S03E04 - Planet - Net Zero in 1'000 days? Absolutely!

Daniel: [00:00:00] Welcome to the supply chain dialogue, season three, episode four. I'm Daniel Helmig. When you do professional podcasting, you get a lot of anonymised insights into your work from your podcast platforms. We publish on Podbean apple and Spotify, and each of them has its way to provide you with quite interesting data and insights. We learn, which episode

takes off. Which tanks. And how interest grew, thankfully over time to an astonishingly large audience.

So thank you for listening to the show. For example, we know that about 60% of all listeners have not caught up with earlier seasons and episodes of the show, which also among other topics you might find interesting dealt with greenhouse gas, emissions and net zero. Which is the main focus of this season, season three.

I recently used one of the earlier episodes to prepare the operations management team of an Italian company. Before we had the workshops on how to get to net zero.

That's what they wanted. They wanted to be net zero in all three scopes. One two and three. By 2030. But we're not sure whether this was even possible, especially in the most important scope scope three, which includes the whole supply chain from customers to suppliers. As you probably know. After they listened to the 30 minute episode, we accomplished a complete realistic plan to get to net zero in all three scopes by. Drum roll. 2026. They will communicate 20, 30, but internally they are convinced that total greenhouse gas emission neutrality can be achieved in three years. So after the workshop, I thought, why not recycle this episode from February last year as well here? I hope to inspire to [00:02:00] reevaluate your net zero targets and become another net zero hero to your kids, your board and your customers. So here's one of my favourites and the first podcast episode we ever did back then. We was actually me, my laptop and a mic. You will also hear AImee again. My AI voice cohorts now updated by de script.

The company we work with for regarding it's not Scarlet Johansson, but still brilliant.

AImee: Thank you for saying that. In this episode I will ask the questions and provide from time-to-time facts and figures provided from other AI siblings.

Daniel: Thank you, AImee, and let's dive into the show.

Today we talk about how to get to greenhouse emission net zero in your supply chain in 1000 days.

we will explore the background, how to assess where your company is on the spectrum of Green House gas net zero ambitions. Then we define the size of the price and close the podcast with actionable steps to get to your net zero. Enjoy. Now as a boomer, I was born in 1963. I recently was.

floored, when I read in a scientific article the following, as our supply chains have expanded over the past centuries, from local into the 18th century, to continental in the 20th century and to global in the 21st century. As we all know, the use of fossil fuels has grown exponentially. Half of the 1.6 trillion tons of greenhouse gas emitted in the atmosphere since the Industrial Revolution in 1750 occurred from 1990 to now and it was flooring me because I know that most of this was happening clearly in my lifetime . Now whether you agree that greenhouse gas triggers climate change or just want to [00:04:00] comply with national and international regulations and they will come, the direction stays the same.

we mitigate or we must mitigate the greenhouse gas emissions for our company to net zero as soon as possible.

AImee: In 2016, McKinsey estimated that a remarkable 90% of consumer packaged good companies impact the environment directly, and that more than 80% of their emissions comes from their supply chains. Another study of by the C D P, which is a global charity that helps companies manage their impact on the environment, suggests that supply chain emissions are on average 5 point 5 times greater than a company's own direct emissions.

Daniel: So Pareto suggests that we start with the supply chain to achieve our net zero ambitions, don't we? But how do we do it? Whenever we open LinkedIn, Twitter, online, newspapers, there's a lot of well-meaning people that tell us what we should do, or at least marvel at the problem. And as we all know, first you have to accept to have a problem before you can start working on solving it.

There are many reasons why we know that this is true. So many companies engage with current non-profit initiatives that define how to go about greenhouse gas emission reporting. Clearly, this is a good first step. It increases awareness about the status quo and the problem thereof, and the gap we have to close in our company.

or in our state, our country, yet when it comes to supply chains, just counting greenhouse gas emissions and reporting them is only the start for the next steps. We need a model that has proven results over many years. I use for this podcast the Six Sigma DMAIC approach DMAIC is

Daniel Overdub: abbreviation

Daniel: for five words.

They're called define, measure, analyze, [00:06:00] improve, and control. And that is the model of six Sigma. you can take as well, any other model for that, or not any, but most of the other models. But I got used to this. It actually works. I've seen it operating and providing very good results in terms of total change since many decades.

So therefore, I stick with it. So counting and reporting addresses the two first steps of the DMAIC cycle, right? Define and measure, but now what do we do with the rest? The A I C, the analyze, improve, and control. , we already can build an analysis mentioned above, which I mentioned before, which is supply chains have the largest potential for reducing greenhouse emissions.

That's where most of the greenhouse emissions in scope three, which is one of the definitions that is being used in terms of what greenhouse gas emissions overall are all about and can be said. I could go much further in the analysis and, every Six Sigma black belt will now tell me that I make that way too simple to just go with the simple pareto step.

But if we assume we might not have too much time in our hands, specifically not on this podcast, let's stay with this high level of analysis. Now the question is how do we take the next step? They improve. now supply chains work best with actionable thresholds and widely agreed global standards. If I look at my experience with revolutionary supply chains, , the fast implementation of ISO standards such as ISO 9,001, which was the quality management system, or is still across most industries, was the most impressive.

I've seen it in several industries, in the automotive, in semiconductor industry, and I've seen it as well with all the subsequent industries where our suppliers were located. It went really. And my perception is mirrored by a whole bunch of academic literature about this. So what [00:08:00] was so remarkable?

Firstly, we know we had a problem, if I remember back at the time and, and all those that are in the boomer generation, you knew that as well. The quality of cars, toys, white goods was just deplorably bad. So we want to change Secondly, The focus was cleared from a regulatory perspective. We know that something needed to change, and it was clearly said that we needed to change our operations in most of the industries to get this done.

And thirdly, there was very little competition between standards. It was quite simple if you wanted to continue to sell your products in the future. For example, when you were a supplier of, in, in my, for my company, you had to. In a quite short amount of time with the respective ISO standard, ISO 9,000 and procurement wrote it into the statement of work and contracts as an order qualifier, and companies had mostly quality departments in each supply chain that monitored then compliance.

This was later outsourced to expert in this field. And today, if you look around, most companies don't do the ISO 9,000 audits any longer. They have companies that are doing that, and that is fine. I mean, there was a whole industry that was coming up from that, and the results was at that point in time quickly, that modern compliant competitors replaced firms that didn't want to obtain the certificates.

They say, no, we don't want it. We know we do the right thing. Anyhow. The competitive pressure as a market force was working at its best. If you did not want to comply, that was fine. There were enough other people that were going to do that, so there was not really that much of an alternative.

Now, if we fast forward, We have as well ISO standards. We have ISO 14,064 and the soon to be released ISO 14,083. They're both greenhouse gas emission reporting standards, and they're offer the same opportunity for revolutionary change again. with these standards and time-based thresholds where we would say, for example, okay, you have [00:10:00] three years to get there, which by the way, you will spoiler alert, this is the 1000 days , you have to get there.

So therefore, we would like to see a trend of your greenhouse gas emission reporting and what you do to get to net zero over this time with these standards. And so we will be able, and you will be able to reach net zero and it's neither difficult nor a matter of decades, as many are saying today, where we look at 2030, 2040, 2050.

Let's just use the market forces that are available that helped us to do the ISO 9,000 quality reporting.

So net zero greenhouse gas emissions in the supply chain can be achieved in most industries in 1000 days. I strongly believe that just by applying good old market forces, it only needs strong supply chain leadership.

and a sponsorship from the company's board, and then the words, let's go. Now, let's. Dig deeper a little bit. we talked about the fact that first you need to understand that there is a problem. Yeah. We have this societal problem, and the scientists are telling us it's an issue and the governments as well will soon put more and more regulatory requirements on us to comply.

But if we want to change, we need to as well understand where we are on this spectrum of greenhouse gas emissions and where is our organization as such. So, Every journey starts with the first.

and I say we need to understand the gap. To overcome the gap. So we will use 10 questions and I will, talk a little bit about where that question is coming from to give us a sense of where we are with regard to our focus on greenhouse gas emission reduction. So that comes back for those that are interested from a Six Sigma approach, back to the defined stage where we say, okay, where are we? What is the scoping that we need to do? So let's start with the first question.

AImee: Do we have actionable plans to achieve net zero greenhouse gas emissions by 2030 or shortly after?

Daniel: So I was recently talking to an [00:12:00] executive of a large professional service company. He told me that they have handed over more of the focus on getting to net zero zero to their real estate department and their sustainability department to address their greenhouse gas emission topics.

He proudly, as well pointed out that they have linked two of the Science-Based Targets initiative. It's called S SPT I, and work with external suppliers to assess their footprint. I asked him then about the annual estimated greenhouse gas emissions and the numbers seemed quite honestly, ridiculously low.

It became quickly clear that they were looking at Scope one and two of emissions, which they produce in their own operations instead of the needed scope. Three. When I told him that Scope three dwarfs. what he has done so far and probably represents 85% of his greenhouse gas footprint. The discussion got a little bit livelier.

Now. There is a difference between activity and focused action. In the case of this executive, you focus on what he knows best, his operations and services while scope three. , which is all indirect cost emissions up and downstream of a company was not focused on. And additionally, signing up to well-meaning non-profit organizations and pledging in diverse forums is nice, and good for awareness.

But if there is no clear operationalization and actions with a time-based focus, the whole thing is just analysis paralysis. scope one, when are we neutral about our infrastructure? What are the main steps? What are the cost? What are the benefits? Are they already included in our three-to-five-year budget plans?

That's the question that we must ask ourselves and we have to have answers for that. For scope two, the same thing. When are we neutral with electricity, heating, cooling, processes, and all the main. Steps, cost, benefits, budgets, et cetera. And if you have the answers for that, then you start with scope three.

 So let's cover question two.

AImee: Do we have an updated code of conduct for our suppliers that [00:14:00] align with our Net Zero greenhouse gas emission ambitions?

Daniel: So while doing some research work before, and I came across the websites of a couple of suppliers in my former industries, they've written nicely about their greenhouse gas emission ambitions in their code of conduct checking up on them, it became clear that this, however, has not been communicated to the supply base, mainly cause the purchasing and the legal department were not equipped to handle the possible whiplash from hundreds of suppliers.

Coming back to either report or complain about the requirements. There was little to no requirements and expectations for what the companies did expect beside the fact that it was very often difficult to even find the pages. So here as in many things, a high say do ratio is important.

So define clearly what is needed from your suppliers link as well, what you do in your operations, and then communicate to them what needs to change in their reporting to you and the actions you expect going forward, Let's go to question three to see how we're doing.

AImee: Is our procurement organization sourcing from suppliers aligned with our net zero greenhouse gas emission ambitions?

Daniel: In most suppliers, I've dealt with There is interestingly, a massive delta between the sustainability department and the three to four main areas who actually can do something about becoming net zeros. There are procurement, production, real estate and sales, especially procurement since normally responsible for 50 to 85% of the greenhouse gas emissions in scope three is often not even asked of how to reduce emissions.

It is therefore not astonishing that most procurement organization have greenhouse gas emission reporting of suppliers either not yet operationalize in their systems since they have to use some standalone punny little reporting systems presented to them by their sustainability department. And most reporting systems today do not even ask the right questions for not only reporting greenhouse gas emissions from suppliers, but as well validating and controlling the input [00:16:00] and the trend development of these suppliers.

There are some leaders in several industries who, despite little guidance by governments and associations, have found a way to measure at least 80% of their input on an industry. not even talking about supplier level. Since most IT solutions are born out of more financial reporting requirements than operations focused, the real applicability to reduce greenhouse gas emissions is today at least questionable.

I recommend if anyone in your organization is telling you that they have the greenhouse gas emission reporting under control, that you ask the good old quality process questions of five times "why". And after the second or third why you'll understand the gaps that still exist. And for this, you do not need a PhD in environmental science.

Just common sense. Let's talk about question four.

AImee: Does our supply chain organization actively address greenhouse gas emission reduction through changes or shortening of transportation modes? For example, from here to sea, sea to train, or far to near shoring.

Daniel: Now, often I heard from my buyers, we cannot change this supplier.

They are vital. There is no other supplier that we can use. I heard from R&D we need to use this compound for the product. There is no alternative Still when a situation occurred, and the supplier went bankrupt Suddenly both buyers and R&D found alternatives in record time. The same holds true with transportation modes or finding suppliers from near-shoring.

I've learned that over time fix becomes variable. That is true to supply relationships as it is for everything else, we see around us. The Greeks called it . Everything flows. The supply chain organization and procurement must have clear targets to reduce greenhouse gas emissions, and then sort the needed changes to get to z net zero based on time and cost out, and suddenly everything becomes possible if the time element is being taken into consideration.

Yes, we cannot change this [00:18:00] supplier who produces a product with high energy requirements in a country, mainly powered by oil or coal. Now, , but we can build up a new supplier in up to three years. And yes, we currently cannot ship this product via sea instead of air, but we can fix our unloved sales and operations planning system with better discipline input and then are able to build in a longer transport time.

Everything is possible if you put our mind to. Question five:

AImee: Are our supply I T systems capable of producing emissions reporting for at least 80% of our supply chain by value in an automated manner?

Daniel: Many of my colleagues voiced their dissatisfaction with the current standalone solutions for greenhouse gas emission reporting in the supply chain.

Every system looks lovely, but often when you look behind the curtain, there is nothing more than an elaborate Excel sheet. The interfaces or APIs are difficult. The systems were clearly defined by people with little to no manufacturing background. So the result is that the one or two people in the supply chain department that have sustainable as word in their title, spend every quarter.

Days and nights manually pulling together data. Very few of these data are used for decision purposes of buyers. Since buyers do not see this information in the first place, it needs a holistic design to integrate these data sets with all the other order qualifiers or control metrics that we need from suppliers regular.

best if the flow of data on greenhouse gas emissions reporting automatically goes into the supply systems or ERPs that buyers used to do their job. The focus should be on what it takes to help buyers make the right decisions and only secondary on reporting today, it's normally the other way around, which will just cement the status quo.

Question six.

AImee: In manufacturing or F M C G industries the question is, whether our supply chain, which represents up to or slightly more than 50% of our greenhouse gas [00:20:00] emissions is prominently featured in our sustainability reporting and for professional or service industries, the question is: Is our procurement organization, rather than E S G departments, managing the reduction of greenhouse gas emissions in our supply chain, which represents about 80% of our emissions.

Daniel: If you look at most sustainability reports, the amount of information about supplier greenhouse gas emissions, and what companies are doing to address scope three. Net zero is relatively minor. It is written by people, for people that have little to no understanding of what actually goes on in a supply chain.

Normally, about two months before the next report is being published to temporary students calls the CPO and ask just quickly one to two questions. since there is no genuine reporting behind it will be answered vaguely at best. In the case of professional services is often highly intellectual people that are in charge of the greenhouse gas reporting and reduction task, or worse, the activities being managed by real estate.

Who owns eventually five to 8% of the full scope three greenhouse gas emission. sustainability reporting, especially on greenhouses. Gas emissions should be 60% about how the supply chain will be changed actively by a company. In professional industries, the ownership and resources should sit with procurement.

Even better, the sustainability department should be filled with procurement personnel. Here is the sweet spot for any change to get to net zero, Question seven,

AImee: Do we plan to request compliance of our suppliers with ISO 14164 and the upcoming ISO 14083 which are both greenhouse gas emission standards that Daniel talked about before?

Daniel: This can be in addition to signing up for one of the more reporting focused initiatives such as Science-Based Targets initiative like SBTi.

 Many companies do pledges. People become ambassadors for [00:22:00] sustainability. Firms join non-profit associations such as s Bt I. All of this is great. It helps with awareness, but how much greenhouse gas has been actually reduced by all. , we need to operationalize these standards that should become mandatory for companies and supply chains here, the iso uh, 14,000 standards together with clear thresholds.

For example, in three years, you will be net zero should become the norm. Let's start treating the issue as a normal operational change. like the implementation of the quality control system. ISO standard nine ISO 9,001 was about 35 years ago. This works. We have a blueprint. Next question

 eight.

AImee: Beyond greenhouse gas emissions, have we calibrated our environmental, social and governance E S G objectives against the 17 U N global goals set in 2015?

Daniel: So while greenhouse gas emissions is one of the largest threats to humanity, according to most scientists, if you trust that we have as well many other topics like poverty, hunger, gender equality, affordable and clean energy, et cetera.

And these are just four out of the 17 UN goals signed by world leaders in 2015. Many companies do not even know that this list exists. By evaluating which of the UN goals apply to one's company and purto them, you can easily concentrate on a few topics that could as well be introduced to the supply chain.

One example, we look at gender equality and equal pay inside of our own organizations, and that's okay. That's great, but how about the same as a basic order qualifier for suppliers, like for example, in the professional IT service provider. We could have quickly a high impact by just applying the same standards we hold dear internally to our external extended enterprise.

Question nine, we're nearly, there

AImee: Are full-time resources and board approved projects linked to these 17 goals that we talked about?

Daniel: Having great ideas and visions is not as good as having [00:24:00] ideas and purpose combined with actionable targets and resources. Most companies I had the pleasure to deal with have a huge appetite but can stomach very few internal resources to absorb and digest the ambitions, Only work on topics where you rationally can predict that the resources involved can handle the task with a clear direction set by the board. Start with few and get them done rather than try to do everything at the same point in time. Question 10, and now we are done,

AImee: Is the incentive structure for our leadership team based on triple bottom line targets considering not only Profit, but as well People and the planet?

Daniel: In 2018, John Elkin, who coined 30 years ago, that phase triple bottom line thought it was time to rethink it. The unintended consequences of his phrase led to companies taking a financial reporting like approach to the other two factors,

 That led to a lot of reporting, which now audit firms being now the only ones who can qualify company with regard to their sustainability report, which I think is a crazy development for something so operational. No one would propose that an audit company would qualify a company becoming IC 9001.

This is done by real experts in this field. If you want to accomplish our revenue and profit targets, as well as our targets on diversity and inclusion, as well as our sustainability targets, we have to incentivize, Our management, say, as you do and do as you say, it's as simple as that.

So these were the questions, the 10 questions that give you an overview in terms of where you are with regard to the journey towards greenhouse gas net zero ambitions as such. And if you answered yes to most questions, great. You're set up to achieve your greenhouse gas net zero goals and your company will continue to make good business even.

 . If, however, you answered no to most questions or even did not know you have a gap, and as I always say, gaps are good, let's close them. Let's measure the gap in terms of the size of the price.

Daniel: and that will [00:26:00] give you then the incentives to close the gap, really? So the size of the price. Short-term benefits include reducing costs in your supply chain through suppliers, transportation mode changes, and more regional sourcing. This cost of sales benefits and hence margin improvements can be triggered by supply chain redesign along agile and digital principles.

Beside the obvious cost benefits, you as well will attract top purpose-driven talent of the younger generations, the Gen Zs, and the Gen As. Those that carry your company into the next decades, mid to long term.

The price is simply the ability to continue doing. if scientists are right and climate volatility increases, regulatory and market pressure will likely increase simply by demands by the electorate and your customers being head of the curve and your competition concerning greenhouse gas emissions will be good business if the market and your customer markets.

Entry are more and more restricted for non-compliance, low moving firms, it's either you or not you. So how would we go about it? So if you now look at the size of the price mid to long term, either we do it or we are out of the market, short term cost reductions, hence margin improvements.

There is really nothing negative here. It's just a matter of doing. let's look at terms of what it takes to get going on this. with a dedicated team in place.

Led by the head of procurement, or alternatively the COO or head of supply chain. That depends on how your organizational structure is and the 24 months timeframe for implementation with ongoing progress monitoring thereafter, which brings us in to the above mentioned 1000 days. As such, you can ensure alignment of actions with the goals hopefully set by the board

So, when the team is set, It involves conducting desktop, be benchmarking and fact gathering, including engaging in discussions with clearly the large suppliers.

You must understand their current status and identify areas for [00:28:00] collaborations to get the ISO standards set up

You don't want to do this manually. There is as well-known need. It is not difficult to actually set up a procurement system or have some features basically integrated into procurement systems or e r P systems to automatically get updates from supplier.

 Effective change management is clearly key to the success of the initiative and it's essential to communicate the triple bottom line ambitions to all stakeholders, and that is customers, employees, shareholders, regulators, suppliers, get them involved and use their momentum to push you. The board needs to review Progress quarterly utilizing the automated reporting from supply chain systems while implementing consequence management To maintain a high say-do ratio.

It's important that suppliers, for example, that. Do not support the initiative are gone. It is important that departments that are not willing to change the statement of works that are needed to actually get to zero greenhouse gas emissions are going to be reprimanded and solutions have to be found.

 The opportunities for digitalization and automation are significant. While the risk overall of this initiative are low, considering the alternatives, the overall costs will depend on the current status of your supply chain excellence and the level of digitalization.

But my assessment is we are not talking about millions here. We're talking about costs in the a hundred thousands in terms of updating IT systems that you probably already have today.

There are some watch outs. Clearly, as always, with big changes, there will be pushbacks from those primarily focused on the status quo as always, and as a leader, it is therefore essential for you to stay focused on the benefits of this initiative, mid- to long term before it's too late.

as quality guru Edward Deming put it It is not necessary to change. Survival is not mandatory.

 I hope that you enjoy this recycled episode of the [00:30:00] supply chain dialogues. If you did. Please subscribe on apple, Spotify, Google, or any other major podcast platform. If you are a subscriber, tell a friend or colleague or any decision-maker in your company. For this episode, you might want to share it with your chief sustainability officer or chief supply chain or procurement officer.

If you're interested in more, you can either sign up for online or face-to-face training from yours, truly available on our company website soon and on YouTube. Or you can book a chat with me to explore the art of the possible for your company, via seminars. Coaching dialogues. Or for projects.

Well, it was found something that fit well with our clients. So, with that. Stay safe. Be bold. And see you in two weeks.

AImee: All the best as well from me. Cheers.

Daniel: These are the supply chain dialogues produced and copyrighted by helmig advisory, AG in 2024.