Greening your supply chain

Companies are having to become more sustainable in their supply chain as they grapple with carbon reporting and the current downturn. There are all kinds of ways companies can help ‘green’ their supply chain while attracting customers, standing out from competitors and reaching profitable goals.

Businesses have learned to trade off increases in one part of the supply chain in the quest for lower overall supply chain costs and the consumer has benefited from more choice, greater availability, and better value. But now there is another currency by which to measure and optimise supply chains—CO2. As consumer attitudes and governments around the globe combine to put pressure on business, organisations are asking themselves how they can reduce their carbon footprint. The rise of the green supply chain is now becoming a customer differentiator.

By applying principles of effective supply chain management (SCM), companies are finding they can lower carbon emissions while satisfying customer demands and meeting profitability goals. And businesses are eager to gain the market leadership associated with adopting a green strategy. Customers are choosing manufacturers and distributors based on the ‘greenness’ of their operations, so companies on the cusp on this can get a customer advantage.

There are multiple ways to foster green supply chains. These include optimising the physical supply chain and the storage and transportation of product across it, lowering energy usage in the manufacturing conversion process, and improving product design and packaging to minimise waste and increase the recycle content of each.

There are a number of imperatives that has driven green to the top of the executive decision-making agenda and will continue to be priority. The first is carbon trading. The Government’s proposed emissions trading scheme  (ie imposts placed on refiners, rather than end users) means increased downstream costs for manufacturers, distributors and even retailers so they now need new tools to help model carbon costs alongside more traditional economics of supply chains such as location of plants/distribution centres, size, what products/where, transport modes (rail, air, trucking etc). While the Rudd Government has since delayed the start date of its proposed emissions trading scheme, it should be top of mind for businesses.

The second is that most initial carbon reductions come with a reduction in supply chain costs because being more efficient is directly related to reducing emissions. So generally it is a win all round.

Thirdly, one of the most compelling reasons for companies to adopt a greener supply chain is the potential for competitive advantage and increased revenue that flows from meeting consumer preferences for environmentally friendly products. For example, retailers and even transport companies are factoring in how green their supply chain is, which is becoming a unique selling point.

So where to now?
Businesses can substantially reduce transportation, inventory, and production costs by optimising their supply chains to plan the most efficient logistics network possible and plan where to stock products in distribution centres to be most efficient and be greener for the effort. Indeed, most companies have ample opportunities to reduce costs and improve customer service through SCM.

As a business, there are a number of aspects of the supply chain that you need to look at to help green your supply chain:

Supply chain design
Companies will see improvement by modelling carbon emissions with strategic supply chain network design. They can determine the most effective number of locations, sizes, and capacities of facilities to meet customer service goals while modelling and reducing their carbon footprint. They can also benefit from dynamic planning of where and when to make, buy, store, and move product given changing fuel costs and constraints. With these supply chain models, companies can quantify the cost, service, and carbon implications of each scenario and prepare themselves for the impact of change.

Transportation management
By analysing ‘carbon kilometres’ or the travel impact of goods on the environment, enterprises can capture big savings. These savings result from more efficient transport, which in turn means lower fuel expenditures and logistics operating costs.

Product design
Enterprises can implement green initiatives by designing more environmentally friendly packaging. Most companies can go a step further and radically re-engineer the methods used to manufacture, package and deliver their product. Examples include downloadable music, e-books or news broadcasts, concentrated detergents, and digital picture technologies. By leveraging product lifecycle management in addition to SCM, enterprises can carefully integrate product packaging, design and engineering with sourcing, compliance, and supply chains to reduce carbon output.

Inventory modelling
Companies can gain from more environmentally friendly distribution plans. Using inventory analysis and stocking calculations helps create the optimal balance between service levels, inventory investment, and the carbon associated with different transportation modes and replenishment frequency.