Green gets the Edge

As society demands higher environmental standards from the corporate sector, the drive towards a greener supply chain gains momentum.

In a recent survey by consulting firm McKinsey & Co., of 391 CEOs of companies around the globe, 95 per cent of respondents acknowledged that society now has higher expectations of how companies will meet their ‘public responsibilities’ than five years ago, and more than half said those expectations will rise further in the next five years.

“Many of the CEOs we interviewed observed that satisfying the shareholders is no longer good enough. Consumers will punish companies that don’t fulfill their public responsibilities, causing their market shares to decline,” wrote Debby Bielak, Sheila M.J. Bonini and Jeremy M. Oppenheim, in an article about the survey in the October 2007 issue of The McKinsey Quarterly.

Yet, while the drive toward a greener supply chain appears to be gaining momentum, the companies that are actually taking steps in this direction remain in the minority. While 59 per cent of CEOs in the McKinsey survey said they believed their companies ought to incorporate environmental, social and governance considerations into how they manage their supply chains, only 27 per cent said they currently do so. The primary obstacle, as the CEOs saw it, was the difficulty in changing practices at their companies’ suppliers.

Most supply chain managers are only now adding green to their ‘To Do’ lists and some initiatives are already on the drawing board. Big retailers, such as Wal Mart and Tesco, are beginning to ask their suppliers for information about their carbon footprint and the greenhouse gas emissions of the products they’re selling but these companies realise they don’t have the answers because they don’t know what their supply chains do.

So how should a company develop a green supply chain? The United States Environmental Protection Agency (EPA) has written a guide called the ‘The Lean and Green Supply Chain: A Practical Guide for Materials Managers and Supply Chain Managers to Reduce Costs and Improve Environmental Performance’. This is an outstanding guide that provides a systematic approach to implementing a Green Supply Chain. It favours a four-step decision making process.

• Step 1 – Identifying environmental costs within a process or facility.
• Step 2 – Determining opportunities that will yield significant cost savings and reduce environmental impact.
• Step 3 – Calculating the benefits of the proposed alternatives.
• Step 4 – Deciding, implementing and monitoring improvement solutions.

The manual also gives several great examples of what companies have done to ‘green’ their supply chains.

In addition, with the introduction of ISO 14000, it is hoped that companies will be more concerned about their environmental performance, not only with respect to gaining market advantage, but also in terms of the green supply chain.

Organisations are required to improve their environmental performance in order to be eligible for the ISO 14001 certification and are including environmental issues in their negotiation with suppliers to maintain their market share and, sometimes, even just to survive. However, in most Asian countries, environmental protection has also been treated as an additional cost to companies, particularly SMEs, who do not have the resources to improve their environmental performance. Companies are realising they can use their purchasing power to influence the suppliers for ISO 14001 compliance and some companies are providing training and technical support to their suppliers to improve environmental performance.

Green supply chain management (GSCM) provides companies with a means to enhance their productivity and quality and improve environmental performance. GSCM will assist organisations in improving their environmental performance by first reducing the waste at the source, and then reusing, recovering and recycling waste. Any residual waste will be treated by the end-of-lifecycle system. GSCM, therefore, could improve profitability of organisations, and create an advantage on competitiveness by reducing the costs of production and operation.

The chart below shows what a green supply chain looks like within a company. Sustainability can be a significant means for companies to reduce costs and there are several facets of the supply chain that can be improved by looking at them from a sustainability standpoint. The first issue that sustainable companies are focusing on is the design and manufacture of the product.

There are a lot of other ways to create value with green thinking. In the future, this is going to include the gathering of more environmental data that a company can package for its business customers and the information movement in this area is going to be profound. The problem, of course, is figuring out where a company can look to get the data that will allow it to measure its environmental impact.

One software provider has recently added a module to its solution that models a supply chain network for carbon emissions. Once the supply chain network is defined, including transportation lanes and modes, along with the size and location of each manufacturing plant and distribution centre, the system can very quickly come up with the current carbon footprint.

Take that concept one step further and the solution can simulate the optimal network design to achieve reduced emission targets. The system also has the ability to allow companies to model ways to reach a target emission level using carbon off-sets.

The ability to measure the greenness of a supply chain is going to be a competitive advantage in the future, according to the software provider. “We created this because one of our European clients was required to provide this type of information and didn’t know how to get it,” he says. “As we talk to our other clients in the CPG industries, they’re telling us that green is on their shortlist of goals for the year.”

In the future, companies will be moving to a sustainable supply chain. The harsh reality is that the industry needs to change what it is doing from a supply chain standpoint in order to ensure that future generations will have resources to use in their lifetime. The benefit of implementing a green sustainable supply chain is that businesses can improve their profitability and help the environment. Thus, green is not just the right thing to do but it can also be profitable.