Supply chain greening — the new world class

supply chain greening

Executive Summary
Improving resource productivity — the amount of energy or material needed per output unit — not only helps the environment, but can positively affect an organisation’s bottom line. As illustrated by the authors, going ‘lean and green’ might be the best move an organisation can make.

 

The threats to our planet from greenhouse gas emissions and other forms of pollution and resource depletion are becoming increasingly clear. Volatility and increases in energy, water and raw materials costs, increasing environmental regulation, and a growing consumer demand for eco-friendly processes and products are on the rise. The new competitive advantage will be, and in many cases already is, ‘eco-advantage’.

Harvard Business School’s Michael Porter describes two basic categories for competitive advantage: lower costs compared with the competition and product differentiation in terms of quality, features or service. In line with this thinking, improving resource productivity — the amount of energy or material needed per output unit — goes straight to the bottom line.

The new competitive advantage will be, and in many cases already is, ‘eco-advantage’.

Product differentiation through good environmental stewardship can up sales and justify a price premium, as well as strengthen relationships with customers, employees and other stakeholders. To survive and thrive in today’s new economic and environmental climate, going ‘lean and green’ might be the best move an organisation could make.

Drivers of the new green business paradigm

  • Climate change and emission regulation
    Rising temperatures and sea levels, unpredictable weather conditions and disrupted ecosystems are already impacting livelihoods and industries.
    DuPont, for example, has seen significant savings, estimated at US$2 billion annually through increased energy efficiency and US$10-15 million annually from using renewable energy. 
    Forecasts predict climate change in the form of drought and flood conditions that could dramatically affect productivity of current farming regions. Furthermore, as habitats change, they predict fundamental changes to which (and where) species will thrive or die. Agriculture, forestry and fishing industries are already feeling the impact of the sudden loss or migration of species. And we see an increase in extreme weather conditions that influence the lives of millions, disrupt transport systems and halt business altogether.

    Beyond these direct weather and temperature effects, every company will face increased regulatory policies to control greenhouse gas emissions. Regulations may take the form of higher taxes on fossil fuels or emissions trading (cap-and-trade) — energy efficiency standards or policies to ensure use of cleaner technologies. Many leading companies have calculated their carbon footprint, are reducing electricity consumption and are investing in solutions such as renewable energies to reduce emission levels. Their experience shows that taking early and voluntary action makes good business sense, drives innovation, offers new competitive opportunities and boosts profits. DuPont, for example, has seen significant savings, estimated at US$2 billion annually through increased energy efficiency and US$10-15 million annually from using renewable energy.

    Managing and converting waste products into raw materials can both add to the bottom line and reduce input costs.
  • Resource availability and costssupply chain greening
    Globally, we’re seeing growing populations, changing lifestyles and increased consumerism, especially in countries such as China and India. Increased consumerism lifts the demand for and price of resources. Oil supplies are dwindling; water demand is outstripping its availability, while the quality of the world’s water is deteriorating steadily; and converted and degraded land is resulting in biodiversity loss and stressed ecosystems. Organisations able to reduce resource consumption through efficiency optimisation, waste reduction and product and process innovation will cut costs and emerge ahead of competitors.

    Managing and converting waste products into raw materials can both add to the bottom line and reduce input costs. Using sludge from an SABMiller brewery as soil-boosting compost is one such example. The sludge — residue from the malted barley, hops and yeast — was previously removed from the brewery three times a week and disposed to landfill. As the sludge is now largely being reused as a nutrient source, its removal as waste has dropped to once a week, resulting in savings of about
    US$39 000 a year.

No place to hide
The internet has empowered consumers to seek out independent information about organisations and their behaviour. Consumers are also able to use the internet to communicate widely and almost instantaneously with other consumers around the world and launch campaigns to advocate their cause. Sites such as Google Earth make visible the impact that some organisations are having on the natural environment anywhere on the globe.

Organisations literally have nowhere to hide. To address consumer perceptions and concerns, many release their own information in the form of annual reports or regular website updates detailing the impact of their operations on the natural environment and communities. A number of initiatives such as the Global Reporting Initiative, the Carbon Disclosure Project and the World Economic Forum Global Greenhouse Gas Register attempt to standardise reporting and encourage transparency from organisations.

Supply chain greeningsupply chain greening
Organisations are beginning to recognise that the environmental performance of suppliers can, by association, impact their business. Every supply chain element affects the environmental footprint of an organisation’s products and services. Organisations are engaging with suppliers to improve their environmental practices and are increasingly listing key environmental performance standards and practices as requirements in supplier contracts.

To green their supply chain, Walmart now requires its major suppliers to measure and provide information on their greenhouse gas emissions, solid waste production and water consumption, among other measures.

Walmart aims to partner with its top 200 supplier factories in China to share information and best practices to assist them in improving energy efficiency.

Improving your business’ environmental sustainability
Companies that are only just becoming aware of the importance of environmental issues to their business might find the journey to ‘lean and green’ daunting. Adopting a systematic approach to understand and then address their environmental impacts will ensure that the right issues are tackled, opportunities are identified early, and that progress is inevitable.

  • Initiate
    Envision your organisation thriving in a post-carbon economy. Toyota did this in 1994 and by 2004, customers were lining up for the Prius — the first hybrid car to be named Car of the Year by Motor Trends. Over 10 years ago British Petroleum’s CEO, Lord John Browne, encouraged his business units to hunt for ways of reducing carbon emissions. Initial process changes cost BP about $20 million but, as of 2007, savings stood at $2 billion (Esty and Winston, 2006).

    Measure the resource use, waste production and biophysical impacts of your organisation. Knowing and making visible your organisation’s environmental footprint exposes opportunities for quick wins, identifies areas for strategic focus, and changes behaviour. Set stretch goals that encourage innovation. SABMiller succeeded in reducing water use by 25% per hectolitre of lager in 2015 and aims to reduce fossil fuel emissions from its sites by 50% per hectolitre of lager by 2020. To make this achievable, each brewery is measured and benchmarked on a performance scale of 1-5.Focus on simple initiatives that make a difference. Halifax Bank in Scotland saved around $1 million annually in energy costs at its 2 000 branches by simply sealing windows, installing efficient lighting and using better controls for lighting and cooling. Half of Sun Microsystems’ employees don’t have assigned desks and 19 000 telework part time, saving $64 million in office space in 2007 and reducing greenhouse gas emissions because of reduced commuting (Esty and Winston, 2006).

    Knowing and making visible your organisation’s environmental footprint exposes opportunities for quick wins, identifies areas for strategic focus, and changes behaviour. 
  • Involve
    Once focus areas have been identified and the big goals have been set, make the responsibility for achieving these goals by building environmental performance indicators into team and employee goals at every level. Train and empower everyone to reduce, recycle and re-use. Invite employees to rethink products and processes, no matter how small.

    Since 3M introduced its 3P (Pollution Prevention Pays) programme, employee ideas and initiatives have resulted in 6 300 projects and more than $1 billion in first-year project savings.supply chain greeningIn 2008, Timberland identified Climate Champions responsible for leading business unit awareness of and accountability for contributions to their carbon neutral goal. As spokespersons, idea generators and solutions providers, they encourage behaviour change in more than 500 employees at the corporate headquarters. Its Earthkeeper programme incentivises employees to bike and carpool to work, eliminate vampire electricity and use web or video conferencing instead of flying to meetings.

  • Innovate
    Innovation drives the step change in environmental performance required to become ‘lean and green’. Innovation of processes, workplaces, supply chains and products results in substantial savings and again creates new competitive opportunities. General Electric’s ‘Ecomagination’ initiative is an example of innovative thinking producing products that are significantly more efficient or emit less greenhouse gases or other pollutants, while still generating profitable corporate growth. Developing partnerships with a range of stakeholders — NGOs, experts, government, communities and other companies — is key to driving innovation and improved environmental performance. Industry-wide concerns are often addressed more effectively through industry partnerships that may standardise processes or develop codes of conduct specific to that industry (Esty and Winston, 2006). Partnerships with government can allow businesses to keep abreast of and give input into legislative changes. NGO partnerships can focus on specific shared resources, such as water. SABMiller recently partnered with the WWF, the conservation NGO, to tackle water scarcity in a number of its key operating countries by engaging with its supply chain, strengthening policy and sharing best practices.

 

Conclusion
Smart companies seize competitive advantage through managing environmental challenges strategically. They know that mismanaging issues such as pollution, toxins in products and consuming large quantities of scarce resources, can be costly to repair, damage brand reputations that have taken years to develop, and can threaten continuation of operations.
Therefore, leading companies not only focus on managing environmental risks and costs, but also know that building environmental factors into their business strategy sparks innovation, creates value and builds competitive advantage. As a result, these companies not only build more resilient, profitable and longer-lasting businesses, but also ensure a safer, healthier and more sustainable planet.
supply chain greening

Disclaimer
This resource has been prepared for general guidance on matters of interest only, and does not constitute professional advice. You should not act upon the information contained herein without obtaining specific professional advice. Competitive Capabilities International (CCI) does not accept or assume any liability, responsibility or duty of care for any consequences of you or anyone else acting, or refraining to act, in reliance on the information contained in this resource or for any decision based on it.

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