CSCMP's Supply Chain Quarterly
October 22, 2018

"Green" supply chains are still too costly

It's not surprising that cost and insufficient return on investment remain the biggest roadblock to adoption of emission-reductions program.

Although a lot of companies like to talk about their efforts to promote sustainability in the supply chain, only a few are serious about putting a significant amount of money into those efforts, especially when it comes to greenhouse gas reductions. That was a key finding in Collaborative Action on Climate Risk, a recent report from the consulting firm Accenture and CDP (formerly the Carbon Disclosure Project).

The Accenture/CDP report was based on a survey of 2,868 companies that, as a group, account for 14 percent of the world's industrial emissions. Researchers found that while more companies are reporting on their emission-reduction programs, investments in such programs have actually declined. In fact, the average sum of money invested per reporting company has dropped by 22 percent since last year. Researchers also found that when companies do invest in these programs, most want a payback in less than three years.

The Accenture/CDP findings jibe with the results of 2013 research by AlixPartners that also revealed reluctance among many companies to invest heavily in supply chain sustainability programs. "Given the fragile state of the world economy, it comes as no surprise that cost is the top inhibiting factor when it comes to implementing more far-reaching sustainable supply chain initiatives," AlixPartners' 2013 Executive Survey on Supply Chain Sustainability noted.

Like Accenture and CDP, AlixPartners found that most of the companies that were willing to spend on sustainable technologies were focusing on the short term. Respondents to the AlixPartners survey sought a payback within just 18 months or less, and only 17 percent said they were willing to accept a longer payback. Moreover, 65 percent of the executives surveyed said that the lack of a return on their investment was the biggest obstacle to achieving greater supply chain sustainability.

That brings up something that is a concern for many companies: When it comes to curbing greenhouse emissions, there often is no clearly visible, short-term payback. There are cases, of course, where the benefits to both the environment and the bottom line are easy to see. When companies consolidate shipments into fewer trucks, for example, the payback in terms of fuel and freight costs as well as reduced greenhouse gases can be measured immediately. And when they install energy-saving fixtures in their plants and warehouses, they'll quickly see lower electric bills—and they can be sure they're helping to reduce greenhouse gas emissions.

But there's no obvious payback for investing in energy alternatives or technologies that would reduce carbon gases but do nothing to improve a company's cost picture. Moreover, there's certainly no reason to invest in technology that would only raise costs. And that's the hang-up. Without technologies that reduce carbon and have a financial payback, companies will remain hesitant to make their supply chains a vibrant "green."

James A. Cooke is a supply chain software analyst. He was previously the editor of CSCMP's Supply Chain Quarterly and a staff writer for DC Velocity.

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