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Key considerations for integrating renewables into your procurement strategy
Smart companies consider sustainability as innovation’s new frontier. But how can supply chain executives implement more sustainable IT?
Once, it was easy to dismiss sustainability initiatives. After all, the goal of businesses is to make money for shareholders, and sustainability initiatives were perceived to add cost, not reduce it. But today, companies have discovered they can reduce risk and cost by implementing meaningful sustainability initiatives in both operations and the value chain.
To begin with, external forces are encouraging businesses to focus on sustainability initiatives.
The Paris Agreement (L’accord de Paris) aims to prevent the worst effects of global warming. The agreement, due to go into force in 2020, requires its 195 participating nations to focus on the reduction of carbon emissions. Each nation commits to reaching initial goals between 2025 and 2030, and to continue with reductions afterward.
While the Paris Agreement has gathered political attention, many companies aren’t waiting for government targets and mandates. As the U.S. federal government retreats from the global effort to mitigate climate change, many big corporations are digging in to find solutions.
There are plenty of ways for organizations to adopt sustainable practices, such as building more energy-efficient facilities, reducing energy use in existing facilities, and following sustainable purchasing policies. In what ways can the supply chain take part?
Sustainable companies save money
One incentive: Being environment-friendly saves enterprises money. Even without regard to the ecological benefit of reducing harmful emissions, reducing energy consumption means significant cost savings for companies, suppliers, and customers.
In the early 1990s, sustainability was viewed differently than it is today, according to researchers at Harvard Business School and London Business School. But in a study, the researchers found that companies that adopted environmental strategies such as carbon emission reductions, green supply chain policies, and energy- and water-efficiency mandates in the 1990s outperformed those that didn't, according to both stock market and accounting measures.
In other words, sustainability paid off. Nowadays, corporate leaders consider sustainability an essential ingredient for long-term success.
“Entrepreneurs invest for sustainability, but at the end of the day, it has to bring benefits,” says Eric Peirano, chief operating officer at Technofi, an innovation management consulting company. Peirano also participates in Meman, a European Union project that focuses on optimizing resource efficiency across the metal mechanical value chain.
The average internal rate of return on investments on emissions reduction activities in the IT sector is nearly 40 percent, according to data from CDP, formerly the Carbon Disclosure Project, an international non-governmental organization that holds the largest database of corporate climate change information.
Minimize power use—yours, theirs, and the customer's
“Supply chain management should care about the whole value chain,” says Peirano.
An investment in low-carbon technologies results in massive capital for clean energy. Smart companies invest in these innovations “not just because it’s green, but because it increases competition for the companies,” Peirano says. The prices of low-carbon options are dropping, which presents new opportunities to incorporate them into your energy strategy.
After ensuring that energy reduction and optimization efforts are in place, IT procurement specialists need to understand how to make the supply chain process more sustainable. "Five Key Considerations for Integrating Renewables into Your Procurement Strategy," an e-book from Ecova, an energy and sustainability adviser, highlights specific steps, including understanding stakeholder priorities and identifying constraints early.
These efforts generally emphasize distributed energy resources (DER), which are small-scale power generation technologies that provide an alternative to the traditional electric power system. DER systems use renewable energy sources, including small hydro, biomass, biogas, solar, wind, and geothermal power.
“As a wave of large organizations meet their initial decarbonization milestones and leverage their momentum toward science-based goals and bolder initiatives such as RE100, their major supply chain partners are positioned to support or impede efforts to decarbonize products across the entire lifecycle,” says Ian Bowman, Ecova’s product management director for energy supply.
An obvious path is renewable energy sources, such as wind and solar generation, to support manufacturing and other business facilities. In more specific terms, companies should look to reduce energy use by considering new solutions.
For example, instead of chilling entire rooms and using fans to move air around, Hewlett Packard Enterprise technologists consider the way cars cool engines. By harnessing a water-based heat management system loosely related to the radiator of a car, they were able to cut the energy required to cool supercomputers by a huge margin.
Encourage suppliers to do the right thing
Earlier this year, HPE launched a supply chain management program based on climate science. The initiative requires 80 percent of HPE manufacturing suppliers to set science-based emissions reduction targets in their operations by 2025, seeking to avoid 100 million tons of emissions. These reductions equate to taking 21 million vehicles off the road for an entire year.
One program goal is a 15 percent reduction in manufacturing-related greenhouse gas emissions on an absolute basis within HPE’s own supply chain by 2025. This goal would make HPE the first IT company to target a supply chain goal in line with climate science, and the first in any industry creating a customized, science-based target for suppliers to achieve operational targets that drive down emissions and thus reduce the overall environmental impact.
Some companies see opportunities collaborating in renewable initiatives. HPE, for instance, is working with commercial vehicle manufacturer Daimler, Power Innovations, and the National Renewable Energy Laboratory on a project integrating DER with renewables and fuel cells to demonstrate a sustainable and independent energy supply in non-transportation fuel cell systems. Fuel cell systems offer high reliability, unlimited scalability, and renewable energy benefits without costly utility dependency. This kind of project “is especially interesting to those who, like HPE, have made commitments to transition to 100 percent renewable energy,” says Dr. John Frey, HPE senior technologist, IT Efficiency and Sustainability.
HPE’s initiative is in sync with the Carbon Trust's efforts. The Carbon Trust advises businesses, governments, and the public sector to help them benefit from a more sustainable future through carbon reduction, resource efficiency strategies, and commercialization of low-carbon technologies.
“Supply chain managers should prioritize engagement with suppliers where they can have the greatest impact,” says Guy Rickard, senior consultant at the Carbon Trust. Typically, these are first-tier suppliers that are high-energy users. With these key suppliers, he says, there often are areas where improving energy use brings mutual benefits. “Although, as with all procurement issues, there are commercial questions around sharing the benefits,” he adds.
Adding big data and predictive analytics to the equation
Big data and predictive analytics are becoming well-known and accepted parts of a modern supply chain. Both of these technologies, which are embraced elsewhere in enterprise computing, can also benefit procurement in its efforts to enhance sustainability.
One example is in the logistics of moving physical items from one place to another. ”The best shot we have to take the total system optimization point of view is to involve big data and predictive analytics,” says Asparuh Koev, founder of Transmetrics, a predictive optimization SaaS for cargo transport. Data and analytics provide logistics service providers with a clear business overview, helping them optimize operations—for example, to avoid unnecessary empty repositioning or cancel half-empty assets.
“At the end of the day,” says Koev, “if we can increase the capacity utilization of the assets in logistics, it will lead to the decrease in the industry’s carbon footprint.”
And it’s a very big footprint, A 2016 World Economic Forum report on the digital transformation of the logistics industry estimates that “Improved route optimization and capacity utilization could lead to a reduction in emissions of more than 4 billion metric tons.”
Every industry should expect environmental issues to affect its supply chain behavior and influence decision-making. According to an MIT survey, DER will highly disrupt the electricity sector, with 94 percent of senior power and utility executives predicting dramatic changes in the utility business model by 2030.
IT procurement needs to be ready to take action. This will guarantee leadership in the industry as well as within the supply chain, and determine the position of organizations in the race toward the 2025 global carbon emission reduction target.
Sustainable IT procurement: Lessons for leaders
- Every purchasing decision, big or small, has an impact on the organization, environment, economy, and society as a whole.
- Industrial competitiveness demands the adoption of resource efficiency measures. One way to achieve resource efficiency is through optimization of the value chain.
- Best practices in resource efficiency include using fewer resources as well as optimizing their use.
This article/content was written by the individual writer identified and does not necessarily reflect the view of Hewlett Packard Enterprise Company.