Rapidly rising energy costs and environmental concerns have driven 'green' issues ever higher on the business agenda.
However, companies must green their entire supply chain if they are to prove to stakeholders that they are listening to their demands. Dr Anne-Marie Warris, Technical Director, Climate Change at LRQA outlines the key benefits to be gained from a green supply chain (GSC) and points the way forward for those companies that have yet to exploit the many benefits that can be gained.
What is a 'green' supply chain?
The term 'green' is potentially misleading. In common parlance, green implies good environmental performance as perceived by the stakeholder group evaluating the green claims. However, a GSC needs to cover all relevant green areas as well as incorporating social and ethical challenges.
Furthermore a GSC is not an alternative to a lean supply chain most businesses find that GSC initiatives deliver bottom line benefits.
Why develop a green supply chain?
Generally, GSC initiatives reduce risk, improve brand perception, comply with consumer demand, reduce costs and contribute to the implementation of corporate responsibility strategies.
Consumer demand for 'green' products is growing. A study (Accenture, 2007) of more than 7,500 consumers in 17 countries in North America, Europe and Asia found that 64% of respondents said they would be willing to pay a higher price - a premium of 11% on average - for products and services that produce lower greenhouse gas emissions. In addition, a recent report published by Forum for the Future in the UK, reported 85% of respondents (in a survey of 1000 people) want more information on the environmental impacts of the products that they buy and two thirds of consumers want government and business to phase out or 'choice edit' products that are harmful to the environment.
Many businesses have recognised that new regulations will have a significant effect upon them, so, rather than waiting for that day to come, they are taking action now. Such activity demonstrates that the company is a leader in the green arena, which makes a positive contribution to brand value.
Effective GSC initiatives address every stage in the supply chain and not simply the key suppliers. They incorporate transportation issues and ethical sourcing while considering the complete life cycle of the delivered product or service.
The benefits of GSC initiatives to brand value are less tangible than say, energy use reductions. However, for many businesses the achievement of brand recognition and its association with the one world concept will represent a key to survival in the new carbon constrained economy.
For many, the over-riding reason for GSC initiatives is corporate responsibility; companies need to be able to demonstrate that they act responsibly on social and environmental issues. This is highlighted by the rapid growth in management system standards such as ISO14001 (environmental management system) and SA8000 (social accountability).
Corporate responsibility (CR) statements are now commonplace and demand for verification of ISO14064 (standard for the voluntary quantification and reporting of greenhouse gas emissions) is growing in addition to the demand for verifiable carbon footprinting.
A report[i] recently published by Corporateregister.com indicates that the inclusion of assurance statements in corporate responsibility reports has increased every year for the past 15 years. The site insists that CR reports should include quantified data with timescales to differentiate them from marketing brochures.
The greening of supply chains represents one of the most effective ways in which companies can fulfil their climate change responsibilities and the urgency of the need for action means that decisions need to be taken now.
Al Gore recently said, I believe that one of the most powerful motivations for us today is to use our moral imagination to realise that, not too long from now, the next generation will ask one of two questions.
They will ask: What were they thinking? Or: How did they find the courage to rise and solve a crisis so many said was impossible to solve? That choice is ours and we must make it now.
Presumably everyone is busy greening their supply chain?
One would suppose, in the light of the overwhelming argument for GSC initiatives, that few other items are given a higher level of priority on the boardroom agenda. However, at the time of writing, this would not appear to be the case for a surprising number of businesses. So, why not?
Firstly, whose responsibility is it?
The danger is that GSC responsibility may actually fall between the chairs at the board table, so it is important for the CEO to resolve this.
Despite the potential for significant financial gains, most supply chain managers do not currently focus on green concerns. One of the reasons for this is that traditional cost accounting systems tend not to reveal true green costs. For example, whilst raw material or supply costs will be applied to a particular product cost centre, other green costs such as waste disposal, waste treatment, training, hazardous material administrative and regulatory compliance may not be correctly attributed.
Environmental accounting techniques uncover previously hidden costs and reveal new opportunities for cost reduction. For example, GM Corp. reduced its disposal costs by $12million through the deployment of reusable containers with its suppliers.
Any cynicism surrounding the potential benefits of GSC initiatives is likely to result from the perception that whilst consumers want green benefits, they may not be prepared to pay for them. However, even if consumers are not prepared to pay extra, they are willing to exercise choice to choose one product over another because of its green credentials.
How to implement a green supply chain
There are a number of key elements in the creation of a successful GSC, but perhaps the most important of these is senior management commitment to publicly stated verifiable objectives.
For example, BT's climate strategy, launched in January 2007, includes a commitment to engage suppliers to help reduce the environmental impact of the company's products.
BT has introduced three procurement principles on how they engage with suppliers on climate change:
1. BT will harness the capability, diversity and innovation of the supply base to add value to the business and encourage suppliers to offer solutions which have a reduced environmental impact.
2. The energy consumption and environmental impact of a product or service (from manufacture, through usage, to disposal) is a mandatory criterion in all tender adjudication.
3. That the energy consumption and environmental impact of any replacement product or service is less than its predecessor. (source: www.btplc.com)
Before embarking on the development of a GSC, businesses should naturally ensure that their own house is in order suppliers are less likely to respond positively to requests for environmental improvements from companies that are not making any themselves!
Furthermore, just as pollution prevention is better than cure; environmental supply chain costs can be prevented through sustainability in product design.
GSC initiatives should be conducted in partnership with suppliers and customers. For example, many companies run 'supplier days' at which a joint approach is adopted in the identification of opportunities for environmental performance improvements. The benefit of these face-to-face meetings is to assure all stakeholders that the initiative is a partnership designed to benefit all parties and is not just the imposition of a new burden.
It is important to appreciate that GSC initiatives may not be simple and quick to implement because the business processes required to capture supply chain data may not be in place. However, many companies have found that quick wins can be achieved with initiatives such as materials recycling or re-use, improved logistic planning and management.
Whilst cost reduction is a key objective, security of supply is also vitally important. Therefore, businesses should work together to improve the efficiency of the supply chain for the benefit of all participants.
Historically, supply chain decisions were based on cost and service levels. Lean production systems created small batches to reduce inventory with fast lead times. This necessitated more frequent transportation of shipments, often from low manufacturing cost countries, which may conflict with the new requirement for energy efficiency.
Clearly, accurate data throughout the supply chain is needed to facilitate sound supply chain decisions because a reduction in transportation does not always lead to lower carbon emissions. For example, in 2007, Youngs moved the de-shelling of langoustines process from Scotland to Thailand and a detailed analysis of the carbon emissions revealed no significant difference, despite the length of transportation that this entailed.
Similarly, Wal-Mart worked with the Carbon Disclosure Project (CDP) to assess the companys greenhouse gas emissions and discovered that the refrigerants used in grocery stores made up a larger percentage of the company's greenhouse gas footprint than its truck fleet. Although a significant effort is focused on trucks to improve their fuel efficiency, this new insight is focusing Wal-Mart on the potential of reducing its refrigerant footprint.
Other major companies, including Cadbury Schweppes, Dell, HP, Imperial Tobacco, LOreal, Nestl, PepsiCo, Procter & Gamble, Reckitt Benckiser, Tesco, and Unilever have recognised that their brand reputation is at stake and are also working with CDP to assess supply chain carbon footprint.
Once a GSC has been developed and continuous improvement is endemic, it is vitally important to publicise the benefits that have been generated in order to enjoy the brand differentiation that has been made possible.
Finally, the window of opportunity is open wide, so companies should set milestones, start with the 'big wins', and above all, start now!