On January 18, 2007, Sir Terry Leahy addressed a concerned audience in central London. Leahy is the CEO of Tesco, Great Britain’s largest supermarket chain and, at over $90 billion in annual revenue, the fourth-largest retailer in the world. But his immediate concern was not corporate revenue or competition. It was, he said, global climate change.

“I am not a scientist,” Leahy announced. “But I listen when the scientists say that, if we fail to mitigate climate change, the environmental, social and economic consequences will be stark and severe. This has profound implications for all of us, for our children, and for our children’s children. For each one of us this poses a challenge. What role are we to play? Passive or active? Follower or leader? There comes a moment when it is clear what you must do. I am determined that Tesco should be a leader.”

Effective immediately, Tesco began a search for a “universally accepted and commonly understood measure”-the carbon footprint-for its bulging store shelves. Their commitment: examination of each item’s complete lifecycle from production through distribution to consumption, followed by appropriate labeling. Someday soon, Leahy promised, customers would compare environmental impact as easily as price or nutrition, and trials this year have included 20 common items from potato chips to orange juice.

Now manufacturers around the world have to ask themselves: Am I next?

“Call it regulatory pressure or change of heart-green is in,” says Monika Raj, a spokesperson at ILOG, an international supply chain consultancy and software provider. “The motivation may differ, but the bottom line is that companies are increasingly becoming committed to having a greener footprint.” Given as much as 75 percent of a firm’s carbon emissions come from transportation and logistics, ILOG now offers a carbon footprint extension to its existing logistics design and planning software, Raj says. Key considerations include carbon emissions by fuel type, average fuel efficiency by mode of transportation, and carbon-freight factors for waterborne and rail transport. For each transportation mode, one applies fuel efficiency-e.g., miles per gallon-and carbon conversion factor-kg CO2 per gallon or ton-mile-to determine total trip emissions.

The more you plan, design, and implement your supply chain strategy with emissions in mind, the easier it is to shrink your carbon footprint, says David Simchi-Levi, a professor of engineering systems at MIT and the chief science officer for ILOG. Nor is carbon footprint the only important new metric. “Other measures that are related to carbon footprint and that many companies are using in their green initiatives include cube utilization (to measure efficiency of packaging and hence ability to increase the amount shipped in one trip); deadhead distance (to measure the amount of non-productive travel); product-miles or food-miles; and fuel consumption and energy cost,” says Simchi-Levi.

Admittedly, the given in the equation is that accurate and reliable reporting costs money. But ignorance is more expensive still.

“The level of a supply chain’s carbon footprint reflects not only potential current and future liabilities in taxes and offset costs but may reflect inherent inefficiencies in its operations,” Simchi-Levi says. “Moreover, the ability to quantify and reduce carbon dioxide may allow companies to earn credits that can be traded with less efficient companies.” Already the worldwide market value of carbon emission permits exceeds $60 billion.

Whether follower or leader, few companies can afford to ignore the numbers.

Consider the case of Wal-Mart.

In October 2007, perhaps in response to rival Tesco, the world’s top retailer started rating provider performance on an environmental scorecard that includes carbon footprint, cube utilization, recycled content and renewable energy. “A recent success story from this strategy is Wal-Mart’s 3PL provider in Canada, which has changed the way it ships products to ten stores in Nova Scotia and Prince Edward Island from road to rail,” says Simchi-Levi. “As a result, carbon emissions were reduced by 2,600 tons. In addition, the 3PL provider converted 20 truck generators to electric power, saving about 10,000 gallons of fuel.” These two measures combined to yield more than $2 million in annual cost savings.

“Wal-Mart is a leader in supply chain innovation and now in green logistics,” Simchi-Levi says. “Others will follow suit.” wt