Mastering Carbon Management

Balancing tradeoffs to optimize supply chain efficiencies


Investing in facilities with low carbon footprint and energy-saving equipment offers an effective first step with a palpable return on investment. Instituting carbon-based asset management helps to ensure that the most direct savings potential concerning emission and cost can be realized.

For example, a leading Canadian pulp and paper company currently uses its own byproducts (biomass) to power its operations. It also regains heat from effluence to warm process water and to thereby further reduce its carbon emissions. Together with efficiency gains and a switch to natural gas, the company has lowered its greenhouse gas emissions by 70 percent and its energy use by 21 percent since 1990. In 2005 and 2006 alone, the company saved US$4.4 million through a 2 percent reduction in fuel consumption.

3. Address emissions in supply chain functions

Each supply chain function can make a specific contribution to help reduce greenhouse gases. Generally speaking — and depending on carbon diagnostic results and "green" supply chain management strategy — the ability to reduce carbon emissions is usually greater when measures are taken early in the process. Considerations in product design, customer fulfillment, and even "reverse" logistics offer a range of functional optimization opportunities.

When considering any functional optimization there is always the question of whether outsourcing could be an option to help lower carbon emissions. In many parts of the supply chain, outsourcing has led to more specialization and efficiency (contract manufacturing is one example). However, these activities are often more geographically dispersed, increasing transportation needs.

A service provider is typically much better positioned in terms of scale (and consequently reducing more greenhouse gases). This is especially true for third-party logistics providers, which can offer carbon-optimized bundling for transportation needs. Although it always needs to be evaluated closely, outsourcing of specific supply chain functions can indeed lead to a reduction in the overall carbon output.

4. Find the optimum solution for integrating across functions

Depending on the type of supply chain, the most pertinent areas for carbon reduction vary, as does their complexity. With today's globally distributed supply chains and customized products, that complexity has often increased to the point where specific functional improvements have a very limited reach. In contrast, a horizontally-integrated approach across functions permits much greater leverage.

Similar to the "design for manufacturability" or "design for serviceability" concepts, "design for environment" takes emissions into account. This includes carbon's impact on sourcing, manufacturing, and distribution. Modified packaging for reducing transportation efforts is another commonly practiced approach for various supply chain areas.

A good example of modified packaging comes from a Netherlands dairy foods company. Baby food, one of its businesses, has become a highly diversified product. In contrast to the past, a multitude of product varieties is available, including those for increasing resistance or treating allergies. The company produces, packs, ships and maintains an inventory of baby food — all from different locations. To reduce transportation efforts, the company is now adjusting its recipes and its production processes to create variants of a basic product. Specific ingredients are added late in the supply chain. This has the potential to cut needed inventory — and thereby transportation — by an estimated 127,000 miles (or roughly five times the earth's circumference) per year, with corresponding carbon reductions.

5. Collaborate with supply chain partners to realize overall potential

While internal horizontal integration might increase leverage, the full potential for reducing emissions can be obtained only if all plays in the supply chain pull at the same string and collaborate on end-to-end optimization.

Glass is the biggest single contributor to the packaging weight that a UK retailer passes on to its customers. By prodding the industry to produce lighter-weight wine bottles, the company reduced its annual glass usage from one single supplier by 2,600 tons — a 15 percent savings.

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