Cost reduction through energy efficiency

December 10th, 2007 at 05:51am David Bush - Iasta

A recent article in ecommercetimes points to information from Booz Allen Hamilton on carbon footprint in food processing. Their basic definition is good for understanding the reasons for designing better ways to increase energy efficiency.

“The four primary factors driving businesses’ interest in the energy-efficient supply chains are cost savings, productivity gains, regulation concerns and emerging end customer interest.”

The story goes on to explain how farmers in the potato industry were given a very strict moisture tolerance for potatoes, but in an effort to maximize weight within the tolerance (and get more money for the harvest), they artificially raised the water levels. These extra grams of water meant more revenue for the same crop. In turn, it took the potato chip manufacturers, more energy to cook off the extra water and cost more to produce the chips.

The solution lies in aligning the incentives on both sides and allowing the manufacturer to take advantage of UK emissions credits while maintaining the producers margins on a lower moisture content food. Booz gives the following recommendations in summary:

“The first step is to understand the specific carbon footprint of your business’s supply chain, in the context of overall strategy and operations. The second step is to discern the extent to which emissions relate to your specific needs, versus those inherent in supply chain management. The third step is to define your approach. It is likely to be a combination of three types of measures:

1. Reducing your footprint through demand reductions and energy efficiency in design, construction and operation.

2. Replacing conventional energy sources and materials with low- or zero-carbon alternatives, including materials and equipment with low-embodied carbon.

3. Offsetting unavoidable carbon emissions through a program of credit trading and other verified means.”

This example comes from the UK but has similar examples everywhere. Understanding where the incentives are and tracing it back through the supply chains are complicated but useful goals in cost reduction.

Entry Filed under: General, Global Supply Issues/Risk, Green Sourcing, Suppliers

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