The Supply Chain and the Carbon Footprint

Can companies tweak their supply chain operations to produce lower carbon dioxide emissions? Is that desirable?

A recent study by the consulting company Accenture found that only 10% of the companies it surveyed pay attention to the carbon footprint (however defined) of their supply chain activities and implement environmental sustainability programs (again undefined) aimed at the supply chain (see figure).

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A trade-off model takes into account various options and performance factors. Source: IBM Research and the IBM Institute for Business Value.

Accenture surveyed 245 supply chain executives. The survey found that the supply chain “masters,” the top gurus in supply chain management—those whose organizations have placed in the top quartile in cost-effectiveness and customer service—are much more likely (20% versus 9%) than the “non-masters” to be concerned about carbon footprint issues and environmental sustainability.

Requests to the consulting firm for clarification of its definitions of “carbon footprint” and “sustainability” were unanswered.

The Business of Carbon

In a dizzying flurry of buzzwords in a press release, Jonathan Wright, Accenture’s supply chain expert, said, “Supply chain masters are making great strides in linking cost effectiveness, customer service and sustainable supply chain practices. Despite today’s reduced energy costs, there continues to be a business case for greening the supply chain, resulting in lower costs as well as environmentally responsible processes.”

Accenture said its study also found that more than a third of supply chain managers “have no awareness of the level of supply chain emissions in their supply chain network.” But more than three-quarters “have undertaken at least one green initiative in their warehouses, predominantly in the areas of recycling and using natural light, lighting management systems and energy efficient bulbs.”

Said Wright, “The study findings demonstrate that the vast majority of organizations are taking steps to reduce carbon emissions. However, most are implementing carbon-reductions solutions without understanding their carbon footprint and are therefore unable to measure the real impact those solutions are having on their emissions.”

Wringing Your Chain

In a related development, Penn State University’s Smeal College of Business has formed a sustainability council to look at issues and coordinate research related to supply chain management, economics, finance, overall management, and marketing. For example, the university’s Center for Supply Chain Research is looking at how altering supply chains can shrink a firm’s carbon footprint.

Dan Guide, an assistant professor of operations and supply chain management, is examining closed-looped supply chains and remanufacturing as a foundation in environmentally sustainable industrial systems. Daniel Cahoy, an associate professor of business law, is looking at the relationship of intellectual property rights and investment in sustainability-related innovation.

As part of the new organization, Smeal’s Center for Global Business Studies is researching the impact of environmental degradation on business in the next quarter century. The Center for Management of Technological and Organization Change is examining ways to reduce water and energy waste. The Institute for the Study of Business Markets is pondering the relationship of branding and sustainability.

Smeal’s sustainability council, said Gerald Susman, chair of the new organization, “puts a public face on all of the impressive projects being conducted by Smeal faculty and research centers. The council gives sustainability a home at Smeal, and it shows the world that we have presence in this area of research and are willing to work with other groups within Penn State and beyond.”

Does a green supply chain make sense for power generators? Probably not, says a veteran fuel buyer for a New England utility. “Coal is coal. Gas is gas,” he says. “There’s not much you can do to ‘green-up’ buying these essential commodities.” On the other hand, manufacturers of power equipment may have opportunities to limit their carbon footprint. General Electric CEO Jeffrey Immelt said recently, “Opportunities exist for companies to become greener from the beginning of their value chain—with how products are sourced, produced, and fulfilled—through how they’re serviced and ultimately disposed of at the end of their useful life.”

For power companies, said the former fuel buyer, it’s largely a matter of economics. If green procurement saves dollars, it will thrive. If not, it’s dead. These buying decisions are based on very small margins, so it’s all about cost.

—Kennedy Maize is executive editor of MANAGING POWER.