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Intellectual Property Challenge in China

It wasn’t for the project which I am currently working on for a China plant tissue culture (TC) company, I would never have experienced the challenge from the weakness of Intellectual Property (IP) protection in the Chinese market.

It is the first time that I am working so closely on IP issues in China. The plant Tissue Culture company, Jin Bei (aka, JBSbio), based in Shanghai, China, has been focused in the Chinese domestic market for the past two decades. They have been very successful as a market leader in the region with a reputation of reliable high quality. Last year, with a new investment of $4.5 million into world class new equipment, the company was ready to expand into the overseas market. Through a friend’s connection, they asked me to help them break into the U.S. market.

I have been traveling for the company to meet the potential clients, not only to promote the propagation service that the company can provide with its’ Tissue Culture technology, but also to connect with the U.S companies who are interested in getting their products into the Chinese market. With the booming economy in China, needs for gardening and landscape are booming as well, in parallel with the rising market of housing and public construction.

So anyone would think that selling into China will be an easy task once we have good products. The answer is no, absolutely not, because of the weak protection of intellectual property in China. Piracy in China is not something new. It’s sad for me to say this as a Chinese, but China has a reputation of counterfeiting design or content of patented products. We are all familiar with those knock-off products such as luxury handbags, watches, electronics, and clothing. The knock-offs are sold at a much lower price, so consumers can choose to pay much less for fake premium products if quality is not a concern to them.  There are even some tragedies that people consumed counterfeit food and were poisoned! Many foreign companies come to China and have been fully challenged by the culture of deficient IP awareness. So, China, a country of invention only in ancient times, becomes a well-known country of “stealing” IP. Even though more regulations and laws are created after China entered the WTO, the IP control has not become easier for many investors.

I am facing a huge obstacle to introduce new horticultural products into the Chinese market.  Breeders normally spend thousands upon thousands of dollars in developing a new plant variety through years of experiments and growing. That is why we can see more and more beautiful, colorful plants around us. In the past 30 years, the IP regulation has been well developed in U.S. so most businesses are playing the game by the rules. However, the Chinese market is like the Wild West, which can be easily out of control for horticulture products. Think about it, any plant grower can take a branch of a plant and duplicate it through cutting technology. Learning from the painful experience of losing IP in the Chinese market, some companies choose to give up on China altogether, or only bring to market the second tier quality products, which in result make my objective of introducing new products to the Chinese market more challenging! When I see those beautiful new flowers and plants which can be easily duplicated, I can’t help to feel regret about the fact that Chinese consumers may not have much chance to enjoy those nice and beautiful flowers in the near future.

However, the existence of risk does not mean one should not take any risk at all. Actually it is a good thing the Intellectual Property issue is not a hidden risk so we all know it is out there and we just need to take more cautious approach when we go to the market. The following are my suggestions on how to deal with the IP issues in China:

First, choose a reliable partner with a good reputation. It may not be an easy thing sometimes because Chinese hardly says “No” to opportunities. So, if a company tells you “No” for some reason, it is actually a good sign that this company is doing business honestly. At the same time, spend time to research the background of the potential partner, to visit their facility, and to observe how the owner or manager works and treats their employees. A company that treats their employees well will also respect their business partners, which is potentially a long-term trustworthy business partner. Don’t feel frustrated if you have a bad experience in the Chinese market. There are plenty of honest businesses out there looking for a long term partnership.

Second, utilize key technology to prevent easy counterfeiting especially when R&D is a big part of the product development. Intel is a great example for this approach. No one can counterfeit their CPU due to their technology.  A company can develop complex products unique characters from which core technology cannot be duplicated.

The third approach is to use the trade mark and a branding strategy. Believe it or not, China has a culture of brand awareness and will pay a premium for a brand which is associated with high quality and a high social status. Not to mention those well-know consumer goods, JBSbio, the Chinese Tissue Culture company, uses the branding strategy for their own breeds and has been successful to protect their products in their homeland. The foreign company going into the Chinese market should definitely use a branding strategy at the beginning of entering the new market to establish their name and increase brand awareness.

The last strategy will be entering the market with a second tier product or with products which are going to be out of patent if an IP violation is inevitable.  Charge premium prices at the beginning of market introduction and then lower the price when the market is flooded with knock offs. Meanwhile, introduce the market quickly with new products to sustain its market leader status..

As a conclusion, it can take another decade for China market to have Intellectual Property regulation well enforced. However this obstacle should not become a barrier for any international business to wait for a safer environment and miss the growth opportunity. Understanding the market risk and taking the appropriate approach to go with the flow and capture the opportunity in a new market can be highly rewarding and profitable.

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Entrepreneurship is Not Just a Dream

In the past several months, I have been working to start up an online business with my husband as our first entrepreneur venture. We always wanted to start our own business and to be our own boss. Based on our passion of photography, we decided to start an on-line rental business for digital camera equipment. From marketing research, competitive analysis, funding planning, product selection to website design, we finally officially launched our website www.cameraconcierge.com on 2/22. We are now taking baby steps to nurture the business and hope it will grow to meet our long term goal.

Now we are the business owners, but nothing came together easily. I went through many anxious and stressful moments, especially when the website design was delayed for more than one and half month. However, the new entrepreneur experience already taught me a lot. I wish to share my experience with anyone who desires to start their own business.

Chase your passion

Many stories of successful entrepreneurship suggest that we should pursue what we are passionate about. That is very true. In the past, I have been tried a few ideas to start my own business, but I stopped pursuing them fair quickly because I did not feel passionate about them. Basically, I feel lazy to put more time in them. However, after I got into art of photography, I feel it is something I will enjoy doing every day. When we are able to turn our passion into business, we will have a better chance to success from our persistence.  And we will enjoy doing it as the same time. I remember a survey saying that about 50% of workforce in the U.S. does not like what they are doing. That is a very sad thing for the society. Those 50% will hardly be innovated, motivated or inspired. Many times, we are facing the pressure of paying the bills and could not think about our passion for life. But once we have a moment to map out what we value most for our life, we can sometimes find a totally different path for our career and be happy at the same time. Chase after your passion, pursue your happiness, and be persistent will be the elements of success.

Forget about business plan

I am not saying not to do business plan. It is very necessary to do market research, to understand your competitors, to know your customers and the market size, and create your own differentiated strategy. There are several a few on-line rental camera and lens rental in the market already, but they all were pretty much the same: rent X lens for X dollars, nothing more. We hope to improve that by becoming the resource not just for equipment, but also for sharing and gathering of photographers. Hence, we started this site with the vision to evolve into a gathering point for people like ourselves, amateur photographers looking to improve our skills. Incorporating social media and an open community-based approach, we are providing concierge service when the customers need us. The formal business plan is used for VC or bank loan. So, I say, forget about the business plan in order to start because it is extreme challenging and time consuming to get VC or loan for a startup. Bill Gates did not get loan when he started Microsoft, instead, he maxed out his credit cards to begin with. When we are sparked by our inspiration and intuition, we do not want to wait for angels landing on our shoulders. During waiting, the opportunity will go away and more competitors will be in the market. Once we are confident with our idea and plan, we should start the business as soon as we can by emptying saving accounts, maxing out credit cards, and borrowing from family and friends. The formal business plan will be the next step when we establish the business and ready to grow, then we will be able to show a successful case to convince loaners.

Utilize Social Media for Marketing

There are way too many articles about social media from many experts, so I don’t need to say more about it. Thanks to social media, it gives small business such a great opportunity to market themselves free! However, because it is free, we need to provide superb content to bring the customers back, again and again. Because it is free, we need to spend a lot of more time to engage the customers, draw their attentions and to build relationship with them. We use Twitter, Facebook, on-line forum and newsletter to meet different prospects or tastes of the customers. Social media is all about engagement. As a new player in the market, we need to get our name out, and at the same time to “pull” the customers, instead of “push”. Frankly, I am still learning how to better utilize social media to engage more customers for their loyalty.

Beside social media, other grass-root marketing approaches, such as meetup and local clubs, can be great choices for many local small businesses. Those get-together events are great opportunities for the business to mingle with the targeted customers and know them personally. Through word of mouth, the name of business will be known by more and more people.

Needless to say, our one-month old business is just a new-born baby and has a long way to go for success or profitability. We keep exploring new ways to market ourselves and to grow. Believe there will be more huddles ahead of us to overcome and more learning to share in the future. Nothing will be easy, but I am glad that we made the first step to realize our entrepreneurship dream. If you have the same dream, go ahead to chase it. 🙂

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Social Media: Listen More and Sell More

There are so many articles and blogs about marketing through social media. I just read one titled Social media: Listen Less and Sell More, by Clay McDaniel. It’s a great article about how companies should use buzz-monitoring tools to find out what people are saying about their brands and what people want, and then give customers the right promotion through social media.

Although Clay meant that companies need to analyze social media data to get social medial promotion right, the title “Listen Less” might be misleading. As a matter of fact, companies need to continue to listen more and then sell more!

I wish my personal experience can be a showcase of why companies need to listen more to Voice of the Customer (VOC) through social media and keep customer loyalty.

My husband and I used to be loyal Amazon.com customers. We bought everything from books to high-end camera equipment for our small business because their price is almost always lowest one in the market. We paid for an Amazon Prime membership so we could enjoy two-day free shipping. We also shop from their vendors through Amazon marketplace so we don’t need to register at other sites. We might not be their biggest customers, but we spend a fairly large amount on their site. We also rarely returned any shoppings, one or two out of our hundreds shoppings, as I can remember. We’re the best customers every company desires. However, our feeling got hurt recently by their ignorance of our voice through twitter.

Recently there have been quite a few incidences of stock-out and long delivery lead-time up to two months with Amazon.com. So, my husband and I both tweet @amazon and asking about the stock-out situation. I understand stock-out happens as a supply chain professional, but I need a response to let me know when I can expect to receive my product, not up to two months! No response. Quiet. So, I tweeted: ”@amazon has fulfillment issue lately even we paid for Prime membership! Too busy with their acquisitions apparently.” Still NO response!

Now, I’m angry. Amazon apparently is not listening to customers now because they are too big and too busy, so they don’t need to care about customers experience although they say so all the time. Thus, we found the same products at B&H Photo and Video at competitive price. We would rather pay for shipping to get the products quickly. My husband sent a tweet: “Just placed 1st order from @bhphoto (since @amazon was out of stock).” We didn’t expect @bhphoto to response, but Henry Posner @bandhphoto saw our tweet and bumped our shipping to UPS 2-day rush! This unexpected surprise definitely made us decide to more business with B&H in the future.

Now, it’s fairly clear how company should use social medial to sell more. They need to constantly listen to what their customers say about their brands and then interact with their customer. Many times, customers just need some little comfort from their response. It’s OK to be out of stock or delay delivery, but they should do something, such as a small coupon for next purchase, to rectify the situation and keep our loyalty.

Service companies already realize the importance of social media and utilize these tools to interact and communicate with their customers in order to provide better customer satisfaction. For example: Marriott hotels were one of the first to use twitter to engage directly with customers through their @MarriottIntl account. My husband, as a Front Office Manager, even monitors the comments about his hotel at property level through @TheFrontDesk on twitter. Many times, I hear stories how customers are happy with their quick responses and small little ways to remedy the damages. Just like us, many customers prefer to express their opinions through the internet even when they’re at the locations, hotels or restaurants. Through monitoring the social media closely and responding to customers complaints will significantly improve customers experience and improve their reputation through “word of mouth”.

Yes, I’m now leaving Amazon.com because our Amazon Prime membership didn’t give us customer satisfaction, especially because they ignore our voice through social media and deeply disappointed our trust of their service. Companies listening to Voice of the Customer and giving more than the customer expected will definitely sell more and win over the market.

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What Garlic Bubble in China tell us about Supply Chain Risk?

They seem to be totally two unrelated incidences.  First, there was a very interesting news story on Dec 5th, 2009 at NPR, What The ‘Garlic Bubble’ Means For China’s Economy. The news discussed a very interesting scenario of “garlic bubble” when “garlic prices in one Chinese province have shot up as much as 40 times the going rate”. China is the biggest producer of garlic so this bubble definitely shakes the food industry.  There were three reasons which caused the bubble:

  1. Due to the collapse of the global economy, there is less demand for garlic, so garlic farmers in China produced 50% less garlic.
  2. Due to the wide spread concern of swine flu, Chinese started to buy loads of garlic to keep them from getting sick.
  3. The Chinese government stimulus plan pumped its banks full of money and made lending very easy.

Therefore, limited supply ran into unforeseen high demand. “Smart” people saw this as a great opportunity thus “the garlic frenzy was turning into some kind of gold rush”. Many people borrowed easy money from banks, and started stocking tons of garlic in the warehouse and waiting for garlic prices to rise. The bubble hence created. Government stimulus plan caused an unintended result. I haven’t read follow-up story how this garlic bubble broke in the end.  I can only imagine how a purchasing agent from food industry jumped out of his/her office chair seeing the garlic price increased dramatically in short time. It’s also funny to think that every restaurant or food company has to reduce the portion of garlic ingredient and probably pray for the “garlic bubble” to burst.

Another story made me think about the impact of “uncertainty” to supply chain and related supply chain risk management. I was discussing supply chain in the horticulture industry with an industry expert. I was told that the demand for next year is almost out of question to forecast and that whole supply chain seasonality almost doesn’t exist. The big box retailers, such as Wal-Mart and Home Depot, keep pushing out their order forecast to growers since they couldn’t decide what to buy for next year from their weak 2009 point of sales (POS) data. This uncertainty put growers at a huge risk as they face the challenge of missing growing season. If I were a grower, I might be forced to hold up my purchasing decision to the very last minute, facing the risks of higher purchasing costs for rush orders or even not able to obtain the materials I need. If I went ahead to make my own “speculated” forecast, I would face an even bigger risk of ordering the wrong products and put the business in total loss.

In the blog of Supply Chain Risk Literature: a complete review, Jan Husdal summarized the typology of supply chain risks. Among them, “uncertainty” is the biggest cause of all risks. Every company is fully exposed to today’s global economy, consequently it’s even more difficult to predict or forecast with high level of “certainty”. Unfortunately, I don’t have a good solution to avoid such risks brought by “uncertainty”. All I can suggest is to realize those risks associated with supply chain, and increase communication with all trade partners. Communicate! Communicate! Communicate! Only doing so will break the organizational silo, minimize the exposure to supply chain risks, enable organizations to act quickly to unexpected incidences, and hence minimize the financial loss caused by supply chain uncertainty.

So, what can a garlic buyer in the food industry do to minimize the loss from this garlic bubble? Fly to China and buy a warehouse of garlic immediately! No, I’m kidding, although it can be one possible option.  First thing the buyer needs to do is to prevent the situation of out of garlic. Not only he/she need constantly communicate with the suppliers about pricing fluctuation, inform factories or restaurant to check current on hand and incoming inventory for allocation, but also need start searching for other supply sources. They might not able to get a lower price in short term, but, hey, our consumers can still have garlic in our tasty food, perhaps several cents more expensive than they used to be, but we don’t feel it.

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MBA, a Variable of CEO’s Poor Performance?

In the podcast episode of Harvard Business IdeaCast, Ranking the World’s Best CEOs, an interesting topic was discussed: Impact of having an MBA to CEOs’ performance. Apparently, because of the way of financial crisis, a lot of critiques have been made of MBA CEOs for destroying value rather than creating it, so the value of having an MBA is questioned.

The research included MBA as one variable into analysis of CEO performance. The data shows having  an MBA giving CEOs a small edge. However, it doesn’t mean MBA education is correlated to CEO’s performance. Because MBA degree has been so incredibly wide spread that it’s common for people seeking a career in business to obtain a MBA. Hence there are more good and bad CEOs in general with MBA degree. The companies in trouble have many CEO with MBA just because there are more MBAs in the market now, and there are also many MBA CEOs delivering good performance.

I have a MBA so this analysis sounds a little bit funny to me. This podcast reminds me of an example from a company I worked for in the past. The company has a great business model with significant market share and growth rate. Nevertheless, the shareholders asked for a higher margin. The business involves a lot of repairing and recycling activities. In order to reduce the operating cost, the former CEO took a radical step to mandate a lower repair rate. In the short term, he achieved a rosy performance of achieving cost reduction. However, the products which were supposed to be repaired were delivered to the customers without proper repairing. It didn’t take too long for customers to notice the products with lower quality and switch to the competitors. As a result, the CEO was let go, but the damage of reputation and market share was difficult to remedy even when the company injected huge amount of money to improve quality. The former CEO has a MBA from a top-ranked program famous for its rigid ethical codes and catholic background. In this case, is his MBA degree a cause for his failure? I don’t think so.

A MBA degree is a great channel to enhance business knowledge and develop management skills through intensive study and team work. There are plenty of curriculums emphasizing the importance of ethics in every MBA program. Unfortunately, MBA degree can’t change the fact that many CEOs or businesses face pressure from shareholders, which sometimes results in unethical behaviors or decisions based on short-term benefits but hurting the business and their shareholders in the long term. Ultimately, with or without a MBA, human mentality and behavior are the critical variables to either create or destroy value.

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When Hi-tech Meets Low-tech

Recently, I’m working on a project to help a Chinese tissue culture company to break into U.S. market. Something totally different from my past supply chain experience,  but it’s quite an exciting experience for me to visit trade shows across the country to learn a new market and its customers.

I’m first of all surprised to see that nursery industry is a little bit “low-tech”  comparing to all those industries I have been worked with. I would think that U.S. has far more advanced in bio tech than China, but I was constantly told in the trade show that “tissue culture is too high tech to us.” Then I realized that many of the target customers, the growers, don’t provide emails in their business cards. I know emailing is my bad habit, but it surprised me that many are quite resistant to new way of communication when I live in the era of smartphone, Twitter and Facebook. Perhaps nursery industry is quite different from others so I need to adjust, or I should not consider those, who resist e-communication or social media, as the target customer because the tissue culture will be too high tech for them. Oh well.I might be too new for this industry to make comment, but I feel the frustration of when hi-tech meets low-tech.

One more thing blows out my mind is when Sales of some companies told me that: I’m Sales, not procurement (so, don’t talk to me). OK, then it’s not right, not only because of their impolite attitude. So, Sales don’t communicate to Procurement regarding using new product or adapting new technology? So, Sales never discusses with Procurement regarding what they’re looking for to be competitive in the market? So, Procurement will make their purchasing decision and Sales will try to sell whatever the Procurement develop? It seems that lacking of communication among “supply” and “demand” can be a huge potential issue for those companies, which indicates that they won’t be an ideal business partner as well.

Technology and communication are two essential components for a business to stay competitive; otherwise, newbies will soon catch up and get the lagged one out of the market.

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From Wii to Zhu Zhu Pets – A Black Friday Phenomenon

Before this Black Friday, I had no idea about Zhu Zhu Pets. Then over night, I learned about its hot sales situation from all Media outlets. A Google News search yields 2249 results as Zhu Zhu Pets have become this seasons’ most desired products and hottest news topic. This situation reminds me of the Nintendo Wii three years ago. Both Wii and Zhu Zhu Pets created such a unique Black Friday phenomenon: a hot product caused a huge buzz during Black Friday sales and “disappeared” from retailers’ shelves due to a supply shortage. Do you remember that Wii was sold at a premium in the black market three years ago? The same thing is happening to Zhu Zhu Pets, which is now being sold for as much as $50 at eBay, five times more than its original price!

There are a few things in common between Nintendo Wii and Zhu Zhu Pets:

1. Both are great products at a low price, creating great value for budget-cautious consumers.  Wii is less than $200 and it is a game console designed for everyone in the family.  Zhu Zhu Pets, the fuzzy robotic toy hamsters, are less than $10 and targeted at children. Both are well designed products with a great pricing strategy, which made them stand out from all other competing products in their respective categories.

2. Both products experienced surprised high demand exceeding the forecast and supply, and hence results in a shortage. From a supply chain point of view, out-of-stock is never a good thing because it means loss of revenue, especially when consumers can easily switch to competitive products. However, for both cases, because the uniqueness of the products, consumers will patiently wait for the products to be back on the shelf.  We can see Wii as a good example. The market size for Wii did not shrink because of the supply shortage. I don’t like to diminish the importance of supply chain, however, it’s far more important to develop a great product to stimulate the market. The challenge for the supply chain here is how quick the products can be replenished from overseas and available for customers again.

3. Both cases might use a clever ploy to make the item more desirable by having a short supply. There were many speculations that Wii used this marketing scheme three years ago to make Wii such a popular product and continue to be one of the top console systems. (Example: Nintendo’s Wii: Privily, Why So Rare Art Thee?). Today the buzz caused by the shortage is behind us. We can see Wii’s piled up at any electronic store this year. I suspect that Zhu Zhu Pets is using the same ploy to make this inexpensive fuzzy toy the most desired product of this Holiday shopping season. The question is whether this cute robotic hamster can be the toy remaining on the shelf for years to prove its value proposition. Wii did it. I finally own a Wii console three years after its first launch. Now, let’s see if I will able to buy a Zhu Zhu Pets for my child after three years.

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My sentimental feeling for Dell

A few weeks after Dell announced the sale of its Tennessee plant to Genco, Dell stated that it will close the facility and cut 900 workers in North Carolina. Dell describes its decision to close the facility as “part of an ongoing initiative to enhance the long-term value it delivers to customers by simplifying operations and improving efficiency.”

As a former Dell employee, this news gave me a little feeling of nostalgia. I joined Dell China as their pioneer staff, with employee ID 49, when Dell just got their feet wet in the Chinese market. I experienced the most glorious time of Dell when their stock was traded more than $100 and split again and again. I witnessed the Dell China factory grew from a leased temporary factory to a campus of new factories with advanced technology.  I even had a hand-shaking photo with Michael Dell when he visited the China plant. Being a young professional out of college without a lot of experience, Dell gave me a great opportunity to learn the management of a western company and opened the door for me to supply chain management.  When I came to the States to pursue a degree in supply chain management, I read so many cases and articles about the innovated manufacturing and supply chain in Dell, and how their “U” shaped manufacture display was one of their core competencies to enable production flexibility for their made-to-order business model.

However, after a decade, the core competency is not core anymore. Dell sold its former world class manufacturing in order to create more value for the customers.  In a Harvard business blog article “Why the U.S. Tech Sector Doesn’t Need Domestic Manufacturing”, David B. Yoffie says

HP has become the world’s leading computer company by focusing on sales, marketing, and distribution of computers made at very low cost in Taiwan and China. In comparison, archrival Dell, which was widely celebrated 10 years ago as one of the world’s best manufacturers, is now saddled with high cost factories and is struggling to compete.

What has been changed in the past decade?

Technology advancements have made personal computers a commodity and changed consumer behavior significantly. In the past, customization and capability of “made-to-order” created huge value to computer users. Customers enjoyed selecting from the different capacity of parts to customize computers meeting their price and usage requirement. At that time, Dell’s flexible manufacturing had a huge advantage over its competitors, and their made-to-order and ship-direct business model were the most innovated and successful supply chain practices.

However, a few years ago, Dell started to sell their products through distributors such as Staples, Best Buy and even Wal-Mart. Their ship-direct strategy slowly started shifting to a traditional made-to-stock distribution channel.  Computers become such a commodity that consumers can pick up any model at different price levels in a store and be happy with the standardized capacity. There is no need for consumers to place customized order online and wait for delivery. So, the flexible manufacturing designed for made-to-order is fading away.

Time changes, consumer behaviors changes, and technology changes. In 2005 Dell was valued at $100 billion, or more than HP and Apple combined. Today, it’s worth $30 billion, less than a third of its rivals’ market values. (Businessweek, Dell’s Extreme Makeover) If Dell wants a makeover to catch up to its rivals in this rapidly changing business environment; if Dell doesn’t want to become an OEM of PC manufacturer; it’s the right move for Dell to get away from its traditional production efficiency and cost cutting modal and focus on marketing, customer service and innovation.

Even I am not using a Dell computer nowadays. However I wish my former employer, who taught me the best supply chain practice and changed my life and career direction, can achieve its makeover goals.

Me and Michael Dell in China, 1998
Me and Michael Dell in China, 1998

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Reduce Supply Chain Carbon Footprint

A green supply chain is like a mystery. The idea always conjures images of a higher cost and investment to the business. However, is that really the case? Will companies need to spend more to be green? How can green initiatives drive financial and social benefits? I hope my short article can answer these questions. In my last article, I discussed the approach to collect data in the supply chain to quantify carbon emissions. Once we can quantify and start measuring the carbon footprint of the company’s supply chain, we can find ways to reduce it and measure their improvement.

Before I start discussing the possible solutions, I would like also to express my opinion for the recent trend of using “green” as a reason to call for nationalization or deglobalization. The trend suggests that manufacturers should be moved back to the U.S. to shorten the supply chain distance thus reducing the carbon footprint. I agree that a short supply chain close to production or the end consumers can be beneficial in some cases, such as the JIT practice. However, according to IEA, International Energy Agency, international shipping accounts for approximately 2.7% of world CO2 emissions, which is small relative to the benefits brought by global trade.  Hence it’s not the reason to prevent globalization and international trade. I’m a strong believer of “competitive advantage”, which is the way to promote global welfare and technological development. “Green” initiatives should focus on innovation and waste reduction, in either technology or process. “Green” shouldn’t be used for a political reason and incur more costs for the whole society. According to the North American Supply Chain Carbon & Sustainability report, moving production closer to home is 12% of all environmental initiatives. Practically, companies will be interested in the green initiatives only when they are able to achieve a lower financial cost and a better customer satisfaction at the same time. That is true that companies can develop products more environmentally friendly and some consumers are willing to pay a premium for the green contents, such as for a Toyota Prius. However, the majority of consumers are not ready to pay more for green, especially for commodities. Hence, to enhance a company’s competitiveness, the approaches to reduce the carbon footprint of the supply chain should also aim to drive cost efficiency and customer satisfaction.

Just like the total cost analysis for supply chain, there are many trade-off decisions to be made in green supply chain optimization, and the goal is to maximize carbon emissions reduction. I’d like to suggest the environmental initiatives from supply chain functions’ point of view, represented in the below matrix.

green initiatives

As we can see, many of those initiatives are day-to-day initiatives and process improvement activities to drive operational efficiency, increase recycling, reduce waste, and enhance communication and visibility in the supply chain. Hence, the outcome of the green initiatives not only improve operational effectiveness of balancing costs and service, but also reduce the carbon footprint from movements, spaces and materials in the supply chain. A “green” KPI or measurement enables companies to associate the positive financial results to the carbon footprint reduction. Once the mystery of “green” is discovered, the cost of green initiatives won’t become an implementation barrier and companies can benefit from quick financial and social return from those initiatives. As a result, the “green” strategy is not just a social responsibility. It becomes the “sustainable” and “desirable” strategy for any company.

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Quantify Your Supply Chain Carbon Footprint

A carbon footprint is “the total set of GHG (greenhouse gas) emissions caused directly and indirectly by an individual, organization, event or product” (UK Carbon Trust 2008). Once the size of a carbon footprint is known, a strategy can be devised to reduce it. Recently there are a lot of discussions around measuring carbon footprint in supply chain. UPS announced that they plan to reduce their carbon emissions by 20%, with an ability to capture and report on the carbon footprint of each package shipped by each customer, based on distance and mode. Wal-Mart announced the “green label” program to label the sustainability index each of products it carries, so “the retailer’s 100,000 suppliers around the world will have to calculate and disclose the total ecological costs of their products” (Daniel Goleman, Wal-Mart Exposes the De-Value Chain). Software companies are catching up to develop programs for supply chain optimization around a lower carbon footprint (Roberto Michel , Supply chain network design: its Green powers not exactly new). With government commitment to reduce global carbon emissions by 50% by the year 2050, businesses are scrambling about the opportunities to reduce carbon emissions.  However, there is also a survey of company executives showing that it is “not the best time for launching big corporate initiatives” to calculate a company’s carbon footprint (Robert J. Bowman, Supply Chain Visibility: Lots of Talk, Little Action).

An end-to-end supply chain is a material flow from suppliers to manufacturers to distributors and ultimately to  consumers in the end.  So it can become a huge task to measure carbon footprint especially when many companies are also struggling with poor supply chain visibility. However, I believe that companies can take some easy steps to start quantifying their supply chain carbon footprint, and at the same time improve their supply chain efficiency and visibility.

From a supply chain management point of view, energy is used during transportation and manufacturing, and thus creates carbon emissions, also called greenhouse gases. The challenge for companies to reduce their carbon footprint is whether they have ability to quantity their current emission levels.

There are three key components in supply chain contributing to carbon emissions:

1. Movement

Any movement in supply chain, from inbound or outbound shipping to transferring products in the warehouse or on the factory floor, consumes energy and directly produces carbon emissions. Energy consumption is different based on different transportation modes, distances and weights. The calculation can be based on gallons of fuel consumed for transportation, and hence the footprint measurement can be calculated at the unit level during transportation.

2. Space

In supply chain, space such as office, factory and warehouse are used to support supply chain activities. However, space consumes energy, such as electricity or heating oil. Excess or unnecessary space caused by supply chain inefficiency, such as excess inventory or poor packaging design, not only increase supply chain costs, but also produces unnecessary carbon emissions.

3. Material

Material will be more difficult to be directly measured than movement and space, especially if the company is responsible for the end-of-life material management of toxics, hazardous materials, and waste. So a good way to capture the carbon footprint caused by different materiasl is to evaluate total energy consumed to process the material including its life cycle production and the end-of-life waste management. For example, a new material might take a longer time and more resources to produce from its raw components to finished goods, but it might require very little energy to process its waste.  Therefore the total size of the carbon footprint for the new material is smaller.

A very good information source to calculate CO2 emissions can be found at https://carbonfund.org/take-action/businesses/business-calculators/

For any company who is interested in taking actions to capture and quantify their carbon footprint, as an easy way to begin with, they can start from collecting data in their end to end supply chain, and convert those data into energy consumption and carbon emissions.  The below matrix represents the data collection plan for a traditional manufacturer through different supply chain phases:Carbon Emissions data collection

Absolutely data collection can be a big task, especially when a large amount of materials and products are involved. But once the database is established, the company can use those energy consumption formulas to quantify their carbon foot print of their supply chain, and thus implement sustainability KPI to measure their global citizenship accountability and environmental sustainability improvements. Once companies start to take action to measure their carbon footprint, they will not only see the reduction of their greenhouse gas emissions, but also the reduction of their supply chain costs, which I will discuss more in a  future article.