Wednesday 19th Dec 2018 - Logistics & Supply Chain

It’s time for a crash diet

Suddenly, carbon is high on the corporate agenda. Although concerns about emissions and global warming have been widely voiced since Kyoto, it is only lately that serious regard to the issue is being paid in boardrooms.

Companies are being forced to look at their carbon footprints. Nowhere is this more necessary than in the area of supply chain management as the realisation grows that decisions about product sourcing and distribution can have a major effect on emissions. In particular, the impact of transport on carbon emissions is a growing concern as some estimates suggest that up to 25 per cent of the total is from this source.

Reducing the carbon footprint is not just ecologically sound but increasingly makes economic sense.

The first reason for this is that the cost of energy will continue to rise. Carbon taxes and carbon caps are now a reality. You don’t need to be a futurologist to see a time when transport fuel will bear a much heavier tax burden than today or that carbon caps will be more stringently applied leading to a growth in carbon trading.

Arnold Schwarzenegger, the governor of California, recently announced fuel standards for the state that will lead to significant extra costs for companies with carbon-intensive supply chains. Such initiatives will be mirrored elsewhere.

Another reason for looking at supply chains from a carbon perspective is that it may be dangerous to commit to strategies that are not sustainable. Much publicity has been given to the issue of food miles. News items such as the recent announcement thatYoung’s Seafoods are planning to take shellfish caught in Scottish waters, freeze them and fly them to Thailand where they will be shelled by hand before being flown back to the UK because of lower labour costs, have started to alarm policymakers and others.

At Cranfield, we are conducting research into the true costs of global sourcing. This programme aims to look at total supply chain costs as well as the wider environmental impact of offshore sourcing. Preliminary findings suggest that many companies make the decision to source offshore on the basis of a narrow definition of cost. Clearly total supply chain costs go way beyond product price or manufactured cost and include transport costs, inventory financing costs, Customs duties, forwarding and administration costs, demurrage, obsolescence and markdowns and additional management costs.

If ever there was a time when we should be thinking of opportunities rather than threats, this is it.

Prof Marin Christopher is Director of the Centre for Logistics and Supply Chain Management, Cranfield School of Management

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