Case Study: SMALL POTATOES, BIG COST

How One CPG Company Saved by Eliminating Added Expense

CONSIDER THE SIMPLE POTATO.

 

Dug from the garden, carried to the kitchen, washed in the sink, and baked in the oven, this humble homegrown tuber crop still leaves a carbon footprint.

 

Now magnify this footprint about a billion times for potatoes needed for processed foods like potato chips and dehydrated mashed potatoes.

 

A major food processing company wanted to examine just that. It calculated the cost generated by its potato supply chain, in both dollars and carbon. It made a startling discovery: Since potatoes are sold by weight, farmers often used energy-intensive humidifiers to increase the water content in their potatoes, which required the processing company to use even more energy to fry the water out of them. By eliminating these practices, the company saved nearly $3 million and reduced its supply chain emissions by eight percent.

 

And though the principal objective of most chains was to lower costs, many of the managers were unable to quantify the real savings generated.

 

Indeed, almost three-quarters of respondents said that reducing costs was the main reason for sourcing globally, yet one-fourth of the companies did not know what their savings were, and half could not measure the hidden costs caused by monitoring suppliers, and complying with social and environmental standards.

 

Significantly, only one-third of the managers said that their compensation programs required meeting goals related to corporate social responsibility.

 

Clearly, despite the high cost of failure, most companies have not fully linked supply chain integrity to overall corporate strategy.

Indeed, every step in the supply chain—from moving raw materials to creating and packaging the product and delivering it to the customer—has a cost in both money and carbon emissions, and both can be measured.

 

Companies are increasingly examining their supply chains in this way. Some are motivated by new regulations, others believe they can gain a competitive advantage by going green, and still others are simply looking to save money.

 

All these reasons are valid, and all can produce results. Analyzing a supply chain to measure its costs and carbon is not a simple process, but it can be done.

 

And many companies stepping up to the challenge will find it’s possible to be lean and green at the same time.

 

IDENTIFYING RISK INDICATORS

How can leading risk indicators be spotted? Examples of such indicators range from sudden management changes at the supplier to process instability.

For some companies, leading indicators have also surfaced new opportunities, as exemplified by Wal-Mart’s use of its massive supply chain for coordinating disaster relief in New Orleans after Hurricane Katrina.

Carefully tracking the movement of the storm, the company was ready with 45 trucks full of critical supplies at its distribution center in Brookhaven, Mississippi. It set up mini-stores throughout the area, secured access to gas stations to keep employees on the move, and worked with the police to deliver ice and water to the city.