Recent studies by Carbon Trust Standard show that consumers expect companies to continue to make “green” initiatives, despite the poor economic conditions. This blog reviews the findings of the research and what it means for the future of businesses.
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.
Nine of out ten multinational corporations are embarking a carbon offset strategy or considering it for the future. This blog takes a look at the first CO2 auction of the Northeast and Mid-Atlantic states, along with other major programs that strive for a sustainable future.
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 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.
Well another eWorld (London 12th & 13th Feb) has come and gone but some significant shifts it the market yet again. As always the keynote session was well received and after a year’s absence Chris Sawchuck from Hackett delivered the presentation. Some of the key points were:
Best in class procurement organisations are costing less to run. The total cost of running the procurement department is falling as a percentage of total revenue. Procurement is being asked to deliver more with the same resources.
BIC are finding diminishing returns on their sourcing activities and they are starting to hit a wall.
In order to maintain and improve returns BIC are starting to look at the Total Cost of Ownership – influencing spend decisions earlier.
However only 33% of world class organisations are actually focusing on Total Cost of Ownership approach – so there is room for growth.
Chris went on to add that although in Procurement has been through 10 great years we are now heading into a perfect storm……
S – Supply Assurance – the need for the right goods in the right place at the right time is going to be an even greater challenge. T – Talent and technology will continue to be top issues. The lack of talent continues to have detrimental affects on the adoption technology. This has become a worldwide issue. O – Operational – procurement is still about purchase and payables. R – Risk and regulation is a growing concern. Supply chain risk factors are multiplying and at the same time regulations are growing. M – More growth, more innovation greater brand enhancement. CEO’s are tasking procurement to deliver and influence in all these areas.
As you can see from Chris’s analysis not only do we have some difficult economic conditions ahead but Procurement will have a far greater range of challenges to contend with.
There was also a Green tint to the show with exhibitors like Green2020 focusing on carbon footprint reduction and Action Sustainability focus on sustainable procurement.
From a personal perspective the delegates were far more focused on their organisational needs and what eSourcing had to offer them. Spend Analysis has yet some way to go to reach a similar level of understanding.
Overall another great conference and looking forward to September already!
A recent article popped up in Network World about another vendor in the industry extolling the virtues of “utility computing”.
Perfect Commerce, much to the chagrin of its remaining internal IT staff, is outsourcing all of its datacenter operations to Savvis in a $5 million 3-year contract. When I first read this I was shocked at the price tag, which I am sure has been discounted considerably from Savvis’ list pricing considering the public press release and marketing help that Perfect has given them. Still how could this cost be justified in a company the size of Perfect (150 employees)?!?
Digging deeper into the press release, I have found the reason…
“A couple of years ago, we had between 500 and 600 servers at Perfect Commerce in about 29 different application groups.”
Bingo. Now it all makes sense. They had about four times as many servers as employees! And who knows how many other assets (desktops, laptops, printers, routers, switches, firewalls, etc) the overburdened IT staff was responsible for managing. And 29 “application groups” is an awful lot for a small software company to even have a hope of providing decent customer support.
I am sure the strain of supporting SO MANY legacy systems (40 servers per IT employee!!) that were cobbled together or acquired over the years was causing a lot of stress and strain on the understaffed IT department especially considering the skyrocketing demands (and costs) of compliance/security and higher availability levels. So instead of tackling these problems in-house the decision has been made to throw a lot of money at the problem.
Thankfully, Savvis has the right prescription for this problem: server consolidation and virtualization. This clearly should have been accomplished many years ago and, when completed, will increase the efficiency and manageability of these assets. With the sheer volume of virtualization they will need to do this, it may be a good time to load up on some more VMW or EMC stock while they are down. Another winner in all of this is the environment. 600 servers at 300 watts each consume about 180 kilowatts, or almost $500 per day in electricity not including the extra AC such a datacenter would require. Cutting the number of physical servers by more than half would be good for Perfect’s carbon footprint.
So, to recap, here are the winners and losers:
Winners:
Savvis
EMC and VMW
The Environment
The Economy in Atlanta and D.C.
Losers:
Perfect’s IT Staff
Kansas City Power and Light
The Kansas City Economy
IT Consultants (the article says they were paid $300/HOUR!!)
It is clearly very difficult to have to manage this many legacy systems and products for any company, both from an IT perspective and from a customer service perspective. I’m really not sure where this leaves Perfect’s customers–will the quality of their support improve or not? Will the money have been better spent improving the support or the products versus paying the infrastructure tax of legacy acquisitions? Stay tuned…100% acquisition retention is on the line!
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.
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.
These figures seem quite high but I can’t help but feel that with companies like Tesco and Wal-Mart giving a greater priority to this issue these percentages are likely to change dramatically over the next few years.
Carlson Wagonlit Travel (CWT) seems to be tackling this head on and have developed a calculator that incorporates carbon emissions data when calculating the cost of your travel.
Tesco and Wal-Mart are currently concentrating on their direct operations like transport, packaging and store operations. However I suspect that they are likely to impose more prescribed terms of environmental trading with suppliers. In addition as Carbon trading matures this should make calculating the market price on the cost of emitting CO2 far easier.
I can only see this issue growing but I also believe eSourcing is well placed to support the impact on procurement. The use of optimisation software will be critical when evaluating and comparing the different sourcing scenarios.
Take for example the decision to award an office supply contract. Factors like location of distribution centre to end users, average order size (larger the better), the type of fuel used by the delivery vehicle and percentage of product which is recycled. To further complicate the decision matrix, these parameters may differ by region and country.
Imagine the different scenarios and you will soon realise optimisation will be the only plausible method of analysing how to award the contract.
So, Wal-Mart is not typical on any level or relative to any comparable, but I did find a recent article in Apparel Magazine interesting, nonetheless. Check this data from the retail giant:
Wal-Mart reports that it will save nearly $26 million, will conserve 10 million gallons of diesel fuel and will prevent 100,000 tons of carbon dioxide from entering the atmosphere as a result of its “no idle” policy for its trucks and the new high-efficiency generators with which they were retrofitted. Also, as part of its sandwich bale program, 150 truckloads of shrink-wrap plastic were collected and recycled in the first quarter of 2006 alone. This kept the plastic out of landfills and generated $1.1 million in recycling revenue.
In addition, Wal-Mart estimates that it saved 5000 trees and 1300 barrels of fuel by changing the size of the package on a private label toy. It also reduced the amount of fuel used in the transportation due to higher unit quantities per full truckload.
Of course, these numbers are staggering when you have revenue that outpaces the economy of entire countries such as Belgium and Ukraine. I do think these advancements in green policies and purchasing are fascinating, however. Gone are the days of having to make huge sacrifices in efficiency and cost for the sake of environmental responsibility.
“It’s Not Easy Being Green.” Especially if you are Kermit the Frog. Or at least if you were Kermit the Frog up until recently. You see, if some people, especially the Neo-Greens, have their way, Kermit might soon get to change his tune … and not just when he’s driving the Ford Escape Hybrid.
We refer you to the latest issue of Wired, which has, among others, an article entitled “The Next Green Revolution” that references a new growing trend, especially in some of the more enlightened cities in the east – green roofs.
For us Americans, this might be one of the most confounding ideas to ever crash onto our sophisticated minds, with out love of sleek, shiny, metallic objects, concrete forms, and glass displays, and our innate belief that technology transcends nature. But from a strategic sourcing point of view, it is arguably one of the best ideas ever. Why?
First of all, I’d like to refer you to an earlier blog entry on “Green Suppliers” about Interface Inc. that was able to save $260M from waste reduction initiatives from going green. Environmentally processes save energy and materials – and that saves money. Green roofs also save energy and materials. The roofs provide a balanced climate barrier that helps to keep heat in during the winter and heat out during the summer. Also, what better material to fend off the forces of nature and erosion then nature itself? They also benefit the environment by reducing the level of atmospheric carbon, which helps to counteract our increased production thereof. Simply put, green is the way to go, and in a perfect world, which likes to save money, Kermit should be able to change his tune … for good.
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