Lean and Green

The initial response of many companies to Sir Nicholas Stern's apocalyptic report into the human and economic cost of global warming is likely to have been denial. Sir Nicholas warned that the risks of inaction are high and that time is running out. But according to the Carbon Neutral Company, just 80 out of the FTSE-100 companies have identified climate change as a business risk, and only 38 have targets for emissions reduction.

However, these very companies are likely to be among the world's biggest polluters. The complex global supply webs they have woven over the past ten years or so in order to gain competitive advantage from manufacturing and assembling goods and components in low-cost economies have increased carbon dioxide emissions considerably.

Governments are increasingly concerned about the environmental impact of carbon. So although the cost of making things has never been as low as it is today, the cost of moving things is set to rise steeply.

Before Christmas hundreds of spectators lined the shore to watch the Emma Maersk being guided into Felixstowe harbour by three tugs. The ship, a quarter of a mile long, 200 feet high and as wide as a motorway, was laden with toys, books, computers, Christmas crackers, decorations and food bound for Britain and mainland Europe. The Emma Maersk is one of a new generation of ships which hold over 10,000 containers. A train to carry the equivalent load would be over 50km long, but most of the containers will be transported by lorry. The impact on road congestion as more of these ships come into service is eye-watering.

As a result we are likely to see the imposition of tax on in-bound container movements, as well as aviation fuel. The consequence will be a return to more local manufacturing, because the cost of transporting goods over long distances will become largely prohibitive.

However, several companies, including Marks and Spencer, have already brought their manufacturing closer to home again as they have realized that long inventory pipelines are inconsistent with the need for agility and responsiveness to sudden changes in demand in the home market.

Others, such as Spanish fashion chain Zara, have resisted getting locked into particular supply arrangements. Zara buys unprinted and un-dyed material ahead of demand from low-cost manufacturing economies, books capacity in local manufacturers in Spain and Portugal, and only decides what it is going to make as the season approaches.

And Hewlett-Packard has lowered its manufacturing costs by 'designing for localization' - that is, building a standard product and configuring it for local needs at regional centers. In so doing it has created a more efficient and responsive supply chain that is local, global - and greener.

Many companies embark on 'greening' initiatives as a defensive measure against lobby group pressure or potential reputation damage from an accident or pollution somewhere in their supply chain. But they often find that these initiatives lead to cost savings and other efficiencies. Conversely, other companies are discovering that seeking more cost-effective ways to make or move things round the world has a positive environmental impact.

The bottom line is that companies worried about the cost of greening their operations should perhaps be worried about the cost of not doing so instead.

Impact Executives
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