VIEWPOINT2023

BUILDING AS U S TA I N A B L E &H I G H LY P R O D U C T I V E
S U P P LY C H A I N
How to take a holistic viewfor future success

AUTHORS
Bernd Schreiber
Dr. Kai-Oliver Zander

Supply chains are under unprecedented strain,

Patrick Dutz

impacting productivity and leading to shortages

Phil Bulman

for consumers and manufacturers alike. At theAlexandra Nybonn

same time, companies face growing pressure fromsociety and regulators to become more sustainable,
which opens up new opportunities with customersincreasingly willing to pay a premium for moresustainable products. Meeting these conflicting
objectives requires a comprehensive approachthat future-proofs supply chains by deliveringboth greater sustainability and higher productivity.

Naoya Furuta

ARTHUR D. LITTLE

VIEWPOINT

BUSINES S DRIVERS FORSUS TAINABLE , PRODUC TIVE
SUPPLY CHAIN
Since the onset of the Industrial Age, companies
have invested heavily in building ever more
complex, global supply chains. These optimize
operations and maximize productivity bydelivering raw materials, subcomponents, andfinished goods seamlessly to the right placeat the right time. However, these models are
increasingly under threat, with supply chainsbecoming more volatile due to factors such as:- Rising costs. According to the World Bank,
2023 energy prices are expected to be 75%

above their average over the past five years.
Commodity prices remain high comparedto historic levels.

- Resource scarcity. This can either bepermanent (e.g., shortages of materials
required for electric vehicle [EV] batteries)
or temporary (e.g., supply chain disruption
caused by COVID-19 or the shutting of theSuez Canal).

- Geopolitics. This includes sanctions(e.g., on Russia) and growing economic
protectionism by many countries.

- Greater requirements around sustainability,
driven by consumers and investors. Recent
studies reveal that a growing proportion ofconsumers are willing to pay a premium for
more sustainable products.

- Growing international regulatory

obligations. This encompasses increasing
legislation in areas as diverse as emissions
reduction and working conditions.

- War for talent. This requires companies toattract and retain the best employees if theyare to outperform rivals.

- Greater competition. Digitization is opening
all markets, lowering the barriers to entry for- Transportation capacity and prices. Global

ports are filled with containers, while shipping
prices are at an all-time high. Air cargo costs
have also increased dramatically.

None of these trends is likely to end soon, andthe impact of many will only deepen over time.
This requires new thinking around planning andmanaging supply chains, which must become
more resilient and future-proof, balancing thedemands of productivity and sustainability.
To succeed, organizations need to ask (andanswer) these questions:- What does “sustainability” mean for us?
- How can we make our supply chain bothsustainable and productive, and how can
we achieve a successful balance?

- What should be covered by holistic
sustainability management?

- How does sustainability influence ourorganization in general — and our supply
chain in particular?

- What should transformation toward asustainable and highly productive supply
chain look like for our business?

- How can we create tangible impact and value
to increase sustainability and productivity?

5 steps to creating value from supply chain
sustainability & productivity
Addressing these drivers means supply chain
leaders need to oversee a transformation thatcovers both:- Productivity — optimizing supply chain

efficiency, profitability, and resilience using
technology and human skills.

- Sustainability — making supply chainsgreener and more sustainable across allenvironmental, social, and governance (ESG)
factors.

a wider range of nontraditional players.

BUILDING A SUSTAINABLE & HIGHLY PRODUCTIVE SUPPLY CHAIN

2ARTHUR D. LITTLE

VIEWPOINT

This holistic transformation is best achieved

Such challenges make it difficult to improvethrough a combination of careful strategic planning

performance rapidly enough to driveand focused tactical action via a use case–basedtransformational change.

approach. Changes are then based on proven,
Analyzing ESG challenges

relevant actions, enabling organizations to meetpotentially conflicting demands. We recommend

From a sustainability standpoint, it is vital tocompanies take these five steps to successfullyknow your current position to develop a goal-transform their supply chains (see Figure 1):

oriented supply chain ambition. This requires a

1. Supply chain baseline analysis

360-degree/holistic assessment that covers all

2. Supply chain ambition developmentareas of ESG:

- Environmental — reducing the supply chain

3. Use case definition and prioritization

carbon footprint.

4. Supply chain target picture development- Social — areas such as health and safety/

5. Supply chain roadmap definitionsocial responsibility.

- Governance — including business ethics

SUPPLY CHAIN BASELINEANALYSIS: WHAT IS OURS TAR TING P OINT ?

and compliance.

A key challenge for many organizations is accurately
measuring their carbon footprint. Technology canBegin by evaluating where you are now. What are

bridge this gap. Artificial intelligence (AI)-driven

your current challenges from both a productivity

solutions help companies measure, simulate, andand ESG point of view?

track their carbon footprint across all aspects of
their supply chains. These state-of-the-art CO2

Analyzing productivity challenges

footprint analysis solutions not only measureemissions directly produced by the company’s

Productivity challenges include:-activities (Scope 1 and 2) but also measure theInsufficient resources (from ideas formore complex indirect emissions (Scope 3)change to relevant competencies and skills).

produced along the company’s entire value chain.

- Cultural/organizational factors and silos thatmean local teams and stakeholders do not buy
into or act on overall strategy.

Figure 1. Five-step supply chain transformation framework
Figure 1. Five-step supply chain transformation framework1

Supply chain
baseline
analysis
Focus:••

2

Supply chain
ambitiondevelopment

3

Focus:

Analyze current
productivity
challenges &sustainability
impact•Determine
as-is carbon
footprint•

Definesustainabilityambition
for overall
supply chain
Integrate supply
chain productivity
targets

Use case
definition &prioritization
Focus:•

Identify relevant
supply chain
use cases•

Prioritize based on
impact regarding
sustainability &productivity
targets4

Supply chain
target picturedevelopment
Focus:•Develop target
picture basedon prioritized usecases•

Define target
operating model5

Supply chain
roadmap
definition
Focus:•

Define executionreadytransformation
roadmap basedon supply chain
target picture

Source: Arthur D. Little

BUILDING A SUSTAINABLE & HIGHLY PRODUCTIVE SUPPLY CHAIN

3ARTHUR D. LITTLE

VIEWPOINT

SUPPLY CHAIN AMBITION
DE VELOPMENT: WHAT IS
OUR AIM?

USE CASE DEFINITION &PRIORITIZ ATION: WHATARE BES T PR AC TICES ?

Once you understand the supply chain

Organizations across industries are facing thepicture from a productivity and sustainability

same challenges. Some are more advanced, whichperspective, you can use it to develop your long-can represent invaluable learning opportunities

term ambition. This should act as your North Star.

for those that follow. Rather than reinvent theIt will provide strategic guidance and define yourwheel, companies should collect, understand,sustainability and productivity ambitions. Theseand implement best practice through quantified

could include targets such as:use cases. These can inspire your own use cases,- Environmental — 100% carbon-neutral supply
chain by 2030.

-Social — responsible sourcing for the businessand across the supply chain by 2028.

adapted to your needs. They provide a concrete
path to action, as the example in the sidebar,“Improving the carbon emissions footprint,”
illustrates.
It is critical to analyze the widest range of use- Governance — become the industry leader

cases across different sectors before choosing

for diversity and inclusion by 2025.

which to deploy. Use cases should span multiple- Productivity — 10% return on capitalindustries, quantifying their impacts onemployed; US $1 million in revenue generated

sustainability and productivity as well as theper employee; 10% total shareholder returns

relationship between cost and implementation.

by 2030.

They should aim to stimulate change, providing

After setting these long-term objectives, you canthen derive a target picture for each part of thesupply chain in a holistic context. The next step isconcrete external examples to help deliver thesustainability and productivity ambitions of allorganizations.

to analyze the gap between the current situation

After identifying relevant use cases, companies

and your overall ambitions and use this insight toshould prioritize actions according to theirprioritize areas for action across the value chain.

sustainability and productivity potential. Then,

Figure 2 shows an organization’s present status

act fast to pilot those with the highest potential,

compared to the ambition of achieving 100%learn from the process, and then scale depending

carbon neutrality, broken down across the supplyon the results.

Figure 2. Evaluating the current picture, an ESG ambition
chain to provide measurable targets.
exampleFigure 2. Evaluating the current picture, an ESG ambition example“We strive for 100% carbon neutralityof our supply chain by 2030”

Environmentalambition

End-to-end
value chain
As-iscarbon footprint
TargetlevelDevelop

10

Source63

Make72

Sell

11Deliver53

milliontons

milliontons

milliontons

milliontons

milliontons

NetzeroNetzero

NetzeroNetzeroNetzero

Source: Arthur D. Little

BUILDING A SUSTAINABLE & HIGHLY PRODUCTIVE SUPPLY CHAIN4

ARTHUR D. LITTLE

VIEWPOINT

Improving the carbon emissions
footprint

Using the example of a logistics provider,

SUPPLY CHAIN TARGE T
PIC TURE: WHAT IS OURTARGE T PIC TURE ?

a survey of relevant use cases highlighted

After defining their long-term supply chain

multiple options to meet the conflicting

ambition and prioritizing relevant use cases,

goals of reducing fleet emissions while

companies should then build an integrated target

maximizing productivity. Each of these use

picture for each part of the supply chain. Thiscases has been proven in other organizations,provides clear guidance on building the futurewith full details of the relative cost, resources

supply chain, integrating use cases to achieverequired, and benefits received. Relevant

long-term ambitions. It also opens up thinking

example use cases included:

to new concepts, such as embracing circular- EVs — shifting from fossil-fueled

supply chains and adopting concepts such as

vehicles to environmentally friendly
EVs to decrease carbon emissions.

- Synthetic biodiesel — using biodiesel,
produced from waste oil and fats, as analternative green fuel to reduce carbon
emissions.

- Solar panels — installing and using

solar panels to reduce carbon emissions
and energy costs while increasingenergy independence.

- Energy storage system (ESS) —recycling, reuse, and refurbishment of products
and materials.
Three key principles should underpin
transformation of the supply chain targetpicture into practice:
1. Commitment from senior management,embedded in their agenda.
2. Accountability throughout the organization,
making targets an integral part of all operations.
3. Integration of transformation program
structures into the overall organizational

deploying an ESS made up of oldstructure to ensure that alignment.

EV batteries to increase share ofWhen it comes to the supply chain target

carbon-neutral electricity usage.

picture, there is no single solution. Companies

After studying use cases and applying thismust tailor their approach with regard tolearning to its own situation and objectives,structures, governance, resources, and businessthe logistics provider was able to createmodel. For example, Unilever has establisheda future, action-based plan to meet its

sustainability governance structures and clear

holistic needs.

lines of accountability on both a strategicand operational level. It has embedded its
commitment to sustainability in its businessagenda through its purpose, vision, and businessmodel. It is also open to outside influences,looking for external advice from a variety ofsources, including an Advisory Council made upof nongovernmental organizations (NGOs) andacademics.

BUILDING A SUSTAINABLE & HIGHLY PRODUCTIVE SUPPLY CHAIN

5ARTHUR D. LITTLE

VIEWPOINT

Primary battery recycling in Asia
Currently, single-use batteries are usually
discarded after being discharged. The
combination of this unsustainable modeland increasing green consumer demandmeans that many market players facesubstantial business risks. To avoid losing
market share over the medium- and longterm, a major Japanese multinational
conglomerate sought to adapt its existing
operations. This focused on the developmentof a recycling business model to both meetcustomer expectations and provide future

SUPPLY CHAIN ROADMAPDEFINITION: HOW CANWE ACHIE VE OUR G OAL S ?
Optimizing the supply chain requires a clear,
implementation-ready roadmap with specificactions. Prioritize actions to break this roadmap intoa short-, medium-, and long-term implementation
plan (see the example in Figure 3, where actions
are organized by time horizon and value chainfocus). Put in place a program organization toensure goal-oriented, coordinated design andaction implementation based on clear, predefined
responsibilities, timelines, and resources.

growth opportunities. As a first step, theproject analyzed current opportunities
and risks, taking into consideration
country-specific regulations and theclient’s reputation. Based on that baseline,
the project then analyzed the strategic,organizational, and fiscal impact of arecycling business model. To complete theproject, a tailored model for the Japaneseand Southeast Asian market was developed
to strengthen the organization’s leading rolein the primary battery market.

Figure 3. A concrete roadmap for supply chaintransformation

Figure 3. A concrete roadmap for supply chain transformation
SHORT-TERM (Until 2024)

MID-TERM (until 2027)

LONG-TERM (until 2030)
The sustainable &highly productive
supply chainDevelopSource

RecycleMakeSell

DeliverRepair

Source: Arthur D. Little

BUILDING A SUSTAINABLE & HIGHLY PRODUCTIVE SUPPLY CHAIN

6ARTHUR D. LITTLE

VIEWPOINT

CONCLUSIONTA K I N G A H O L I S T I C
S U P P LY C H A I N A P P R O A C H

N O W I S T H E T I M E T O S TA R T T H E J O U R N E YA N D B U I L D A S U S TA I N A B L E A N D H I G H LY
P R O D U C T I V E S U P P LY C H A I N

Supply chain pressures are overpowering existing structures,
impacting productivity and sustainability. To overcome thesechallenges, companies must take a holistic, transformational,
and use case–driven approach to:1

Understand your current position.

2

Set long-term ambitions.

3

Understand use case options and relate themto your business.

4

Build a medium-term supply chain target picture.

5

Translate into short-term concrete roadmaps.

6Pilot rapidly, learn, iterate, and deploy.

This transformation will help an organization define andimplement a clear supply chain target picture to achieve
tangible results in a structured way. Now is the time to start
the journey and build a sustainable and highly productive
supply chain — both for the good of the business and forgreater society.

BUILDING A SUSTAINABLE & HIGHLY PRODUCTIVE SUPPLY CHAIN

7

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