Recent Carbon Trust Business Advice research found that
multi-national organisations will significantly increase their
focus on supply chain carbon in the next 2-3
years, but what's driving this trend?
Our experience of working with companies to help them reduce
their carbon emissions has shown that the majority of an
organisation's footprint frequently lies outside its direct
control. To better understand this, companies can take a 'carbon
lens' to their supply chain, scrutinising for example those areas
which rely on commodities, and are therefore particularly
susceptible to risks such as climate change, extreme weather
events, high oil and energy prices, localised water scarcity or
even changing consumer preferences.
Cutting carbon in the supply chain - Impact on suppliers
How multinationals are addressing carbon in the supply chain
(click to view larger image):
Often there are resource commodities, inflationary pressures and
supply/demand issues that a business may not perceive as a risk,
hidden in tier two or three suppliers, which must be taken into
account when analysing carbon in the entire value chain. A
restaurant chain, for instance, may manage its exposure to food
inflationary pressures but it is unlikely to consider the amount of
cotton that is consumed in manufacturing uniforms, furniture, soft
furnishings or the cement, steel or aluminium in its building
refurbishments and kitchen fittings.
To understand and realise the opportunities in reducing carbon
and cutting the associated costs in the supply chain, consider the
1. Before working on the supply chain footprint, a company must
understand its own footprint. This will help develop an
increasingly accurate understanding of exactly what quantity of raw
materials and key commodities a business is consuming in the
development of its product or services. Coca-Cola found that packaging is the largest
contributor to its products' carbon footprint - accounting for
between 30-70% of the total emissions. Working with packaging
suppliers to use less carbon-intensive resources in Coca-Cola
bottles was therefore a major priority for carbon reduction.
2. Identify whether upstream carbon emissions are a
major factor in the organisation's overall carbon footprint. Every
business has a unique carbon footprint and different factors will
affect its indirect emissions.
- Companies where downstream
emissions tend to be higher relative to upstream emissions tend
to include manufacturers of energy-consuming durable goods or
products that require energy as part of their use or
- Companies where upstream emissions tend to be higher
than downstream emissions are those that produce goods requiring
energy in their manufacture, but little or no energy in their
downstream use or consumption.
3. If upstream carbon looks like a major focus, model the supply
chain of products and product groups, providing a breakdown of the
carbon impact of a range of resources including energy, waste,
transport and the production of raw materials. Understand the
carbon and resource-intensity of procured materials and services,
by conducting a high-level assessment.
4. Rank these by materiality and overlay them with key areas of
procurement spend to identify cost reduction opportunities.
Conducting 'deep dive' assessments of high-impact items will help
you to better understand the breakdown of their value chain (to
assess opportunity for reduction).
5. Engage with selected suppliers and include carbon and
resource impacts within procurement criteria and processes.
Marshalls Paving Stones, for instance, committed to working with
suppliers who offered lower carbon cement in its paving stone
production. Also, BT worked with the Carbon Trust Business
Advice team to implement a Climate Change Procurement
Standard with training for its suppliers, and by March 2010, 50% of
suppliers were measuring their carbon footprint and 52% had set
their own reduction targets.
Taking these steps will not only help a business reduce its
carbon emissions, it will help develop an accurate understanding of
the quantities of raw materials and key commodities that different
product/service mixes adopted by the business would consume. Since
every pound of inflation in a business' supply chain is a pound
less of profit, the best way to outperform one's competitors is to
uncover where these inflationary risks are highest and start
mitigating them now.