The Green Line in Supply Chain Planning
I was fortunate enough to attend a recent event at vlab.org, talking about carbon friendly concrete. https://vlab.org/events/carbon-friendly-concrete/ . Today, the production of concrete accounts for approximately 7% of annual carbon dioxide (CO2) emissions. This is due to the huge amount of concrete used in the construction of buildings, bridges, and roads.
At the event, we saw how companies like Blue Planet (https://www.blueplanet-ltd.com/) can produce concrete with reduced carbon impact all the way to an even carbon negative impact and that this can be applied today. An example given was the construction of San Francisco International Airport, where Blue Planet’s concrete was specified for parts of their construction.
Companies are increasingly getting asked by their customers (corporations or consumers) to provide the carbon footprint of their products. In the future they will not only being asked about the carbon footprint of their products, but to reduce the carbon footprint or even provide their products with a specified maximum carbon footprint. Together with cost and lead time evaluation and optimization, the “green line” will become an integral part of operational sourcing and supply chain planning.
Earlier this year, SAP introduced the Climate 21 program (https://news.sap.com/2020/06/decade-delivery-climate-21/), where we intend to enable executives to manage their organizations not only by top line and bottom line financial measures, but also their green line. What the green line represents is the impact on the environment, such as carbon emissions, water consumption etc. When it comes to carbon, those impacts are measured by the Scope 1,2 and 3 Carbon Categories defined in the Green House Gas Protocol, specified by the World Resource Institute https://ghgprotocol.org/. Many customers are using these categories for carbon reporting, in addition to potential local regulatory reporting requirements.
As described above, the carbon impact will move beyond yearly reporting and become part of planning and the day to day operational decision making. In today’s approach many companies have a sustainability organization, responsible to provide a yearly sustainability report. They use high level corporate data, external databases and average values to calculate carbon footprints for example. The result might be different than when performing the same calculation bottom up, using real production data, Bill of Materials, individual supplier carbon footprints, actual machine running hours etc.
Embedding sustainability impact directly into the raw material procurement process, the production execution process, or the transportation planning processes, using actual data provides many benefits. It creates a data consistency using the same underlying data for planning, execution and carbon footprint calculation. It allows companies to react to end customer requests for a specific sustainable KPI of the product being sold. For example, a carbon neutral product allows for scenario planning weighting costs versus carbon impact and lead times. In procurement, companies might need to make a choice between a supplier with low cost, but long transportation and a high carbon impact versus a supplier with a bit higher costs but a lower transportation-based carbon impact. Corporate Customers and End Consumers will ask for these options.
Last but not least, including sustainability impact into companies’ operational processes will have a direct effect on organizational responsibilities. Whereas today, sustainability reporting is often done outside of the day to day operations by a separate sustainability team, in the future carbon emission planning and sustainable resource planning will be an integral part of the job of a purchaser or a supply chain planner.
Companies should move ahead to prepare for these changes before they get out bit by their competition on green line evaluations.