How can sustainability improve client experience?
In Standard Chartered’s recent Critical Indicators of Sustainable Supply Chains: More than ESG research around 90% of companies confirm that environmental soundness and transparency, financial strength, flexibility and connectedness are important indicators of supply chain effectiveness.
Deutsche Post DHL (DPDHL) Group is already the world’s leading logistic company, operating in 220 countries and territories. It has built a reputation for supporting resilient, reliable and adaptable supply chains, despite the pressures of the COVID-19 pandemic. But for DPDHL’s senior management team, it is not enough for its supply chains to be resilient and adaptable. Today, the Group is driving zero carbon and responsible business strategies to create the world’s most sustainable supply chains. Here, we explore some of the ways in which DPDHL is achieving this.
Accelerating its sustainability strategy towards zero carbon
Just 40% of companies are confident that they perform very highly when understanding and monitoring environmental standards and labour practices.
Environmental, social and governance (ESG) issues are central to DPDHL’s business culture. In addition, given the company’s critical role in global supply chains, the Group also helps its clients, which include many of the world’s largest names, to achieve their own sustainable supply chain ambitions. Reducing carbon emissions is a major element of this. In March 2021, DPDHL announced a new, accelerated sustainability strategy1. Hogan comments,
“Our aim is to become carbon neutral by 2050, but we have ambitious targets to help us get there. We recently announced that we would be accelerating our decarbonisation plans, with a new sustainability roadmap that defines rigorous sustainability targets. By 2030, we will invest EUR 7 billion in climate-neutral logistics,and deploy 80,000 e-vehicles for last-mile deliveries, amounting to 60% electrification of the fleet.”
Notably, senior management performance will be measured against its sustainability roadmap, which will further entrench ESG issues into the group’s strategy and decision-making.
Becoming an employer, supplier and investment of choice
DPDHL’s commitment to sustainability extends beyond environmental issues to recognise the Group’s responsibility to its employees and the communities it serves. As Hogan describes,
“We pride ourselves as a company on our common purpose to connect people and improve lives. We focus on our customers, our employees and our investors. To be the provider of choice, we need to deliver a great service to customers. To do this, we need to give our employees the best experience we can, to be employer of choice. By doing these things, we achieve our investors’ objectives. ESG, including promoting diversity and corporate sustainability underpins these ambitions.”
Crucially, given the Group’s role in global supply chains, DPDHL recognises that its sustainability strategy needs to extend not only across its own activities, but also to its suppliers and subcontractors. For example, subcontractors play a critical role in achieving the ‘last mile’ in DPDHL’s service, and as such, supporting them is essential to the success of the business. No matter how efficient the warehousing, freight and transport to distribution centres, it is the final delivery of goods to customers that creates the customer experience. DPDHL supports its subcontractors in a variety of ways, including supply chain financing (SCF) to provide same-day financing, and rapid payments to mobile wallets:
Supply chain financing
DPDHL’s SCF programme extends not only to tier one (direct) suppliers, but further into the supply chain. To achieve this, treasury has worked closely with banks to adapt the typical form of SCF, which is often based more on value than volume, to support higher volumes of smaller transactions. For example, with Standard Chartered’s support, a DPDHL entity has set up a post-shipment, post-acceptance programme in which suppliers can receive same-day financing based on the purchase order or invoice. No onboarding or documentation is required beyond basic registration details.
Micropayments to mobile wallets
While SCF supports large parts of its supply chain, many of DPDHL’s transport subcontractors are individuals or small businesses that are unbanked, and therefore would not be included in a SCF programme. DPDHL wanted to act responsibly towards these subcontractors by paying at the point of goods delivery , even though the customer may not pay for another 60 days. Hogan explains,
“To achieve this, we are working with Standard Chartered to fund truckers’ and other unbanked subcontractors’ digital wallets. Not only has the bank recognised the importance of these micropayments to DPDHL and our wider supplier community, but also the potential to work with these subcontractors as they grow their business in the future.”
In India, for example, Standard Chartered and a DPDHL entity have put in place a 24/7 instant payments platform to support logistics partners (box 1). Thousands of subcontractors, such as truckers, can see what delivery orders are available and accept an order. Immediately, a 20 percent order acceptance fee is transmitted via DPDHL to their mobile wallet via instant payment, with the remaining 80 percent remitted on delivery. Subcontractors can see straightaway that they have been paid, with immediate access to cash.
Figure 1. Instant Payments Platform in Practice
Using digitisation to help clients scale and adapt their operations
While 53% of respondents feel that the ability to rapidly switch logistics and distribution routes to adapt to market changes is highly important, only 39% feel they are performing highly in this aspect.
Changing consumer patterns, and unpredictability in supply or demand, mean that companies across all industries need to build flexibility and adaptability into their supply chains. Clients rely on DPDHL as they scale and adapt their business to changing customer demands by effectively outsourcing logistics and related aspects of their business . Digitisation has become increasingly important in enabling DPDHL to support this requirement. The group is digitising its operations wherever possible, including the use of robotics and artificial intelligence (AI), not as an end in itself, but as a vital way to deliver on customers’, employers’ and investors’ expectations.
Collaboration and connectivity to drive innovation and reduce friction
57% of respondents believe that developing shared objectives, KPIs, and incentives with suppliers are highly important.
Key to success in building flexible, resilient and sustainable supply chains is collaboration across supply chain partners. DPDHL works closely with its strategic clients to understand and fulfil client strategies with innovative solutions and joint KPIs in order to meet and exceed client expectations. Open book contracts are very common to provide all parties with full visibility over costs, metrics etc. DPDHL also brings clients into its innovation centres in Singapore, Cologne or Chicago to explore supply chain innovation today, and model future solutions based on their longer-term strategies.
This collaborative approach also extends to suppliers, whether air or sea carriers, or customs authorities, to explore the potential for new digital solutions to reduce friction, increase visibility, and enhance insights and intelligence into supply chain requirements. Hogan says,
“One of the obstacles to collaborative thinking today is not only the need to bring together disparate organisations, but also break down internal business silos, and engage experience and expertise from across the business. For example, our finance team is working with commercial departments to understand customer needs, and the impact of contract issues, such as FX. This results in better co-operation within the company, as our commercial teams know who to speak to in case of issues around FX or cash flow. It also results in better contracts as people are more aware of risk and liquidity issues when engaging with clients.”
This combination of internal and wider collaboration is also instrumental in anticipating, driving and enabling digital, instant business models, that may have very different inventory, logistics, financing and customer engagement implications from traditional bricks and mortar businesses. Every stakeholder, and the banks that support them, has a role to play in this, by understanding and removing friction in the physical and financial flows, and providing financing where necessary to enable these flows.
These initiatives have been major contributors to DPDHL’s success, and as a result, the success of its clients, through resilient, efficient and adaptable supply chains. Over time, as industrial ecosystems continue to evolve, disrupt and be disrupted, these supply chain dynamics will change accordingly. However, with sustainability, and an ambition to remain the first choice for customers, employees and shareholders at the heart of DPDHL’s strategy, the Group will continue to meet these evolving needs, and deliver continuing success.
Find out what more than 900 finance and procurement professionals from mid-market and large companies around the world have to say about sustainable and resilient supply chains by reading our research report Critical Indicators of Sustainable Supply Chains: More than ESG.
Consider and compare your company’s supply chain performance with that of peers with our Supply Chain Performance Indicator, an online tool that allows you to benchmark yourself against peers within the same turn-over band in a particular region or globally. Your responses will be shown in comparison with survey data, and you will be offered some actionable current best practice insights to consider, to help to improve the sustainability and resilience of your company’s supply chain.