Making Supply Chains More Sustainable: A Conversation with Alexis Bateman
Flightpath host Joel Makower recently spoke with Alexis Bateman, former director of the Sustainable Supply Chain Lab at the Massachusetts Institute of Technology, to discuss how companies can make their supply chains more sustainable.
This excerpt from their Q&A examines pathways to making supply chains more sustainable. Please note that this transcript has been edited for length and clarity.
Joel Makower: I'm Joel Makower. We're talking about what will it take to make aviation sustainable with Alexis Bateman, former Director of the MIT Sustainable Supply Chain Lab. Hey, Alexis. So if you were to take a snapshot of supply chains globally right now, where would we be in that sustainability journey?
Alexis Bateman: We like to define sustainability as both social and environmental. So, the full spectrum of environmental issues, whether that be climate change, mitigation, natural resource and biodiversity conservation, water conservation, all those topics and how they interface, but then also the social dimensions of human rights protection, worker welfare and safety, diversity, equity and inclusion. And the reason we do that is that we think that the social and environmental issues really build upon each other and you really can't do one and not have unintended consequences on the other.
I'm an eternal optimist, so I think we're steadily on our way, but we're still at the bottom of the hill. I think there's two major hurdles. One of which is that the reality of what the impact of supply chains are has only become clear to most people in the last year. If you're a consumer, many didn't actually know what a supply chain was until they couldn't get their toilet paper.
And then the sustainability factor has the long history of [businesses thinking] I really only need to own the impact of my own operations. Why do I need to care what's happening upstream? But [now] realising that it really needs to work in concert to actually have any change -- I think that realisation is just coming in now.
There's a lot of definitional level-setting that needs to happen. Organisational design really needs to come to an agreement on what we're talking about when we're talking about the supply chain, and in the same sense with sustainability, are we just talking about climate change and emissions or are we talking about the whole scope? Sustainability for so long was this, in some cases, independent or siloed department telling everyone what to do, but now I think there's a greater diffusion into departments that can affect the most change.
JM: So why should a supply chain professional these days be thinking more about sustainability?
AB: There are many reasons that the supply chain professional should care, if they don't already. There are pressure sources that are being placed upon the supply chain. There are regulatory pressures for requirements of reducing your environmental and social impacts of your supply chain. Investors now have their eye on how supply chains operate and to what extent they're actually evaluating their social environmental impact and making changes to achieve that. There's, of course, the customers that are requesting more information about how you operate and how you're actually accounting for the impact and what are the reductions over time. And so there's actually a business imperative that you need to report on that to really be a preferred supplier.
There isn't an easy solution here. It's a challenging problem that we all have to overcome. But the good thing about that is that there's not a lot of work to be in competition with. It’s a clean slate. So you can start now and sometimes you can make your own rules. You can be the first mover. You can do things differently. There isn't a historical way of doing this. And maybe there's a history of certain initiatives or approaches, but certainly in logistics and freight movement and particularly for aviation, this is the start of something entirely new. Getting an early understanding of how to account for your impacts, how do you actually make those reductions, I think is an early mover [advantage] and it’s surely very strategic to be early in this space.
JM: You span those two functions, supply chain and sustainability. What's the one thing that you wish supply chain people knew about sustainability and sustainability people knew about supply chain?
AB: One is how to speak the same language, because I think sustainability [people] want everyone to go faster, they want it to happen now. We're way behind and they're trying to get movement, they want buy-in, they want things overnight. But I think that if we go back to the fundamental design of business, that's not really how those functions have been designed if you're in traditional supply chain. You're trying to meet timelines of level of service, you're trying to keep the costs down. You have these metrics you have designed in your role to meet and when someone's telling you, "Well, you have to put all those aside while we revamp the system," those are in conflict.
Whereas maybe if we think about efficiency in terms of sustainability, in terms of those fuel savings, how can we actually optimise for fuel savings for emissions savings? How can we upgrade our technology that's actually tracking more data? So, we know more if we can think about how those elements that are always seen keenly as supply-chain values versus sustainability values, they actually overlap a lot, but it takes a lot of work to get to that mutual understanding.
JM: So, let's talk about aviation, sustainability and supply chains. Tell us about how and where those three intersect.
AB: When you look at the whole system of things, air [cargo] does have very high emissions impact, but it also carries really high-value items despite only carrying a very small portion of the goods. So, looking at those three factors, we land on the criticality of aviation in supply chain. So, there won't be reduction of that use. And in fact, during COVID the need to air freight goods went way up because of the urgency for certain materials to arrive in a very short amount of time. The most clear and relevant and current example would be pharmaceuticals, in particular, high-imperative vaccines.
So, we're certainly in a time where we realise there is a time criticality to certain products: they are highly perishable, they are high-value for many reasons. And so we can't compromise on the timeline to deliver it to the customer, as opposed to other goods where we might be able to change the delivery time or the modes to fit our needs. Aviation is critical for certain sectors. So as far as we're examining sustainable supply chains, [we need to be] looking at hotspots in the supply chain where there can be change effected, in this case, aviation being one of them. And the transition to sustainable aviation fuels (SAF) is one solution of many to really reduce the overall impact.
JM: How much are shippers factoring in sustainability in general, or carbon intensity in particular, into their choices of how they ship things?
AB: Historically, I think not very much, but more recently that interest has gone up considerably. In terms of when they're picking their carriers and their mode choices and how they're actually transporting their goods, that decision in, I would say, the last two to three years has become far more top of mind. And that's the climate imperative, that's emerging regulation, that's pressure from customers and consumers.
JM: For companies that haven't yet made this shift, how does that usually begin? What are the effective ways those conversations start within companies?
AB: There's this understanding of what's material to the business and what has the highest impact. So, a first level-setting on how they can actually address those impacts. There's the internalization of the need to act. I think that conversation is happening in many businesses that it hasn't historically now. And there are so many issues ongoing and so many current pressing issues that companies do have to choose their own adventure in terms of where they see themselves having the most impact and what's most material to their business. I think that conversation has happened at all levels, but in terms of our research, we're finding that the change is most effective when it is owned and started at the C-suite level. In terms of how we're seeing the pressure and then that relationship with broad commitments within companies, that starts with executive ownership of sustainability and driving that across the business.
JM: Talk about some of the ways companies are already decarbonizing their supply chains.
AB: Once a company has decided to act, they have numerous choices to make in terms of how they're reducing the overall impact. Some of them are the low-hanging fruit, what they can do on their own operational efficiency, things that they can train their tier-one suppliers to do, understanding efficiencies that they can be making in terms of goods movement, in terms of operational factors. There are clear easy wins that are being tackled within sites around the world. I think those are occurring. There's this other choice on offsetting. If we want to reduce the impact in a certain way, I think carbon offsets are in the tool shed that many are using, [though] with some challenges around that. But I think more broadly we're investing in those bigger wins, those grand solutions and those moonshot solutions.
JM: What's the role of sustainable aviation fuel in all of this? How much of a difference can it make?
AB: I think it's a pretty significant impact and we know that because no one's going to stop using air to move goods. We need it for high-value, highly perishable goods reaching market on time. That's not going to go away. We have to understand that we're still working within the bounds of traditional supply chains that we need to move goods around in expedient way. And so sustainable aviation fuel being one solution of a suite of solutions and how we actually scale that and actually transition away from fossil fuel-based aviation fuel, can certainly be one key solution in reducing the overall emissions of aviation.
JM: We’re hearing a lot about carbon offsetting, but there’s this new thing called carbon insetting. Talk a little bit about what that is.
AB: So, carbon offsets would be accounting for the impact of your goods movement or whatever level of unit of impact you're trying to mitigate, and purchasing the environmental attributes of a project in another part of the world to mitigate the impact of your industrial emissions. The new approach that is becoming more common is a carbon inset. It's been around for a decade-plus and different players have sought to refine what that is. Instead of purchasing those offsets in other parts of the world, we’d be insetting that within the actual production of SAF and the use of SAF in the supply chain. That keeps that investment value that would be historically used for projects outside of the industry, whether that be a reforestation project or other project that would have that carbon mitigation impact, to actually invest it into the industry.
JM: What would carbon insetting look like for the aviation industry?
AB: That is the question that we're working to refine, which is sustainable aviation fuel is one solution to reduce the overall impact of aviation, but certainly right now it's not really economically viable nor has really a great pathway for scaling. And so how can we use the value for something that we might have bought carbon offsets for, where that would be going to some other exercise in another part of the world, how can we use that investment and reinvest it to actually pay for the premium of SAF? That would be taking that investment and putting it back into the value chain of SAF and reinvesting into scaling sustainable aviation fuel. What we are looking into is to actually, how do we account for those environmental attributes? How do we share those across the value chain? And how are we going to report on those publicly to actually show that inset as a process of reducing the impact of aviation, but also scaling SAF in terms of reinvesting and being a bigger portion of the fuel supply chain? That is actually the process we have ongoing … to really put that more solidly out there as a tool and a mechanism for companies to be able to use SAF and account for [insets] in their overall carbon reduction SAF strategy.
JM: When it comes to decarbonizing logistics, who needs to be at the table that may not yet be at the table?
AB: This is where there are opportunities for third-party players like academia, MIT, or Smart Freight Center, to really push the bounds of how do we account for that? How do we report for that? How do we define an inset so that it is verifiable, it holds up to the scrutiny of this as a tool for transportation de-carbonization?
JM: What does this mean for logistics service providers? Will they soon be competing on sustainability?
AB: I would like to think so. And I think that it is happening that when there are multiple parties competing for the same bid for the same business and they have similar efficiencies, they have similar cost, or they have similar attributes that were historically procured upon. There's a differentiator to be had if they can show that they have a more carbon-efficient supply chain, or network approach, or provision of transportation relative to their peers, that they would be that preferred logistics service provider. So I think that in a busy marketplace and when you're competing, that that can be a differentiator particularly as there's a greater requirement from shippers to really understand what does their logistics network look like? What is the overall impact? How can we account for it? How can we show a reduction over in time?
JM: It's an incredibly complex puzzle putting together. And yet you talk about how optimistic you are. What gives you optimism?
AB: In the last few years, people are looking us up and calling us up, and saying, "Help us answer the hard problems," whereas historically, they didn't even want to talk about it. So that optimism that I've had over time is just continuing on that trajectory, because there are people ready to tackle the hard challenges whereas they were afraid to ask the questions a decade ago.
JM: Thank you, Alexis.
AB: Thank you, Joel.
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