Pitch
Minimizing 40 to 60% of a company’s footprint through better monitoring and control of its upstream supply chain
Description
Summary
Industries work through a network of suppliers that are in charge of delivering key products or components for the operations of what is usually referred to as a focal company which can be either a retailer, a manufacturer or even a service organization. Between 40 and 60% of a company’s footprint resides in this upstream portion of the supply chain. How can we help companies to better manage and control the emissions and environmental impact caused at this area?
Various studies[1] have found that within companies sustainable metrics do not usually receive the same attention as quality and cost do. The most common challenges expressed by top managers include the inability to quantify the effect of sustainability factors on financial performance as well as the inability to measure the effect of sustainability initiatives on shareholder value or return on investment.
I propose the development of a tool that aids managers in making integral decisions about the environmental performance of their upstream supply chain. The idea is helping them measure and monitor supplier environmental metrics while leveraging factors as cost and quality.
Category of the action
Reducing consumption
What actions do you propose?
Following Kraljic´s (1983)[2] purchasing portfolio approach and extensions by Handfield et al. (2005)[3], I have segmented the purchasing decision into a matrix where products are classified based on their level of contribution to profit, their supply risk and the impact on sustainability. Based on this classification, I propose the application of specific vendor selection, development and monitoring methodologies for those segments which represent items with high environmental impact.
In the first step of this study, I have developed an algorithm that allows companies to negotiate volume discounts with vendors offering products with a wide range of sustainability performance. Buyers are informed about the trade-offs between cost, quality, delivery and sustainability achieved by outsourcing their products from a given vendor and they can decide what vendor to choose given actual priorities. The model allows quantifying the impact of implementing certain environmental goals. For instance, in a tested scenario we found that by achieving maximum sustainability, a manager may deviate by about 20% from an ideal cost.
Next steps include fine tuning the model and incorporating features such as emissions due to various transportation modes and logistic decisions.
Who will take these actions?
Currently, my focus is on addressing the issues of goods manufacturers so that they will be the first to see the benefits of this approach.
Where will these actions be taken?
The tool is aimed at any medium and large size company around the world.
How much will emissions be reduced or sequestered vs. business as usual levels?
What are other key benefits?
While the tool intends to address key issues faced by manufacturing companies, various aspects of it could be replicated by different sectors and organizations.
What are the proposal’s costs?
For now the project is part of my doctorate research. Main costs are related to research and deployment of the tool.
Time line
December 2013 conclude major research.
January-December2014 deployment phase.
Related proposals
References
[1] Accenture. (2009). Optimizing Sustainability Performance Management: A review of findings from Accenture’s 2009 Sustainability Performance Management Survey. Sustainable Development (p. 16) and . The sustainable Supply Chain Project, University of Nevada, Reno. 2011.
[2] Kraljic, P. (1983). Purchasing must become Supply Chain Management. Harvard Business Review, 61(5), 109-117. Boston, MA.
[3] Handfield, R., Sroufe, R., & Walton, S. (2005). Integrating environmental management and supply chain strategies. Business Strategy and the Environment, 14(1), 1-19.
[4]Environmental Protection Agency. Overview of greenhouse gases. http://www.epa.gov/climatechange/ghgemissions/gases/co2.html
[5] U.S. Department of Transportation (2011). Assessing the Effects of Freight Movement on Air Quality at the National and Regional Level. http://www.fhwa.dot.gov/environment/air_quality/publications/effects_of_freight_movement/chapter02.cfm
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