Category Archives: Going Green

Addressing Climate Change Requires a Revolution in Business Thinking

A recent article in Strategy + Business discussed the next industrial imperative and the costs of climate change industrialization, which are enormous. According to a 2007 Oxfam International study, the financial impact of climate change on poor nations through drought, crop damage, water shortages, species extinction, and disease already exceeds US $50 Billion annually, and the costs continue to rise as developing countries, like China (that just exceeded US CO2 emission levels), continue to increase their carbon output. Closer to home, insurance premiums are rising rapidly for areas that are (potentially) the hardest hit by climate change. They’ve gone up as much as 20% in coastal Massachusetts, 40% in Florida, and 400% for some offshore oil rigs. The costs now make self-insurance economical for many businesses and home-owners in high-risk areas.

The article points out that we cannot meet the 80-20 challenge under the current industrial system and that success will require a “sea change” in the prevailing kinds of energy we use, cars we drive, buildings we design to live and work in, cites we plan, and ways we travel the world. Although it does not require a return to a pre-industrial way of life, it does require a movement away from the “borrowed energy” society we built during the industrial age to one that lives within the “energy income” granted to us in the form of solar, wind, tidal, and plant-based energy that comes from renewable sources. (Nature produces no waste and every by-product of one natural system is a nutrient for another.)

When you think about it, living within our “energy income” shouldn’t be a problem since the sun emits more energy in one minute than we use in a year (and a single point on the earths surface currently creates enough tidal energy to power the globe), but, as the article points out, it will require new, basic, innovations of a scale and speed never seen before. And the shift must come from businesses that can apply their skills in management, entrepreneurship, and economic acumen to galvanize a collective shift. We all need to be more like Sweden, which depends on oil for only 30% of its energy, down from 77% in 1970, and which recently announced its goal to be the first oil-free economy.

And considering that there are Billions to be saved, and made, it’s a worthwhile effort. DuPont alone has saved $3 Billion in its sustainability efforts. General Mills now earns more money selling its oat hulls (a Cheerios by-product) than it used to spend to dispose of them. And the market for green buildings is expected to reach $38 Billion in 2010.

And we’re only at the tip of the iceberg. It’s going to take a massive shift in business to achieve the 80% reduction goal in 20 years, and a massive amount of innovation, and whoever steps up to the plate with innovative new solutions first is going to reap massive rewards. Just ask GE, whose orders for low-emission air-craft engines and locomotives, wind-power turbines, and new classes of energy-efficient equipment based on its Ecomagination technologies surpassed $70 Billion in the first quarter of 2008.

Green CAPS and the Triple Bottom Line (of Sustainability)

In one of its final “critical issues report” from 2008, CAPS addressed the topic of Green Corporate Strategies and how green issues will increasingly influence the actions of consumers, politicians, and other societal stakeholders as we move further into the 21st century.

In addition to highlighting key issues in the establishment of green strategies, internal strategies, and external strategies, the report also addressed the Triple Bottom Line (TBL) framework and how one may use it to measure the green-ness of a given approach or strategy. Incorporating economic performance, environmental performance, and social performance, the TBL assesses a given initiative in terms of the “business case”, the extent to which environmental harm is minimized, and the extent to which the company fulfills its social obligation to be a good corporate citizen — as a truly sustainable initiative is one that succeeds on all three counts.

More specifically, an economically sound green strategy will address energy and water costs, waste disposal costs, maintenance costs, operational costs, and / or health costs; an environmentally sound green strategy will address emissions and pollution, greenhouse cases, natural resources, and / or waste disposal; and a socially sound green strategy will address the corporation’s planet stewardship, it’s recognition that it is a global citizen, and future generations.

The report also offers some suggestions on how to start:

  • Smart small, but do something.
  • Insure proposed strategies are aligned with overall corporate strategies and goals.
  • Incorporate green into your purchasing processes and RFXs.
  • Be proactive.
  • Make sure you’re not just greenwashing.
  • Form a cross-functional team to scale your efforts company wide.

This is probably the most useful contribution of the entire report, which doesn’t really say anything that hasn’t been said before. The biggest problem most companies have with green is where to start, so anything that provides advice on this issue is certainly worth a few minutes of your time.

Carbon: Hype, Reality, and Management

Supply Chain Consulting recently published a pair of white-papers on “Carbon, Hype & Reality” and “Mastering Proactive Carbon Management”, that provide a decent starting point for a company just starting down the path to addressing it’s carbon footprint and getting it under control.

In Hype & Reality, Supply Chain Consulting cuts through the hype to the simple facts of carbon management, which are:

  • Everyone can contribute to effective energy management
  • You can’t compete on green unless you are green
  • You can’t claim carbon emission improvements without benchmarks and auditable processes
  • If you’re not committed to carbon management, you’re not corporately responsible in today’s marketplace

It also summarizes the status of global green house gas regulations in the US, Australia, China, and the UK. Highlights include:

  • Australia
    Mandatory legislation that requires mandatory reporting of any company facility that emits more than 25,000 tons of carbon dioxide-equivalent annually. Companies that don’t register or that report inaccurate numbers will be fined as much as $220,000.
  • China
    China has set a target to reduce per unit GDP energy consumption by 4% annually by 2010 with an aim to raise this to 20% in the near future.
  • United Kingdom
    The UK Climate Change Bill became law in 2008 and brought the Carbon Reduction Commitment with it that makes base-line emission reporting mandatory in 2008 and 2009 and reductions mandatory starting in 2010.
  • United States
    President Obama plans to set ambitious reduction goals and some states, like California, have moved ahead on their own.

In Mastering Proactive Carbon Management, Supply Chain Consulting presents their 5-Step Model for achieving a green supply chain.

  1. Master the Basics
    Start by educating employees about the importance of carbon management and going green to build awareness and develop an internal focus on improving basic operations.
  2. Involve the Company
    Begin your carbon journey by completing a static carbon footprint analysis which will help you identify improvements that will reduce energy usage and lower carbon emissions.
  3. Map Your Processes
    Progress to automating your carbon management efforts that will allow you to capture a “live” footprint at any time that includes internal and external supply chain processes. This allows you to consider carbon impacts in your sourcing and production decisions and reduce emissions up-front.
  4. Footprint Your Products
    Take your processes to the next level so that you can allocate your carbon footprint by product line. This allows you to target your worst offenders first and identify which lines have the most reduction opportunities.
  5. Optimize Your Supply Chain
    Re-design your entire supply chain to create an eco-friendly network.

The Green Goblin is Coming … Are You Ready?

One of the overriding themes at this year’s 6th Annual International Symposium on Supply Chain Management was Green … and how you need to be ready for the Green Goblin before he takes a huge bite out of your bank account. Carbon caps and strict regulations are starting to take effect around the globe, and if you’re not ready, it could cost you a lot more in fines and carbon credits than it will cost to be proactive and identify year-over-year sustainable savings by acting now.

Chances are you won’t be hit as hard as public sector institutions in BC, who only have until 2010 to be carbon-neutral, or face an offset of $25 per ton of CO2 emitted, but there’s a lot of talk these days among the more progressive provinces and states in North America to institute carbon taxes, and you can be sure that, one way or another, some form of carbon tax, be it direct or indirect, is going to hit you eventually.

Fortunately, there are a large number of easy ways to take a big bite out of your carbon footprint if you just look. An easy first step is facility retrofitting and IT virtualization — both of which make a big impact on energy needs. Most buildings use at least 40% more energy than they need to just in heating and cooling, and today’s technology generally allows for retrofits, with 30 to 50 year life-spans, that starts paying off in as little as 5 years. Furthermore, most organizations use 30% to 80% more energy to power their IT infrastructure than is necessary, and today’s virtualization solutions (as I’ve discussed in this post on data centers and this post on desktops) often have a 12 month payback (as per this savings template)!

If you’re in transportation, you can optimize routes, keep your fleet well maintained, and use nitrogen-filled tires — which both extend tire life span and reduce average fuel consumption by 5%. You can also optimize loads, using appropriate load planning optimization software, and work with your customers to maximize available lead times, which may let you use rail instead of truck for the majority of the distance, which emits significantly fewer units of CO2 per pound.

And you can get creative like UBC did to reduce your carbon footprint. They analyzed their carbon footprint and found a large amount of it was due to mail and package deliveries across campus. The courier that they did the least business with made an average of 85 stops per day. Considering that they already had centralized mail distribution, which now runs off of electric vehicles (which can be powered by clean hydro-power) there was no reason that they couldn’t centralize courier drop-off and pick-up to 2 drop points, which would reduce CO2 production from deliveries by over 95%! Plus, they also substantially reduced the cost to the couriers, many of whom had to have 2 or 3 trucks dedicated to their campus, and they can use this as leverage in negotiations to reduce annual courier payments by hundreds of thousands of dollars.

They also found that a lot of carbon was contained in the unnecessary packaging that accompanied the majority of deliveries on campus. So they went to their largest supplier, who was just a few kilometers from campus, and told them that they were not allowed to add packaging to anything delivered anywhere on campus and they were to start using reusable totes (since anything that needed safety packaging would have safety packaging added at the manufacturer). Whenever the supplier dropped off a standard cage of totes at the central mail distribution facility, they could pick up an empty cage of totes ready for return. They plan to roll this out to more suppliers … and the environmental … and cost … savings are going to add up here as well. (They are a large University of tens of thousands and faculty, staff, and students … think of all of the stuff that flows into a campus on an annual basis!)

They’ve also instituted a program where a product cannot be requisitioned unless it is locally recyclable or the manufacturer has a recycling program where they will take the product back when it’s end-of-life is reached. That way, they are not responsible for the CO2 associated with disposal of a product. And they’ve saved money in all of their initiatives … saving over 25 Million since the Sustainability Office was formed in 2001.

And the good ideas don’t stop here. There’s no reason you can’t go paperless in your office. What do you really need to print out besides the final version of a contract where you need a signature? A fax? Nope – it’s already in e-format and ready to be redirected to a user’s inbox. A policy document? Nope … leave it on the central server, where it is automatically backed up to redundant storage nightly. A meeting report? Nope! Either give your workers laptops or equip the meeting room with thin terminals and flat-screens, which could be laid flat under a glass table, and let everyone access their own copy of the report electronically in the meeting. If you set your mind to it, you’ll find that you rarely need to print anything … especially since the majority of what is printed in an average office (up to 80%, in fact) ends up in the recycle bin by the end of the day. It’s much more economical to give all of your workers two large LCDs than to buy paper. Much more!

So get creative, and cut back on carbon wherever you can, or the Green Goblin might be taking a big bite out of your bank account when the regulations come in, and you have to buy credits off of the exchanges (Montreal, Chicago, EU) where they are now trading anywhere from $6 to $30 a ton.

A Field Guide to Green Sourcing II

In our last post we noted that environmental responsibility is no longer merely a regulatory burden, but a business imperative. As noted by Earl Sun, Jayanth Iyengar, and Max Goralnick of Deloitte Consulting in their “Practical Guide to Green Sourcing”, recently published in the Supply Chain Management Review, not only can going green can save you green when your sourcing process capitalizes on sustainability opportunities, but it can make you a leader in the eyes of the self-conscious consumer who cares about sustainability.

In this post, we’re going to review the six-step green strategic sourcing process being advocated by Deloitte. It’s very similar to the traditional sourcing process, but each step has been modified to take into account relevant green criteria. The revised process is as follows:

  1. Spend Analysis & Opportunity Assessment
    In addition to a review of material and logistic costs, direct and indirect environmental costs are also considered. It’s important to understand volatility and trends of green cost drivers — such as the impact of recycling, industry demand expectations, and technology shifts. Be sure to go on “energy hunts”, because, in some types of manufacturing, energy is the most significant cost and even a small reduction will have a big impact on total production cost.
  2. Internal Supply Chain Assessment
    In addition to a mapping of current processes and an identification of process opportunities, environmentally sound products and services are identified and compared. Be sure to define specifications that call for reduced raw materials and/or energy requirements. Don’t forget to include regulatory and disposal costs in your assessment. Set goals – such as a minimum of 90% recyclability, more than 25% recycled content, or 0% waste.
  3. Supply Market Assessment
    In addition to the identification of potential sources of supply, an intense effort is made to identify and assess vendors who specialize in sustainable products and services. Don’t overlook the smaller, nimble, vendors, as they are often innovation leaders on the forefront who can offer insights into the latest technologies, methods, and processes above and beyond what your large, legacy, manufacturers may be able to provide.
  4. Sourcing Strategy Development
    Desired outcomes are defined and the corresponding process is identified. Sustainability considerations are included in the identified process, be it an auction, RFX, or optimization. Be sure to gather feedback from the entire stakeholder group before committing to a process and sending out an RFX package to insure all business requirements are satisfied.
  5. Strategy Implementation
    The analysis quantifies the cost/benefit of sustainability attributes and selects the best buy from a total value management perspective, where a value is placed on environmental friendliness and sustainability directives.
  6. Strategy Institutionalization
    Sustainability attributes and metrics are closely tracked as part of supplier relationship and performance management. Identifying the right set of metrics might be a time-consuming process the first time around, but since choosing your metrics appropriately is key to your success, take the time to get it right.

Simply put, it’s your traditional sourcing process, but green costs and benefits take center stage. As such, it shouldn’t be hard to transition to. So consider making the modifications offered up by the article. It’s the right thing to do.