Executive Briefings

Thoughts on "Green" Supply Chains by a Carbon-Neutral

I was listening to the radio this morning and an ad played for the station, promoting how they play today's hit music, with few commercial interruptions. The promo, voiced by a woman with a soothing voice, ended with what I'm guessing is the station's new tagline: "92.9 WBOS, A Carbon-Neutral Radio Station." What the heck does that mean, I wondered. It seems like everybody is jumping on the "green" bandwagon these days, including everyone in supply chain management.

Wal-Mart outlined its supply chain sustainability vision and objectives about two years ago, in a speech presented by Lee Scott titled "Twenty First Century Leadership." Other companies, particularly in Europe and in the high-tech industry, were already making inroads in this area, driven to action by regulations such as Restriction of Hazardous Substances (RoHS) and Registration, Evaluation, Authorization and Restriction of Chemical substances (REACH). But Wal-Mart's ambitious goals rippled through the supply chain industry, as well as the mainstream media, due to its massive size and influence. Today, you can't pick up the Wall Street Journal, Business Week, or any other business or trade publication without at least one article about the benefits of "going green."

A couple of weeks ago, I chaired a track on "Sustainability: Creating 'Green' Supply Chains" at this year's Council of Supply Chain Management Professionals (CSCMP) Annual Conference. Speakers from Herman Miller, HP, Whirlpool, Campbell Soup, Stonyfield Farm, Dow, Corporate Express, and other companies presented excellent case studies on this topic. The sessions were well attended, but a bit below my expectations, considering all of the hype. Most of the attendees I spoke with were in "information gathering" mode, their companies still in the early stages of launching a green initiative.

ARC will publish a more detailed report on this topic in near future, but here are my main takeaways from the CSCMP presentations and the research we've conducted so far.

In order to achieve the greatest benefits, with the least cost and effort, companies have to consider sustainability at the design phase, both product design and network design. Unfortunately, most consumer products are designed with the assumption that they'll be thrown away someday. As a former product development engineer, I know that my design decisions and material selections would certainly be different if I had to take the product back at the end of its useful life, disassemble it, and re-introduce the materials back into manufacturing or nature. Drew Schramm, Senior Vice President, Global Supply & Quality for Herman Miller, provided an excellent case study of their Design for the Environment (DfE) process that illustrates this point perfectly (a write-up of the case appeared in the Journal of Industrial Ecology).

Similarly, carbon-footprint reduction has not been a consideration for most companies when designing their supply chain networks. It's highly unlikely that any company would optimize its network based solely, or primarily, on lowest carbon footprint, but by understanding the tradeoffs, companies may reach different decisions and prevent sustainability constraints from being "designed into" the network. Software vendors with network design solutions, including i2 Technologies, Infor, and Ilog, are actively exploring this area at the moment.

Being "less bad" is not the same as being good. Ken Alston, CEO of MBDC, made this point in his presentation; it's also a key message in the influential book "Cradle to Cradle: Remaking the Way We Make Things" by William McDonough and Michael Braungart, the founders of MBDC. Most corporate sustainability reports highlight year-over-year reductions and long-term targets for carbon dioxide emissions, energy consumption, and other metrics. But focusing solely on reductions, while important and necessary, is not enough. To borrow Apple's phrase from years ago, companies also have to "think different" and address sustainability not within the confines of existing supply chain processes and constraints, but by designing completely new processes and ways of working that are inherently sustainable.

Many supply chain continuous improvement initiatives, typically driven by cost reduction or productivity improvement objectives, can also be viewed from a green perspective. For example, the reason most companies implement a Transportation Management System (TMS) is to reduce their transportation costs. It just so happens that load consolidation and route optimization translate into fewer trucks on the road, driving fewer miles, consuming less fuel, and emitting less carbon dioxide. This example lends credibility to the "what's good for the environment can also be good for the bottom line" argument. But a cynic might take a different perspective: this is applying a "green" label to a fundamental supply chain practice.

More work is required on global standards and metrics. There are already standards in this area, such as ISO 14000, but differences still exist between industries and countries, particularly with regards to calculating and reporting carbon footprint. The speakers at the conference generally agreed that calculating carbon footprint was a challenging task, especially if you have a multi-tiered global supply chain. How far back into their supply chains should companies go? Does HP, for example, have to track the carbon emissions involved in converting sand into silicon? And how do you get this data from vendors in places like Vietnam? Stonyfield Farm mapped out its carbon footprint a few years ago, but Ryan Boccelli, their Director of Logistics, conceded that they had to make a lot of assumptions.

Regulations and mandates drive action. The companies leading the way in sustainability are predominantly those with operations in Europe or suppliers to Wal-Mart. In other words, companies that face regulations and mandates. Would these companies have the same focus on sustainability if they weren't forced to? Hard to say, but since some of these companies haven't voluntarily implemented their European sustainability practices in the US, the answer is probably no. The lack of supporting infrastructure and services for reverse logistics is certainly a contributing factor, but the main reason is much simpler: they don't have to do it. I'm not a big fan of regulations, but if we expect industries to act with more urgency, the government will need to exert greater pressure or provide incentives. Wall Street and the investment community, especially "socially responsible investors," can also push companies to act. The speaker from Campbell Soup, for example, said that a large shareholder contacted the company inquiring about their corporate sustainability statement and objectives. The shareholder suggested that he may sell the stock if Campbell's sustainability efforts were not aligned with his "socially responsible" investment criteria.

Are consumers willing to pay more for green products? This is the million dollar question, and most people think the answer is no, except for certain niche products. It'll be interesting to see what happens to the toy industry this holiday season, after the ongoing recalls of toys manufactured in China containing lead and other toxic substances. Then again, consumers haven't cared much that Apple's iPhone contains brominated flame retardants (BFRs) and polyvinyl chloride (PVC), toxic substances that other phone manufacturers have eliminated from their products. Apple has sold over 1.4 million units since the end of June, and analysts forecast strong sales during the holidays. At the end of the day, consumers vote with their wallets; if we don't change our buying decisions, why should companies change their practices?

Also, if a radio station can promote itself as carbon-neutral, why can't I? Sure, I exhale my fair share of carbon dioxide into the atmosphere, but I offset it with a couple plants in my office and a bunch of trees in my back yard that dump countless leaves on my lawn. Come by this weekend and watch me rake my leaves, the old fashioned way, without a gas powered leaf blower. I'm sure that counts for a few extra carbon credits, which I'm willing to sell for the right price.
http://www.arcweb.com

I was listening to the radio this morning and an ad played for the station, promoting how they play today's hit music, with few commercial interruptions. The promo, voiced by a woman with a soothing voice, ended with what I'm guessing is the station's new tagline: "92.9 WBOS, A Carbon-Neutral Radio Station." What the heck does that mean, I wondered. It seems like everybody is jumping on the "green" bandwagon these days, including everyone in supply chain management.

Wal-Mart outlined its supply chain sustainability vision and objectives about two years ago, in a speech presented by Lee Scott titled "Twenty First Century Leadership." Other companies, particularly in Europe and in the high-tech industry, were already making inroads in this area, driven to action by regulations such as Restriction of Hazardous Substances (RoHS) and Registration, Evaluation, Authorization and Restriction of Chemical substances (REACH). But Wal-Mart's ambitious goals rippled through the supply chain industry, as well as the mainstream media, due to its massive size and influence. Today, you can't pick up the Wall Street Journal, Business Week, or any other business or trade publication without at least one article about the benefits of "going green."

A couple of weeks ago, I chaired a track on "Sustainability: Creating 'Green' Supply Chains" at this year's Council of Supply Chain Management Professionals (CSCMP) Annual Conference. Speakers from Herman Miller, HP, Whirlpool, Campbell Soup, Stonyfield Farm, Dow, Corporate Express, and other companies presented excellent case studies on this topic. The sessions were well attended, but a bit below my expectations, considering all of the hype. Most of the attendees I spoke with were in "information gathering" mode, their companies still in the early stages of launching a green initiative.

ARC will publish a more detailed report on this topic in near future, but here are my main takeaways from the CSCMP presentations and the research we've conducted so far.

In order to achieve the greatest benefits, with the least cost and effort, companies have to consider sustainability at the design phase, both product design and network design. Unfortunately, most consumer products are designed with the assumption that they'll be thrown away someday. As a former product development engineer, I know that my design decisions and material selections would certainly be different if I had to take the product back at the end of its useful life, disassemble it, and re-introduce the materials back into manufacturing or nature. Drew Schramm, Senior Vice President, Global Supply & Quality for Herman Miller, provided an excellent case study of their Design for the Environment (DfE) process that illustrates this point perfectly (a write-up of the case appeared in the Journal of Industrial Ecology).

Similarly, carbon-footprint reduction has not been a consideration for most companies when designing their supply chain networks. It's highly unlikely that any company would optimize its network based solely, or primarily, on lowest carbon footprint, but by understanding the tradeoffs, companies may reach different decisions and prevent sustainability constraints from being "designed into" the network. Software vendors with network design solutions, including i2 Technologies, Infor, and Ilog, are actively exploring this area at the moment.

Being "less bad" is not the same as being good. Ken Alston, CEO of MBDC, made this point in his presentation; it's also a key message in the influential book "Cradle to Cradle: Remaking the Way We Make Things" by William McDonough and Michael Braungart, the founders of MBDC. Most corporate sustainability reports highlight year-over-year reductions and long-term targets for carbon dioxide emissions, energy consumption, and other metrics. But focusing solely on reductions, while important and necessary, is not enough. To borrow Apple's phrase from years ago, companies also have to "think different" and address sustainability not within the confines of existing supply chain processes and constraints, but by designing completely new processes and ways of working that are inherently sustainable.

Many supply chain continuous improvement initiatives, typically driven by cost reduction or productivity improvement objectives, can also be viewed from a green perspective. For example, the reason most companies implement a Transportation Management System (TMS) is to reduce their transportation costs. It just so happens that load consolidation and route optimization translate into fewer trucks on the road, driving fewer miles, consuming less fuel, and emitting less carbon dioxide. This example lends credibility to the "what's good for the environment can also be good for the bottom line" argument. But a cynic might take a different perspective: this is applying a "green" label to a fundamental supply chain practice.

More work is required on global standards and metrics. There are already standards in this area, such as ISO 14000, but differences still exist between industries and countries, particularly with regards to calculating and reporting carbon footprint. The speakers at the conference generally agreed that calculating carbon footprint was a challenging task, especially if you have a multi-tiered global supply chain. How far back into their supply chains should companies go? Does HP, for example, have to track the carbon emissions involved in converting sand into silicon? And how do you get this data from vendors in places like Vietnam? Stonyfield Farm mapped out its carbon footprint a few years ago, but Ryan Boccelli, their Director of Logistics, conceded that they had to make a lot of assumptions.

Regulations and mandates drive action. The companies leading the way in sustainability are predominantly those with operations in Europe or suppliers to Wal-Mart. In other words, companies that face regulations and mandates. Would these companies have the same focus on sustainability if they weren't forced to? Hard to say, but since some of these companies haven't voluntarily implemented their European sustainability practices in the US, the answer is probably no. The lack of supporting infrastructure and services for reverse logistics is certainly a contributing factor, but the main reason is much simpler: they don't have to do it. I'm not a big fan of regulations, but if we expect industries to act with more urgency, the government will need to exert greater pressure or provide incentives. Wall Street and the investment community, especially "socially responsible investors," can also push companies to act. The speaker from Campbell Soup, for example, said that a large shareholder contacted the company inquiring about their corporate sustainability statement and objectives. The shareholder suggested that he may sell the stock if Campbell's sustainability efforts were not aligned with his "socially responsible" investment criteria.

Are consumers willing to pay more for green products? This is the million dollar question, and most people think the answer is no, except for certain niche products. It'll be interesting to see what happens to the toy industry this holiday season, after the ongoing recalls of toys manufactured in China containing lead and other toxic substances. Then again, consumers haven't cared much that Apple's iPhone contains brominated flame retardants (BFRs) and polyvinyl chloride (PVC), toxic substances that other phone manufacturers have eliminated from their products. Apple has sold over 1.4 million units since the end of June, and analysts forecast strong sales during the holidays. At the end of the day, consumers vote with their wallets; if we don't change our buying decisions, why should companies change their practices?

Also, if a radio station can promote itself as carbon-neutral, why can't I? Sure, I exhale my fair share of carbon dioxide into the atmosphere, but I offset it with a couple plants in my office and a bunch of trees in my back yard that dump countless leaves on my lawn. Come by this weekend and watch me rake my leaves, the old fashioned way, without a gas powered leaf blower. I'm sure that counts for a few extra carbon credits, which I'm willing to sell for the right price.
http://www.arcweb.com