Supply Chain Frontiers issue #20. Read all articles in this issue
Changing the world’s energy consumption habits to counter rising levels of greenhouse gases in the atmosphere requires a 50-year time horizon, said Professor Ernest J.Moniz, MIT Professor of Physics and Director of the MIT Energy Initiative. Meanwhile, global energy demand is expected to double by 2050. But there are near-term cuts in energy usage that will play a decisive role in turning the tide of emissions – and they must come from efficiency gains in key areas such as supply chain.
Moniz gave an overview of global energy demand and supply challenges at the Achieving the Energy-Efficient Supply Chain conference, April 30, 2007, in Cambridge, MA. The event was co-sponsored by MIT’s Center for Transportation & Logistics and the Council for Supply Chain Management Professionals (CSCMP).
To highlight the glacial pace at which the multi-trillion dollar energy industry changes, Moniz described how in a 25-year period five generations of medical device equipment passed through the manufacturer GE. But in the same time period, the company’s steam turbine business remained virtually unchanged.
As global energy production patterns slowly shift, swifter gains must come from areas of primary consumption such as commercial operations. In fact, efficiency improvements must cut energy consumption by about one-third, if the world is to meet required conservation goals, Moniz said.
The rising cost of energy will provide much of the incentive for these cuts in usage levels. Fujitsu Computer Systems Corporation, another conference participant, saw fuel surcharges reach a peak of more than 20% last year. The hike in surcharges encouraged the company to develop a direct ship logistics system and switch shipments from air to ocean (see Frontiers issue 19, March/April 07).
But the soaring cost of fuel is only one part of the energy consumption equation. The carbon footprint of supply chains – the amount of carbon they emit – is attracting more attention. As environmental issues exert more influence over business decisions, more companies will be forced to dissect their operations to identify opportunities for cutting carbon emissions. That could redefine supply chains to include a much wider array of manufacturing processes.
Global consulting firm Booz Allen Hamilton described the intricacies of analyzing the carbon footprint. For example, a UK-based snack food manufacturer discovered that drying the potatoes it used to make chips burned high amounts of energy. The solution was relatively simple: modify its supplier contracts so that growers are rewarded when they supply potatoes with lower moisture content. Interestingly, the company found that the greenhouse gases generated by its production processes exceeded those associated with transportation.
Retailer Staples offered a similar experience. “Eighty percent of Staples’ carbon footprint comes from the power and gas requirements of our stores and DCs – only twenty percent comes from our truck fleet,” said Mark Buckley, Staples’ Vice President, Environmental Affairs. The company has set a target of reducing its carbon emissions by 7% from 2001 levels over the next three years through various programs such as making its distribution centers more energy efficient. For example, Staples’ distribution centers typically have five to eight miles of conveyor systems, and the company has fitted the facilities with variable speed motors to reduce energy usage.
Clearly, reducing the carbon footprint of supply chains and changing deeply ingrained consumption patterns will require careful analysis and creative thinking. “We can’t look for one silver bullet – the problem is too large for that. We will need a blend of solutions,” Moniz said.
Further incentive will come from government regulation. States such as California have taken the lead in the U.S. by introducing targets for carbon emission reductions. Moniz – a former Under Secretary of the Department of Energy - believes that it is only a matter of time before the federal government joins the fray. “Most of us expect the U.S. to soon join a carbon-controlled regime in which we will put a price on carbon dioxide,” he said.
CTL is planning an energy research initiative. For more information on this work and the above conference, please contact Edgar Blanco.