The Carbon Disclosure Projects annual survey of the Global500 reveals that seven in 10 respondents measured somevalue chain emissions in 2011. Photo credit: Flickr/RobertScoble

3 Lessons For Better Supply Chain ManagementSubmitted by Manish Bapna and Cynthia Cummis on October 11, 2012

This post originally appeared on Forbes.com.

What do three leading chemical, automobile, and softwarecompanies have in common? All three Honda, BASF, and SAP are looking to curb risks and take advantage of opportunities acrosstheir global supply chains. Theyre doing so by measuring theirgreenhouse gas emissionsnot just in their operations, but up anddown their value chains.

Many other multinationals are heading in the same direction. TheCarbon Disclosure Projects (CDP) annual survey of the Global500, released last month, reveals that seven in ten respondentsmeasured some value chain emissions in 2011, up from about halfin 2010. (Note this figure is based on WRIs analysis of the 405companies that submitted data to the CDP 2012 survey data.)

Whats driving the worlds biggest corporations down this path? In anutshell: reputation, risk, and opportunity.

First, business leaders are recognizing that companies global value chains are increasingly under scrutiny by consumers, themedia, and most importantly, investors. A case in point is the unwelcome attention Apple has received for its association withits Chinese supplier, Foxconn. Retailers and corporate customers, too, are increasingly asking suppliers how they applysustainability principles to the products they produce. Given the attention, corporations ignore supply chain risksat theirperil.

Second, companies are increasingly aware of their exposure to environmental riskssuch as climate change and waterscarcitythrough impacts on their suppliers. In particular, recent extreme weather events have put corporate leaders on alert.This summers record-breaking U.S. droughts have had ripple effects well beyond agriculture, including on the food and drinkindustry. Likewise, the 2011 floods in Thailand that shut down electronic components hit many Fortune 500 technologycompanies.

Reflecting such real world threats, 81 percent of companies responding to the CDP survey said they faced physical risks fromclimate change. Thirty-seven percent went so far as to describe them as a real and present danger.

Turning Risk into Reward

On the flip side, measuring value chain emissions can unearth hidden treasure in terms of efficiency and cost savings. Gainingan understanding of greenhouse gas hotspots in the value chain also help to focus efforts for product design improvementsand reveal additional opportunities for innovation.

Raw material suppliers often account for a large percentage of a companys environmental footprint, especially in sectors suchas retail and food and beverages. For example, Kraft Foods found that 70 percent of its greenhouse gas impact comes from itsraw materials. Companies can deploy emission inventories to identify actions that help their suppliers save on energy and fueluse, leading to bottom-line benefits.

This is the goal for first movers like BASF, SAP, and Honda. And its where the Greenhouse Gas Protocol Corporate ValueChain (Scope 3) Standard comes in. Launched a year ago by the World Resources Institute and the World Business Councilfor Sustainable Development (WBCSD), the pioneering standard provides a step-by-step guide to measure and report valuechain emissions.

Lessons from Three Companies

After applying the Scope 3 Standard, SAP is pursuing a three-point plan to cut emissions generated after it sellsproducts to customers. The company is looking to design software that runs on fewer servers and requires less energy,

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products to customers. The company is looking to design software that runs on fewer servers and requires less energy,work with hardware providers to increase equipment efficiency, and encourage customers to run data centers moreefficiently. To this end, SAP has created new software products that run 60 percent more efficiently.

BASF is taking a different tack . The chemical giants value chain assessment identified as an emissions hotspot theraw materials it purchases responsible for more than double the volume of greenhouse gases than BASFs ownoperations. The company is now collaborating with key raw material suppliers to identify emission-reduction solutions.

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Honda, meanwhile, announced in August that it had calculated the life-cycle emissions of the companys operationsand products, totaling 225 million tons of greenhouse gases in fiscal year 2012. The company learned that aneye-opening 87 percent of its emissions are generated by customer use of its motorcycles, cars, and power products,which will help inform its greenhouse gas reduction initiatives.

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Too Many Laggards

Such examples of corporate leadership are heartening, but unfortunately, far too few companies have taken this step.Returning to the CDP survey, only eight of 405 companies measured most of their indirect emissions, such as purchasing rawmaterials and customer use and disposal of products. And the most common measure was business travel, which generallyrepresents a very small portion of a companys footprint.

Bridging this gap between first movers and the rest of the Global 500 is critical to reduce the scope of business-relatedemissions that exacerbate climate change. We hope and expect that in the coming months, more companies will start tomeasure their full emissions pictureand reap the benefits of improved value chain measurement and management.

CommentsComments expressed on this page are opinions of the authors themselves, and not positions of the World Resources Institute or itspartners. WRI reserves the right to remove any comments that it considers inappropriate or spam.

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