In 2010, the biggest opportunity to lower costs and increase profitability is to “carbon footprint” your Supply Network. Managing your supply network used to mean getting the lowest price, for the best quality, along with the quickest delivery. Nothing else was as important. Then it became necessary to add social responsibility into your supply network strategy. Now the imperative has changed once again to include carbon / GHG management, or simply put carbon foot-printing.

By taking the initiative to manage carbon / GHG emissions across their supply network, a company converts a cost issue into a significant growth opportunity. A comprehensive carbon management strategy has benefits to organizations such as:

- Developing more sustainable growth (profit) opportunities

- Lower operational and raw material costs

- Building market differentiation

- Increasing collaboration with suppliers and manufacturing facilities upstream

- Attracting and retaining top talent

- Gaining PR credibility among conscious eco-minded consumers

- Strengthening your brand image

- Develop a sustained competitive advantage

The impact of the supply network on your company’s carbon footprint is hard to overstate. According to a McKinsey & Co. study in 2008, “for consumer goods makers, high-tech players, and other manufacturers, between 40 and 60 percent of a company’s carbon footprint resides upstream in its supply chain—from raw materials, transport, and packaging to the energy consumed in manufacturing processes. For retailers, the figure can be 80 percent.”

Carbon Foot-Printing – The Business Case

When global brands and retailers look for ways to lower their carbon emissions, incredible business opportunities arise. For instance, companies can find ways to make their truck fleet more efficient, decrease the amount of packaging in their products, or reduce the amount of new raw materials they use in their products in favor of more post consumer recycled or eco-friendly materials. These are all examples of how companies can lower their carbon footprint, while saving money/increasing profits AT THE SAME TIME. So when you hear about various cap and trade systems being argued by the federal government, just know it is a GOOD thing for business and our lives, not the opposite.

The carbon management landscape is changing rapidly with new federal and/or state regulations being proposed almost quarterly. According to clean energy solution provider Nexant, “already, more than 30 U.S. states have either established or proposed legislation to define GHG targets and reporting requirements.” In Europe, the European Union has already set up a cap on greenhouse gas (GHG) emissions and put a price tag on them, known as the European Union Emission Trading System (EU ETS). European companies are mandated to stay within certain CO2 / GHG emission targets. If they go beyond the targets, they are fined. This approach is good for business because it encourages innovation, rewarding companies to lower operational costs as they implement cost effective technologies.

Another compelling reason to carbon-footprint your supply network is to get ahead of the massive changes that are starting to occur in global trade. Doing global business “the same as we have always done” will not suffice for success in the upcoming decade(s). We must see companies innovate with clean and environmental technologies, while becoming more efficient, and reusing both product and packaging materials with less overall waste to landfills.

The spike in global trade over the last decade has partly been made possible by low cost energy, along with cheap raw materials and labor. Little or no attention was given to its impact on climate change. As CO2 / GHG mandates move forward, the trade landscape will transform. Common practices of the past, such as long-distance airfreight, small customized just-in-time orders, and energy/resource intense production in countries with low environmental standards, will become less attractive as they become more expensive. The cost of manufacturing and transporting goods from overseas to the US will become prohibitively expensive in a reduced carbon economy. The common transportation and manufacturing practices of today will be reserved for a well-heeled few, perhaps only for certain luxury or high-end brands and retailers that demand top dollar for their products. Reducing your supply network’s carbon and environmental footprint will become an essential requirement of being a successful global company.

As companies begin to re-think the economics of their supply networks, choosing to source and manufacture products closer to home will be much more common. If you facture in the costs of carbon emissions into the cost of a product, it may make more economical sense to pay the higher raw material and manufacturing costs to produce it in the US than in China or South America.

Check back next week for the second part of this article as I move forward with practical steps on beginning your carbon foot-printing journey along with ways to derive ROI from a proactive carbon management strategy.

Please post any questions or comments directly to this blog.

Photos by State of Washington General Administration and Traxis Energy

Oren Jaffe is an corporate social responsibility (CSR) and sustainable supply network specialist and consultant. Oren has worked at Intertek, a third-party eco-certification, testing, and social auditing firm. Previously, Oren co-founded the national business networking organization EcoTuesday Inc., and was a social compliance expert for Bureau Veritas.