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Sustainability Grows Up and Starts to Pay Off

Sustainability has for many years been growing in importance, but until recently was largely seen as a sideshow meant to burnish the image of a company and its brands. Early efforts by supply chain leaders to integrate concepts of sustainability into their operations were often meant to test notions of cost savings that align naturally with reduced environmental impacts. The results are beginning to show. – Kevin O'Marah, Chief Content Officer and Head of Research, SCM World

Sustainability Grows Up and Starts to Pay Off

Sustainability still impacts brand image. When we asked supply chain professionals what drives their sustainability (AKA social and environmental responsibility, or SER) efforts in the eyes of their board, the top answer is still image. The extensive efforts of brand-driven companies from Unilever and Procter & Gamble to Hewlett-Packard and Timberland are well documented in increasingly thorough sustainability reports. These efforts demonstrate a long view that is admirable since consumers persist in failing to pay a premium for green products.

Cost savings assume a greater role.  More interesting in this data, however, is the rise in importance of cost savings as a rationale for sustainability. When we first asked this question in 2011, only 32 percent cited it as a reason boards wanted more sustainable supply chains. In 2013, almost half believed cost efficiency was an important driver. Cases like the green fleet operated by AT&T or packaging savings at Clorox are typical of the lessons being learned on how to make sustainability pay.

Ethical practices outweigh carbon emissions. Digging more deeply into what value has actually been delivered by sustainability, it is clear that certain specific impacts are worth more than others. Ethical issues, for instance, have a bigger effect on image and general PR than going green from an energy or carbon footprint perspective. Early in 2013, a factory collapse in Bangladesh shone a light on this issue and supply chain leaders have taken notice. The public does care about social justice.

Revenue growth a key focus area. Also interesting is the role played by product innovation and quality (or integrity) in supporting revenue growth. In some instances, like the case of Johnson Controls, which sells building controls systems that save real estate owners on utility bills, product innovation is a spur to growth by bringing better, and green, products to market. In other cases, the issue may include protecting revenue as was seen in the horse meat scandal that impacted retailers like Tesco.

Energy efficiency, the biggest source of value. Most compelling, perhaps, is the apparently large opportunity to save money on energy. Case studies as diverse as airport retailer World Duty Free consolidating inbound shipments of confectionery and Dow Chemical leaning its olefins operations in Louisiana to save 555,481 MMBtu/year, point to serious payback. For sustainability specialists the link is obvious as essentially all supply chain activity consumes energy, and efficiency gains in an area such as packaging savings or scrap reductions usually also mean savings in energy as well.

                                                 The Outlook

Public attention to environmental dangers seems to have waned in recent years, as worries about social justice have increased. Along the way, supply chain professionals have generally kept pounding away at the day-to-day efficiency goals that define our role. Trends in the field show that real business impact is now commonplace and sophistication about where sustainability fits into supply chain strategy is on the rise.

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