Sun Microsystems is hardly the first global manufacturer to cut the number of distribution centers in its supply chain. What's unusual about the company's move are the reasons behind it. Less cost, handling and time to market are still big factors, but Sun is also pursuing the strategy out of a desire to be more environmentally responsible.

Companies used to adopt green policies because they were forced to, or needed to spruce up their public image. Now they're finding that a reduction of pollutants and wasteful practices can have a positive impact on the bottom line. Internal processes become more efficient, and customers are happier, too. It's even good for the environment.

Changes are taking place at every stage from product design to recycling or disposal at end of life. In the design process, Sun maintains a list of dangerous substances that are not permitted in its products, says Leann Speta, supplier relationships program manager. At the far end of the chain, an intensive recycling program recovers materials that can be incorporated into the design of new products. The European Union's new Waste Electrical and Electronic Equipment (WEEE) directive requires that 65 percent of product waste be put back into the manufacturing stream. Sun is currently at better than 80 percent, says Speta.

The big maker of servers, workstations and software has also cut down on the amount of paper documentation that accompanies its products, relying on the internet to give customers needed information. That effort alone has slashed paper costs from $10m to $1m and saved two million pounds of paper each year. "That's about 6,000 trees saved," says Speta.

One of the company's biggest environmental efforts occurs within the physical supply chain. Sun has boosted the amount of finished product that ships directly to customers, bypassing a distribution center. Currently between 40 percent and 50 percent of all orders move in this manner. There are just two distribution facilities in the Sun network, one in Northern California and the other in the Netherlands, for items that can't be shipped direct. And they belong to Sun's third-party logistics providers-DHL in the U.S., and Frans Maas in Europe.

Some companies focus on instilling green policies within their warehouse operations. Sun has a different strategy. "Rather than trying to make our DCs energy efficient, we're trying to eliminate them," says Kurt Doelling, vice president of supplier management and operations strategy.

Sun's heavy reliance on outsourced logistics carries additional environmental benefits. By itself, the company is far from a small shipper, especially in terms of product value. But Sun prefers to hand over much of its freight to third-parties so that it can be combined with the shipments of other customers. The results are twofold: lower per-unit shipping costs, and better utilization of existing capacity.

Sun is also working to increase the efficiency of its products. Multi-server data centers are energy hogs; a typical facility consumes as much as 2,000 homes do, says Doelling. Compared with rival machines, Sun's latest line of servers offers four times the computing performance per unit of energy consumed, he claims. Customers might pay extra up for some components, "but it more than pays off down the line."

Timberland Takes Steps
The Timberland Co., maker of outdoor footwear and apparel, also takes a multi-step approach to forging a green supply chain. The company's "sustainability agenda" covers the use of energy, materials, chemicals and systems, says Gary Smith, senior vice president of global supply chain.

For many manufacturers of consumer goods, outsourcing is the order of the day. But Timberland continues to make its own products, a decision that simplifies the monitoring of facilities for environmental compliance. In addition, it has allowed the company to equip its factories with energy-saving equipment. Last year, Timberland installed a wind tower at a site in the Dominican Republic. Solar panels heat the water used for steaming materials that go into hand-sewn shoes.

More than 10 million pairs of shoes made by Timberland now incorporate water-based adhesives, versus nearly zero just four years ago, Smith says. That represents only about a third of the company's product line; its popular Classic Boots still require the injection of molten polymer, a polyvinyl chloride (PVC). Smith says the company is on track to replace PVC, a widely used plastic that is thought to have adverse health and environmental side-effects, with greener materials by 2008.

In the meantime, it has launched an initiative to recycle the chemical, which can be remelted and recast. About 10 percent of recycled PVC is pure enough to be used in the main part of the shoe, while the rest goes into fillers, heel plugs, outsoles and other areas. The goal, says Smith, is zero PVC waste. The company also relies heavily on recyclable packaging materials.

	"We make sure every supplier adheres to an environmental responsibility list. That's non-negotiable." - Bonnie Nixon Gardiner of Hewlett-Packard

Timberland conducts regular environmental audits of its factories and tanneries. The company's procedures are so advanced, Smith says, that rival apparel makers have asked it to share its knowledge. Later this year, Timberland and other producers will launch joint audit procedures. The company has also joined an international effort to develop best practices on the management or elimination of restricted substances. And it maintains a library of information, easily accessible to producers, on hazardous materials. "We try to make it easy to use things that not only don't contain bad stuff, but are actually good for sustainability," says Smith.

Distribution centers are a necessary part of the company's supply chain, but Timberland is making them as green as possible. It employs 100-percent renewable energy, much of it hydroelectric, at a DC in the Netherlands. New solar technology at the Ontario, Calif., site generates 60 percent of required energy, even during periods of peak usage. For backup generators, a must in places where continuous power is far from assured, the company is experimenting with bio-diesel fuels.

In Europe, Timberland makes use of barge services for finished goods moving from the Port of Rotterdam into the interior, cutting its reliance on trucks. Smith says barges are a faster mode of transportation than one might assume, especially given the traffic congestion that frequently plagues Northern European roads.

For a company like Timberland, many of whose products are used by consumers in natural settings, green policies are essential. "We do the right thing wherever possible," says Smith.

A Greener Lifecycle
Environmental responsibility is a big part of the corporate image of Hewlett-Packard Co., and that policy extends deep into the company's global supply chain. Its Corporate Social Responsibility (CSR) program covers everything from procurement to product content, suppliers, manufacturing, logistics and recycling.

In taking a green approach to supply chain management, HP considers the full lifecycle of its products. A list of general specifications details all substances that are either bad for the environment or banned outright, says Bonnie Nixon Gardiner, global program manager of supply chain social and environmental responsibility. "We make sure that every supplier in our supply chain gets a copy of that and is adhering to it," she says. "That's non-negotiable."

HP has already rid itself of substances, including lead, that are banned by WEEE, and begun recycling in line with the EU's Return of Hazardous Substances (RoHS) directive. By 2007, the company will have recycled a billion pounds of used products, according to Gilles Bouchard, executive vice president of global operations. Speaking at a recent forum of AMR Research Inc., he said HP adheres to the Electronic Industry Code of Conduct (EICC) for promoting environmentally responsible manufacturing, along with worker health and safety.

HP is slashing overall energy consumption by consolidating 85 data centers into just three, Gardiner says. It is also pushing a new video-conferencing technology known as Halo, to cut down on employee travel. But other efforts relate more directly to supply chain management. The Green Cargo program encourages the greater use of ocean transportation over air, while urging HP's carriers to operate in a more energy-conscious manner.

Distribution facilities are becoming more efficient as well. A major program to reduce packaging materials and squeeze more product onto a pallet has already yielded big results. In 2003, for a stand-alone camera, HP utilized 396 grams of packaging and fit 200 units on a pallet, Gardiner says. In 2004, packaging shrank to 339 grams and HP got 300 on a pallet. Most recently, it has cut packaging down to 164 grams and managed to stuff 720 on a pallet. Shipping costs have come down accordingly.

Some of HP's green efforts yield immediate savings, but others cost money up front. Gardiner says the company doesn't dictate terms to suppliers, then expect them to bear the economic brunt of its mandate. "That has never been our approach," she says. Instead, HP works closely with suppliers to implement green measures, often sharing the burden of investment.

It's not as though either party had a choice. Government regulations on hazardous materials, emissions and other environmental factors are getting stricter all the time. But HP is also listening to its customers, who are becoming increasingly aware of their own impact on the environment. Last year, the company received more than $1bn worth of orders that were accompanied by specific conditions relating to environmental protection. "Customers were asking all sorts of questions, about everything from manufacturing to end of life," Gardiner says. She expects such conditional orders to double next year, then peak at around $6bn per year.

Vendors Going Green
Logistics providers are under equal pressure to conform to new environmental measures. "We see ourselves as a part of the supply chains of our customers," says Winfried Haeser, director of environmental strategies and policies with DHL. The company views climate change and the reliance on fossil fuels as challenges to be addressed on a global scale, he says.

It begins with making best use of existing assets. DHL strives for the highest possible loading cycles, with vehicles traveling the shortest possible distances, Haeser says. Internal optimization software helps the provider to map out the best delivery routes. Such efforts have helped DHL to cut delivery mileage by 14 percent since 2001, and add more than 20,000 tons of airfreight capacity without the need for additional flights.

Fuel consumption is a major factor in the company's decisions about buying new equipment, especially in Europe. DHL and its parent, Deutsche Post World Net, are also exploring alternatives, including bio-fuels and natural gas, that could save several million euros per year by 2012, says Haeser. In Japan and the U.S., the company is testing a hybrid-power vehicle. Deutsche Post intends to cut greenhouse gas emissions from its road vehicles to 5 percent below 1990 levels by 2012, a target that is in line with provisions of the international Kyoto Protocol.

DHL's Green Logistics initiatives include the program known as GOGREEN, offering customers low-carbon or carbon-neutral shipping products. The undertaking, which aims to have a zero impact on worldwide emission levels and climate change, was introduced in Germany, Scandinavia and Switzerland.

Haeser expects such efforts to pay off in the long run, despite their initial cost. Indeed, "green" companies must be willing to meet the price tag associated with new technology. Con-way Inc., which has trucking operations all over the country, is looking at engines that meet new emissions requirements set by the U.S. Environmental Protection Agency (EPA). The standards for "clean" diesel engines begin phasing in on Jan. 1, 2007, with full implementation in 2010.

The rule will add around $7,000 to the price of each engine, says Con-way vice president of marketing Ned Moritz. The units will also require additional maintenance, along with a new type of exhaust particulate trap. Con-way, which operates 8,000 power units, is currently testing two of the new engines.

Moritz's biggest concern is the prospect of additional breakdowns on the road due to the new engine technology, resulting in unhappy customers. "It gets right to the heart of what we sell-and that's service," he says. Nevertheless, Con-way is committed to a program of environmental improvement. Last summer, it joined the SmartWay Transport Partnership, a voluntary initiative between the EPA and commercial freight industry. An EPA assessment of Con-way's operations found the trucker already ranks in the top 2 percent of "green" fleets in the U.S., the company says. Related efforts by Con-way include the development of more efficient tires, mirrors that result in less drag, synthetic lubricants and other techniques to boost engine efficiency and reduce emissions.

View From the Port
When it comes to environmental impacts, seaports have less of a public profile-except among those members of the public who happen to live near them. Southern California container ports, which are at the center of a boom in Asian imports, have drawn criticism from local communities for some of their practices. Residents have complained of noise and pollutants from trucks and trains, as well as emissions caused by giant containerships that keep their engines running while berthed.

The Port of Long Beach, which together with neighboring Los Angeles moves more containers than any other U.S. port complex, is acutely aware of its impact on the environment. Last year, its harbor commission enacted an environmental "code of ethics" which has resulted in a green policy for port operations.

Since then, the port has been working to convince tenants to adopt new technologies and processes for cutting down on pollution. It has entered into "green leases" with at least two carriers, Matson Navigation Co. and "K" Line. Provisions include a requirement that ships plug into dockside electricity while at berth, and shut down their diesel engines. "K" Line's terminal operator, the subsidiary International Transportation Service Inc., has also promised to pursue the use of cleaner trucks and yard equipment.

Such measures can reduce diesel pollution at the port within five years, and by 90 percent within a decade, says Port of Long Beach spokesman Art Wong. The trick is getting shipping lines to go along. The port is adding stricter environmental requirements to each new or renegotiated lease, although it can't do much while a current contract remains in effect. But even lines with long-term leases often need to renegotiate in order to handle growing volumes of cargo, Wong says.

Inland logistics facilities are equally affected by the green movement. The Holland International Distribution Council (HIDC) promotes the Netherlands as a central point of distribution for much of Europe. Small as the country is, it has played a major role in delivering freight to and from points all over the continent. Along with that status has come a certain amount of congestion, pollution, and clashes with environmental advocates.

Now, HIDC is working hard to boost the Netherlands' green profile. It is promoting the design and construction of multi-purpose warehouses, which can function more efficiently in a time of flux. Dedicated, customized warehouses were fine when tenants remained on site for 20 years, notes Ron Roest, general manager of logistics with HIDC. Today, lease terms are more likely to run for three to five years, creating the possibility that pricey dedicated facilities will either sit empty or have to be extensively remodeled to accommodate new tenants.

The goal is to make the basic warehouse structure as generic as possible, says Roest. He expects to see fewer automated, high-bay warehouses, which seemed the rage for a brief period. In their place will be multi-client facilities operated by logistics service providers, riding the current wave of outsourcing. Such structures will be designed for maximum energy efficiency, utilizing bigger windows and solar panels, among other green tools.

Meanwhile, says Roest, HIDC will continue to promote the use of barge services, which can reduce the number of trucks that clog the roads of Northern Europe. "Fifty percent of containers from Rotterdam currently go into the hinterland by rail and barge," he says.

Shippers and logistics providers struggling with current environmental regulations face an unsettling truth: it's about to get even more intense. RoHS and WEEE are only the beginning, says Richard Kubin, vice president of solution engineering with Redwood City, Calif.-based E2open. His company makes software that links manufacturers with suppliers, allowing for visibility of product and orders across the supply chain.

Companies may be outsourcing manufacturing and other supply chain processes, but they're still responsible for adhering to environmental laws, Kubin says. They must collect a wealth of data about product content that can be supplied to regulators on demand. To do that, they need systems for communicating with suppliers and passing critical data. E2open's software platform gathers information from suppliers, compiles it at the product level and provides it to customers and regulators upon request.

Systems for complying with RoHS and WEEE will need to be extended to handle the next bundle of European Union regulations. It is known as REACH, which stands for Registration, Evaluation, Authorization and Restriction of Chemicals. The directive requires any manufacturer that imports more than a ton of a given chemical in a year to register it in a central database.

In addition, says Kubin, the EU will mandate that manufacturers detail the environmental impact of certain energy-using products "from cradle to grave"-during raw-materials sourcing, manufacturing, useful life of the product and recycling. All of that information will be rolled into a label for inspection by consumers and European regulators.

The new rules might sound onerous, but companies that start now to install systems that make them compliant will have a competitive advantage. "The platform is already there," says Kubin. "It's really just an extension of those existing pipes."

Moreover, as with previous efforts to build green supply chains, companies could discover that the new measures end up boosting profitability. "At the end of the day," says DHL's Haeser, "we find there is almost always a positive business case."