Supply Chain Frontiers issue #34. Read all articles in this issue.
The scale and complexity of climate change issues can seem overwhelming. One way to bring the challenges down to size is to view them through a supply chain lens. This novel approach to climate change could make it easier for public and private organizations alike to develop workable solutions for reducing greenhouse gas emissions across the planet. The Carbon-Efficient Supply Chain research team at the MIT Center for Transportation & Logistics is exploring this approach.
Recent research initiated by the Carbon Trust in the United Kingdom concluded that: “Consumer purchasing decisions are the ultimate driver of carbon emissions in an economy.” As a result, all carbon emissions can be attributed to the delivery of products and services to consumers, according to the research. Since supply chains are designed to deliver product in the right quantities, to the right place, and at the right time to consumers, there is a strong link between supply chain management and carbon footprint management.
Tackling climate change as a supply chain issue has a number of advantages. By analyzing the supply chains that support consumer markets, it is possible to gain deep insights into how individuals’ daily purchases contribute to greenhouse gas emissions. Furthermore, such an approach takes account of the emissions that are imported when products are moved across national borders. For instance, the Carbon Trust study found that the United Kingdom’s carbon “trade balance” – the net import volumes divided by export volumes of carbon emissions – contributed to approximately 7 percent of the total emissions from consumption.
The supply chain approach to evaluating carbon footprints can also make more business sense than conventional analytical methods. By analyzing the emissions associated with each link in the chain, it is easier to identify the most effective ways to reduce carbon levels that are also aligned with cost reduction efforts. “Most companies tend to focus on local initiatives and may be missing out on partnerships that could have a bigger impact on the environment,” says Dr. Edgar Blanco, an MIT CTL research director and head of the center’s Carbon-Efficient Supply Chain Research program. In addition, using the supply chain methodology provides companies with a better understanding of how their products interact with the environment and social systems, and fosters stronger supplier-customer relationships both upstream and downstream.
It is important for enterprises to gain a detailed profile of their carbon footprints given that more stringent regulations for controlling emissions are expected to come into force over the next decade. Moreover, with consumers putting greater pressure on companies to make their operations more efficient from an environmental perspective, supply chain is an operational area that is coming under the microscope. The World Economic Forum found in its report, Supply Chain Decarbonization, that 2,800 megatonnes or 5.5 percent of the total greenhouse gas emissions from human activity is contributed by the logistics and transportation sector. Commercially viable methods for shrinking this carbon footprint could potentially halve the industry’s emissions in the medium term.
Achieving such reductions is not the end of the story, however. Enterprises also must communicate what they have achieved to consumers in such a way that the information is easily understood. Attaching carbon labels to products that provide details of the item’s emissions performance is one way to spread the word. Such labels also offer competitive advantages. Surveys conducted in the United Kingdom have found that 67 percent of consumers are more likely to buy a product with a low carbon footprint, and that 44 percent would switch to a lower carbon product even if the brand were not their first choice. The research also suggested that carbon labels make consumers feel more positive about the company that makes the labeled products.
Basing emissions analysis on supply chains also offers broader societal benefits. Tax or cap-and-trade systems are mechanisms for lowering emissions worldwide; but if these measures are not instituted globally, carbon “leakage” could result. That, in turn, could drive investment and jobs to nations with looser or non-existent carbon regulation regimes and lower associated costs. A supply chain approach would factor in overseas emissions when evaluating the carbon footprints of products. “Carbon and environmental footprint management fit perfectly with the strengths of supply chain practitioners: complex networks, deep data analysis, competing objectives, and strong collaboration with business partners,” Blanco says. “The time is right to unlock this potential.”
MIT CTL is researching ways to reduce carbon emissions in supply chains, and is launching a global consortium on supply chain sustainability. For more information on these initiatives, contact Dr. Edgar Blanco, eblanco@mit.edu . A white paper on the supply chain approach to evaluating carbon footprints is scheduled to be released in October 2009.