In the 12-step movement, they say admitting you have a problem is the first step toward recovery.
And when it comes to energy usage and waste in supply chains, we have a major problem.
The U.S. Department of Energy’s Annual Energy Review shows that industrial and transportation sectors—those that coincide with supply chain activities—account for 61 percent of U.S. carbon emissions. This indicates that a careful examination of energy use throughout the supply chain provides substantial opportunities for improvement.
Volatile energy costs substantially drain company resources. New government regulations will require companies to cut energy use or pay penalties. And pressure from customers, shareholders, and advocacy groups continues to mount for companies to cut energy usage and reduce their carbon emissions.
We offer 12 suggestions for how companies can make their supply chains “greener,” more efficient and more cost effective. These apply to virtually any industry – electronics, food and beverage, retail, industrial, consumer packaged goods, etc.
1. Redesign the product
Even simple changes to a product design – from reducing weight to making it easier to disassemble — can reduce energy consumption and waste throughout the product life cycle. In some cases, innovation or new technologies may make it possible to eliminate components or ingredients entirely and thereby shorten the supply chain. Dutch food maker Friesland Coberico Dairy Foods reduced its transportation needs by 127,000 miles per year by adjusting recipes and production processes.
2. Reconfigure manufacturing
Streamlining production steps, reducing energy use, and limiting use of pollutants and toxic materials can have a big impact on how green the supply chain is. Employing a product lifecycle management process that takes into account green considerations is the key. Canadian pulp and paper company Catalyst Paper Corporation reduced greenhouse gas emission by 70 percent and saved $4.4 million by reusing waste products and heat from its manufacturing processes and switching to natural gas.
3. Shift to green suppliers
Although some may have higher costs, green suppliers can have a big effect on the carbon implications of bringing products to market. An analysis of alternative suppliers may uncover potential benefits that justify making a change, such as helping you meet new government regulations or appealing to new categories of consumers.
4. Shorten distances
By rationalizing sourcing, assembly and distribution in relation to markets, travel distances and corresponding fuel use can be reduced. For some products, simply working with suppliers who are closer to major markets can significantly reduce energy use. An American bath and kitchen products manufacturer reduced carbon emissions 34 percent by relocating its warehouses, without incurring additional costs.
5. Alter service-level agreements
When evaluating the effectiveness of your supply chain, add carbon to the traditional measurements of cost, quality and service. Review service-level agreements for unnecessary requirements that decrease efficiency. For example min-max and just-in-time clauses could force suppliers to make small, expedited deliveries that drive up energy use dramatically.
6. Shrink packaging
New materials and designs allow companies to make packages smaller and lighter, allowing shipping containers to hold more and trucks to carry more products in a load. Improved package designs can also reduce the burden of recycling or eliminating packaging materials at the end of the chain. UK retailer Tesco asked suppliers to provide lighter weight wine bottles, reducing its annual glass usage by 2,600 tons per year and lowering carbon emissions from transportation by 4,100 tons.
7. Plan for reverse supply chain activity
Products that are reclaimed from the market for upgrade, refurbishment, recycling or disposal require some kind of reverse supply chain. This is becoming a business requirement, largely driven by governmental regulation – the European Union adopted product take-back regulations six years ago, and similar statutes are coming online in the U.S. and elsewhere. By planning for these events up front, it’s possible to reduce unacceptably high waste and energy costs later. How products are originally designed, assembled, labeled, and packaged can have a profound effect on the efficiency of any reverse supply chain.
8. Consolidate shipments
There’s a reason Amazon charges you less for shipping if you consolidate your order and have all items shipped at once – it saves them money. The simple idea of consolidating shipments can require careful analysis to work out which suppliers to use, where to locate facilities, and what inventory levels to maintain.
9. Plan smarter routes
There’s an art to planning distribution routes and choosing the right transportation modes. Simple intuition seldom leads to optimal solutions, and over time tradition and inertia often allow routes to settle into patterns that are inefficient and wasteful. Factoring in the true costs and carbon implications can lead to more rational routes. By using a software planning tool that eliminated left-hand turns, UPS was able to take 28.5 million miles off its delivery routes, saving three million gallons of gas and reducing CO2 emissions by 31,000 metric tons per year.
10. Coordinate with partners
Many opportunities to make your supply chain greener or more transparent will depend on careful coordination with allies both upstream and down. Be prepared to share your goals and plans with these allies and incorporate their plans and priorities into your solutions. British retailer Marks & Spencer worked closely with suppliers to develop a whole new level of transparency — meat used in sandwiches and recipes can be sourced back to the individual cow and traceability for clothing reaches as far as dye houses and spinning mills.
11. Take a life-cycle view
Look at the whole life of the product to understand where energy is being used and find opportunities. Energy used while a product is in service can be significant. A life-cycle assessment by Unilever of its Ben and Jerry’s ice cream showed that only 2 percent of its carbon output came from manufacturing – the bulk, 46 percent, came from retail operations such as refrigeration.
12. Start now
The ability to eliminate waste and pollution is becoming an increasingly important criterion for buyers. Making progress reinforces a positive impression of your brand and is a source of pride for employees. For many businesses, mandated changes are inevitable. Start by analyzing which opportunities deserve investment now and which should wait. First, focus on the opportunities you control, then reach out to the opportunities upstream and down in your supply chain.
Paul Brody and Mondher Ben-Hamida are supply chain experts for IBM Global Business Services.