An 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.
This post originally appeared Dec 12, 2007 on ESF.
Sometimes, I just like the way the British phrase things, as this sentence which started an article on sustainability in the Financial Times that I read while in London. Here, they were calling out the “Wal-Mart Price” which demands extreme cost cutting in every area possible to meet the demands of the global giant.
In Beijing last week, Lee Scott – CEO of Wal-Mart, spoke at a “sustainability summit” which was highlighting the vast Wal-Mart supply chain and their initiative to use their purchasing power to raise environmental standards throughout China. It is being called the most ambitious private sector effort to reduce waste and pollution in the country, to date.
It looks like Wal-Mart will be enforcing some of these new programs with the use of eSourcing technology, on top of it all.
In the US, the retailer has embraced a series of environmental initiatives over the past three years, including developing solar power systems and promoting more sustainable products such as, low energy light bulbs. This year, it introduced a packaging scorecard that evaluates the efforts of suppliers to reduce waste, which is now being translated in Mandarin.
Environmental groups are lauding the effort with some skeptics thinking this will just be added to the agenda (and cost structure) while they demand YOY cost reductions from suppliers.
At the very least, in emerging countries, the government will not be the ones to take corrective action of companies that cut green corners. It takes the end consumer to enforce change. It looks like Wal-Mart is making these efforts, probably based on the climate of customers which are, in turn, demanding it.
But, apparently it is one that most people lack understanding of the costs associated. In this recent article by Supplychainbrain, which is highlighting a study by Kewill.
..found that three-quarters of respondents who awarded logistics contracts included sections on environmental compliance in their tender documents. However, most (54%) failed to make provision for the extra costs that could be involved.
In the survey, 70% of companies awarding contracts said that environmental compliance was either ‘reasonably important’ or ‘very important’. Survey respondents were also probed about whether their companies’ environmental enthusiasm would change in the coming years, given the chances of an economic slowdown. The overwhelming sentiment seemed to be no–but according to two-thirds of respondents, that is largely due to the ‘win-win’ of implementing green initiatives which bring operational efficiencies and also cut costs. The number who said they would continue to pay more for an environmentally friendly alternative (17%) was balanced by the proportion who said they would base their sourcing decisions on cost alone.
It seems surprising that the basics are being missed here. These are admirable and achievable goals for sourcing, but procurement should always be asking questions about the impact on costs. I suppose the moral of the story is always understand the total cost and if you suspect there are things you do not know, ask the questions. That’s what an RFx engine will do easily.
Add commentSeptember 9th, 2008Sean Delaney - Iasta UK
I have been following the development of Green technology from two different aspects; firstly, from a personal perspective, i.e I want to live in a self sufficient household. I don’t want to pay for energy supplied by a French company that increases prices in the UK by 22% whilst back in France, we subsidise their increases capped at only 2%. I also don’t want to pay Oil producers so that these Sovereign Wealth funds can come back and buy Premier league football clubs (check the guys out in the car being interviewed)!
Secondly, I am interested in the whole supply chain, what technology is leading the race and what impact is this going to have on future supply chains.
However, it seems to me that the whole production and supply of energy is completely screwed up. The future of renewable energy is impossible to predict so how then can Government intervention help this process?
I was reading this article about Green solutions and realised that the best to way intervene is to have no intervention at all! I mean, come on, 1m green collar manufacturing jobs with the investment of probably around £20m of new government money…”the first big industrial policy initiative from Labour in six years”…Joe Public is not stupid and judging by the comments at the end of this article they have seen straight through the Government ruse.
The Market and Public opinion are strong vehicles to harness change. Take a look at Tesco’s new local sourcing initiative. They launched this last year and now have revenues of £500m ($0.9bn) per year coming from locally sourced products. This is great for the local economy and radically reduces the carbon miles for each product. By 2011 they expect revenues in excess of £1bn ($1.8bn). This has been driven by public awareness, marketing initiative, and the cost of fuel. The Market is a powerful tool and is currently telling us we can no longer consume scarce resources to the degree we have been, we therefore need to look at alternatives.
Consumers now understand the opportunity cost and are now are changing their buying habits. This sentiment has increased demand for alternatives and in turn is lowering the unit cost of renewable energy. Ultimately, this makes it more accessible for the masses. The market has decided again and the Supply chain is being redesigned.
Last week, the Doctor gave some good information on green purchasing. I do not want to be repetitive, but I ran across an article by Kimberly Knickle of Manufacturing Insights that had some great tips that expand upon this topic.
Here is a summary of the suggested guidelines that resulted from her research:
• Your company may need to rethink its business model: Energy companies clearly face this, with their shift away from a model where revenue increases with demand. For manufacturers, this means new products, new combinations of products and services or even new customers or new partners.
• Make it easy for your customers to go green: Create greener product alternatives, and take the complexity out of going green with new services and product combinations.
• Don’t change your ROI requirements for green operations, products and services: But recognize that regional cost differences may make projects more appealing in some manufacturing sites over others. Then use more successful projects to fund those that have lower (or more long-term) financial benefits.
• Reduce and reuse are the first steps, and then comes recycling: Apply this across a broad spectrum — raw materials, packaging, energy, water and more.
• Make public commitments, including your targets, and report on your progress: This not only benefits your reputation but also makes sure everyone is living up to the same standards. And don’t lose sight of the fact that it’s not just about carbon or carbon dioxide.
• Ask for participation from employees and suppliers: The important component in that statement is the need for voluntary participation, with manufacturers commenting that once employees and partners know the goals, the task becomes much easier. One caution: With suppliers, it often requires a 1:1 connection.
• Take advantage of government programs and knowledge in your peer group: That includes many of the examples we discussed earlier, such as the EPA and DOE.
• Data matters: We can’t emphasize enough that this is about a shift from the qualitative to quantitative in goals, performance metrics, identifying improvement opportunities and more. One key point: Efficiency improvements will put a company in a good place for any carbon or environmental regulation, as long as you have the data to demonstrate those efficiencies.
Green sourcing is not a departure from the way sourcing is currently being practiced; it’s an augmentation. When considering the trade-offs between one material, service, or supplier and another, the sourcing function has traditionally measured the value of each by analyzing either the economics of the deal or the deal’s impact on the customer. Green sourcing starts with the same considerations, but it also takes into account the environmental impact of a particular choice, be it transportation, materials, energy source, or packaging design, on the ecological footprint made by a product or service.
…
The classic example of these value chains interdependencies is a 32-watt energy-efficient light bulb that costs US$6. It may appear more expensive than a 100-watt bulb that is available for 75 cents, but the green bulb actually has a lower cost of ownership once other factors are taken into account. Its 10,000-hour life is 10 times longer than the life of the cheaper bulb–and it will burn only $48 worth of electricity compared to $150 worth for the conventional bulb. A shift in light bulb supplies, however, may be worth making only when multiplied across a company’s dozens of facilities around the world.
This is a partial recount of a very detailed (and high quality) story about green sourcing process conversion and benefits. Company stories highlighted include: AB, Ford, HP, Kaiser Permanente, Cadbury Schweppes, Marks and Spencer, Starbucks and others.
Although you need to budget some time to really read and digest this, the information and case studies give any organization, with intentions of embarking on a green sourcing initiative, many good examples. The authors highlight three goals from green sourcing to give it a chance to succeed. These include taking a cost approach, building brand appeal, and having cross-functional insights into process.
This is virtually a white paper. Although bringing on experts (like these from Booz Allen) will help accelerate the process and implementation, there is so much good information in this document that many teams can at least start seeing the big picture for green sourcing benefits.
Green Purchasing, also known as Environmentally Preferable Purchasing (EPP) is important, and not just because we’d need the resources of five (5) earths to sustain us if everyone in the world consumed like the developed world did (and the US, Australia, and Canada in particular). It’s important because purchasers, be they government, corporate, or institutional, yield a great influence over the future of the planet with every buying decision they make – and because every purchase has a hidden cost on the environment.
Public sector and private sector institutional buying combined accounts for the vast majority of spending in most developed countries. It’s true that we as consumers in developed countries buy a lot, but when you consider that we’re (almost) always buying from a private sector company that is in turn spending 60% t0 80% of its revenues buying raw materials, products, and services from other businesses, and that, in some countries, public sector buying alone accounts for as much as 25% of GDP, it’s easy to see that, combined, purchasers ultimately control 70%++ of GDP in much of the developed world. Thus, if we were to refuse to buy products that were not green, we would effectively force our suppliers to provide us with green products, as the alternatives would be for those suppliers to go out of business.
So what is green purchasing? Simply put it’s one of the three cornerstones of sustainable purchasing, where the other two cornerstones are sound social policy and economic soundness. However, whereas economic soundness insures that the overall decision is sound from a life-cycle cost and corporate sustainability perspective, and whereas social policy addresses your need to be a responsible corporate citizen when it comes to human rights and welfare, green purchasing addresses the environmental impact of your buying decision.
One might think that buying green is the easiest criterion of the spend triumvirate to meet now that we have “organic” and “local” food and “eco-friendly” labeling and “energy-star” standards, but it is, in fact, the most challenging criterion! A food product does not necessarily have a low carbon footprint just because it is “organic” or “local”; just because a product is “eco-friendly” when used, does not mean that it’s production process was “eco-friendly”; and just because a product is “energy-star” compliant does not mean that it will have the best overall energy utilization.
Buying local produce makes sense during the fall harvest season, because you’re eliminating the carbon footprint that accompanies transportation, but it does not make sense in the spring when all the product is coming from greenhouses. Why? The energy footprint associated with a greenhouse often has a much higher carbon footprint than transporting products by land from the opposite hemisphere. Eco-friendly detergent is much better than hazardous bleach, but if it’s been produced in a factory that (still) uses a process that generates toxic chemicals as byproducts, it’s not very eco-friendly at all. And your average energy-star desktop workstation still consumes 80+ watts of power, which really adds up if your employees never turn them off. If all your employees are doing is word-processing and internet purchasing, they could be using a thin-client that only consumes 4W of power when in use, and a fraction of a watt in standby mode, hosted on a multi-core modern server that supports automatic power-down of processors, drives, and power supplies when utilization drops below a certain threshold.
Because green purchasing is so important, and because it can be difficult to know the right thing to do in each situation, we created the Green Purchasing wiki-paper on the e-Sourcing Wiki to help you start on the green grass path.
A recent Economist article reminded us that energy efficiency, according to the McKinsey Global Institute, could get us halfway to the goal of keeping the concentration of greenhouse gases below 550 ppm. Considering that energy efficiency lowers fuel bills in addition to energy needs, the quest for “negawatts” is a valid one.
Moreover, even though a lot of investment would need to be made to increase energy efficiency to the levels that are possible, on the order of 170B annually until 2020, this is only 1.6% of today’s global annual investment in fixed capital. A bargain when you consider that the measures, which only require existing, proven, technology, would earn an average return of 17%, and a minimum of 10%. Considering the performance of most traditional investments, including the stock market, as of late – that’s very attractive!
A recent Wired article noted that embracing nuclear power as a clean power source is not necessarily the right solution. The argument assumes that clean alternatives will not improve in efficiency or affordability during the 10 years it would take to implement an effective nuclear program. Given the current cost of oil and recent improvements in solar, hydro, and wind power, these sustainable alternatives, which don’t produce hazardous radioactive waste as a byproduct, when combined with energy efficiency investments, could deliver a clean-energy future much cheaper and much sooner — without security or health risks.
A new study from the Argonne National Laboratory has confirmed that greenhouse gas benefit from most corn ethanol is modest at best, and that if coal is used as the process fuel, it can actually increase greenhouse gas emissions by 3%! This correlates well to a recent study from UC Berkeley’s Energy and Resources Group (ERG) that found that there is no climate benefit from corn ethanol. The only ethanol with a promising potential is cellulosic ethanol, which can reduce total greenhouse gasses by a whopping 86% compared to gasoline. If it can be efficiently and effectively generated from switchgrass, and if switchgrass can be grown across much of North America, it may have a future. Otherwise, ethanol will be a dead end.
So what’s the verdict? We have the means to solve the energy crisis, or at least curtail our energy needs to the point where the crisis will be deferred to the future where we will likely have more innovations to draw from, but we have to be smart about it. Renewable energy sources and increased energy efficiency will help significantly in the short term, and cellulosic ethanol presents a viable alternative to gasoline if production processes can be improved and raw materials grown in abundance (without affecting the food supply). However, if we could reduce our dependence on oil to transportation only (which accounts for less than 10% of our total energy consumption and produces less greenhouse gasses than our farm animals on a global basis), we’d have quite a bit of time to perfect the process.
Wal-Mart’s environmental sustainability efforts have continued to intrigue people since the announcement of their “green” initiatives in 2005. Being the world’s largest discount retailer, Wal-Mart’s goal is to reduce their “environment footprint” by being supplied 100% by renewable energy, creating zero waste, and selling products that sustain the environment. Three things that fascinate people about Wal-Mart’s efforts are the number of voluntary, rather than regulated initiatives that they’re taking the lead on; the required standards and enforced compliance that they’re mandating and the impact it will have on their major suppliers; and the influence they will have on their competitor’s to follow suit.
Green, eco-x, sustainability…there is a lot of talk right now about all of these principles being applied to the supply chain and supply management. In fact, there is even a really good blog at 2sustain, dedicated to the topic.
Many times, however, some of the simple starting points are left behind to concentrate on granular detail. I was interested to read a paper from AMR about green purchasing, which calls out the benefits and the need for procurement’s call to action.
Four areas of opportunity were identified as:
Switching from toxic to nontoxic substances
Water reuse in manufacturing of supplied products
Air emission and hazardous waste reductions
Supplier energy efficiency
There are also 3 nicely described case studies that can be reviewed for ideas of implementation of green purchasing and supplier collaboration. They show how participating suppliers were able to benefit from the buyer lead surveys. This is true win-win supplier relationship management. The buyers paid for an assessment, which identified savings and could be implemented with shared benefit.
Personally, I think this is a fascinating way to discover and implement cost savings. All the while, it is done with a social conscience.
Adrian Gonzalez of Arc Advisory Group, wrote an article in a recent newsletter which begins with:
I was listening to the radio this morning and an ad played for the station, promoting how they play today’s hit music, with few commercial interruptions. The promo, voiced by a woman with a soothing voice, ended with what I’m guessing is the station’s new tagline: “92.9 WBOS, A Carbon-Neutral Radio Station.” What the heck does that mean, I wondered. It seems like everybody is jumping on the “green” bandwagon these days, including everyone in supply chain management.
I thought this was pretty funny, but he goes into some of the take aways from the presentations that were given at the CSCMP conference on sustainability. The final summary was speculating on whether consumers would actually pay more for green products. This is an interesting question that will be asked for a long time.
Are consumers willing to pay more for green products? This is the million dollar question, and most people think the answer is no, except for certain niche products. It’ll be interesting to see what happens to the toy industry this holiday season, after the ongoing recalls of toys manufactured in China containing lead and other toxic substances. Then again, consumers haven’t cared much that Apple’s iPhone contains brominated flame retardants (BFRs) and polyvinyl chloride (PVC), toxic substances that other phone manufacturers have eliminated from their products. Apple has sold over 1.4 million units since the end of June, and analysts forecast strong sales during the holidays. At the end of the day, consumers vote with their wallets; if we don’t change our buying decisions, why should companies change their practices?
I have to say that I probably agree with this, especially on a consumer cost curve the goes up. In fact, its probably more like a bell curve that inexpensive items and luxury items will have the consumer decision effected by environmental conscience, but the wide middle ground will not. This leaves companies to plan for, and benefit from, cost savings only through effective supply chain sustainability for most of their products. Sales will probably not change from these changes.
Last week, my wife (growing increasingly disturbed by the amount of consumables in our house), came home with 5 nylon shopping bags from Meijer. I found this concept fascinating, it works because every one wins. My wife’s guilty conscience is briefly soothed, while the execs are grinning behind closed doors about the fact that they:
1. just lowered their costs by purchasing less paper and plastic bags,
2. charged the client a voluntary “tax” for shopping at Meijer, essentially turning the shopping bags into a profit center, and
3. get to do it all with a straight face of becoming more environmentally friendly.
I would be pretty proud of myself if it was my idea and some body probably got a promotion because of it.
This article is a little old now, but the topic is not and is one of the hottest stories around. This short brief is about energy efficiency being good for the bottom line, as well as the environment.
The green movement is gaining momentum across broad sectors of U.S. companies – and it’s no coincidence that the interest is growing as the intersection of greenness and the bottom line becomes clear…
Until recently, cheap labor was the driving force in companies in the apparel and electronics industry moving production offshore. But increasingly, it may be a search for cheaper energy that causes another wave of manufacturers, in different industries, to adopt similar strategies…
Bunch also says U.S. manufacturers need to take action, because if they don’t, laws and regulations that are far worse for business may be put in place…
PPG has set targets for increasing energy efficiency by 5% per year, objectives Bunch says they have been exceeding. With the rising cost of natural gas and oil, those goals add as much to the bottom line as they do to the environment, providing a lasting incentive.
This is just another example of eco-friendly sourcing that has the dual effect for both the companies and rest of us. I think 2008 is going to be very big year for transformation to more green sourcing. The idea has been around and is certainly not a taboo topic, but I think things will really start heating up and be discussed (and implemented) even more than before.
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.
I am always fascinated by the concept of “green” supply chains. This not only because I was an Environmental Science major in college, but because, it is interesting to read where companies can actually lessen their impact on the environment and reduce their costs with the same strategy. It seems impossible on the surface, but very true.
In fact, I like to show prospective clients how they can use our optimization technology to account for green suppliers in their award allocation while maintaining the lowest cost.
To that end, it was great to see a new blog by Avaro CEO, Tim Albinson, which is dedicated to the subject. I recommend saving 2Sustain to your favorites or blog reader and become exposed to concepts that Tim speaks of. His first post was to define sustainability, which is a good way to start.
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