Methods to reduce corporate carbon footprint have traditionally focused on developing more energy-efficient production or facilities, utilizing greener energy sources, and finding ways to reduce energy consumption. While these types of efforts are highly required, there is a lot of untapped potential in reducing greenhouse gas (GHG) emissions from the business operations and value chains.
Sustainable companies of tomorrow
GHG emissions are one of the most critical topics from the environmental aspect in today's business. Customers, shareholders, and even employees are highly focused on the sustainability aspects of any business. Today we live in a world where it's no more enough for a company to generate good profit if the truth behind it, is a gigantic carbon footprint or neglected social rights.
A healthy balance of social, environmental, and financial impact is a prerequisite for the future success of any business. While international agreements, such as the Paris agreement, put pressure on making the required changes, industrial companies have a crucial role in reducing GHG emissions. Based on the European Environment Agency industrial companies count for 21 % of all the emissions in the EU.
Greenhouse gas (GHG) emissions can be categorized into three different scopes:
- Direct emissions e.g. from the company's facilities and production
- Emissions from energy providers required in the company's operations
- All emissions that occur both upstream and downstream in the company's value chain.
Untapped potential in reducing GHG emissions from value chain
Emissions that occur in the value chains of industrial companies are by far the most complex ones to manage. These emissions, however, make up a significant portion, even up to 80%, of companies' total emissions and thus cannot be overlooked. The complexity of these emissions is mainly because of their nature and the lack of available data. Also, different suppliers might have differing ambition levels regarding the topic and businesses themselves have only limited power to influence their end customers.
GHG emissions in a company's value chain can be addressed in multiple ways in different operational activities starting from product development to customer deliveries.
Product development sets the foundation for carbon footprint
Research and development set the actual foundation for the carbon footprint. Research estimates that close to 80 % of the product's environmental impact is determined by product design. Material and packaging choices have a direct impact on recycling or reusing possibilities as well as prolonging the product ownership. In certain industries, the product life cycle is intentionally shortened to meet a certain price point which signals room for improvement both from consumer behaviour's as well as product development principles' point of view. Another aspect worth considering is whether the manufacturing process can be streamlined e.g. by using modular designs.
Sustainability as criteria for supplier selection
Finding the right suppliers for needed components and raw materials can be tricky, but sustainability criteria should be one of the selection criteria among other attributes such as price and quality. The market for tracking supplier carbon footprint is evolving rapidly as more and more solutions are developed for the increasing demand. In addition, favouring more local suppliers can both shorten transport-related emissions and ease tracking the sustainability compliance of the supplier. Recent disruptions on global supply chains have brought the interest back to local suppliers after a long time.
The heavy influence of supply models and terms on GHG emissions
When purchasing materials, it is worth considering if transport emissions can be further decreased by consolidating shipments and optimizing routing. The supply terms agreed with suppliers influence heavily especially on the emissions occurring in the company's value chain. If you push the supplier to produce small quantities, short lead times and keep extremely high safety stock, the supplier ends up having just a little wiggle room for optimizing its operations.
While trying to reduce the emissions in the value chain, some compromises might be needed. Another way to enable suppliers to make more sustainable decisions is working in close cooperation with them and sharing information in real-time for example of the demand forecast. This way suppliers can for instance adjust productions on time if the forecasted demand is all of a sudden decreasing and avoid excess inventory.
Overall efficiency in the production phase
While having the right raw materials in stock, the next critical point is the production planning and the production itself. Applying lean production practices as well as aiming for high energy and overall production efficiency are key factors leading businesses towards lower emissions. It's clear that smaller productions run lower efficiency and generate usually proportionally higher production waste.
To reach higher production efficiency, it's important to have visibility into the right time frames so that optimal decisions can be made regarding for example production sequence and batch sizes. Liable and timely forecasts from customers can serve as one potential datapoint. But no matter how streamlined the production is, there will always be some waste.
In recent years, an increasing number of fascinating and creative examples on how to use production side streams have emerged. Finding new ways to utilize side streams can also potentially bring in new revenue streams while making sure that the zero-waste policy is achieved.
Smarter outbound and delivery models
Customer is king but sometimes you need to be the one guiding customers in the right direction. To reduce GHG emissions in the supply chain, delivery terms for customers can either serve as a barrier or as an enabler. When the customer has significant freedom and power to influence the production, optimizing the production and lot sizes can be a challenging task.
Routing and transportation can also be optimized similarly to inbound shipments. You might want to ask yourself, is the warehouse network serving the current demand or are you making a lot of intercompany shipments from one location to another? Optimizing the warehouse locations and calculating the GHG emissions of the different alternatives is vital during this point.
Customer steering is the key to future success
Ability and ways to influence customer behaviour depend without a doubt on the industry and whether operating in B2B or B2C. Regardless of the nature of the business, companies should strive to guide the end customers towards low-emission alternatives. There are several ways to do it, but a few methods worth mentioning are pricing, increasing the awareness through communication, or bringing extra visibility into the emissions of the different alternatives. If customers can easily compare the carbon footprint of different products and delivery model options, it's easier for them to make better decisions.
One of the biggest challenges both customers and purchasers face is not having visibility and the possibility to compare different alternatives and their environmental footprint. Providing this kind of information and transparency can therefore increase customer loyalty and ensure being the future choice.
″ We believe that operations must be optimized to their full potential before investing in any new technologies to reduce emissions. This way it is easier to identify the areas where investments truly are required.
Efforts to reduce GHG emissions in operations do not have to mean having to compromise financial performance. Instead, many of the actions can even decrease costs. Don't hesitate to contact us for more information on how we can help your business to reduce its carbon footprint through better operations management.
Learn more about supply chain management and sustainability here.
About the author
Mari joined Capacent in 2018 and has worked in several pricing and working capital projects. She holds a master’s degree in Supply Chain Management and Corporate Social Responsibility from the Hanken School of Economics. Mari is passionate about ensuring a sustainable future through smarter supply chain management.