Around this time of the year, many companies are looking for the by now famous CDP (Carbon Disclosure Project) report. And the 2009 report is on-line. But that's not the only information available. For the first time CDP has also issued their first Supply Chain Report with as subtitle: "Managing climate change in the supply chain". In that report they are looking at scope 3 emission management amongst others and this is where things really become interesting.

Indeed, scope 1 (direct) and scope 2 (indirect, related to provisioning of energy) reporting is mandatory, but the unclear nature of what is included in scope 3 emissions makes their reporting optional.

However, from a Supply Chain perspective, analyzing the climate implications of outsourcing manufacturing and logistics, of buying components and intermediate products, and of managing the product flow from cradle to grave, is an interesting exercise.  Not only should the environmental impact be assessed, but through understanding CO2 emissions, the actual amount of energy used can be assessed. Reducing CO2 emissions may have a direct impact in lowering the energy bill. Many companies forget this in their quest for carbon neutrality and the use of green energy.

Jean-Pascal van Ypersele, the Vice-Chair of the Intergovernmental Panel on Climate Change (IPCC), keeps pointing out the best energy is the one that is not used, not the one that is offset. In their quest of becoming green, companies should first look for energy reduction

To be able to do this, one needs to visualize the emissions across the supply chain, preferably on a product level. And here is where the problem is. Today no companies have the tools to identify the greenhouse gas emissions (GHG) at product level.

HP did calculate the total GHG emissions of its supply chain, and started reporting in 2008. Despite working closely with our tier one suppliers, the approach is still rather crude. Suppliers allocate HP's share of their energy consumption in proportion of the value of our business in their annual revenue.

This unfortunately does not allow taking key decisions related to which products require loads of energy to manufacture and which ones no. Balancing the portfolio from an environmental perspective is not possible with such approach.

Maybe we should take a completely different tag. For every product manufactured, we have a bill of materials (BOM) and a bill of process (BOP).  If each partner in the Supply Chain could calculate the amount of GHG emitted to manufacture one unit of their product (component, sub-assembly, substance...), a "Bill of Carbon" (BOC) would be developed for each. I actually highlighted this concept in a blog entry last year, labeled BOS & BOC, new acronyms to get used to?

The question is obviously how this information could be consolidated to obtain a true picture of the environmental impact of the finished product. And here is where another concept I highlighted, called a community cloud, could help.

Indeed, if all participants would consolidate, using the BOC of all components included in the BOM of their end product, the amount of GHG emitted in the process, we would have a great view of the manufacturing impact. By adding the transportation piece that is found in the BOP, a reasonably complete picture could be established. Obviously, one can argue that averages may be used and, resulting from there, that the number is not absolutely correct. However, it would give a picture that is closer to reality and much more granulate than the current one.

Using a cloud approach, such community could be established without requiring one of the parties to implement a hosting infrastructure. No CAPEX investment would be required, making it easier for the parties to participate. A pay-per-use or subscription fee could be used to finance the service.

To take full advantage of this approach, it should be combined with standard metrics, such as the ones included in SCOR 9.0.  Ultimately, this would allow companies not only to publish the carbon footprint of their products, but also to analyze the environmental impact of their product portfolio, allowing them to retire the most polluting ones, while promoting the others. Managing a portfolio from an environmental point of view prepares companies to benefit from upcoming legislation around carbon taxation and others, by understanding their impact at the product level.