People everywhere are sounding the alarm about climate change and the human factors that have exacerbated it. Between oil pipelines, harmful carbon emissions and deforestation, today’s youth are leading the charge against major corporations that have turned a blind eye to these issues. It turns out fossil fuel companies aren’t the only ones knowingly driving the climate crisis.
Now, consumers of all ages are responding with demands for more sustainable products. Buzzwords like eco-friendly, green, non-GMO and organic are hot selling points and companies can’t seem to sell these products fast enough. But are these goods really sustainable if the inventory equation is off?
It seems a bit ironic for sustainability-obsessed companies to be stockpiling unsustainable amounts of inventory that will likely end up in a landfill. A closer look may also reveal inefficient distribution practices and abuse of non-renewable energies. In an attempt to cater to consumer demands, big brands are missing the mark entirely.
Sustainability and inventory are, after all, inexplicably intertwined. For a company to be truly sustainable, its approach must center on the process, not the product. More specifically, it must prioritize inventory plans with the goal of making the right amount of product for the right consumer at the right time.
That utopia may be far off, but businesses can still take actionable steps to begin moving in the right direction.
The first step in optimizing inventory is understanding demand. A company must know what customers want and how much they’re willing to buy. Then, they can predict the goods they’ll need. If they fail to do so accurately, they risk wasteful expediting, unnecessary inventory and excess truck and rail transportation. These unsustainable actions increase carbon emissions and overhead costs, which negatively impact both the planet and the brand’s bottom line.
Reducing uncertainty regarding demand will ultimately come down to studying customers and current trends. By analyzing the total demand volume across a family of related products and the mix of demand within the same family, supply chain managers can predict future demand more accurately. Analyzing incumbent companies’ sales, consumers’ online behavior and customer preference surveys may also provide useful information.
Recovering dead inventory
Still, online conversion rates tend to be low and competitors’ sales can be misleading, so demand forecasting isn’t always accurate. Therefore, it’s best to invest in production flexibility. This strategy would allow companies to develop flexible production lines that allow them to respond to possible future scenarios. Then, there wouldn’t be so much pressure to precisely predict supply and demand.
One way to accomplish this is to recover dead inventory. Retail seasonality, late deliveries and production errors can all generate dead inventory.
Regardless of its cause, dead stock can impact cash flow and sustainability efforts. To sidestep these negative consequences, companies can recover and recycle dead inventory in a truly circular model. Incorporating discarded items back into the supply chain will ultimately save the company money, conserve resources and allow for more sustainable inventory optimization.
Heavy-duty transport, including freight trucking, shipping and aviation, accounts for about 13% of global greenhouse gas emissions. These carbon emissions could increase by 83% by 2050 if businesses carry on as usual. Of course, if the demand for same-day shipping skyrockets, carbon pollution might reach an all-time high much sooner. While electric vehicles offer a partial solution to the problem, inventory optimization will be the key factor in reducing transportation-related emissions in the coming years.
One effective step companies can take is making sure vehicles are completely full before sending them on distribution routes. Doing so will prevent wasted space, extra time on the road and excess carbon emissions.
They might also group vendors together so vehicles can return with pickups instead of making an additional trip. Smaller businesses will enjoy shorter routes, fewer carbon emissions and more cost-effective inventory management, as well.
Optimized inventory space
Smaller buildings require less energy and workforce hours to maintain. Therefore, minimizing inventory space with a smarter stock mix will automatically reduce overhead costs.
Plus, a smaller warehouse that uses less land, heat, electricity and water is more eco-friendly than a large, overstocked one. However, building a smaller facility won’t necessarily reconcile unsustainable behavior. After all, non-renewable energy still emits carbon, which is why many companies are switching to green or carbon-neutral warehouse designs.
These designs often rely on renewable energy like solar and wind to light the facility, and motion-sensors ensure none of it goes to waste. Some even sell energy back to local power grids in an effort to achieve net-zero certification. Other brands have built their facilities with sustainable materials like bamboo, reclaimed wood, recycled metal and precast concrete.
These supplies may cost more initially, but they’ll save businesses thousands in the long run.
Sustainable inventory management for long-term success
The art and science of balancing supply and demand is an ongoing challenge for many companies, especially right now. As the economy struggles to recover from the pandemic, the political landscape changes and thousands of small businesses close their doors, satisfying customers may be more difficult than ever. However, it’s in every company’s best interest to prioritize this balance and embrace sustainable inventory management.
Aside from saving money on excess inventory, transportation, processing and non-renewable energy, they’ll also enjoy cheaper marketing strategies and customer retention initiatives. Nearly 90% of customers will remain loyal to a brand that shares their values.
Meanwhile, roughly half of them are willing to spend more with brands that have won their loyalty.
Therefore, it would be financially beneficial for businesses to listen closely to consumer demands and respond in their favor as long as it upholds their social and environmental values.
Adopting sustainable inventory strategies will also put businesses ahead of their competitors. When the rest of the world is touting eco-friendly products, they’ll be boasting green sourcing, processing, manufacturing, inventory management, distribution and more. Plus, they’ll help ensure that there’s still a planet on which to build their brand. Talk about a long-term plan for success!
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Cover image credit: Ruchindra Gunasekara.