Analysis shows link between sustainable supply chains, cost savings

Data from the Carbon Disclosure Project shows heightened focus on collecting carbon footprint and energy information related to large-company procurement, manufacturing and distribution partners.

Management consulting company A.T. Kearney has released an analysis of businesses submitting information to the Carbon Disclosure Project (CDP) that finds more than half of them -- along with 25 percent of their suppliers -- are generating cost savings as a result of adopting sustainable supply practices. That's a big deal because it is widely believed that at least half of the carbon emissions attributable to some global companies is derived from their supply chains.

The Carbon Disclosure Project 2011 Supply Chain Report, which covers 57 global companies and roughly 1,000 of their supply chain partners, shows that 86 percent of those companies derived value out of addressing their supply chain processes as part of a corporate sustainability initiative.

One specific example involves PepsiCo. A.T. Kearney reports that the company saved more than $60 million in energy -- achieving a 16 percent reduction per-unit across its beverage plants -- when it began managing the carbon associated with those activities. Says Walter Todd, the vice president of operations for PepsiCo UK and Ireland, where many of these savings took place:

"With a robust strategy and proven benchmarks in place, PepsiCo set out to engage and educate suppliers about potential opportunities to innovate their own operations. By providing suppliers access to the same energy assessment tools we use in our own operations, we've seen a mutual return on investment."

Overall, A.T. Kearney reports that 79 percent of the CDP Supply Chain member companies have a formal climate change policy in place, which is up from 63 percent in 2009 when it examined the last batch of data. It also reports that more businesses are training their procurement staff in sustainability matters: 41 percent in 2010, compared with 26 percent in 2009. About a quarter of the businesses reporting have incentives in place to encourage sustainability practices, and approximately 60 percent now see this as a way to differentiate their products.

Carbon management criteria increasingly is a part of supplier selection -- 17 percent make this a factor, up from 11 percent in 2009. A.T. Kearney expects that number will reach 25 percent over the next five years.

Says Frances Way, the program director for the Carbon Disclosure Project:

"We're seeing a shift among leading companies in the way they are implementing sustainable, quantifiable climate change policies and practices. Whereas last year we saw a rise in the number of large organization embedding climate change policy into the business strategy; now these policies are increasingly being put into practice at an operational level, across the entire supply chain. What's encourage is that suppliers and large purchasing corporations alike are starting to realize the commercial benefits as a result of collaboration."

A note to smaller companies that are part of large supply chains: the repercussions of ignoring carbon and energy management strategies are becoming more clear. While you might not be bounced out of a big supply chain relationship for ignoring them -- yet -- your incentives for embracing those strategies are becoming clearer. It could become a matter of competitive differentiation in less than fives years time.

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