Climate Change and Supply Chain Management

Global executives increasingly identify the environment, including climate change, as
a top concern. When it comes to purchasing, however, it appears that companies
aren’t necessarily translating the importance they place on climate change into
action. A McKinsey survey of more than 2,000 global executives1 f inds that while
nearly half of respondents say that climate change is a somewhat or very important
issue to consider in purchasing and supply chain management, fewer than
one-quarter report their companies always or frequently take climate change into
consideration in these areas. Among high-tech and other manufacturing executives,
54 percent and 56 percent of respondents, respectively, say climate change is
important in purchasing, yet these executives were no more likely than average to say
it was considered in practice.
They may be missing an opportunity. Our analysis suggests that for consumer
goods makers, high-tech players, and other manufacturers, between 40 and 60
percent of a company’s carbon footprint resides upstream in its supply chain—from
raw materials, transport, and packaging to the energy consumed in manufacturing
processes. For retailers, the figure can be 80 percent. Therefore, any significant
carbon-abatement activities will require collaboration with supply chain partners,
first to comprehensively understand the emissions associated with products, and
then to analyze abatement opportunities systematically. Surprisingly perhaps, we
find that many of the opportunities to reduce emissions carry no net life-cycle
costs—the upfront investment more than pays for itself through lower energy or
material usage. Others, however, will require tradeoffs between emissions and
profitability, in areas such as logistics and product design (including product
specification and functionality). Forward-looking companies are using such
discussions as opportunities for supplier development, for example by transferring
best practices in manufacturing, purchasing, and R&D—as well as energy
efficiency—to key suppliers. This opens the possibility of still lower costs and
improved operational performance, in addition to helping suppliers remove more
carbon from their supply chains.