Goutam Dev, VP, Head of Strategic Customer Program and Consumer Industries at SAP
As one of the largest contributors to climate change, the retail industry has been in the spotlight for some time. Carbon-intensive processes throughout the supply chain are at the centre of this. With research showing that the emissions produced are 11.4 times higher than those created directly through a business’ operations, there is a pressing need for transformation. For retailers, the supply chain requires a considerable amount of both financial and human resources to fund and manage. From the way raw materials are sourced to the production and transportation of goods, each stage has an environmental impact. With concerns around sustainability more significant amongst consumers than ever before, retailers are under pressure to act quickly.
Plans are being put in place, with the British Retail Consortium, setting the industry a target of becoming net-zero by 2040. It’s ambitious, but achievable. Retailers need to take innovative approaches to their business models and anticipate and eliminate environmental impacts. Moving away from the ‘take-make-waste’ linear approach, retailers should incorporate circularity into their supply chains to ensure that waste is minimised, and resources are reused.
The traditional linear model, adopted by most retailers, creates business value through taking natural resources and making products for consumers that eventually become waste, and that’s where it ends. A circular model requires retailers to innovate at the traditional waste stage and create new stages of use. We can focus on two aspects of their business – products and supply chains, while adhering to the circular economy’s three fundamental principles: design out waste and pollution, keep products and materials in use, and regenerate natural waste. Technology is vital to this transformation. But how can this be achieved? Let’s look into how retailers can introduce circularity into their products and supply chains and deliver on consumers’ sustainability demands.
Starting at the source
Retailers are now renewing their commitments to sustainability to act on and demonstrate purpose. In fact, the number of retailers setting science-based targets to add credibility and accountability to their sustainability efforts more than doubled between 2019 and 2021. Whilst this is a step in the right direction, retail and CPG brands must have the right infrastructure in place to meet these commitments.
One of the key challenges retailers face in incorporating circularity into their business models is managing materials, whilst also complying to regulatory standards. To address this, retailers need technology that allows them to take a ‘sustainability by design’ approach, recognising areas for potential impact, such as the environmental damage caused in the sourcing of raw materials or carbon emissions produced during the manufacturing of products, and adopting new approaches to minimise this.
Cloud-enabled supply chain solutions that leverage blockchain and machine learning technology can provide enhanced visibility across the value chain, allowing retailers to track material flows from source to market. This means that as materials move throughout the supply chain, retailers can assess waste, such as carbon emissions, in the process, whilst also ensuring compliance with regulations associated with plastics and packaging. In turn, this drives improved decision making as retail and CPG organisations leverage the tools to identify and address the points of greatest impact, whilst also being given the insight needed to determine areas where resources can be better managed and reused. Through this, circularity principles are embedded into the core of business operations.
Taking responsible action
While retailers have faced scrutiny on the environmentally unfriendliness of their supply chains, organisations in this space are already acting by implementing cloud and AI technology to help adopt more sustainable business practices.
The re-commerce market is growing faster than most other branches of retail. According to Thredup’s recent report, resale accounted for only 4% of the total fashion market in 2012. However, by 2020, that number had already grown to 9% and it’s predicted to reach 18% by 2030. It is becoming increasingly popular amongst consumers driven by the desire to shop responsibly and sustainably. The global fashion resale market is expected to more than double by 2026. Now, businesses are quickly adopting this model to reduce waste and reuse materials that could have a second life. For example, fabric reseller, Queen of Raw, is championing a sustainable approach to its entire value chain by designing out waste associated with fabric production from its entire business structure and giving materials a second life.
The fashion industry has a problem with polluting. From excess water, to toxic chemicals and high carbon emissions associated with the manufacturing of fabrics – Queen of Raw has taken an innovative approach to counteract this. Creating a global marketplace that allows users to list, sell and buy deadstock fabric, Queen of Raw promotes a more sustainable approach to the production of clothing. Using supply chain software powered by artificial intelligence, Queen of Raw can connect to company inventory systems, pairing buyers and sellers of unused fabrics. Through this, textile waste can be identified and repurposed, preventing it from going to landfill or being burned. This innovative approach to resale has the potential to transform the retail industry’s green credentials.
Making the case for a sustainable future
Environmental consciousness amongst consumers is at an all-time high, and businesses are being held accountable for protecting the environment and supporting its regeneration. Prioritising sustainability not only adds value for consumers, but is also a sound business strategy. Many retailers recognise this, and 35% of brands are already investing in long-term sustainability goals. Determining those goals and balancing them alongside demands for efficiency can be challenging, but with the retail industry amongst the largest polluters, the potential benefits of acting with purpose for the planet are huge.
Taking meaningful and comprehensive environmental action requires a holistic and regenerative approach. Implementing cloud-based technologies that provide actionable data is the first step. Then, leveraging analytics technologies, retailers will have the oversight needed to design waste out of the value chain, reducing emissions, limiting waste, and protecting valuable resources. Furthermore, technology such as AI allows retailers to map, track, and trace material origins, ensuring end-to-end supply chain visibility and transparency. Only when supply chains are transformed from linear to circular models can environmental damage be significantly reduced, and more sustainable business practises be adopted.