Based on the increasing number of articles that focus on sustainability, I can only conclude that cleantech initiatives are here to stay and that people are beginning to believe that going “green and clean” is the right thing to do for both environmental and business reasons. As I have noted before, however, measuring the environmental impact of various components of one’s supply chain is not easy (see my post entitled Counting Carbon). Peter Marsh agrees that assessing “the ecological friendliness of products and processes pose a big challenge for business” [“A greener blueprint for industry,” Financial Times, 20 April 2010]. Marsh writes:
“It is hardly the most orthodox route to business success. Having spent two decades building a company with a leading position in a highly promising global industry, Bill McDonough and Michael Braungart have decided to take a back seat – not by selling out but by donating the intellectual property behind their enterprise to a non-profit organisation. Mr McDonough, a US architect, and Mr Braungart, a German chemist, head McDonough Braungart Design Chemistry, an environmental consultancy based in Charlottesville, Virginia, which measures the ‘environmental footprint’ of a product’s supply chain. Their process is based on an exceptionally rigorous set of criteria and is allied to a set of procedures for creating new chemicals that they call a ‘cradle-to-cradle’ system. Until now, their methods have been a closely guarded secret.”
Anyone associated with a business whose principal asset is intellectual property understands why McDonough and Braungart would closely guard their methodology. The non-profit organization to which they donated their methodology is called the Green Products Innovation Institute, which is based in San Francisco. McDonough and Braungart hope that the Institute will help “to create hundreds of other businesses around the world using their method.” Marsh continues:
“The idea is to spread the philosophy much faster – and wider – than if the original entrepreneurs kept control of their ideas. At a most basic level, MBDC offers a variant on the idea of ‘ecological labels’ – the various systems for assessing the environmental impact of the estimated 1bn types of manufactured products created last year. More broadly, however, their process is part of a debate among businesses, consumers and campaign groups over how to deal with growing energy use, global warming and the long-term build-up of toxic chemicals. There are currently four main appraisal models. One model involves a limited number of criteria and does not address the full ‘ecological impact’ of a product. An example of such a system is that introduced by Tesco, the retailer. Rather than trying to assess a broad range of environmental criteria, Tesco looks purely at the carbon dioxide emissions from processes used to make a limited number of products, including toilet paper and orange juice. Another type are standards, such as the Blue Angel system in Germany, that cover a broader range of performance criteria but do not go very deep into the supply chain. A third set of metrics are both broad and deep but are ‘closed’, applicable normally to the products made by one company. For example, BASF, the chemicals group, and Nike, the sports company, have their own internal assessment procedures. The fourth group includes a wide and deep range of criteria and can also be applied to products by any company willing to pay for the necessary testing. This includes the McDonough/Braungart approach and another operated by TÜV Rhineland, a German technical services provider. Key to these assessments are a ‘life-cycle-based’ approach that considers the impact of products on the environment all the way through their lives, as opposed to purely what happens when they are made or disposed of. According to Mr McDonough: ‘[Product] appraisal methods are highly important but they are essentially examining the past. What we are trying to do is create toolkits for innovation that can build the products of the future.'”
Although assessing the environmental impact of a cradle-to-cradle supply chain is worthwhile, it can also be expensive. Most companies are going to want to know that they can get a return on investment (beyond good PR) for expending capital on such assessments. Despite the cost, deep assessments do have their supporters. Marsh continues:
“Jim Hackett, chief executive of Steelcase, a US furniture maker and a long-time client, says: ‘Michael and Bill have taken us from thinking that environmental policies might be no more than a fad to making these ideas a core part of the way we run the company.’ In practice, the MBDC model involves two stages. First is the ‘analysis’, whereby companies are expected both to identify all the chemicals in their products and to go as far back as nine stages of the supply chain. This can be a tall order, given that many products contain thousands of parts sourced from all over the world and, often, a wide range of suppliers. A television set, for example, can contain more than 5,000 chemical ingredients. After determining the ‘environmental footprint’ of the supply chain, Mr Braungart says the goal is ‘to reduce the number of chemicals that are bad … to a minimum, even though we accept that not in all cases can the figure be reduced to zero’. For instance, the company is working on a project with Philips to design a hairdryer. The product contains 500 ingredients: 460 meet his environmental criteria but 40 do not. Mr Braungart is collaborating with the company to cut the number of ‘bad’ chemicals. The second aspect to the approach is to build a new supply chain based on ‘closed loop’ processes. This means that materials used to create new products should be based on substances that have their origins in products that had a past life. In this way, substances can pass through multiple ‘cradles’ of rebirth. The system is fundamentally different from the normal ‘cradle to grave’ approach, in which materials are dug out of the ground or grown, transformed into products and then discarded at the ‘grave’ stage without much thought about finding new ways to use them. A key aspect to this part of the process is the division of the world into what Mr McDonough and Mr Braungart call the ‘technosphere’ – comprising manmade structures and goods – and the ‘biosphere’, comprising the natural environment. Where possible, they try to ensure that the materials in products can be transferred in and out of the technosphere as freely as possible, without causing damage to the biosphere, while using as much renewable energy as possible. ‘One of our principles is that waste [from existing products] should be food [for new ones],’ says Mr Braungart. For the past five years MBDC, in conjunction with sister company Environmental Protection Encouragement Agency, a scientific consultancy based in Hamburg and run by Mr Braungart, has handed out certifications for products. So far, just 300 have earned one – 100 in the past year. Critics say that one reason the number is so small is the complexity and cost of subjecting products to such a large degree of analysis.”
Companies have always tried to reduce costs by finding ways to use the waste they create as a source material for other products. Helping companies find revenue streams from byproducts is one way of improving the ROI of the supply chain assessment. The approach does have its critics (even among supporters of green supply chains). Marsh concludes:
“Walter Stahel, a Swiss engineer and architect whose ideas led to the cradle-to-cradle concept, says the McDonough/Braungart partnership is an ‘an over-purist approach that ignores the realities of business’. Ray Anderson, chairman of Interface, the US carpet maker and a man with a reputation for environmentally aware thinking, has also been vocal in questioning the MBDC approach as complicated as well as over-secretive and enclosed. ‘It seems to me that cradle-to-cradle is a “black box” where it’s difficult to look inside,’ he told the Financial Times recently. But the announcement of the new ‘green products’ institute in San Francisco – which as part of its operating methods will open up the key guidelines behind cradle-to-cradle for scrutiny – has been enough to make Mr Anderson think twice about his earlier remarks. On hearing about the initiative, he now says: ‘This is a very welcome move and it seems to me to address many of my concerns. It should help to push on considerably the state of the art in terms of reducing the environmental impact of industry.'”
One company that is trying gain market share through its environmental efforts is Proctor & Gamble. Many of its advertisements now trumpet the fact that they are trying to make products that reduce waste, reduce energy use, and save water. On its website, the company asserts:
“We have found that two relatively small groups exist on the ends of a decision-making spectrum. On one end, ‘niche’ consumers are willing to sacrifice performance or value for a more sustainable product. On the other, a small segment is focused on providing ‘basic living’ for their families and do not make purchases based on Sustainability factors. But between these segments lie the vast majority of consumers: the ‘sustainable mainstream.'”
Obviously, the company is targeting the “sustainable mainstream” as it principal source of sales. The company also insists that it uses a “cradle-to-grave” approach for its products. The website states that, in addition to consumer insights, Proctor & Gamble applies “a second key element to making Sustainability decisions: a unique, holistic view of technology. We use life-cycle thinking, a discipline we helped pioneer, to determine a product’s entire environmental footprint, from the procurement of raw materials to the product’s use by consumers and ultimate disposal.” The company has also “joined a growing number of companies to announce Green measurement programs for their suppliers bases with its new Supplier Environmental Sustainability Scorecard [“Procter & Gamble Latest to Jump on Supplier Sustainability Scorecard Mandate with ‘Open’ Approach,” Green Supply Chain News, 13 May 2010]. The article reports:
“Consumer products giant Procter & Gamble joined a growing number of companies to announce Green measurement programs for their suppliers bases with its new Supplier Environmental Sustainability Scorecard. As is usual with P&G, the program has been well thought out, and is based on result of 18 months of work and close collaboration with the company’s Supplier Sustainability Board, which includes more than 20 leading supplier representatives from P&G’s global supply chain. It is based largely on accepted industry practice and standards, such as work that has been produced by World Resources Institute, the World Business Council for Sustainable Development and the Carbon Disclosure Project. P&G has made the scorecard ‘open,’ meaning its is freely downloadable and available for P&G suppliers to use for their own supply chains or for other companies to use as is or as a baseline to tweak for their own specific needs. … P&G says the scorecard will ultimately have five primary uses within its own operations:
- To produce annual supplier sustainability performance ratings
- To influence its procurement spend decisions
- To track improvement in various supplier Sustainability measures
- To assess and model environmental impact in product design
- To be able to model P&G’s full supply chain environmental impact, once a critical mass of suppliers is on the program”
I suspect that in addition to the obvious environmental impacts that P&G hopes to achieve its scorecard will improve information sharing between the company and its suppliers. That improved connectivity will not only drive new efficiencies, but it should also make the entire supply chain more resilient. The article concludes:
“A review of the scorecard shows it is not too burdensome at one level, requesting suppliers report on a relatively few number of inputs, such as energy usage, water usage, greenhouse gas emissions, waste and its disposal, and response to P&G’s own Green suggestions or initiatives to its suppliers. The challenge with this or any Green scorecard is that P&G wants those metrics reported specific to production, transportation and other factors in a supplier just for the products supplied to P&G. How such measures will be captured and allocated will likely remain a challenge for companies for some time. At the end, through a method not clearly spelled out, each supplier will annually receive a score from P&G for its Green supply chain efforts, ranging from Well Above Expectations to Well Below Expectations. … In the future, P&G will use the scorecard to determine each supplier’s sustainability rating as part of P&G’s annual supplier performance measurement process.”
Commenting on P&G’s initiative, Adrian Gonzalez, a supply chain analyst wrote:
“There is additional work required for suppliers, and it is only going to get worse once other large manufacturers and retailers jump on the bandwagon and create their own sustainability scorecards, even if they are all based on ‘standards.’ Just look at the mess we’re in with so-called EDI standards for purchase orders and other business transactions. Almost every company took these standards and tweaked them (e.g., changed the syntax, added unique variables, reordered the transmission) because they felt the standards didn’t fully meet their needs. Now we have a ‘Tower of Babel’ business environment where billions of dollars are spent each year mapping transaction sets between companies and correcting data. This potential problem, however, creates another growth opportunity for providers of Supply Chain Operating Networks. The more I think about it, the more I believe sustainability reporting should be a network-based service. Then again, based on P&G’s approach, who needs the Internet and Web technologies when you can use Excel spreadsheets? Another thought: P&G talks about ‘improving sustainability without trade-offs’. But as I wrote about more than two years ago in ‘Inconvenient Truths About ‘Green’ Supply Chain Management,’ if you don’t accept tradeoffs, then you place limits on how much you can actually achieve. … As I wrote back in 2008:
[A] second inconvenient truth [about green supply chain management]: creating ‘green’ supply chains that are truly sustainable will be costly and messy, and we’re all going to have to pay for it, one way or another. Yes, it’s true: ‘Green’ is good for business. But this is true because, for the most part, only ‘green’ projects that are good for business (or required by law or Wal-Mart) get done. Now, I don’t have an argument with this. Companies are in business to make money, not lose it. I certainly don’t want to work for a company that drives itself into bankruptcy and leaves me jobless by undertaking ‘green’ projects without any fiscal discipline. But we must also recognize that there’s a limit to how much progress we can make, and how quickly, if ‘good for business’ is the only litmus test we use. Eventually, the law of diminishing returns will kick in, and then what will we do? And what will P&G, Walmart, and others do with all of this data? How will they verify its accuracy? What long-term changes will it drive in network design, product development, procurement, logistics, and other business processes? What will happen when tradeoffs have to be made? We’ll just have to wait and see.” [Thoughts on P&G’s Supplier Sustainability Scorecard]
Gonzalez is correct. Although companies seem to moving in the direction of developing greener supply chains, we’ll have to wait and see where this movement eventually takes us. What I like about the P&G approach is that it recognizes the extremes, but is trying to find a more center-progressive strategy that makes both environmental and business sense. It won’t make those holding extreme positions happy, but it seems like a sensible strategy to pursue.
