AI is the secret to companies reducing carbon emissions and costs at the same time

Philip Ashton is CEO and co-founder of 7bridges, an AI-powered logistics platform that helps businesses be more sustainable. Here he explains how companies can balance sustainability with business goals using the “Green Report”, and how the supply chain is a major contributor to our carbon footprint.

Pressure from climate-conscious consumers and net-zero deadlines set by regulators have created an urgent need to make supply chains much more sustainable. But most companies still have a long way to go when it comes to reducing carbon emissions and meeting their green goals.

Efforts are often hampered by the need to meet business goals and uncertainty about the true cost of “going green”. Without being able to accurately balance these seemingly competing priorities, companies understandably feel limited in adopting passive policies such as carbon offset schemes (whose impact is highly disputed) as a short-term solution, rather than tackling the problem at source.

But the stakes are high: with more than 80% of a company’s greenhouse gas emissions coming from its supply chain, business leaders and supply chain managers have a real opportunity to effect change.

The “Green Ratio” – optimization of costs and sustainability

The “Green Ratio” is a term that describes the ideal balance between happy shareholders – cost optimization – happy customers and happy regulators – while maximizing sustainability.

At 7bridges, companies use the AI ​​platform to focus on cost optimization, operational efficiency and risk reduction; leverage data to refine the decision-making process and create a resilient supply chain that enables a business to forecast demand, implement dynamic carrier switching, and intelligent dispatch and routing.

This means the business can adapt quickly to unforeseen disruptions, as well as seasonal changes in supply and demand.

To calculate the ‘Green Ratio’, we created a fictitious company.

We used our AI to run two simulated supply chain models using anonymized data from our customers in the pharmaceutical space. The first simulation aimed to determine the effects of cost optimization, and the second was optimized for sustainability. We then ran a third simulation to find out the point at which business and environmental goals could be optimized for both, equally.

When setting up the supply chain to operate at the lowest cost, we were able to see a savings of 23% off the reference price, with no effect on carbon emissions. When optimized solely for sustainability, it was possible to immediately reduce carbon emissions by 23% in the simulated supply chain, but with a 4% increase in baseline costs.

So you might have to pay a little more, but it’s worth it for the carbon savings.

If the company worked with suppliers who deployed a “green” fleet of electric vehicles (which would take longer), it would reduce carbon emissions by 51% in total.

The third simulation demonstrated that it is possible to optimize for both factors. Our simulation showed that the company can reduce costs by 19% and carbon emissions by 19%. During this third simulation, we also determined that the “Green Ratio” for the fictitious pharmaceutical activity was 129 kgCO2e: £1,000 (€1,178).

This means that for every thousand pounds the company spends, its carbon emissions should be limited to 129 kilograms of carbon dioxide equivalent. This number is an ideal starting point for any business looking to strike a balance between sustainability and profitability.

While running the simulations, 7bridges AI considered the data and the influence of several factors that can impact the overall carbon footprint of a supply chain. He identified the place of execution – which houses the inventory – as the most powerful lever for reducing carbon emissions.

Choosing the right execution venue has the potential to reduce a company’s carbon footprint by up to 30%, and it also has a huge influence on other factors, the most obvious being that stocking the right products or services closer to the end user means less distance traveled for delivery vehicles.

That’s far more important than more obvious “fixes,” like simply choosing a carrier with the greenest fleet, which only has a 7% impact on overall emissions.

What can companies do now?

AI technology has a crucial role to play in helping supply chain managers deal with the complexity of supply chains. It provides granularity that helps companies identify the most powerful levers when it comes to reducing their carbon footprint.

Typically, business leaders have been forced to make a choice between making short-term changes that have less impact (e.g. carbon offsetting) or longer-term adjustments (like investing in transportation greener) which are more effective but do not have an immediate effect. advantages. But now there is a third technology-based option to fix the problem immediately, while achieving long-term results.

AI can help organizations leverage the power of historical and real-time data to make optimal decisions throughout their operations.

The rising cost of carbon and why we need to act now

As emissions monitoring technology improves and climate regulations tighten, it is likely that the cost of carbon emissions will continue to rise, which will become a significant problem for businesses and individuals who rely heavily on fossil fuels.

Since 2018, the costs of carbon emissions have almost quadrupled, reaching an all-time high of nearly £84 (€98) per tonne of CO2e in 2022.

If business leaders continue to take a passive stance on sustainability in their supply chains, it’s not just their green credentials that will suffer, it’s also their bottom line. It’s time to act.

About Margie Peters

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