain at an advanced level. Given the UK’s goal of net zero by 2050, it is only a matter of time before regulation requires reporting on the direct and indirect emissions (scope 1, 2 and 3).
Octopus Ventures’ portfolio company, Foodsteps (link to website), does exactly this for the food industry. Its software solution centralises insight into companies’ carbon use from farm to fork, uncovering impact and offering recommendations for carbon footprint reduction.
This valuable information can help businesses with procurement strategies, widening the focus out from cost and quality to include considerations around sustainability, and the business cost of carbon.
It’s not just carbon that will need tracking — it’s all sustainability factors, including waste production and water usage. Returning to our cotton shirt, it is estimated to take on average 10,000-20,000 litres of water to cultivate just one kilogram of raw cotton, depending on where its grown. Measurement and then action (e.g. sourcing sustainably or improving re-use) is a critical step in ensuring the sustainability of supply chains.
Predict the unpredictable
Once a business has mapped the various touch points of its supply chain, and measured the key data points (sustainability is one factor, but data across supply, demand, inventory and capacity is crucial), it can take effective action to improve resilience and boost efficiencies.
Supply chain risk management means continuously assessing and monitoring known risks at the same time as building strong defences against unknown risks. Once again, technology can help. Going back to our cotton shirt: a business can continuously monitor analytics across the production line to minimise overproduction, or model supply chains in real time to test risk scenarios such as wildfires on cotton production. Adding data layers and detailed levels of insight all contribute to the resilience and mitigation of risk around supply chains.
Ultimately, we need to move away from a linear concept of supply chains as upstream and downstream flows and towards a more circular economy.
Octopus Ventures’ portfolio companies, Hurr (a fashion rental platform) and Raylo (offering consumers access to refurbished smartphones), are both great examples of a consumer appetite for disruption – and a growing awareness of the environmental and financial benefits of a revised approach to ownership. This can be described as product-as-a-service — the services and outcomes of a cotton shirt (e.g. wanting to wear it for a special occasion) vs. actually owning the cotton shirt itself.
Building a far wider, circular supply chain creates enormous complexity. It demands interaction and cooperation from all stakeholders across the supply chain to extend product lifecycles. But it can certainly be done: there’s huge scope for software to step in and ensure that companies can effectively handle concepts such as remanufacturing, reverse and circular logistics, and utilising by-products and waste.
From minimising disruption, to streamlining efficiencies (particularly attractive in a recessionary environment), there are huge benefits to businesses — just like the cotton shirt manufacturer — tracking, measuring, and engaging with every tier of their supply chain.
The opportunities in supply chain software are vast, and supported by key trends such as the circular economy, data driven supply chains and guaranteed provenance. If it’s a theme you’ve been thinking about, and want to discuss it further – or share your pioneering solution – get in touch. You can reach me at [email protected]