A Tool to Estimate and Optimize Global Supply Chain Environmental Impact by Reshoring Initiative
Minimize manufacturing’s world environmental impact via software that quantifies environmental impact of corporate sourcing/siting decisions
Offshoring (producing offshore to sell in the U.S) has impacted the U.S. economy and the environment. Jobs offshored have weakened the domestic economy and negatively impacted the environment through higher carbon emissions and other pollution from some developing countries and from long distance transport.
The mission of the CSR Estimator (CSRE) is twofold: to improve the sustainability of the U.S. economy and to reduce world corporate carbon footprints by providing companies with a tool to quantify both the sustainability and profitability impacts of offshoring or reshoring (bringing back to the U.S.) manufacturing. We will build on the success of our Total Cost of Ownership Estimator® (TCOE), which assists corporations to more accurately assess the total microeconomic impact of the firm’s offshoring/reshoring decisions.
The CSRE extension will expand on TCOE by giving corporations a more accurate understanding of their decisions’ externality impacts. A Harvard study concludes that, “International trade has become the fastest growing driver of global carbon emissions, with large quantities of emissions embodied in exports from emerging economies. If carbon-intensive manufacturing in emerging countries such as China entails drastically more CO2 emissions than making the same product elsewhere, then trade increases global CO2 emissions.” A PwC survey shows 87% of manufacturing CEOs say it is important for their company to measure and reduce their environmental footprint. The broad range of industries doing reshoring is shown on pages 5 and 6 at this site. Although Chinese wages are still 80% below U.S. levels and prices are about 20% below, the TCO balance is now close in many cases. TCOE user data shows that about 25% of what is offshore would come back if companies used TCO instead of price for sourcing decisions. We anticipate that the CSRE extension will motivate companies to pursue this 25% and consider reshoring additional products for which the TCO is close.
What actions do you propose?
1. Extend TCOE to include a CSRE that will be used by corporations to better understand the externalities impacts of their offshoring and reshoring decisions.
2. Provide a standard measure for companies to quantify the societal impacts of those decisions including the impact on:
- The domestic economy and national economic stability due to more jobs, more individual and corporate taxes paid and less stimulus program, unemployment compensation and other safety net expenditures.
- The planet due to differentials in pollution from:
-- Manufacturing processes
-- Power generation
-- Freight transport and travel
-- Increased inventory warehousing
-- Increased volume of products obsoleted and scrapped
3. Provide advocates a tool to educate concerned constituencies on how to advance an economically and environmentally sustainable economy by engaging and monitoring companies’ in their sourcing decisions and recognizing companies for their successes.
4. In combination with TCOE, enable companies to identify the products whose reshoring will provide major economic and environmental benefits while maximizing shareholder returns.
TCOE is used to demonstrate that the company’s total cost of ownership of producing or sourcing domestically is often more economical than chasing the “cheaper” option of offshoring. There are approximately thirty inputs for each analysis. From these inputs, TCOE estimates the company’s total cost of ownership for domestic production vs. offshore production.
The entire economic logic of reshoring is built around the corporate savings and environmental and societal benefit achieved by producing or sourcing local to the market where the products will be sold. For products that will be sold outside N. America, e.g. in Asia, TCOE and CSRE analysis will typically suggest that the products be made in the destination markets. TCOE and CSRE help companies quantify the internal and external benefits of localization.
CSRE will use the inputs to TCOE and additional data points, e.g. the $ value of work incrementally outsourced domestically and national data on taxes and safety net programs to produce an estimate of the societal economic impact when manufacturing jobs are offshored or reshored.
CSRE will use the inputs to TCOE (e.g. weight, quantity and shipping mode) plus data such as the following:
· The material mix of the product, e.g. steel, aluminum, plastic
· The per unit environmental impact of electricity and industrial production in each country
· Environmental impact of local and ocean transport, ports, warehousing, etc. in and between each country.
As noted in a CDP report, “Supply chains are responsible for up to four times the greenhouse gas emissions of a company’s direct operations and yet half of major companies’ key suppliers don’t provide requested climate data to their corporate customers, according to a study produced by CDP (formerly Carbon Disclosure Project) and written in partnership with BSR.” CSRE will help companies estimate the unreported supply chain emissions.
We are importing pollution with “cheap” goods. According to the World Bank, “The external costs of carbon emissions [are] costs that the public pays for in other ways, such as damage to crops and health care costs from heat waves and droughts or to property from flooding and sea level rise.” CSRE will help the companies quantify their environmental impact. TCOE will help them see they can often profitably minimize the impact.
In an MIT Sloan Management Review article, entitled “Sustainability Reporting As a Tool for Better Risk Management”, the author, Michael Meehan, CEO of the Global Reporting Initiative, sums up the critical importance for corporations to identify risks related to important issues such as human rights, the environment and other social issues. “Organizations know — and Apple especially knows — that the information around their supply chain, for example, or human rights will come up and affect company value. Maybe it’s not reflected in share price today, but it will be in the future.”
CSRE will use the inputs to TCOE plus known data on the comparative environmental impact of transport and industrial activities in and between each country. We will begin by identifying parameters and formulas to show these impacts.
More Detailed Plan
1. Identify all relevant input factors.
2. Determine how the inputs, e.g. product weight, materials and product energy efficiency, drive the outputs, e.g. carbon footprint. Might also include the impact of recovering more of our scrap here instead of shipping it to other countries to be recovered before being shipped back as products. Much of the data is available from published sources or contacts with academia, think tanks and government offices.
3. Start with China since it has represented about 50% of our goods trade deficit and 60% of reshoring since 2010.
4. Spreadsheet in Excel the relationships
5. Test on real cases
6. Program onto our website probably in Cold Fusion language.
7. Test the result
8. Launch as a free online tool as is the TCOE.
9. Promote thru national and industry media and via industry and CSR events and organizations.
Who will take these actions?
Harry Moser, Founder/President
Jo Moser, Accounting
Millar Kelley, Research Analyst
Sandy D’Amico, Consultant - Marketing/Promotion
Specialist consultants, as needed.
Where will these actions be taken?
The actions will be coordinated from the Reshoring Initiative headquarters in Kildeer, IL. The scope of the project is national, with environmental benefits reaching globally.
How much will emissions be reduced or sequestered vs. business as usual levels?
A very rough estimate is that by eliminating the U.S. goods trade deficit just with China the world environmental load will be reduced by about 15% of the entire current environmental load of U.S. manufacturing and its electricity and transport suppliers. This estimate is based on: the 2015 goods trade deficit of $367 billion with China; U.S. manufacturing output of $1.7 trillion; Chinese products being on average 20% less expensive than U.S.; and Chinese environmental load being 50% higher per unit of product. CSRE and TCOE, alone, will not close the entire trade deficit. However, we believe these tools are the most cost effective way to reduce the trade deficit.
What are other key benefits?
The beneficiaries will be American society, especially the middle class and the domestic economy. Accelerated reshoring will promote national economic stability by adding more jobs, increasing individual/corporate taxes paid and decreasing the need for government expenditures. The strengthened economy will reduce the budget deficit, making expenditures for environmental projects more feasible.
CSRE will benefit companies. First, by motivating them to apply TCOE thus understanding that reshoring will, in some cases, increase profitability. Second, by achieving public recognition for their socially responsible actions. Third, by strengthening the domestic market which is generally their largest market.
The planet will benefit from more production occurring in more environmentally responsible locations, and by a dramatic reduction in global freight. Furthermore, the less environmentally responsible locations will have added incentive to achieve higher environmental standards sooner.
What are the proposal’s costs?
Develop economic impact algorithm $17,000
Develop environmental impact algorithm $17,000
Test on real cases $23,000
Promotion $ 9,250
CSRE can be developed in one year. We will then promote via presentations, articles and press releases. We would seek to promote the success of reference users. We have had over 1,500 users of TCOE in the 5 years since it was launched. We are targeting higher rates of adoption for CSRE due to the low cost appeal to social responsibility.
1. Targeted opportunities to address the climate-trade dilemma in China: http://scholar.harvard.edu/files/zhu/files/nclimate2800.pdf?m=1444018848
2. PwC CEO Survey:http://www.pwc.com/gx/en/ceo-survey/2014/assets/17th-ceo-survey-sector-key-findings-industrial-manufacturing-final.pdf
3. Reshoring Initiative, Reshoring Initiative Data Report – Reshoring and FDI Continued to Boost U.S. Manufacturing in 2015, 2016, http://reshorenow.org/content/pdf/2015_Data_Summary.pdf
4. CDP, Supply Chain Report, From Agreement to Action – Mobilizing suppliers toward a climate resilient world, 2015-2016, https://www.cdp.net/CDPResults/CDP-Supply-Chain-Report-2016.pdf
5. CDP, Global Supply Chain Report, 2016, https://www.cdp.net/en-US/Pages/events/2016/supply-chain/Global-Supply-Chain-Report-2016.aspx
6. The World Bank, What is Carbon Pricing?, 2016, http://www.worldbank.org/en/programs/pricing-carbon
7. Michael Meehan, Global Reporting Initiative, Sustainability Reporting As a Tool for Better Risk Management, (MIT Management Review, 2015), http://sloanreview.mit.edu/article/sustainability-reporting-as-a-tool-for-better-risk-management/
8. Should we focus more on reducing imports or increasing exports:http://www.reshorenow.org/blog/should-we-focus-more-on-reducing-imports-or-increasing-exports
9. International Institute for Sustainable Development: https://www.iisd.org/foresightgroup/scenario.aspx
10. What is Reshoring:http://www.reshorenow.org/what-is-reshoring