Posted by: Peter Lacy on December 17, 2009
This is a guest post about the UN Climate Summit in Copenhagen from Peter Lacy, Accenture
Business leaders across sectors are becoming acutely aware of the impact of Copenhagen and the transition to a low carbon economy in the next 2 to 5 years on global supply chains. As evidence of this growing awareness—which for some is a concern and for others a new chance to open up areas of differentiation—it is telling that two of the highest profile CEOs at the UN Summit have been Paul Polman of Unilever and Muhtar Kent of Coca-cola. Two of the world’s biggest branded consumer goods companies with large, complex supply chains that depend heavily on fossil fuels to move products around the world. Not to mention two companies who rightly believe that the way they run their high performing supply chains brings them business advantage.
Muhtar Kent, CEO of Coca-Cola, said this week at Copenhagen, “We believe there will be massive innovation at the interface of supply chains and sustainability… we believe supply chain can be a massive source of competitive advantage in a re-set world”.
This growing alertness to carbon and energy and the need to look strategically at the end-to-end supply chain to include all aspects of the product lifecycle is playing out at a couple of levels. First, a growing awareness of the vulnerability of supply chains to a carbon price, not to mention the fuel price volatility we have already seen in recent times. This is particularly important if, as it was claimed at the launch of the WBCSD Value Chain event last Friday, consumer goods companies’ full supply chain represents as much as 5 billion tons of C02 emissions globally. If that is indeed right and you applied the current European Emissions Trading Scheme carbon cost per ton (14.40 euros) for illustration purposes, it would mean in excess of $100 billion of value up for grabs in the global consumer goods supply chain if it were subject to cap and trade or tax, even at today’s conservative carbon prices.
Second, this is also about future-proofing consumer goods businesses against customer and consumer demand. A "carbon insurance" policy if you like. Many of the chief marketing officers I speak to at least tell me that although we are waiting for consumers to really drive demand for low-carbon and sustainable products, it is clear that their consumer research tells them this is coming—particularly among Generation X and Y. Not to mention the pressure from big retailers such as Tesco and the "Wal-Mart" effect driving environmental demands and standards through its global supply chain.
This focus on carbon and supply chain takes place against the backdrop of some serious discussions at Copenhagen Summit on how to treat "bunker fuels" and whether to tax or cap them as a way to drive emissions reductions in the shipping and aviation industry, sectors at the centre of the transport and logistics backbone of most global supply chains, which—although only one part of the supply chain and not including areas like agriculture—our analysis shows is still responsible for 5% to 6% of man-made greenhouse gas emissions.
But the good news—at least on logistics—is that around 60% of potential carbon abatement opportunity is within the transport and logistics industry's direct control, which therefore also applies to consumer goods companies who operate their own supply chains or work in partnership with transport and logistics players. And many of those opportunities align closely with cost reduction by driving out inefficiencies. They often come in the form of projects with fast payback and good returns. And even though economic uncertainty has changed the immediate outlook for the supply chain sector...the underlying business imperatives for supply chain decarbonization remain valid.
So what to do? The trick is to align cost effectiveness, customer service and sustainable supply chain practices. This will be even more important in the post-Copenhagen transition to a low carbon economy. Here are 10 ways to cut carbon emissions in global supply chains based on client experience and also drawing on research Accenture partnered on with the World Economic Forum and its group of Transport and Logistics CEOs. The abatement potential identified below applies to the logistics sector, but it gives you a sense of what might be possible with a wider lens on supply chains.
Clean Vehicle Technologies: Introduce clean and environmentally efficient technologies—cut an estimated 175 million metric tons of CO2e (CO2 equivalents which include all greenhouse gases) per annum.
Rethink the Speed of Different Parts of the Supply Chain (often know as 'De-speeding): Increase efficiency by collaborating to ease time constraints—171 million metric tons of CO2e per annum.
Help Optimize Sourcing (e.g. enable sourcing from least carbon source): 178 million metric tons of CO2e per annum.
Drive Efficiency of Transport Networks and Planning: Million metric tons of CO2e per annum.
Implement Green Building Technologies More Widely: 93 million metric tons of CO2e per annum.
Reduce Weight and Volume of Packaging: 132 million metric tons of CO2e per annum.
Help Optimize Production Locations Across the End-to-End Supply Chain: 152 million metric tons of CO2e per annum.
Widespread Improvement in Driver or Pilot Training in the Sector (especially to subcontractors): Million metric tons of CO2e per annum.
Modal Switches (e.g. changing the method of transport used in different stages of the supply chain, especially switches from international air to sea, and from continental road to rail): 115 million metric tons of CO2e per annum.
Reverse Logistics/Recycling: Improve percentage of total supply chain waste which is recycled: Million metric tons of CO2e per annum.
Peter Lacy, based in London, is Managing Director, Accenture Sustainability Services — Europe, Africa, Middle East, and Latin America
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