4/9/14 ESD.S43 Green Supply Chain anagement
ESD.S43 -­‐ G-­‐ reen Supply Chain MM
anagement
Edgar Blanco Tony Craig Alexis Bateman 2nd Half Spring 2014 MIT Center for Transporta>on & Logis>cs ESD.S43 -­‐ Spring 2014 Learning Objec>ves • Conduct a simple measurement of any organiza>on’s carbon footprint and iden>fy “hot spots” • Recommend the right measurement approach to fit the purpose and scope of more complex carbon measurement ini>a>ves (e.g. supply chain) • Be able to challenge other organiza>on’s carbon footprint declara>ons ESD.S43 -­‐ Spring 2014 © 2014 E. Blanco and T. Craig -­‐ MIT CTL 2 1 4/9/14 WidgetCo Case Study ESD.S43 -­‐ Spring 2014 © 2014 E. Blanco and T. Craig -­‐ MIT CTL 3 Case Study Recap -­‐ WidgetCo ••   Global Manufacturing –  Chair manufacturing –  Retail & Industrial customers in the US •  Facili>es –  Two manufacturing plants one in Shanghai, hanghai, China (50% joint-­‐venture) and one in Michigan, ichigan, USA (fully owned) –  Two USA DCs for finished good distribu>on (California & Georgia) –  250 ssq.`. q.`. dedicated showroom at 2,,500 500 B
BigDep
igDepot
ot retail loca>ons, oca>ons, represen>ng 40% of retail sales •  Transporta>on –  Dedicated 3PL (for all imported materials) –  Retail channel: 80% private truck fleet, eet, 10% air, ir, 10% LTL –  Industrial channel: 40% deliveries, eliveries, 60% pick-­‐ups at DC Source: E. Blanco. MIT CTL 2009 ESD.S4
SD.S43
3 -­‐ Spring
pring 2014 © 2014 E. Blanco and T. Craig -­‐ MIT CTL 4 2 4/9/14 Supply Chain Flows Ocean Transporta>on + Rail/Truck Local Transporta>on Georgia DC Retailers Shanghai Plant California DC Shanghai Suppliers Industrial Michigan Plant Rail/Truck ESD.S43 -­‐ Spring 2014 Ocean Transporta>on + Dedicated 3PL Rail/Truck 60% Pickup 40% Carrier © 2014 E. Blanco and T. Craig -­‐ MIT CTL 5 Why is WidgetCo Interested in Carbon Footprint? •  Investors asking about it…. •  Customers asking about it … –  CEO ajen>on •  Compe>tor, FerretCo, reported emissions in Carbon Disclosure Project –  55,000 tons of CO2 –  1.1 kgs of CO2 per kg of product –  Wants to become carbon neutral –  Possibly labeling retail products ESD.S43 -­‐ Spring 2014 © 2014 E. Blanco and T. Craig -­‐ MIT CTL 6 3 4/9/14 WidgetCo Emission Sources Electricity Electricty Direct Emissions Transporta>on Georgia DC Transporta>on Retailers Shanghai Plant Electricity Transporta>on Shanghai Suppliers California DC Industrial Michigan Plant Transporta>on Electricity Transporta>on Electricity Direct Emissions ESD.S43 -­‐ Spring 2014 © 2014 E. Blanco and T. Craig -­‐ MIT CTL 7 WidgetCo Carbon Footprint Calcula>ons Facili;es Electricity Consump;on * Electricity Factor + Direct CO2 Emissions Transporta;on Method 1 (Ton-­‐Miles) Used for shared transporta>on assets: Number of Shipments * Distance * Weight * Mode Emission Factor Transporta;on Method 2 (Fuel Consump;on) Used for dedicated transporta>on assets: Fuel Consumed * Fuel Emission Factor ESD.S43 -­‐ Spring 2014 © 2014 E. Blanco and T. Craig -­‐ MIT CTL 8 4 4/9/14 GHG Emission Factors Category Process Emission Factor (kg CO2e) Electricity Electricity, USA (kWh) 0.596 Electricity Electricity, Michigan (kWh) 0.703 Electricity Electricity, China (kWh) 0.788 Transporta>on Truck (ton-­‐mile) 0.086 Transporta>on Rail (ton-­‐mile) 0.032 Transporta>on Ocean (ton-­‐mile) 0.016 Transporta>on Air, Shorthaul (ton-­‐mile) 2.528 Transporta>on Air, Longhaul (ton-­‐mile) 0.912 Fuel Diesel (Gallon) 10.2 For most firms, cross sector tools that cover energy consump>on and transporta>on are all that is needed ESD.S43 -­‐ Spring 2014 © 2014 E. Blanco and T. Craig -­‐ MIT CTL 9 GHG Emission Factors •  Usually refers to the six greenhouse gases covered by the Kyoto Protocol –
–
–
–
–
–
–
carbon dioxide (CO2) methane (CH4 ) nitrous oxide (N2O) hydrofluorocarbons (HFCs) perfluorocarbons (PFCs) sulfur hexafluoride (SF6) Other gases may need to be accounted for an reported separately •  Single unit of measure: CO2-­‐equivalents –  Combined using 100-­‐year “Global Warming Poten>al” –  Regularly updated as part of the IPCC Assessment Reports –  hjps://www.ipcc.ch/publica>ons_and_data/
publica>ons_and_data_reports.shtml •  “Carbon” is common word ESD.S43 -­‐ Spring 2014 © 2014 E. Blanco and T. Craig -­‐ MIT CTL 10 5 4/9/14 The GHG Protocol Emission Scopes CO2
SF6
INDIRECT
Scope 2:
Indirect emissions
from electricity
CH4
N2O
HFCs
DIRECT
Scope 1:
Direct emissions
PCFs
INDIRECT
Scope 3:
Other Indirect
emissions
www.ghgprotocol.org ESD.S43 -­‐ Spring 2014 © 2014 E. Blanco and T. Craig -­‐ MIT CTL 11 Case Study Ques>ons 1.  Calculate WidgetCo’s carbon footprint (Excel File) 1.  Correct emission factor for each WidgetCo supply chain ac>vity 2.  Share to include in WidgetCo footprint (0-­‐100%) 3.  Iden>fy the emissions by scope 2.  What did you include in your calcula>on and why? Explain to CEO and Board… 3.  Will you recommend publicly disclosing WidgetCo’s carbon footprint? Why or why not? What about pledging to become carbon neutral or labeling your products? ESD.S43 -­‐ Spring 2014 © 2014 E. Blanco and T. Craig -­‐ MIT CTL 12 6 4/9/14 WidgetCo Case Study Discussion •  Breakout in groups of three •  Agree on WidgetCo Carbon Footprint –  One computer ready with the XLS –  Emission Factors, Scopes, and Contribu>on •  Prepare to share your answers to the ques>ons to the larger group ESD.S43 -­‐ Spring 2014 © 2014 E. Blanco and T. Craig -­‐ MIT CTL 13 What is WidgetCo’s Carbon Footprint? ESD.S43 -­‐ Spring 2014 © 2014 E. Blanco and T. Craig -­‐ MIT CTL 14 7 4/9/14 Your Individual Answers ESD.S43 -­‐ Spring 2014 © 2014 E. Blanco and T. Craig -­‐ MIT CTL 15 Your Individual Answers 800,000 700,000 600,000 Other tons CO2e 500,000 Distribu>on Facili>es Transporta>on into DCs 400,000 Transporta>on to Customers Manufacturing China 300,000 Manufacturing US 200,000 100,000 -­‐ 1 ESD.S43 -­‐ Spring 2014 2 3 4 5 6 7 8 9 10 11 12 13 © 2014 E. Blanco and T. Craig -­‐ MIT CTL 16 8 4/9/14 Which is the correct one? 700,000 8.00 6.93 600,000 6.50 7.00 6.00 tons CO2e 500,000 Other 4.51 5.00 Distribu>on Facili>es Transporta>on into DCs 400,000 4.00 Transporta>on to Customers Manufacturing China 2.52 300,000 3.00 Manufacturing US Per kg 200,000 1.10 100,000 2.00 1.00 -­‐ 0.00 Supply Chain Control ESD.S43 -­‐ Spring 2014 Equity Share Corporate FerretCo © 2014 E. Blanco and T. Craig -­‐ MIT CTL 17 WidgetCo Emission Sources Private Fleet Rail Transporta>on Direct Emissions Electricity Georgia DC 3PL Truck Transporta>on Shanghai Plant Air Shipments Industrial Michigan Plant Electricity ESD.S43 -­‐ Spring 2014 Retailers California DC Shanghai Suppliers Ocean Transporta>on Electricity Electricity Electricity Customer Pickup Direct Emissions © 2014 E. Blanco and T. Craig -­‐ MIT CTL 18 9 4/9/14 Your Answers ESD.S43 -­‐ Spring 2014 © 2014 E. Blanco and T. Craig -­‐ MIT CTL 19 Courtesy of CDP. Used with permission.
Scope 3 Emissions Reported in the CDP ESD.S43 -­‐ Spring 2014 © 2014 E. Blanco and T. Craig -­‐ MIT CTL 20 Courtesy of CDP. Used with permission.
10 4/9/14 Mechanics of Carbon Footprints •  Determine your organiza>on boundary –  Equity share, Financial or opera>onal control •  Determine your opera>onal boundary –  Calculate Scope 1 and Scope 2 emissions •  Minimum requirements –  Iden>fy Scope 3 emissions to include •  Generally not required, but o`en included •  Gather data on opera>ons –  Apply appropriate emissions factors ESD.S43 -­‐ Spring 2014 © 2014 E. Blanco and T. Craig -­‐ MIT CTL 21 Issues with Carbon Footprints •  Merging data from many sources –  Facili>es, transporta>on, procurement, etc. •  Data integrity –  Do the numbers make sense? –  Are there missing values? •  Data aggrega>on issues –  Do air shipments have the same average weight as truck shipments? •  Finding the right emissions factors –  Pay ajen>on to units –  Apply consistently ESD.S43 -­‐ Spring 2014 © 2014 E. Blanco and T. Craig -­‐ MIT CTL 22 11 4/9/14 Tricks & Traps for Corporate Carbon Footprint •  Carefully define corporate boundaries –  Read the GHG Protocol and understand it –  Scope 1, 2 and 3 are a good framework –  Rela>onship between internal vs. external stakeholders may affect your calcula>on of the carbon footprint •  Use the right data and emissions factors –  Preferred accoun>ng methods –  Consistent choices of factors •  Absolute vs. rela>ve measures •  Expect the carbon footprint to be refined over >me. –  Keep in mind as you share outside your organiza>on or make reduc>on commitments –  The primary goal is year-­‐on-­‐year comparisons •  May require occasional restatements ESD.S43 -­‐ Spring 2014 © 2014 E. Blanco and T. Craig -­‐ MIT CTL 23 Would you disclose? ESD.S43 -­‐ Spring 2014 © 2014 E. Blanco and T. Craig -­‐ MIT CTL 24 12 4/9/14 Carbon Disclosure Project 767 Ins>tu>onal investors with $92 trillion in assets ESD.S43 -­‐ Spring 2014 © 2014 E. Blanco and T. Craig -­‐ MIT CTL 25 Courtesy of CDP. Used with permission.
Why measure environmental footprint? • Boundaries for internal may differ from external ESD.S43 -­‐ Spring 2014 © 2014 E. Blanco and T. Craig -­‐ MIT CTL 26 13 4/9/14 Does it make sense to compare WidgetCo and FerretCo? ESD.S43 -­‐ Spring 2014 © 2014 E. Blanco and T. Craig -­‐ MIT CTL 27 Supply Chain Flows Suppliers Manufacturing Distribu;on Customers Shanghai Plant Georgia DC Retailers Michigan Plant California DC Industrial Suppliers WidgetCo Boundary FerretCo Boundary West Coast DC Suppliers Contract Manufacturers Midwest DC Local Sales Office Industrial Northeast DC Local Sales Office Southeast DC ESD.S43 -­‐ Spring 2014 © 2014 E. Blanco and T. Craig -­‐ MIT CTL 28 14 4/9/14 Supply chain and corporate comparison Scope Corporate (Equity Share) WidgetCo FerretCo 378,986 47,499 Per kg of sold product 4.51 0.95 Disclosed (Equity Share) 414,824 55,219 Per kg of sold product 4.94 1.10 581,724 365,019 6.93 7.30 Supply Chain Per kg of sold product ESD.S43 -­‐ Spring 2014 © 2014 E. Blanco and T. Craig -­‐ MIT CTL 29 Increasing need for a broader view of emissions Figure removed due to copyright restrictions. See
the lecture video for further details.
• Apple has been voted the best supply chain company for 6 years straight by Gartner Inc. ESD.S43 -­‐ Spring 2014 © 2014 E. Blanco and T. Craig -­‐ MIT CTL 30 15 4/9/14 Many sectors would have less than 25% of their total GHG footprint represented by Scope 1 and 2 es>mates ESD.S43 -­‐ Spring 2014 © 2014 E. Blanco and T. Craig -­‐ MIT CTL 31 © ACS. All rights reserved. This content is excluded from our Creative Commons
license. For more information, see http://ocw.mit.edu/help/faq-fair-use/.
Expanding Expanding the the GGHG HG PProtocol rotocol The Greenhouse Gas Protocol (2011), Corporate Value Chain (Scope 3) Accounting and Reporting Standard
ESD.S43 -­‐ Spring 2014 © 2014 E. Blanco and T. Craig -­‐ MIT CTL 32 Courtesy of The Greenhouse Gas Protocol. Used with permission.
16 4/9/14 CDP Supply Chain Started in 2008 ESD.S43 -­‐ Spring 2014 © 2014 E. Blanco and T. Craig -­‐ MIT CTL 33 Courtesy of CDP. Used with permission.
More pressure leads to more responses ESD.S43 -­‐ Spring 2014 © 2014 E. Blanco and T. Craig -­‐ MIT CTL 34 Courtesy of CDP. Used with permission.
17 4/9/14 Value Chain vs. Product • Aggregates emissions for the supply chain
– Broad in scope, aggregated data
• Product standard
– Specific to one product, measured per unit
ESD.S43 -­‐ Spring 2014 © 2014 E. Blanco and T. Craig -­‐ MIT CTL 35 Courtesy of The Greenhouse Gas Protocol. Used with permission.
What about products? 20.14g per
16.08g per
dry*
dry*
8.23g
per dry*
4.31g
per dry*
* CO2 per dry. Data from Gagnon and Panertos, 2009 report – Comparative
Environmental Life Cycle Assessment of Hand Drying systems, prepared for Excel
Dryer, Inc. Quantis.
© 2012 MIT MSL. Do not quote without author authoriza>on 36 Courtesy of Gregory, J., R. Kirchain, and T. Montalbo, Materials
Systems Laboratory, MIT. Used with permission.
18 4/9/14 Does it make sense to be carbon neutral? • Ongoing expense to purchase offsets – 550,000 tons * $10-­‐15/ton = $5.5-­‐8.25 million • Carbon footprint generally reported before factoring in offsets • Fraud/Corrup>on/Misleading – Fiji Water sued over forward credi>ng ESD.S43 -­‐ Spring 2014 © 2014 E. Blanco and T. Craig -­‐ MIT CTL 37 Carbon Offsets • Voluntary market of $569 million in 2011 – World Bank Carbon Finance Report 2012 • Several cer>fica>on schemes – Gold Standard, Voluntary Carbon Standard, etc. • Voluntary Carbon Standard Principles – Addi>onal – Real – Measurable – Permanent ESD.S43 -­‐ Spring 2014 © 2014 E. Blanco and T. Craig -­‐ MIT CTL 38 19 4/9/14 Why measure environmental footprint? 20 MIT OpenCourseWare
http://ocw.mit.edu
ESD.S43 Green Supply Chain Management
Spring 2014
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