Unwrapping Supply Chain’s Gifts to Holiday Shoppers

Despite retailers’ obsession with making the buying experience more convenient this holiday season, for many consumers choosing the right gift has gotten more complicated.

More holiday shoppers have added “ethical” and “sustainable” to the list of attributes they look for when searching for gifts.

But how do these discerning buyers know that the brands they covet meet these requirements? And how do they make more sustainable choices once they have selected their gifts?

These are important questions for shoppers as well as the companies that profit from their holiday largesse. The National Retail Federation in the US expects retail sales to total between $727.9 billion and $730.7 billion in November and December 2019. An estimated 3% to 20% of consumers are looking for opportunities to buy more responsibly this year, depending on the category of gift involved.

Unbeknown to most shoppers, a vast, behind-the-scenes resource is supporting their responsible buying preferences this holiday season. The resource is not Santa’s North Pole manufacturing operation, but an entity that stands behind every product bought regardless of the time of year.

It’s Called The Supply Chain

The supply chains that source, manufacture, deliver, and return the products that consumers buy, are a primary source of the information that shoppers need to make responsible gift-buying choices. Furthermore, companies are investing hugely in supply chains that support these choices and hence their brands.

Kicking The Tires

Searching for a gift starts when a consumer mulls his options according to the set of attributes that are important to him.

Many of the attributes that support a product’s profile for ethical and sustainable responsibility are rooted in the supply chain. The use of non-forced and fair-paid labor, the volume of carbon emissions generated by a product, and a company’s water-saving practices are examples of these features. A company that is diligent in these areas and wants to promote the fact to consumers, must get that information to the point of purchase in a format that a potential buyer can easily digest.

The Holy Grail is a “transparent” supply chain, one that shows buyers relevant information about what a product is made of and how it was made and delivered to the retailer’s outlet. Companies that disclose a high level of this information are classed as “innovators.”

There are many ways to convey such information. For instance, Ethical Bean provides a QR code on its products that informs buyers about the complete journey of, say, a bag of ground coffee. Patagonia allows web buyers to see the supply chain map of its wares through an interactive map called the Footprint Chronicles, that sketches product environmental and social profiles.

The clothing company Everlane allows customers to see the full cost breakdown of each product, including details such as whether each supply chain player was fairly paid. Customers can even choose what price they want to pay for purchases with labor practices in mind.

Achieving a transparent supply chain is a laudable goal — but it’s not easy. A company has to be sure that its claims can be substantiated. Also, while the enterprise should provide all the information that an ethically conscious consumer is looking for, it does not want to divulge details that put it at a competitive disadvantage.

Choosing what information to divulge is a subject of hot debate in the corporate world. For companies to achieve the right balance between accountability and commercial confidentiality, they need to better understand their stakeholders, the desired information, and the competitive environment. The MIT Sustainable Supply Chains initiative is exploring the various dimensions of supply chain transparency.

The Moment of Truth

Having decided to purchase a product deemed responsible, a consumer must complete the transaction. The process is a little more complicated than traipsing to a cash register, hitting a key on a laptop or mobile, or barking an order into an audio device.

Responsible consumers must also choose an appropriate shipping option. For instance, in her eagerness to receive the purchase, she might select next-day delivery for the QR-labeled ethical bag of coffee she’ll gift to grandma.

The next-day order triggers a series of consequential decisions deep in the supply chain that can exact a heavy environmental toll. The seller might store products near to the buyer and use express trucking services to meet the deadline, which generates more carbon emissions than a more pedestrian delivery cycle.

However, companies are developing delivery models with a modest carbon footprint — even premium, express services. For example, MIT CTL’s Megacity Logistics Lab has worked with an apparel company to develop a two-hour delivery service based on distribution centers located close to urban markets.

Orders are consolidated on trucks, and emissions-lean vehicles such as bicycles complete the final deliveries. The total emissions generated by the system are relatively low. The main reason for creating the model is to support the company’s premium brand, but the network’s green profile is likely to become a marketing play in the future.

Other innovative and green distribution models, such as ones that use vertical takeoff craft to move products, are under development at the Megacity Logistics Lab.

Also, companies are getting better at designing supply chains that give buyers multiple delivery choices. So-called omnichannel retailing offers hybrid delivery options such as ordering online and picking up in stores, although the carbon footprint of these combinations can be bigger or smaller than traditional services.

In general, the more single-stop trips to a store or single-order, rapid-ship orders, the higher the emissions levels. On the other hand, omnichannel can reduce emissions with networks that increase the use of low-carbon courier services rather than gas-burning trucks to deliver to consumers.

Another approach is to provide opportunities such as an option to buy carbon offsets at the checkout that mitigate the effect of environmentally damaging shipping choices. Online retailer Etsy offers this option.

Research suggests that if companies frame such choices in the right way, consumers will respond. Experiments conducted by MIT CTL’s Sustainable Logistics initiative with one of Mexico’s largest retail e-commerce companies show that 70% of surveyed customers claim to be willing to extend delivery windows by four days on average after learning about the environmental impact of their initial buying choice.

Importantly, the researchers found that providing information on the effects of their purchase in terms of carbon emissions hardly swayed individuals’ buying decisions. However, tying the number of trees required to offset the environmental impact of, say, choosing fast shipping, did persuade many buyers to select more environmentally friendly delivery options.

On Its Way — Or Not

After completing a responsible purchase, the buyer now waits in anticipation of receiving the item. The supply chain is responsible for delivering the right product to the right place at the right time without damages. This feat is nothing new — supply chains have been doing this since commerce began — but today’s consumers are incredibly intolerant of purchase-related problems.

In addition, commerce has become a lot more complicated. A supply chain that delivers a product from, say, a factory in Tianjin, China, to a store shelf or a buyer’s doorstep in Omaha, Nebraska, spans multiple geographies and regulatory jurisdictions, not to mention countless intermediaries and various modes of transportation. Political uncertainty, such as the current controversy over stop-go trade tariff negotiations between the US and China, add to the complexity.

Completing deliveries in today’s traffic-choked urban areas is another formidable challenge. Remote and rural areas, especially in under-developed regions, can be just as tricky to serve cost-effectively.

And the delivery challenge is not getting any easier. A growing volume of the carbon pumped into the atmosphere comes from freight operations. The demand for freight transportation is expected to triple over the next few years.

If we continue shipping goods as we do today, freight emissions will surpass energy as the most carbon-intensive sector by 2050, doubling carbon emissions by that year.

Back To Square One

Success! The shipment arrives on the buyer’s doorstep and is ready to be gift-wrapped. The buyer gives a present to grandma, but it turns out that the lady stopped drinking coffee! Now we get into the returns process, which can undermine all the good work done to make this a responsible purchase.

Seventy-seven percent of consumers plan to return a portion of their holiday gifts this year, according to a survey carried out by Oracle. Aided and abetted by retailers’ convenient returns policies, the volume of product returns has climbed steadily over recent years.

We can pay a high price for this tide of returned product. In addition to wasting the resources that went into making and delivering items in the first place, a large portion of the returned product is destroyed or landfilled if it is not restocked. This type of problem vexes companies, and some have responded. For example, Amazon has announced it will donate the returns it can’t reintegrate into its retail network to charitable groups.

A fundamental issue is that supply chains are forward-looking; they are designed primarily to push products into markets, not bring them back. However, companies are investing in ways to throw these supply chains into reverse or to develop closed-loop supply chains where products are designed for the return route. For instance, Colgate-Palmolive has introduced a recyclable toothpaste tube. The manufacturer is exploring viable take-back options for the tube with MIT Sustainable Supply Chains.

Loop, an initiative supported by TerraCycle, packages consumable products in reusable containers that can be taken back and refilled. So, instead of a lined cardboard cup, your holiday Hӓagen-Dazs ice cream could be packaged in a reusable and robust tin that can be returned and refilled for multiple uses. Consumer goods and food manufacturers are increasingly packaging their products in PCR plastics or experimenting with compostable packaging to reduce the return burden.
Consumers can play their part.

Look for companies such as Dell and Best Buy that accept used products for reuse and recycling. Or outlets that sell repurposed products. Patagonia has launched an outlet for recycled apparel called Recrafted. Interface Carpets maintains the carpet it sells for the duration of the product’s life, then collects the used carpet to process into new products. H&M and a slew of other apparel manufacturers sometimes offer in-store discounts with the return of used clothing.

Still, it’s better to avoid the return route altogether, and there are ways to do this. StitchFix, a personal styling company, delivers pairings of products for a complete style and incentivizes consumers to return less product by reducing the cost of the box according to how many of the purchases a customer keeps. Another way to neutralize the urge to return items is to help consumers select the right gift at the outset. Companies are introducing innovations such as augmented reality features that help buyers to choose the correct product sizes and styles.

Supply Chain Santa

Shoppers are mostly oblivious to the globe-spanning supply chains that make consumerism possible. However, as environmental and social factors play an increasingly important role in buyers’ purchase decisions, the importance of supply chains will surely become more visible to consumers. It’s a role that is undoubtedly on display this holiday season.