How can Grocers use AI and Tech to Create a Sustainable Green Supply Chain

Neha Ghai
September 13, 2023
supplychain-ai-environmentally sustainable

At a Glance

  • 76% of grocers have elevated sustainability to a C-level priority in 2023
  • 86% of grocers recognize AI embedded applications particularly in inventory management and forecasting as key to reducing waste and enhancing supply chain
  • 71% of grocers see ChatGPT models as a primary use case for store associate tools.
  • 83% of grocers prioritize pricing optimization to achieve balance
  • Changing consumer preferences, driven by the appeal of contactless transactions, are reshaping the grocery landscape
  • Sustainability concerns are further propelling the shift towards services like home delivery and curbside pickup.
  • Grocers are innovating to address labor shortages and optimize pricing building towards a sustainable AI-integrated supply chain

As industries navigate the challenges posed by digital advancements and a firm dedication to ecological values, the requirement for a sustainable supply chain becomes essential. In this ever-changing landscape, the present era calls for an eco-friendly supply chain, emphasizing the importance of collaboration among retailers, suppliers, and buyers.

The Digital Grocery Performance Scorecard in January 2023 reveals that 76% of grocers consider sustainability a C-level objective for their organizations. This finding underscores a vital link between companies' sustainability goals and adopting a supply chain approach that prioritizes environmental consciousness.

This article is the first in the series which delves into the essential constituents of a grocery supply chain that holds the potential to evolve into an environmentally sustainable entity amidst the backdrop of digital disruptions and changing consumer attitudes. It's a landscape where technology and generative AI collaboratively reshape the grocer's supply chain towards environmental sustainability. 

Essential Elements of the Supply Chain Ecosystem 

This article explores the supply chain cycle from inception to disposal, helping grocers understand ongoing challenges while meticulously examining each aspect. The aim is to simplify concepts and provide valuable insights through evolving frameworks and strategies. This empowers grocers to adopt approaches that create a sustainable supply chain, reducing environmental impact. In forthcoming articles, we will delve into specific strategies, explain their benefits, and address challenges. This enables grocers to navigate and tailor the best strategy for their unique needs and goals.

Sourcing/ Processing - At its essence, sourcing is the foundational step for grocers to embark upon. This can involve direct collaboration with farmers or engagement with distribution centers to acquire diverse fresh produce, including fruits, vegetables, and spices. Additionally, the journey includes meeting with manufacturer’s responsible for crafting the food products that will either become essential ingredients in recipes or be carefully packaged for consumers' convenience.

Manufacturing - The manufacturer/producer’s role is multifaceted within this context, encompassing both the cultivation and packaging of food under their brand label and the creation of diverse food products. This can involve the utilization of ingredients to produce various offerings. Sometimes, the functions of a food processor and food manufacturer meld into a single entity, a strategic choice by many prominent brands. This integrated approach enables overseeing the manufacturing of their food, streamlining processes, cutting down on time and expenses, and eliminating the need for intermediaries.

Various technologies are employed during the production or manufacturing phase, some of which release carbon emissions into the atmosphere. While some processes are labor-intensive, others generate substantial waste as products are manufactured. This stage also constitutes a significant source of energy consumption, making energy efficiency a pivotal concern to minimize overall consumption.

Distribution/Transportation - With the global population currently standing at 8 billion and projected to continue growing, there is a corresponding increase in consumer demand. This surge in demand, coupled with the transportation of billions of metric tons of goods via roads, skies, rails, and seas, positions the transportation sector as a substantial contributor to greenhouse gas emissions. A notable challenge in this scenario is the inefficient use of freight vehicles, resulting in fuel wastage. The issue is further compounded by vehicles returning empty, compounding the inefficiency. Addressing this challenge necessitates strategically optimizing freight transportation routes and logistics. Route optimization tactics and the seamless integration of cutting-edge transportation technologies are central to these strategies.

Responsible Consumption - Fostering informed decision-making among consumers, the ecosystem promotes shifts in consumer behavior, characterized by a preference for contactless transactions and a heightened emphasis on sustainability. Responsible consumption also encompasses the imperative of minimizing food wastage. Grocers can adopt various measures to curtail food waste within their supply chain, such as enhanced inventory management, surplus food donation, and repurposing of unsold items. Grocers are significant in advancing responsible consumption by enlightening their customers about sustainable choices. This effort could encompass product labeling to convey environmental impact, guidance on portion control to mitigate food waste, and promoting items with lower carbon footprints.

Disposable Practices - Waste management practices and recycling play pivotal roles within the supply chain ecosystem, contributing to sustainability and resource conservation goals. Embracing a circular economy mindset, these practices aim to disrupt disposable norms by fostering product durability, repairability, and recyclability. In contrast to the linear "take, make, dispose" model, waste management strategies within the circular economy framework emphasize the recovery and repurposing of materials. This shift entails meticulous sorting, separation, and processing of waste streams, enabling the retrieval of valuable resources that would otherwise end up in landfills.

Drivers of Change in the paradigm of the Supply chain ecosystem 

In pursuing a sustainable supply chain ecosystem for grocers, it becomes imperative to acknowledge the pivotal fusion of technology, generative AI, and environmental sustainability. The ongoing digital disruption is reshaping the landscape of traditional grocery industries. As a response, grocers are seizing the opportunity to cultivate a supply chain that aligns harmoniously with sustainability and environmental consciousness.

Grocery Doppio's Digital Grocery Performance Scorecard of H1 2023 reveals a tangible representation of this transformative journey. The report unveils a substantial increase in total grocery sales during Q2 2023, amounting to $226.1 billion, a 4.97% surge from Q1 2023. Simultaneously, digital sales remained stable at $29.5 billion. Noteworthy is the rise in the percentage of digital orders delivered in Q2, which climbed to 49.1%, showcasing a growing preference for the convenience of home delivery. This underscores the significance of a well-optimized and sustainable supply chain in meeting evolving consumer needs.

Furthermore, the transition from traditional supply chains to an environmental ecosystem is underscored by the escalating challenges posed by inflation, macroeconomic uncertainties, and supply chain disruptions. This confluence of factors compels grocers to navigate amplified inventory costs due to out-of-stock scenarios and intensifying competition for price optimization. The resultant surge in inventory costs also casts a shadow on brand loyalty.

It is imperative to comprehensively evaluate the entire product lifecycle to bring changes in the traditional supply chain. The integration of AI emerges as a potent solution for grocers to enhance supply chain efficiency, implement lean practices, and notably reduce waste. 

According to Digital Grocery Performance Scorecard of Feb 2023,  86% of grocers acknowledge that the primary domain for AI applications is inventory management and forecasting. This emphasis, particularly on waste reduction, underscores the need to enhance SKU management to elevate the precision of inventory and demand forecasting precision.

Moreover, consumer behavior has undergone a profound transformation catalyzed by events that have ingrained specific preferences, such as the enduring appeal of contactless transactions and the convenience of home deliveries. Heightened awareness has also led to an intensified focus on sustainability. This shift in consumer behavior has translated into a heightened demand for services like home delivery, online shopping, click-and-collect, and curbside pickup. Retailers are swiftly adjusting their strategies to ensure that customer experiences remain seamless and aligned with these evolving expectations.

The various catalysts prompting a shift from the conventional supply chain model to a fusion of environmental and digital supply chains are accompanied by intricate risks that warrant attention.

Navigating the Complex Landscape of Risks

The grocery supply chain arena is marked by many challenges spanning labor, operations, environmental concerns, health, and safety. However, these challenges offer a compelling incentive to integrate environmentally conscious practices and embrace technology. Through these measures, the grocers' supply chain can effectively address specific risks while propelling towards an environmentally sustainable supply chain.

Strategic Labor Management - In response to labor shortages, innovative approaches such as regional labor pools are emerging to bolster workforce efficiency across various operational segments. According to Grocery Doppio's February 2023 Digital Performance Scorecard, 71% of grocers recognize the potential of chatgpt models as a primary use case for a store associate tool. This finding underscores the prospect of establishing a labor retention pipeline within the grocery retail landscape, enabling staff allocation to value-added tasks like enhancing customer experiences. At the same time, AI is responsible for handling routine and repetitive tasks.

Operational Performance - Ensuring visibility into suppliers' tiers, optimizing manufacturing, managing sourcing risks, and enhancing delivery performance remains central to operational excellence.

Budgeting -The process of pricing groceries has a far-reaching impact across all stages of the supply chain, encompassing everything from sourcing raw materials to distribution and retail. In the competitive landscape of retailers and grocers, lower prices attract customers but often triggers intense price wars. The approach benefits consumers, offering more affordable options, however simultaneously exerts pressure on profit margins thereby hindering ethical practices promoting sustainable supply chains. According to research by Grocery Doppio, many grocers are employing various strategies to safeguard their margins. 83% of grocers recognize pricing optimization as one of the pivotal levers they rely on to achieve this balance.

In the upcoming article, we shall delve into the different strategies that grocers can adopt to envision and establish a greener supply chain that will infuse AI and technology and help become more environmentally conscious and sustainable.