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Responsible Supply Chains: Are We Willing to Pay the Price?

Are consumers really willing to pay more for a product that's environmentally sustainable and socially responsible? Depends on whom you ask.

Responsible Supply Chains: Are We Willing to Pay the Price?

We'd love it to be so. It would be nice to think that consumers have evolved beyond the point where price is everything – where the difference of a few pennies can determine the success or failure of a given product. It's the mentality that propelled Wal-Mart Stores Inc., with its insistence on undercutting the competition, to retailing dominance over the last 30 years.

Only recently have we begun to understand the true cost of low-price mania – the skimping on quality and circumventing of fair working conditions in order to churn out an endless stream of cheap merchandise. Moreover, few supply chains gave much thought to the environmental impact of their global operations.

That attitude is only now beginning to change. But progress isn’t happening at all levels of the buying public. High-tech giant Cisco Systems, Inc. deals with a broad universe of distributors and other supply-chain partners, “who are hearing from end customers that sustainability is starting to be part of the equation,” said Kathleen Shaver, Cisco’s director of supply chain value protection. She was part of a panel addressing a recent meeting in San Francisco of the San Francisco Roundtable of the Council of Supply Chain Management Professionals.

Shaver said respondents are indicating a willingness to pay a premium for responsible products, at least in the high-tech sector. “Sustainability, both social and environmental, is driving consumer decisions in the tech space.” Yet that willingness comes with a desire that sustainable supply chains also lead to more cost-effective practices, in the form of conservation of materials and longer product lifespans.

But even that measured degree of awareness isn’t evident in other sectors, such as apparel. “We would like to believe that people are demanding sustainability and are willing to pay more for it,” said Michael Kobori, vice president of sustainability with Levi Strauss & Co., “but market research says they are not.”

Among buyers, global sustainability is indeed becoming an expectation, Kobori says. The problem is that they’re not necessarily willing to pay for it. And it’s not just a question of price. People buy Levis because they like the fit and quality of the garment, he says, “not because it’s a more sustainable product.” The best that can be said for environmental awareness is that it bolsters brand reputation – which, in the long run, boosts sales.

What about packaging, where some of the biggest advances in sustainability are taking place? Are consumers willing to pay more for that? “Rarely,” said Paul Tasner, co-founder and chief executive officer of PulpWorks, a specialist in compostable packaging. Getting big consumer-products brands to depart from 50 years of using plastic containers is “a tough sell,” he said. “They are really slow to make those changes.” Most advances in sustainability on the packaging side are occurring among smaller, more progressive companies.

For the big brands, price consciousness remains paramount. The packaging development chief for a leading maker of beauty items told PulpWorks that she loved its products, “’but if it’s one-tenth of a penny more than I’m paying now, I can’t use it,’” Tasner related. And PulpWorks’ packaging was even more expensive than that.

“More often than not, the door gets slammed in our face,” he said. “It’s getting better every day, but it’s a really tough, slow, uphill push.”

Energy costs are always a highly sensitive subject. Pacific Gas and Electric Co. considers itself to be a leader in sustainability, said Joan Kerr, director of supply chain responsibility. Close to 30 percent of PG&E’s output is now sustainable, and the utility offers customers the option of using 100-percent renewable energy in procurement. That costs more, though, and whether they’re willing to pay up remains uncertain. “The proof will be in the pudding,” Kerr said.

Internally, it’s a different story. Shaver said Cisco promotes a culture that’s acutely aware of the importance of sustainability and social compliance. It seeks carbon reduction through “connective manufacturing” programs, drawing on ideas from both product engineers and logistics experts. In addition, sustainability is a key criterion on Cisco’s supplier scorecards.

Progress can’t happen without measurement. Kobori said Levi Strauss keeps close watch on its manufacturing, distribution and shipping. A single pair of Levis requires nearly 1,000 gallons of water, 60 percent of which occurs at the growing stage, and most of the rest through consumer use.

To gain control of upstream practices, Levi Strauss has joined the Better Cotton Initiative (BCI), which supports farmers’ efforts to grow more sustainable cotton. Currently it accounts for 12 percent of the company’s cotton, with a goal of hitting 75 percent by 2020. And 28 percent of all Levis are made with a waterless process, Kobori said.

Still, we’re far from a time when sustainability is widely considered worth the effort. “Unfortunately,” said Kerry, “cost is still king.” Companies need to find ways to link their responsible actions with cost savings. Kerr, for one, doesn’t believe they are mutually exclusive. And Kobori said BCI cotton is designed to be “price-neutral.”

Solutions begin far up the supply chain. Kobori said Levi Strauss has a strict code of conduct for suppliers when it comes to fair labor standards, health and safety, and environmental conditions in its factories. “Our approach has been, comply,” he said. “You can’t source with us otherwise. And if we catch you, there are penalties.”

That sort of tough talk is essential, of course, but it hasn’t always led to total compliance by offshore suppliers, who are often themselves squeezed by original equipment manufacturers for every last penny. Witness the seemingly endless parade of violations in recent years by suppliers to some of the world’s most “responsible” brands.

In the end, companies and consumers will have no choice but to place sustainability and social responsibility at the top of their shared agenda. As Tasner put it: “If they don’t improve, we’re all going to be dead.”

Comment on This Article

We'd love it to be so. It would be nice to think that consumers have evolved beyond the point where price is everything – where the difference of a few pennies can determine the success or failure of a given product. It's the mentality that propelled Wal-Mart Stores Inc., with its insistence on undercutting the competition, to retailing dominance over the last 30 years.

Only recently have we begun to understand the true cost of low-price mania – the skimping on quality and circumventing of fair working conditions in order to churn out an endless stream of cheap merchandise. Moreover, few supply chains gave much thought to the environmental impact of their global operations.

That attitude is only now beginning to change. But progress isn’t happening at all levels of the buying public. High-tech giant Cisco Systems, Inc. deals with a broad universe of distributors and other supply-chain partners, “who are hearing from end customers that sustainability is starting to be part of the equation,” said Kathleen Shaver, Cisco’s director of supply chain value protection. She was part of a panel addressing a recent meeting in San Francisco of the San Francisco Roundtable of the Council of Supply Chain Management Professionals.

Shaver said respondents are indicating a willingness to pay a premium for responsible products, at least in the high-tech sector. “Sustainability, both social and environmental, is driving consumer decisions in the tech space.” Yet that willingness comes with a desire that sustainable supply chains also lead to more cost-effective practices, in the form of conservation of materials and longer product lifespans.

But even that measured degree of awareness isn’t evident in other sectors, such as apparel. “We would like to believe that people are demanding sustainability and are willing to pay more for it,” said Michael Kobori, vice president of sustainability with Levi Strauss & Co., “but market research says they are not.”

Among buyers, global sustainability is indeed becoming an expectation, Kobori says. The problem is that they’re not necessarily willing to pay for it. And it’s not just a question of price. People buy Levis because they like the fit and quality of the garment, he says, “not because it’s a more sustainable product.” The best that can be said for environmental awareness is that it bolsters brand reputation – which, in the long run, boosts sales.

What about packaging, where some of the biggest advances in sustainability are taking place? Are consumers willing to pay more for that? “Rarely,” said Paul Tasner, co-founder and chief executive officer of PulpWorks, a specialist in compostable packaging. Getting big consumer-products brands to depart from 50 years of using plastic containers is “a tough sell,” he said. “They are really slow to make those changes.” Most advances in sustainability on the packaging side are occurring among smaller, more progressive companies.

For the big brands, price consciousness remains paramount. The packaging development chief for a leading maker of beauty items told PulpWorks that she loved its products, “’but if it’s one-tenth of a penny more than I’m paying now, I can’t use it,’” Tasner related. And PulpWorks’ packaging was even more expensive than that.

“More often than not, the door gets slammed in our face,” he said. “It’s getting better every day, but it’s a really tough, slow, uphill push.”

Energy costs are always a highly sensitive subject. Pacific Gas and Electric Co. considers itself to be a leader in sustainability, said Joan Kerr, director of supply chain responsibility. Close to 30 percent of PG&E’s output is now sustainable, and the utility offers customers the option of using 100-percent renewable energy in procurement. That costs more, though, and whether they’re willing to pay up remains uncertain. “The proof will be in the pudding,” Kerr said.

Internally, it’s a different story. Shaver said Cisco promotes a culture that’s acutely aware of the importance of sustainability and social compliance. It seeks carbon reduction through “connective manufacturing” programs, drawing on ideas from both product engineers and logistics experts. In addition, sustainability is a key criterion on Cisco’s supplier scorecards.

Progress can’t happen without measurement. Kobori said Levi Strauss keeps close watch on its manufacturing, distribution and shipping. A single pair of Levis requires nearly 1,000 gallons of water, 60 percent of which occurs at the growing stage, and most of the rest through consumer use.

To gain control of upstream practices, Levi Strauss has joined the Better Cotton Initiative (BCI), which supports farmers’ efforts to grow more sustainable cotton. Currently it accounts for 12 percent of the company’s cotton, with a goal of hitting 75 percent by 2020. And 28 percent of all Levis are made with a waterless process, Kobori said.

Still, we’re far from a time when sustainability is widely considered worth the effort. “Unfortunately,” said Kerry, “cost is still king.” Companies need to find ways to link their responsible actions with cost savings. Kerr, for one, doesn’t believe they are mutually exclusive. And Kobori said BCI cotton is designed to be “price-neutral.”

Solutions begin far up the supply chain. Kobori said Levi Strauss has a strict code of conduct for suppliers when it comes to fair labor standards, health and safety, and environmental conditions in its factories. “Our approach has been, comply,” he said. “You can’t source with us otherwise. And if we catch you, there are penalties.”

That sort of tough talk is essential, of course, but it hasn’t always led to total compliance by offshore suppliers, who are often themselves squeezed by original equipment manufacturers for every last penny. Witness the seemingly endless parade of violations in recent years by suppliers to some of the world’s most “responsible” brands.

In the end, companies and consumers will have no choice but to place sustainability and social responsibility at the top of their shared agenda. As Tasner put it: “If they don’t improve, we’re all going to be dead.”

Comment on This Article

Responsible Supply Chains: Are We Willing to Pay the Price?