Bolstering Sustainability with Supply Chain KPIs

The battle to save the planet is on, and companies must do their part to fight climate change. Transportation businesses are in the spotlight as customers continue to emphasize sustainable practices. The shipping industry is responsible for 940 million tons of CO₂ emissions annually, which amounts to 2.5+% of the world’s total. New regulations are putting pressure on logistics professionals to lower their carbon footprint. An example is the IMO 2023, a new global regulation from the International Maritime Organization to reduce carbon emissions in sea freight and promote greater energy efficiency. 

Companies are looking for ways to measure their carbon footprint to reach sustainability goals, and analyzing key performance indicators (KPIs) is a great place to start. This requires clear visibility into data-driven KPIs to measure OTIF rates, exception management, billing metrics, and more. This article examines what KPIs are, discusses the KPIs driving innovation in supply chain sustainability, and shares what the future holds for companies that hope to promote eco-friendly practices.

What is KPI in Supply Chains?

KPIs are quantitative metrics that enable companies to scrutinize progress over time—and identify improvement areas. Stakeholders acquire insight into supply chain operations using KPIs, enabling them to measure and track performance against set objectives. Tracking KPIs enables leadership to set benchmarks and pinpoint trends that guide strategic decision making. 

Examples of KPIs

Companies use a variety of KPIs to gauge how efficiently the supply chain is functioning. Following are some examples:

• Delivery times: This metric measures the percentage of orders delivered on time and in full (OTIF). A high mark indicates that the company meets customer demands and delivers products efficiently.
• Inventory to sales: A low ratio suggests that a company manages its inventory effectively. A high ratio indicates there may be too much inventory, leading to increased storage costs—and potential waste.
• Purchase order tracking: This metric tracks the progress of purchase orders, measuring the time it takes to process and deliver shipments. A business with an efficient purchase order tracking system ensures a robust on-time delivery rate.
• Freight cost per ton shipped: This metric measures the expense of shipping goods per tonne, helping companies identify cost savings opportunities.
• Perfect order delivery rate: This KPI calculates the percent of orders delivered without errors. This metric comprises factors such as accuracy, timeliness, and completeness.
• Supplier performance: This measures the performance of suppliers in terms of delivery times, quality, and costs. Companies are able to determine the most efficient and trustworthy suppliers by tracking this KPI.

How Supply Chain KPIs Bolster Sustainability

Sustainability is becoming increasingly crucial for shippers as they look to optimize supply chains. Sustainability is gaining additional attention as customers demand greener practices. Companies are now incorporating KPIs to calculate their carbon footprint—and other sustainability metrics—across the supply chain. Shippers can recognize inefficiencies in their supply chain that lead to higher emissions simply by tracking KPIs. The objective data provided by KPIs enables shippers to gauge progress over time—and empowers them to set goals for improving sustainability. By implementing KPIs this way, organizations demonstrate their commitment to reducing fossil fuel use to customers and investors, and distinguish themselves from competitors who are less focused on green practices.

5 Supply Chain KPIs to Support Sustainability

Businesses wishing to establish a sustainable supply chain must ensure that benchmarks evolve, metrics are fine-tuned, and that there is ongoing employee engagement and training. The failure of organizations to start making an environmental impact may be catastrophic, as carbon emissions are expected to rise by another 50% by 2050 if nothing reverses the trend. Following are five supply chain logistics KPI examples companies can follow to bolster sustainability.

1. Recycling Rates

An organization must assess the recycling rate for all materials used in production. For example, the company may explore alternative and more sustainable options if recycling rates are low for a particular product or packaging material. Companies can also aim to increase recycling rates to reach targets, educate employees and customers on its importance, and decrease waste by diverting materials that otherwise may end up in landfills. 

2. In-Transit Energy Consumption

By using environmental KPIs to track energy consumption during transit, logistics companies identify areas to enhance their sustainability performance. If a particular transportation mode or route consumes too much energy, the company may explore alternative, more sustainable choices. Tracking energy consumption also helps logistics companies lessen their carbon footprint by identifying areas of high energy use and wasteful practices. This includes using more fuel-efficient vehicles, optimizing delivery schedules to reduce deadhead miles, or consolidating shipments to decrease the required trips.

3. GHG Emissions

By tracking greenhouse gas (GHG) emissions, logistics companies identify opportunities to enhance their sustainability performance—and reduce their carbon footprint. Tracking GHG emissions benefits the planet, and helps companies build a favorable reputation and stay competitive in a rapidly-evolving landscape. Monitoring GHG emissions bolsters sustainability by setting targets, taking steps to reach those goals, measuring emissions, enforcing energy-efficient programs, and changing to renewable energy sources. Companies that switch to more fuel-efficient vehicles—and use transportation modes—release fewer GHGs. GHG emissions fall into one of three categories:

• Scope 1: This is direct GHG emissions from an organization’s vehicles and facilities, whether company owned or through controlled sources. Examples include emissions from vehicles, generators, or manufacturing facilities.
• Scope 2: These are gasses generated by an organization’s indirect consumption of purchased electricity, steam, heating, and cooling.
• Scope 3:  Scope 3 emissions are gasses indirectly generated from purchased goods and services, employees traveling to and from work, and waste generated in supply chain operations.

Many companies have attempted to tackle Scope 1 and Scope 2, but fighting Scope 3 is proving more challenging.

4. Transportation Metrics

Through end-to-end tracking, these metrics ensure comprehensive visibility across supply chains, providing advanced insight into sustainability opportunities. By tracking transportation metrics, logistics companies pinpoint areas where improvement is possible. The company may explore alternative and more sustainable options if transportation expenses are high or transit times are too long. By tracking these metrics, companies may also optimize routes and modes to better reduce fuel use and emissions. The metrics may also show how to lessen vehicle wear and tear, or if it is prudent to lower the number of transport vehicles needed.

5. Water Usage

Water is a vital resource often overlooked in sustainability discussions. Yet it is in short supply in many parts of the world, including the Southwest, where the Colorado River water supply is dwindling. Logistics companies rely on water for operations such as cleaning, cooling, and processing—making tracking and managing water usage critical. By measuring use through KPIs, logistics companies identify areas to reduce water consumption, minimize waste, and improve efficiencies. Measuring water use also helps logistics companies comply with regulatory requirements, avoid penalties associated with noncompliance, and enhance their reputation.

The Future of Sustainability in Supply Chains

More businesses realize the importance of reducing their carbon footprint and preserving natural resources. They understand the significance of sustainability—and the need to implement more efficient practices while practicing environmental, social, and economic responsibility. This will translate to  more companies setting sustainability goals moving forward—by implementing supply chain KPIs to measure their carbon footprint and find areas to help the planet. Global governments and country-specific agencies might implement more regulations to ensure fewer emissions, so companies must collaborate to ensure they are hitting those marks and sharing strategies to reach sustainability goals.

Companies that embrace sustainable logistics practices will benefit in several ways. To begin, they reduce costs and increase efficiency by optimizing supply chain operations, reducing waste, and switching to renewable energy sources. This will also improve their reputation and brand image, as customers and stakeholders increasingly demand eco-friendly and socially responsible products and services. By demonstrating a commitment to sustainability, companies also attract and retain top employees—as workers increasingly appreciate purpose-driven positions and companies that align with their values. On the other hand, corporations that don’t embrace sustainable logistics will likely suffer. As consumers become more environmentally conscious and socially aware, they will demand products and services from companies that prioritize sustainability—leaving those that don’t in a scramble to catch up.

Pairing Analytics with Other Solutions

Examining sustainability KPIs will become even more important moving forward. Hyper-local tracking will play a critical role in bolstering sustainability in future years. Visibility technology enables companies to identify wasteful practices, and minimize their carbon footprint. It also enables companies to optimize the use of resources and reduce transportation costs. Real-time visibility—throughout the supply chain—enables companies to respond quickly to disruptions and minimize environmental impact.

Providing Shippers with Flexibility & Insight

In the future, shippers should strive to gain the flexibility and insight they need to build sustainable supply chains in real time. Technologies such as artificial intelligence and machine learning will continue to progress to enable shippers to monitor supply chains, identify areas for improvement, and quickly implement corrective measures. Tracking sustainability KPIs can also provide greater insight into their logistics operations’ environmental and social impact. KPIs may measure and report carbon footprint, water usage, waste generation, and other sustainability metrics—enabling stakeholders to track their progress toward sustainability goals.

Partner with Tive & Strive Toward Sustainability

Climate change is significantly impacting logistics companies, and that impact will only expand. To achieve sustainability goals, logistics service providers should implement supply chain KPIs designed to chart progress and monitor how to improve strategies in the fight to save the planet. Tive offers solutions in this rapidly-changing environment via trackers that protect shipments in the battle to reduce waste and lower emissions across the logistics industry. Get started with Tive today to see how it can help you strive toward sustainability—and attain your eco-friendly goals.