Towards the Adoption of Sustainability KPIs for Supply Chain

This KPI could be inspired by the Green Grid’s power usage effectiveness (PUE) metric for the data center industry, which measures data center efficiency. The score compares the amount of energy used to power the actual servers to the amount of energy used on cooling and other infrastructure.

When it comes to developing a similar metric for supply chains, I’m not saying I have the answer. This will take a massive rally from industry and other stakeholders—the same way that data centers, facility architects, utilities and other stakeholders came together to devise the PUE metric.

But here are some thoughts to get the conversation started.

The Circular Economy Yields Efficiencies That Help Businesses Grow

Many business leaders still think that becoming more sustainable must mean a hit to the bottom line. Really, it’s all about finding efficiencies, as many companies have already proven.

You not only get the feel good from doing good, but you can also become more profitable.

The Incredible Potential for Making Positive Change

There are some sobering statistics when it comes to supply chain and its current low level of sustainability:

“Overall, the extraction and processing of natural resources accounts for more than 90% of global biodiversity loss and water stress impacts and approximately half of global greenhouse gas emissions.“
– UN report: Global Resources Outlook 2019

“The expansion of global economy and the rise of living standards is set to force the world’s consumption of raw material to nearly double by 2060.“
– The Organisation for Economic Co-operation and Development (OECD)

“The recycling industry, currently a tenth the size of the mining sector in terms of GDP share, is likely to become more competitive than the mining of minerals and grow, but it will remain a much smaller industry than mining primary materials. “
– The Organisation for Economic Co-operation and Development (OECD)

Because circularity could make such an impact on statistics like these, a valid supply chain sustainability metric would incorporate the number of times a part or product would get reused. When something stops moving in the supply chain, that’s when new resources get pulled from the ground to replace them.

Beyond the Carbon Footprint

Why don’t we just use the carbon impact? I think measuring carbon is a great idea, but I don’t think it’s complete enough to measure the impact of our supply chains.

For example, those who are (rightly) concerned about plastic in our oceans sometimes cite cotton as a more natural alternative for clothing and housewares. Cotton farming, however, is extremely water intensive. Measuring the carbon footprint of cotton farming doesn’t capture the impact it has on water tables, or the clearing of wildlife habitat for new farmland.

We need something that specifically focuses on the impacts of supply chain, whatever form they take.

The Ellen MacArthur Foundation’s Material Circularity Indicator (MCI) and Circulytics

According to the OECD, we as a species consume over 102 gigatons of raw materials annually—that includes minerals, ores, fossil fuels, biomass—essentially anything and everything that we take from the planet to stay alive and run our global economy.

This article in National Geographic contains a great graphic to help you visualize everything we extract from our planet. It reveals the unfortunate facts that 65% of this 102GT is used once and then it is disposed of as waste, 22% goes into long-term products like houses and infrastructure, and just 8% is reused.

In 2015, the Ellen MacArthur Foundation’s Circularity Indicators Project released its white paper, Circularity Indicators, An Approach to Measuring Circularity. In it they offer a system to measure how linear a product is vs how circular.

“Any product that is manufactured using only virgin feedstock and ends up in landfill at the end of its use phase can be considered a fully ‘linear’ product. On the other hand, any product that contains no virgin feedstock, is completely collected for recycling or component reuse, and where the recycling efficiency is 100% can be considered a fully ‘circular’ product. In practice, most products will sit somewhere between these two extremes and the MCI measures the level of circularity in the range 0 to 1.”

From there the report offers a series of equations that businesses can use to go through their calculations. It also cites existing ISO and other recognized standards that can be used to calculate water usage, material supply chain risks, the impact from toxicity of materials, and more.

The Foundation’s report also includes references to ISO standards used to calculate energy usage and CO2 emissions. If they were used to calculate the carbon footprint of logistics as well as manufacturing, I think all the bases would be covered.

The Foundation has also created a Circulytics platform, which factors in social as well as environmental impact, and you can learn more and register here.

Challenges with the MCI and Circulytics

While I’m a supporter of these initiatives, I think the complexity of the calculations provide a barrier to entry. The Ellen MacArthur Foundation’s own data shows low adoption, and the 16% completion rate for the Circulytics platform.

Is there a way to simplify these calculations? The ideal metric would be easy enough to calculate that we could not only work through them ourselves, but also ask suppliers to perform them. This would enable multi-tier supply chains (are there any other kind?) to include the numbers from their suppliers’ calculations in those for their final products.

Let’s Get Started

I hope you’ll join me as we embark on our quest to find the perfect supply chain sustainability metrics. It promises to be an interesting ride for those of us who are fascinated by supply chain, and an important one for all of us.

In the next blog post, I plan to share my ten-year vision of what I’m hoping we can achieve as a supply chain community, using each International Supply Chain Day as a milestone. This will include goals for improving the percentage of reused resources in our aggregate supply chain.

If you have any ideas about developing the KPIs we need, I’d love to hear from you. You can reach me on LinkedIN or follow Requis on LinkedIn.