The new China syndrome: Why managing supply chain energy is increasingly important

Here’s a question for your sustainability team, especially those of you based in the United States: Do you know how many greenhouse gas (GHG) emissions your company is importing by working with suppliers in China and India?

The need for enterprise businesses to help inspire energy efficiency and other environmental programs among their suppliers — no matter their ize — was the overriding theme of a Wednesday session at BSR Conference 2010, a gathering of corporate sustainability managers and consultants hosted by BSR (aka Business for Social Responsibility). The session, titled “Supply Chain Energy Innovation” focused on steps companies can take to convince business partners to take action.

That country’s increasingly dominant profile as a major trading partner of developed nations is cause for serious scrutiny over the next two decades, according to the experts on the panel.

Ken Lanshe, vice president of administration and Shenzhen Hub, Global Sourcing for Walmart, cites figures estimating that the energy consumption of Asia in general will double between 2006 and 2030. China and India, in particular, will drive 30 percent of total energy consumption out of that region by the end of that time.

The good news is that China is very focused on energy efficiency, albeit in a very patriarchial way. The company mandated a 20 percent energy consumption reduction per unit of gross domestic product (GDP) between 2006 and 2010, notes Bruce Bergstrom, vice president of vendor compliance for Li & Fung, which is a major supply chain management organization involved in the textile and clothing industry.

Bergstrom says that it is unlikely that China will meet that goal, despite its habit of walking in and shutting down factories that it feels are a drag on that vision. The actual reduction will be closer to between 17 percent and 19 percent, he estimates.

A focus on supply chain energy innovation and reductions matters because close to a quarter of all GHG emissions are tied to products and services that trade across national borders, Bergstrom notes. The United States is far and away the No. 1 importer of GHG emissions, followed by Japan and Germany, Bergstrom says.

So that means simply this: Even if your company is being a good corporate citizen and focusing on energy reduction programs of its own, these are for naught if your supply chain is not taking action. As U.S.-based companies begin reporting GHG emissions and energy consumption across their entire supply chain, that could be a big drag on progress.

So, some of the biggest of the big are taking action.

Bergstrom says Li & Fung, for example, has been working to help institute lighting technology upgrades, heating, ventilation and air-conditioning (HVAC) improvements, and other energy efficiency and water management measures at factories where it does business. It is worth noting that it is getting help from two NGOs, the Natural Resources Defense Council (NRDC) and World Wildlife Fund (WWF) in helping smaller companies, in particular, to find ways to pay for some of the necessary investments in as little as eight months.

Jay Celorie, global program manager with Hewlett-Packard, says the technology giant now has a handle on the GHG and energy consumption profile for a majority of its suppliers. It has made it clear to supply chain partners that they will be expected to comply with HP’s corporate policies and code of conduct when it comes to energy efficiency and carbon footprint management and that HP may take “corrective action” if suppliers don’t act. Celorie reports that of the HP suppliers that the company is now tracking, approximately 76 percent have GHG reduction goals, while close to 50 percent are looking even further down the supply chain to their own partners to help inspire change. “Energy efficiency and waste reduction is just good business,” he says.

One big challenge for a huge retailer like Walmart is how you scale efforts like this beyond the pilot phase, notes Lanshe.

Walmart is currently working with about 300 factories on programs to help them become more energy efficient. Of that number, approximately 100 are about 20 percent more efficient than when they started, but Lanshe says more reductions are needed. The biggest challenge is that many smaller companies don’t have the capital to invest, so Walmart has been working with government regulatory agencies and with energy services companies (ESCOs) to help finance initiatives at little upfront cost to supply chain partners. Still, expanding this program to cover 1,000 suppliers (rather than 200) will be daunting, Lanshe admits.

By Heather Clancy

You can return to the main Market News page, or press the Back button on your browser.