The carbon-adjusted supply chain

Global warming and the supply chain

At the Emerging Technologies Conference at MIT in September, CEO Jeff Bezos gave a keynote talk on the slew of new and innovative Web services his company has recently launched. His discussion of MTurk, S3, and EC2 held no surprises for me, or for readers of this column and of my blog. But one of the questions posed by an attendee, in the Q&A period following Bezos' talk, was a stunner.

Does Amazon know enough about its supply chain, this fellow asked, to assign a value to the atmospheric carbon attributable to the manufacturing and shipping of its products? Bezos thought that the answer was no, but he was clearly intrigued by the question. So am I.

Consider global warming. We are finally emerging from a long phase of denial and moving into the next phase: ineffectual hand-wringing. In a top news story I read today, for example, United Nations Secretary General Kofi Annan decries the "frightening lack of leadership" on this issue. Perhaps the UN will issue a follow-on report condemning that lack of leadership in the strongest possible terms. Do you think that'll move the needle? Me neither.

Imagine, though, a future version of where the price for each product is reported in two different ways: as dollars (P1), and also as carbon-adjusted dollars (P2). Now consider a pair of competing products, A and B, under two different scenarios.

In one scenario, A's P2 is lower than B's, but A's P1 is higher than B's. Some people will be willing to pay the higher P1 (more dollars) to reward A's lower P2 (less environmental impact), but most won't.

In the other scenario, however, A's P2 is still lower than B's, but its P1 is about the same. In other words, there's no penalty to the buyer for rewarding A's lower environmental impact. If the P2 data is available, it's a rational choice.

Economists have a wonderful euphemism for environmental impacts. They call them "externalities," and we can blithely ignore them until Rhode Island-size chunks of Antarctic sea ice start to vanish. Then we start to realize that, in a closed ecosystem, there are no externalities.

In order for Amazon to be able to measure and report its externalities, of course, Amazon's suppliers would themselves have to be able to measure and report theirs. That would be a major challenge, to be sure. But it's exactly the kind of challenge that SOA-enabled supply chain optimization prepares us to tackle.

Governments could someday require the Amazons and Wal-Marts of the world to adopt this regime. But enlightened self-interest would be the better motivator, and we can already see its effect. For example, companies are finding it in their own best interest to take the environmental lead voluntarily, if for no other short-term benefit than excellent PR.

Back in June I wrote about Site Controls, an innovative company that's enabling retail franchises to be smarter consumers of electric power. In my podcast interview with Site Controls' CEO Mike Frost, he told me that when Petco dims its lights and throttles back its air conditioning in order to shed load during a rolling brownout, customers don't complain. Instead, they're impressed that Petco is using its IT chops adroitly to become part of the solution rather than part of the problem. Retailers that could report carbon-adjusted prices would be much more impressive.

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