Businesses Need to Focus on Not Getting Left Behind
Have you ever heard of Project Gigaton? It’s the codename for Walmart’s initiative to eliminate one billion metric tons (or one gigaton) of greenhouse emissions from within the global value chain by 2030. To date, more than 2,300 suppliers have formally signed on, and Walmart celebrates these suppliers via their partner recognition hub.
In their latest update, Walmart reported that the company avoided 186 million metric tons of emissions in fiscal year 2021, which falls under the 416 million metric tons estimated to have been cumulatively eliminated thanks to Project Gigaton. In this way, Walmart is helping build a structure of accountability among their global supplier community – and throughout the greater global business ecosystem as a whole.
All of this points to a marked shift in business-to-business networks, particularly with regards to transportation. As more and more companies take steps to both measure and reduce their carbon impact, smaller businesses, particularly suppliers, will have little choice but to comply. This is creating a new normal for the business world, not unlike the advent of on-time in-full (OTIF) that occurred several years ago. In other words, the more companies join, the harder it will be for those that remain to continue to lag behind.
Walmart isn’t the only business titan working to establish climate stewardship as the new status quo. In 2019, Amazon helped establish “The Climate Pledge,” which seeks to make net-zero a reality by 2040. In the few short years it’s been around, the number of companies to join has grown to over 200.
BlackRock, the world’s largest asset manager, has also taken a strong position on climate change, influencing portfolio companies to green their business and scaling back the representation of companies it deems a climate risk from their actively managed funds. In 2019 the company published a study on the risks climate change represents to the global financial market and world infrastructure.
Taken together, this growing global emphasis on sustainability bears a strong resemblance to the momentum surrounding the shift toward OTIF that began in 2017. Both of these developments represented a fundamental change in the way business is done in the supply chain industry, and both began with the actions of just one or two business entities who hold a disproportionate level of influence in the market.
When on-time in-full, or OTIF, first appeared on the table in 2017, everyone knew that it was going to transform the way business is done. Driven by the need for more streamlined activities in the yard (which was itself driven by the need to compete with Amazon), Walmart began requiring their suppliers to meet stricter delivery windows under penalty of heavy fines. Critically, these fines would be levied not only when a shipment arrived late, but when it arrived early as well.
The logic was that in order to have smooth operations at the store level, bottlenecks had to be prevented in the yard. Just as a truck arriving late siphons resources away from shipments who made their scheduled appointments, excessively early arrivals disrupt the shipments that are already there. Similarly, having a truck arrive carrying only a part of a single order made issues like shrinkage, loss, and misplaced orders considerably more likely. By mandating that shipments arrive all at once and stick to a tighter delivery window, Walmart was cutting out one of the most common causes of delay from its supply chain, right at its source.
OTIF is now widely used throughout the supply chain industry, due in large part to Walmart’s disproportionate influence within the industry. Its new, stricter delivery requirements meant that suppliers and their transportation partners had to monitor their shipments much more closely, or else face substantial fines – which could easily reach into the seven- and eight-figure range in heavily product-centric verticals. Moreover, the inability to comply with the new requirements was a ticket to the shortlist when the time came to reevaluate partnerships. Because Walmart is an account few companies are prepared to lose, this seemingly small and innocuous change ultimately precipitated a fundamental shift in the supply chain industry.
Now, we’re seeing this same pattern play out with sustainability efforts. As McKinsey analysts wrote in a recent piece, “The purchasing power held by consumer companies and retailers gives them significant influence over their suppliers’ business practices.” In other words, while companies can eliminate some amount of carbon from within their own supply chains, they also must consider the greater supply network’s environmental impacts. More and more often, those companies who use their influence to encourage those suppliers to reduce their carbon footprints can entrench sustainability much more deeply within the fabric of the organization.
The Carbon Disclosure Project, or CDP, is another leading indicator of this shift in market momentum. Between 2010 and 2015, membership in CDP’s supply-chain program rose 30 percent. Though that number was then still fewer than 100 companies, the number of suppliers represented increased fourfold, from 1,000 to more than 4,000. In this way, even smaller and mid-sized companies are able to exert a disproportionate impact via the supply chain. In this case, the CDP supply-chain collaboration has led to a reduction in carbon emissions of more than 3.5 million tons, with suppliers saving an average of $1.3 million per emissions-reduction initiative.
The lesson to be learned here is this: Even though a relatively tiny cohort of companies drove the switch to OTIF , those companies’ supply chain footprints are so large that the change impacted nearly every company in the industry. Before long, nearly everyone was prioritizing OTIF, because nearly everyone deals with either one of these companies directly, or with someone only one layer removed. Through it all, the message is loud and clear: If you want to do business with the world’s largest businesses, you need to prioritize sustainability. The alternative, at this point, is to get left behind.
At FourKites’ 2022 Global Supply Chain Sustainability Summit, Stanton Thomas, SVP Sustainability Solutions at o9 Solutions said, “Transformation cannot be accomplished by individual companies acting alone. Sharing data, collaboration, cooperation and co-investment are required for achieving sustainability.” Learn more about how FourKites can help you track the right data and collaborate with your network.
