Supply Chain Management: Getting China to Get Greener

In China, which emits more greenhouse gasses than any other country, many factories use about 10 times more energy than their counterparts in Japan—giving global companies the opportunity to profoundly reduce their climate impacts by working with their China-based suppliers.

While energy-efficiency investments in China are cost-effective, challenges related to the country’s regulatory structure, professional energy-service-provider industry, and lack of information about opportunities and standards for measuring emissions often prevent companies from capitalizing on this opportunity.

BSR’new report, “Unlocking Energy Efficiency in China: A Guide to Partnering with Suppliers,” provides an outline for how leading companies can overcome these obstacles and launch supply chain energy-efficiency programs in China. The recommendations build on BSR’s experience helping Walmart launch its initiative to improve the energy efficiency of its top 200 China-based suppliers by 20 percent by 2012. The report also provides insights from BSR’s China Training Insitute which has trained more than 1,500 managers on energy management since 2004.

“The benefits to launching supply chain energy-efficiency initiatives are great: Companies can save money, reduce their energy-related risks, gather information to communicate to investors who are increasingly savvy about climate issues, and establish themselves as leaders before supplier energy management becomes mainstream,” said Ryan Schuchard, BSR’s Manager, Research & Innovation. Lead author of the report,

Schuchard spent more than six months helping Walmart launch its efforts at the company’s global sourcing headquarters in Shenzhen, China.

“We identified energy efficiency as a significant opportunity to quickly enhance the resilience and environmental performance of our suppliers’ Chinese factories,” said Walmart Vice President of Global Sourcing Ken Lanshe. “But we quickly learned that while the successes of Walmart’s Supplier Energy-Efficiency Program (SEEP) in the United States provided us with an effective model, navigating energy efficiency in China required us to leverage local partners that possessed relevant knowledge, experience, and tools. BSR’s work helped us surmount these hurdles and ultimately reach more than 300 suppliers since 2009.”

VIDEO: Walmart’s Supplier Energy-Efficiency Program (SEEP)

BSR’s report shows that companies can turn China’s unique obstacles into opportunities by offering suppliers:

• Insight: Global companies can orient suppliers with best energy-management practices, and they can also share staff, trainers, and other resources that that can help suppliers address challenges such as garnering support from senior management;
• Information: By offering tools such as data-reporting systems, companies can provide -suppliers with instant feedback and analytics to help them make better decisions on their own; and
• Incentives: Company initiatives that link supplier purchase orders to progress and stipulate that collaboration with suppliers will depend on responsible energy use make energy efficiency more attractive.

BSR’s report, which features perspectives from companies such as Wal-mart, Hewlett-Packard, and IKEA, proposes a four-part road map to help business leaders get started by:

1. Building foundations for the engagement, which includes confirming that the company is really ready, choosing suppliers, and defining basic parameters;
2. Giving suppliers direction and motivating them to get started, which involves introducing them to the idea, launching the initiative, and setting commitments;
3. Helping suppliers effectively execute commitments on their own by establishing effective communications, providing goal-oriented measurement tools, and offering training and advice; and
4. Taking stock and considering how to refine methods, invest in their own capability, and go further on energy efficiency and other issues.

“By working with suppliers, companies can cost-effectively introduce dozens, hundreds, or even thousands of factories to sustainability, and enable them to pursue efficiency on their own,” said Schuchard.