Supply Chains: Green and Sustainable, Part 1

Stephen DeAngelis

February 7, 2011

Environmentalism remains an emotional issue. Skeptics consider environmentalists “tree huggers” who have no appreciation for life in the real world. On the other hand, many environmentalists consider corporate efforts to “go green” little more than grandstanding. It is becoming clear, however, that corporate environmentalism is going to play an increasingly important role over the coming decades. “A few months ago, IBM released the results of a CEO survey in which ‘environmental concerns’ ranked seventh among the top external factors expected to impact business operations over the course of the next three years.” [“CEOs Much More Likely to Consider Sustainability Than Ever Before,” SupplyChainBrain, 11 January 2011]. Depending on your point of view, this is either good news or bad. Apparently, seventh isn’t a high enough ranking to make environmentalists happy.

 

The article states, “This statistic was viewed as proof of corporate executives’ inability – or perhaps even unwillingness – to integrate environmental stewardship into the strategic fabric of their core business operations.” On the other hand, the authors ask, “Ten years ago … where would sustainability have ranked on such a survey? Or for that matter, how many CEOs would have indicated that their businesses would be seeking to deploy new technologies aimed specifically at addressing issues of sustainability?” I’m agnostic about the ranking. Just because corporate executives believe that environmental concerns will impact their businesses doesn’t mean that one can interpret that “concern” as belief in or support of environmental causes. Surely there are corporate executives who don’t believe in human causation of climate change but who, nevertheless, believe that concerns about the environment could impact their business. The article continues:

“According to a separate study from Accenture, more than 90 percent of respondents indicated that over the next five years they will [integrate environmental stewardship into the strategic fabric of their core business operations]. So, is the glass half empty or half full? It seems that after years of much discussion, environmental stewardship is finally establishing a toehold in the corporate (and industry) psyche. Reducing paper consumption and energy conservation (e.g. turning off the lights and powering down PCs when not in use), for example, are now commonplace, and rankings such as Greenpeace’s Cool IT Leaderboard are tracking the sustainability efforts of some of the leading global information and communications technology companies.”

Some analysts like to refer to these activities as “green” while others prefer the term “sustainable.” Paul Teague, a former editor in chief of Purchasing magazine, believes these terms should be replaced with the term “profitable” [“Down with ‘sustainability’ – here’s a better word…,” Procurement Blog, 10 January 2011]. He writes:

“Author and Massachusetts Institute of Technology Professor Peter Senge said in a recent Harvard Business Review article that ‘sustainability’ is a word that ‘makes people’s eyes glaze over.’ Not his eyes: He sees sustainability efforts as part of a corporation’s sense of community. But because of the word’s sleep-inducing effect, he rarely uses it when he talks about business and the environment. He’s right. The word conjures images of tree huggers and do-gooders intent on changing the world, and that image can spark opposition as well as spawn half-hearted environmental efforts that are more ‘greenwash’ PR than serious. So here’s my suggestion for an alternative word CPOs could use that would express the potential of sustainability and keep audiences alert: ‘Profitability.’ It’s one character shorter than ‘sustainability’ (headline writers take notice), and nothing grabs the attention of CEOs and their boards of directors more than talk of profits. There is also growing evidence that ‘sustainability’ and ‘profitability’ can go hand in hand.”

Although I agree with Teague that profitability is a better motivation for pursuing green or sustainable activities, I also know that companies are going to try and derive as much “greenwash” PR from these efforts as they can. So don’t expect to see any advertisements touting a company’s profitability as a result of its sustainability efforts. Teague goes on to provide two examples of large companies that are pursuing sustainability activities and trumpeting their efforts (into which he reads profitability). He writes:

Unilever apparently believes that. The company says its new sustainability push provides opportunities for sustainable growth. That sounds like profitability to me.

Walmart is investing in several sustainability efforts. Procurement Leaders’ Steve Hall accurately describes those efforts as smart procurement. Given the company’s take-no-prisoners approach to competition and its focus on profits, the efforts are also smart business.”

Teague reports that there are other companies that are pursuing sustainability activities but doing it more quietly. He continues:

“Randy Clark, a senior procurement leader at Volvo Group, a global manufacturer of heavy commercial vehicles and diesel engines, hints at another potential connection between sustainability and profitability. He says that new US regulations on nitrogen-oxide prompted engineers at the company to develop a new exhaust after-treatment technology. The company evidently sees a business opportunity there. If so, the Volvo Group is not alone. A recent KPMG report said that many executives see operational and commercial benefits from sustainability efforts. And, a Deloitte report cites sustainability efforts at Clorox, Nike and Hewlett-Packard that are positively affecting the bottom line. IBM CPO John Paterson has said that sustainability is a business imperative. It’s an imperative for other companies too. The Estee Lauder Companies, for example, are pursuing major sustainability efforts. In fact, Beatriz Loizillon, Estee Lauder’s executive director for global indirect procurement, is the new chair for the Sustainability Committee of the New York chapter of the Institute of Supply Management. She told me she is planning the chapter’s first event now and is looking for speakers. No doubt, some of the speakers will be connecting sustainability to profitability.”

If it is true that sustainability is becoming a business imperative, environmentalists and skeptics of climate change should both be happy. As Teague concludes: “So, tree huggers and do-gooders be forewarned: All your good intentions aside, there is potential profit from efforts to protect the environment. And guess what: That’s a good thing.” Lorie King Rogers, associate editor of Modern Materials Handling, claims, “Now, it’s not cool for a product to be anything but green. In fact, green isn’t just about the product anymore, it’s about every link in the supply chain” [“Sustainability: Make the small things count,” 16 December 2010]. She continues:

“In an effort to both increase the bottom line and work to a greater, greener good, businesses are looking for more ways to be environmentally savvy. ‘Many companies are taking a strong position on green initiatives and looking for suppliers that are taking the same initiatives and providing green solutions,’ says Keith Allmandinger, senior manager of marketing for Komatsu Forklift (www.komatsu.com). ‘This is driven by corporate responsibility and responsibility to our environment.’ Green is responsible, but in some cases, it’s also required. For example, more and more retailers are demanding environmentally friendly products. Toward that goal, Staples now challenges its suppliers to compete in a ‘Race to The Top’ to find innovative solutions for product manufacturing, packaging and distribution.”

Rogers explains that Komatsu “recently introduced a versatile electric counterbalanced lift truck” that “can have a positive impact on CO2 emissions.” By using electric forklifts and recharging batteries during off-peak hours, companies can help the environment and save money. Rogers continues:

“Simple changes to business as usual can result in dramatic improvements. As an example, Hytrol Conveyor (www.hytrol. com) has a dual green focus. ‘We’re not only looking for ways to save the end user resources, we’re finding ways to save in our own facility,’ says Hytrol’s manager of marketing Phillip Poston. On the product side, Hytrol has developed a new conveyor system with a decentralized 24-volt motor that uses 60% less energy, in part because it shuts down individual zones and motors when not conveying product. On the process side, the company uses a powder paint system that helps to eliminate the need for an air permit because no volatile organic chemicals are emitted into the atmosphere. The company also employed a value stream mapping exercise to modify its manufacturing environment. By removing unnecessary steps, using forklifts for heavy tasks, and creating focused factory areas, Hytrol was able to eliminate 60% of its lift truck fleet, resulting a savings equal to 70 tons of coal per year.”

Those are the kinds of “small things” to which Rogers refers in her headline. She also discusses how replacing lighting fixtures can aid the environment and add to a company’s bottom line. She reports, “When the Miller Brewing Company replaced the old light fixtures in its Milwaukee facility, annual savings totaled more than $127,000 and 2.1 million kWh.” She notes that the environmental impact of that change “was equal to planting 380 acres of trees, taking 340 cars off the road, and saving 3.5 million gallons of gas and 83,000 barrels of oil.” Rogers goes on to detail a number of other small changes that companies can make that help the environment and add to the bottom line. They include things like: using energy-efficient ceiling fans; and recycling or reusing pallets. Rogers also recommends pre-cycling. She explains:

“One way to intercept materials before they go to the landfill is to pre-cycle. For example, if a company changes its marketing approach, product packaging may also change, leaving behind a surplus of top quality containers. Instead of shipping the surplus off to a grinder or a landfill, pre-cycling gets that product to a new end user. Gina Crespo, marketing and advertising manager for McKernan Packaging (www.mckernan.com), explains, ‘We find buyers for unwanted, obsolete packaging components and give them another life and repurpose by putting them back into the industry.'”

All of this talk about green and/or sustainable supply chains has caused some critics to “argue that the way global sourcing and technological advances have become a part of modern supply chains, an inherent collision [between] logistics and environment has crept into the system which is overlooked in the wake of ‘lean’ practices” [“Competing on the true color of your Supply Chain,” by Dawn Mathew Varghese, Supply Chain Management, 11 August 2010]. Varghese continues:

“The collision can be illustrated in a case where a lean mean supply chain, with leaner inventory could result in more frequent trips between locations which could result in higher fuel consumption. In a report published by MIT Sloan Management Review, only 22 of fortune 500 companies have started ‘blunting’ their supply chains’ impact on the environment. … The Insight that this brings to the fore is in spite of having well defined sustainability scorecards and efficiency KPIs, not many organizations have been able to effectively internalize the same into their respective supply chains.”

Varghese includes an interesting graphic in her post that shows how different lifecycle areas contribute to greenhouse gas emissions of Apple products.

 

 

 

Of Apple’s green efforts, Varghese writes:

“Apple claims to have reduced the average weight of iMac and saved 10,000 metric tons in material. Today’s 20-inch iMac uses 55 percent less material than its first-generation, 15-inch predecessor. These examples point to the fact that especially in an industry fired by innovation, the journey towards an efficient and sustainable supply chain begins much ahead in the value chain as in this case, at the drawing board itself.”

What I really liked about Varghese’s post, however, was her conclusion. She writes:

“There is a strong correlation in being a leading supply chain and being a champion of sustainable measures. Supply chain and operations being the major enabler of any demand fulfillment, this management concern has a mammoth stake in green initiatives. Of course, this function needs a supporting framework from corporate strategy perspective and executive commitment. As it is said ‘Companies don’t compete -only supply chains do’. Sustainable supply chains can give competition a whole new meaning very much in everyone’s interest.”

Too often manufacturers and retailers forget that “companies don’t compete — only supply chains do.” That sounds very Napoleonic don’t you think? In the second and final post of this series, I’ll look at what other analysts have to say about sustainable chains, including both opportunities and risks that might exist.