Sustainability Q&A: Building Sustainable Supply Chains

Interview with Dr. Josué Velázquez Martínez, Research Scientist at the MIT Center for Transportation & Logistics and Director of the MIT Sustainable Supply Chain Lab 

In this exclusive Q&A session with MIT Research Scientist Dr. Josué Velázquez Martínez, we explore the challenges businesses face endeavoring to pivot towards more sustainable supply chains. Drawing from his experience at the MIT Sustainable Supply Chain Lab and cutting-edge research, Dr. Velázquez Martínez shares invaluable insights and actionable advice.

Throughout the interview, we delve into the intersection of sustainability and supply chain management, uncovering practical recommendations and pathways to a more resilient, responsible, and equitable future.

1. In your opinion, what are the biggest barriers that businesses face when trying to transition to more sustainable supply chains?

J. Velázquez: I would categorize the barriers into three: Extra cost/effort, knowledge gap, and supply chain misalignment: 

1. The Extra Cost barrier arises from the necessary steps that companies should take to transition towards sustainable supply chains. This may involve performing a thorough assessment of the carbon emissions produced by the supply chain, identifying the adequate scopes of analysis, pinpointing areas of high impact and vulnerability, and developing a comprehensive plan that sets clear objectives (such as climate commitments and carbon reduction targets) and prioritizes feasible projects.
2. Knowledge gap. Due to the recent development of the relationship between sustainability and supply chains, there is currently a significant lack of understanding regarding the potential benefits for businesses and the practical implications. For instance, the majority of businesses are primarily concerned and focused on technology investments (e.g. electric vehicles) as the only practical way to meet their carbon reduction goals. This is not the case. Many opportunities exist in the methods by which companies manage their existing infrastructure and make decisions regarding business and supply chain management. For instance, what is the potential reduction in CO2 emissions through better replenishment strategies? In what proportion do fast deliveries resulting from inadequate demand planning contribute to emissions? What is the most efficient fleet assignment that maximizes fuel efficiency and minimizes environmental impacts? How to leverage visibility and transparency to involve customers/consumers in sustainable supply chain strategies?
   
   Many businesses are unaware of many of these possibilities (which I like to refer to as "quick wins") because they persist in operating under the assumption that business as usual will somehow lead to achieving sustainable solutions. However, this is often not the case. There is a significant amount of research and knowledge to be developed in this field.
3. Alignment and collaboration among supply chain members are crucial elements for effectively implementing a sustainability strategy. While more businesses have committed to achieving their sustainability targets in the upcoming years, this is only achievable with collaboration from manufacturers, suppliers, and customers—particularly when it comes to Scope 3 GHG emissions, which account for 70–90% of all emissions in a supply chain. For instance, if a key supplier refuses to disclose information, or if the data they provide is unreliable, it would have a significant impact on all the projections and plans. Within the Transportation domain, a prevalent concern among shippers and carriers is the mutual accountability and financial burden. For instance, several shippers, including major consumer packaged goods (CPGs) and retailers, put pressure on carriers to provide more environmentally friendly delivery options. However, when certain carriers agree to do so in exchange for higher costs, these shippers are generally unwilling to make this financial commitment. In order for this endeavor to be successful, it is crucial to exchange accurate information and align expectations regarding shared responsibilities, costs, and benefits. 

2. Can you provide an overview of how the MIT Sustainable Supply Chain Lab collaborates with businesses to address sustainability challenges in their supply chains?

J. Velázquez: Our mission is to support organizations to improve logistics and supply chain operations by creating applied and innovative research aimed at fostering growth while considering environmental and social sustainability. We connect research outcomes to practical settings, enabling companies and stakeholders to leverage supply chains as a beneficial force to reach global sustainable development goals. We also seek to improve the visibility of supply chain impacts and develop strategies to help reduce them, so companies can better address consumer, political, and shareholder concerns.

To do this, we work on three domains: Research, Education, and Outreach.

1. Research. Our main objective is to collaborate with companies in order to foster innovation through sponsored research. The topics we cover involve supply chain carbon footprint, sustainable transportation, circular supply chains, sustainable sourcing, and green inventory management. In addition, we have developed a research framework that specifically assists companies in the process of transitioning to an electrified supply chain. This framework examines various aspects such as the distribution network and fleet composition.
2. Education. We have launched the online course MITx Sustainable Supply Chain Management through the edX platform that runs once a year in the Fall. The course focuses on helping companies transform their climate pledges into actionable strategies and covers a variety of topics such as: Identifying environmental hotspots in your supply chain, implementing environmental measurements into logistics decisions, building a green network distribution in your supply chain, designing circular supply chains, and green replenishment strategies.
   
   This course combines case studies, applied projects, and business-case simulations for a dynamic, interactive learning experience.
3. Outreach: We actively participate in national and international events, such as conferences, roundtables, and executive education courses, in order to interact with professionals and academic networks, and share the findings of our research.

3. What recommendations do you have for businesses striving to achieve a balance between environmental sustainability and other vital business priorities such as cost-effectiveness and operational efficiency in their supply chain management practices?

J. Velázquez: Business metrics, including financial indicators such as cost, and service level, are typically outlined across all levels of a company's operations, that is strategic, tactical, and operational. In contrast, companies often choose to exclude information regarding environmental sustainability, specifically carbon emissions, from their operations. Do companies have knowledge of the extent to which their planners or schedulers contribute to their carbon targets? Do companies recognize the influence that an inventory planning decision has on transportation emissions? Or a demand forecast?

Therefore, my two key recommendations are:

1. Perform a thorough assessment of the carbon footprint (or any other environmental sustainability footprint) within the company, and select the most precise methodologies for conducting this evaluation. It is important to remember that the results you obtain are directly related to the measurements you take (“you get what you measure”). Additionally, it is always true that if you input low-quality or inaccurate information into a system, you will get low-quality or inaccurate results (“garbage in, garbage out”).
2. Implement a decision-based allocation method to assess the influence of business and supply chain management decisions on the carbon footprint. This process may necessitate the use of modeling and analysis techniques, with the primary objective being to deliver outcomes comparable to those obtained through activity-based costing for business decisions. However, in this particular instance, the focus is on determining the carbon footprint. By mapping out business indicators such as cost or service level alongside the carbon footprint, companies can gain a clear understanding of the trade-off between these objectives and effectively strike a balance to achieve optimal performance.

4. What are some common misconceptions or myths surrounding sustainability in supply chains?

J. Velázquez: Expanding on the point in Question 1 under “Knowledge Gap”, thinking that technology investments are the only practical way to meet their carbon reduction goals, and ignore the many opportunities that exist in the methods by which companies manage their existing infrastructure and make decisions regarding business and supply chain management. Companies persist in operating under the assumption that business as usual will somehow lead to achieving sustainable solutions, which is often not the case. This is very contingent on the context of each business and company.

Let me give you a few illustrations from the research we have done in the lab to explain myself:

1. Green Logistics – A common misunderstanding is that in green logistics, minimizing distance (i.e. mileage) automatically translates into a reduction of fuel and CO2 emissions. Our research has revealed that when defining a delivery sequence, prioritizing delivering the heaviest loads first or considering the street elevation by avoiding steep streets may result in an increase in distance traveled while providing significant reductions in fuel and CO2 emissions.
2. Rental clothing – There is a common misconception that the act of reusing materials or products will automatically result in a decrease in the impact on the environment. We conducted a comprehensive analysis of various business models for clothing rental and quantified the environmental benefits in comparison to the buy-once model, also known as fast-fashion. Our findings confirm that the practice of reusing clothes in general effectively decreases the emissions linked to the extraction and production of materials. However, our research also demonstrates that rental clothing exhibits a greater quantity of increased emissions linked to transportation activities (such as pick-up and delivery), dry-cleaning, packaging, and a larger number of returns when compared to fast fashion. Although renting clothes for special occasions, such as dresses or tuxedos, appears to be the most environmentally conscious choice, the buy-once approach is more environmentally friendly for consumers who need clothes on a regular basis.
3. Recycling and Logistics – Another misconception is that the utilization of recycled materials is always beneficial for the environment. In an effort to better understand the effects of using recycled materials in packaging, we worked with Dell on a project. We discovered that sometimes these materials are heavier or take up more space, which raises the CO2 emissions associated with transportation.

5. What emerging technologies or innovative approaches do you see as particularly promising for advancing sustainability within supply chains?

J. Velázquez: In addition to advancements in materials and energy sources, I believe that the most groundbreaking and encouraging developments are occurring in the field of AI and Data Analytics. These technologies will facilitate the creation of solutions that address the challenges of sustainability and business by efficiently and rapidly incorporating all aspects of the supply chain, including customers, consumers, and supply management. Enhancing the accuracy of demand and supply forecasts, along with efficient communication and translation of this information into business and supply chain decisions, will greatly enhance sustainability and business performance metrics.

About Dr. Josué Velázquez Martínez

Josué C. Velázquez Martínez is a Research Scientist, and Lecturer at the MIT Center for Transportation and Logistics and has more than 10 years of experience in conducting applied research on logistics sustainability and small firms in emerging markets. He serves as the director of the MIT Sustainable Supply Chain Lab and is also the director of the MIT Low-Income Firms Transformation (LIFT) lab. Velázquez Martínez has published a variety of academic and business-oriented articles and book chapters on logistics sustainability and supply chain management and has been constantly quoted and interviewed by different international media, including HuffPost, CNN, The Washington Post, Bloomberg, NY Times, and ELLE.com. Velázquez Martínez holds an MSc in Manufacturing Systems with a focus on Optimization and a Ph.D. in Industrial Engineering with a focus on Sustainability in Supply Chains from Monterrey Tech, Mexico, where he was approved with great distinction from both programs. Dr. Velázquez Martínez is also the 2014 recipient of the Doctoral Dissertation Award issued by the Mexican Logistics and Supply Chain Association as recognition for the best doctoral thesis in the country. In 2013, Dr. Velázquez Martínez was a Postdoctoral Researcher at Eindhoven University of Technology, Netherlands, and he also was part of the first class in the STVP – Faculty Fellows Program at Stanford University. Prior to joining MIT, in 2014, Dr. Velázquez Martínez was the Dean of the Engineering School at Monterrey Tech in Santa Fe.