You are the supply chain

I was inspired if only by the title of this recent Economist Free Exchange blog. I often think of supply chain as a B to B concept when, of course, the supply chain exists solely for the final link – you and me. But how much responsibility do we take for our consumption and the associated externalities when we forage for bargains? In my opinion, I think we are OK with the low prices so long as the externalities along the supply chain stay hidden. €2 for a T-shirt? Great. €10 for a camera? Even better, just don’t ask any questions.

Occasionally, reality comes crashing in and we hear the stories of sweat shops, safety & quality issues, not least recently from China. Thankfully, we have quality standards such as SA8000 to assure supply chain ethics and more and more businesses are adopting such. But what of the carbon externalities? Who should be responsible for this cost? If you look at carbon from the point of view of the nation state then indeed the statistics are damning for BRIC countries. China’s incremental annual growth in energy consumption equates to roughly the entire energy requirements for the state of California for one year. If the UK just shut down energy production right now, the diverted capacity would only keep China going for three weeks.

So what is China doing with all this energy? They are busy making stuff mostly for you and me. If you take a view of carbon accounting from the point of view of the end consumer and you allocate carbon in this manner the statistics would again clearly show that it is the developed world’s consumption that is causing the lion’s share of Green House Gas emissions.

So who should act? I felt a little humbled by an article in the September 3, FT about how the Chinese government has announced a campaign to ask citizens to reduce personal energy consumption. The campaign goes so far as to suggest that indulgence in the local tipple, baijiu, should be limited to a half litre a month in order to save 0.88 kg of carbon per person. Civil servants have been saddled with pay related eco efficiency KPI’s. It also stretches credulity to suggest that clothes might be washed only once a month. Of course this campaign is doomed, because the fact is energy in China is consumed overwhelmingly in the industrial sector by the people busy making stuff for export. Still we cannot but acknowledge that the government is at least engaged.

Today’s FT has a remarkable feature on the greening of Wal Mart. It turns out lobbyists are now flocking to Bentonville rather than Washington to try to influence Wal Mart’s environmental supply chain standards which apparently is now a more potent force in the economy than government regulation. Voluntary compliance it seems is here to stay as an important factor for supply chain efficiency as well as risk and reputation management. According to Kert Davies of Greenpeace, USA:

‘We spend a lot energy trying to get giant corporations to move an inch and here we have the biggest corporation of them all shooting for the same targets. ……… They’re acting as we would act, .. to get full carbon accounting even before it is required by regulation.   …. I love that they just go for it’

The flip side of this is that Wal Mart may eclipse the role of government and split the environment lobby between those who believe Wal Mart’s standards are too low and illegitimate and those who are grateful for incremental progress. I am with the latter opinion. This is a remarkable turn of events and the way is clear for anyone, competitor or regulator to raise standards further beyond Wal Mart’s voluntary action.

So it seems to me the responsibility is reaching down the supply chain finally to you and I. Tesco too has promised carbon labeling. So when you go to the supermarket with your weekly budget of not just money but also a fair personal carbon allocation of the carbon we can afford to emit, what will you choose to buy?

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2 responses to “You are the supply chain

  1. Interesting that Wal-Mart has introduced a “packaging scorecard” to reduce packaging used by its suppliers by 5 percent between 2008 and 2013. A relatively modest objective you might think, but it’s estimated that this will bring the company $3.4 billion in savings, slightly more than the GDP of Liberia.

    How will it be spent?

    Question is not so much how the consumer feels about this as the companies whose products vie for the consumer’s attention on Wal-Mart’s shelves. I suspect they will only be pushed so far. Packaging is the CPG/FMCG’s final marketing message to the consumer, and with – what, about 40,-100,000 SKUs in a store? – they want their own products to stand out.

  2. Ed – good point on packaging and customer experience but this does not have to be the last word. Check out the Metro Future Store Initiative – http://www.future-store.org/servlet/PB/menu/1007054_l2/1189644557719.html

    What these guys can achieve for customer experience with RFID enablement is just fantastic.

    James

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