Saving money ... via climate change?

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While [climate change mitigation] programs could be seen as a burden, they are actually great opportunities to cut costs while reducing an organization's environmental footprint. The risks – once identified and managed for an individual organization – can help foster customer relationships and yield competitive advantages.” –Steve Starbuck, Americas leader-climate change and sustainability services, for consulting firm Ernst & Young LLP

There’s an old saying in business: if you only have lemons to work with, make lemonade. That increasingly seems to be the axiom that many transportation and logistics experts are working with as pressures to reduce the environmental impact of global supply chains continues to mount.

“Regardless of the outcomes of the United Nations Framework Convention on Climate Change (COP 16) in Cancun, Mexico this month, businesses face increasing pressure to identify environmentally-sound alternatives for managing operations risks, particularly when it comes to the supply chain,” noted Steve Starbuck, Americas leader for Ernst & Young LLP's climate change and sustainability services.

This demand is coming from many sources, not the least being a growing number of large corporate supplier qualification and scorecard programs that are employed to examine carbon footprints and resource use at every step of the product and service lifecycle – from the sourcing of raw materials to waste disposal by customers, he added.

[Here are some similar thoughts on saving through supply chain “sustainability” efforts from consulting firm Capgemini.]

“In addition to commercial customers, consumers, investors, analysts and other stakeholders are demanding transparent information about the lifecycle of products and services,” Starbuck said in a new report Ernst & Young put together on this issue.

He also pointed out that government engagement is a prime motivator for efforts by corporations to “green” their supply chains. In fact, this November the federal government – the largest supply chain in the U.S., by the way – unveiled its new GreenGov Supply Chain Partnership effort; a pilot program to cut waste and pollution in the federal supply chain by measuring greenhouse gas emissions (GHG).

Following this pilot, the General Services Administration intends to develop an incentive-based approach to contracting to favor companies that track and disclose their GHGs.

OK, so what does all of this have to do with you? Well, first and foremost, whether you believe in climate change or not, you’re going to face increasing pressure to reduce the environmental impact of the supply chains you serve.

More importantly, though, as Ernst & Young suggest, try to take advantage of such pressures. Use them as way to not only cut costs, but also as a way to develop a “competitive advantage.”

"Supply chain and environmental professionals share a common goal: to reduce waste,” said Starbuck. “While these supplier programs could be seen as a burden, they are actually great opportunities to cut costs while reducing an organization's environmental footprint. The risks – once identified and managed for an individual organization – can help foster customer relationships and yield competitive advantages.”

[Here’s a fun look at “greening” supply chains through the lens of … yogurt manufacturing!]

Here are the five supply chain areas Ernst & Young cite in their report where both the risks and rewards from more overt environmental impact reduction pressure will be felt:

Strategic – The supply chain, for many companies, increasingly provides an opportunity to improve competitive advantage and reduce cost and waste. Leading companies understand this link, particularly as stakeholders become more interested in social and environmental costs.

Compliance – Organizations that are required to comply with green supplier programs now need to track data on energy use and make the information available for audits. On the flip side, if an organization has instituted a green supplier program, it will need new processes to track and monitor supplier compliance and to use the data to drive decision-making.

Financial – Supply chain issues impact an organization's financial strategy in multiple ways, such as: opportunities to cut costs, potential cash management and liquidity implications as a price for carbon is set in different jurisdictions, and new due diligence requirements for acquisitions. Additionally, as companies increase public disclosures in non-financial reports, CFOs and audit committees are exercising more oversight.

Reputational – Many companies are implementing supplier qualification programs to ensure they do business with suppliers that share their values, which helps them manage brand and reputational risk. As such, these companies may conduct regular audits of suppliers, which might include compliance with emissions, waste and safety guidelines.

Operational – Spare parts inventory management, manufacturing equipment utilization, and planned maintenance are just a few areas where the level of efficiency could be improved. Other operational areas to assess include: unplanned downtime, reduction and innovative uses for manufacturing waste, transportation, logistics and facilities.

"As organizations across the public and private sector decrease their environmental footprints by focusing on supply chain operations, many find they need to influence operations that fall outside the direct control of a single business unit or enterprise,” explained Eric Olson, Ernst & Young's climate change and sustainability supply chain leader.

[And if your eyes haven’t glazed over yet, here’s a list you can ponder offering ten steps for helping firms “green” their supply chains.]

“As a result, supply chain leaders need up-to-date sustainability information that meets the growing demand for transparency and accuracy from customers and suppliers alike,” he stressed. That’ll require focus on some key metrics as well, including:

• Assess climate change and sustainability reporting needs, including evaluating the integrity and alignment of data across the supply chain.

• Monitor and assess existing or potential government regulations on the entirety of the supply chain.

• Review the corporate risk register and risk management policies for appropriate inclusion of climate change and sustainability risks associated with the supply chain.

The whole point of all of this, though, is very simple: change is going to be forced on supply chain operations, whether one likes it or not, to mitigate the environmental impact of said operations.

What Ernst & Young is saying – and it’s smart advice – is get out ahead of such change, so you can cut costs as you comply with new rules, while finding a way to benefit from being “greener” than your competitors. Benefiting from such change will at the very least make your lemonade easier to swallow.

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