Thursday, March 7, 2013

Removing Carbon from Supplies

Supply chain management is essentially managing supplies over a network. A large part of this is managing the transport of these supplies over long distances. Global executives have identified the environment and supply chain as a top concern for them. However what are they doing about this, when it comes to purchasing?  It seems to be that companies are taking no action with respect to climate change. 2000 global executives were surveyed by McKinsey to find that although, half of them considered climate change as an important issue with respect to supply chain management, less than a quarter belonged to companies that took climate change into consideration while crafting supply chain strategies or making purchasing decisions. 54% executives of the high tech sector and 56% of the manufacturing sector said that climate change was an important in purchasing, yet the likelihood of climate change being a consideration in practice remained low.

This might be an unrealized opportunity, according to the McKinsey report. According to it, 40-60 % of the carbon footprint of high tech, manufacturing, and consumer goods companies comes from upstream in the supply chain. This includes raw materials, packaging, transport, the energy used up for manufacturing. 80% of retail carbon footprint comes from upstream.  In order to reduce their carbon foot print, it becomes essential for these companies to collaborate with their suppliers. Any significant carbon abatement will only occur if these companies understand the emissions associated with their products (for which they need to go to their suppliers) and then systematically analyze opportunities for reducing these carbon emissions. The net life cycle costs for many of the carbon abatement activities are zero. The initial investment is compensated by lower material and energy use. Then again, there are other opportunities that necessitate tradeoffs between profitability and emissions. These activities might have to be done in the spaces of product design (functionality, product specification, etc.) and logistics. The few forward looking companies that have begun taking climate change into consideration are taking advantage of these opportunities for supplier development. Best practices in manufacturing, purchasing, R&D, energy efficiency can be transferred to key suppliers through supplier development. Lower costs and increased operational efficiency could be added advantages of removing carbon from the supply chain.

It is clear that going green could lead to operational efficiency. Why do you think companies have missed this opportunity of collaborating with their suppliers to reduce their carbon footprint? What public policy changes would encourage companies to reduce carbon in their supply chain? Give an example of a possible product design compensation that a company of your field of interest would have to make for carbon abatement up steam of the supply chain. 

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