Retailers and consumer goods manufacturers are going to have to collaborate and work more closely with their supply chain partners if their climate change mitigation strategies are to be translated into effective action and if they are to realize the competitive benefits inherent in them, according to new research results from McKinsey & Co.
While responses from the more than 2,000 global executives McKinsey surveyed identify the environment, climate change included, as a top concern, these high-level concerns aren’t flowing down and having much of an impact when it comes to purchasing and supply chain management decisions and actions: While nearly half said that climate change is a somewhat or very important issue to consider, fewer than one-quarter reported that their companies always or frequently take climate change into consideration.
“They may be missing an opportunity. Our analysis suggests that for consumer goods makers, high-tech players, and other manufacturers, between 40 and 60 percent of a company’s carbon footprint resides upstream in its supply chain – from raw materials, transport, and packaging to the energy consumed in manufacturing processes. For retailers, the figure can be 80 percent,” McKinsey’s Chris Brickman and Drew Ungerman wrote in the July 2008 issue ofThe McKinsey Quarterly.
From Strategy to Practice
While climate change is considered important in purchasing according to a majority of responding high-tech and other manufacturing executives – 54% and 56% respectively – the same group of executives were no more likely than average to say it was considered in practice.
Translating high-level, conceptual concerns about climate change and the environment into feasible, real world practice is going to require collaboration with a diverse set of often autonomous supply chain partners, according to the authors.
The first step should be to conduct comprehensive studies that enable them to understand the emissions associated with products. That should be followed by a systematic analysis of abatement options.
“Surprisingly perhaps, we find that many of the opportunities to reduce emissions carry no net life-cycle costs – the upfront investment more than pays for itself through lower energy or material usage. Others, however, will require tradeoffs between emissions and profitability, in areas such as logistics and product design (including product specification and functionality).
“Forward-looking companies are using such discussions as opportunities for supplier development, for example by transferring best practices in manufacturing, purchasing, and R&D – as well as energy efficiency – to key suppliers. This opens the possibility of still lower costs and improved operational performance, in addition to helping suppliers remove more carbon from their supply chains,” Brickman and Unger wrote.