Digitalization for Greater Sustainability in Supply Chain Management
September 22, 2022
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End customers’ changing demands, stricter rules such as the (German) Supply Chain Act, a shortage of resources, and investors’ requirements – there are many reasons for retail to prioritize the topic of sustainability. Here, the focus is on more than just the environment and resources; for ESG (Environmental, Social, Governance) criteria, social aspects and corporate management also play a role. This means that companies must take responsibility beyond their own actions, for example, with regard to working conditions during manufacturing or how a product is transported. And this is precisely where things get complicated for retailers, for it is often not possible to trace supply chains optimally.
So it's no wonder that the “digital product passport” (also called “digital twin”) is extremely relevant for industry right now: It makes supply chains transparent and traceable – and therefore gives end customers and retailers much more information about a product's origin and recyclability.
The concept of the digital product passport was presented in 2019 as part of the European Green Deal and as a decisive tool for achieving a sustainable, resource-efficient economy. Meaning there is a virtual product representation that includes all relevant information about the product, to which more data is being continuously added.
In conventional value creation without a digital passport, much of this data is lost. The physical product manufactured from different raw materials circulates along the value chain from production to recycling, but the associated information does not:
The digital product passport creates transparency for all stakeholders along the value chain. Users gain access to information relevant for making purchasing decisions, about the sustainability of a product, for example. Retailers, manufacturers, and factories can use the additional information to optimize processes and increase circularity within value creation, by extending the service life (promoting repair activities in notices and instructions) and returning materials (optimized recycling), for example.
This is of great interest to the automobile industry: with more than 10,000 individual parts made of different materials, including a large percentage of metal alloys of iron and aluminum, information about precise composition and recyclability is especially valuable.
In the future, the digital product passport will also be relevant for retailers of electronic devices: the planned new EU battery regulation assesses the entire life cycle of batteries according to sustainability criteria and it is also supposed to include the introduction of the battery passport, the first digital product passport on a European level. This topic will soon be relevant for manufacturers and retailers of battery-powered products, e.g., electronic and industrial devices, and electric vehicles as well.
However, the digital passport also has additional potential for greater sustainability in supply chains: using AI and machine learning, digital twins of products can be used for simulations to predict events and automate decisions. Examples include optimized stock movements in warehouses and the monitoring of inventories.
The optimal procedure in case of supply chain interruptions due to unforeseeable events such as natural catastrophes, accidents or political hurdles can also be simulated, and supply chain resilience increased this way.
In theory, the digital product passport is a promising concept, particularly for retail. Of course there are some hurdles for the implementation, especially establishing uniform standards. Various initiatives, which frequently concentrate on specific product groups, industries or use cases, are tackling the implementation of such standards for the digital product passport. Through this approach and in exchange with other initiatives, it is expected these initiatives will learn and grow quickly in the future and in terms of technical implementation as well.
So that retailers can profit in the long term in the interest of sustainable supply chains, they of course need the appropriate technological basis. Out-of-date IT systems and manual processes frequently stand in the way.
A first step is the complete digitalization of supply chain management. However, this requires digitalization skills at the implementing companies:
For the implementation, it is important to build on existing systems. Precisely in the automobile industry, for example, there are already numerous building blocks for this in the standard software. A lot of information on the OEM and tier-one levels is available digitally and stored in clouds and managed with applications. Databases and certificates can therefore be used for the digital product passport. The Praxischeck digitaler Produktpass für die Automobilindustrie, which is the result of a cooperation by many companies in the automobile industry and was created in October 2021, provides more information.
However, the digital product passport is not the only potential solution that exists in the digitalization of processes and supply chains. By using a digital order management system, for example, retailers can make the delivery of products transparent and flexible – and also manage warehouse inventories, product availabilities, and transport paths efficiently and sustainably.
Thus, digitalization and sustainability go hand in hand. Insofar as this has not happened yet, it is worthwhile for retailers to invest in digital processes on a variety of different levels – and to create the technological foundation for the innovations of tomorrow today.
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