Supply Chain Sustainability KPIs: What are Procurement Managers Held Accountable To?
Reducing carbon emissions in shipping is a growing topic for supply chain leaders; however, for the discussion to turn into real change, it must dive deeper. Having a goal is not enough; measurable actions and results must clearly define the goal, often best quantified by key performance indicators (KPIs). Companies can choose which KPIs are most valuable to them to support their efforts for supply chain sustainability. This article discusses sustainability KPIs, provides a list of the recommended KPIs to track, and explains the methods to use for tracking.
What are Sustainability KPIs, and Why are They Important?
Sustainability is the goal of positively impacting the environment between what goes in and what comes out—between using resources to manufacture products and the unintended byproducts like waste and greenhouse gasses. Whenever a process in the value chain falls directly under a company’s control, typically, this is easier for the company to grasp fully. However, true sustainability goes beyond this, and companies must understand both direct operations and the rest of the supply chain. In areas in the chain where a company has only indirect control, by hiring another company to handle those processes, it’s often more difficult to gain an understanding of where improvements should be made. Transportation is one example of this, an area where companies should focus on establishing a plan for sustainability and reducing carbon emissions.
When the average company may have 90% of its environmental impact coming from the value chain, there is ample opportunity for reducing this impact and improving the sustainability of the company overall. Sustainability KPIs are essential in helping companies with these goals, as they provide insights into their progress and opportunities. Improving sustainability takes the form of an iterative cycle of the following steps.
Reporting – Measuring baseline KPIs and setting goals
Before taking any action, companies should use sustainability KPIs to help them understand their current impact, allowing them to track their progress in reducing them over time. This information will enable companies to set targets and goals that guide their decisions.
Routing – Identifying specific opportunities to improve
The next step is to find opportunities for improvement through the choices of which partners to work with within the value chain. A company might discover one particular trade lane is responsible for a significant portion of its carbon footprint. They can explore options for reducing this impact, driven by data.
Reducing – Evaluating and benchmarking performance for improving sustainability
With sustainability KPIs, companies should compare their performance to their goals and past performance as well as benchmark their performance against others in the industry. This can help them continue to strive for improvement and inspire healthy competition.
Sustainability Metrics in the Supply Chain
There are many possible metrics to use for measuring sustainability, and each company may choose which ones are most useful to them. Here are some of the main categories of common sustainability KPIs.
- CO2 emissions —The primary greenhouse gas emissions that contribute to climate change, CO2 is measured in metric tons (t) or kilotons (kt), while greenhouse gas emissions overall may be calculated as metric tons of carbon dioxide equivalent (tCO2e).
- Energy —The amount of energy consumed, measured in kilowatt-hours (kWh), along with energy efficiency, can also contribute to KPIs for tracking the reduction of energy consumption.
- Water usage — Measuring the amount of water consumed by operations, in metric tons (t), can be used for tracking reductions in water usage.
- Waste — Waste can be measured in cubic meters (m^3), again for tracking reduction efforts.
- Material efficiency—By measuring resource and material usage, companies can understand their efficiency in material input per unit of service output (MIPS).
- Recycling rate — This rate is the number of recycled items used in operations to the number of items produced, given as a percentage.
- Compliance with environmental standards — By auditing and ensuring compliance internally, as well as confirming suppliers’ compliance, companies can better identify areas where improvements may be needed.
Measuring KPIs for Every Aspect of the Supply Chain
These KPIs must factor in all aspects of the supply chain, for sources upstream and downstream. KPIs should measure the effects of everything required to get the product from raw materials to the customer, all products and services needed within the supply chain, not just the product and packaging.
It is necessary to consider these KPIs for each subcategory of the supply chain, from material procurement to freight procurement, to fully represent the sustainability of a product. A few companies are doing this for the customer at the product level, giving complete transparency into the sustainability of a specific item, for example, Allbirds and Adidas teaming up to create the performance running shoe Futurecraft.Footprint with the lowest carbon footprint. This is a trend we can expect to see more of in the future.
Scope 3 Emissions: The Biggest Sustainability KPIs & Metrics to Track in the Supply Chain
As mentioned, a company can categorize its supply chain impact into what they have direct and indirect control over. Supply chains cover everything from raw materials, suppliers, manufacturers, distributors, and transportation to the end customer, so in many of these areas, companies have indirect control over their sustainability in many of these areas. In terms of greenhouse gas emissions, this is categorized as Scope 3 emissions.
- Scope 1 emissions are direct emissions produced by a company’s own operations.
- Scope 2 emissions are indirect emissions that result from the generation of purchased electricity, steam, heating, and cooling that a company consumes.
- Scope 3 emissions are all other indirect emissions that are generated in the value chain of the company, including emissions from suppliers, the use and disposal of products and services, and the transportation of goods. Logistics and transportation-related Scope 3 emissions typically make up a large portion of a company’s carbon footprint, and for many companies, they can be difficult to track and reduce.
Tracking Shipping Carbon Emissions Accurately by Mode
One of the main difficulties in tracking transportation carbon emissions is the lack of primary data available for each specific movement of freight. The common alternative, default data generated by averages, is considered less reliable to base sustainability decisions on. However, companies can calculate emissions through a modeled data methodology that uses algorithms to get accurate and precise data for the specific case. With different shipping modes, there are various considerations that must be factored in for calculating emissions.
- Road transport calculations must use the type of truck, type of freight, and exact route.
- Air requires knowledge of the aircraft type, fuel, and exact distance.
- Ocean requires the engine type, exact vessel, exact speeds, and exact distances.
- Rail and inland waterways, being fixed-route modes of transport, require exact distances, not approximations based on nearby roads.
As long as calculations factor in these details for each mode, a carbon emissions calculator can compare different routing options. Companies can uncover opportunities to reduce carbon emissions on specific routes or trade lanes. This comparison allows for estimating the expected changes in carbon emissions resulting from different routing decisions, providing a basis for informed decision-making.
What Role do Procurement Managers Have in Reducing Supply Chain Emissions?
Freight transportation sustainability can be measured through carbon emission KPIs. Procurement professionals have an important role in making decisions to use more sustainable routes with a smaller carbon footprint. They use sustainability KPIs to get a reading on their emissions, assist with calculations on their options’ emissions, and take action with informed routing decisions.
The following factors contribute to transportation-related CO2 KPIs, making them worthwhile for monitoring to inform future decisions.
- Transportation fuel efficiency—Are there opportunities for improvements for low fuel-efficiency shipments?
- Alternative fuel usage—Are there opportunities to use alternative fuels and increase their usage?
- Distance—Are there opportunities to use different routing strategies to reduce distance?
- Age of fleet—Are there opportunities to reduce carbon emissions by using carriers with newer fleets?
How to Improve Your Carbon Footprint with Better Routing
To improve sustainability within freight transportation, BCOs should consider their options for alternative routing by looking at different carriers and different routes or trade lanes. A reliable carbon emissions calculator for routing will factor in carrier profiles and historical data plus standard deviations of that data. If there are two options of trade lanes to use and one has a wide range of possible carbon emissions, it might be more advantageous for the BCO to choose the one with a smaller standard deviation, even if the average carbon emissions are slightly higher.
It’s also important to note the biggest sources of carbon emissions may not provide the biggest opportunities, if that source does not have the potential to be reduced. BCOs can first target the lowest hanging fruit—the fastest and simplest changes to implement for improving their sustainability KPIs—then move on to the more complex challenges of their routing decisions.
Get Better Routing with an Embedded Sustainability Solution through Searoutes
Sustainability KPIs provide a useful framework for companies to manage their carbon emissions. By setting targets, measuring progress, and identifying areas for improvement, companies can make significant strides toward a more sustainable future.A vital tool for accomplishing this is having a sustainability solution embedded in your supply chain to inform decisions, not as an afterthought, but as a way to have complete visibility into the data that influences routing decisions. Searoutes provides this solution as an API or dashboard, so procurement managers always have the data they need for more sustainable supply chain decisions. To learn more about Searoutes and this embedded visibility, reach out to us today.