There is one process we know very well after one year of recession, and that's cost reduction. Most companies have scrutinized their costs and tried to take every waste out of the system. Many were quick to point out that, although the sustainability agenda was still on the radar screen, it has been taking a back seat for quite a while now. I cannot judge whether it has or not, but would like to argue it should not have. Becoming greener is an excellent way to reduce cost if you look at it in the right way. In this entry, I want to take a minute to explain you what I mean.
It all started about one year ago, when I heard a radio interview from Jean-Pascal van Ypersele Vice-Chair of the Intergovernmental Panel on Climate Change (IPCC). He pointed out something extremely simple: "The best energy is the energy that is not used". Just think about this. There is a lot of focus on using green energy, and I do not mean that to be wrong at all, but what he says is that before turning to green energy, take a hard look at the energy you consume and see how you can reduce your consumption. Whether green or not, consumed energy costs money, avoiding consuming it helps you reduce cost, isn't it?
Well, that is exactly the point I want to make. Let's now look at our Supply Chain. We consume energy in a variety of forms throughout the ecosystem. Electricity, gas, oil, petrol and you name it. How can we get a consistent view of the energy we consume? All above fuels have one thing in common: they generate CO2. You can argue that electricity may come from non-fossil sources and as such do not generate greenhouse gasses. Let's put that thought aside for a minute.
If I can develop a CO2 emission profile across my supply chain, I get to understand very quickly where energy is consumed. I can now focus on reducing the consumption at that step in the process. Doing this may imply I have to change the design of the product, use a new manufacturing approach or change something somewhere in the supply chain. It may happen that a slight increase in energy consumption in one place may result in large savings somewhere else. It is important to include design and engineering in the process to ensure we go back to the root cause of why so much energy is consumed. Root cause analysis is nothing new; we have been doing this for quite a while.
But how do we gain that CO2 view of our supply chain. Quite a while ago, I wrote an entry focused on two new acronyms, BOC and BOS. BOC, bill of carbon, gives the answer to our question here. What do we need to calculate the BOC? Fundamentally two things, first the complete bill of material of the end product, and second the amount of CO2 generated at each step in the manufacturing process for one unit of product/component/ingredient. The latter is mainly based on the full bill of process. Each partner in the supply chain should calculate all emissions related to the operations under his control. This includes manufacturing, transportation, warehousing etc. Whether those activities are performed by him or by a subcontractor, do not matter.
As stated elsewhere in this blog, gaining such information from suppliers requires the existing of a trust relationship between the partners. Once we have the information, we can start the review, leading to improving the energy consumption. However, to maintain the trust relationship, we should never forget to ensure the partner also benefits from the exercise, otherwise he will not be motivated to continue collaborate in the future.
Now, let me come back on the use of non-fossil energy. From a cost reduction perspective, there is no difference where the energy comes from, but from a sustainability perspective, there obviously is a huge difference. However, I would dare to argue that reducing the consumption all together, leaves the non-fossil energy for other companies, reducing the CO2 emissions in the same way.
Looking at CO2 is a great way to analyse the energy consumption throughout the supply chain, looking for wasted energy and related costs. It is an interesting way to reduce costs, improving the bottom line. What are we waiting for?
Just a year ago, for the first time, I established my own 10 predictions for 2009. Before doing the same exercise this year, I decided to go back and review how they had pan out. I leave you as the ultimate judge, but feel I did not do too badly. The challenge now is to do at least as well this year.
I have participated in several conferences where the uptake of the economy was discussed. Whether it is already there, or will appear during 2010 is still open, however 2010 should be a better year than the previous one. Not difficult you will argue. So, with that in mind, let me propose my predictions. As last year, I have five that are business related and another five technology. Let's start with the business ones:
- As the economy takes up, many companies will have difficulty to manage their supply chains. Indeed, in reducing costs to a minimum, many have reduced safety buffers, making them more dependent of suppliers. I am not sure they already recognize that, but as demand picks up, the ecosystem will be stress tested. In particular, because the variability will remain in the system as long as there are uncertainties left. As the US and Asia pick up faster than Europe, imbalances will appear in the supply chains, making their management challenging.
- Towards the end of 2009, we have seen a number of mergers and acquisitions. That trend will continue as some companies are still sitting on large piles of cash, and as the stock market is still reasonably cheap. Companies will continue taking advantage of the situation to complement their portfolio and improve their competitive advantage. The high tech industry, in particular, should be subject to further consolidation as the go-to market mechanisms change.
- Recovery will be slow with growth rates under the 3%, resulting in further cost cutting throughout the year. Redundancies will continue at least through the summer as companies try to get their costs in line with Wallstreet expectations.
- Outsourcing will continue, but the list of target countries will increase. Environmental and logistics cost considerations should favour countries closer to the EU and the US, while the increase in costs in China and India make other countries more competitive. The concept of "right sourcing" is becoming increasingly popular.
- Despite the failure of the Copenhagen conference, the environmental efforts are there to stay. There are at least three reasons for this, first reducing energy consumption reduces cost, second, moving to greener energy reduces dependency from oil, and third, an increasing amount of countries realize that pushing for cleaner technologies foster innovation and the creation of new business opportunities.
Let me now focus on the technology related trends.
- To improve operations of their leaner supply chains, companies will increase collaboration with their suppliers and customers alike. Using unified communication and collaboration, business exchange services or community clouds, they will build closer links with the partners in their ecosystems, linking them in an integrated community. This could be one of the first enterprise applications of cloud technology.
- Although the Cloud is there to stay, the hype will diminish as issues become more visible. A major security breach is likely in 2010 as hackers turn their attention to this new technology. The official start of Microsoft Azure will be a bright spot. Seeing how the platform differs from Amazon and Google will indicate where cloud computing is going as this is the first platform solely architected for cloud.
- Enterprises are increasingly intrigued by the concept of cloud, but where SMB is moving to the public cloud, enterprises will migrate to private clouds, which can be on-premise or located in service providers datacenters. The concepts of utility computing and private cloud should merge over the year. The more advanced may "spill over" in the public cloud to source peak capacity needs, hence create what is getting known as "hybrid cloud".
- Manufacturing Execution Systems are back on the picture, and their integration with ERP is on the agenda. As companies continue streamlining their operations, the integration of the factory and the supply chain becomes mandatory. A new term, Manufacturing Operations Management, will start appearing in 2010 and take an increasing importance as companies increasingly look at their operations in a holistic manner.
- Last but not least, business intelligence will continue to be on the agenda of IT departments, but it will increasingly be focused around addressing specific business problems, and may as such take many names. Supply Chain Visibility, Product Track & Trace, Warranty/Quality Management and internet monitoring are some of the names that will be used. Increasingly information will come from outside the companies boundaries, being it suppliers, customers or the net itself. In that process, social networking will move up on the radar screen of companies with a strong brand.
I do not have a crystal ball unfortunately, so my predictions are worth what they are. They are mine, and do in no way reflect HP's ideas. Tell me what you think, do you agree with me, or do you see others?
On a different note, let me wish you a Merry Christmas and Happy New Year as 2009 is winding down. May 2010 bring you a lot of satisfaction, and I do hope to count you as a reader next year again.
Around this time of the year, many companies are looking for the by now famous CDP (Carbon Disclosure Project) report. And the 2009 report is on-line. But that's not the only information available. For the first time CDP has also issued their first Supply Chain Report with as subtitle: "Managing climate change in the supply chain". In that report they are looking at scope 3 emission management amongst others and this is where things really become interesting.
Indeed, scope 1 (direct) and scope 2 (indirect, related to provisioning of energy) reporting is mandatory, but the unclear nature of what is included in scope 3 emissions makes their reporting optional.
However, from a Supply Chain perspective, analyzing the climate implications of outsourcing manufacturing and logistics, of buying components and intermediate products, and of managing the product flow from cradle to grave, is an interesting exercise. Not only should the environmental impact be assessed, but through understanding CO2 emissions, the actual amount of energy used can be assessed. Reducing CO2 emissions may have a direct impact in lowering the energy bill. Many companies forget this in their quest for carbon neutrality and the use of green energy.
Jean-Pascal van Ypersele, the Vice-Chair of the Intergovernmental Panel on Climate Change (IPCC), keeps pointing out the best energy is the one that is not used, not the one that is offset. In their quest of becoming green, companies should first look for energy reduction
To be able to do this, one needs to visualize the emissions across the supply chain, preferably on a product level. And here is where the problem is. Today no companies have the tools to identify the greenhouse gas emissions (GHG) at product level.
HP did calculate the total GHG emissions of its supply chain, and started reporting in 2008. Despite working closely with our tier one suppliers, the approach is still rather crude. Suppliers allocate HP's share of their energy consumption in proportion of the value of our business in their annual revenue.
This unfortunately does not allow taking key decisions related to which products require loads of energy to manufacture and which ones no. Balancing the portfolio from an environmental perspective is not possible with such approach.
Maybe we should take a completely different tag. For every product manufactured, we have a bill of materials (BOM) and a bill of process (BOP). If each partner in the Supply Chain could calculate the amount of GHG emitted to manufacture one unit of their product (component, sub-assembly, substance...), a "Bill of Carbon" (BOC) would be developed for each. I actually highlighted this concept in a blog entry last year, labeled BOS & BOC, new acronyms to get used to?
The question is obviously how this information could be consolidated to obtain a true picture of the environmental impact of the finished product. And here is where another concept I highlighted, called a community cloud, could help.
Indeed, if all participants would consolidate, using the BOC of all components included in the BOM of their end product, the amount of GHG emitted in the process, we would have a great view of the manufacturing impact. By adding the transportation piece that is found in the BOP, a reasonably complete picture could be established. Obviously, one can argue that averages may be used and, resulting from there, that the number is not absolutely correct. However, it would give a picture that is closer to reality and much more granulate than the current one.
Using a cloud approach, such community could be established without requiring one of the parties to implement a hosting infrastructure. No CAPEX investment would be required, making it easier for the parties to participate. A pay-per-use or subscription fee could be used to finance the service.
To take full advantage of this approach, it should be combined with standard metrics, such as the ones included in SCOR 9.0. Ultimately, this would allow companies not only to publish the carbon footprint of their products, but also to analyze the environmental impact of their product portfolio, allowing them to retire the most polluting ones, while promoting the others. Managing a portfolio from an environmental point of view prepares companies to benefit from upcoming legislation around carbon taxation and others, by understanding their impact at the product level.
On Monday, Newsweek released their inaugural Green Rankings, and interestingly, HP finished at the top. In an article, titled "The Greenest Big Companies in America" they explain they decided to publicize this list to recognize the efforts of companies, and how they ranked companies in industries as diverse as high-tech and mining.
Some are critical about the way this was done, Rose Gordon in PRWeek for example, points out that "ranks are fraught with subjectivity, or incomplete and self-reported data", but recognizes this is "a best first effort".
HP's position is due to its long term commitment to reducing the environmental footprint of all its operations, and not based on carbon offset or any other substitution program. The environmental subject is an emotional one, but reading through some of the blog comments, I realize many HP programs are not known and not visible to most. Indeed, our objective has not been to market green, but rather to become greener. HP is mainly working in three spaces:
- Reducing the environmental impact of a product throughout its whole lifecycle, from design to recycling
- Reducing the environmental impact of HP's own operations and facilities
- Helping HP employees reduce their own environmental impact
Each of those subjects is worth a whole dissertation, and it is not my plan in this entry to review all measures taken and describe every internal policy, this would take us way too far. However, I would like to highlight some very practical examples that may help you understand what we are trying to do.
Let me first highlight a program, called Design for Environment, we embarked on several years ago. The objective of this program is to include the environmental aspects right from the early design stages of the product. It addresses the impact of the product during manufacturing, during usage and at recycling, so, all the way through the lifecycle of the product. Aspects such as packaging, materials, energy consumption, supply chain impacts, ease of reuse/recycling are all taken into account. Obviously tradeoffs have to be made to ensure quality and ease of use of the product, as our customers do not expect HP to lower their standards.
Let me give you some examples. About one year ago, HP designed a notebook for Walmart, shipped in a stylish bag made out of 100% recycled material, reducing packaging with 97%, and winning Walmart's Design Challenge along the way. Another example is the increased use of recycled material in the production of Inkjet Cartridges. These are just two examples in a series. I will come back to the DfE program in a future entry.
And let me take a minute to urge you to recycle your cartridges and HP products. You can find information on the program in your country here.
To reduce its environmental impact, HP is addressing multiple aspects at the same time. And here is where, a partial view does not allow a real understanding of what is happening. For example, when HP announced the doubling of Green Energy Use in late 2008, we received negative comments from some of our competitors, and that's fine. In the mean time, we are well on the way to reduce our total Greenhouse Gas (GHG) emissions from our facilities to 16 percent below 2005 levels, by the end of 2010. Our current performance can be found here. We are consolidating buildings; increase the use of renewable energy, decrease emissions per unit of floor space etc. But we are also ensuring our company car fleet uses more efficient cars (reduction of 8% of GHG emissions from 205 level, and 24% from 2006 level in Europe alone) , we are reducing travel and have implemented Halo telepresence studio's in all major facilities. We have also consolidated our IT datacenters resulting in drastic reductions in energy consumption, and are working at consolidating our printing environments.
In many countries programs exist to help employees reduce their environmental impact. In my own country for example, a program for acquiring rooftop solar panels has been implemented. Environmental tricks and tips are available on the intranet to give another example. And HP goes even further, trying to incent its customers to reduce their carbon footprint. The "Power to Change" program, launched last June, is one of the examples. To address the widest possible audience, the program is on facebook and twitter.
Becoming "greener", and I use this term rather than the term "green", as I strongly believe companies can always reduce their environmental impact, is not a big bang announcement, but an orchestration of many small steps that each add to a common goal. Caring for the environment has been in HP's DNA for a long time. Our first recycling program was started in 1966, to recycle punched cards. Most of you probably do not even remember how they look.
We are committed to continue our efforts to reduce our environmental impact. If you are interested in reviewing how we progress, check our environment pages.
A couple days ago I received a quick note from one of my colleagues concerning an activity initiated by the UK government, the "Greening Government ICT: Efficient, Sustainable, Responsible". In this initiative, they aim at making energy consumption of their ICT systems carbon neutral by 2010, and making them carbon neutral across their lifetime (including manufacture and disposal) by 2020. This raised the question of carbon neutrality in my mind. I have heard a number of companies claiming to be carbon neutral, but frankly have never been sure what this meant.
According to an Ezine article, Carbon Neutral - What does it mean?, carbon neutral does not mean that no carbon dioxide is released into the atmosphere, but rather that the carbon dioxide emitted is balanced by equivalent reductions somewhere else. This can be by using biofuels, which are considered carbon neutral although they release CO2, or by using energy that does not generate CO2, such as wind, solar, hydroelectric or even nuclear. Unfortunately, in the case of biofuel and nuclear, the emissions generated to manufacture the fuel in the first place is not included in the calculation, so this is already a first approximation to remember.
There are three approaches to reduce CO2 emissions from fossil origin, and these are:
- Reduce the amount of energy consumed all together. And this is obviously the best way. I always like to refer to a quote from Jean-Pascal van Ypersele, vice chairman of the Intergovernmental Panel on Climate Change. "The best energy is the energy that is not used", seems so logic that the question should be raised why there is not more focus on this approach. According to a study of the WWF, buildings in the US consume twice the energy of similar ones in Europe.
- Replace fossil energy by energy provided from other sources such as wind, solar, wave power, water, biomass etc. Actually the Sun provides the earth in one hour more energy than we require in one year. So, it would seem easy to resolve the CO2 problem, unfortunately not enough investments are made to capture the solar energy. Through increasing those investments, companies can become carbon neutral.
- Buy carbon offsets, this means in simple words, continue emitting as much carbon dioxide as usual, but pay somebody else for capturing a similar amount of CO2. The most common project type is renewable energy, such as wind farms, biomass energy, or hydroelectric dams. Other common project types include energy efficiency projects, the destruction of industrial pollutants or agricultural byproducts, destruction of landfill methane, and forestry projects.
- Scope 1: all direct emissions generated by the company (typically petrol, diesel, refrigerant leaks, process waste and emissions)
- Scope 2: emissions from purchased energy (typically electricity)
- Scope 3: emissions from other indirect sources (typically from purchased material, products or services): these emissions are direct emissions of the suppliers/subcontractors and can be controlled by supply chain management criteria requiring these suppliers/subcontractors to also be Carbon Neutral.
A number of electronic companies have claimed to be "carbon neutral" at this point in time. They typically aim for scope 2. However, knowing that the same companies increasingly outsource their manufacturing, logistics, repair and recycling operations, one could ask what the real impact is of such claim. On top of that, a number of them achieve this through the use of Carbon offset which are actually put in question by a number of studies. Some even go as far as talking about the "Carbon Neutral Myth". So, the question about whether such claims are made more for marketing purpose rather than any other. To somehow illustrate this, Gartner released a study "How Green is the IT Industry", where it analyses progress made by ICT companies in reducing carbon emissions, which should be the ultimate goal isn't it? Well, at least one of the companies claiming to be "carbon neutral", was at the bottom of the list.
So, what is more important for the planet, becoming more carbon neutral or reducing the overall carbon emissions in a company value chain. Frankly, I am voting for the latter. So let's hope that the UK government, in its laudable effort, focuses on reducing the emissions of CO2 from fossil origin, and is not limiting its effort to the purchase of carbon offsets. The planet will be greatful.