Carbon in the supply chain

Existing supply chain management practices have traditionally focused on cost, service and quality. The new requirement to manage carbon emissions has resulted in carbon being the fourth criteria. With the possibility of a price on carbon, new opportunities arise for companies to exploit a competitive advantage by effectively managing carbon in the supply chain and to work strategically with their suppliers.

Companies will face challenges to measure and manage carbon emissions within their operations. Doing the same for the supply chain will be considerably more difficult. This is exacerbated by the fact that up to 50% of many companies’ emissions are produced outside of their direct control.

Many companies have already begun to determine their supply chain environmental footprint and have carried out Life Cycle Analysis of their products or services. This provides an excellent starting point for analysing carbon emissions of the supply chain. If Life Cycle Analysis has not been started, companies may consider focusing first on the energy or emission intensive parts of their operations.

Large consumers of energy will face increased costs, as energy suppliers will be subject to a price on carbon. The same applies to raw materials that require large amounts of energy to manufacture or that result in substantial carbon emissions. Companies that produce products that are price inelastic, may find it difficult to pass on the higher raw material costs.

As has been the case for higher crude oil prices, a change in the supply-side creates new opportunities for companies that act decisively ahead of their competitors. A price on carbon should be treated in a similar manner.