The DIY Solution for Managing Supply Chain Emissions

The DIY Solution for Managing Supply Chain Emissions

Amidst the lack of a global accord on greenhouse gas emissions and the fits and starts of a U.S. climate bill, big business, shareholders and consumers have echoed a similar sentiment: If you want to do something right, do it yourself.

All three have enacted their own form of climate change legislation, holding businesses to GHG reduction targets and driving sustainability initiatives. One of the more publicized targets for emission reductions has been the supply chain -- the very fabric that drives mainstream business operations.

The New Supply Chain Regulators

Walmart, IBM, and Dell are just a few of the major brands taking steps to green their supply chain, requiring that suppliers disclose and meet various sustainability requirements. Two very big drivers for this demand are shareholders and consumers.

Ceres, a national network of investors, environmental organizations, and public interest groups, announced in March that shareholders filed a record 95 climate change-related resolutions with 82 U.S. and Canadian companies, a 40 percent increase in resolutions filed over the last year. The organization indicated this is an early sign of the, "growing pressure on companies to disclose climate risks and opportunities in the wake of the recent Securities and Exchange Commission's climate disclosure guidance and other recent policy developments."

Consumers also favor "green" companies. A study conducted by Green Seal found that, despite the poor economy, four out of five consumers stated that they were buying green products and services.

With an increase in market demand, comes an increase in the availability and use of tools and resources to help organizations measure supply chain emissions. Groom Energy Research released a recent study that found carbon accounting software purchases will increase 600 percent by 2011.

Propelled by market drivers and armed with tools to account for carbon in the supply chain, companies are taking active steps to identify, report and justify GHG emissions.

Identifying the Problem

The key to developing an accounting system across the supply chain lies in understanding that many times the problem is finding out what the problem actually is. Albert Einstein is quoted as saying that if he had one hour to save the world, he would spend fifty-five minutes defining the problem and only five minutes finding the solution. Based on the more than 100 supply chain GHG assessments I have completed for clients over the years, I can say that many organizations can benefit from this approach.

Knowing your obligations is the first step in analyzing the GHG problem. Many organizations are receiving a lot of different requests for information -- Walmart, U.S. EPA, Carbon Disclosure Project, investors and state purchasing organizations to name a few. As a result, companies struggle to define what is necessary and if a complete cradle to grave life cycle assessment is required.

Take Walmart for example. They ask for life cycle information on energy, resources, greenhouse gases, and solid wastes. The Carbon Disclosure Project asks for a GHG inventory, and government purchasing agencies ask for specific material or energy reductions. Answering these questions can be demanding, and this exercise often sparks internal struggles.

Identifying what emissions need to be reported -- whether to an outside organization, governmental body or shareholders -- is the most critical step in developing an accounting system that can scale and evolve as business needs change.

A straightforward example involves U.S. companies in the consumer electronics and computer industries that import manufactured products or components from overseas. Each importing company needs to be able to assess the potential for ozone depleting chemicals (ODCs) being included in the manufacture of any of its products or components imported from facilities overseas. This means assessing the inclusion or use of ODCs throughout a supply chain.

Not knowing whether ODCs are in the product or used in the manufacture of the product, can result in significant taxes owed to Internal Revenue Service (Sections 4681 and 4682 of the Internal Revenue Code). By helping companies determine what parts of their supply chains need to be audited, and what needs to be included in the audits, we have been able to help dozens of electronics manufacturers achieve a cumulative savings of more than $100 million.

Finding the Answers

Once you know what you need to answer and who you need to provide it to, it's time to identify the expended energy across your supply chain. This extends from the item being manufactured to the energy used to get it where it needs to go.

The first step to finding the energy output for manufactured goods is to find the inputs. These are the energy sources and raw materials that go into making a specific item. The core parts of the output are the energy expended by your own facilities. This analysis can be easily controlled for your own facilities and will help define the key benchmarks of your energy output. It should also include water inputs as well as energy inputs to ensure a complete understanding.

As opposed to analyzing your own facilities, it can often take a while to gather this information from external suppliers and provide guidance on what's needed, but it'll be well worth the investment. A number of efforts have been made by state government agencies to account for the energy and carbon associated with state government purchases. The difficulty has been in getting suppliers to readily provide information about the energy and carbon associated with the products they offer to procurement officers.

{related_content}Next, it's time to understand what you're shipping, where you're shipping it from and where it's traveling before arriving at its final destination. Energy is expended in goods organizations receive from a specific supplier and from commodities.

Where it originates can often be difficult to determine depending on regional regulatory requirements. For example, facilities in China and India often aren't required to report emissions. When developing a strategic plan about the emission sources you need to collect, it must include the places you receive supplies from.

There are a number of software programs for data management that allow organizations to easily input and manage GHG emissions and other sustainability data. Whatever data system you select or already have in place should capture data concurrently at the company, facility and product level. This has proven to be more efficient than capturing data in silos.

Companies that are willing to sit down and conduct a life cycle assessment -- a complete analysis of total energy, water and waste produced across the supply chain -- will be future-proofed for regulatory, legislative or public demands.

Conducting a supply chain emissions analysis in the right way from the start will immediately offer organizations business advantage. It's important to keep in mind however, that the challenge isn't always finding the right answers, it's a matter of finding the right problems.

Chet Chafee is VP of Life Cycle Assessment for FirstCarbon Solutions, a pioneer in environmental management outsourcing.