The Power of Greening Supply Chains

Posted on Jun 24 2010 at 06:42:42 PM in Business & Economy

Sustainable supply chains are an integral part of a rapidly growing trend that is transforming businesses around the world. Supply chains are critical links that connect an organisation’s inputs to its outputs. The increasing environmental costs of these networks and growing consumer pressure for eco-friendly products has led many organisations to look at supply chain sustainability as a new measure of profitable logistics management.

Approximately 70 percent of all surveyed top executives consider sustainability efforts essential to long-term profitability. For firms' purchasing strategies, purchasing heads rank environmental efforts as most important among sustainability initiatives.

In response to overwhelming demand for sustainable supply chain expertise, educational facilities like the W. P. Carey School of Business at Arizona State University are building green supply chains into their curriculums.

The level of an organizations involvement can be catagorized into one of three general groups sometimes referred to as the three tiers of sustainability.

Tier 1) The Basics: This is the base level where companies employ simple measures such as switching lights and PCs off when left idle, recycling paper, and using greener forms of travel with the purpose of reducing the day-to-day carbon footprint. Some companies also employ self-service technologies such as centralised procurement and teleconferencing.

Tier 2) Thinking Sustainably: This is the second level, where companies begin to realise the need to embed sustainability into supply chain operations. Companies tend to achieve this level when they assess their impact across a local range of operations. In terms of the supply chain, this could involve supplier management, product design, manufacturing rationalisation, and distribution optimisation.

Tier 3) The Science of Sustainability: The third tier of supply chain sustainability uses detailed auditing and benchmarks to provide a framework for governing sustainable supply chain operations. This clarifies the environmental impact of adjustments to supply chain agility, flexibility, and cost in the supply chain network. Moving towards this level means being driven by the current climate as well as pushing emerging regulations and standards at both an industry and governmental level.

An October 2009 GTM report, titled Greening the Supply Chain: Benchmarking Sustainability Practices and Trends, indicates that green supply chain leaders are benefiting from reduced costs, increased revenue and recognition.

The report includes case studies and interviews with supply chain executives and sustainability officers. Although energy reduction in the supply chain has received a lot of attention, there are other efforts including more efficient product designs.

According to David Schatsky, one of the report's authors, "The supply chain represents a big opportunity for firms to realize the financial, operational and strategic benefits of sustainable business practices."

Despite its growing prominence, sustainability is not at the core of most companies’ strategic planning and although involvement is increasing, it is not yet the prime driver of supply chain agendas.

While there are many benefits to greening the supply chain, there are also impediments. Many companies cannot fully evaluate their suppliers and customers, making it difficult to assess the true environmental costs. However, as the basic standards of sustainability reporting become increasingly common it will be easier to make more accurate assessments.

Sustainable supply chain efforts are a defining feature of a serious environmental commitment. Overall the research indicates that firms that take sustainability seriously show major competitive advantages, especially with regard to production efficiency, supplier management skills and employee morale.
  Supply chain sustainability reporting is a key feature of Puma’s overall sustainability strategy. At the GRI Global Conference in Amsterdam, sporting goods manufacturer Puma, in cooperation with the Global Reporting Initiative, announced its intention to expand environmental considerations and improve working conditions throughout their strategic supplier network.

Those responsible for more than two-thirds of all Puma products will receive GRI certified training on transparent measurement and reporting on their sustainability performance using the GRI G3 Guidelines. These twenty Puma suppliers are based in China, Vietnam, Cambodia and other countries. The first sustainability reports are expected to be released in 2011/2012.

Reiner Hengstmann, Puma’s Global Head of Social and Environmental Affairs said, “Without sustainable suppliers, we will not be able to produce sustainable products or credibly report about Puma’s own sustainability initiatives.”

Puma originally joined a GRI pilot project called “Transparency in the Supply Chain” back in 2006. Under this project three South African Puma suppliers were trained on issuing sustainability reports. Managers learned how to measure sustainability concepts such as waste diversion, energy efficiency, and other performance indicators.

As the result of this training Impahla Clothing, a Puma supplier in Capetown, was the first carbon-neutral garment supplier on the African continent in 2009. Impalah's 2009 Sustainability Reports reveals a 40% increase in production, a doubling of its permanent staff, and a 10% drop in absenteeism. The company's bottom line improved through the cost savings gained.

Similar projects are underway in China, South Asia, Turkey, and Portugal. By engaging with its vendors and offering them further resources, PUMA has empowered these companies to proactively address the weak points in their operations, while also giving them the tools to find those improvements independently.

Many companies can learn from PUMA's leadership. PUMA has added value to its offering by changing its corporate mission from the most 'desirable' sporting brand, to 'desirable AND sustainable.' Once accused of having low labor standards, Puma is now emphasizing transparency and using supply chain reporting as a central part of its strategy to become the most sustainable sport-lifestyle company in the world.   Walmart and HP are also leveraging their buying power to increase sustainability throughout their supply chains. Wal-Mart has launched a number of sustainable supply chain programs, including its Sustainability Value Network which directly involves its suppliers in a number of green initiatives. Wal-mart also implemented a supplier packaging scorecard, that formally rates suppliers on their progress toward developing sustainable packaging, as well as their ability to help Wal-Mart reach the company's sustainability goals to reduce waste, use renewable energy and sell sustainable products.

In 2008, HP published a set of guidelines to make their supply chain more sustainable. The guidelines help multinationals to better equip their suppliers. This initiative focuses on assisting small and medium-sized business to effectively compete in the global market while improving environmental standards.   Research funded by the European Supply Chain Institute (ESCI) indicates that IT supply chains afford significant opportunities for carbon reduction.

The ESCI is a member-driven organization that researches all areas that will have a direct, positive impact within the supply chain. Last September, ESCI formed a new group called the Supply Chain Carbon Council to research issues related to carbon emissions in the supply chain and make recommendations.

According to the Supply Chain Carbon Council, “Businesses need to focus less on how IT contributes to their environmental impact and more on how IT can help lessen the environmental impact of their supply chain operations. While making IT more green must remains a concern, there are areas where deploying more IT can significantly contribute to making an organization’s supply chain activities more environmentally sustainable.”

There’s a mounting evidence to indicate that by leveraging their supply chains companies can multiply environmental benefits. Although there are barriers that need to be overcome, sustainable supply chains are part of a world changing trend that is sure to continue.
  Article Information
Author: TheGreenGuy
Created: Jun 24 2010 at 06:42:42 PM
Updated: Jun 24 2010 at 06:42:42 PM
Language: English