As companies strive to reduce their environmental costs, evaluating total cost of ownership provides a means to achieve greater environmental accountability and better resource management, according to a new report.
When done effectively, a total cost of ownership approach to goods and services can deliver financial savings and other business benefits, the report from CDP, formerly Carbon Disclosure Project, explains. As the report, “A Paradigm Shift in Total Cost of Ownership” notes, by assessing cradle-to-grave impacts, including environmental factors such as emissions from suppliers as well as those of consumers using the products and services, companies may reduce their costs and “push innovation” in business.
“We looked at whether companies were seeing opportunities through climate change, and whether they were engaging their suppliers—not just where the emissions are but where the solutions are,” Dexter Galvin, CDP’s head of supply chain, says in an article on Environmental Leader.
I was interested to read that of the Global 500 companies responding to the survey, 55 percent said they found business opportunities resulting from modified consumer behavior due to climate change. Furthermore, 69 percent report increased demand for lower-carbon products and services in 2016.
The report highlights some of the world’s largest purchasers—such as Walmart, Unilever, General Motors, the U.S. Navy and the U.S. General Services Administration—as examples of total cost of ownership approaches to making environmental sustainability a key element of business decisions. These organizations use their significant purchasing power to reduce natural resources required to make and use their products, the report explains. They are also asking suppliers to monitor and disclose their environmental impacts.
The report includes a case study that analyzes the potential cost savings of Hewlett Packard Enterprise’s Moonshot servers based on the U.S. military’s draft Acquisition Guidance, which assesses the life-cycle impacts and costs of purchase systems. The study finds that replacing traditional servers with extreme low-energy servers like Moonshot would have the potential to cut annual greenhouse gas emissions by up to 100 million tons. There also is the potential to save customers up to $12 billion in internal energy costs, and reduce total environmental impact by up to $20 billion.
I was also interested to read in its disclosure that Alcoa says “our customers are increasingly asking for innovations and products to enhance their energy efficiency and reduce the CO2 emissions associated with the usage of their products…As a result of increased customer demand for energy efficiency, our Engineered Products & Solutions business group signed a number of valuable contracts throughout 2014, including a $1.1 billion 10-year supply agreement with Pratt & Whitney for enhanced, energy-efficient jet engine components.”
Finally, the report notes that 77 percent of the responding companies said they engaged with their suppliers on climate change strategies in 2016, which is up from 67 percent three years ago. What’s more, 58 percent of these companies engaged with their customers on climate change—more than three times the number just three years earlier. Be that what it may, Galvin says, when evaluating total cost of ownership, there is still much work to be done.
“We’re seeing 77 percent of these Global 500 companies actually engaging their supplier on climate change, and that paints a very positive picture,” Galvin says. “But if you look at the 4,000 companies responding to CDP’s supply chain program this year, we see a massive lack of engagement with supply chains: only 27 percent of those companies are engaging their supply chains. So, for the vast bulk of organizations, they aren’t doing enough at all.”
I’d like to know your thoughts on engaging with customers and suppliers on environmental sustainability. Are those discussions happening in your organization?