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Making Sense of Supply Chain Sustainability

When I first started doing business in Asia, more than 30 years ago, nonstop flights between the West Coast and Taiwan were a rarity. Most often, the 16-plus-hour trans-Pacific flights required at least one stop — usually in Japan — before reaching their final destinations.

Within just a few short years, however, more efficient engine and aircraft designs made nonstop LA-to-Taipei trips the only way to fly. These nonstop flights were not only more convenient for passengers like myself, but they were also less expensive for the airlines to operate, with fewer gas-guzzling takeoffs and landings.

So, what's the point of this international-flight history lesson? Well, along with becoming more cost-effective, these nonstop flights also let airlines dramatically reduce their carbon footprints (not that anyone talked about carbon footprints back then) because about 50% of the carbon emissions released by airplanes come from the takeoff and the landing. Though the airlines' motivation was to wring more profit out of each flight, the “green” benefits were an added bonus. In other words, what these airlines inadvertently discovered was that boosting profits and providing a more environmentally friendly service did not have to be mutually exclusive. In fact, when approached correctly, profits and sustainability can be highly symbiotic.

While this concept is something I think most members of the electronics supply chain would agree with in theory, putting it into practice is another story. Prior to the global economic downturn, many companies touted the business value they achieved through areas such as emissions reductions and more efficient operations and manufacturing processes.

However, it seems that over the past several years, financial constraints have dampened corporate exuberance for the benefits of sustainability. Despite what is characterized as “a deeper awareness [of] and commitment” to sustainability, “The UN Global Compact-Accenture CEO Study on Sustainability 2013″ indicates that business efforts on sustainability may have reached a plateau. This finding is further supported by CDP's “Collaborative Action on Climate Risk” 2013-2014 supply chain paper, which reports that in the past year, investments in emissions reductions programs have declined and the average monetary savings from emissions reductions efforts have fallen 44%.

There are many potential explanations for this sustainability stagnation. One, which I believe is highly likely, is that most corporate efforts, to date, have been focused internally. Yet, according to CDP (formerly the Carbon Disclosure Project), as much as 80% of a company's carbon emissions come from within its supply chain. Therefore, sustainability efforts by even the most proactive companies will not reach their full potential until those companies can more actively involve their suppliers in the process.

CDP states that collaboration across the supply chain is the “most important determinant of improved emissions reduction performance.” Furthermore, those companies that engage with two or more suppliers, consumers or other partners are “twice as likely to see a financial return from their emission reduction investments, and twice as likely to reduce emissions,” according to CDP.

The challenge is that beyond the “big guys” like Intel, AMD, Xilinx, and TI, a large portion of the electronic component supplier base comprises smaller, often niche players. These companies simply do not have the resources to institute major emissions reduction programs, nor do they have the leverage to influence the actions of their supply chain partners.

The good news is that there are many ways to have an impact that do not require tremendous capital investments. For example, working more collaboratively with supply chain partners can minimize the energy inefficiencies that come from wild fluctuations in demand. If a shipment of components needs to be expedited, it will likely require the use of more emissions-intensive air transports. With better planning, the shipment can be made via ocean container using the “slow steaming” method, which burns less fuel and reduces carbon emissions. Dutch shipper Maersk has been credited as one of the first operators to employ the slow steaming technique. In 2010, the company reported that it cut its CO2 emissions by 2 million tonnes due to slow steaming.

Hewlett Packard has also adopted a cross-continental rail route, a more eco-friendly shipping alternative for moving product from its inland China factories. In 2012, HP launched a rail route that traverses China, Kazakhstan, Russia, Belarus, Poland, and Germany. The company reports that the train system has one-30th the carbon footprint of air transport. Now that HP has laid the groundwork, so to speak, it is expected that more members of the electronics supply chain will adopt this route as well.

Setting up in-plant stores within OEM manufacturing facilities may also be an energy-saving option. Rather than having shipments come in daily to accommodate just-in-time manufacturing, a quantity of inventory may be kept on-site. When considering this approach, it is important to compare the potential savings from reduced trucking against the additional energy that will be consumed to keep inventory in a temperature-controlled environment.

To incentivize suppliers to more actively promote sustainability in their own products and processes, OEMs should establish a set of sustainability metrics that the potential supplier must meet in order to be in contention for their business. A clear, and not too complicated, supplier sustainability scorecard can help get the conversation started. You can access the Electronic Industry Citizenship Coalition's Self-Assessment Questionnaire (SAQ) here. CDP has also recently announced the launch of its Action Exchange, a supply chain initiative designed to provide suppliers with easier access to the “technology, intelligence and solutions that will help them take action to reduce greenhouse gas emissions and realize financial savings.”

In the end, promoting sustainability in the supply chain comes down to a question of desire. There are studies galore that trumpet the business value and just as many that call those results into question. Those looking for an excuse to sidestep the sustainability effort will have no trouble finding it. On the other hand, I believe that for those who truly wish to contribute to the solution, the opportunities are plentiful.

Start small; do what you can. Like the airlines discovered in the late 1970s, when you focus on producing a more efficient and profitable product or process, you'll find that along the way you often get a result that is greener as well, simply because it makes more sense.

This article originally appeared in the Avnet Velocity e-magazine, The Sustainability Balancing Act.

3 comments on “Making Sense of Supply Chain Sustainability

  1. Houngbo_Hospice
    June 29, 2014

    “In the end, promoting sustainability in the supply chain comes down to a question of desire. “. That is right! Where there is a will there is a way. But the challenging part is to understand the business value of sustainability promotion in the supply chain and be willing to take time to look for a sustainable solution.

  2. Himanshugupta
    June 30, 2014

    Airline and railroad examples are perfect for innovation as a problem solution. In today's world if we want to combat global warming problem then instead of only thinking about the carbon footprint by reducing the use to technology we should instead start thinking about how to use the technology better. 

    Waste problem is another area that requires innovation. Right now most countries dump their waste into far away areas but we need permanant solutions that do not harm the environment and are sustainable.  

  3. prabhakar_deosthali
    June 30, 2014

    @Himanshugupta

     

    I agree with you.

    Waste management has to become part of the design phase itself for any new product design.

    So when a new product is designed a complete thought to be given on what material is selected , what are the environment effects of using that material and associated manufactruing processes, define the recycling process for the product etc.

    We can aslo think of how to use waste products for energy generation  without polluting the atmosphere.

     

    So material recovery from the waste ( especially the precious metals) and use of waste for energy generation can help a great way in reducing carbon footprint of a product and indirectly help in supply chain sustainability

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