Category Archives: Going Green

Carbon Calculation is Great, But What You’re Really Concerned About is YOUR e-Liability

A few weeks ago, we ranted that Carbon Tracking is Important — But a Calculator or a Credit is Not a Solution! The reasons that credits were not a solution were that most “credits” were iffy at best, and downright fraudulent at the worst. The only solutions to carbon are actual reduction or proven capture. But that’s a diatribe for another rant. A calculator is not a solution either. It’s important to understand YOUR carbon footprint, but simply understanding your footprint is not addressing your footprint. Plus, it’s not just your inbound footprint you need to worry about, it’s your outbound footprint as well. You are NOT responsible for any carbon in your organization associated with products or services that are being sold to another business. You are only responsible for the carbon footprint of products are services that are being sold to a consumer or that you incur in running your operations.

In other words, what you need to be tracking and addressing is your e-Liability, which was well defined in a recent Harvard Business Review article on accounting for climate change. And this is not scope 3 carbon tracking or ESG reporting under the GHG protocol which contains flaws that result in the same emissions reported multiple times throughout the chain by different companies and other emissions being completely ignored. All emissions need to be captured ONCE and allocated as appropriate between the different entities in the supply chain, depending on which business is the last business to acquire the products or services that the emissions are directly correlated with.

Note the concept of direct correlation. All of the GHG produced mining a rare earth mineral is direct GHG associated with that rare earth mineral, and is passed up the supply chain to the buyer who buys that ore to process it, whereas all of the GHG produced by the CEO flying around on his private jet just because he can is indirect GHG that is the liability of the corporation that needs to be accounted for, and offset in someway, but that cannot be passed on to an organization that buys its ore (as it was not GHG absolutely necessary to extract the ore).

The best part of the HBR e-Liability recommendation by Kaplan and Ramanna is that it is based on financial accounting principles which track liability inflows and outflows the same way an accountant or economist would track inflows and outflows. It’s mathematically sound, makes perfect sense, doesn’t double count, and properly used, won’t miss anything either. If you want calculator, get a proper e-Liability calculator.

But remember that understanding your e-Liability is only your first step. The next step is to find ways to actually reduce your GHG footprint by reduction of unnecessary activities, production process improvement (including energy and water efficiency), and product design improvements. (Not BS credits.)

Societal Sustentation 38: The Sharing Economy

Cookie: Me got some something that you want
You got some something that me want
Put both somethings together and share

Ernie: I’ll take my something that you like
You take your something that I like
Then put both things together and share

Both: One for all, all for one
Sharing every everything and having a ball

Sharing is a good thing. Unless, of course, you are the one who isn’t being shared with (or the one who refused to share).

And, as we discussed in our “Future” of Procurement series a couple of years back, the Sharing Economy is one of the few true future trends of the space. And while the sharing economy is currently in the domain of individuals like you and I, and a handful of small businesses that have latched on, the sharing economy is going to migrate to medium sized business en-masse (driven by companies like Uber). This is going to give these businesses access to the latest and greatest technology and economics of scale that these medium-sized businesses will be unable to acquire on their own.

But just because it could help, that doesn’t mean it will help. Especially if the organization cannot accept, embrace, and form the new reality to its advantage. This means the organization has to start by identifying opportunities that it cannot achieve on its own. Then it will have to identify what partners it would need to bring those opportunities within its grasp. Finally, it will need to put together a plan to unite those partners and execute it to completion.

How will it do this?

Identify it’s biggest costs.

Is it the need for specialized equipment owned by only a few select suppliers? Is it the constant LTL shipments? Is it the need for regular day labour?

Identify which of the costs could be reduced with cooperation.

If a group of mid-size suppliers that required the specialized production equipment formed a co-operative and created a production facility based on that equipment that was shared and used to maximum efficiency, that could reduce costs. If a group of suppliers in a small radius band together and synchronize deliveries they can always ship FTL and even manage their own fleet for reduced costs. But unless they can find nearby companies that need day labour at different times, this is not likely something that can be solved by the sharing economy.

Be prepared to lead the charge.

Put together a plan to make it happen. Make sure it demonstrates the tangible benefits to those who will join the cooperative you are about to form as well as outlines exactly what will be required, when, and when the benefits you are promising will be realized. It has to be attractive to all parties you want to join, and has to show your commitment by showing that you’ve thought it all out.

A lot of your peers might want it to happen so that they can compete with the big guys, but very few will want to lead the charge.

Environmental & Sustainability Damnation 23: Food Shortages

So far we’ve covered natural disasters, EMPs, water, waste, rare earth minerals, and Greenpeace, but that still leaves four environmental damnations to discuss, and the next on the list is food shortages.

A few years ago, global food reserves hit a fifty year low.
With approximately 800 Million people, which is almost 11% of the global population, food insecure, and the increased rate of natural disasters, this is scary both from a social viewpoint and a corporate viewpoint. Every time there is a food shortage, the commodity prices spike, and contracts be damned.

If a significant portion of a supplier’s crops are wiped out and it doesn’t have enough to satisfy its contracts, it can claim force majeure, and unless your organization is paying the most, it’s claiming force majeure on you and your supply is out the window. If a considerable portion of its crops are wiped out, and it theoretically could meet demand, but a considerable portion of the global supply was wiped out and prices have skyrocketed, the supplier might choose to still claim force majeure and sell to the highest bidder, contracts be damned, and while you might be able to go to court and make a case that it should have fulfilled your contracts, that could take years, and you’re certainly not getting the crop this year unless you pay market price. If a major product line depends on that crop, your organization could be out of business before it won the lawsuit and recouped any damages.

Since most crops are still grown in fields, and not greenhouses (which are not as environmentally friendly as one might think if one is trying to grow crops in the summer), the right climate is needed for a good yield. Sun and warmth, but not enough to dry the plants (and bake them to a crisp), enough rain (and irrigation), a sufficiently long growing seasons, and an absence of pest swarms. A drought can quickly wipe out a crop. A fire can quickly wipe out a crop. An earthquake that can destroy irrigation systems and storage containers can wipe out a crop. And so on. Moreover, as the rate of natural disasters increases as a result of global warming (which is a bad term because it’s not just global warming, it’s global climate change on a broad scale), the rate of natural disasters that destroy crops and lead to food commodity shortages is going to increase. Diversified supply is no longer an option, but a must. Excess production and storage in diverse locations for eventual disasters is a must. Planning ahead years at a time is a must.

It’s another damnation that does nothing but increase the complexity of your job.

“China Defense” or “Chewbacca Defense”?

When it comes to reducing carbon emissions, we have the unfortunate situation in North America that many people, rather than tackle the problem head-on and doing something about it, are, instead, invoking the “China Defense”. The China defense goes something like this: There are other countries that are polluting the atmosphere much more than we are, like China, because they are still growing and emerging, especially from an industrial perspective. And they are not going to stop what they are doing.

The problem with this defense is that it makes about as much sense as the “Chewbacca Defense“. For those of you familiar with South Park, the creation of the mad minds of Trey Parker and Matt Stone, the “Chewbacca Defense” is a legal defense designed to deliberately confuse the jury by making use of the fallacy known as ignoratio elenchi (red herring). This defense, which (supposedly) satirizes Jonnie Cochran’s closing argument in the O.J. Simpson murder trial, starts off by stating that Chewbacca lives on the planet Endor, which isn’t true. Then it states that the statement does not make sense (which it doesn’t). Then it connects the senselessness of this statement to the actual legal case, to imply that the legal case is equally senseless.

Confused? Good. Because you’d have to be to fall for the “China Defense” when you consider, as pointed out in this great HBR blog post on the fallacy of the “China Defense”, the following:

1. China is doing much more than we are to reduce carbon emissions.

  • China introduced a 10-year 5 Trillion Yuan alternative energy plan in 2010
  • In August 2012, it announced it would spend over 2.3 Trillion Yuan in the next 3.5 years to cut pollution
  • In August 2012, it announced it would reach 21 GW in solar power capacity by 2015
  • As of January 2013, Wind is the #3 source of energy in China
  • It just announced the implementation of a carbon tax

2. Science doesn’t care

We have to decarbonize at the rapid rate of 5% less carbon per dollar of GDP annually until 2050, or the catastrophic effects of global warming will make us long for the days when Hurricane Sandy and Hurricane Katrina were the worst we had to deal with (and the cost of catastrophes was under 100 Billion).

3. Not only is going green good, but it will put more green into your pockets than you can imagine.

The truth of the matter is that the clean economy will be a multi-trillion dollar market. Embracing the clean economy could go a long way to helping the U.S. manage it’s public debt!

So make sure to do your best to minimize carbon in your supply chain.

Blue and Brown Make Dark Brown

Not Green! Someone over on Supply Chain Digital either needs a refresher course on the visible spectrum, or, if a discussion of electromagnetic radiation is too difficult for them, a kid’s paint set. What am I referring to? This recent article over on Supply Chain digital on how UPS and USPS Begin Partnership to Reduce Emissions.

I really like this idea in theory, but in practice, I wonder if it’s really going to reduce emissions or just create a lot of hot air.

Here’s the quandary. If the average UPS and USPS truck is going out half empty, than this is going to reduce the number of trucks on the road, and it’s a good idea. If the average UPS and USPS truck is going out over half fill, USPS will now need two trucks and the emissions will just be shifted from UPS to USPS. The other issue is that the packages have to get from the USPS network to the UPS network. How closely are the networks synced? Not only does a package now have to go through location B to get to C from location A, which means that UPS won’t be able to retire may trucks (as it still has to get the packages to USPS), but if A to B to C is twice as long as A to C, and this is the case for a majority of packages, are emissions really saved?

Also, with respect to the second part of the partnership, will the USPS be able to redesign its network to efficiently take advantage of UPS’ efficient global distribution capabilities? If USPS can, this will be great because UPS is much more efficiently structured to get a package to the right country given its focus. But if USPS can’t, it’s more hot air.

And all hot air does is scorch the earth, and turn it dark brown.

I hope for the best, but what’s the real incentive for these two companies to cooperate to the level necessary to really make a difference?