Supply Chain “Bullwhip Effect”: Why Sustainability Is The New Digital
Entering The Circular Economy In The Sustainability Revolution
A cowboy need simply move his wrist a few inches to send his bullwhip flying several feet through the air. In like manner, the “bullwhip effect” is a distribution channel phenomenon that describes how a small shift in demand can cause an amplified distortion as multiple tiers in the supply chain respond wildly with increasing upward inventory swings.
For example, when there is a sudden increased order of 100 packs of toilet paper by a customer, the bullwhip effect flows up the supply chain with amplified demand forecasting errors — from the retailer to the distributor to the manufacturer, right through to the raw materials supplier. All buffering their inventory with “safety stocks”.
Supply Chain Whiplash
The storm continues to surge as global supply chain (GSC) suffers a whiplash due to government-imposed containment measures during the pandemic.
Turkeys are crying fowl. Chickens are no longer sitting ducks on supermarket shelves. Consumers are jostling for bicycles and snapping up work-from-home devices. With images of empty store shelves that trigger panic buying and hoarding, the bullwhip effect is the crack of a whip that makes businesses with complex supply chains most vulnerable to shortages of inputs from suppliers facing pandemic-induced factory closures, slow production capacity and delayed shipments.
A Circular Economy
The broken supply chain leads us to understand how the bullwhip effect is a driver for sustainability. In the midst of goods being snapped up from shelves, energy prices rocketing, and consumer prices reeling, we need to shift from a linear economy (take, make, waste) to be a circular economy: by creating a regenerative system of production-and-consumption model achieved through long-lasting design, maintenance, repair, reuse, remanufacturing, refurbishing, recycling, and upcycling.
Circular Economy: Resource input and waste, emission, and energy leakage are minimised by slowing, closing, and narrowing energy and material loops.
Dual Interconnected Revolutions: Digital and Sustainability
Both digital and sustainability are interconnected revolutions and key driving forces in societal transformation. Like the digital revolution before it, the sustainability revolution will force businesses to be disrupted as consumers are transitioning to sustainable choices like electric cars, energy-saving devices and plant-based burgers.
Companies that approach sustainability can find opportunities to extract new sources of value at the intersection of digital technologies and sustainability. Accenture’s recent global research study found that such companies, called “Twin Transformers” are 2.5X more likely to be among tomorrow’s strongest-performing businesses.
Unilever’s Sustainable Living Brands portfolio which includes Dove, Hallmann’s and Domestos communicate a strong social purpose of halving its environmental footprint. In 2019, Unilever’s purpose-led Sustainable Living Brands grew 69% faster than the rest of the business and delivered 75% of the company’s growth. Rebecca Marmot, Chief Sustainability Officer, explained, “We have avoided over €1 billion in costs, by improving water and energy efficiency in our factories, and using less material and producing less waste.”
Twin Transformation Strategy For Brands
Accenture has identified the strategic steps towards executing a successful Twin Transformation combining the digital and sustainability connect:
- Create business models driven by sustainability and enabled by technology
- Combine resources to scale technology applications to sustainable practices
- Align partners/suppliers for sustainable product lifecycles
- Lead, empower and nurture talent
3 Sustainability Disruption Brands
A 2018 Nielsen study found sustainability-linked consumer products now grow nearly six times faster than other brands. 73% of global consumers are willing to change their consumption habits to reduce environmental impact. Sustainability-friendly projects and companies are attracting a lower cost of capital. Here are three brands committed to sustainability for social positives:
1. DIG — a community of chefs, farmers, creatives, activists and innovator rebuilds the food system using whole stem-to-leaf vegetables, investing in the future of farming, making the most with “ugly vegetables” to reduce food waste and, mindful sourcing of ingredients.
2. Sunrun — A leading home solar, battery storage and energy services company committed to creating a planet run by the sun, providing clean energy with little or no upfront costs for customers and using smart inverter technology.
3. Anheuser-Busch — From seed to sip, the great beer company brews, packages, transports and delivers 100 over brands in the most sustainable ways possible by reducing water usage, using more recycled packaging content and reducing carbon emissions.
Circular Economies — The Strategy For Brands
With the climate crisis, spiralling energy prices and dysfunctional supply chains, we need to do business in ways that support human life: Rethink operations. Reinvent products. Dematerialise by doing more with less. Simplify our product cycles. Shift consumers towards better (not more) consumption.
By leveraging digital enablement (big data, artificial intelligence, or the internet of things) with leadership in sustainability, businesses that reinvent themselves along circular economy principles will thrive. Eventually, making leaps that force those who do not make the transition out of the market.