Overlaying that challenge is the fact that a growing number of companies are looking to profit from the sale of more environmentally friendly products themselves. GE, for example, has established some aggressive goals and received many plaudits for reducing its own carbon emissions – but also expects to sell more than $14 billion worth of products in 2007 under its “ecomagination” umbrella, ranging from hybrid train engines to gas turbines. GE CEO Jeffrey Immelt has been lobbying some of its best customers – utility plants – to abandon less clean technologies for ones that reduce carbon emissions – at higher cost, it appears, to the utilities.
The Wall Street Journal last week reported that some customers are telling Immelt to get off the bandwagon and “Just shut up and sell us stuff.”
It appears that what is likely to result is a series of dances – suppliers offering green solutions, positioned as being good for the environment, but also good for the selling company’s bottom line. These new products will almost by definition be earlier in their product and margin lifecycles, and in many cases require a premium price.
In this new situation, it will be absolutely critical for companies to fully understand this “green premium” – and recognize that extra cost may not be in the direct purchase price of the product. For example, a green component or raw material may be priced at the same price as the traditional product, but add manufacturing costs in how it is handled or processed.
One thing that is clear is that individual companies, and procurement and supply chain professionals as a whole, need to quickly develop new frameworks to guide decision-making in the sustainability era, and how to fully understand all the costs for environmentally friendly alternatives.
Do we have good frameworks for understanding how to decide between sustainability and the bottom line? Is there simply ample enough opportunity in the short to mid-term to find initiatives that are green and bottom-line friendly? Let us know your thoughts at the Feedback button below.
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