Next week, I’ll have the honor being the dinner keynote speaker at the European Petrochemical Associations 2nd Interactive Supply/Demand Chain Workshop in Brussels, Belgium. This years’ theme is “21st Century Supply Chains for the Chemical Industry”. The topic is timely given how there’s been so much talk concerning over-consumption, consumer behavior, corporate social responsibility and increased growth of sustainability in manufacturing and supply chain management. And the chemical industry indeed plays a large role in much of what we consume. It reminds me of the old Monsanto commercial…”without chemicals, life itself would be impossible”. It’s just that these days, chemicals in the global marketplace appear to be getting ‘greener’.
Consumer Demand for Sustainable Products
Consumer demand appears to be contributing (at least in part) to some of the gains in eco-friendly and sustainability focused design and manufacturing progress that’s being made in the global marketplace. There is certainly a higher degree of consumer awareness and understanding of the need to make healthier, socially conscious and eco-friendly products. However, the Green Confidence Index, a monthly online survey (~2,500 Americans by GreenBiz.com) noted last year that U.S. consumers cite price and performance as the principal reasons for not buying more green products- the flat growth was partially attributed to stale economy. The slow economic growth of 2010 appeared to also be slowing widespread innovation by small to medium-sized businesses focused on green manufacturing.
In contrast, the consumer business disconnect appears to be alive and well in other parts of the world. In fact, it’s my thinking that businesses are significantly underestimating consumer interest and awareness in sustainability and green issues. For instance, consumer demand for sustainably manufactured or ‘green’ products and services in China, India and Singapore are outstripping supply (according to an independent survey conducted by TÜV SÜD Asia Pacific). I’ve no doubt the same is the case in Europe, often considered way ahead in terms of consumer sensitivity regarding sustainability. The TÜV SÜD Asia Pacific found that:
- 84% of consumers prepared to pay an average 27% premium for green products, services.
- Only 43% of business believes consumers to be willing to pay more or even produce or trade green products in China, India and Singapore.
- 74% of businesses either do not have a policy or guideline to minimize environmental in place or are failing to clearly communicate they have one.
Chemical Industry Response to Sustainability and Supply Chain Impacts
Manufacturers in the chemical industry and peripheral services have progressively been responding to end-consumer and customer driven pressures. The emergence of ‘green, (or sustainable) chemistry” and restricted materials initiatives over the past half-dozen or so years have propelled the chemical industry and global consumer products manufacturers to rethink how products are made, consumer health effects and long-term eco-impacts. Traditionally, supply chain management of hazardous products has focused more on reducing the exposure to hazards than on hazard elimination. The advent of green chemistry has provided opportunities to refine supply chain management, including procurement policies and practices, by developing safer products. Redesigned products and processes can dramatically reduce the risks encountered in manufacturing, storage, transportation and waste control by mitigating the hazards associated with them. From a risk management perspective, since it is fundamentally better to mitigate hazards than to try to protect against them, green chemistry has proven to be highly beneficial and contributes by default to greener supply chain management and supply chain-related risk management
Many manufacturers have risen to the occasion in recent years to drive green chemistry and supply chain management to lessen their eco-footprints and support development of safer products. Global chemical manufacturer BASF chooses its carriers, service providers and suppliers not just on the basis of price, but 0n their performance in the fields of environmental and social responsibility when making our sourcing decisions. In addition to following the internationally recognized Responsible Care program requirements for environmental, health and safety, BASF has established product stewardship goals designed to reduce its overall eco-footprint.
“What counts for us is acting responsibly throughout the entire supply chain because we want to build stable and sustainable relationships with our business partners. This is why we choose carriers, service providers and suppliers not just on the basis of price, but also include their performance in the fields of environmental and social responsibility when making our decisions.”
The company also maintains several key features of its global supply chain management program, including:
- Safe transportation to our customers
- Evaluate and support partner companies
- Monitoring of suppliers
- Product types and sources important
- Providing advice for better services
- China: sustainability in the value chain
- Minimum social standards for suppliers
Meanwhile, DuPont’s Mission is focused on “creation of shareholder and societal value while we reduce the environmental footprint along the value chains in which we operate”. Throughout the production-supplier-consumer value chain, DuPont strives through end to end supply chain communication to 1) manage risk and be adaptable; 2) gain efficiencies & profitable flexibility; and 3) enable sustainable product performance and verification through its entire supply chain. Sustainability efforts are tracked and managed for continual improvement through a combination of business management integration approaches and supply chain design and operation.
On the retail side, Walmart has asserted itself in the past several years, by clarifying its stance about reducing toxics in products. In response, American Chemistry Council members have pledged to lower GHG intensity by 18% by 2012 using 1990 as a base-reporting year and has exceeded that initial commitment and has reduced carbon intensity by 36%. In addition, Dow Chemical’s is working to harmonize the Walmart goal with its own sustainability objectives of decreasing its environmental footprint and maximizing product performance throughout the supply chain.
“Given the challenges associated with running a global chemical manufacturing supply chain, we have been focused on sustainability for a long time – not just our own but also how we address sustainability with our customers and our customers’ customers,” – Anne Wallin, director of sustainable chemistry and life cycle assessment at Dow Chemical.
Logistics Providers Stepping Up to the Challenge
Among supply chain and logistics businesses, the 2009 14th Annual 3PL Study found that shippers want to create more sustainable, environmentally conscious supply chains. The survey found a need to strike a balance between labor & transportation costs. Surveyed 3PL’s also noted the market value of carbon-reducing processes, compressed production cycles, and less carbon intensive transportation modes that beat the competition.
Most recently, American Shipper just published its Environmental Sustainability Benchmark Study of over 200 shipping companies. According to the study, “survey respondents clearly see environmental sustainability has an emerging impact and increasing importance in their supply chain. On a scale of one to five (one lowest; five highest) the study average ranked sustainability as 2.42 two or three years ago, 3.41 today, 3.95 in five years, and 4.17 in 10 years”. Interestingly, customer demands, at 25% percent (see graphic below) are on a par with company policies as a leading driver of environmental sustainability adoption. Most respondents saw potential return on investment (ROI) although ROI was clearly a potential barrier to sustainability adoption.
In response, leading 3PLs and fourth party logistics providers (4PL’s) are focusing more attention on business practices that are intentionally drive business efficiencies , but (perhaps unintentionally) enhance overall environmental performance, namely:
- In-Store Logistics
- Collaborative warehousing & infrastructure
- Reverse Logistics
- Demand Fluctuation Management
- Energy/Fuel Use Management
End consumer preference certainly has its place in deriving sustainability in the 21st century, but as I see it, the chemical industry and its shipping and logistics partners are showing proactive leadership in embedding sustainability in the “source, make, deliver and return” product value chain.
My next post will explore how competitive collaboration, or “co-opetition”, is making resurgence in the supply chain sustainability conversation. In the meantime, I’m looking forward to next week’s conference and all the hospitality that Brussels has to offer.