As we approach the mid-point in 2011, the tea leaves of the economic recovery have ‘sustainability’ in supply chain planning and management firming up as a key “rebuilding” block in company activities. Two recent studies from two different continents bear that notion out. First, consultancy BearingPoint Ireland has released a report which says two-thirds of companies surveyed in Europe believe that a green supply chain is a strategic priority. The report, entitled Green Supply Chain: from awareness to action, is the fourth of a series of “supply chain monitors” from the private consultancy. The study was conducted among about 600 European decision-makers by Novamétrie between 2010 and 2011, with a position within Supply Chain, Sustainable Development or Industrial Divisions. Key industries captured includes: consumer goods, transportation, construction, automotive, industrial goods, retail, energy and utilities, chemicals, IT/electronics and pharmaceuticals, among others.
The goal of the report, according to the authors was to summarize “the evolution over the past two years in terms of mindset, maturity and actions efficiency [and] explores the green Supply Chain practices in Europe, in order to identify the significant improvements in the most representative industries. The results clearly underline a growing interest of executive managements in developing products with a low environmental impact. What was seen as a constraint is now considered as an opportunity.”
Executive Management Mandates, Reputational Risk Management Are Key Drivers
A notable “inflexion” occurred between this survey round and prior surveys. For instance, in 2008, findings suggested that supply chain ‘greening’ was primarily being driven by important environmental and regulatory developments (such as REACH, WEE, RoHS or the European Union Emissions Trading Scheme). Now, with compliance programs associated with these initiatives firmly entrenched or in initial development, the drivers appear to be shifting toward meeting internal executive management commitments and addressing reputation management and/or consumer demands. In other words, according to the report, “Environmental actions presently address new constraints and motives, which are more mature and integrated to companies’ decision processes.” Key findings from BearingPoint’s report include:
- 70% of surveyed companies declare that green Supply Chain is a true economical lever.
- For 47% of the companies, the return on investment of a green Supply Chain is reached within 3 years.
- More than half of European companies now use environmental criteria to assess their Supply Chain performance: share of recycled packaging material, CO2 emissions.
- Two-thirds of companies adopted or plan to adopt a green policy for their purchases.
- Manufacturers must be able to measure and reduce their carbon footprint if they are to succeed on export markets
- Over half of the respondents in the survey said they did not renew contracts with suppliers who did not respect their green charter.
- Buyers are preferably choosing suppliers with certified processes such as ISO 14001.
According to Bearing Points recent press release, Irish Exporters Association chief executive, John Whelan, said: “There is no question that Irish businesses which produce transparently environmentally positive products, delivered by carbon neutral logistics services will succeed on international markets.”
Sustainability Drivers Both Inside and Out the ‘Four Walls’
In yet another study, Prime Advantage, a buying consortium for midsized manufacturers, unveiled its seventh (2011) Prime Advantage Group Outlook (GO) Survey. This survey queried small and midsized North American manufacturers, and found that more than 80 percent of North American companies surveyed indicated that they developing more sustainable or energy-efficient products largely driven by customer requirements and compliance regulations. According to the study, “the biggest driving factors behind these changes are customer requirements (80 percent), followed by compliance regulations (53 percent) and shareholder directives (12 percent). In addition, 57 percent of respondents have also started buying more sustainable indirect products for internal consumption.”
A Systems Perspective Breeds Competitive Intelligence
The Bearing Point study made a statement that caught my eye and for which I wholeheartedly agree. Identifying with a systems-based mindset that recognizes the intrinsic and realized value sustainability-focused business management is a critical fulcrum for green supply chain practices. I noted in a post last fall that The Fifth Discipline and The Necessary Revolution author Peter Senge argued (in the October Harvard Business Review) that to make progress on environmental issues, organizations must understand that they’re part of a larger system. Senge also makes a great point that companies will be 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.
I’ve cited companies like Hewlett-Packard and Danisco as supply chain innovators in their product sectors. These companies, among other innovators like Intel, P&G, IBM, GE and others, who’ve viewed supply chain in a systematic or holistic manner, organizations successfully have been applying that “big-picture thinking” needed to be truly innovative. Doing so can create leverage points that companies never realized they had before with their suppliers.
Clearly, the environmental (and often the social) footprint of a product extends beyond the four walls of the company who “brands” the product. This footprint extends upstream and downstream, and must capture, control or influence inputs and outputs all along the way. Some of the largest footprints (like energy and carbon) lie upstream or in the final hands of the consumers. This is why leading companies are rethinking the global extents of their supply chains, exploring local sourcing options and implementing other operational efficiencies.
The results of the recent surveys indicate that companies in a wide number of sectors are waking up to the fact that sustainability is more than business innovation- it’s business intelligence.