Category Archives: Sustainability

A Great Argument for Carbon Taxes (and Credits)

A recent article in Knowledge @ Wharton Universia on “phishing, bribery, and falsification: combating the complexities of carbon fraud” provides a great argument on why cap and trade should be abandoned in favour of straight carbon taxes (and credits if the goal is to encourage corporations to be as efficient with carbon emissions as possible). According to the article, carbon trading systems, especially when coupled with lax Internet security and third party verification, pose a great opportunity for crooks who want to defraud honest companies out of millions of dollars.

The first example the article gave was of a group of rouge traders who, earlier this year, stole as much as $4 Million by posing as regulators, setting up a fake, but official-looking website, and using it to obtain carbon trading account information from companies and traders who thought they were complying with government requests. The scheme forced the German Emissions Trade Authority to suspend trading, but not before 250,000 permits had been stolen.

The second example was that of Carbon Harvesting Corp who’s director has been arrested and charged in connection in an alleged scheme to pay $2.5 Million to “rent” a fifth of Liberia’s forests and profit by selling the credits that could be obtained from the carbon absorbing trees.

All in all, Europol estimated that tax fraud associated with carbon trading reached 6.5 Billion over 18 months, and in some countries, up to 90% of trading volume resulted from fraudulent activities. A recent report on “Ten Ways to Game the Carbon Market” identified 10 scams common to carbon trading … and the list was not necessarily all-inclusive.

But if there’s no trading, there’s no opportunity for trading fraud. And there’s no need for trading if governments simply levy a tax on every tonne of carbon emitted. Furthermore, if the goal is to compensate companies that are being extra efficient about carbon emission, there can also be carbon credits where companies that emit below a floor can get tax credits. In fact, it only takes a simple algebraic formula to capture taxes and credits in a joint system: (tons emitted - tons allowed) * tax per ton. For example, if it’s $10 per tonne, the company has an allowance of 1,000 tons, and the company emits 2,000 tons, then the company would pay (2,000-1,000)*10 = 10,000. And if it’s $10 per tonne, the company has an allowance of 1,000 tons, and the company emits 500 tons, then the company would get a credit of (500-1,000)*10 = 5,000 on its tax return. Simple.

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Ecovadis: Ecovating the Globe

When we introduced you to Ecovadis back in 2008, we pointed out how this European start-up was building a sustainability solution for evaluating and monitoring suppliers in a manner that would help companies meet and exceed the emerging green and sustainability regulatory requirements. Fully compliant with GRI G3 (Global Reporting Initiative) standards and the ISO 26000 CSR Guidance with their solution that tracks metrics across 23 green/sustainable criteria for the 150 procurement categories they support, it provides a very extensive CSR scoring mechanism across environmental, social, ethical, and supply chain issues.

Back in 2008, all they had on the technology side was the core supplier assessment module for the buyer — which was built around a “dashboard” that provided a snapshot rating of a supplier on each of the key categories with drill down ability into the scorecards for each rating, cross-industry benchmarking, and integrated news feeds (with human reviewed articles, relevant legislation, etc.), and a supplier portal — which allowed the supplier to log in, answer questions, provide relevant data, and see their scorecard. On the services side, they had the ability to arrange and verify audits on your behalf, scan and classify relevant documents automatically, and support suppliers in five languages even though the platform only supported English and French. And when SI last covered them, they had only three public customers.

Flash-forward to 2010, and they have made considerable progress on the technology, services, and customer front. On the technology front, they have made significant updates to the core supplier assessment platform (the newest of which are in beta testing now and will be in general release at the end of the quarter / start of next quarter), released an audit module, released a new risk analysis module, and improved the multi-lingual capabilities of the platform. On the services side, their partnership with SGS, the largest certification company with over 1500 auditors certified in CSR auditing, allows them to do 2nd party audits on your behalf on your suppliers anywhere in the world and they have added a few more languages to their back office. On the customer front, they have increased their customer base tenfold, with 30 public customers that include 10 companies in the Global 500 who are in the top 10 in their vertical (including the largest construction company, the second and third largest insurance companies, the third largest building materials company and the third largest industrial manufacturer), with a few more big names to be announced soon. These customers represent over 2,500 users that collectively track CSR data on over 4,000 companies across 40,000 sites in 80 different countries with a 94% adoption rate among suppliers.

The upgrades to the core supplier assessment module include an improved UI, feedback capability within scorecards, guidance for buyers and suppliers on how to improve ratings and the most critical weaknesses that need to be tackled, and a new corrective action plan capability for suppliers to allow them to propose corrective action plans and collaborate with buyers on their design and implementation. The guidance highlights key issues across each of the 23 categories, primary weaknesses, (upcoming) regulations and initiatives of import, policy recommendations, and proposed actions.

The Risk Analysis module, designed to allow all users to perform a quick check of the potential CSR risks associated with a specific supplier profile, and identify those suppliers which should be subject to a formal assessment or audit, is pretty simple, but it’s a great start considering that most organizations don’t have any tools at all. (Plus, you can’t automate risk analysis — this will always require human interaction. Software is not intelligent and can’t identify unknown threats — only humans can.) Basically, the user fills out a (proposed) usage profile (direct or indirect, country, turnover, categories, branding, influence, etc.) which can be uploaded from an Excel file, the system extracts the CSR profile of the supplier and all of the related data, and an automated analysis engine determines the primary potential risks, the probable degree of supplier CSR risk relative to buyer CSR exposure on a nine-by-nine grid (which goes from low to high as you progress from the lower left [green] zone to the upper right [red] zone), and the action you should take (which is either no action, assessment, or full audit). While not perfect, it will quickly identify the majority of the company’s riskiest suppliers, which is where the company should start its risk management efforts.

The real value in their solution to procurement is in the massive cost savings it enables. CSR is important, but we all know that North America tends to follow the mantra of Gordon Gekko and that, unfortunately, when times get tough, the mighty dollar trumps everything else. Companies like to feel good, but they like to profit more. These days, profits come not from sales (which are sluggish), but from savings that come from cost reductions and risk avoidance. Ecovadis’ platform assists you on both accounts. Without the platform, buyers are wasting a lot of time and money chasing suppliers, who are fatigued from answering the same damn survey over and over again, for data, analyzing that data, and shelling out for expensive benchmarks from high priced consultants to put that data into relative light — data that might be suspect to begin with. Similarly, suppliers are wasting time cutting and pasting data instead of providing the buyer with the products and services the buyer needs, which drives up costs for both parties, and not even getting any decent feedback in return that they could use to improve their operations. But with the centralized sustainability marketplace Ecovadis provides, suppliers only have to answer a question once, they only have to suffer a time-consuming and costly audit once, and they get a scorecard which not only rates their performance, but benchmarks them against their peers and identifies areas for improvement. Buyers get up-to-date reliable data and actionable scorecards which they can use to leverage suppliers and make better decisions. Everyone wins. Plus, if the buyer has a SPM tool (like that offered by Ariba, Aravo, Hiperos, SAP, etc.), Ecovadis’ can plug their platform into the tool and greatly simplify the CSR SIM that the buyer would likely have to do manually.

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Good Enough, Best, or Next — Which Do You Choose?

A recent article in the Harvard Business Review on how “best practices get you only so far” had some good points, as did the article on how “imitation is more valuable than innovation”, which illustrated how best practices can be used to get you further than your competitors (who you borrowed the ideas from), but neither of the articles address when you need to go “next”, when “best” is the right choice, and when there’s no reason to go beyond “good enough”. This is a critical question when formulating your supply chain strategy, just as it is when formulating your business strategy, because you only have so much time and so many resources at your disposal. And with so much to do, you have to be able to prioritize to get the most bang for your buck.

According to “best practices get you only so far”, the process of identifying best practices and implementing them may allow enterprises to catch up with competitors, but it won’t turn them into market leaders. Which is mostly true, because if you read “imitation is more valuable than innovation”, you’ll find out that copying alone isn’t enough to get you in first place, you have to improve on the practice during your implementation to make it better and cheaper.

But do you really need to be best at everything?

You need to be a market leader, and you need your supply chain to be at least as efficient and cost effective as your competition, and preferably slightly more efficient and cost effective, but does this mean every process, practice, and piece of technology employed has to be best? The reality is that best-of-breed is costly. It takes time, effort, and, more often than not, very costly technology. If there is an opportunity for a significant return, than it’s worth it. But if the return is not much more than the investment, it’s not.

To illustrate, let’s take a technology focus. Everyday you are bombarded with BoB e-Sourcing, e-Procurement, Trade Management, Logistics, and Inventory Management technology. The solutions range from stand alone “best-of-breed” modules to end-to-end suites to everything in between, and the price tags range from about 50K a year to 5M a year. What should you buy? And what should you pay?

It’s a hard question. The 50K you spend on a cheap contract management system might be a total waste of money (and cost you 500K a year to maintain), while the 500K you spend on spend analysis software and services might be the best investment the organization every made! The reality is that if the savings that results from moving from “good enough” to “best practice” or from “best practice” to “next practice” is not at least 3 times the total cost, it’s not worth it, especially when there are so many practices and technologies out there today that will generate a return of 3X, 5X, 10X, or more for the organization. (Decision Optimization on the right category can sometimes generate a return of 20X or more! A proper spend visibility and spend analysis initiative can easily generate a return of 10X year after year [and some organizations have seen returns as high as 100X in peak years]). Trade management can revolutionize the trade compliance effort and save millions for just a few pennies up front. And so on.

I’m not saying don’t go “next”, because sometimes it’s the right thing to do. I’m just saying, when you go “next”, make the right choice. Business is about returns, which is necessary for sustainability of the business. Just make sure the returns will be there waiting for you before you go all gung-ho on a risky initiative.

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Six Keys to a Sustainable Advantage

Supply & Demand Chain Executive recently ran a short piece on the “six keys to the sustainable supply chain advantage” by Dr. Lowell Yarusso and Ronald J. Sanderson (of The MPower Group) which was quite good. In brief, these six principles were:

  • Collaborate, Don’t Competebecause a true value-oriented supply chain consists of an extensive network of integrated suppliers, suppliers’ suppliers, internal supply chain participants and customers, all working together to maximize the value of the supply chain. This can’t be achieved without extensive collaboration.
  • Remember the Goalas many strategic sourcing/supply chain organizations tend to get overwhelmed by the task at hand and lose sight of the bigger picture. After all, cost reductions aren’t about objectives but improving competitiveness and functionality.
  • Recognize the Complex, Manage the SimpleThe supply chain is complex. That’s not going to change. The key to success is to simplify as many processes as possible so they can be easily managed and the risk of failure, due to unmanageable complexity, minimized.
  • Treat the Issue, Not the SymptomIf you track the right metrics, you’ll be able to identify the cause of poor performance and focus on correcting it. This is important because if you don’t correct the issue, the symptom will just keep reappearing.
  • Focus on Cost Drivers and Business ImpactsRemember, costs are symptoms; cost drivers are the cause. Cost drivers can be labor, demand, shortage of raw material supply, etc. Left unchecked, they can continue to rise. Tackled head-on, they can be contained.
  • Don’t Waste an At-batIf an idea is worth pursuing, it is worth pursuing to its full and natural conclusion. To make a significant impact on the business, strategic sourcing and supply chain professionals need to understand that, over the course of a season, the difference between “hall of fame” and “journeymen” hitters is largely that the hall-of-famer is driven to excel on every swing. They aren’t satisfied with batting .300. They drive for more. And that’s what’s needed to truly achieve supply chain success — a constant drive for more.

In short, the article serves as a good introductory guide on how to give your supply chain an sustainable advantage. For a deeper dive, I recommending diving into the full article on the “six keys to the sustainable supply chain advantage”.

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Want More Supply Chain Profits? Take a Page from David Suzuki’s Notebook.

David Suzuki recently gave the keynote at SAP Canada’s Sustainability in Business Summit. ComputerWorld has been kind enough to put the most relevant part of his keynote on the web on the ITBusiness.ca site. In brief, he says nature has to be the bottom line, and he’s right.

Think about the following facts:

  • Every time you use a gallon of water, that costs you money.
  • Every time you use a watt of energy, that costs you money.And now that carbon tariffs are coming on-line, it costs you even more.
  • It costs money to mine raw materials.Which get more expensive as supply decreases.
  • It costs money to produce and distribute products.Energy costs, carbon costs, and oil costs.
  • It costs you money to dispose of waste.No one wants a landfill, and someone has to hall it away.
  • It costs you money to dispose of end-of-life products.

Now, if you would design for recycle:

  • You’d use less water producing every component you re-used.
  • You’d use less energy producing components.
  • You’d need less raw materials, as you’d be getting them back every time your customers upgraded.
  • Production would cost you less.
  • You’d have less waste to dispose of.
  • You wouldn’t have to worry about disposing of end of life products.They’d be recycled into next generation products.

Plus, your profits would soar as your green brand gained share in the minds and hearts of consumers everywhere. So take a page from David’s notebook. Put nature first and watch your bottom line improve. Going green saves green.

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