White-van man could be in for an eco-makeover. So Nissan hopes at least. Later this year, the Japanese automaker is due to launch a battery-powered compact van that boasts zero emissions. All is looking good: beverage giant Coca-Cola is following on the heels of logistics firm FedEx in giving the eco-friendly van a test run.
But will Nissan’s e-NV200 be whizzing silently around our streets soon? If its environmental credentials are anything to go by, it certainly should be. Yet there’s a sticking point: it’s not going to be cheap for any company looking to add one to its fleet.
Like so many new technologies, electric vehicles come with a price premium. High upfront costs are difficult to avoid given the size of research and development expenditure and the initial lack of efficiencies of scale.
Faced with a tough economic climate, most companies adopt a wait-and-see approach before investing in new technologies. That’s understandable, but that doesn’t make it right, argues Helena Alder, head of knowledge and product development at the Chartered Institute of Purchasing and Supply.
“It’s often seen as very costly to invest in these technologies, but you actually need to look at the total cost of the supply chain and see how it will improve.”
She cites the example of laptops. Going by the price tag alone misses hidden costs. Supposedly cheaper versions may well require more electricity to run, need more money for maintenance and have to be replaced sooner. Extrapolate that over five years with a purchase order of 15,000 laptops, and suddenly the maths – or “whole-life cost”, as management folk call it – becomes business critical.
The business case for investing in more cutting-edge technologies goes wider than mere numbers. As electric vehicles illustrate, such technologies often deliver better products with greater efficiency and with lower environmental impacts. That helps companies meet their sustainability goals, which in turn delivers long-term business competitiveness as well as reputation benefits.
But if the benefits are so clear, why do so many companies still fail to sign off on purchase orders for sustainable technologies? For Richard Miller, head of sustainability at the Technology Strategy Board, the answer is twofold.
Firms’ capital budgets and operational budgets are often misaligned, he notes. That allows short-term gains to win out over longer-term consequences – especially when those consequences aren’t the responsibility of the person signing the cheque.
The second big obstacle is the science of whole-life costing. “It’s actually technically quite difficult to do”, he admits, pointing out the current absence of agreed standards.
Alis Sindberg Hemmingsen, a supply chain expert at advisory firm Responsible Procurement Excellence, adds two more sticking points. Both relate to awareness. Few procurement managers are clued up on environmental issues, she maintains. Nor are many familiar with the sustainability profile of their supply chain. As she observes: “In procurement, facts are gold”.
A comprehensive sustainability audit can go a long way to filling these knowledge gaps. Engineering and consultancy firm Arup did just this. Using CIPS’ Sustainable Procurement Review framework, the firm’s UK business identified areas apt for technological innovation. It has achieved energy savings of 7% as a result.
That not only improves the company’s environmental footprint, but it puts it in a good position to win new business too. “Our clients are increasingly expecting us to ‘walk the talk’”, says Arup’s sustainability director, Ian Rogers, who notes that sustainability metrics are now commonplace in bid requirements.
With a longer-term mindset and leadership commitment, the business case for progressive procurement can grow pretty tight. One final barrier exists, however: much as you might want to buy a new technology, sometimes it simply doesn’t exist.
That was the scenario facing three of the UK’s largest housebuilders – Stewart Milne Group, Barratt Developments and Crest Nicholson – when they wanted to construct ultra low-carbon homes. As Miller puts it: “They’re used to going out and saying, ‘we need a quarter of a million windows at this specification, what’s your best price?’, but they can’t do that because they don’t know what they’re asking for because they don’t know what these new homes will look like.”
Their answer was to collaborate. Through a combination of workshops, meetings, modelling exercises and general joint brainstorming sessions, the firms instigated a process of “co-invention” between the housebuilders and their supply base.
For Miller, it’s a classic example of “smart companies” tapping the full value of their suppliers. “Sustainability [means] thinking about delivering new products in new ways, which requires them to be more open in the innovation process,” he states. “It becomes a procurement of innovation exercise as well as a procurement of materials exercise.”
Echoing that message is Adam Elman, head of delivery for Plan A, Marks & Spencer’s ethical business initiative. The UK retailer operates an innovation fund that enables it to invest in risky, yet high potential ideas.
One such idea from a supplier was to power forklift trucks with hydrogen fuel cells. M&S ran with it and is reaping both financial and environmental benefits as a result. “We very much encourage our suppliers to come forward with new innovations, no matter how whacky and wild they are,” says Elman.
To this end, M&S runs a supplier exchange programme that invites its supply base to exchange ideas and best practices via a dedicated website, as well as at workshops and an annual Europe-wide meeting.
Ultimately, progressive procurement is a two-way process, he concludes. “We don’t have all the answers so we need our suppliers to come forward as well … Innovation is absolutely key in terms of making big step changes. So we’ll work with as many people and groups who can help us along that way.”
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