Global Supply Chain Survey: Sustainability Efforts Can Move Balance Sheets from Red to Black (with a Little Green)

The eighth annual “Global Survey of Supply Chain Progress,” was released recently.  The poll was conducted by Computer Sciences Corporation (CSC), Supply Chain Management Review, The Eli Broad Graduate School of Management at Michigan State University, with assistance from The Council of Supply Chain Management Professionals (CSCMP) and Supply Chain Europe Magazine.

This year’s survey gauged respondents present competencies and future plans in such areas as supply chain management policies and practices, supply chain continuity, and green and sustainability initiatives.  Understandably, with the down turn in the economy of the past couple of years, the results showed a mixed bag.  However, a key finding from the survey is that supply chain management (SCM) is now perceived by the vast majority of respondents as being of core business importance.  Leaders that implanted SCM practices that led to cost savings yield far greater results than the laggards…er, followers.  Nearly 77 percent of the respondents reported that SCM improvement and emphasis had increased over the past year, leading me and the surveyors to think that many companies may have been much worse off without SCM.

The Green Supply Chain Edge

Meanwhile, green supply chain initiatives indicated “lukewarm results” and once again, the most positive improvements reported resided mainly with the SCM leaders. A large number of respondents reported a modest but steady 3 to 4 percent annual savings, especially in areas of energy, transportation, and packaging.  Clearly, sustainability initiatives have a long ways to go before significant positive results are achieved. But as I see it, that small margin may just be the difference maker for many companies financial health.

The survey found that 49 percent saying they were currently implementing options and another 31 percent currently evaluating options.  When asked to judge performance from a sustainability perspective, the response was a typical bell shaped curve.  Nearly half of the respondents placed themselves squarely in the middle of the pack.

Kimberly-Clark Shows How Green Gets Done

Efficient supply chains are increasingly essential to maintaining prices and generating new revenue.  One example where efficiency has paid off handsomely, with additional environmental benefits is in the case of Kimberly-Clark- you know, the Kleenex folks (and so many other personal care products).   Kimberly-Clark is among those companies that successfully demonstrate that a focus on sustainable business practices goes hand-in-hand with cost reduction and efficiency.  Not only is the company designing and manufacturing products with a smaller environmental footprint, but they are getting smarter about how they transport their product.

According to i2 Technologies, a supply chain solutions provider, Kimberly-Clark is “ both reducing its environmental impact and running a lean and efficient supply chain, which in turn brings real benefit to its biggest customers, grocery retailers, and ultimately to consumers. Along with other initiatives designed to improve its impact on the environment, Kimberly-Clark has implemented i2 Transportation Management order fulfillment solutions in its European and North American operations that manage transportation pricing but have also reduced carbon dioxide (CO2) output. The company estimates that it’s saved over “£1 million, a reduction in mileage of 380,000 miles and a reduction in CO2 of as much as 540,000 kg”.

Perhaps Kimberly-Clarks CEO Tom Falk summed it all up: “”Because sustainability is a core value at Kimberly-Clark, we know that making better choices for the environment and society can many times mean making better choices for our business.”

The innovative example above and the recent CSC Global Survey demonstrate that small incremental gains can make a huge difference between being in the red or in the black on the balance sheets.

This post was originally published on my New Green Supply Chain Blog, which can be found at https://community.kinaxis.com/people/DRMeyer/blog

Redwood Forests Provide a Clue to Business Sustainability and a Greener Supply Chain

Thoreau did it.  So did Carter and Brezhnev, and Reagan and Gorbachev too.  They all took a walk in the woods, like I did on a recent weekend…to explore and resolve internal and external issues.  My hike took place in the coastal redwood forests of the Santa Cruz Mountains on the central California Coast.  A hike through these beautiful groves of ancient redwoods is truly an awe-inspiring, reflective experience. Redwood forests are complex ecosystems. From the tallest trees in the world to the tiniest animal, the whole forest is a working system in a very delicate balance. Everything has a role to play in this forest.

Coastal Redwoods (Sequoia sempervirens) are also known for their resistance to fire.  They are protected by a very thick bark that lacks the highly flammable resin of other tree species. These resilient trees in some cases, can live for more than 2,000 years, making them one of the oldest tree species in the world. Also, unlike most trees, redwoods lack a taproot. Instead, they have a shallow root system that can extend up to 100 hundred feet outward, forming a network of connected root systems with other trees. But despite the connected roots, high winds and/or flooding can bring these massive trees to the ground.

Now substitute the word “forest” with “supply chain”, “tallest tree” with “largest company” and tiniest animal with “smallest supplier”, and you hopefully get where I am going with this post.

I mentioned in prior posts that to make progress on environmental issues in organizations and in supply chain management, organizations must understand that they’re part of a larger system. Fifth Discipline and The Necessary Revolution author Peter Senge makes valid claims that organizations are in a better competitive position if they understand the larger system that they operate within and to work with people you haven’t worked with before.  Like a forest, where all parts depend on the other, if the balance is upset, there can be chaos and poor ecosystem health.  A supply chain is in effect a business ecosystem.  And a supply chain functions the same way as a redwood, in that it has interconnected roots rather than one strong taproot, but can be blown down by external forces that it may not be able to control.

The Concept of Business Ecosystems

Author James Moore developed and popularized the strategic concept of business ecosystems in his 1996 book The Death of Competition: Leadership and Strategy in the Age of Business Ecosystems. According to Moore, a generic business ecosystem is defined as the economic and social environment that consists of organizations, individuals, regulatory structures and controls, government organizations, customers, competitors, suppliers, and the many entities with which a business interacts. The principal purpose of the business ecosystem is to align its members towards a shared vision that is greater than the sum of its parts.  Business ecosystem value is created by the combination of participants and their contributions – and their role within the ecosystem to enable the achievement of a combined vision or goal.

Many organizations have sought ways to deliver greater product and customer value through innovative supply chain solutions. The common link is that customers’ receive value from a whole solution, which takes into account all value chain contributions.  Think HP, Microsoft, Cisco, IBM.  Traditional high tech companies.  But this thinking extends to consumer product and apparel manufacturers (Herman Miller, Procter and Gamble, Unilever, Nike, Keen, Patagonia) and major retailers like Walmart, Starbucks, Kohls.  The list grows weekly.  Each of these organizations have created business ecosystems through redefining the nature of the value for the client.  They have further created new competitive environments, with new rules and practices that account for sustainability and that challenge their industry norms through green supply chain innovation.

While my recent post called out many large companies for being procrastinators and laggards, I continue to applaud the industry leaders who’ve seen how each tree (supplier) contributes to a stronger and healthier forest (supply chain).

So go take a walk in the woods.  Breathe the air, take in the silence…and think of ways that you can help your company refocus its sustainability efforts and supply chain health for future generations to enjoy.

Green Supply Chain Management Requires Less Procrastination & More Innovation, Leading by Example

Admit it- we’ve all done it.  Procrastinated. Waited until the brink of a bad outcome.  Not taken the time to thoughtfully, proactively, pragmatically complete an assignment, implement a new ‘leading edge’ technology or launch a disruptively innovative initiative.  Instead we react, overlook great ideas for something less, produce a less articulate response to an inquiry, or implement a semi thought out idea.

Even in the business world, whether in supply chain management or in adoption of the ‘triple bottom line’ in business strategy, there are leaders and there are laggards.  Innovators and adopters.  I was reminded of this when I ran across a research paper that was published in “Sustainability” Journal this past spring.  The article, “Supply Chain Management and Sustainability: Procrastinating Integration in Mainstream Research” presents the results of a study conducted by several university researchers in The Netherlands. The researchers noted that “procrastination can be viewed as the result of several processes, determined not only by individual personality, but also by the following factors:

• availability of information;
• availability of opportunities and resources;
• skills and abilities; and
• dependence on cooperation with others.”

In addition, in a review of more than 100 additional studies on procrastination, the following additional items were found to likely to influence procrastination:

• the nature of the task, and
• the context of the issue.

It is these last two issues that the authors raised as primary reasons for procrastination, especially regarding embedding sustainability research and practices in supply chain operations and management. The authors found that “the nature of the task”, because it’s often complex and requires many internal and external stakeholders, and therefore tends to “generate conflicts”.  Also, the roots of supply chain management and related research are generally grounded in operations management and operations/logistics.  Therefore, the researchers noted that environmental and social aspects of supply chain management are foreign,  “out of context” and not wholly integrated into supply chain management and research.  I would also argue that dependence on others is a key issue as well given the widespread, outward facing challenges associated with supply chain coordination.

So what this means is that if a concept is foreign or unfamiliar or “out of context” it’s either set aside as being non-value added.  Also because of some of the complexities often inherent in grasping and applying sustainability concepts, some just throw up their hands and say “I’ve no time for this”.  This in turn can lead to procrastination in the real-world application of sustainability in supply chain management.

In a study conducted during the height of the recession (late 2009), GTM Research found that despite its growing prominence, “sustainability is not a core part of most companies’ strategies today or …a prime driver of their supply chain agendas.”  The study found that sustainability lies in the middle of the pack of supply chain priorities today, behind cost cutting.  The graphic presents a “leaders vs. laggards” scenario.  The 23% difference between leaders and laggards related to sustainability initiative implementation is large and underscores the work that remains to advance the “value proposition” for sustainability in supply chain management.

Prior posts have described positive aspects of adopting whole systems-based, collaborative and transparent approaches to sustainable sourcing and manufacturing,  and green logistics.  Sustainable thinking in supply chain management also value chain practices supports environmental and social responsibility – so why aren’t more companies adopting these methods?

I know who many of the leaders are in implementing greener and more sustainable supply chain practices in their respective markets and I’ve written about them here – Walmart, HP, Dell, Patagonia, Nike, Intel, Cisco Systems, IBM, Herman Miller, Proctor & Gamble, Unilever, Campbell Soup, Timberland, Danisco, UPS, FedEx, Staples immediately come to mind.  Laggards? Well you know who you are, but I am not pointing fingers.

While the future looks bright for a “greener” perspective in supply chain management, there still remains a stigma that a sustainable value chain is a costly one. In reality, there may be some up-front costs associated with some initiatives- very true.  But companies must take a longer view and pencil out the ROI of supply chain sustainability best practices. And its possible by taking a leap and reaping the benefits.  I’m confident that those organizations who wish to lead (and stop procrastinating!) will find a great many benefits including:

1. less resource intensive product designs,
2. better supply chain planning and network optimization,
3. better coordinated warehousing and distribution and
4. more advanced and innovative reverse logistics options.

Those who choose to lead will realize significant cost savings, improved efficiencies and a more secure and profitable future.

Give it a whirl- what have you got to lose- or should I say, gain?!  C’mon, tell this community what you think.  We’re listening.

In Supply Chain Logistics Management, There’s a Reverse Gear–and It’s Green–Part 2

In Part 1 on this series, I presented some definitions of reverse logistics from a traditional versus sustainability focused mindset, and extended product responsibility.

Reverse logistics includes processing returned merchandise due to damage, seasonal inventory, restock, salvage, recalls, and excess inventory.  It also includes recycling programs, hazardous material programs, obsolete equipment disposition, and asset recovery.  While product “take-back programs” have been a part of many companies operational playbook for some time, more sophisticated approaches are emerging which involve greater degrees of coordination and planning among multiple suppliers.

For a logistics practitioner, the best value choice for disposition is still often determined by the most profitable alternative:

1. Reconditioning – when a product is cleaned and repaired to return it to a “like new” state
2. Refurbishing – similar to reconditioning, except with perhaps more work involved in repairing the product.
3. Remanufacturing – similar to refurbishing, but requiring more extensive work; often requires completely disassembling the product
4. Resell – when a returned product may be sold again as new
5. Recycle – when a product is reduced to its basic elements, which are reused – also referred to as asset recovery.

Product take-back programs

Product take-back programs are particularly popular in the retail sector, as manufacturers reap the benefits for material recovery while customers find convenient ways to jettison used products for recycling (printer cartridges, used computers, aluminum cans, tires, batteries, etc).  As my first post mentioned, restricted materials directives in Europe such as WEEE and RoHS have for years been dictating how manufacturers manage “end of life” equipment issues.  In his book aptly named “The Truth about Green Business”, Gil Friend describes a series of steps that retailer Patagonia and manufacturer Hewlett Packard (HP) have taken to close the loop on product manufacturing to mutual benefit.  In particular, to meet the growing demand to manage end of life issues for computers and other electronics, HP and mining company Noranda crafted a take back system in the early 2000’s that is unique. The system covers pickup, transportation, evaluation for reuse or donation, and recycling for products ranging from printers to scanners.  Noranda provides HP and other OEMs with disassembly, product testing and metal recovery services.  Part of this process involved installing efficient warehousing systems that electronically tracked materials through the recycling process. About 3.5 million pounds of materials are processed annually.  Dell Computer Corporation also has a similar take-back program, aimed at its leasing customers and other large companies that may have Dell units. Dell Financial Services handles the asset recovery for customers and the viability of the units determines how they are recycled/

Turning Trash to Into New Products

In a post this week  by author Marc Gunther, Walmart announced that as part of its efforts to reduce its waste streams from its retail and distribution centers, they are working with one if its suppliers (Worldwise) to begin what it calls the Full Circle program.  This program creates a closed-loop system that takes old plastic bottles, clothes hangers, plastic bags and corrugated cardboard and makes new products from materials that would otherwise be waste- and turns them into eco friendly pet products that are in turn resold in Walmart stores. And there you have it-trash to treasure through “upcycling”.

Quoting Gunthers post, “We’re committed to creating zero waste,” explains John Kunkel, senior buyer, pets for Walmart. One way to get there is to take things that Walmart throws away and instead of sending them to a landfill, make them into something useful.”  The effort reportedly took more than a year and was coordinated with “seven or eight different divisions of the company.” according to Mr. Kunkel.  After Walmart’s waste is baled, it is separated into its components at materials recycling facilities.  Then the baled waste is trucked to supplier Worldwise’s North American manufacturing plants. The products that result are then shipped to distribution centers and to all of Walmart’s U.S. stores. “We’ve had to create a playbook,” Kunkel said. “Now other manufacturers can implement a closed loop in their business.”

Getting Started

Reverse logistics deals with five basic questions:

1. What alternatives are available to recover products, product parts, and materials?
2. Who should perform the various recovery activities?
3. How should the various activities be performed?
4. Is it possible to integrate the activities that are typical for reverse logistics with classical production and distribution systems?
5. What are the costs and benefits of reverse logistics, both from an economical as an environmental point of view?

To first address these questions, ask yourselves which products are suitable for reverse logistics?  Base your decisions on “recoverable” characteristics that a product might have such as:

1. The product size
2. Volume of sale of products
3. Hazardous components
4. Design cycle and product life cycle
5. Product traceability
6. Product modularity

As an example, the  graphic below presents a conceptual supply chain “total carbon  footprint” and the various touchpoints from a manufacturing and reverse  logistics perspective (graphic via  Reverse Logistics – Turning Green to Gold, Reverse Logistics Magazine, Aug/Sept 2008).

Once you can get a handle around which products pose the greatest asset value in terms of recoverability, the next phase is in looking for potential ways to reprocess or reuse waste byproducts or other manufacturers that may be turn your waste into their product feedstock.  Either way it’s a win-win-win- for your company, your customers and the environment.

Further posts will focus on proactive steps that companies can take to design sustainability in product manufacturing, and ways to coordinate reverse logistics campaigns with suppliers and customers.

Meantime, it would be valuable to this readership if you’d consider sharing what your company is doing to “lighten the environmental load” on the planet and in your manufacturing process.

In Supply Chain Logistics Management, There’s a Reverse Gear–and It’s Green–Part 1

I Love Logistics. That is the new brand “That’s Logistics” ad from UPS– and I love it. Why? First, because it’s a catchy ad and it made me smile. But also, because in the jingle, there’s a line: “carbon footprint reduced, bottom line gets a boost, that’s logistics.” This phrase should be a subtle reminder logistics and supply chain professionals that there is a bottom line angle to towing the “green” line. Read on and you’ll see why.

Today, consumers and authorities expect manufacturers to reduce the waste generated by their products. Therefore waste management has received increasing attention. Enactment of new environmental laws in the past several years—such as the European Union’s Restriction of Hazardous Substances (RoHS) and Waste Electrical and Electronic Equipment (WEEE) directives—are forcing companies to plan how they will retake possession of goods from end users at the end of a product’s life cycle. But in the face of these regulatory drivers though, being sustainable and environmentally responsible at the reverse supply chain arena is a complex issue. In the international and domestic marketplaces, laws and regulations have been implemented to regulate how manufacturers, collectors, recyclers, refurbishers and material processors should behave in an environmentally responsible manner. Recent movement in the area of electronics recycling and competing approaches for electronic waste management also underscores the challenges of reverse logistics to assure safe, responsible and ethical movement of end of life, post consumer goods

Putting a New Face on Reverse Logistics

Reverse logistics isn’t anything new. The field of study and application of reverse logistics in the supply chain space has at least a 40-year evolutionary history. What is new, though, is the intersection of reverse logistics with social and environmental issues.

Let’s start with a definition or two. Where primary distribution is the flow of products or goods from its origin to the place or point of consumption; reverse logistics involves a secondary channel flowing in the opposite direction. It can comprise such diverse transactions as returns, recalls, and waste management. At this point the product reaches the point of end of life when it consumes its intended value. A traditional definition of reverse logistics comes from Rogers and Tibben-Lembke[1]:

”The process of planning, implementing and controlling the efficient, cost-effective flow of raw material, in-process inventory, finished goods and related information from the point of consumption to the point of origin for the purpose of recapturing or creating value or for proper disposal.”

A less traditional view now being taken more seriously from a sustainability perspective is:

The process of collecting used products and materials from customers to be reused, recycled, or upcycled into other products. This process treats these materials as valuable industrial nutrients instead of disposed of as trash. This is the complement to the traditional supply chain, [logistics] and distribution system used to produce and deliver products to customers. Sustainability Dictionary

This definition supports the realization of a true “closed loop supply chain.” Closed-loop supply chains emphasize the importance of coordinating the forward with the reverse streams. This underscores certain aspects of the cradle to cradle (C2C) concept advanced by McDonough and Braungart[2] and the idea of “extended producer responsibility.” And that is precisely why supply chain and logistics professionals can take a move or two from the C2C playbook and apply their trade–in reverse.

To follow the goods during from design to end of life management then creates many advantages to manufacturers and to end users in the secondary market, such as:

1. Increasing the types of services to the customer and added revenue streams;
2. Tracing the life of the product and gathering information related to the life of the product;
3. Maintaining contact with the customer contact for longer periods of time, thereby increasing brand fidelity;
4. Managing the activities of recovery in definite periods;
5. Stimulating up-selling;
6. Checking the state of the sales or returns in real time

In Part 2, I will present some compelling case studies that demonstrate the value-added characteristics of reverse logistics. Then I will offer up some tips on key questions you might ask to get started on reverse logistics planning and implementation, and who should participate in the process

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[1] Going Backwards: Reverse Logistics Trends and Practices Pittsburgh: RLEC Press, 1999

[2] Cradle-to-cradle design: creating a healthy emissions strategy for eco-effective product and system design, Michael Braungart, William McDonough, Andrew Bollinger , Journal of Cleaner Production 15 (2007) 1337-1348

“Ch-Ch-Ch-Ch-Changes”: 3rd Party Logistics CEOs Priming for a Sustainable Future, Retooling to Compete

Last week in San Diego (my second hometown), the Council of Supply Chain Management Professionals (CSCMP) held their Annual Global Conference.  Over 3,100 supply chain professionals from 41 countries attended sessions from over 20 tracks.

At the Conference, the 17th Annual Survey of Third-Party Logistics Providers was presented by survey author, Dr. Robert Lieb, Professor of Supply Chain Management at Northeastern University, and Joe Gallick, Senior Vice President of Sales for Penske Logistics. The findings analyzed responses from 31 third-party logistics company CEOs across North America, Europe and Asia-Pacific.  The study was pretty comprehensive in its findings but me being the sustainability focused guy that I am, poured through the document in search of green stats. And as expected they were there.

With 87 percent of the companies reported to be rebuilding their workforces in 2009, CEOs revealed that green practices are still a major priority in the 3PL market.  Further, more than 80 percent of the companies surveyed now have formal sustainability groups within their companies. Even in the wake of the recession, most of the companies surveyed these are still heavily committed to environmental sustainability issues.  Take note of these numbers according to the survey:

1. Fourteen of the 31 companies began new green initiatives during the year.
2. Eighteen of the companies expanded existing sustainability programs.
3. Twenty-five of the companies now have formal sustainability groups within their companies.
4. Twelve of the 31 CEOs believe that their sustainability capabilities differentiate them from their competitors.
5. Ranking second and third respectively in North America were opportunities related to potential differentiation based upon the companies’ environmental sustainability capabilities and opportunities related to expansion of service offerings.

Also, 27 of the 31 CEOs noted that some of their manufacturing customers have begun to move toward “near-shoring” options during the past year.  This type of “reversal of fortune” for U.S. manufacturing has been driven by quality control issues, fuel costs for transoceanic shipping and (wishful thinking perhaps) a desire to stand by corporate commitment to curtail carbon emissions associated with reduced fuel usage.

Additionally the report cited several business practice trends, related to risk management/risk sharing; business continuity planning; performance based contracts; and enhanced vendor qualifications.  Each of these growth areas fit well into the sustainable sourcing, accountability and risk management picture that I have spoken about in this space as essential elements of a green supply chain.

While the survey results are impressive, there is clearly room for improvement in terms of implementing actual “boots on the ground” solutions.  There are increasing examples everyday where 3PLs have demonstrably improved operations efficiency while lowering fuel use, energy use, air emissions and indirectly related resource consumption and waste generation. But at the same time, these efforts must be able to strike a balance between cost and benefit that CEO’s can understand, appreciate and rally around.  The stat about CEO’s belief in how sustainability can differentiate their companies (only 38% are on board) tells me that much still needs to be done to make a business case for greening of supply chains.

In another recent reportthis past spring by the Economist Intelligence Unit (EIU) of the Economist Magazine,   supply chains are in a massive state of flux.  Individual supply chains “have shrunk at the margins and the network has become denser”, according to the report. The report concluded that many companies are forced to choose between having supply chains that are simple and compact, or those that are complex, redundant and dispersed.  Efficiency versus resiliency, in effect.   But the report found it possible to increase both efficiency and resilience.

The EIU report cited that a more efficient supply chain enhances two drivers of value: operating margin and asset efficiency.  What was notable to me was a note in the report that said “efficiency also has the beneficial side effect of shrinking the carbon footprint”.  The report cited companies like Coca-Cola, that are looking at ways to move to central distribution, cutting back on empty loads (bringing back post-consumer recycled cans  for instance) as ways to ‘own’ its supply chain and drive efficiency (without losing resiliency).

Issues such as supply chain resiliency and agility are two criteria that should be evaluated as 3PL’s move down the sustainability path and create a business case for operational changes.  I am fairly certain, based on the Penske sponsored 3PL report that CEO’s and other top managers will be asking the tough questions, so be prepared to come to the table with some compelling ideas and numbers to back it up.