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REGULATIONS
With increasingly complex supply chains linking Asia with all corners of the world, managing a company's carbon footprint is a growing concern. Ninety percent of a company’s carbon footprint comes from the supply chain. The increasing awareness of the financial, legal and political impact of carbon usage has brought a new level of attention from financial professionals who want to understand and manage the various environmental issues and mitigate any affect it may have on the bottom line. The success of integrating carbon risk into procurement decision-making can be greatly enhanced if lessons learned from the implementation of Reduction of Hazardous Substances (RoHS) (http://www.rohs.gov.uk/) and other recent supply chain–focused environmental regulatory requirements are heeded. Mitigating the impact of carbon risk on supplier performance and cost is a significant challenge for companies to address in coming years. With the Carbon Disclosure Project Supply Chain Leadership Collaboration (http://www.cdproject.net/sclc_home.asp) now working toward unified methodologies and questions for evaluating carbon in the supply chain, and industry standards starting to emerge for product-related carbon footprinting, practical and efficient tools for engaging your supplier base and managing carbon-related data are increasingly important to minimize frictional costs and to maximize the value of data collected. As these new compliance issues emerge and roles within treasury and finance departments expand to incorporate sustainability, the success of integrating carbon risk into procurement decision-making can be greatly enhanced if lessons learned from the implementation of RoHS and other recent supply chain–focused environmental regulatory requirements are heeded. Critical success factors for supplier engagement include:
Engaging suppliers Identifying and prioritizing the risks associated with the goods and services purchased was a critical first step in segmenting the supplier base and targeting environmental considerations in a Global Financial Services Group’s sourcing function. Custom supplier evaluations, with built-in coaching support targeted at different categories of suppliers in different spend areas with different risk profiles. Key findings: Collecting data Ensuring data integrity is an essential part of establishing the carbon footprint of a complex supply chain, like that of a leading international drinks manufacturer based in the UK. Handling large amounts of both internal and external supplier data meant that data were being provided from a wide range of sources. Maintaining the integrity of the data was an enormous task, as was ensuring that the metrics were standardized and that all parties understood clearly what data to provide. Key findings: Interpreting results and reporting Simple data points on response rate, commodity type and quantity, geographical location, and quantity of spend enables quick supplier profiling and an assessment of risk to be made. Key findings: Scaling across the supply chain With Bills of Materials routinely consisting of hundreds if not thousands of separately-sourced parts, the complexity of reliable carbon footprinting and carbon risk prioritization can quickly overwhelm an organization if undertaken manually. Technology solutions that enable efficient pilots and then rapid scaling are critical to a sustainable carbon risk management program. Key findings: Managing improvement Undertaken in a systematic fashion, management of product-related environmental issues (such as carbon risk, and as with RoHS and WEEE in previous years) can result in significant improvements to the bottom line. Training suppliers in formal sessions, both in person and via telephone/Internet, and providing supplier education materials were a critical element for a leading disc drive manufacturer in ensuring compliance with the RoHS Directive at no additional cost throughout their supply chain. Key Findings: There are significant opportunities for improving resilience and motivating innovation in the supply chain on carbon issues. Defining effective business processes and automating supplier engagement are critical lessons learned from recent experience in environmental supply chain initiatives. Time-to-value is linked to the effectiveness of the supplier engagement process in driving change. Automating supplier information management and reducing the cost and complexity of the engagement process are critical to driving effective carbon management in the supply chain. Copyright © AsiaPacificForum 2008 |
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