Green/CSR Meet the Bottom Line — Savings Tips From ICG Commerce’s and Neuwing Energy (Part 2)

Please click here for Part 1 of this post as well as our initial analysis of ICG Commerce's acquisition of Neuwing Energy.

In many companies today, we often observe that supplier diversity teams have done a relatively poor job of embedding themselves in the everyday activities of sourcing and category management team members as a shared service. All too often, the role is relegated to one of reporting and compliance. We can learn from this mistake in creating what I'll term an "energy activist" role that can look similar to that of the charter of a supplier diversity manager. However, rather than focus on driving spend to minority or small business suppliers with a challenging effort to measure/quantify non-absolute (e.g., % spend increase) benefits, this individual or team can introduce energy and sustainability into the equation of large capital and non-capital purchases with a bottom-line focus on total cost savings. Because building research and awareness into sustainable savings opportunities is often a challenge, Spend Matters believes that type of approach could have one of the greatest impacts on adopting energy-related programs inside manufacturers today.

ICG Commerce and Neuwing recommend building visibility into buying decisions as a core component on an overall cost and sustainability equation. This might include analyzing the KWH impact of different production designs or equipment within a shop floor environment. Or, in Spend Matters experience, it might encompass looking at the energy and carbon-related impact of different supply chain designs, including working with local vs. global suppliers (e.g., adding up the added energy costs of transportation including expediting, additional inventory, warehousing, etc. required when working with Chinese suppliers versus domestic, Canadian, or Mexican suppliers). For many of these decisions, there might be third party credits and incentives available (e.g., Federal, state, utility, NGO, etc.) that make certain investments and decisions more favorable than others on a total cost basis.

Take the case of a retailer looking at the environmental and cost impacting of investing in specific refrigeration and freezer technology for fresh foods/produce that might cost more upfront, but could have a material payback over its lifespan in reduced energy consumption versus standard equipment. By factoring all of the right criteria into the decision analysis (including, as a hypothetical example, a specialized humidification technology that might extend the life of fresh foods, reducing spoilage and waste), companies can better understand the right total cost decision over the time horizon they can afford to invest on. Also, by using sourcing optimization technology, they can begin to collect different alternative bid packages from suppliers to understand all their available options (even from the same vendor) to truly understand the unit and total costs associated with decisions over a range of payback periods.

I can nearly guarantee that for a typical Fortune 500 company, having a floating energy analyst on the procurement payroll is an investment that will likely pay for itself without even considering the environmental stewardship and marketing benefits of CSR programs. Working with third-party firms obviously remains an option as well, and it's likely that as companies become more sophisticated with their own resources, they'll bring in expert third parties more often to target specific opportunities.

In addition to leveraging the right talent (both internal and third party) to drive energy reduction initiatives through better procurement and operational practices, making better upfront sourcing decisions and taking full advantage of third-party incentives and credits, it's critical that organizations remember the green energy landscape is unfolding rapidly. Staying on top of the latest possibilities alone -- from new supplier technologies to new incentives -- can be a full-time job. Yet it's one that can pay dividends. This is more reason than any to consider the energy opportunity not only as a category to source and manage, but as a component of nearly all the spend passing through your organization.

Jason Busch

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