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This proposal was moved to: Industry 2016

Pitch

Develop free online CSRE to include social responsibility in corp. sourcing/siting decisions to minimize manufacturings environmental impact


Description

Summary

Tens of thousands of MIT alumni and others will be able to help corporations reduce their environmental impact by using the free tools we are developing. The mission of the CSRE is to reduce corporate environmental footprints by enabling companies to quantify the sustainability and profitability impacts of offshoring/reshoring (bringing back to the US) manufacturing. We will do this by building on the success of our Total Cost of Ownership Estimator® (TCOE). As recognized by the U.S. Commerce Department, TCOE assists corporations to more accurately assess the total microeconomic impact of the firm’s offshoring/reshoring decisions. The CSRE extension will quantify the societal or externality impacts, giving corporations a more accurate understanding of their decisions’ impacts on the world environment. We anticipate this will accelerate decisions to reshore manufacturing to the US, thereby promoting environmental sustainability.

A potential for environmental improvement is huge because offshoring has been so massive..According to the Economic Policy Institute, the US trade deficit with China alone, cost 3.2 million US jobs between 2001-2013, primarily in manufacturing. Balancing the goods trade deficit would shift to the cleaner US production equal to about 30% of current US production.

Many studies conclude that production shifted offshore is negatively impacting the environment. A recent study, “Targeted opportunities to address the climate–trade dilemma in China” by Harvard’s Dr. Zhu Liu et al, concludes “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.” CSRE will improve manufacturing’s worldwide environmental impact through better-informed sourcing decisions.


What actions do you propose?

The combination of TCOE and CSRE will help companies see that they can be socially responsible at the national and world level without impacting profitability.

The large majority of manufacturing CEOs are concerned about good corporate citizenship. According to a PwC CEO Survey, 87% of industrial manufacturing CEOs say it is important for their company to measure and try to reduce their environmental footprint. However, a study by Loyola University’s Supply and Value Chain Center, et al, found that “North American supply chain executives consider sustainability a strategic priority but lack of funding and resources hamper efforts.” TCOE and CSRE together help to overcome that issue.

TCOE and CSRE will enable optimization of the triple bottom line concept, which considers the three main areas of a firm’s sustainability: social, environmental and economic. Often referred to as the 3Ps, people, planet and profit, the triple bottom line states that firms can achieve positive outcomes for the environment, society and their own financial performance.

In combination with TCOE, CSRE will enable companies to identify the products whose reshoring will provide major economic and environmental benefits while maximizing shareholder returns. We anticipate that such understanding will accelerate corporations’ decisions to reshore more manufacturing to the United States, thereby promoting environmental sustainability and national economic stability.

TCOE helps companies estimate thirty “hidden costs” that are typically ignored when companies make sourcing and siting decisions.  Some of these costs include the obvious, such as duty and freight, but also: carrying cost of inventory, travel cost, IP risk, opportunity cost from stocking out due to long lead times, the impact on innovation when engineering and manufacturing are separated, etc. CSRE will present the best solution to quantify the societal impacts of corporate sourcing decisions, quantifying environmental impact at both the companies’ own factories and at suppliers and contract manufacturers worldwide. The combination of TCOE and CSRE helps companies see that they can, in many cases, take meaningful social responsibility at the national and world level without impacting profitability.

The CSRE will be an extension of our TCOE, located on the ReshoreNow.org website, and will remain available to all users free of charge.

The CSRE will estimate the relative environmental impact of companies’ individual offshoring or reshoring decisions, initially for China and the U.S.  We will start with China because it represents about 20% of U.S. imports, more than 50% of the U.S. goods trade deficit, 60% of the reshoring that has occurred since 2010 and a stark contrast in environmental impact/unit of production.  After successful launch of the CSRE for U.S. and China we will extend to other relevant trading partners, including those that have lower environmental impact than does U.S. industry.

China’s relative environmental impact will be reduced by two forces. First, their output will grow less rapidly. Less Chinese output, less world pollution. The slower growth will give them more time to implement environmentally sound solutions.  Second, as they see that U.S. companies are choosing to reshore production partially due to environmental concerns, China will place a higher priority on accelerating the solutions.  In effect, China will shift some of its industrial production to solving its environmental problems instead of exporting.

China is unwilling or unable to rapidly reduce the environmental impact of its electricity and industrial production.  By shifting production from China to the target market, the U.S., companies will reduce the environmental impact of electricity generation, industrial production and goods transport.

To quote the International Institute for Sustainable Development, “Complex issues demand that multiple perspective be brought together to collaborate on strategies and actions to achieve sustainability and resilience.”


Who will take these actions?

The Reshoring Initiative is in a unique position to provide this method as demonstrated by the success we have achieved for domestic manufacturing with our TCO Estimator.

The Reshoring Initiative looks forward to continuing to educate companies through the more sophisticated cost model of TCOE on the benefits and profitability of localization (producing near the consumer), and to extend our efforts using the CSRE. Through the introduction of the CSRE, we intend to advise corporations of the planetary benefits of dramatically reducing global freight, CO2 levels and achieving higher environmental standards sooner through localization and domestic sourcing.

We intend to promote and encourage our sponsors, advocates, the government and industry affiliates to recommend and facilitate the use of CSRE.


Where will these actions be taken?

CSRE will be developed by the Reshoring Initiative and located on the ReshoreNow.org website. We anticipate CSRE largely being used by U.S. companies and their global suppliers with a worldwide impact on climate change.

Even green-thinking companies struggle to understand the impacts of their supply chain. Dexter Galvin Head of CDP’s supply chain program commented on a recent study; "Essentially a lot of big purchasing organizations around the world have effectively outsourced their emissions to their supply chains. We think one of the solutions is to get more and more companies to start measuring, managing and disclosing their carbon emissions."

We anticipate companies in other countries using CSRE as they now use TCOE.

The CSRE will remain available to all users free of charge.


How will these actions have a high impact in addressing climate change?

The planet will benefit from more production occurring in the 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.  For example, China could shift some output from exports to the U.S. to more environmentally friendly electricity production capability.

CSRE will present the best solution to quantify the societal impacts of corporate sourcing decisions. The result of using TCOE with CSRE will be better decisions for the country, the world and the company. 


What are other key benefits?

CSRE will be used by corporations to better understand the externalities impacts of their offshoring and reshoring decisions while providing a standard measure for companies to quantify the societal impacts of those decisions including the impact on:

The planet due to differentials in pollution from:

  1. Manufacturing processes
  2. Power generation
  3. Freight transport and travel
  4. Inventory warehousing
  5. Product obsolescence

 

CSRE will provide:

  1. Companies a tool to include these externalities in their sourcing decisions and to be recognized for their positive actions. 
  2. Provide advocates a tool to educate concerned constituencies on how to advance an environmentally sustainable economy by engaging and monitoring companies’ in their sourcing decisions.
  3. In combination with TCOE, enable companies to identify the products whose reshoring will provide major environmental benefits while maximizing shareholder returns.


What are the proposal’s costs?

Develop economic impact algorithms                $17,000

Develop environmental impact algorithms        $17,000

Test on real cases                                                 $23,000

Promotion                                                               $  9,250

Management                                                           $13,000

TOTAL:                                                                    $79,250


Time line

Month 1: Identify all relevant input factors.

Month 2: Determine how the inputs, e.g. weight of product, drive the outputs, e.g. carbon footprint.  Much of the data is available from published sources or contacts with academia, think tanks and government offices.

Month 2: Start with China since it has represented about 50% of our goods trade deficit and 60% of reshoring since 2010.

Months 3-7: Spreadsheet in Excel the relationships

Months 8-9: Test on real cases

Month 10: Program onto our website probably in Cold Fusion language.

Month 11: Test the result

Month 12: Launch as a free online tool as is the TCOE.

Month 12: Promote through national and industry media and via industry and CSR events and organizations.

CSRE will only need periodic updates on the spreadsheet formula coefficients. We expect CSRE to be effectively advancing an environmentally sustainable economy by engaging and monitoring companies’ in their sourcing decisions for the long term.


Related proposals


References

1.     Triple Bottom Line

2.     PwC CEO Survey

3.     Should we focus more on reducing imports or increasing exports

4.     Targeted opportunities to address the climate-trade dilemma in China

5.     Sustainability Reporting As a Tool for Better Risk Management

6.     Loyola University Chicago Study

7.     International Institute for Sustainable Development

8.     What is Reshoring