Companies are having to become more sustainable in their supply chain as they grapple with carbon reporting and the current downturn. There are all kinds of ways companies can help ‘green’ their supply chain while attracting customers, standing out from competitors and reaching profitable goals.
Businesses have learned to trade off increases in one part of the supply chain in the quest for lower overall supply chain costs and the consumer has benefited from more choice, greater availability, and better value. But now there is another currency by which to measure and optimise supply chains—CO2. As consumer attitudes and governments around the globe combine to put pressure on business, organisations are asking themselves how they can reduce their carbon footprint. The rise of the green supply chain is now becoming a customer differentiator.
By applying principles of effective supply chain management (SCM), companies are finding they can lower carbon emissions while satisfying customer demands and meeting profitability goals. And businesses are eager to gain the market leadership associated with adopting a green strategy. Customers are choosing manufacturers and distributors based on the ‘greenness’ of their operations, so companies on the cusp on this can get a customer advantage.
There are multiple ways to foster green supply chains. These include optimising the physical supply chain and the storage and transportation of product across it, lowering energy usage in the manufacturing conversion process, and improving product design and packaging to minimise waste and increase the recycle content of each.
There are a number of imperatives that has driven green to the top of the executive decision-making agenda and will continue to be priority. The first is carbon trading. The Government’s proposed emissions trading scheme (ie imposts placed on refiners, rather than end users) means increased downstream costs for manufacturers, distributors and even retailers so they now need new tools to help model carbon costs alongside more traditional economics of supply chains such as location of plants/distribution centres, size, what products/where, transport modes (rail, air, trucking etc). While the Rudd Government has since delayed the start date of its proposed emissions trading scheme, it should be top of mind for businesses.
The second is that most initial carbon reductions come with a reduction in supply chain costs because being more efficient is directly related to reducing emissions. So generally it is a win all round.
Thirdly, one of the most compelling reasons for companies to adopt a greener supply chain is the potential for competitive advantage and increased revenue that flows from meeting consumer preferences for environmentally friendly products. For example, retailers and even transport companies are factoring in how green their supply chain is, which is becoming a unique selling point.
So where to now?
Businesses can substantially reduce transportation, inventory, and production costs by optimising their supply chains to plan the most efficient logistics network possible and plan where to stock products in distribution centres to be most efficient and be greener for the effort. Indeed, most companies have ample opportunities to reduce costs and improve customer service through SCM.
As a business, there are a number of aspects of the supply chain that you need to look at to help green your supply chain:
Supply chain design
Companies will see improvement by modelling carbon emissions with strategic supply chain network design. They can determine the most effective number of locations, sizes, and capacities of facilities to meet customer service goals while modelling and reducing their carbon footprint. They can also benefit from dynamic planning of where and when to make, buy, store, and move product given changing fuel costs and constraints. With these supply chain models, companies can quantify the cost, service, and carbon implications of each scenario and prepare themselves for the impact of change.
Transportation management
By analysing ‘carbon kilometres’ or the travel impact of goods on the environment, enterprises can capture big savings. These savings result from more efficient transport, which in turn means lower fuel expenditures and logistics operating costs.
Product design
Enterprises can implement green initiatives by designing more environmentally friendly packaging. Most companies can go a step further and radically re-engineer the methods used to manufacture, package and deliver their product. Examples include downloadable music, e-books or news broadcasts, concentrated detergents, and digital picture technologies. By leveraging product lifecycle management in addition to SCM, enterprises can carefully integrate product packaging, design and engineering with sourcing, compliance, and supply chains to reduce carbon output.
Inventory modelling
Companies can gain from more environmentally friendly distribution plans. Using inventory analysis and stocking calculations helps create the optimal balance between service levels, inventory investment, and the carbon associated with different transportation modes and replenishment frequency.
Production optimisation
Green enterprises can use production scheduling to minimise waste and level production. By optimising product assets, they can reduce energy consumption associated with ramping up or shutting down between production runs.
In general, demand-driven supply chains tend also to be green supply chains. Forecasting tools, web-based collaboration, and sales and operations reporting all help to predict and plan for customer demand with greater accuracy. And by being better prepared to meet demand, costly last minute scrambling can be avoided.
Each of the capabilities outlined above can help deliver leaner, greener supply chains. However, companies can make even greater strides toward sustainability by combining these practices.
Asset management for the future
Critical factors that a business can control in an environmentally responsible way include waste management, infrastructure management (buildings, facilities, and their energy efficiency), emissions management, and asset management.
Unfortunately, asset management is often forgotten as a key contributor to energy use. Assets are purchased and expected to perform satisfactorily until their estimated end-of-life. However, assets represent a significant portion of a business’s operating expense, impacting environmental as well as financial performance. Since careful management of assets will affect a company’s overall environmental efficiency, it is an important consideration.
Green-centric asset management
Efficient assets minimise energy use and improve productivity. A business can be both environmentally responsible and economically competitive.
Implementing and sustaining a quality corporate social responsibility (CSR)-oriented asset management program requires the ability to gather, store, and process large quantities of information related to energy consumption, asset condition, asset productivity, and the like. Executing such a program manually would be an impossible task because of the volume of data to be gathered and processed.
Forward-looking companies are investing in software applications that greatly simplify and streamline the information aspects of environmentally responsible asset management.
What does the future hold?
Is the urgency to curb greenhouse gas emissions a fad or at a critical turning point in our history? As businesses and governments begin taking action to reduce greenhouse gases, what type of approach makes the best financial sense for your business?
Only your company can decide. As your business continues to respond to consumers and regulatory agencies who demand a more environmentally conscious approach, it makes good business sense to include asset management and supply chain design as part of your CSR and green strategy. The long term winners will be those companies who begin working on their CSR strategy and implementation now while other companies are only cost cutting and in survive mode only. Do it now and your company will be a leader as the economy starts to grow again.
Any green strategy must rely on the wise collection of pertinent data and the processing of that data to determine program success and the direction of efforts required to expand success and remedy weakness. A comprehensive, green-oriented approach to supply chain management will enable you to achieve compliance, efficiency, consumer appeal and in some cases, competitive advantage.
—Richard Simpson is Senior Business Consultant for Infor (www.infor.com.au), the world’s third largest business software company.
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