However, some FMCG manufacturers may lack sufficient data or not be making full use of it, and as such may not know the true impact of their decisions.
Many FMCG manufacturers operate on small margins, and therefore find it challenging to balance financial and sustainability objectives. However, they know that carbon and cost efficiency are both key to sustainable future growth. A recent survey by Euromonitor shows that in 2023, 6.5 per cent more businesses chose to invest in sustainability to cut costs compared to the previous year: a clear indication that cost and carbon agendas are converging.
Growing consumer concern about the effects of climate change and commitments by governments around the world to introduce sustainability targets have made end-to-end data visibility critical. Increased regulatory focus on transparency and accountability, with the EU Corporate Sustainability Reporting Directive and UK Sustainability Disclosure Standards, also means that many companies must disclose detailed information about what they are doing to actively reduce carbon emissions.
To stay competitive and reduce carbon emissions, FMCG businesses need a clear understanding of the carbon and cost impact of every decision they make. From a procurement perspective, this means understanding the entire lifecycle carbon and cost impact of each component or raw material selection. From a value chain perspective, understanding the impact of each process step in terms of both its cost and carbon footprint is critical to achieving a positive long-term outcome.
As well as focusing on the delivery of their own financial and sustainability objectives, FMCG manufacturers should consider how their decisions impact customers too. Regardless of whether they are making a light bulb or a loaf of bread, all products and processes have a lifecycle carbon footprint which contributes to customers’ Scope 3 emissions.
For FMCG manufacturers, a good place to start when looking to optimise cost and carbon efficiency is the supply chain, as this is key to end-to-end data visibility. For example, a specific component that a key supplier has been sourcing for years could have a particularly high carbon impact, due to higher transportation costs caused by recent global supply chain disruption. It might have become more expensive too, due to supply shortages. By working with the supplier, or sourcing a suitable alternative, can realise significant cost and carbon reductions. Time spent collaborating with suppliers in this way will have a knock-on benefit for customers too, by helping to lower their Scope 3 emissions.
When looking to improve cost and carbon efficiency, combining both sets of data and factoring them into all decision-making will deliver the most value. Understanding the baseline, in terms of where most carbon or financial cost is coming from will also enable businesses to prioritise initiatives that will deliver the best results. Building top-down, bottom-up models that incorporate cost and carbon data can also help businesses to optimise demand and supply planning and improve resilience by smoothing out the impact of variables such as unexpected supply chain events.
Another key area where cost and carbon savings can often be found is new product development. Access to accurate industry and/or supplier data about each component and raw material allows R&D teams to engineer solutions that have value and sustainability built in from the start. Prioritising circularity at design stage, for example, can bring significant cost and carbon benefits by minimising waste and optimising reuse or recyclability.
For example, Nestle has been investing in packaging innovation as part of its commitment to circularity for the past five years, and recently confirmed a 10.5 per cent reduction in virgin plastics since a product assessment was completed in 2018. By 2025, the company will have reduced its plastics to a third of its 2018 amount. Another example of the focus on circularity is Caterpillar’s decision to invest in recycling technology developer, Nth Cycle, to recover and reuse metals from end-of-life vehicles.
With all industry sectors focused on sustainability, innovation is rife, and new or refined components and solutions are coming to market all the time. To make the most of the emerging opportunities, manufacturers should stay close to their suppliers and be prepared to go back to the market regularly to look for alternatives. Where appropriate, strategic acquisitions or joint ventures could allow manufacturers to innovate solutions collaboratively.
Whilst many manufacturers have plans to decarbonise, they may not have confirmed a timeline for delivery. With governments signing up to legally binding sustainability goals and regulatory controls tightening, this is a risky strategy. By factoring cost and carbon data into every decision they make, they can mitigate risk and strengthen their business model; leading the way to enhanced profitability and sustainable growth.
Sabine Sayer, managing consultant, and Julie Neal, director, at management consultancy, Vendigital
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