Optimise your outsourcing to achieve green goals
Written by: Jonathan Tapp, Head of Sustainability Services, Capgemini
What do we mean by ‘green outsourcing’? It is such a broad term. On one level outsourcing effectively reduces your energy consumption by transferring your IT processing to a third party. So long as that third party can process the same amount of work more efficiently, perhaps because they have more efficient data centres or can offer economies of scale in the use of their facilities, then the net amount of energy will reduce; your company wins but so does the environment.
But this is little different from shuffling the chairs on the Titanic as the net gains are usually small and to all intents and purposes, it is effectively just a reallocation of energy use.
Three steps to greener pastures
There are, however, other approaches to green outsourcing. First of all, if you are involved in the procurement of an outsourcing contract, ask for a carbon based business case as part of the exercise and ensure that any RFI or ITT includes questions that ensure your prospective partners truly are energy efficient. The business case will ensure that the energy implications of any proposal are properly thought through whilst the qualification questions will ensure your outsourcer really is efficient in everything it does. Ask for the outsourcer’s own published environmental targets and information as to how they are doing in achieving their aims.
Secondly, look at your own use of IT within the procurement function. It is not always practical or commercially possible to simply outsource all or part of your existing IT estate. What may be possible, though, is to use third party systems providing “Software as a Service” (SaaS) to extend your own capability into the monitoring, analysis and exploitation of the data you hold on your supply chain, thereby generating additional valuable intelligence without increasing your own foot print.
That intelligence can then be used to highlight the green (environmental) business risks that have an impact on your organisation; ‘green’ in this context applies to many aspects of the business. Your manufacturing might be exposed to constrained resources, such as minerals, as much as energy supply. How many CEOs these days plan a decade ahead but assume security of supply while in fact those rare earth minerals coming out of the Congo may simply not be available by then? Leading companies are now looking to their supply chains to highlight such risks.
Thirdly, remember that green is also not just about energy and resource supply. For example, water is becoming a key focus for many as companies realise too much can be as bad as too little! The business interruption caused by flooding can be every bit as disruptive when factories are shut as the consequences of drought can be on the availability of raw materials.
As a consequence of this change in awareness, many organisations now offer IT programs designed to help with the monitoring and analysis of supply chains that go beyond simple business intelligence. Typically such programs will allow you to define almost any business event as an emission source, hold all the commonly accepted conversion factors and most crucially, provide you with fully flexible reporting and a complete audit trail with which you may support your results. Such programs can be provided on a SaaS basis so you my annexe them onto your existing systems without the need for expensive IT investment or disruptive implementation phases.
What is also useful about these systems is that they will support other departments within the organisation. The finance team should be beginning to consider the implications of what they call Scope 3 reporting together with “Integrated Reporting”, where sustainability reporting is interwoven into standard financial accounting. Facilities and energy managers increasingly wish not just to read meters but also use their Building Management Systems as proper management tools. Any good carbon accounting system will provide a database to record, model, allocate and extrapolate all metered data, from energy to air quality. Those responsible for corporate and social responsibility reporting can use the same system to record charitable giving, either of time or money. What’s more, being SaaS, such systems can provide global analyses, underlining best practice and areas of weakness wherever they may occur.
Such systems can also help develop supplier relationships. One of the ways in which good environmental reporting systems work is a supplier questionnaire and the program will have the functionality to issue, manage and monitor these as well as collating the results. Given the relative ease of doing this, what leading companies may now be doing is issuing regular questionnaires to selected segments of the supplier base as a way of creating and developing intimacy with key suppliers.
Can you afford not to go green?
So, ask your colleagues. You may well be able to pool resources, giving each of you value for money and as the instigator of such an initiative, underline the key role you and colleagues can play. The clock is already ticking on sustainability reporting, money wasted through sub optimal procurement can never be recovered and if you can’t demonstrate best practice to your customers, they may not be customers for much longer.
NTT DATA Services, Remodelling Supply Chains for Resilience
Joey Dean, the man with the coolest name ever and Managing Director in the healthcare consulting practice for NTT DATA and is focused on delivering workplace transformation and enabling the future workforce for healthcare providers. Dean also leads client innovation programs to enhance service delivery and business outcomes for clients.
The pandemic has shifted priorities and created opportunities to do things differently, and companies are now looking to build more resilient supply chains, none needed more urgently than those within the healthcare system. Dean shares with us how he feels they can get there.
A Multi-Vendor Sourcing Approach
“Healthcare systems cannot afford delays in the supply chain when there are lives at stake. Healthcare procurement teams are looking at multi-vendor sourcing strategies, stockpiling more inventory, and ways to use data and AI to have a predictive view into the future and drive greater efficiency.
“The priority should be to shore up procurement channels and re-evaluate inventory management norms, i.e. stockpiling for assurance. Health systems should take the opportunity to renegotiate with their current vendors and broaden the supplier channel. Through those efforts, work with suppliers that have greater geographic diversity and transparency around manufacturing data, process, and continuity plans,” says Dean.
But here ensues the never-ending battle of domestic vs global supply chains. As I see it, domestic sourcing limits the high-risk exposure related to offshore sourcing— Canada’s issue with importing the vaccine is a good example of that. So, of course, I had to ask, for lifesaving products, is building domestic capabilities an option that is being considered?
“Domestic supply chains are sparse or have a high dependence on overseas centres for parts and raw materials. There are measures being discussed from a legislative perspective to drive more domestic sourcing, and there will need to be a concerted effort by Western countries through a mix of investments and financial incentives,” Dean explains.
Wielding Big Tech for Better Outcomes
So, that’s a long way off. In the meantime, leveraging technology is another way to mitigate the risks that lie within global supply chains while decreasing costs and improving quality. Dean expands on the potential of blockchain and AI in the industry.
“Blockchain is particularly interesting in creating more transparency and visibility across all supply chain activities. Organisations can create a decentralised record of all transactions to track assets from production to delivery or use by end-user. This increased supply chain transparency provides more visibility to both buyers and suppliers to resolve disputes and build more trusting relationships. Another benefit is that the validation of data is more efficient to prioritise time on the delivery of goods and services to reduce cost and improve quality.
“Artificial Intelligence and Machine Learning (AI/ML) is another area where there’s incredible value in processing massive amounts of data to aggregate and normalise the data to produce proactive recommendations on actions to improve the speed and cost-efficiency of the supply chain.”
Evolving Procurement Models
From asking more of suppliers to beefing up stocks, Dean believes procurement models should be remodelled to favour resilience, mitigate risk and ensure the needs of the customer are kept in view.
“The bottom line is that healthcare systems are expecting more from their suppliers. While transactional approaches focused solely on price and transactions have been the norm, collaborative relationships, where the buyer and supplier establish mutual objectives and outcomes, drives a trusting and transparent relationship. Healthcare systems are also looking to multi-vendor strategies to mitigate risk, so it is imperative for suppliers to stand out and embrace evolving procurement models.
“Healthcare systems are looking at partners that can establish domestic centres for supplies to mitigate the risks of having ‘all of their eggs’ in overseas locations. Suppliers should look to perform a strategic evaluation review that includes a distribution network analysis and distribution footprint review to understand cost, service, flexibility, and risks. Included in that strategy should be a “voice of the customer” assessment to understand current pain points and needs of customers.”
“Healthcare supply chain leaders are re-evaluating the Just In Time (JIT) model with supplies delivered on a regular basis. The approach does not require an investment in infrastructure but leaves organisations open to risk of disruption. Having domestic centres and warehousing from suppliers gives healthcare systems the ability to have inventory on hand without having to invest in their own infrastructure. Also, in the spirit of transparency, having predictive views into inventory levels can help enable better decision making from both sides.”
But, again, I had to ask, what about the risks and associated costs that come with higher inventory levels, such as expired product if there isn’t fast enough turnover, tying up cash flow, warehousing and inventory management costs?
“In the current supply chain environment, it is advisable for buyers to carry an in-house inventory on a just-in-time basis, while suppliers take a just-in-case approach, preserving capacity for surges, retaining safety stock, and building rapid replenishment channels for restock. But the risk of expired product is very real. This could be curbed with better data intelligence and improved technology that could forecast surges and predictively automate future supply needs. In this way, ordering would be more data-driven and rationalised to align with anticipated surges. Further adoption of data and intelligence and will be crucial for modernised buying in the new normal.
These are tough tasks, so I asked Dean to speak to some of the challenges. Luckily, he’s a patient guy with a lot to say.
On managing stakeholders and ensuring alignment on priorities and objectives, Dean says, “In order for managing stakeholders to stay aligned on priorities, they’ll need more transparency and collaborative win-win business relationships in which both healthcare systems and medical device manufacturers are equally committed to each other’s success. On the healthcare side, they need to understand where parts and products are manufactured to perform more predictive data and analytics for forecasting and planning efforts. And the manufacturers should offer more data transparency which will result in better planning and forecasting to navigate the ebbs and flows and enable better decision-making by healthcare systems.
Due to the sensitive nature of the information being requested, the effort to increase visibility is typically met with a lot of reluctance and push back. Dean essentially puts the onus back on suppliers to get with the times. “Traditionally, the relationships between buyers and suppliers are transactional, based only on the transaction between the two parties: what is the supplier providing, at what cost, and for what length of time. The relationship begins and ends there. The tide is shifting, and buyers expect more from their suppliers, especially given what the pandemic exposed around the fragility of the supply chain. The suppliers that get ahead of this will not only reap the benefits of improved relationships, but they will be able to take action on insights derived from greater visibility to manage risks more effectively.”
He offers a final tip. “A first step in enabling a supply chain data exchange is to make sure partners and buyers are aware of the conditions throughout the supply chain based on real-time data to enable predictive views into delays and disruptions. With well understand data sets, both parties can respond more effectively and work together when disruptions occur.”
As for where supply chain is heading, Dean says, “Moving forward, we’ll continue to see a shift toward Robotic Process Automation (RPA), Artificial Intelligence (AI), and advanced analytics to optimise the supply chain. The pandemic, as it has done in many other industries, will accelerate the move to digital, with the benefits of improving efficiency, visibility, and error rate. AI can consume enormous amounts of data to drive real-time pattern detection and mitigate risk from global disruptive events.”