In the Green Supply Chain, The Problem is Often the Solution

May 13, 2010
Driven by buyer requirements, consumer and shareholder demand and the prospects of creating business advantage, manufacturers are embarking on a quest to identify, report and justify the environmental impact of their supply chain.

Walmart has continued its commitment to reduce carbon emissions and requires its suppliers to do the same. Over the next five years, the company has promised to reduce 20 million metric tons of carbon pollution from the life cycle of the products it sells.

Just last month, IBM joined the party, announcing that it will require its 28,000 suppliers to collect data on energy use, greenhouse gas (GHG) emissions and waste and recycling.

Two very big drivers for this demand are shareholders and consumers. Ceres, a national network of investors, environmental organizations, and public interest groups, announced in March that shareholders filed a record 95 climate change-related resolutions with 82 U.S. and Canadian companies, a 40% increase in resolutions filed over the last year. The organization indicated this is an early sign of the, "growing pressure on companies to disclose climate risks and opportunities in the wake of the recent Securities and Exchange Commission's climate disclosure guidance and other recent policy developments."

Data show that consumers also favor "green" companies. A study conducted by Green Seal found that despite the poor economy, four out of five consumers are buying greener products and services.

Driven by buyer requirements, consumer and shareholder demand and the prospects of creating business advantage, manufacturers are embarking on a quest to identify, report and justify the environmental impact of their supply chain.

Know Thy Problem

When looking back at some of the approaches that manufacturers have taken on more than 100 supply chain carbon assessments I've helped develop over the years, I always come back to the same key tenet: Creating supply chain carbon assessments rests on understanding that the main problem is finding out what the problem actually is. Albert Einstein is quoted as saying that if he had one hour to save the world, he would spend fifty-five minutes defining the problem and only five minutes finding the solution.

Not fully understanding the questions you're expected to answer is most often the biggest shortcoming in existing supply chain carbon accounting practices. Many organizations are receiving a lot of different requests for information -- from Walmart, U.S. EPA, Carbon Disclosure Project, investors, and state purchasing organizations, just to name a few. As a result, they struggle to define what is necessary and if a complete cradle to grave life cycle assessment is required.

Take Walmart for example. They ask for life cycle information on energy, resources, greenhouse gases and solid wastes. The Carbon Disclosure Project asks for a GHG inventory, and government purchasing agencies ask for specific material or energy reductions. The fact is that it is difficult enough for manufacturers to deal with mandatory reporting on gate to gate GHG emissions, but when you throw in requirements that span everything from cradle to grave GHG emissions, to water use, energy use and solid wastes, manufacturers are simply overwhelmed.

Identifying what emissions and other sustainability metrics (water, energy, solid wastes, etc.) need to be reported --whether to an outside organization, governmental body or shareholders --is key to developing an accounting system that can scale and evolve as business needs change. A straightforward example involves manufacturers in the consumer electronics industry which import products or components to U.S. companies. Each importing company needs to be able to assess the potential for ozone depleting chemicals (ODCs) included in the manufacture of any of its products or components from facilities overseas. This means assessing the inclusion or use of ODCs throughout an entire supply chain.

Not knowing whether ODCs are in the product or used in the manufacture of the product, can result in significant taxes owed to the U.S. Internal Revenue Service (Sections 4681 and 4682 of the Internal Revenue Code.) By helping companies determine what parts of their supply chains need to be audited, and what needs to be included in the audits, we have been able to help dozens of electronics manufacturers achieve a cumulative savings of more than $100 million.

Inputs and Outputs

Once you know what you need to answer and who you need to provide it to, it's time to identify the expended energy across your supply chain. This extends from the item being manufactured to the energy used to get it where it needs to go. The first step to finding the energy output for manufactured goods is to find the inputs. These are the energy sources and raw materials that go into making a specific item. The core parts of the output are the energy expended by your own facilities. This analysis can be easily controlled for your own facilities and will help define the key benchmarks of your energy output. While the microscope today is on carbon, a broader view of emissions capture, including water, will be critical to a long-term supply chain emissions strategy.

Water is next on the global agenda. Last November, the Carbon Disclosure Project (CDP) launched CDP Water Disclosure, a project to help businesses and institutional investors understand the risks and opportunities associated with water scarcity and other water-related issues. According to Climate Action, 302 companies-including Molson Coors, Ford, Pepsi Co, Coca-Cola and HSBC-have committed to submit information to the CDP Water Disclosure as of last April.

Next, it's time to understand what you're shipping, where you're shipping it from and where it's travelling before arriving at its final destination. A recent study by the Carnegie Institution of Washington revealed that 23% of global CO2 emissions (or 6.2 billion tons of CO2) were traded internationally in 2004, and more than one-fifth of the carbon dioxide produced by China in 2004 was emitted to provide goods and services for non-Chinese consumers, mainly in Western Europe, the U.S. and Japan. Energy is expended in goods organizations receive from a specific supplier and from commodities. Where it originates can often be difficult to determine depending on regional regulatory requirements. For example, facilities in China and India often aren't required to report emissions. When developing a strategic plan about the emission sources you need to collect, it is now becoming important to include the places you receive supplies from.

Data management systems allow manufacturers to easily input and manage GHG emissions and other sustainability data. Whatever data system you select or already have in place should capture data concurrently at the company, facility and product level. This has proven to be more efficient than capturing data in silos.

Manufacturers that conduct a supply chain emissions analyses in the right way from the start will meet demands that far exceed reporting. They'll uncover the business advantage of greening the supply chain. The challenge isn't always finding the right answers; it's a matter of finding the right problems.

Chet Chaffee is VP of Life Cycle Assessment for FirstCarbon Solutions, a pioneer in environmental management outsourcing (EMO).

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