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3 Lessons For Better Supply Chain Management


Submitted by Manish Bapna and Cynthia Cummis on October 11, 2012

This post originally appeared on Forbes.com.


What do three leading chemical, automobile, and software
companies have in common? All three Honda, BASF, and SAP
are looking to curb risks and take advantage of opportunities across
their global supply chains. Theyre doing so by measuring their
greenhouse gas emissionsnot just in their operations, but up and
down their value chains.
Many other multinationals are heading in the same direction. The
Carbon Disclosure Projects (CDP) annual survey of the Global
500, released last month, reveals that seven in ten respondents
measured some value chain emissions in 2011, up from about half
in 2010. (Note this figure is based on WRIs analysis of the 405
companies that submitted data to the CDP 2012 survey data.)
Whats driving the worlds biggest corporations down this path? In a
nutshell: reputation, risk, and opportunity.

The Carbon Disclosure Projects annual survey of the Global


500 reveals that seven in 10 respondents measured some
value chain emissions in 2011. Photo credit: Flickr/Robert
Scoble

First, business leaders are recognizing that companies global value chains are increasingly under scrutiny by consumers, the
media, and most importantly, investors. A case in point is the unwelcome attention Apple has received for its association with
its Chinese supplier, Foxconn. Retailers and corporate customers, too, are increasingly asking suppliers how they apply
sustainability principles to the products they produce. Given the attention, corporations ignore supply chain risksat their
peril.
Second, companies are increasingly aware of their exposure to environmental riskssuch as climate change and water
scarcitythrough impacts on their suppliers. In particular, recent extreme weather events have put corporate leaders on alert.
This summers record-breaking U.S. droughts have had ripple effects well beyond agriculture, including on the food and drink
industry. Likewise, the 2011 floods in Thailand that shut down electronic components hit many Fortune 500 technology
companies.
Reflecting such real world threats, 81 percent of companies responding to the CDP survey said they faced physical risks from
climate change. Thirty-seven percent went so far as to describe them as a real and present danger.

Turning Risk into Reward


On the flip side, measuring value chain emissions can unearth hidden treasure in terms of efficiency and cost savings. Gaining
an understanding of greenhouse gas hotspots in the value chain also help to focus efforts for product design improvements
and reveal additional opportunities for innovation.
Raw material suppliers often account for a large percentage of a companys environmental footprint, especially in sectors such
as retail and food and beverages. For example, Kraft Foods found that 70 percent of its greenhouse gas impact comes from its
raw materials. Companies can deploy emission inventories to identify actions that help their suppliers save on energy and fuel
use, leading to bottom-line benefits.
This is the goal for first movers like BASF, SAP, and Honda. And its where the Greenhouse Gas Protocol Corporate Value
Chain (Scope 3) Standard comes in. Launched a year ago by the World Resources Institute and the World Business Council
for Sustainable Development (WBCSD), the pioneering standard provides a step-by-step guide to measure and report value
chain emissions.

Lessons from Three Companies


1. After applying the Scope 3 Standard, SAP is pursuing a three-point plan to cut emissions generated after it sells
products to customers. The company is looking to design software that runs on fewer servers and requires less energy,

13/11/2012 05:13 p.m.

3 Lessons for Better Supply Chain Management | WRI Insights

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products to customers. The company is looking to design software that runs on fewer servers and requires less energy,
work with hardware providers to increase equipment efficiency, and encourage customers to run data centers more
efficiently. To this end, SAP has created new software products that run 60 percent more efficiently.
2. BASF is taking a different tack . The chemical giants value chain assessment identified as an emissions hotspot the
raw materials it purchases responsible for more than double the volume of greenhouse gases than BASFs own
operations. The company is now collaborating with key raw material suppliers to identify emission-reduction solutions.
3. Honda, meanwhile, announced in August that it had calculated the life-cycle emissions of the companys operations
and products, totaling 225 million tons of greenhouse gases in fiscal year 2012. The company learned that an
eye-opening 87 percent of its emissions are generated by customer use of its motorcycles, cars, and power products,
which will help inform its greenhouse gas reduction initiatives.

Too Many Laggards


Such examples of corporate leadership are heartening, but unfortunately, far too few companies have taken this step.
Returning to the CDP survey, only eight of 405 companies measured most of their indirect emissions, such as purchasing raw
materials and customer use and disposal of products. And the most common measure was business travel, which generally
represents a very small portion of a companys footprint.
Bridging this gap between first movers and the rest of the Global 500 is critical to reduce the scope of business-related
emissions that exacerbate climate change. We hope and expect that in the coming months, more companies will start to
measure their full emissions pictureand reap the benefits of improved value chain measurement and management.

TAGS: business, climate change, GHGP, sustainability

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13/11/2012 05:13 p.m.