Feb 1, 2010

The Green Supply Chain – Fact or Fiction??

Are supply chains moving towards becoming proponents of the whole Green initiative many people are calling a sham? Today, lets take a look at why it is in the interest of supply chains to go green and how a lot of companies are seeing a real value in this.

COPENHAGEN AND DAVOS: Two places where a lot of people met (albegreen scmit without taking any significant decisions) to decide the future ‘green’ direction that the world needs to take. Copenhagen was one huge event what with the heads of many countries meeting to try and figure how they should share the responsibility that ‘going green’ has become. I look to Reuters to tell me the exact impact of the summit at Copenhagen.

More than 50 nations including major greenhouse gas emitters have outlined plans for fighting climate change under a January 31 deadline set in December's low-ambition "Copenhagen Accord.

The countries, accounting for more than two-thirds of world greenhouse gas emissions and led by China and the United States, have mostly reiterated existing goals for curbing emissions after the summit of more than 190 nations in the Danish capital.

Most have formally asked to be "associated" with the accord, by a January 31 deadline. China and India, however, have stressed most allegiance to the 1992 U.N. Climate Convention.

The accord seeks to limit a rise in global temperatures to below 2 degrees Celsius above pre-industrial levels and sets a goal of $100 billion a year in aid for developing nations from 2020 to help confront climate change.

Source: Reuters Article

Significant. Especially if you consider the bickering that has been going on in the past decade about taking responsibility for the carbon mess we’re in. And now – I mean right now, the summit at Davos is going on. What started as being an Economic Forum has now panned out to focus on ‘green’ issues as well. Why? To put it in plain language, many economies of the world are going to be spending a lot on trying to clear up this mess. That’s why!!

WHY SUPPLY CHAINS? Because its a perfect match – perfect to the point that it inspires poetry.

Picture a world-class supply chain of a large retailer. Imagine trucks moving from town to town around the clock.

Picture a 3PL logistics provider’s supply chain (more of a vehicle chain really). Imagine trucks, planes, trains – but mainly ships moving from dock to dock.

Picture the supply chain of a computer manufacturer. Imagine moving zillions of small chips and other parts to the manufacturing facility – moving the product from the DC to store or home – and then having a computer sitting around that still has a carbon footprint of its own.

The scope of reducing emissions in supply chains is enormous. That’s why numerous companies all around the world are looking to reduce carbon in their supply chains. That said, it has become something of a fad.  Consider this fact. Over 91% of the 44 consumer facing companies surveyed in Carbon Disclosure Project said they have a board-level executive responsible for climate change. If that’s not disturbing enough, 56% say they expect to deselect some suppliers in the future for failing to meet carbon management criteria. This is an increase from just 6%. (Source: businessgreen.com). All this goes to signify that a lot of upper C-level attention is being focused on managing the carbon footprint of companies.

WHY SUPPLIERS? Because they form the crux of the supply chain. Although suppliers do not come under the direct control of the companies that are buying from them, the carbon practices of suppliers are certainly an area of concern for them. A lot of companies are now including carbon footprint (disguised in the form of many other terms including environmental rating) as a criteria in RFPs and RFIs. But is climate change really a procurement concern? An article with the same name caught my attention recently.

  The video below talks about the same idea and puts it into perspective. Its over an hour long. So watch it when you have time.

When you come to think of it, it is the procurement organization that has the most direct impact on the bottom-line of the company as a whole (remember the fact that it takes three times as much in sales to match a cost savings in procurement or sourcing). Going by the same logic, the procurement organization also has a direct impact on the carbon footprint of the supply chain – they can make or break the carbon footprint of organizations by selecting the right suppliers. More procurement organizations are beginning to focus on the Total Cost of Ownership (TCO) while selecting suppliers.

I think we need to use a new metric for selecting suppliers in this context. I’m going to call this the TOTAL IMPACT OF OWNERSHIP (TIO).

This metric will include the cost benefits of partnering a certain supplier over an extended period (just like TCO). But in addition, it will also assign importance to the level of carbon management that the firm has, best practices in manufacturing (lean manufacturing and quality levels), and also the positive impact of publicly associating with the supplier (this parameter best applies to larger, more public suppliers).

THE CASE FOR GREEN: I think that a valid case has been made for introducing the ‘green supply chain’ concept in modern businesses. Focusing on the carbon footprint not only gives companies bragging rights (and loads of marketing material), it also enables companies to remain more agile and efficient. This is because most of the improvements that make a company greener will also, by default, make the company more efficient due to adopting best practices. The initial cost of doing this may be high. But the ‘Total Impact’ will be realized for a long time to come. What do you think?

Feb 1, 2010

The Green Supply Chain – Fact or Fiction??

Are supply chains moving towards becoming proponents of the whole Green initiative many people are calling a sham? Today, lets take a look at why it is in the interest of supply chains to go green and how a lot of companies are seeing a real value in this.

COPENHAGEN AND DAVOS: Two places where a lot of people met (albegreen scmit without taking any significant decisions) to decide the future ‘green’ direction that the world needs to take. Copenhagen was one huge event what with the heads of many countries meeting to try and figure how they should share the responsibility that ‘going green’ has become. I look to Reuters to tell me the exact impact of the summit at Copenhagen.

More than 50 nations including major greenhouse gas emitters have outlined plans for fighting climate change under a January 31 deadline set in December's low-ambition "Copenhagen Accord.

The countries, accounting for more than two-thirds of world greenhouse gas emissions and led by China and the United States, have mostly reiterated existing goals for curbing emissions after the summit of more than 190 nations in the Danish capital.

Most have formally asked to be "associated" with the accord, by a January 31 deadline. China and India, however, have stressed most allegiance to the 1992 U.N. Climate Convention.

The accord seeks to limit a rise in global temperatures to below 2 degrees Celsius above pre-industrial levels and sets a goal of $100 billion a year in aid for developing nations from 2020 to help confront climate change.

Source: Reuters Article

Significant. Especially if you consider the bickering that has been going on in the past decade about taking responsibility for the carbon mess we’re in. And now – I mean right now, the summit at Davos is going on. What started as being an Economic Forum has now panned out to focus on ‘green’ issues as well. Why? To put it in plain language, many economies of the world are going to be spending a lot on trying to clear up this mess. That’s why!!

WHY SUPPLY CHAINS? Because its a perfect match – perfect to the point that it inspires poetry.

Picture a world-class supply chain of a large retailer. Imagine trucks moving from town to town around the clock.

Picture a 3PL logistics provider’s supply chain (more of a vehicle chain really). Imagine trucks, planes, trains – but mainly ships moving from dock to dock.

Picture the supply chain of a computer manufacturer. Imagine moving zillions of small chips and other parts to the manufacturing facility – moving the product from the DC to store or home – and then having a computer sitting around that still has a carbon footprint of its own.

The scope of reducing emissions in supply chains is enormous. That’s why numerous companies all around the world are looking to reduce carbon in their supply chains. That said, it has become something of a fad.  Consider this fact. Over 91% of the 44 consumer facing companies surveyed in Carbon Disclosure Project said they have a board-level executive responsible for climate change. If that’s not disturbing enough, 56% say they expect to deselect some suppliers in the future for failing to meet carbon management criteria. This is an increase from just 6%. (Source: businessgreen.com). All this goes to signify that a lot of upper C-level attention is being focused on managing the carbon footprint of companies.

WHY SUPPLIERS? Because they form the crux of the supply chain. Although suppliers do not come under the direct control of the companies that are buying from them, the carbon practices of suppliers are certainly an area of concern for them. A lot of companies are now including carbon footprint (disguised in the form of many other terms including environmental rating) as a criteria in RFPs and RFIs. But is climate change really a procurement concern? An article with the same name caught my attention recently.

  The video below talks about the same idea and puts it into perspective. Its over an hour long. So watch it when you have time.

When you come to think of it, it is the procurement organization that has the most direct impact on the bottom-line of the company as a whole (remember the fact that it takes three times as much in sales to match a cost savings in procurement or sourcing). Going by the same logic, the procurement organization also has a direct impact on the carbon footprint of the supply chain – they can make or break the carbon footprint of organizations by selecting the right suppliers. More procurement organizations are beginning to focus on the Total Cost of Ownership (TCO) while selecting suppliers.

I think we need to use a new metric for selecting suppliers in this context. I’m going to call this the TOTAL IMPACT OF OWNERSHIP (TIO).

This metric will include the cost benefits of partnering a certain supplier over an extended period (just like TCO). But in addition, it will also assign importance to the level of carbon management that the firm has, best practices in manufacturing (lean manufacturing and quality levels), and also the positive impact of publicly associating with the supplier (this parameter best applies to larger, more public suppliers).

THE CASE FOR GREEN: I think that a valid case has been made for introducing the ‘green supply chain’ concept in modern businesses. Focusing on the carbon footprint not only gives companies bragging rights (and loads of marketing material), it also enables companies to remain more agile and efficient. This is because most of the improvements that make a company greener will also, by default, make the company more efficient due to adopting best practices. The initial cost of doing this may be high. But the ‘Total Impact’ will be realized for a long time to come. What do you think?