Reducing cost and emissions at the same time: the green ratio

4 Minutes Read

The pressure to go green is mounting. With constant new regulations and consumer desires, an organisation’s supply chain is the biggest carbon emitter, so transitioning to greener and more sustainable supply chains is crucial. But making changes that reduce those emissions, can sometimes feel like an overwhelming project.

And, sometimes, commercial concerns can kill green initiatives. 

But those priorities don’t have to be at odds. There is a way to balance them through AI. Platforms like 7bridges can help companies strike the right balance between cost and carbon emissions. We call this balance the Green Ratio, the amount you spend compared to the amount you emit. This number is different for every company, so we decided to test it out through a simulation.

For the full results, check out the whitepaper here.

For this green simulation, we created a company representing an average European pharmaceutical company. This company was based on anonymised customer data paired with our global benchmarking data to make sure we got well-rounded results. Through this simulation, this is what we found:

Cost vs carbon optimisation

We looked at three different ways to plan this company’s supply chain: the lowest-cost strategy, the lowest-emissions strategy and the balanced cost-emissions strategy. For each of these, we discovered the percentages by which cost and emissions would either rise or fall. 

To see how these strategies perform, we used the company invoice data to create a baseline and measured change from there.

Lowest-cost strategy 

For the cost-focused strategy, we asked the platform to create the best case scenario if all we cared about was cutting costs down as much as possible. To do that, our platform suggested a multi-carrier approach to take advantage of the best rate cards for each carrier. 

Through this, we uncovered the opportunity for savings of £1.5m (23%) from the baseline. Although this is a significant saving, the needle didn’t move at all on emissions. Which means any decarbonisation initiatives would need to be left in the dirt. 

Lowest-emissions strategy

In this strategy, we asked the platform to focus solely on emissions reduction, no matter the cost. In this scenario, it was also able to cut down emissions by 23%, just by making changes to the company’s existing network and, again, maximising the use of a multi-carrier strategy.

Unfortunately, this strategy did see an impact on cost. To become as low emissions as possible without introducing technological changes, costs rose by 4%. Not an ideal turn out in a time of major cost cutting. This shows that many businesses can’t be in a place to focus purely on emissions reduction.

Balanced cost-emissions strategy

As a hope for finding the best path forward, we asked the platform to equally balance two priorities: lower costs and reducing emissions. Not all supply chain platforms can successfully prioritise both variables, but we use a more flexible approach (called constraints) compared to the more rigid standard (called rules). 

Using these constraints and the company data, our platform found that it is absolutely possible to balance both emissions and cost. In fact, it found the opportunity to reduce both by 19%. This represents most of what was possible for maximising either component and provides a clear path forward for hitting emissions targets while still providing considerable cost reduction.


Learn more - see how we uncovered these numbers in the 7bridges platform and download The Green Ratio: the optimal path to a sustainable supply chain

Primary emissions drivers 

As part of the simulation, we also looked at which parts of a supply chain create the biggest emissions impact. And what you might need to do to reduce them. For these, we looked strictly at the lowest-emissions strategy to see which factors in a supply chain really create the biggest change.

The platform identified 5 key factors— this is them from least to most impactful:

5. Expected service level - This one may not technically deserve its place in 5th, but it is here because it relies on driver route optimisation and so is more variable in its emissions impact. For many, it will be the lowest decarbonisation factor. But for others, it can make a huge difference.

4. Warehouse carbon footprint - The day-to-day running of your warehouse(s) could make a significant impact in the overall emissions of your supply chain. Making sure everything is running at its most efficient is key.

3. Operational efficiency of carriers - This one includes which vehicles are used and how efficiently they use them. To make changes here, you’ll need to explore the impact of each of your carriers, something you can do in the 7bridges platform’s AI simulations,

2. Distance travelled to final destination - The distance here is all about network management. Which warehouses will the package be going to? Does it make unnecessary journeys? For example, a factory in Asia to a warehouse in North America to a buyer in Australia. 

1. Consolidation and vehicle load - This could be the biggest change you make to your supply chain for emissions (before getting into any tech changes) and you can start implementing it right away.

According to 2019 Department for Transport figures, HGVs were running empty 29% of the time and vehicle load factor only averaged out at 61%. Finding the best way to consolidate shipments and loading your vehicles so that they run in the most eco-friendly way can make an enormous difference.

“HGVs were running empty 29% of the time and vehicle load factor only averaged out at 61%”

So what is the real impact of these different factors? We found that just switching to a multi-carrier strategy and using AI to help with decision-making could reduce this supply chain’s emissions by 23%. Then, if providers were to improve their emissions efficiency as well, the company’s emissions would drop by an additional 36%. 

That means that, by following the platform’s suggestions and working with your providers to make changes in their network, you could drop your emissions by 51%! Making those changes could take a company over halfway toward their net-zero goals before they even need to consider more advanced changes. 

This is just a taste of all the details that we found within our simulation, so if you want to know more or see how your business might compare to this average one, download the full paper here.

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