08/25/08
Potato chips an example of hidden supply chain anomalies driving CO2 waste
Sydney, 25 September 2008: Energy-efficient industry supply chains are a hidden source of emissions reductions - and therefore cost savings – waiting to be tapped by companies preparing for an emissions trading scheme, according to strategy consultants Booz & Company.
For heavy emitters, an end-to-end review of energy inputs across the extended industry supply chain, beyond the company’s own boundaries, could reveal surprisingly large pockets of energy waste and unnecessary emissions, claims a Booz & Company low carbon specialist.
Dr Greg Lavery, Senior Associate with Booz & Company in Sydney, said pilot projects completed in food manufacturing and newspaper publishing in the UK had identified possible emissions savings from the extended supply chains of 28,000 tonnes of CO2, or £2.7million in energy costs per annum.
“In a carbon-constrained environment, energy efficiency measures represent the low-hanging fruit for companies wanting to reduce any direct emissions liability or exposure to rising energy prices,” Dr Lavery said.
“Many companies have already moved to define precisely their own carbon footprint and identify ways to lighten this footprint,” he said.
“But we see even greater potential for shaving emissions by examining energy consumption across their entire supply chain, from raw materials through to transport, manufacture, distribution and waste recycling. This whole-of-supply approach represents fertile ground for identifying the cuts in emissions the Australian Government’s Carbon Pollution Reduction Scheme will demand.”
In a pilot project completed for the UK Carbon Trust, Booz & Company examined carbon emissions at different stages in the supply chain for a major snack food manufacturer and a newspaper publisher. For both companies, Booz & Company established baseline carbon emissions across the supply chain for key product lines. After separating out necessary emissions (that is, emissions inherent to product manufacture), the study isolated elements of the supply chain displaying wasteful emissions.
“A careful cost-benefit analysis then revealed ways to eliminate unnecessary emissions, in conjunction with supply partners,” Dr Lavery said.
“For most companies this is a combination of reducing consumption through energy-efficient process design, and replacing the traditional energy source with low-carbon alternatives,” he said. Dr Lavery said a rigorous analysis of the industry supply chain will throw up surprising distortions or anomalies that open up the potential for deep cuts in the emissions footprint.
In the example of the snack food manufacturer, the UK Carbon Trust found that because European potato suppliers were being paid by weight, they had an incentive to produce heavier, moister potatoes by controlling humidification. The cooking needed to burn the few extra grams of water in each potato was significant, and accounted for an unexpectedly high percentage of the energy consumption per potato chip.
The Carbon Trust recommended that procurement contracts be changed to favour farmers producing less moist potatoes. This change alone would reduce emissions at the potato-frying stage by 10 per cent, and slash the manufacturer’s CO2 output by up to 9,200 metric tons per year.
“As much as anything, this is a win for shareholders as less energy translates to lower costs, and the manufacturer can make a stronger pitch to consumers concerned about their impact on the environment,” Dr Lavery said.
“We have seen some unexpected findings from this sort of analysis. For example, some clothing retailers have recognised that the greatest emission savings over the lifetime of a garment can be made by consumers washing in cold water - so they have recommended this on the washing instructions.
“We are convinced there are similar surprises hidden away in many industry supply chains. In this way, supply chains are a wealth of emissions savings waiting to be tapped – all that is required is some close analysis and co-operation between manufacturers and their upstream and downstream suppliers.”
Dr Lavery said supply chain analysis in the context of carbon abatement was also necessary to inform capital investment decisions and to identify operational risk ahead of the Carbon Pollution Reduction Scheme proposed to come into effect in 2010.
About Booz & Company’s work with UK Carbon Trust
Booz & Company has assisted the UK Carbon Trust with a number of projects related to reducing emissions in industry over the last few years. These projects have provided a deep understanding of emissions through supply chains and a robust methodology to identify, prioritise and implement saving opportunities. Download the full report: Maximising Profits in the Low Carbon World
Booz & Company’ Australian Supply Chain Team is helping local clients to address their costs and
emissions.
About Booz & Company
Booz & Company is a leading global management consulting firm, helping the world’s top businesses, government ministries, and organisations. With more than 3,300 people in 57 offices around the world, Booz brings foresight and knowledge, deep functional expertise, and a practical approach to building capabilities and delivering real impact. Booz works closely with clients to create and deliver essential advantage.
For Booz & Company’s management magazine strategy+business visit www.strategy-business.com.
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