For all of the wrong reasons, global trade and supply chain logistics have been front of mind this year. When consumers get what they want, when they want it, they typically don’t ask too many questions about what goes on behind the scenes, such as who made the product, where it came from or how it got to them. But when the COVID-19 pandemic disrupted business-as-usual, it revealed numerous cracks in our opaque, global supply chain. These fissures were most painfully experienced in the shortages of personal protective equipment and other lifesaving healthcare equipment during the pandemic.
Supply chain disruptions are becoming increasingly visible, with the Ever Given container ship stuck in the Suez Canal and up to 40 container ships seen anchored off the coast of California with nowhere to go over the last seven months, waiting to get into port. This new visibility has resulted in more questions being asked and has highlighted pre-existing challenges within global supply chains.
International trade is still a paper-based, analog industry. The Digital Container Shipping Association recently revealed that only 0.1 percent of bills of lading (a document issued by a carrier, those transporting the goods, to acknowledge receipt of cargo for shipment) are issued electronically. The manual and written entries and receipts result in excessive costs, delays and errors. Critically, these inefficiencies come at a cost to people, the planet and business. Just this month, the G7 committed to digitizing trade over the next 12 to 18 months, recognizing the urgent need for the modernization of the industry.
Today, negotiating prices, preparing shipments, filing paperwork and correcting errors is often a five-day process, leaving valuable commodities, including fresh food, rotting in port or at sea. Such delays and the associated costs result in higher prices and more waste through unwanted and abandoned cargo. For some fashion retailers, extreme delays have resulted in winter collections getting delivered in the wrong season. The "outdated" garments then head straight to landfill.
Today, negotiating prices, preparing shipments, filing paperwork and correcting errors is often a five-day process, leaving valuable commodities, including fresh food, rotting in port or at sea.
There is ample opportunity for increased efficiency and cost reductions through digitization of existing operations, thereby maintaining the value of materials and products. At Closed Loop Partners, we see digitization as a critical lever to accelerate the transition to more circular supply chains. A circular economy rethinks our systems to make them more connected and therefore more resilient — less exposed to the uncertainties that come with climate change, less reliant on the exhaustive extraction of raw materials, and less harmful to marginalized communities who are disproportionately affected by the impact of refining processes and waste disposal. The digitization of supply chains is a key driver of the circular economy, enabling stakeholders to work toward transparency, resilience and efficiency in three key ways:
1. Understand materials and products moving through supply chains by harnessing transparency tools
Digitization enables transparency tools that shed light on supply chains. They enable stakeholders to understand and measure what types of materials and goods are flowing through the system, when they’re transferring from point to point and how. For example, Quick Response (QR) codes and radio-frequency identification (RFID) systems allow companies and consumers to see a product over its lifespan, increasing visibility for materials and products from clothing to reusable cups and bags. Transparency can show where a product has checked in along the supply chain — for example, showing when a plastic bottle arrives at a distribution center or at a recycling facility. Traceability can be more detailed with tags that hold a product’s "digital twin" — including the information on what the product is made out of, how to disassemble it or to validate it was made with fair labor practices. Circular and efficient supply chains require such visibility as a first step.
2. Focus on maximizing social and environmental impact across sectors
Once stakeholders know what’s happening across a supply chain, better decisions can be made to avoid waste and other inefficiencies. This presents significant opportunities to maximize social and environmental impact, spanning sectors and industries. For example, ReFED identified that across four supply chain solutions — intelligent routing, enhanced demand planning, decreased transit time and pallet-level temperature monitoring — over 3.8 million tons of food waste potentially could be diverted. Digital tools do not just avoid waste reduction and maximize cost savings when problems arise: with greater adoption of digital inventory management platforms, dynamic pricing tools also can take the freshness of produce into account when calculating time in transit, ultimately offering customers a fuller view into their product’s journey and the accompanying best price.
Over 3.8 million tons of food waste potentially could be diverted by using intelligent routing, enhanced demand planning, decreased transit time and pallet-level temperature monitoring.
3. Realize cost savings from increased efficiencies
The aforementioned four supply chain solutions, identified by ReFED, also provide over $11.8 billion in net financial benefit. Cost savings and return on investment (ROI) continue to be primary drivers for purchasing decisions of brands and suppliers throughout the supply chain. Digital technologies can help supply chains increase speed of transactions; reduce error rates and therefore reduce costs to both buyers and sellers; and reduce any associated wasted material and any lost commodity value. Our investment in TradeLanes, a company that digitizes and manages trade execution for shipping of commodities in containers (meats, grains, dairy, paper, plastics), has demonstrated these clear cost savings for stakeholders across the value chain. By bringing trade online, they help commodity shippers recapture margin by 4 to 14 percent and cut the trade-to-cash cycle, eliminating manual processes and reducing administrative costs by up to 80 percent, while decreasing turnaround times on negotiations and documentation with the help of speedier data integration and automation.
Digitization can increase supply chain transparency, resilience and efficiency, and in sum, spotlight economic and environmental opportunity areas. Ultimately, digitization better informs strategic decision-making that can accelerate the transition to a circular economy. Following the year’s disruptions, now is the critical moment to act. Let’s seize the moment to shift to more resilient, waste-free circular supply chains.