How to Win the Energy Race

How to Win the Energy Race

Overcoming risks to the supply chain will be key to energy and green initiatives.

What does it mean when the federal government announces a "voluntary" partnership with its suppliers to create a greener, more energy-efficient supply chain? Manufacturers are about to find out.

As part of the Obama administration's GreenGov initiative, the General Services Administration (GSA) has introduced a supply chain partnership and small-business pilot program aimed at promoting clean energy while cutting waste out of the federal supply chain. Key to the effort will be tracking reductions of greenhouse gas emissions.

According to Energy Secretary Steven Chu, the United States faces a Sputnik-like moment, only this time instead of a space race it'll be an energy race. "We are no longer leaders in manufacturing, but even more startling, we are no longer the leaders in high-technology manufacturing," Chu observes. The energy race, however, poses an opportunity for the United States to re-assert its innovation leadership, but only if we take action right away, he says.

Energy Secretary Steven Chu: "We are no longer leaders in manufacturing, but even more startling, we are no longer the leaders in high-technology manufacturing."
GreenGov is just one of a number of supplier-qualification and scorecard programs that are based on measuring carbon footprints and resource use throughout a product's lifecycle, beginning with the sourcing of raw materials to the ultimate waste disposal by the end user. And it"s got a lot of manufacturers confused about what exactly the ultimate endgame of all these initiatives and programs might be.

"Supply chain and environmental professionals share a common goal: to reduce waste," explains Steve Starbuck, Americas leader, climate change and sustainability services, with consulting firm Ernst & Young. "While these supplier programs could be seen as a burden, they are actually great opportunities to cut costs while reducing an organization's environmental footprint. The risks -- once identified and managed for an individual organization -- can help foster customer relationships and yield competitive advantages."

To help manufacturers manage their operations throughout these many and varied green initiatives, Ernst & Young has identified five climate-change and sustainability risks that companies should consider as they respond to demands to eliminate waste from their supply chains and to report on these initiatives:

1. Strategic. The supply chain offers manufacturers an opportunity to improve their competitive advantage while reducing cost and waste. This will become increasingly important as stakeholders become more interested in social and environmental costs.

2. Compliance. Manufacturing companies that are required to comply with green supplier programs also need to track data on energy use and make that information available for audits. For those OEMs that have green supplier programs of their own, they"ll require processes to track and monitor supplier compliance.

3. Financial. There are any number of ways supply chain operations impact a company's bottom line, from cash management to liquidity implications to due-diligence requirements for acquisition targets.

4. Reputational. Supplier-qualification programs often are used to ensure companies are doing business with suppliers that share their values, minimizing the risk to their brands and reputations. To that end, companies are starting to conduct regular audits of suppliers, which includes compliance with emissions, waste and safety guidelines.

5. Operational. From a supply chain operations standpoint, efficiency efforts run the gamut from spare-parts inventory management, manufacturing equipment utilization, reduction in manufacturing waste, transportation, logistics and facilities management.

"As organizations across the public and private sector decrease their environmental footprints by focusing on supply chain operations, many find they need to influence operations that fall outside the direct control of a single business unit or enterprise," says Eric Olson, Ernst & Young's climate change and sustainability supply chain leader. "As a result, supply chain leaders need up-to-date sustainability information that meets the growing demand for transparency and accuracy from customers and suppliers alike. Many companies are already taking a full lifecycle approach to improve the environmental impact of their products and services."

Ernst & Young recommends that manufacturing and supply chain decision-makers focus on the following areas:

• Assess climate-change and sustainability reporting needs, including evaluating the integrity and alignment of data across the supply chain.

• Monitor and assess existing or potential government regulations on the entirety of the supply chain.

• Review the corporate risk register and risk-management policies for appropriate inclusion of climate-change and sustainability risks associated with the supply chain.

See Also:
• Corporate Sustainability

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