The true cost of our journeys

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The true cost of our journeys
It's roughly 1,000 miles from Northern Spain to the UK Midlands by road. That journey has a current commercial cost of around 70p per case for double...

It's roughly 1,000 miles from Northern Spain to the UK Midlands by road. That journey has a current commercial cost of around 70p per case for double stacked pallets of average-sized cases. 'So what?' you may ask. 'It must be fresh produce that can stand the cost.'

Well it isn't. It's a standard, branded, ambient grocery item. The corporation that sells and markets it needed to satisfy demand in the UK and Spain.

The Spanish investment case was stronger than the UK case and the decision was easy. The alternative of two new production lines, one in the UK and one in Spain, was a non-runner as it doubled the capital investment.

But what will happen to that business case when corporations have to account for their impact on the environment? Each return journey from Spain will use 1,200 litres of fuel. The extra cost of putting production capacity into both countries would have been £12m. The lifetime of the production facility is at least 10 years. If you do a net present value (NPV) on the cash flows over those 10 years, the business case for the decision they took is £2.3m positive compared with the dual investment.

But what if that decision had been examined using 'double' bottom line accounting criteria, using normal criteria plus an environmental component? This company took a decision to invest in Spain based on a discounted cash flow benefit over the life of the investment of £2.3m. Over that same period the extra fuel used will be 7,500,000 litres.

The question is how long it will be before new standards of corporate responsibility, to which many major food companies allegedly subscribe, show this decision for the environmental mistake it really is.

All major food corporations have moved to a pan-European focus factory regime over the last 20 years. They have all used the same, short-sighted criteria for investment that ignore the impact on the environment of the extra distances that are explicit in their decisions. But, once the double bottom line becomes the accounting norm, future decisions of this ilk will be as dead as the fly tipping of hazardous chemicals.

Tim Knowles is director, ProActive

http://www.proactive21.com

Related topics: Supply Chain, Services, IT

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