Firms focus on Supply Chain consulting

Date: 18-04-2008
Source: Financial Times

Just as many companies have been getting to grips with measuring their "carbon footprint" comes another environmental question: what about your supply chain?

It appears that looking to your own greenhouse gas emissions is not good enough - to be truly green, companies must scrutinise the emissions generated at every stage of the process of creating the goods or services they sell.

Wal-Mart became the world's biggest company to ask its suppliers to measure their carbon footprints last year, and since then a host of household names - including Dell, L'Oreal, Pepsi and Reckitt Benckiser - have followed suit.

This is only rational - a company's own inhouse emissions are often only a small part of its total environmental impact.

Stuart Williams, manager of supply chain business advisory services at Ernst & Young, says: "Emissions from many retailers' and manufacturers' in-house operations are dwarfed by those of their supply chains, often by up to 10 or 20 times. Therefore, for a company to claim to be environmentally friendly, it absolutely has to address its supply chain."

But greening the supply chain is not simply a matter of repeating a fashionable environmental mantra. In looking at the impact of their supply chains, companies are often also improving their businesses by streamlining processes.

Laurence Dupras, director of supply chain services in Europe at the consultancy BearingPoint, explains: "The decision to act on this issue is about much more than corporate responsibility. It is about what companies need to do across their supply chain to remain competitive in today's and tomorrow's global market."

Wal-Mart cited potentially large energy efficiency savings when it asked its suppliers to disclose details of their carbon footprints. Retailers must also turn to their suppliers if they want to attract green consumers - for instance, B&Q now has a list of environmental criteria for many of the products on its shelves.

Jonathan Wright, global lead for fulfilment at Accenture, says there is a strong correlation between waste and greenhouse gas output: "An inefficient supply chain is one that will have high carbon emissions. Companies that adopt an innovative, integrated approach to sustainability can gain competitive advantage and realise significant benefits, leveraging cost reductions and experiencing revenue and brand growth."

Companies are also coming under increasing pressure from their customers. BThad to provide evidence of its environmental performance for contract bids worth GBP1.8bn ($3.5bn) in 2006-07. Nearly 80 per cent of BT's suppliers have now committed to monitoring the environmental impact of their supply chains.

There are also regulatory reasons why companies might want to examine their own and their suppliers' emissions. Governments are likely to impose tough green regulations over the coming years in order to meet the greenhouse gas reduction targets that political leaders have promised.

Mr Dupras notes: "The question for businesses is whether to act now on their own terms, or wait to be forced to do so later, either by legislation or, just as likely, a need to catch up with the competition."

How does a company go about greening its supply chain? The first step, as Wal-Mart found, is measurement. The key measure is energy use compared with output, but it is important that all suppliers are being held to the same measurement criteria, rather than each using their own.

Mr Williams says: "As with any supply chain improvement programme, companies must start with a high level review of their value chains, from raw material to end consumer. This will highlight any inefficiencies that incur unnecessary cost and carbon."

Cutting energy and resource use will generate cost savings, and some of these savings will not require any additional expenditure - turning off lights or computers, for instance, is a no-brainer. But to become truly efficient, companies must be prepared to invest in programmes that may have a longer payback.

Companies may also find they need to place new conditions on the service level agreements with suppliers. For instance, reducing the frequency of deliveries may seem to be going against current service level agreements, but could help to improve a supplier's environmental performance.

About one in five commercial vehicles in Europe is thought to be travelling empty at any time. Anything that can be done to ensure delivery fleets are better managed will quickly translate into fuel savings.