|Behind the Wheel
vice president of government relations and public affairs, Con-way Inc.
In 2009, the American Clean Energy and Security Act, also known as the Waxman-Markey bill, was at the center of intense debate and discussion. The bill proposed a complex “cap and trade” system where the government would set emission limits on the total amount of greenhouse gases that could be emitted nationally, proposing that companies could then buy or sell permits to emit them, primarily carbon dioxide.
Naturally, companies became laser-focused on sustainability initiatives aimed at reducing their carbon footprints, or at least became engaged in activity that was thought to achieve carbon neutrality.
Later that year when the Waxman-Markey bill died in the Senate, and the economy started to unravel, the conversation — and concern — around legislation designed to curtail greenhouse gas emissions faded into the background. At least, temporarily.
And while government regulation went to the back burner, for many companies, especially those in transportation and businesses with complex global supply chains, the lesson learned at the time was that the economic incentives inherent in being a good steward of the environment did not change — particularly as fuel approached $5 a gallon.
Reducing the carbon footprint of a supply chain and developing “sustainable” operations that continually look for and eliminate wasteful use of energy remain the most compelling reasons to pursue an active program of sustainable supply chain improvement. It’s the “triple bottom line” – good for the environment, the communities we live in, and the company’s income statement.
Finding an effective path to sustainable supply chain improvement is no longer an altruistic notion. For more and more companies, reducing carbon footprint is an integral part of their business strategy. Increasingly, companies are looking to third party logistics providers for the answers. They are seeking a more results-driven approach that complements the overall business strategy and helps them make effective operational and process changes that generate measurable, quantifiable results.
Yes, the idea of government regulation through the cap-and-trade bill forced the issue and put reducing greenhouse gas emissions on everyone’s radar. But even as the prospect of a government-mandated solution waned, the economic benefit inherent in “greening” the supply chain remained intact. The focus became how to improve the supply chain not just environmentally, but by making decisions and pursuing strategies that generated sustainability and economic returns in parallel, both short and long term. The power of ingenuity was unlocked.
Today, logistics providers in particular are being engaged by shippers to help them transform their supply chains to address priorities that include service, cost and sustainability. Just as Lean tools and methods have taken economic waste out of functional logistics activities, those same tools can be applied to assess the carbon inputs and outputs of a supply chain — revealing waste and inefficiencies — and then to develop plans for remediation and continuous improvement.
These customers are driving sustainable business practices into their supply chains and they are relying on 3PLs to help them foresee and navigate market changes, demands and opportunities. For example, near-sourcing, or relocating manufacturing or production from Asia to Mexico, is gaining traction as fuel and labor costs rise and the economics of offshore manufacturing change. Companies that once flocked to China, as an example, are now finding themselves at risk of losing the advantages that brought them to the country in the first place. A number of factors are to blame: increasing wages, more competition for workers and rising production costs.
Moving manufacturing operations to Mexico would seem to have clear advantages — but only if those advantages can be fully leveraged. Understanding the tradeoffs to determine if a move to Mexico (or anywhere else for that matter) makes sense often requires companies to engage partners with outside expertise. One key question is how important sustainability is within their operations — and to the customers who ultimately consume the products. More customers are becoming very concerned about green supply chains — they want to know where a product is being sourced for both safety and environmental reasons. While some countries don’t have a reputation for strict environmental regulations, Mexico has worked closely with the United States to improve environmental standards.
For companies that have incorporated sustainability into their business strategy, the assessment process should also include benchmarking the carbon streams of the existing supply chain, and projecting carbon stream behavior under a future near-sourcing scenario. In this way, companies can make more intelligent decisions that measure and quantify a series of benefits, such as economic factors, improved flexibility/ability to respond quickly to demand signals, efficiency gains and reduced carbon outputs.
The key takeaway: Whether considering a major change in your supply chain or a desire to make the current supply chain more energy-efficient, applying Lean processes can reveal bottom-line savings and fulfill goals for environmental stewardship. The provider has to understand the impact of a particular initiative on more than just sustainability, but cost and reliability as well. Taking a holistic approach through a framework of Lean lends structure and measurable metrics to the process.
Transforming supply chains to compete in today’s changing global economy — while achieving sustainability goals — requires logistics providers to ask tough questions. The mission is to help their customers drive continuous improvement in supply chain economics as well as sustainability goals. Those that pursue this strategy will be far better prepared to deal with regulatory and legislative mandates that will ultimately come back into play.
Mullett is vice president of government relations and public affairs at Con-way Inc. He can be reached by email.