The Cost of Implementing a Green Supply Chain

In the current business environment, small business owners are being asked to be more environmentally focused. Businesses are being motivated to reduce their carbon footprint and to reduce pollution in all areas of their business including the supply chain. Making business changes in order to go green can be an expensive endeavor. However business owners should not just focus on the expense of implementing a green supply chain, since the requisite changes can also lead to significant costs savings. The amount and timing of any benefits will be a function of how you implement any environment related strategies.

Going green can provide benefits that take years to develop. For example, the breakeven point of investing in expensive solar panels to supplement electric power consumption can be ten years or more. Although structural changes can be expensive there are low and zero cost steps that companies can make that can lead to considerable savings. Davis Mattock, a consultant for GreenPro Systems, has witnessed investments in energy-efficient LED light fixtures that began providing a return in as little as one year after installation. One client that changed all the fixtures in a refrigerated warehouse witnessed a 25% reduction in energy costs. With simple but effective changes, companies can stay competitive while reducing energy cost of up to 30% using low cost remedies. A reduction of 30% of total energy costs can have a significant effect on cash flow and company profits.

The Green Supply Chain

Depending on the size of your business or the overall cost of changing your supply chain, you may want to employ the services of an expert consultant to help you develop and implement your supply chain strategy. The cost of a consultant could range from a few thousand to tens of thousands of dollars depending on the size of your business and the scope of the project.

The first step in implementing a green supply chain is to decide if there are natural opportunities to be more energy efficient or create less pollution at every point in a product’s lifecycle. Before developing and implementing a green supply chain strategy, you must review every step of the process including: raw materials, manufacturing processes, packaging, transportation, storage, and finally disposal or potential recycling opportunities.

At the beginning of the process you need to review inventory purchases to see if there are potential energy efficiencies in the way that manufacturing inputs and other resources are shipped and stored. Many vendors, especially the best performing ones, may have already reviewed their processes to assist in reducing the energy costs of their customers. A 2008 study released by the Supply Chain Consortium showed half of vendors surveyed had already implemented some type of green initiative to please their customers, improve their image, or comply with environmental regulations.

Implementation Steps

Implementing a green supply chain strategy can be a complex effort and require some analysis and thought before being undertaken. Jennifer Kaplan, founder of the consulting firm Greenhance and author of the new book Greening Your Small Business, suggests that business owners consider these points before implementing any type of green supply chain strategy:

Source location: The closer your supplier, the greener your supply chain. If you are currently buying supplies from China or from vendors that are a considerable distance away, try to buy them from companies that are closer like Mexico. Although the cost of goods may be more expensive, the reduction in travel and shipping costs may result in the overall cost being the same or less.

Transport to point of use: Try to motivate suppliers to ship straight to your facilities instead of cross docking or delivering to a transfer point. Kaplan says smart beverage companies often receive their plastic bottles as deflated tubes and then inflate them after arrival. That change cut shipping costs by 90 percent.

Review your facilities: Your offices or manufacturing facilities can provide opportunities to find energy savings and to enhance your green supply chain. Simple tactics such as automating the heating and air conditioning to maximize efficiency especially at peak periods can create substantial energy savings. One large office building that GreePro’s Davis Mattock consulted to saved $750,000 after investing $500,000 in new LED lights and other energy efficient equipment.

Refrain from expedited shipping: Priority and rushed shipping that require messengers and special vehicles results in the most polluting forms of transportation.  Better planning and shipping management means goods are shipped well in advance and in full containers, which is the most economical way to transport resources.

Many business owners refrain from implementing green supply chain strategies because they are not convinced that they get adequate return for their investment, or because they cannot obtain the benefits soon enough to rationalize the expense. Many consultants and other business experts believe that business owners should not approach implementing a green supply chain on an investment – return basis. Although conventional wisdom suggests that every expense has a corresponding financial benefit, going green is also a way of demonstrating to the market that you are environment conscious. With the market becoming increasingly environment conscious, implementing a green supply chain strategy is a way to attract customers and to add to a company’s overall business credibility. In this day and age, customers look for companies that are at trying to be as energy efficient as possible and those that have an eye on how their business affects the environment.