Integrate Total Cost of Ownership with Your LCA to Make Sustainable Choices
Sustainability professionals speak the language of quantifying carbon emissions. Most other business professionals, however, speak the language of currency. Budgets. Market fluctuations. Stock price. Cost of materials or labor.
For most procurement professionals, pricing out goods and services generally means looking at the bottom line cost per unit over time. For example, a restaurant chain looking at cloth versus paper napkins is factoring in the annual cost of purchasing and disposing of paper napkins versus the prorated annual cost of purchasing, laundering, and replacing cloth napkins over their useful life. It’s dollars and cents.
Where natural capital accounting is a way to present the balance sheet of an organization by factoring in environmental impact, total cost of ownership, or TCO, helps firms better integrate sustainability information into the procurement process.
By taking the LCA data and drilling into each stage in the life cycle and calculating an environmental “cost,” a firm can create a TCO framework for a product or service. Or, better yet, can create better procurement guidelines based on optimal TCO variables that balance environmental and financial choices.
A Big Leap
TCO work is not easy. It requires firms to “dive deep into the value chain, and look at factors including manufacturing time, costs of parts, research and development, and environmental sustainability. This includes emissions from suppliers as well as those of consumers using the products and services.”
However, by using TCO purchasing practices firms are finding new business opportunities by meeting the increasing demands of consumers seeking “green” goods and services, decreased overall costs as waste reductions are targeted, and helps firms focus on the long term benefits of spending more up front, for example on energy efficient or renewable energy technology, resulting in a net decrease in operational costs over time.
Just like natural capital accounting, TCO work is difficult, not quite standardized at the level of most carbon emissions calculators, and underutilized. We hope to see more firms take up both practices, further integrating the bottom line dollar with the bottom line for the environment.