7 Strategies for Building an AI-Enabled Sustainable Supply Chain
At a Glance
- 86% of grocery executives acknowledge the significant impact that AI is poised to have on inventory forecasting and optimization.
- 73% of grocery tech executives expect AI capabilities to be embedded in most, if not all, of the software within the next two years.
- 76% of grocers consider improving sustainability to be a C-level imperative, reflecting its strategic importance.
- Integrating AI into supply chain technology areas such as data-driven insights, energy management, circular economy, sustainable packaging, inventory management, supplier collaboration, and customer engagement is key to building an AI-infused sustainable supply chain.
- This article explores strategic areas for enhancing sustainability and increasing profitability by leveraging artificial intelligence.
Creating a sustainable supply chain involves building a platform that incorporates eco-friendly practices and innovative technologies at every stage including the development of AI-enabled sustainable supply chains. These practices include using less energy, reducing waste, using eco-friendly fuels, sourcing materials ethically, and improving transportation routes to reduce emissions. AI plays a pivotal role in this by providing data-driven insights and predictive analytics, enabling better decision-making and resource allocation across the entire supply chain. In supply chain sustainability, emissions can be categorized into three scopes.
- Scope 1 involves emissions from a grocer's direct operations
- Scope 2 encompasses emissions generated from purchased electricity and heat.
- Scope 3 incorporates emissions from upstream sources like agriculture and downstream sources such as consumption and waste.
To comprehensively address supply chain strategies and foster equitable practices, grocers must assess their contributions to scope 1, 2, and 3 emissions. McKinsey's analysis on decarbonizing grocery reveals that 7% of emissions come from scope 1 and 2 activities under grocers' control, while approximately 93% stem from external sources. To establish a sustainable supply chain, it's imperative to decarbonize specific supply chain operations for long-term environmental viability.
To reduce their carbon footprint and build sustainable supply chains, grocers should adopt the following strategies, including addressing the challenges in building a sustainable grocery supply chains:
Data-Driven Decision-Making - By utilizing AI, businesses can analyze data across different supply chain stages, enabling them to derive insights for informed decision-making. This drives process optimization, waste reduction, and increased efficiency. An integral part of this process involves conducting comprehensive supply chain audits, encompassing food sourcing, manufacturing, processing, distribution, retail, warehousing, transportation, and the end consumer. At each stage, data points are utilized to provide valuable insights, including the assessment of electricity usage, identification of cost-saving opportunities through system upgrades and distribution network optimization, fuel consumption optimization, and the efficient routing of logistics. Moreover, AI can pinpoint areas of machinery energy consumption that can be conserved and repurposed. This comprehensive approach empowers organizations to streamline operations, reduce environmental impact, and maximize resource utilization across the supply chain. AI-driven forecasting plays a proactive role in addressing these aspects.
Energy Management - Incorporate AI-driven energy management systems to oversee and control facility usage effectively. A substantial portion of energy consumption occurs within machinery operations, encompassing lighting, HVAC, and refrigeration systems. To enhance energy efficiency, consider implementing efficient refrigeration solutions, which can yield up to a 24% reduction in energy consumption compared to conventional practices. Display cases employed in grocery retail are particularly energy-intensive. Transparent plastic curtain strips can trap cool air within these cases while allowing customers to access and view products. Furthermore, deploying smart IoT sensors for real-time energy consumption monitoring empowers businesses to make well-informed decisions, particularly when leveraging AI and technology to predict equipment failures that can result in energy wastage and leaks. Additionally, consider integrating eco-friendly renewable energy sources like solar panels and wind turbines into larger facilities to harness energy from natural resources, thereby promoting sustainable operations.
Sustainable Supplier Collaboration - Strong collaboration with suppliers is essential in forging sustainable and ethical supply chains, aligning with UN SDG 17's partnership focus. Grocers can elevate supplier engagement through AI and data-driven insights, fostering environmental stewardship, ethical sourcing, waste reduction, and fair labor practices. AI platforms enable real-time data sharing, curbing overproduction and upholding sustainability principles.
Waste Management Opportunities - Waste reduction poses a significant challenge for grocers, mainly due to their involvement with perishable goods, resulting in short product life cycles that often lead to storing waste in landfills. To address this issue and identify cost-effective strategies for sustainability, it's crucial to track waste at every stage of the supply chain and establish connections with upcyclers and recyclers who can repurpose waste into mainstream products. This approach not only improves recycling rates but also reduces landfill waste. With the assistance of AI and technology platforms and companies offering integrated waste data management systems, grocers can collaborate and gain insights into their waste, enabling them to implement cost-saving measures and enhance recycling rates, aligning with the US EPR legislation mandate.
Circular Economy Design - Circular Economy Initiatives form the cornerstone of sustainable business practices, emphasizing the need to reduce waste and maximize the utility of products throughout their entire lifecycle. These forward-thinking initiatives involve developing systems that promote and facilitate circular economy practices.
An essential facet of these initiatives is the encouragement of product returns. Instead of discarding items when they are no longer needed or functional, the circular economy encourages consumers to return them for repair, refurbishment, or recycling. This approach not only prolongs the lifespan of products but also reduces the demand for new resources, contributing to a more sustainable future.
Repairs play a pivotal role in the circular economy. Rather than disposing of slightly damaged or malfunctioning items, the focus is fixing and refurbishing them. Here, AI technology becomes an invaluable ally by identifying issues and recommending efficient repair solutions, further extending the usefulness of products. Ultimately, circular economy initiatives aspire to create a closed-loop system. By developing mechanisms for reusing, refurbishing, and upcycling products, businesses can minimize waste and cater to environmentally conscious consumers who are more likely to remain loyal to brands committed to sustainable practices.
Sustainable Packaging - The Packaging design is a critical component of eco-conscious supply chains, aiming to minimize the environmental footprint associated with product packaging. According to Grocery Doppio’s ” Digital Grocery report for January 2023,” packaging improvement is one of the top 3 sustainability priorities for grocers in 2023. Recognizing the pivotal role that packaging plays in influencing consumer behavior and environmental sustainability, grocers are determined to address critical gaps in package design.
The integration of AI technology emerges as a transformative force in this endeavor, poised to revolutionize the landscape of packaging solutions. AI's contribution to sustainable packaging design is twofold: prioritizing recyclability and minimizing materials usage.
Firstly, AI-driven algorithms excel in designing inherently recyclable packaging solutions. They can analyze the properties of different materials, considering factors like biodegradability, ease of recycling, and environmental impact. Through this assessment, AI guides the generation of packaging designs that are intrinsically aligned with the principles of a circular economy.
Secondly, AI algorithms excel at optimizing materials usage. Traditional packaging design processes often rely on a trial-and-error approach, resulting in the overuse of materials or inefficient shapes and sizes. Conversely, AI can analyze data related to the product, its dimensions, and its protection requirements. It can then generate packaging designs that precisely fit these criteria, minimizing the use of excess materials while still providing adequate protection.
Using AI in sustainable packaging design is a significant step toward greener supply chains.
Inventory Forecasting and Logistics - With AI-powered algorithms, grocery retailers are poised to achieve precision in demand forecasting and inventory management. According to Digital Grocery Report for February 2023 by Grocery Doppio, a remarkable 86% of grocery executives acknowledge the impact AI is poised to have on inventory forecasting and optimization. This capacity translates into the assurance that products are consistently available precisely when they are needed, effectively preventing the necessity for excessive stockpiling practices that often lead to unnecessary wastage.
Concurrently, AI exerts its influence on routing and logistics, making inroads into optimizing these critical processes. AI algorithms calibrate for intelligent route optimization and the fine-tuning of delivery schedules, ultimately resulting in substantial fuel consumption and emissions reductions. This dual synergy between sustainability and AI is poised to reshape the landscape for grocers, as exemplified by insights from State of Digital Performance Scorecard from January 2023, which highlights that an impressive 76% of grocers consider improving sustainability to be a top-level goal for their organizations.
Customer Engagement - Technology facilitates direct engagement between businesses and consumers, enabling retailers to educate customers about sustainable choices, promote responsible consumption, and showcase eco-friendly initiatives. AI-powered platforms provide valuable information on product origins, environmental impact, and proper disposal, empowering consumers to make eco-conscious decisions.
Grocers should adopt strategies aimed at reducing their environmental impact by creating sustainable supply chains using AI-driven insights and fostering collaboration with suppliers to integrate sustainability initiatives. These actions can result in cost savings, improved profitability, and a more environmentally and financially sustainable grocery chain.