Dry goods: how to make the supply chain sustainable? Here is a dairy case

Source / CSCMP (ID: cscmpchinaroundtable)

Author / Gao Min

In the past few years, sustainability has become an increasingly urgent issue in the supply chain. At present, any company should be responsible for the impact on the environment. Therefore, rethinking and re planning the company's activities from a sustainable perspective has become the company's social responsibility rather than a subjective choice.

In the current supply chain implementation and process, sustainability has become a reference for all business decisions including the environment. This area is often called SSC sustainable supply chain. Transparency and sustainability are the key objectives and basic components of sustainable supply chain.

This new direction brings companies the dual advantages of allowing them to build and manage a sustainable, efficient and responsive supply chain according to customer requirements, and ensuring that the supply chain network is flexible.

With the rapid development of sustainable strategy under the guidance of market, ISO14001 international standard, EMAS ecological management system and gri 4.1 international certification and other institutions have defined and applied many international and national standards to measure the level of sustainable development in just a few years.

01

The role of simulation in sustainable supply chain

The rapid change of business environment urges enterprise managers to carry out industry research to consolidate the market. For example, changes in sustainability and corporate social responsibility have increased the complexity of corporate systems and corporate strategic environment. Simulation provides a new digital method to solve the challenge of sustainable supply chain construction.

Simulation is different from traditional analysis tools and methods such as ordinary calculation and linear programming. The dynamics of simulation creates better conditions for supply chain network design, analysis and optimization. Through the continuous implementation of the model, under the supply chain network logic set by the supply chain simulation model, each element in the supply chain network will be dynamically modified and continuously supplemented. Based on this, the supply chain simulation system can obtain more detailed, clear, in-depth and specific strategies.

When applying supply chain simulation technology, it is necessary to introduce the dual consideration of past performance indicators and new objectives for sustainable development. The simulation uses different variables to model the reality according to the ideal goal. Specifically, the purpose of simulation is to describe the performance and interaction of supply chain variables over time, so as to deeply understand the causal relationship between variables.

For example, the following scenarios can be effectively applied in the field of sustainable development:

Production: design and implement new production modes according to the principle of circular economy, such as reducing the consumption of raw materials, reusing waste, using alternative materials with less impact on the environment, etc;

Inventory: adjust the inventory strategy, make use of inventory replenishment parameters, optimize the utilization of transportation resources, and consider the cost and emission of loading and unloading process;

Transportation: determine the optimal transportation volume, transportation route and transportation mode to achieve the minimum carbon emission;

Distribution: build a distribution network to improve the sustainability of the supply chain environment.

Using simulation to analyze the environmental sustainability of supply chain has several advantages, including:

The introduced variables can fully show the complex and changeable actual situation, so it can better describe the business scenario;

Through the joint construction of multiple parties without models in the decision-making process, we can deeply analyze the risk and opportunity points under each node, and modify or re introduce the parameters;

Under the established background, provide the best solution of "point-to-point" through the optimization of relevant parameters;

Grasp the business performance related to the supply chain and build a supply chain network node monitoring system.

02

Brief introduction of case study on sustainable development of dairy industry

In Italy, the food industry, including agriculture, catering and retail, is an important economic industry, with an annual GDP of more than 500 billion euros. At the same time, it is also one of the industries with the most serious environmental pollution in Italy. It is estimated that a quarter of Italy's domestic carbon emissions come from the food industry, while half of the carbon emissions in the food industry come from meat related industries. In addition, agricultural behavior also raises other environmental problems:

Soil erosion and erosion (caused by mechanized farming and monoculture);

Water pollution (due to the use of pesticides and fertilizers, as well as inefficient farming and grazing);

Food waste and loss: according to the statistics of the international food and Agriculture Organization, the global food loss rate in 2019 was 14%, which caused serious environmental, economic, social and ethical consequences.

As the European Commission has actively demonstrated through the launch of the farm to table (F2F) strategy, it is necessary to take action to improve the sustainability of the food industry. The goal of the strategy from farm to table is to build the food industry in the eurozone into a model of global sustainable development. By emphasizing the importance of the company's business strategy and demonstrating the importance of supply chain sustainability, the company's sustainability can be improved.

This case study focuses on the yogurt industry. Since 2020, the industry has paid more and more attention to sustainable development, mainly focusing on the recycling of packaging.

03

Methodology for improving supply chain sustainability

The method used in this case study is based on the actual research and objectives. The objectives are the necessary premise for building the initial scene and optimizing the scene or parameters in the subsequent improvement. The scenario is built by the supply chain simulation software anylogistix.

Anylogistix provides a variety of solutions to build a sustainable supply chain model. The parameters applied in this case are:

Distribution of customer needs and facilities (suppliers, factories and warehouses) in Italy;

Mainstream production and inventory strategy of yogurt supply chain;

Supply, distribution and transportation logic;

Analysis of supply chain profit and loss;

Environmental parameters of each node, such as resource consumption (water and energy) and harmful emissions (in kilograms of carbon dioxide equivalent).

On this basis, the model strategy focuses on analyzing the impact of changing the materials of basic and secondary packaging, and implementing production changes to reduce the consumption of energy, water and raw materials.

The optimization strategy of this model may not be applicable worldwide, and any development strategy is different in all enterprises. In the development of sustainable supply chain, we should consider all aspects of the enterprise, so it is obviously the most suitable to use simulation for analysis.

The purpose of this paper is to describe or explain the role of supply chain simulation in an exploratory way. The strategies and methods used in the simulation can be used repeatedly in the same type of problems, but they need to be adjusted according to different organizational divisions and objectives.

04

Case study: yogurt supply chain

The supply chain model in this case study is based on the actual situation of Italian dairy enterprises.

The main features of this model are:

At the upstream of the production chain, there are two suppliers: one supplies raw materials (milk and milk powder) for the production of yogurt, the second supplies materials for basic packaging (cans), secondary packaging (cartons / pallets), and tertiary packaging (plastic film for stacking);

There are six distribution centers in Italy. Factory suppliers deliver goods to the distribution center;

Downstream of the supply chain, end customers (retailers) receive packaged yogurt and sell it on the shelves;

There is also a processing station for processing expired or no longer sold products;

In this context, the best freight route and transportation mode are obtained.

In this supply chain model, the main optimized sustainable development problems are:

Waste in yogurt production accounts for 6.4% of the total output, and overdue yogurt in the supply chain accounts for 0.3% of the total output;

High water and energy consumption in the whole supply chain;

In the production process, high carbon emissions are generated due to the use of packaging materials that have a great impact on the environment.

Supply chain sustainability opportunities:

Establish a combined cycle thermal power plant to improve energy efficiency and reduce energy used in production;

Paper cans or glass cans are used as the basic packaging materials to replace plastic cans, and both alternatives take into account the procurement strategy under flexible production;

Replace the secondary packaging, replace the original cardboard tray containing three packs of finished yogurt with a cardboard box containing six packs of finished yogurt; At the same time, the procurement strategy under flexible production is considered;

In the third packaging, glue spraying is used to fix the carton on the tray, completely replacing the plastic film;

Adjust the inventory strategy, reduce warehouse inventory, improve the storage concentration of production plants and reduce the days in stock.

Finally, after the completion of the simulation process with 5-year simulation cycle under different strategies and parameters, observe and analyze the impact of each strategy on the overall contribution over time. Specifically, the annual order of action of these strategies is as follows:

Year 1: upgrade the secondary and tertiary packaging;

The second year: change the basic packaging (only replace with paper cans);

The third year: none (monitor the achievement of results in the past two years);

The fourth year: Construction of combined cycle thermal power plant;

The fifth year: inventory strategy adjustment.

The analysis of individual scenarios emphasizes the improvement of environmental performance brought by the implementation of the above strategies.

The research on sustainable supply chain has made the following important findings:

The construction of combined cycle thermal power plant can reduce the energy consumption by about 30%;

With the use of paper can packaging, the carbon emissions of packaging suppliers' water and other energy and production suppliers are significantly reduced; And considering the flexible production, the shipment volume of supply and transportation decreases by 15% when meeting the demand;

The change of secondary packaging reduces the supply chain loss by nearly 50%, and the plastic is no longer used for the third packaging due to the use of glue;

The adjustment of inventory strategy significantly reduces the inventory of the whole supply chain, resulting in nearly 50% reduction of product loss in the supply chain;

Each strategy applied separately can significantly improve performance and establish a more sustainable supply chain. The gradual implementation of the above strategy within five years can minimize carbon dioxide emissions, water and energy consumption.

After continuous improvement, the comprehensive indicator linking total emissions to profitability fell by 20% in the fifth year. The achievement of the results benefits from the production related emission reduction of manufacturers and packaging suppliers, as well as the dynamic optimization of demand.

Achieving Supply Chain Sustainability:

The above research shows that the sustainable development of enterprises can be improved without large-scale projects. Even the introduction of light planning for sustainable development in the formulation of strategies can bring satisfactory results under the development of medium and long-term cycles.

As shown in different scenarios in the simulation, the key requirement for success is to coordinate the company's strategy and sustainable development goals. When the enterprise strategy and sustainability vision are consistent, improving one or more KPIs about sustainability, such as reducing carbon dioxide level or energy sources required in the process, can bring a wide range of benefits.

The simulation model of sustainable development of supply chain can be found and the corresponding benefits can be obtained. The simulation model is used to accurately emphasize the interaction of sustainable development in strategy and the whole supply chain. And because strategic decisions may also have potential impact outside the areas of concern, it is important to adopt systematic supply chain improvement and change.

Source / CSCMP (ID: cscmpchinaroundtable)

Author / Gao Min