What’s driving the move to the green supply chain?

I seem to be writing a lot these days about the green supply chain.

It’s not that I’m a one-note guy. It’s just that in the supply chain, green is where the action is these days.

In the last two months, companies as diverse as LLamasoft, JDA Software, Wal-Mart and IBM have touted their green initiatives and products during interviews. That doesn’t include the list of companies waiting for a callback to tell me what they’re doing.

To some extent, that’s the nature of the supply chain technology business. At the start of the Internet boom, I could’ve made a living just writing about supply chain visibility. That was before we moved on to collaboration and supply chain marketplaces. More recently, RFID was the new kid on the block. Now, it’s green.

While the fervor eventually cooled, in every case there was a real business problem waiting to be solved behind the hype. So, is the green supply chain for real? That’s a question I posed to David Simchi-Levi, an MIT professor and the founder of LogicTools, a supply chain planning company that’s now part of ILOG.

While LogicTools never had the public profile of an i2 or Manugistics during the supply chain planning boom, Simchi-Levi and his team quietly amassed an impressive portfolio of some 250 customers, including industry leaders like Kraft, Ryder, Del Monte, GM and Walgreens, that relied on them for planning and decision support functionality.

Like those other companies, ILOG has thrown its hat into the green supply chain planning ring, with a supply chain network design and modeling application. ILOG’s differentiator: Its tools use comprehensive information on carbon emission data from the World Resource Institute and the U.S. Government to accurately model and report on a company’s carbon footprint by activity. (You can learn more about ILOG’s solution here.)

Given that Simchi-Levi has been around the supply chain planning market for more than a decade, what I really was interested in was what’s driving the interest in green today. Are executives really serious about this? He believes they are.

“Our starting point for this area was one of our customers, Fonterra, a dairy producer in New Zealand,” says Simchi-Levi. “About a year ago, they began telling us they were using our network optimization tool to reduce their carbon footprint.”

As he has talked to Fonterra and other customers, Simchi-Levi says he’s noticed the interest coming from three areas.

First, big retail customers, especially Wal-Mart, are beginning to look for carbon footprint information from their vendors and supply chain partners.

Second, the market is driving it. “There’s no question that $100 a barrel oil is having a huge impact on supply chain costs,” says Simchi-Levi. “If you can reduce your carbon emission levels, you’re going to see a positive business benefit.”

Most important of all, many executives believe that some kind of government regulation is inevitable. “Last year, there were several proposals for creating carbon cap rate policies in the U.S. Senate,” Simchi-Levi says. “At some point, these executives believe the U.S. will implement carbon trade policies like those in Europe.” If that happens, he adds, “these executives want to be part of the decision-making process.”