Ensure sustainable consumption and production patterns.
Worldwide material consumption has expanded rapidly, as has the material footprint per capita. Action is needed to ensure that current material needs do not lead to the over extraction of resources or to the degradation of environmental resources. These actions should reduce waste while mainstreaming sustainability practices across all sectors of the economy to help ensure responsible consumption and production. IT technology and data can help make the sustainability performance of a product or service transparent. For instance, technology solutions can enable new business models, such as pay-per-use, or help educate consumers about the social and environmental footprint of products to enable more conscious buying decisions.
Dame Ellen MacArthur realized it when sailing solo around the world. Our global economy is dependent on finite materials we only have once in the history of humanity, yet we are consuming these at an ever-increasing speed. In her inspiring and fundamental TED talk in 2015, MacArthur laid out how she discovered that a shift from a linear to a circular economy could be the solution to the problem. She said, “If we could build an economy that would use things rather than use them up, we could build a future that really could work in the long term.”
MacArthur refers to both risk and opportunity as key drivers. The risk of resource scarcity and price volatility can wipe away operating profits, just as car manufacturers have experienced with their raw materials. Public opinion and tightening regulation are increasingly influencing the thinking about sustainable supply chains. The EU regulation to ban single-use plastic by 2025 directly impacts the license to operate for companies depending on plastic packaging. Pictures of drowning turtles or dolphins entangled in plastic fishing nets go along with increasing numbers of reports on the enormous plastic gyres in the world oceans. This has created substantial public pressure against plastic as the symbol for unnecessary human waste. Members of Generation Z are disgusted by waste. Major consumer-facing corporations like Nestle, Unilever, and Kellogg’s are among 250 other major brands pledging to cut all plastic waste from their operations. In the Alliance to End Plastic Waste, more than 30 global companies will invest US$1.5 billion over the next five years to spur innovation to end the flow of plastic waste into the environment.
Adidas used the circularity approach as a differentiating brand opportunity. In 2016, the company partnered with Parley for the Oceans and designed running gear fully made from recycled ocean plastics. In 2019, the company already expected to sell 11 million Ultraboost Parley shoes, more than double the 5 million sold in 2018.
Other new business models are emerging: Philips’ “Light as a Service” offers significant energy savings for the customer. More opportunities built on sharing resources, like cars or rides, housing or even home tools, are garnering interest. Renting baby clothes is becoming popular. Ideas such as these are particularly appealing to younger generations and have been leading to the rise of Airbnb, Trove, and other enterprises of the sharing economy.
Indeed, there are always two ways of looking at why companies should make products and services more sustainable along their lifecycles and supply chains. The reputational damage, negative effects on stock prices, and costs for lawsuits and legal fines can be enormous and spiral out of control. In a study of Palm, Walmart, Baxter International, Mattel, Total S.A., and others, research organizations INSEAD, ecovadis, and PricewaterhouseCoopers analyzed the direct costs of a supply chain disruption from a sustainability issue. They discovered that, on average, a disruption caused companies a 0.7% drop in revenue as well as a 12% decrease in market capitalization.
“Investing in the well-being of our planet makes good business sense,” says Yvon Chouinard in describing Patagonia’s successful approach toward sustainable consumption. There is always the chance to innovate, differentiate, and tap into new and more profitable market segments and grow decoupled from resource constraints. NYU Stern’s Center for Sustainable Business completed extensive research into U.S. consumers’ actual purchasing of consumer packaged goods (CPG). They found that 50% of CPG growth from 2013 to 2018 came from sustainability-marketed products.
IT technology and data can help make the sustainability performance of a product or service transparent. It can help educate consumers and corporate buyers about the social and environmental footprint and support them in making conscious buying decisions.
More and more activities address parts or individual aspects of circularity. Many of them focus on waste cleanup or recycling, others on efficiency gains for their own organizations, and still others on new service-based business models. The only successful circular approaches seem to rely on clear resource ownership, in many cases within one company, throughout the entire value chain or resource lifecycle. Moving classical linear value chains toward circularity requires trustworthy collaboration between participating industries. Trust is based on transparency into resources, but also into financial flows. Transparency is based on factual and reliable data that can be delivered by innovative technologies like blockchain or artificial intelligence. However, two major obstacles must be overcome to achieve full circularity. First, business cases need to expand from the financial-silo optimization of individual companies to holistic-impact valuation of a resource or a product along the entire lifecycle. Second, this type of resource-ownership thinking needs to be introduced into the university education of the next generation of business leaders.
Just as mindset matters, so does language. The term supply chain suggests a start and an end of a process, reflecting the classical linear thinking. Yet the circular economy is about continuous and infinite value creation, value maintenance, and value distribution for specific resources. This can only be achieved by trustful collaboration of all process partners driven by shared transparency based on reliable data.
So, call it whatever you will, but the core principle behind the circular economy – zero waste – has many benefits. It minimizes costs, mitigates risk, grows profits, and increases customer satisfaction. That’s smart business from any angle.
As part of fulfilling our purpose to help the world run better and improve people’s lives, SAP is part of a growing movement of policymakers, NGOs, social groups and leading companies working together on solutions to create a restorative and regenerative economy.
To achieve our shared aspiration of a world of zero waste and the United Nations Sustainable Development Goals, SAP is partnering with the Ellen MacArthur Foundation, the World Economic Forum’s Global Plastic Action Partnership, and many more to provide solutions for a circular economy. Together, we aim to enable and accelerate the supply chain transparency needed to deliver products fit for circularity.
The increasing scarcity of resources, the alarming effects of pollution through the use and disposal of plastics, and heightened consumer awareness are persuading producers and retailers alike to embrace sustainable production and consumption models. This is not just about responsible sourcing or recycling. It’s also about taking the full product lifecycle into consideration, from design to end of life. Companies like IKEA are taking a lead in this shift toward supporting a circular economy. The furniture giant is committed to using renewable and recycled resources as efficiently as possible throughout its value chain. IKEA successfully demonstrates that recycled plastics can be used in the large-scale production of household goods. In addition, they follow the increasing trend of resource-conscious buying behaviors of their customers by taking back and reselling used furniture in their stores.
SAP is teaming up with sustainably-minded companies like IKEA to discover circular paths and solutions. One example is the Leonardo Plastics Challenge, which has been extended to the United States as well as Australia. Key aims are mitigating the effects of plastic pollution and extracting the greatest value from a material mainly made from a finite virgin resource. Equally important is the project’s objective to meet the increasingly strict environmental regulations, for example, the ban on single-use plastics in the EU. Aiming to lead by example, SAP has introduced a new plan to phase out single-use plastics in its own operations as part of the latest update of its Global Environmental Policy.
In 2019, SAP and Google Cloud have partnered to cosponsor a sustainability contest for social entrepreneurs called Circular Economy 2030. Topolytics, the winner of this competition, uses technology to provide waste managers with transparency into generation, flow, and fate of industrial or municipal waste.
Topolytics addresses the increasing problem of transparency into available recyclable secondary feedstock as a basis for the next cycle of a resource. Due to very ambitious plastic strategies heavily dependent on recycled feedstock, the market for used plastic becomes increasingly competitive. Especially in emerging markets, collecting recyclable materials like plastic, but also valuable metals, has become an informal business ecosystem, sustaining many families of vulnerable waste pickers at the bottom of the pyramid. In cooperation with Plastics for Change, SAP Ariba solutions help businesses around the world procure with purpose by helping them transition to recycled plastic. In the process, they develop transparent, socially and environmentally responsible supply chains. This revolutionary approach stabilizes the price for precious raw materials for buyers and ensures reliable, potentially fair income for the waste pickers.
In September 2019, during the London Design Festival, SAP announced a new global marketplace for suppliers of recycled plastics and plastic alternatives. Using SAP Ariba solutions, this is to expand the trade of recycled plastics and plastic alternatives. This step signaled the next phase of SAP’s Plastics Cloud, a pilot program launched last year to help reduce and ultimately eliminate the waste of single-use plastics. The first phase of this program focused on collecting existing and live data from across the UK plastics supply chain to spark new ideas for waste reduction. Plastics Cloud enabled by Ariba Network will allow brands to connect more sustainably with new recycled plastics and alternative supply sources through waste picker communities.
Having frequently collaborated with industry partners to contribute to Goal 12, SAP has taken the next step and joined the Ellen MacArthur Foundation. The objective is to create new circular solutions that accelerate marketplaces for waste materials and enable more responsible production methods using advanced data. Together, we can provide waste management insights and ensure better consumer and citizen experiences.
In the food sector, consumers request transparency on the origin or the environmental and social footprint of products. Scantrust partners with SAP and has developed an integration to the material traceability option for SAP Logistics Business Network, giving food and beverage brand consumers the ability to track the end-to-end provenance of their food.
Another important aspect for consumers is the availability of products. This also affects the procurement of promotional goods: While understocking may leave customers disappointed, overstocking can result in environmentally damaging waste. In order to realize their vision of zero waste, Swiss supermarket chain Coop Group needs to reliably predict the demand of promotional goods. Using SAP Promotion Management application, Coop Group is able to reliably predict where and when said goods must arrive. Self-learning Artificial Intelligence improves their forecast with each new sale, allowing them to cut waste and enhance consumer experience.
As one of New Zealand’s largest and most thriving businesses, Foodstuffs knows the importance of being able to provide shoppers with what they’re looking for. To ensure that stores are always stocked, it is crucial for them to monitor the transportation of their goods from three different distributions centers on the South Island, using more than 115 trucks as well as third-party providers. For this purpose, they needed a central, integrated financials and transportation which is why they choose SAP Transportation Management application. The SAP solutions significantly improved the visibility and management of their transport activity, allowing them to speed up deliveries and make more efficient use of resources.
Johnson & Johnson is one company that has combined its procurement and sustainability practice so suppliers can help the company achieve its mission. The company requires procurement partners to adhere to its code of conduct and follow responsibility standards. Through its Supplier Diversity Program, it also opens doors for small and diverse suppliers, such as certified businesses owned by women, minorities, veterans, and disadvantaged people. For example, Johnson & Johnson buys office supplies from WildHearts Office through Ariba Network. As a Business for Good company, WildHearts is the UK’s leading social business and a member of Social Enterprise UK.
Another SAP customer that has successfully embedded the circular economy concept into its business is Mohawk, which recycles more than 6.6 billion plastic bottles each year to make its flooring products and thus is the largest recycler in the flooring industry. In addition, the business strives for zero-waste-to-landfill certification, which requires a plant to recycle or reuse 90% or more of its manufacturing process waste. To date, 48 Mohawk facilities have earned this certification. In 2018, Mohawk saved $4.3 million on landfill and haul-away costs, as well as the costs of treating and discharging water to public sewer systems.
For Temperpack, leveraging SAP technology is not only about improving lead times by 50%. The manufacturer of plant-based, widely recyclable cold-chain packaging is also working with SAP to track the sustainability of their materials and finished products. This ranges from raw material purchase, through production, to finished goods shipped, which includes tracing batches. The company, which was nominated for the SAP Innovation Awards 2020, now has the ability to calculate margins and profitability instantly, before confirming orders, while confidently calculating scope 1 and 2 carbon footprint and provide customers with estimates on the packaging they purchase.
The collaboration between Danone and SAP in Danone’s Dual Project to create both shareholder and societal value even made it to the finals of the SAP Innovation Awards 2020. This project identified various “planet stewardship” KPIs: 100% recyclable, reusable, or compostable packaging; 50% reintegrated and recyclable PET bottles; and reducing CO2 emissions by 50%. These KPIs can be embedded directly into the measurement and approval of CAPEX projects, ensuring investments are prioritized with the highest impact on the business and planet values
SAP too seeks to buy products and services from suppliers who meet high environmental and social standards. Such procurement practices help us create a positive impact and provide levers through which we can reduce our emissions. Working with suppliers who demonstrate a commitment to sustainability enables us to comply with the requirements of our own customers. That closes the loop. After all, the way to go is circular.