Transitioning to a low carbon future, while boosting profits

Last week I had the pleasure of speaking at the 8th Annual Chief Supply Chain Officer Forum about innovative sustainable logistics solutions and added customer value.

The below summary of my presentation will provide Supply Chain Executives and leaders within the Logistics field with a case for increasing a company’s profile and profitability by focussing on sustainability. Additionally, this article will provide thought leadership to further the performance of your organization.
The American psychologist Fredrick Herzberg has developed the dual-factor theory of employee motivation. He classified topics into two groups: (i) factors that had to be in place, otherwise an employee would not be motivated and (ii) factors that were motivating when being in place. Translating this model into the Supply Chain world leads to the below overview, indicating that managing sustainable operations will be considered a motivating factor for CEOs. Supply Chain adding value at its best.
CEOs are expecting from their Chief Operating Officers, Chief Supply Chain Officers and other supply chain executives that we are fully on top of the basics. Meaning that our operational performance is where it needs to be, that we are in control of cost, that we are customer focussed, that we set up a lean organizations, that we source globally, that we constantly evaluate and optimize our footprint, manufacturing depth etc. Managing innovation and digitalization is key for us these days. A factor that is not expected from supply chain execs but that can 'motivate' and bring your organization a step ahead of the market is the topic of sustainability, sustainable operations and sustainable logistics.
The below case outlines the value of pursuing sustainability in your supply chain.
Learning to understand value - a lesson from endurance running
Before going into the content of the case, I’d like to briefly present myself and share a personal story as I believe experiences are what shape our ways of thinking. Professionally I held various Supply Chain Management functions within Siemens Wind Power and Siemens Gamesa and am Head of Towers, North Europe & Middle East. In parallel to the job I completed the IE Brown Executive MBA ’17, a dual degree program of IE Business School and Brown University that goes beyond the boundaries of traditional business education.
Privately I enjoy being out in the mountains performing endurance sports. At the age of 18 I started running. What a joy! The first many years I was taking it easy and focussed on short distances (10-15k), both in training and competitions. From 2012 onwards though, a close friend and I went for longer and longer distances. We competed in marathons, went out in the mountains and participated in various ultra-marathons. Things were going great and the last race in 2014 was in Portugal, an 82-kilometre race in the hills of Setubal that we completed in 11h46min, 14 minutes below our target time. First a great feeling of accomplishment, shortly thereafter I felt that something was wrong. A few days later the doctor diagnosed me with advanced status of osteoarthritis and told that I may never run again. What a bummer. How did I get there? Retrospectively I realized that there was the signal of pain in my foot that I ignored for years and kept increasing my running, better faster longer.
There are two important lessons I learned from endurance running and the injury:
  • Firstly, when continuously keeping an unsustainable high level – in my cases running ultra-distances – you hit a point where the damage is irreversible. If I had kept running on a sustainable level, I would have had the possibility to continue for many years more.
  • Secondly, one clearly needs to understand the value an activity provides. In my case, I valued being out in the mountains, being challenged through endurance sports and spending time with my friends. All of that I could have achieved with other forms of endurance sports, without having caused the irreversible damage.
If only I had recognized the real value-add and the sustainable level earlier on.
87% of leaders intend to go beyond profits - business with purpose
While experts are still debating the exact science and correlations behind climate change and global warming, there are a few mostly undisputed effects such as rising temperatures, increase in weather anomalies and in the long-run rising water levels.
One example of increase in weather anomalies was that some attendee to the conference could not make it on-time because of a hurricane, where there was never one before. Meaning that we realize more day-to-day effects of climate change. And it will only become more, sadly.
And here is why I am passionate about climate action: I have learned the lesson of what it means to keep doing something at an unsustainable level, in my case the irreversible injury that stops me from running. I don’t want our planet to reach a level where we cannot reverse the effects.
We as citizens, politicians and industry leaders must take action to stop further climate change from happening.
We have already the trend that more and more companies realize the importance of their performance beyond profits. A study by EY shows that 87% of business leaders believe that companies best perform over time if their purpose goes beyond profits.
So here I was in front of 300 senior Supply Chain managers, making the case that a vision beyond profits, focussing on sustainability has a positive impact on shareholders, customers and employees and subsequently on profits.
High sustainability companies outperform their peers
The above-mentioned purpose can naturally be manifold. Companies that engage with purpose beyond profit typically target to make the society better off either through eradicating certain diseases, providing people with basic healthcare or by reducing malnutrition. All of them target to leave the planet a better place. Personally, I am convinced that climate change is the biggest threat to our planet, to our children and the generations to come. That is why I believe that we must counteract climate change before it is too late.
Further, taking climate action and to focus on sustainability has additional positive effects that all shall add to the profitability of the organization. Research has shown positive impact on three relevant parts of any organization: shareholders, customers and employees. Below overview shows some of the key findings as identified by established institutions such as the National Bureau of Economic Research (US), the Harvard Business Review and McKinsey.
The main cause of climate change is assumed to be the greenhouse gas emissions. Many corporations have accordingly pledged to cut greenhouse gas emissions and other climate actions. A specific example is Siemens, having set the target to be carbon-neutral by 2030 and to have halved carbon emissions by 2020. Other companies have set similar targets to fight climate change and joined the Science Based Targets initiative.
Industry leaders such as Unilever, Walmart, IKEA, SAP, Coca Cola and many others have clearly identified the positive impact of sustainability and accordingly made carbon emission reduction a target.
Wind energy as an effective way to drive sustainable logistics
Logistics are key in today’s globalized world. We ship goods around the world. Due to the nature of the business, it hasn’t been easy for logistics companies to establish a more sustainable footprint. Logistics companies need to transport goods for thousands of miles on behalf of the industrial companies. To reduce carbon emissions of transport is no easy task, acknowledged. Low carbon emission forms of transportation, such as with electric vehicles, are not yet where they need to be. Sometimes creative solutions are required, such as from Deutsche Post DHL to build their own electric vehicles that the market did not offer, to support their ambitious target of ‘Mission 2050: Zero Emissions’.
Not all logistics companies can drive a plan as ambitious as what DP DHL did. Accordingly, for many of the Third-Party-Logistics providers it looks out of reach to significantly reduce carbon emissions. And that while many of their industrial clients are looking for a reduction in the carbon footprint, both in their own operation as well as in their logistics chain. One such committed example as part of the above presented Science Based Targets initiative, Walmart has set the target to reduce one billion tons of CO2 emissions in up- and downstream operations.
Luckily not everything is as complex as it initially may seem. There is a good and effortless way to start reducing the carbon footprint of a logistics company. Warehouses and other operations require electricity. The power can be generated either by fossil fuels that emit a high amount of CO2 or by renewable energy sources that have close to no emissions, such as solar or wind energy. While the first emit around 850 grams of CO2 per kWh of electricity, wind power emits only 5 grams of CO2 per kWh.
That implies that changing energy supply to wind will lead to a carbon emission reduction of up to 99%.
While it is a somewhat ‘romantic’ idea to have a wind turbine right by the warehouse or plant, it might not be the best setup (due to space, local acceptance, energy needs etc).
In 5 steps to more sustainable logistics and higher profits
Besides setting up the individual turbine, there are other ways.  A quick and effective way to reduce the carbon footprint of a logistics company is by powering the warehouses and operations with wind energy. While one option is to set up a specific wind turbine or wind farm, the quicker and better suited business model might be to buy renewable energy from the utility, via a Power Purchase Agreement (PPA) for renewables.
An innovative logistics company reached out to us with the intention of setting up a carbon neutral warehouse solution.
Following our analysis, the logistics company managed to power its entire European operations of around 50 warehouses with only 4 wind turbines. Compared to the fossil fuel based power supply, the logistics company will be saving an estimated 34,000 tons of CO2 per year.
A saving for the company, its employees, the customers and our planet. As presented above, a good share of industrial companies will value sustainable operations and two thirds of end customers.
To establish the intended setup, it only requires five simple steps. The organization places innovation and sustainability on the strategic roadmap, creates transparency about energy demand across locations, finds the right partners to develop the target project, negotiates and enters a contract (PPA) for the delivery of renewable energy, resulting in the supply of a close to carbon neutral logistics solution, delivering value to customers.
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