Manufacturing most of our everyday use products is a complex process involving not just the manufacturers, but a host of downstream suppliers and other service providers such as utilities (water and electricity), etc.
For example, a typical car consists of more than 30,000 parts, if we break it down to the last nut and bolt that go into one. An overwhelming majority of these (by volume, if not value) are made outside an automobile factory, of course under the strict supervision of the car manufacturer to ensure they meet the desired quality standards.
The production of cement is also a product of a complex and technologically-sophisticated manufacturing process. For long, the primary objectives of managing the supply chain, be it cars or cement, was mostly about operational efficiency, and quality.
Over the last decade or so, the mainstreaming of sustainability has added a new dimension to efforts in creating a different kind of supply chain that is not only green, but also economically-feasible for all stakeholders.
The challenges in creating a sustainable green supply chain can be grouped into three broad categories: operational/economic, technological, and awareness. Sustainability measures can involve large initial investments that can be recovered in the mid to long term.
For example, switching from carbon-based energy sources such as coal and gas to renewable energy will need a large investment in new solar plants that will involve big investment initially but will bring down the unit cost of energy once it goes into operations. This can be particularly challenging when large manufacturers expect downstream suppliers to invest in clean energy sources too, where the burden of initial capital cost is felt even more.
Similarly, large manufacturers who wish to create a global supply chain to reduce the unit cost of inputs will have to consider the hidden cost of human capital. Manufacturers have come under intense scrutiny when downstream suppliers from low-wage cost economies fail to meet higher standards in working condition etc. This can be seen in sectors such as apparels/textiles, hardware, etc.
Similarly, shifting to more sustainable manufacturing processes will involve massive investment in R&D and innovation that will ultimately drive up the unit cost of the product. We are already seeing this in green cement that comes at a higher price tag as compared to conventional cement or OPC (Ordinary Portland Cement). However, when the demand for such products picks momentum in the long run, the unit cost will start to drop, though it may take some time for this to happen.
Creating a sustainable supply chain can also involve technology investment in downstream suppliers, which not only involves large capital allocation, but also risks associated with technology transfers, particularly in geographies where strict adherence to IPR is not a norm.
Creating an end-to-end green supply chain involves persistent and patient advocacy in order to raise awareness not only among downstream suppliers but also end-consumers. This is not an easy task, but the reward of such efforts can be substantial. We are already seeing this happening across core sectors like energy, cement, steel, etc. Large manufacturers, suppliers, and consumers have to work in tandem to ensure that sustainability principles are applied across the value chain to ensure the gains are real.
The intent and action to create a green supply chain is gaining a lot of momentum in the last few years. Many large corporations with global footprint and national economies are getting more serious about their Net Zero goals. We can expect many of them to meet their targets over the next two to three decades. But as the proverb goes, a chain is only as strong as its weakest link. Without the willing and active participation of every constituent in the supply chain it will remain a moving target.
Neeraj Akhoury is CEO, India Holcim, and Managing Director & CEO, Ambuja Cements Ltd. Views are personal and do not represent the stand of this publication.
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