For those of you that thought I had lurched a little over the line to the right this week, here’s a post in the other direction. Perhaps this will convince you that I’m pretty violently centrist. Well, ok, not quite. From the recent McKinsey Quarterly.
Global executives increasingly identify the environment, including climate change, as a top concern. When it comes to purchasing, however, it appears that companies aren’t necessarily translating the importance they place on climate change into action.
A McKinsey survey of more than 2,000 global executives finds that while nearly half of respondents say that climate change is a somewhat or very important issue to consider in purchasing and supply chain management, fewer than one-quarter report their companies always or frequently take climate change into consideration in these areas. Among high-tech and other manufacturing executives, 54 percent and 56 percent of respondents, respectively, say climate change is important in purchasing, yet these executives were no more likely than average to say it was considered in practice.
Why is this important?
They may be missing an opportunity. Our analysis suggests that for consumer goods makers, high-tech players, and other manufacturers, between 40 and 60 percent of a company’s carbon footprint resides upstream in its supply chain—from raw materials, transport, and packaging to the energy consumed in manufacturing processes. For retailers, the figure can be 80 percent. Therefore, any significant carbon-abatement activities will require collaboration with supply chain partners, first to comprehensively understand the emissions associated with products, and then to analyze abatement opportunities systematically.
It’s really not that hard…
Surprisingly perhaps, we find that many of the opportunities to reduce emissions carry no net life-cycle costs—the upfront investment more than pays for itself through lower energy or material usage. Others, however, will require tradeoffs between emissions and profitability, in areas such as logistics and product design (including product specification and functionality).
Such a focus could even create opportunities for enhancing the overall supply chain.
Forward-looking companies are using such discussions as opportunities for supplier development, for example by transferring best practices in manufacturing, purchasing, and R&D—as well as energy efficiency—to key suppliers. This opens the possibility of still lower costs and improved operational performance, in addition to helping suppliers remove more carbon from their supply chains.
And regardless of whether we believe global warming is caused by humans or by natural geosolar cycles, we can all probably agree that reducing environmental waste is a good thing. Isn’t waste reduction what lean is all about?