How Green is Your Supply Chain?

For most businesses, the question of reducing their carbon footprint is not a question of when, it's a question of how much and how fast.

The rising cost of energy is a key motivator. A global IBM survey of nearly 1,400 small and midsized businesses identified energy as the biggest cost increase over the past two years, surpassing healthcare, payroll, rent and equipment. Not surprisingly, 58 percent of these companies expressed concern about the environment, and 44 percent have put environmental policies in place.

Another factor behind the drive to make businesses greener is customer demand. Companies that can visibly demonstrate how they are reducing their impact on the environment can gain an advantage over competitors and strengthen their brand image.

For businesses that keep an eye on Capitol Hill, there is an additional reason to begin reducing their carbon footprint today — pending regulatory change. Policies to cap greenhouse gas (GHG) emissions and put a price tag on them are already in place in Europe, and similar schemes are popping up across the United States. Last October, America's Climate Security Act was the latest of nine bills to combat climate change introduced in 2007 alone.

The logical place to start reducing your carbon footprint is within the four walls of your business. But according to Manhattan Associates, an IBM business partner and leading provider of supply chain optimization solutions, you may end up simply transporting the problem to another spot in your supply chain. It's like squeezing a balloon — the carbon reductions you achieve may increase the carbon footprint of your suppliers or customers. For example, you might change your manufacturing process to use more environmentally friendly materials that must be sourced from further afield. The net result is a more eco-friendly product for your company, but more greenhouse gas emissions generated by the trucking company you use to deliver raw materials.

The answer is to take an end-to-end view of your supply chain, but adopt a stepwise approach. Begin with easy-to-implement local improvements and build toward longer-term optimizations that involve your extended supply chain. The following steps provide an evolutionary path:

  • Diagnose and assess. Today's global economy and the interdependencies between a company and its partners mean that businesses need a holistic understanding of the carbon impact of their entire supply chain — from supply strategy, to distribution and warehouse management, to product operations and customer service. After evaluating each of these components according to a simple set of carbon statements and key performance indicators, a company can begin to identify gaps and set target levels. Remember: If you can't measure it, you can't optimize it.

  • Reduce the carbon footprint of your facilities and assets. Warehousing, machinery, vehicle fleets and data centers can all consume huge amounts of energy. Investing in facilities with a low carbon footprint and energy-saving equipment is an effective first step with a defined return on investment (ROI). For example, IBM's Project Big Green includes a five-step approach to energy efficiency in the data center that can generate an average 42 percent in energy savings.

  • Optimize functions in your supply chain. Each supply chain function can make a specific contribution to help reduce greenhouse gas emissions. Here are a few examples:

  • — Inventory Management: Optimize order frequencies by reducing the number of times you replenish inventory during a fixed period. Cutting deliveries to stores from five times a week to three can add up to significant savings in mileage — and GHG emissions — by year-end.
    — Order Management: Use your supply chain management software to help you dynamically reroute inventory from transload facilities. It may not make economic or environmental sense to truck your inventory from the port in California to the warehouse in Texas if there are stores in between that need a portion of that inventory.
    — Transportation Management: Start including environmental impact as one of the criteria for evaluating your shippers. For example, you may decide to prioritize shippers that participate in the EPA SmartWay Transport program, whose partners commit to measure and improve the efficiency of their freight operations.
  • Integrate “carbon management” across supply chain functions internally. Today's globally distributed supply chains and customized products have created so much complexity that specific functional improvements can have a fairly limited impact. In contrast, a horizontally integrated approach across functions can give you much greater leverage. An example of this is Netherlands-based Friesland Coberco Dairy Foods. Baby food has become a highly diversified product, offering varieties designed to do everything from treating allergies to increasing resistance to infection. Friesland produces, packs, ships and maintains an inventory of baby food — all from different locations. To reduce transportation, the company is now adjusting its recipes and production processes to create variants of a basic product. Specific ingredients are added late in the supply chain. This change is estimated to cut required inventory — and therefore transportation — by an estimated 127,000 miles per year, triggering corresponding carbon reductions.

  • Collaborate with your supply chain partners. While internal integration across the supply chain may increase leverage, the full potential for reducing emissions necessitates that all players in the supply chain collaborate on end-to-end optimization. But this is a lofty goal for any business to pursue, requiring you to get other partners on board and agree on ways to share risk, responsibility and value. Begin this "journey of a thousand miles" by starting with a single step: Look for practical approaches that focus on a few key collaborative steps among your partners in the supply chain. Coordinating inventory and transportation among supply chain partners to reduce carbon impact, for example, can dramatically reduce mileage. Combining these efforts with low-emitting transportation options can reduce the carbon footprint even further. Take advantage of your suppliers, such as IT systems and supply chain management solutions providers, to give you practical advice and industry insights.

By taking a proactive and pragmatic approach to becoming green — instead of waiting until regulation forces your hand — you can convert a cost issue into a growth opportunity. Evolving from a business, to a green business, to a member of a green supply chain can help your company develop more sustainable growth opportunities, increase employee satisfaction, maintain competitive differentiation, and strengthen your corporate brand equity. Going green may be unavoidable, but how fast and how far you go is up to you.

About the Author: Scott Fenwick is the senior director of product strategy for Manhattan Associates, a supply chain optimization company. On the Web at www.manh.com.

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