Climate change and sustainability are increasingly becoming central elements of commercial decision-making. Consumer attitudes to the environmental impact of the products they buy and organizations they buy from are hardening.
Many consumers believe that brands bear as much responsibility for positive change as governments. In a 2020 McKinsey report, 66% of all respondents and 75% of millennial respondents to the survey said they consider sustainability when making a purchase, and in a 2021 Deloitte survey, almost a third of consumers claim to have stopped purchasing certain brands due to concerns about sustainability. In fashion and textiles, over 50% of C-Suite executives say consumer demand is driving their pursuit of sustainability.
But it isn’t just about looking good. Organizations that have made tackling their environmental and social impact a priority and have acted on it are enjoying faster growth and higher valuations than other players in their sectors. Making progress on tackling the environmental impact of their operation drives down costs (typically by 5-10%) as these companies focus on operational efficiency and waste reduction.
For Wholesale, Distribution, and Retail organizations a significant majority of their environmental impact occurs in embedded emissions in purchased goods and services, employee travel and commuting, and the use and end-of-life treatment of sold products. Of these, two-thirds are usually from the upstream supply chain.
It follows that operational decisions around inventory management can have a significant impact on its environmental impact.
Having a firm grasp on demand planning and forecasting helps organizations to minimize overstock and understock situations – which both create resource wastage. Accurate forecasting ensures the optimal purchase of raw materials and minimizes unnecessary transportation costs – both of which improve a company’s carbon footprint.
How products are ordered and shipped is also key to reducing environmental impact. The size and frequency of consignment delivery are important considerations. The ‘true’ cost of inventory must be understood – can local sourcing have greater flexibility, shorter lead times, and lower transportation costs?
Inventory optimization has many commercial benefits and it can directly help deliver a positive impact on carbon emissions. Analyzing data to create better forecasts, managing the supply chain more efficiently, and creating greater agility to respond to changing conditions all help to reduce resource wastage. Factoring in sustainability makes sense.