Optimizing Eco-Efficiency Across the Procurement Portfolio

Abstract

Manufacturing organizations’ environmental impacts are often attributable to processes in the firm’s upstream supply chain. Environmentally preferable procurement (EPP) and the establishment of environmental purchasing criteria can potentially reduce these indirect impacts. Life-cycle assessment (LCA) can help identify the purchasing criteria that are most effective in reducing environmental impacts. However, the high costs of LCA and the problems associated with the comparability of results have limited efforts to integrate procurement performance with quantitative organizational environmental performance targets. Moreover, environmental purchasing criteria, when implemented, are often established on a product-by-product basis without consideration of other products in the procurement portfolio. We develop an approach that utilizes streamlined LCA methods, together with linear programming, to determine optimal portfolios of product impact-reduction opportunities under budget constraints. The approach is illustrated through a simulated breakfast cereal manufacturing firm procuring grain, containerboard boxes, plastic packaging, electricity, and industrial cleaning solutions. Results suggest that extending EPP decisions and resources to the portfolio level, recently made feasible through the methods illustrated herein, can provide substantially greater CO₂e and water-depletion reductions per dollar spend than a product-by-product approach, creating opportunities for procurement organizations to participate in firm-wide environmental impact reduction targets