Demand management: a win-win for cost and carbon reduction

How do you take care of profit and the planet at a time when cost control is critical? What role can demand management play in achieving your environmental and economic goals?

The urgency of the global climate crisis can no longer be ignored. Businesses face unprecedented pressure to increase environmental sustainability and decarbonise the value chain.  Customers, employees, shareholders and governments alike are all holding businesses to account on climate action.

Sustainable business advantage

Tougher regulation and growing expectations call for positive change, but in challenging economic times, how can organisations afford to deliver on their sustainability objectives?

The savviest businesses are linking cost and carbon reduction to achieve compliance, avoid carbon taxes, build their green brand reputation and gain competitive advantage.

How demand management can help

One of the methodologies used by sustainable business leaders is demand management, which is about optimising business spend to fulfil business objectives in the most efficient and effective way possible.  It involves re-engineering business requirements to eliminate waste from non-value-adding spend, while incorporating potential unexploited efficiencies.

Traditionally, demand management is a tool most focused towards cost reduction, but we are now seeing an expanded focus on sustainability. This reflects a growing environmental commitment and recognition of the potential cost advantage of doing business in a more environmentally friendly way.

Re-engineering business requirements can make spend far more efficient, meaning that supply or consumption is reduced. Invariably, this helps to reduce carbon emissions from the value chain.

Demand management in action

A classic example of demand management is energy efficiency. Amid the current energy cost crisis, many organisations are pursuing advanced measures to monitor and reduce consumption across their entire estate – right down to the process and equipment level. They’re also optimising energy usage for peak cost avoidance to run energy-intensive operations when utility costs are lowest.

Another obvious focus area for demand management is packaging. For example, Heinz UK has recently launched a new recyclable paperboard multipack from WestRock for their tins, which uses 50% less paperboard and 10% less material than the traditional sleeve design. This alone is eliminating approximately 550 tonnes of plastic packaging from the supply chain.

Similarly, organisations are re-engineering their manufacturing processes, with Starbucks aiming to halve water usage in its coffee processing by 2030.

Race to net zero

More than 130 countries have set net-zero targets, covering around 83% of global emissions, with Sweden and Germany among those setting a legally binding target by 2045 and France, Spain, Canada and UK committing to 2050 net zero delivery.

Organisations will face increasing pressure from these governments to pursue a net zero pathway across all of scope 1, 2 and 3 carbon emissions (i.e. emissions caused by the organisation both directly and indirectly, as well as by other parties in the organisation’s end-to-end value chain).

Some private organisations, in a bid to make a greater difference and achieve a competitive advantage among changing customer priorities, have committed to more aggressive net zero targets, such as Unilever by 2039, and PepsiCo by 2040.

Tackling value chain waste

There’s a powerful business move towards a circular economy model to minimise both consumption and post-consumption waste and decarbonise the entire value chain. Notable examples of this can be seen in the consumer goods and fashion sector, where the Ellen MacArthur Foundation is spearheading a drive to re-engineer business requirements – encouraging the use of recycled materials, upcycling, and design for recycling. There is also a sector shift towards renting rather than purchasing clothing, via disruptors such as Hirestreet. Another example is the growth of refillable, particularly in household products such as handwash.

How to balance your environmental and economic ambitions

More and more businesses (and procurement teams in particular) are now expected to provide the solution to two potentially conflicting objectives: to (i) improve sustainability performance; whilst at the same time (ii) achieving cost reduction.

Our 4C demand optimisation programme focuses on 6 key demand drivers. In this way, we’re helping clients to reduce consumption and deliver cost and carbon advantage. Speak to us today to see how we can help.

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