Mind the (sustainability) gap

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Now that retailers and CPGs have learnt to live with the ongoing consequences of the COVID pandemic, sustainability is again rapidly rising to become a top priority. Most are well aware of the need for urgent action and are embarking upon a wide range of initiatives across all aspects of their businesses

About the authors

Chris Newbery and Paul Taylor are part of the retail consulting practice at Teradata EMEA.

However, often the gap between aspirations and the ability to make real change is both too wide, and too hard to cross. Balancing the needs of the business, the demands of customers, employees and investors, and the complexities of extended, multi-party supply chains can pose almost unanswerable questions for decision makers. How can they achieve profitable sustainability, and can they do this without granularity of data and speed of data refresh?

Tactical vs strategic progress to date

Research conducted for the World Retail Congress by Boston Consulting Group finds that fewer than 20% of retailers are on track to meet their sustainability pledges. Undoubtedly, progress has been made across the board, and there are stand-out examples of success. In the main though, according to BCG, retailers and CPGs are stuck focusing on tactical programs rather than delivering strategic sustainability initiatives. This is not surprising. The complexity of even identifying the multiple factors that impact true sustainability, let alone finding ways to measure and manage them is a herculean task.

Accounting for scope 1, 2 and 3, CO2 emissions is hard enough on its own. Then you need to factor in every other facet through production, distribution, sale and recycling, of every single product. Water use, agricultural impact, chemicals, waste and disposal of used products are but a mere subset of the considerations that must be made. Then all of this has to be balanced against ensuring that the overall business remains viable, there’s no point in being the world’s most sustainable retailer/CPG if you go bust in the process!

Get your data teams 100% involved

The nature of decision-making around sustainability clearly demands the integration of diverse data sets from both within and outside the business. This includes data from suppliers and partners up and down the supply chain, potentially from multiple 3rd parties such as data on local water or energy constraints. Data expertise is therefore essential.

However, BCG also found one of the most cited challenges is a lack of access to relevant data, mentioned by 67% of those they surveyed. The report also suggests that although 50 percent of digital/data/IT teams are sometimes involved in sustainability initiatives, only 8% are frequently involved and only 6% see themselves as driving sustainability projects.

All this data must be at suitable levels of granularity. Decisions made on aggregate data can lead to unintended consequences for the business or for the environment. For example, rolling-up data on energy consumption by store cluster or region risks losing the detail that can flag exceptional performance (good or bad) at specific locations, and thus the ability to influence or learn from it. Also, if you don’t have the right granularity, and critically an end-to-end view, an improvement in one area may mean a deterioration into another area (the ‘squeezing the balloon’ effect).

However, once you are measuring everything at the right granularity things start to become simpler. You can then start to have business rules around how much CO2 you’ll trade for how much money, water usage or any other metric. You can identify areas of alignment where improving sustainably actually benefits other key business metrics too. If you can cut use of power, it’s both greener and you get a lower electricity bill!

Juggling all this data, and managing the constant balance of demands for high-quality, low-cost, sustainable and available products from customers can seem a daunting task. Teradata has developed a robust framework that outlines five focus areas for sustainability: product, supply, production, consumption and the business model itself. This helps organizations use all available data to plot and deliver real changes on sustainability, whilst still considering the other critical factors such as agility, resilience, quality, service level and price.

A step-by-step journey

Crucially, we understand that waiting for perfect and complete data can inhibit impactful action. The framework allows retailers and CPGs to progress along a step-by-step journey that transforms ambition into auditable results. At each step we help bring together and analyze data that informs confident decisions that balance profitable sustainability with all the other characteristics and metrics of business performance.

It is okay to start with the data you have (even at aggregated levels), as this still allows you to build a basic picture and see where the biggest drivers of poor sustainability are. It will also show you where you have zero or close to zero data. From this you can then move into a cycle of constant refinement, focusing on the biggest impact areas for your business first, while refining those data sources (quantity, granularity, frequency etc.) to create a richer view. Then repeat, repeat, repeat to drive more and more actionable insights, giving you the maximum opportunity to improve at each stage, and achieve the biggest impact.

At the same time, make sure the ‘building blocks’ you are creating can be easily connected together to build out the bigger end to end picture. To do this you’ll need to choose the right platform that can handle the level of scale and complexity required.

Automation of key elements of this reporting and subsequent management actions, clearly plays an important role in accelerating progress. It’ll enable you to shift away from just trying to report, to really focusing on changing the outcomes, with the reporting simply becoming a by-product of operating in this way. Unless companies intend to employ armies of individuals to constantly analyze, check and recheck this data, then automation is the only viable approach.

Take, for example, the challenges in defining, measuring and reporting CO2 emissions. Many businesses now understand emissions that come from owned facilities like factories and stores, but often only at an aggregated level. Add to that the need to include emissions from energy purchased and used at those facilities, and then all the indirect emissions across the whole supply chain, and suddenly retailers and CPGs need to manage enormous and diverse data sets.

Sustainable becomes a key advantage and differentiator

Sustainability is no longer a nice to have but must be managed as a core element of the overall business. As McKinsey recently noted, “Investors [are] leading the charge [and retailers should] move the needle on something tangible, measurable, and understandable.” Customers too are voting with their feet, increasingly considering the environmental impact of the goods they purchase, as well as the retailers/CPGs they purchase them from. Nearly 90% of Gen X consumers in a recent survey said they’d be willing to pay an extra 10% or more for sustainable products.

When you then start to factor in ever Increasing scrutiny and regulatory demands, more and more detailed data becomes an inevitable prerequisite, just another regular operational parameter considered in the everyday operation of the business. Therefore, getting the right data to make the right decisions is crucial, data that is fully integrated and can provide timely insights and analytics. This then starts to not only close the gap between environmental commitments and delivery, but between sustainability goals and wider business objectives.

Sustainability becomes not only a necessity, but a key advantage and differentiator for the successful retail and CPG organization of the future.

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Chris Newbery and Paul Taylor are part of the retail consulting practice at Teradata EMEA.