Waste, and how to reduce it, is a key concern for many businesses.
In the lifestyle and fashion sector, reduced customer spending and changing preferences means retailers are finishing 2022 with massive inventory gluts. Fluctuations in industrial production over recent years have left the automotive industry struggling to match inventory to demand. Meanwhile, in the chemicals sector, where supply chains are complex and ingredients often perishable, disruptions have increased the risk of product loss.
Digitalisation in logistics can be part of the solution. Digital supply chain management can offer businesses greater visibility and boost their ability to ensure the right products reach the right places at the right time. It can help simplify processes, improve reliability and efficiency, and equip businesses to respond effectively to disruptions. More advanced digitalisation could also help businesses identify trends and eventually better predict demand. This could allow businesses to make better decisions that in turn reduce waste – not just downstream, but also upstream. In other words, stopping the waste before it even starts.
In August 2022, a McKinsey survey found that 67% of companies use digital dashboards to improve end to end visibility. These companies were twice as likely as others to avoid supply chain disruptions. They can also scenario plan more effectively. Using this kind of technology has huge potential to improve resilience, increase efficiency and help reduce waste across industries, including automotive, chemicals and lifestyle. It also appeals to customers. According to IPSOS, 75% of global customers feel better about businesses that make changes to improve sustainability.
Future of the supply chain, for lifestyle and retail
Since the middle of 2022, fashion and lifestyle businesses have found themselves battling unprecedented levels of unsold inventory. In North America for example, Bloomberg reports that retailers’ inventories are as much as 65% higher than in 2021, while Latin American retailers are reporting inventory increases of over 40%. The trend has affected textile exports across Southeast Asia. In September 2022, they dropped 7.5% in Cambodia and 14% in Vietnam, DW reported.
The situation is a dramatic reversal of the strong consumer demand and inventory shortages that characterised 2021. Now, supply chain issues have eased, but rising living costs and economic uncertainty have pushed consumers to reduce their spending. Those that are still spending have drastically changed their pandemic-era shopping preferences – away from products to enjoy at home and towards experiences like dining and travel. To reduce excess stock levels, businesses will resort to heavy discounting. Much of the stock that cannot be sold will go to landfill.
The circumstances that brought about the current levels of unsold inventory are unprecedented. Though 2023 will not be entirely without supply chain challenges, many, including the latest Logistics Managers’ Index, are expecting the situation to improve. This creates an opportunity to capitalise on digital supply chain solutions to reduce waste in future. Digitalisation in logistics gives lifestyle and fashion businesses supply chain visibility at every stage. They can lead to more certainty around delivery and lead times and allow businesses to streamline the supply chain and remove friction. This equips the business to respond quickly to market changes and consumer demands. The greater the level of digitalisation, the more visibility a business has and the closer it gets to a forward-looking system that can identify and customer trends and demand. This means businesses can get to a point where they can adjust production to match demand and know what product to send where, boosting their ability to reduce waste from the beginning.
Digital supply chain solutions for the automotive industry
The automotive industry can also reduce waste through digitalisation in logistics. Since early 2022, global chip shortages and supply chain issues have plagued the industry. While automotive inventory levels globally are no longer as low as they were in 2021, few automakers are back to full production. S&P Global predicts the industry will struggle to meet demand well into 2023. Better digitalisation could improve end to end visibility, equipping businesses to identify inefficiencies at all stages of the supply chain and find the best solutions.
A survey by LNS Research identified manufacturing efficiency as the top operational priority for businesses across the automotive supply chain. Digitalisation in logistics can play a key role in meeting that goal, with the added benefit of reducing waste across the industry. By understanding what components will be delivered when and getting detailed information on disruptions and the options for responding, automotive businesses are equipped to make better decision on what to do when. They can shift production to whichever vehicle is best suited to current component supply levels. This allows them to work through component shortages and delivery delays and minimise the waste of components and resources.
Data is generated at all stages of the automotive supply chain. With digitalisation, this data can be collected, helping to identify trends and predict behaviours. Like with lifestyle and fashion, it could help the industry identify where demand is and will be, so manufacturing decisions can be taken to ensure inventory better aligns with consumers’ purchasing patterns.
Digital transformation in chemical logistics
The chemicals industry is also working to reduce waste. Chemical supply chains are among the most complex in the world. The industry is fragmented, raw materials and finished products often move between dozens of countries, and the products are subject to stringent regulation. Ensuring materials are where they need to be when they are needed is challenging and this is where waste can occur, especially when products are perishable.
According to a 2020 study by ARC Advisory Group, over 90% of chemical companies had sustainability initiatives in place and considered digital technologies key to progressing their efforts. Logichem spoke to over 100 heads of chemical supply chains in 2022, all of whom agreed that digitalisation was more important than ever. While they acknowledged the challenges of achieving consensus and integrating systems in their complex processes, they were united in understanding the potential to streamline.
Like in the automotive and lifestyle sectors, chemicals companies can use digital supply chain solutions to increase visibility and help reduce waste. It can help them better understand lead times for delivery, ensuring they can respond to disruptions and limit the impact on production lines. Longer term it can help them make the right production decisions. Importantly, they can also factor in special considerations for transporting dangerous and perishable chemicals.
The United Nations Environment Program estimates over 11 billion tonnes of waste are generated around the world every year. A digital transformation of supply chain logistics could be part of the solution to reducing this waste – whether it is in chemicals, lifestyle, automotive or other sectors.
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