A Green Supply Chain Starts with a Promise, But Needs Verification Too

In the past month, a number of large-scale products manufacturers (IBM, Ford, Intel, Proctor & Gamble, Puma) and service providers (Kaiser Permanente) have issued sustainability focused supply chain related announcements.  As noted by Green Advantages’ Andrew Winston, a common theme of each of these mandates focuses on “transparency” (http://bit.ly/a8Tjfq).  Also, new reports are emerging that companies are taking climate change programs to their respective supply bases (http://bit.ly/bbNCya) as means to support corporate responsibility reporting.

But, while a “Green Supply Chain” starts with a promise and a goal or two, what I have heard from many logistics and sustainability professionals that the hard work centers on actually requiring and monitoring supply chain compliance.  Most practitioners believe, as I do that sustainable sourcing and green supply chain effectiveness must include supplier monitoring and “verification” to truly be effective and sustainable.  This need was also underscored recently by reports out of China that many IT suppliers to major global electronics manufacturers were in “gross” violation of many of China’s environmental regulations (see China’s IT Poisons in the Huffington Post http://huff.to/a3mlcx).

That is why the mandates from IBM, Proctor & Gamble and Kaiser Permanente stand above the rest and offer great promise.  Each of these programs includes a verification element to supplier conformance.  In addition the IBM and Proctor & Gamble initiatives contain a component that rates individual vendors on the basis of maintaining a proactive environmental management system and other key environmental performance metrics important to each company.  This data in turn is rolled up to support company-specific corporate sustainability performance criteria.  Monitoring and verification through demonstrated performance metrics is strongly encouraged through implementation of proactive management systems (such as ISO 14001-2004 or other continual improvement based certifications).  This step assures that the information provided by suppliers is accurate (so as to not compromise what is reported and to avoid reputational risk in corporate social responsibility reporting).

There is no doubt in my mind that green supply chain management 1) improves logistics agility by helping company’s mitigate or leverage risks and speed innovations; 2) increases adaptability by fostering innovative processes and continuous improvements, and (most importantly) 3) promotes alignment, by creating a platform to negotiate policies between suppliers and customers, thus resulting in better alignment of business processes and principles.

Last month I spoke at the Aberdeen Research Group Supply Chain Summit in San Francisco (http://bit.ly/d7e856 )on strategic and tactical steps that companies can take to green their supply chain.  A key takeaway from many of the presentations at the conference was the critical importance and value of “collaboration” and optimized value chain management to leverage supply chain positioning.  These two elements are critical elements to successful supply chain “greening” as I recently noted (http://bit.ly/93C2Xp).  Three tactical tools that I discussed at the Aberdeen Summit include:

1) Prequalification of suppliers

• Require/encourage environmental criteria for approved suppliers
• Require/encourage suppliers to undertake independent environmental certification (ISO 14001)

2) Environmental requirements at the purchasing phase

• Build environmental criteria into supplier contract specs
• Incorporate 3BL staff on sourcing teams

3) Multi-tiered supply base environmental performance management

• Supplier environmental questionnaires
• On site supplier environmental audits and assessments

Finally in order to be successful in implementation of sustainable supply chain practices, it’s vital that suppliers are engaged early in the supply chain development process by : 1) working with industry peers to standardize requirements; 2) informing suppliers of corporate environmental concerns by issuing statements related to triple bottom line priorities to suppliers or distributing a comprehensive green supply chain management policy ; and 3) promotion of exchange of information and ideas through sponsored supplier events and mentoring programs.

I summed up my presentation (can be viewed here http://slidesha.re/9fY6mz) with a few key points, which I offer for your consideration:

• Look for the win-win and make the business case, both internally and externally
• Consider the holistic supply chain – engage your key suppliers that are most vital to your most important product
• Consider all aspects of your business & innovate
• Consider the Extended Enterprise both up and downstream of your organization (several tiers deep)

Perhaps most importantly, get started today and engage your supply chain to implement green practices.  Improving sustainability in the supply chain and implementing verification practices may be the key to pulling away from your competitors and establishing your company as sustainability-focused, “best-in-class”  leader.

Risky Business: Why Better Risk Management Can Protect Lives & the Environment- Part 2

In my last post, I called out the mining and oil industries, two of the most risk prone resource extraction industries, for lapses in risk management protocols.  In the past week, Congressional testimony over the BP spill has begun, the finger pointing has started- and yet the spill continues largely unabated (see BP calls blowout disaster ‘inconceivable,’ ‘unprecedented,’ and ‘unforeseeable’ http://bit.ly/b6YEHo ).  Rep. Henry Waxman was quoted as saying “This catastrophe appears to have been caused by a calamitous series of equipment and operational failures”.  It appears on initial investigation that BP, Halliburton and Transocean (the drilling contractor) could have proactively checked battery conditions, verified well plugging, weld integrity and electrical wiring, all believed to be contributors to the failure (see “On doomed rig, lapses sparked catastrophe – Reuters http://bit.ly/cjkdTM).

However let me applaud all those who have worked tirelessly to plug the leak.  Correctly, much of the discussion this past week has now shifted to how risk containment and control and proper contingency planning could have been better planned and executed.  So far, there have been many questions asked but few concrete answers- just deflection (http://www.theenergycollective.com/TheEnergyCollective/64685)

OK, enough table-setting, let’s get to it, shall we?

Step 1: The first step in the risk management process is identifying the key, significant routine or non-routine risks a that a business might face.  These risks can occur during operations, maintenance or post operations circumstances

Step 2: The next step in the risk management process is to analyze or assess which of the routine or non-routines risks might have the greatest negative impact on the company, its employees and the environment. In  prioritizing the risks, companies need to determine which of those risk factors identified (be they human health, environment or financial) the company has control over and which ones it does not can create the greatest immediate and long term impact.

Step 3: After assessing and prioritizing each risk, each risk must be evaluated against specific company criteria, health, safety and environment and industry protocols. To complete this step, specific reference criteria needs to be established that  characterizes and scores risks on the basis of scale and severity, probability and frequency of duration, feasibility of mitigation , stakeholder issues and costs. By specifically evaluating possible repercussions of each risk on the company or business objectives based on “reasonably foreseeable” incident scenarios, the company will be better prepared to deal with the outcomes.

Step 4: The fourth step in the risk management process is creating a risk containment, control and long term contingency plan for each potential risk scenario. Based on each risk and its effect on the company’s goals, the risk manager must determine what can be done to treat each risk and plan for each incident . Creating a contingency and treatment plan will require deciding which risks can be avoided and which ones can only be lessened or mitigated with administrative or engineered controls.

Step 5. Simply, implement the risk management and contingency process.  Make sure that employees are trained.  Ensure that both internal and external communication processes and in place. Test the emergency and incident response systems that have been implemented.  Make corrections and continually update the scenario planning.

Step 6: The final and perhaps most vital part of the risk management process is monitoring and oversight.   By keeping the eye on the ball, companies could have likely avoided the coal and oil disasters that occurred last month.  By continually monitoring, reviewing decisions made  and correcting issues that could contribute to catastrophic failures, companies can avoid or mitigate losses to life, property and the environment.  This is likely where the Massey and BP failures occurred.

In summary, a continuous risk management process helps organizations understand, manage, and communicate risk and avoid potential catastrophic conditions that can lead to loss of life, property and the environment.  Risk Management helps organizations:

• Identify critical and non-critical risks
• Document each risk in-depth
• Log all risks and notify management of their severity
• Take action to reduce the likelihood of risks occurring
• Reduce the impact on  business, life, and the environment

It all sounds so simple, right? It will be interesting to see what emerges as the investigations into the recent oil and coal disasters continue to unfold.  What will be more fascinating will be the lessons learned and if businesses truly embrace risk management planning and implementation as a central function of business, take it seriously and hold themselves accountable.

Risky Business: Why Better Risk Management Can Protect Lives & the Environment- Part 1

As noted by Jonathan Hiskes from Grist.org the other day, in the aftermath of the 40th anniversary of Earth Day, it was a hard week and month for the planet.  Hiskes remarked that there was a “confluence of terrible, horrible, no-good, very-bad events, rounding up what has to be the most disheartening “Earth Month” ever, “brought to you by the fossil-fuel industry” (http://bit.ly/dgFrBa).  There is no doubt that mining of coal, deep water extraction of oil reserves in the Gulf, and even off-shore wind development have had their dark days or have met with stiff resistance.  Risky operations can have “unintended consequences”, and that is just fine so long as adequate protective measures are in place…and followed.

There are plenty of places to read more about these unfortunate and potentially devastating events.  Blame has been thrown in all directions.  I myself have been quite vocal in recent weeks about the potentially complicit nature of Massey Coals (mis) management which may have led to the unnecessary deaths of the two dozen West Virginia miners last month.  Each safety or environmental accident may in its own right be a “game changer”.  The great political sage, Daniel Schoor ( National Public Radio), in discussing the wealth of political issues facing Washington politicians this year, asked earlier in the week, “What price energy? “(On Hill, Toughest Debate Is Often What to Do First  http://n.pr/aqNR2g)   Is it forty miners and roughnecks dead, or countless soldiers protecting oil “interests” in far away wars?

There are more examples.    A slower “unintended consequence” of the housing boom (and bust) is the unchecked soil erosion from abandoned construction sites and impacted water quality.  Pick any corner of the country and there are mini-Grand Canyons popping up from on-going runoff problems at construction sites that are in foreclosure or bankruptcy. In California, where I advised on construction site soil and storm-water management, laws and protections were put in place to address these issues.  Yet enforcement and cost recovery continues to be weak and require constant vigilance and draining of already thin public resources.  States or local jurisdictions, or the banks holding the properties in foreclosure have been left to take care of these orphaned properties.

Who Loses When Risk is Not Managed?

I have no doubt that there has been a central breakdown in process risk management, commonly used by organizations to establish procedures to safely manage the greatest of uncertainties of its daily operations.  This means that if a company is going to drill a mile under the Gulf of Mexico, they should FIRST make certain that all possible failure scenarios are identified, evaluated, tested and implemented, before that first barrel of oil is extracted (see a recent guest post on Solve Climate entitled“ A Dangerous Life Miles from Land and Focused on One Thing: Black Gold”  at http://bit.ly/aC1TkK and 2003 oil industry report that warned blowout preventer problems weren’t being fixed  http://bit.ly/bEBI05). While it’s vital that 24 hour protocols be applied to day-to-day activities that may be a threat to environmental well-being, unforeseeable events involving human error or equipment failure must be managed too.

In each of the recent events, inadequate steps have been put in place to 1) evaluate “worst case” impacts associated with catastrophic failures of equipment or systems; 2) establish policies and program to mitigate short and long term environmental risk factors and 3) assure that there are financial cushions (cleanup and reclamation bonds, for instance) that continue to hold those liable before they can run or hide.

My experience with risk management suggests that organizations take four approaches for “handling” a risk:

• Control – lower the probability of the risk event occurrence.
• Avoid – eliminate the opportunity for the risk to occur.
• Assume – acknowledge a future risk event & accept the potential consequences without efforts to control it.
• Transfer – reduce the risk exposure by reallocating the risk from one part of the system to another part.

It would seem that despite BP’s, Massey’s or other company’s claims to know their own business, they employed short-sighted risk management, ignoring possible “unintended consequences”, dropping their eyes on the ball and leading to the resultant safety and environmental impacts.  I would not say this if this was a one-time situation.  But in both  company’s cases, repeated safety and environmental violations over the years (and many deadly and environmentally catastrophic  accidents) suggest just this.

Non-routine accidents or incidents in dangerous working conditions (whether a mile under a mountain or under the sea) must be thoroughly re-evaluated. Risk management processes must revisited now to further lower or eliminate worker safety and environment damages.  Anything less creates unacceptable risk.

In my next post I will describe what process risk management is all about (see below) and what organizations can do to analyze, assess and plan for that “unintended consequence”.