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Got Sustainable Procurement? Yes! No! Maybe. Supply Chain Surveys Read the Tea Leaves (Part1)

21 Jul

Courtesy LeoReynolds via Flickr CC

To paraphrase  a timeless Bob Dylan song, “The Times They Are A’ Changin’” is no understatement.  You can read the details from across the globe in the news every day and are rapidly happening simultaneously on political, economic and social levels. And business is also making radical changes in the sustainability and corporate social responsibility (CSR)  frontier.

“Then you better start swimmin’
Or you’ll sink like a stone
For the times they are a-changin’.”- Dylan

One area that appears to be in movement is Procurement. You know, those folks on the third floor in the back that order stuff?  Well, wrong! I’ve maintained that the heart of a sustainable supply chain runs through its procurement function.  That’s because every product- every single purchase- has a hidden human health, environmental and social impact along the entire supply chain.  My previous posts have discussed how the procurement function is a vital cog in product value chain.  Purchasing staff are the “gatekeepers” that can access powerful tools and serve as a bridge between supplier and customer to assure that sustainability and CSR issues are taken into account during purchasing decisions.  2010 was a watershed year for sustainability initiatives and supply chain management and I predicted that 2011 would see greater progress.

So I was incredibly excited when I recently got my hands on a relatively new white paper from Ariba, entitled “VISION 2020 -Ideas for Procurement in 2020 by Industry-Leading Procurement Executives”.  According to the conveners of the document, the “objective [of the effort initiated in 2010] is to initiate a dialogue on the future of procurement and to create a roadmap for how to get there.”  For that, they connected with leading practitioners and executives from around the world and across a variety of sectors to share their ideas, best practices and to read the tea leaves as to where procurement might be in 10 years.

And while the initial report laid out some pretty intriguing and widely varying trends and predictions about the state of procurement in the corporate function, I was unfulfilled.  I was all ready to read about how the emergence of sustainability in the marketplace was going to drive procurement decisions.  I expected to hear how top flight companies around the world were collaborating with their supply chain, implementing staff training on ‘green purchasing’ practices, and implementing sustainability driven supplier audits and ratings scorecards.

Boy, was I wrong!  Only ONE  mention of the word “sustainability” (thank you Dr. Heinz Schaeffer, Chief Procurement Officer, Northern and Central Eastern Europe for AXA), and no mentions of “responsible sourcing”, “green supply chain” or “sustainable sourcing”.  I would have expected more from chief procurement representatives from the likes of KeyBank, Maersk, Sodexho, and former execs from Hewlett- Packard, General Motors, and DuPont.  Most of these companies are generally considered leaders in the sustainability space.  So why would there be a disconnect between what companies are doing in design, manufacturing and product life cycle management and the procurement function?

Before we go too far, its helpful to define what “sustainable procurement” is.  While there is no singular definition for it, I like the definition offered up by the  UK-based Chartered Institute of Purchasing & Supply (CIPS).  CIPS definition is  “a process whereby organisations meet their needs for goods, services, works and utilities in a way that achieves value for money on a whole life basis in terms of generating benefits not only to the organisation, but also to society and the economy, whilst minimising damage to the environment.”.  And what CIPS defines as  ‘whole life basis’ is that “sustainable procurement should consider the environmental, social and economic consequences of design; non-renewable material use; manufacture and production methods; logistics; service delivery; use; operation; maintenance; reuse; recycling options; disposal; and suppliers capabilities to address these consequences throughout the supply chain” [emphasis added].

It’s a good thing that the authors from Ariba stated that “The [2020 Vision]report is intended not as an end, but rather as a point of departure for much discussion and debate around where procurement can and should be setting its sights for the year 2020 and beyond.  In fact, Ariba invites readers to “join the debate and to extend the discussion with new ideas by joining the conversation.  I have and I hope you will too.  But I think I’ll start right here first.

Key Findings of Interest:

The report identified six key trending areas and take-aways among the participants who have weighed in so far, namely:

  1. Procurement devolves- with spend management requirements shrinking, companies are being forced to optimize what resources they have and make better informed decisions.  More work at the business line level will occur, possible eliminating the central procurement function entirely.  Money and metrics will drive most decisions as companies face leaner profit margins.  There will be a need to engage end customers more and more and leverage relationships.
  2. The new supply management emerges– some traditional sourcing functions may become outsourced.  Strategy “will tie directly to an enterprise’s end customers and it will be more cognizant of the diversity of desires and requirements within the customer base”.
  3. Skill sets change.  The Chief Procurement Officer and staff must have broader skills that allow them to not only create opportunities for revenue enhancement internally and optimized “spend”, but also be more in touch with end customer values-driven needs. Procurement staff need to be tuned into multiple tiers of the supply chain, dive deep “inside the supply chain and bring [issues] forward to the designers within [individual] companies”.
  4. Instantaneous intelligence arrives.    Market pricing will become more transparent [the Cloud forces transparency to some degree].  Companies will have to rapidly extract innovation and other value from supplier bases, and build exclusive commercial relationships with leading suppliers that share both risks and rewards.
  5. Collaboration reigns- There will be as the report notes a “big emphasis on driving and taking innovation from the supply base… the supply role will be less ‘person-who-brings-innovation-in’ and more ‘person-who-assembles-innovation-communities-and-gets-out-of-the-way’.  Suppliers are being asked more often to participate in early design and product development as a way to leverage risk and control overall product life cycle management risks.
  6. Risk management capacity and demands soar– as companies are already realizing, effective procurement relies on response to risk management variables (financial, ethical, and operational performance).  Companies must create “360-degree performance ratings and provide greater transparency into market dynamics, potential supply disruptions, and supplier capabilities”.  A few participants noted that  there will be a “big expansion in the kinds of risks companies address in their supply chains, considering, for example, such things as suppliers’ sustainability, social responsibility…”.

Now if I read in between the lines, I can easily pluck out a number of key procurement trends from the 2020 report that transfer well to sustainability and responsible sourcing.  Risk Management.  Collaboration.  Design phase (life cycle) engagement of multi-tiered suppliers.  Key performance metrics. Responding to consumer demands. Supplier performance ratings. 

Courtesy babycreative via Flickr CC

One takeaway for me appears that there may be a disconnect still between the procurement function and other functions within organizations. So is the procurement function still operating in obscurity in most organizations?  It all depends who you talk to but also on your skill at reading the tea leaves.

Rest assured that compared to only a few years ago, more companies that are seeking to manage the life cycle environmental impact of their productsfrom design and acquisition of materials through the entire production, distribution and end of life management.  They’re finding sustainable procurement to be a valuable tool to quantify and compare a product or component’s lifetime environmental and social impact early on in a products value chain while positioning the company for smart growth in a rebounding economy.  We may be at a sustainable procurement “tipping point” and Part 2 will present the results of a very promising benchmark report recently released by HEC-Paris and Ecovadis, which tells a much different story.

The times they are [indeed] a’changin’.

Greenpeace Takes Global Clothing Brands and Chinese Textile Supply Chain to the Cleaners. Who’s Responsible?

15 Jul

“I make my living off the evening news

Just give me somethin’, somethin’ I can use

People love it when you lose

they love dirty laundry”(Don Henley)

(from Greenpeace Report, "Dirty Laundry")

I was reminded of that Don Henley (The Eagles) solo hit from back in the 1980’s when I read about Greenpeaces latest initiative and report…aptly titled…you guessed it, “Dirty Laundry”.  The report focuses on the high levels of industrial pollutants being released into China’s major rivers like the Yangtze and the Pearl and commercial ties between a number of international brands such as Adidas, Nike and Li-Ning with two Chinese manufacturers responsible for releases of those hazardous chemicals.  Greenpeace has also launched the challenge ‘Detox’ Campaign, calling “brands, especially Adidas and Nike, to take the initiative and use their influence on its supply chain.”  The organization unfurled its characteristic banners at Adidas’s main retail store in Beijing this week.

There are several nuances to this story that are important to pass on and collaborative opportunities (rather than the finger-pointing that has plastered Twitter and other media the past 24 hours) to explore.

Supply Chain Challenges …Again!

This latest supply chain environmental wrinkle underscores the challenges multi-national organizations (MNC) are facing daily in oversight and enforcement of first tier, second tier or lower contract manufacturers.  If it’s not Apple under the radar, its Nike, or Adidas, or GE…who’s next?  Recent events concerning Apple Computers alleged lax supplier oversight and reported supplier human rights and environmental violations only shows a microcosm of the depth of the challenges that suppliers face in managing or influencing these issues on the ground.

To be fair, although the pollution is real and the threat of toxics contamination very real, it’s possible that Greenpeace may be sensationalizing Nikes and Adidas’s culpability.  In fact, neither company directly is involved with the key manufacturers labeled in the Greenpeace report.  The two manufacturers are the Youngor Textile Complex in Ningbo, an area near Shanghai along the Yangtze River Delta, and Well Dyeing Factory Ltd. in Zhongshan, China, along the Pearl River.  The Younger Group is China’s biggest integrated textile firm.

“Game on, Nike and Adidas.  Greenpeace is calling you out to see which one of you is stronger on the flats, quicker on the breaks, turns faster and plays harder at a game we’re calling ‘Detox’,” “Whether you’re ‘All in’ with Adidas or believe in the Nike motto to ‘Just do it,’ you can challenge the brand you wear to win the race to a clean finish.” -Greenpeace DeTox campaign’s website.

(from Greenpeace Report, "Dirty Laundry")

Both Nike and Adidas admitted jointly that said their work at Youngor is limited to cut-and-sew production — not “wet processing” such as dyeing and fabric finishing that Greenpeace says is the cause of the chemical discharge.  Greenpeace did not hide behind that fact but made the point (perhaps rightly so) that “As brand owners, they are in the best position to influence the environmental impacts of production and to work together with their suppliers to eliminate the releases of all hazardous chemicals from the production process and their products”.  I agree on the grounds that effective supply chain sustainability practices and corporate governance must be driven by the originating manufacturers that rely on deep tiers of suppliers and vendors for their products.

That being said, I think that to call out Nike and Adidas specifically (along with other companies like Puma) is to suggest that they are not doing the right thing as regards sustainability in the apparel industry.  For instance, Nike has learned from its mistakes if the past (especially on the labor/human rights side of social responsibility) and implemented aggressive governance frameworks and on the ground oversight programs.  Also, the  Nike Considered Index evaluates solvents, waste, materials, garment treatments and innovation, and the company has an internal working group constantly evaluating Restricted Materials lists.

Kick ’em when they’re up

Kick ’em when they’re down

Kick ’em when they’re up

Kick ’em all around- (Don Henley)

Chinese Laws and Regulatory Oversight- Not in Sync

As I noted recently, China is still in the “ramp-up” phases of economic development.  Plus it’s been evident for some years that enforcement of environmental laws and regulations by government agencies has not been on par with the intent of the laws.  According to the report, samples taken from the facilities contained heavy metals and alkylphenols and perfluorinated chemicals, which are restricted in the United States and across the European Union.  These chemicals have reproductive and hormone disruptive effects Therein lies another institutional problem…the laws in the home countries of the MNC’s are not in sync with those in the host manufacturing country- in this case, China.

Writing yesterday in China Hearsay, Beijing based lawyer Stan Abrams offered this up.  “This is a classic law versus CSR problem. The law here in China allows for this activity, yet the allegation is that this is a harmful activity. Should the companies in question merely follow the law or “do the right thing” and either sever ties with the polluter or pressure it to change its behavior?”

It’s likely that (for the foreseeable future) Chinese political and economic systems will remain focused on rapid development at all costs. So it’s critical that local/in-country government policies be aligned as well to support capacity-building for companies to self-evaluate, learn effective auditing and root- cause evaluation, institute effective corrective and preventive action programs and proactively implement systems based environmental management systems.

Multi-Sector Collaboration is the Answer

The apparel industry as a whole has taken a very proactive stance in looking at ways to redesign sustainably, produce its goods taking a cradle-to cradle perspective, and manage toxic chemical use and waste streams so that human and environmental exposures are minimized.  The multi-stakeholder Sustainable Apparel Coalition ironically includes Nike, the Gap Inc, H&M, Levi Strauss, Marks & Spencer, and Patagonia (some of whom are also being targeted by Greenpeace).  Over 30 companies have committed to collaborating in an open source way to drive the apparel industry in developing improved sustainability strategies and tools to measure and evaluate sustainability performance.  In addition over 200 outdoor products companies from around the world have been working together on sustainability best practices and standards, called the Eco-Index, led by the Outdoor Industry Association and European Outdoor Group.

The most successful greening efforts in supply chains in “tiger economies” are based on value creation, sharing of intelligence and technological know-how, and support in developing environmental regulatory frameworks that have the force of law. MNC’s and contract manufacturers can collaboratively strengthen each other’s performance, share cost of ownership and social license to operate and create “reciprocal value”.  Greenpeace wants MNC’s to establish “  clear company and supplier policies that commit their entire supply chain to the shift from hazardous to safer chemicals, accompanied by a plan of action that is matched with clear and realistic timelimes”.  Agreed with that sentiment, but many hurdles remain to cross.

Youngor Textiles, Adidas and others cited in the report have not hidden from the findings, and Youngor has committed to working jointly with Greenpeace to find a workable solution to remove potentially harmful toxics from the apparel manufacturing supply chain.  Solving this problem on the ground will take a multi-stakeholder effort to 1) balance contractual arrangements among many parties, 2) craft good law and enforceable regulations, 3) drive clean chemistry, 4) redesign production processes and use advanced manufacturing technology, and, 5) develop, implement and maintain robust contactor monitoring.

I will be watching carefully to see how this collaborative effort with an NGO giant and big business unfolds…er, should I say “unfurls”.

Nothing Says “Green Supply Chain’ Like Innovative, Sustainable Packaging

8 Jul

Courtesy Tiny Banquet Committee under CC License

The pea pod is possibly the greatest sustainable packaging design nature can provide.  It packs a lot in a small space, efficiently uses the minimum amount of resources…and best of all its compostable…well sort of unless I eat it!

And like the simple pea pod, few sustainability attributes in a supply chain come together across the value chain than packaging.  Packaging and repackaging is ubiquitous along every step of the chain, from product design, prototyping, procurement production, distribution, consumer end use and post consumer end-of-life management.  And the more parts that are in use in making of a product, and steps along the way to deliver the parts, the greater the packaging (and hence environmental footprint) involved along that chain.  And for every packaged part that comes from someplace else to make a product, a similar carbon, energy and resource use can be measured.

That’s why sustainable practices in packaging are so important in driving supply chain efficiency…and why innovation in the ‘green’ packaging sector has been “white hot” the past several years. A study by Accenture found that retailers can realize a 3 percent to 5 percent supply chain cost savings via green packaging initiatives. So if you extrapolate that type of savings out across multiple tiers of supply chain activity, where packaging is the common denominator, the efficiencies and savings can rack up quickly.

A new report from research organization Visiongain finds that because of a variety of drivers such as carbon emissions, extended producer responsibility and waste reduction targets plus advanced packaging technologies, the sustainable and green packaging market’s worth is expected to reach $107.7 billion in 2011. Their report shows varying degrees of growth from developed to developing nations; however what’s striking is that the growth trend is weathering the slumping global economy and higher production costs.

Sustainable Packaging 101

Sustainable packaging solutions deliver around two colors according to the Accenture report: black (deliver reduced costs) and green (reduce environmental impacts). Sustainable packaging relies on best engineering, energy management, materials science and life cycle thinking to minimize the environmental impact of a product through its lifecycle.  Given the past decade or so of science and engineering work around sustainable packaging, there are some discovered and tested attributes, such as:

  1. Reducing packaging and maximizing the use of renewable or reusable materials
  2. Using lighter weight, less toxic or other materials which reduce negative end-of-life impacts
  3. Demonstrating compliance with regulations regarding hazardous chemicals and packaging and waste legislation ( such as the European Directive 94/62/EC  on Packaging and Packaging Waste)
  4. Optimizing material usage including product-to-package ratios
  5. Using materials which are from certified, responsibly managed forests
  6. Meeting criteria for performance and cost (e.g., minimize product damage during transit)
  7. Reducing the flow of solid waste to landfill
  8. Reducing the costs associated with packaging (i.e., logistics, storage, disposal, etc.)
  9. Reducing CO2 emissions through reduced shipping loads

Best in Class Examples

I have seen companies stress the importance of the 6 R’s of sustainable packaging (refill, reduce, recycle, repurpose, renew, reuse;  Walmarts 7 R’s of Sustainable Packaging (Remove Packaging, Reduce Packaging, Reuse Packaging , Renew(able), Recycle(able), Revenue (economic benefits), and  Read (education);  and even the 10 R’s eco-strategy (Replenish, Reduce, Re-explore, Replace, Reconsider, Review, Recall, Redeem, Register and Reinforce).

Associations are stepping up to the plate as well as manufacturers in a variety of consumer product markets.  In March of this year, the Grocery Manufacturers Association (GMA) announced the results of survey research by McKinsey that indicated elimination of more than 1.5 billion pounds (800 million pounds of plastic and more than 500 million pounds of paper) since 2005, and another 2.5 billion pounds are expected to be avoided by 2020.  Over 180 packaging initiatives were identified and evaluated.  The GMA estimated that the reduction would be equal to a 19 percent reduction of reporting companies’ total average U.S. packaging weight.

In the fast moving consumer goods category Coca Cola’s packaging efficiency efforts just in 2009 avoided the use of approximately 85,000 metric tons of primary packaging, resulting in an estimated cost savings of more than $100 million.  The company rolled out of short-height bottle closures, reducing material use, implemented traditional packaging material light weighting; and used more recycled materials in packaging production.  At the end consumer point, the company has also supported the direct recovery of 36% of the bottles and cans placed into the market by the Coca-Cola system and continues to work with distributors on increasing recovery efforts.

In the electronics space, Dell Computer committed in 2008 to reduce cost by $8 million and quantity by 20 million pounds of packaging by 2012 centered around three themes (cube, content, curb):

  • Shrinking packaging volume by 10 percent (cube)
  • Increasing to 40 percent, the amount of recycled content in packaging (content)
  • Increasing to 75 percent, the amount of material in packaging to be curbside recyclable (curb).

As an example, Dell wanted to find a greener, more cost efficient way to package its computers by eliminating foams, corrugated and molded paper pulp.  The solution was sustainably sourced bamboo packaging certified by the Forest Stewardship Council.  So far, Dells efforts have resulted in eliminating over 8.7 million pounds of packaging, and they have nearly met their recycled content goal.

Perhaps most significantly, WalMart took a huge step in 2007 to seek supplier conformance around packaging.  Since then, despite the initial uproar, there has been an uptick in design and innovative product activity by thousands of key suppliers in response to the mega-retailers challenge.  By reducing packaging in the Wal-Mart supply chain by just five (5) percent by 2013, that would 1) prevent 660,000 tons of carbon dioxide from entering the atmosphere, keeping 200,000 trucks off the road every year (that’s a green attribute) and save the company more than $3.4 billion (a black attribute).  Walmarts bottom line was to put more products on its shelves in the same space, and also recognized the sustainability attributes that change would make.  They also knew that most consumers (me included) just despise excess packaging.  Here are two examples of Walmart supplier efforts from a small and large supplier:

Alpha Packaging: the company has a new bottle design for Gumout Fuel Injection Cleaner.  The company concentrated the product and switched from PVC bottles (which are not recyclable) to much smaller bottles made from PET (which is recyclable and has 30% post-consumer recycled content).  This led to 1) reduced product weight by up to 51% and 2) capability to transport a truck filled with new 6 oz products (formerly 12 oz) equating to 153,600 bottles as opposed to 61,000 originally.

General Mills: the company took a novel approach and they looked at the product first.  They straightened its Hamburger Helper noodles, meaning the product could lie flatter in the box. This, in turn, allowed General Mills to reduce the size of those boxes.   According to the company, that effort saved nearly 900,000 pounds of paper fiber annually.  The company effort also managed to reduce greenhouse gas emissions by 11 percent, took 500 trucks off the road and increased the amount of product Wal-Mart shelves by 20 percent.

Win-Win-Win.  For the environment, for manufacturers and suppliers, and for consumers.

Full Circle Collaboration is Vital to Drive Sustainable Packaging

What makes sustainable packaging compelling is that it’s one of the key elements of a product that consumers can see, touch and feel.  Over packaging or improper packaging can produce high reaction levels, right? (remember last year’s noisy Sun Chips compostable bag dust up?)  But in an interesting post last year in Packaging Digest by Katherine O’Dea of the Sustainable Packaging Coalition, she mentioned the critical importance of collaboration between brand owners and retailers. What was a scary statistic is that “brand owners and retailers may have direct control over as little as 5 percent of the environmental impacts of packaging and only indirect control over the other 95 percent.”  On the other hand another study conducted by the market research firm Datamonitor showed of U.S. consumers surveyed, 49% felt that packaging design has a medium or high level of influence over their choice of food and drink products.

Just as there are challenges to drive consumer acceptance of more sustainable types of package designs (especially aesthetics), there are equally challenging design factors (such as package strength, permeability, and other physical factors that may compromise product integrity during shipment.

Opportunities to Leverage the Supply Chain from Design to Post Consumer Package management

High performing manufacturing companies are clearly using sustainable packaging design and manufacturing as a way to lever efficiencies through the product value chain.  Companies are finding that using less complex packaging helps cut sourcing, energy production and distribution and fuel costs across the supply chain.  The glory days of corrugated packaging as the one stop solution are being replaced with reusable packaging options.  Also, reducing the consumption of raw materials, carbon emissions and waste generation reduces manufacturing costs.

Since disposal by consumers is one of the largest waste streams in the supply chain, using less packaging of direct-to-consumer shipments also offers great opportunities for supply chain optimization.  The previously mentioned Accenture report recommends that through route planning and sourcing software, “collaboration across the companies in the supply chain is necessary to maximize freight utilization. In particular, retailers need to proactively encourage vendors to provide pallet or “trailer feet” specifications for collecting shipments… retailer’s planners can determine the optimum transportation mode and look for multi-stop opportunities.”

Optimized Supply Chain (Accenture)

As shown in the accompanying diagram, Accenture suggests there are opportunities to reduce the packaging/un-packaging cycle by addressing the product life-cycle and optimized material use.   Through ongoing recycling and the use of alternative materials throughout the product value chain, opportunities are created to reduce the volume of packaging waste. Also, take back programs create a two-way transportation flow, with reusable packaging materials being sent back up the supply chain rather than to a landfill.

Remember too that there are several key association and initiatives that can be tapped into, including:

  1. Sustainable Packaging Coalition: http://www.sustainablepackaging.org/default.aspx
  2. Greener Package: http://www.greenerpackage.com/
  3. Sustainable Packaging Alliance: http://www.sustainablepack.org/default.aspx
  4. Sustainable Biomaterials Collaborative http://www.sustainablebiomaterials.org
  5. Reusable Packaging Association: http://reusables.org/

Some final pointers to consider when designing packaging and using the supply chain to drive sustainability:

  • Source alternative sustainable packaging materials- the innovative options are plentiful.
  • Evaluate product life-cycle impacts as a way to discover design options that could lead to less packaging.
  • Anticipate the total energy and resource use over an entire products package life
  • Evaluate materials disposal and post consumer end-of-product life opportunities
  • Design products for efficient transport
  • Schedule and optimize transportation networks
  • Collaborate, Collaborate, Collaborate!

Keeping it Simple: Seven Action Steps for Manufacturers and Suppliers to Climb Up the Sustainability Ladder

29 Jun

The authors new three-string Cigar Box Guitar (made with mostly recycled parts)

This past weekend I went and finally did it.  I closed the loop on my dream to play gritty, stripped down delta blues on a cigar box guitar (CBG) in tandem with my harmonica.  At first I went to the local Recycled Arts Fair thinking I’d buy a four string CBG.  But within a few minutes of speaking with local Vancouver, WA luthier Alan Matta  at Hammered Frets (www.hammeredfrets.com), he’d convinced me to start with a 3 string and then think about a 4 (or more) string later.  Why?  Well, it’s simple.  I don’t know how to play the darn thing!  Fewer strings also means easier chords (with many requiring just one or two fingers), and more harmonic simplicity to help a newer player (like me) keep from getting overwhelmed. Plus, fewer strings means less tension on the neck and risk of bowing.   (Sidebar: I do have a musical pedigree, having played brass instruments and harmonica since I was 12), and I get music theory, but playing stringed instruments…can an old dog learn a new trick?)

If you are a small to mid-sized manufacturer for instance, getting started with a company sustainability initiative, or in greening a supply chain is a lot like learning a musical instrument.  Quite often if companies try to bite off more than they can chew (three vs. four string chords), there’s too much stress (like a guitar neck) and greater risk of failure (bowing of the neck).  Simplicity often trumps complexity when getting started down the sustainability path.  This is particularly true if companies are starting from scratch, or lack deep financial or personnel resources.  So before companies start to feel overwhelmed, there are ways to “ease” into sustainability, without the stress.

Last year I wrote about how the “look” and “feel” of sustainability depends on the level of enlightenment that a company has, the desired “end state” and on the depth of its resources to execute the change.  Also, I spoke about the importance of adequate resources to make the leap and a systematic process to keep on track.  I advocated systematic planning before moving  ahead.  This involved:

  • Building a system to plan, implement, measure and check progress of the initiative.
  • Looking for the quick wins.
  • Building an innovation-based culture and reward positive outcomes.
  • Measuring, managing, reporting and building on the early wins.
  • Building the initiative in manageable chunks.

A Systems Framework to Get the Ball Rolling

Let’s accept for a moment that if you are reading this, you already understand that sustainability as a term means many things to many organizations.  An effective sustainability roadmap and the systematic framework to manage sustainability must consider four key focal areas: compliance, operations, product sustainability and supply chain sustainability.  Bearing in mind that “one size doesn’t fit all”  there still needs to be a systematic way to get to the “desired goal”.  A systematic framework like an ISO 14001-based Environmental Management System (EMS), offers a set of processes and tools for effective accomplishment of sustainability objectives.  But in the event that a company isn’t quite ready to make the leap into the ISO world, there are alternatives.

A Cycle of Continual Improvement

“Plan- Do-Check-Act” Creates Shared, Sustainable Value

One such alternative comes from Organisation for Economic Co-operation and Development (OECD).  The OECD has produced a “ Sustainable Manufacturing Toolkit”, that as they say “provides a practical starting point for businesses around the world to improve the efficiency of their production processes and products in a way to contribute to sustainable development and green growth.” The OECD addresses the four key sustainability focal points that I mentioned previously.  As an aside, a collaborator with SEEDS Global Alliance (Sustainable Manufacturing Consulting) had a hand in contributing to this valuable project by providing detailed feedback on the toolkit.

According to the newly launched site, it offers two parts: a step-by-step Start-up Guide and a Web Portal where technical guidance on measurement and relevant links are provided.  I tested out the site, and while parts appear to still be under construction, the information there is pretty intuitive and gives the novice some basic information that they can use to get started.  For manufacturers in particular, the guidance offers 7 action steps to sustainable manufacturing:

Prepare [Plan]

1. Map your impact and set priorities: Bring together an internal “sustainability team” to set objectives, review your environmental impact and decide on priorities.

2. Select useful performance indicators: Identify indicators that are important for your business and what data should be collected to help drive continuous improvement.

Measure [Do]

3. Measure the inputs used in production: Identify how materials and components used into your production processes influence environmental performance.

4. Assess operations of your facility: Consider the impact and efficiency of the operations in your facility (e.g. energy intensity, greenhouse gas generation, emissions/discharges to air and water [ and land]).

5. Evaluate your products: Identify factors such as energy consumption in use, recyclability and use of hazardous substances that help determine how sustainable your end product is. (I’d also add water consumption and wastewater outputs).  It’s here that the upstream supply chain becomes a very important consideration.

Improve [Check/Act]

6.Understand measured results: Read and interpret your indicators and understand trends in your performance.

7. Take action to improve performance: Choose opportunities to improve your performance and create action plans to implement them.

What more can a small to mid-sized manufacturing company ask for if they are seeking basic actionable steps for starting up the sustainability ladder.  Remember folks, it’s better to start in small, incremental steps, with a scalable internal (risk and process driven) and external (supply network enabling) plan that provides “sustainable value”.

Implementing a sustainability program is best done in stages, like learning that cigar box guitar.  No organization has the resources (or appetite) to tackle the “whole enchilada” at once.  That’s why I’m keeping it simple and sticking with the three-string…for now.

It’s Time to Find a Harmonized Solution to the U.S. Government’s Green Purchasing Challenge

17 Jun

In a recent article by  Tracey de Morsella (editor of the Green Economy Post (GEP)), the Federal Acquisition Regulations Council (FARC) released an interim rule on green procurement at the end of May, 2011.  The draft rule specifically says that Federal agencies must:

“leverage agency acquisitions to foster markets for sustainable technologies and materials, products, and services. The head of each agency shall advance sustainable  acquisition by ensuring that 95 percent of new contract actions,  including task and delivery orders, for products and services, with the  exception of acquisition of weapon systems, are energy-efficient  (Energy Star or Federal Energy Management Program (FEMP)-designated),  water-efficient, biobased, environmentally preferable (e.g., Electronic  Product Environmental Assessment Tool (EPEAT)-registered), non-ozone  depleting, contain recycled content, or are non-toxic or less toxic  alternatives, where such products and services meet agency performance  requirements.”

According to the GEP article, the effort was “spearheaded by the Defense Department, NASA and the General Services Administration, and part of the Obama administration’s campaign to lead by example in sustainable purchasing. The interim policy also requires all federal contractors to support the government’s goals in environmental management, and includes new requirements for electronic or other paper-saving methods for submitting documents required by contracts.”

The interim rule on green procurement it is a follow-up to President Obama’s 2009 executive Order EO 13514 which requires agencies to meet a number of energy, water, and waste reduction targets, including:

  • 95% of all applicable contracts will meet sustainability requirements;
  • Leverage Federal purchasing power to promote environmentally-responsible products and technologies to foster markets in these sectors.
  • Advance sustainable acquisition

This is a great development for the Federal government.  Not only does EO 13514 drive new markets but requires government agencies to 1) define sustainable acquisition and 2) track sustainable contract actions and …get this…3) educate the acquisition workforce.

The GEP article notes that “the effects of President Obama’s Executive Order have been rippling through the federal government purchasing community for a while.”  The article summarizes efforts by the U.S. Federal Trade Commission (FTC) which issued its Guides for the Use of Environmental Marketing Claims,  Also the  U.S. EPA is evaluating its role in evaluating products across their entire lifecycle, including “defining criteria for more sustainable products, generating eco-labels and standards and verifying products meet green standards “

The U.S. General Services Administration (GSA) has also initiated its GreenGov program, primarily focused on identifying products and practices designed to reduce the governments environmental (specifically carbon footprints).  As I noted in an article this past winter, according to Council on Environmental Quality Chair Nancy Sutley, “The Federal Government purchases $500 billion in goods and services annually, so you could say the Federal supply chain represents an enormous opportunity to support a clean energy economy”.  Participating companies will share their experiences to help GSA develop a phased, incentive-based approach to developing contracting advantages to companies that track and disclose their greenhouse gas emissions.   This process appears to be glacial in its pace, compared to the light speed pace of technology development in countries like China.

As the GEP post noted,  GSA is developing and evaluating green technologies and practices in several areas including: electronics stewardship, innovative building technologies and greening the supply chain. These latest activities by GSA are in addition to individual efforts that the Departments of Energy and Defense, NASA, USDA and Department of Agriculture have been implementing for many years.

On the surface this sounds all good, in fact, great.  But there are some underlying systemic issues related to the timing of the FARC interim ruling, and industry groups and procurement agencies are scratching their heads.

Left Hand, Meet Right Hand.

In response to the FARC interim draft rule , several industry associations requested that  the government , specifically the FARC to stop issuing rules that change federal procurement policy without first considering public comment.

Even though the “interim rule” is based on directives within executive orders (like EO 13514) from 2007 and 2009, the organizations (including members of the Council of Defense and Space Industry Associations, the U.S. Chamber of Commerce (no surprise), Professional Services Council and TechAmerica) came out and stated that increasing reliance on “interim rules” is a misuse of the “urgent and compelling” circumstances those rules are supposed to be issued under.  The groups asked that the FARC withdraw the interim rule and republish it as a “proposed rule”, allowing for public comment.

The FARC maintains that the interim rule only mandates what previous executive orders, laws and sustainable programs have asked agencies to do and should not impact the agencies economically.  But that may not be the case.

While many of the agencies that I mentioned above are well on the way to responding to the previously issued Executive Orders (and I applaud them for their efforts!), they appear to be doing this in different ways- which may inadvertently find some suppliers being able to respond to one agencies tender processes and not to another.  It only took me a few moments to “Google” “government + green purchasing + requirements” to find remarkably outdated and variably detailed documents from Federal agency to Federal agency, some going as far back as the Year 2000!  Even a report from the Congressional Research Service from April 2010 indicated that “The federal approach to green procurement is arguably largely piecemeal and fragmented.” Also, it would appear that agencies may still lack consensus on product “green” performance standards, which is clearly a part of the EO 13514 mandate

There is little in the way of specifics behind the statement that they must be “energy-efficient, water-efficient, bio-based or non-ozone depleting, and are certified as environmentally friendly, contain recycled content, or are nontoxic or less toxic than alternative products.”  And it’s this lack of specificity and consistency among agencies that vexes small and large businesses alike.

“ there appears to be significant ambiguity about which type of green product or service agencies should procure in situations where multiple types could meet their needs. For example, the FAR requires agencies to acquire recovered-content products instead of biobased ones when both types would meet agency needs.  However, no similar guidance exists for the other types of preferred products and services discussed in this report. That leaves agencies without guidance in determining whether, for example, they should procure Energy Star or FEMP-designated products, or recovered-content or environmentally preferable products.” Green Procurement: Overview and Issues for Congress, Congressional Research Service 7-5700,  R41197 www.crs.gov

Why am I not surprised at the discontinuities that exist within Federal government (he asked rhetorically)?  Even President Obama alluded these redundancies and inefficiencies in his January State of the Union address. According to a Government Accountability Office report released in January, the U.S. government has more than 100 programs dealing with surface transportation issues, 80 for economic development, 47 for job training, and 17 different grant programs for disaster preparedness, 15 agencies or offices handle food safety, and five agencies are working to ensure the federal government uses less gasoline.  Really?!  Inefficiencies are wasteful…plain and simple.  This is no way to run a government let alone a business.  And let’s face it, government is BIG business.

 Training, Training, Training

What’s also concerning to me is that agencies may not have not adequately trained procurement staff that are prepared to implement detailed operational related to the “interim rule”.  I also am concerned that federal acquisitions staff  lack the technical training on green supply chain management to make informed choices beyond how to price and negotiate a contract.  As a matter of fact the CRS report states that “…certain requirements, most notably those involving environmentally preferable products, may be difficult for the existing workforce to implement because agencies must consider multiple attributes of products when determining which product to purchase.”

According to Neal Couture, President of the National Contract Management Association (which represents public and private contracting officers), “Contracting people that I talk to have received very little training in the area of sustainability”.  Additional cases in point, as described in a recent Federal Times article:

  • The Federal Acquisition Institute, which provides training for the federal acquisition workforce, offers no courses specifically addressing green procurement. The Defense Acquisition University (DAU) offers an optional, two-hour course devoted to the Defense Department’s Green Procurement Program.
  • Leslie Deneault, program director for acquisition services at DAU, said there are optional courses available that cover the many legislative actions that affect acquisitions.
  • Professional Services Council executive vice president Alan Chvotkin said contractors and government officials may find it hard to get needed products and services that meet environmental standards, possibly due in part to other contract specifications that often limit local sourcing or small business participation.
  • Program managers who write the requirements will need to know to which environmental standards certain products and services should be held, according to Mr. Couture said.

And you think one interim rule is going to straighten the green purchasing issue out?  There’s got to be a better way, and it may be found within the private sector.

Collaborative Cleantech Partnerships Rising to Meet the EO 13514 Mandate

One organization that is taking the initiative in responding to the interim rule on green purchasing and EO 13514 is the Clean Technology Trade Alliance, based in Bremerton, Washington.  According to Mark Frost, the Executive Director of the organization, the CTTA provides the ultimate partnership between business and environmentalists by creating a market-based reason to become sustainable and operate with efficient, environmentally responsible products and services. In addition, the technologies and products associated with CTTA members fit nicely into the Federal government’s EO 13514 vision for sustainable and environmentally preferable products.

The CTTA mission is to drive the expansion of global clean technology by connecting buyers with sustainable solutions. One part of this mission that fits squarely into the Federal government procurement model and most recent FARC interim rule is identifying and verifying clean technology solution providers for business and government. Since it’s essential to validate the extent of sustainable practices of member businesses, the CTTA is getting ready to roll out an independent review process to validate clean tech solution providers.  In doing so, the CTTA will reviewing each organizations operational processes and products and giving them a score based on defined criteria, using life cycle, product foot print, energy and multi-resource consumption and efficiency factors, etc. This review effort has the opportunity to become a market driver that moves companies to meet the highest “green and clean” technology standards in order to be more profitable and competitive. The CTTA also provides the means to discover clean technology solutions that will enable these companies to improve their score and profit from their efforts.

In addition the CTTA assists its members in 1) making commercialization of products easier with a trained sales force, that provide members qualified leads, and facilitating distribution lines for both established and unseasoned products; and 2) developing synergies between businesses that create new technologies, open new markets and discover new efficiencies. Those who collaborate with the CTTA receive a single point of contact to find clean technology business solutions, and most importantly a market reference point for making clean technology purchasing decisions.

The CTTA is uniquely positioned to provide the Federal government with a single, unbiased, point of entry for identifying and vetting clean technology solutions. First the basic identification and reporting service is a no cost service. Second if the CTTA does not have a member, or several members, that can provide the solution they will conduct a search to identify potential solution providers and conduct a basic survey to provide an initial vetting for the requestor. Third if the solution exists they will find a provider, if it does not they can work with companies to develop the solution if there is a sustainable market. The CTTA is a membership-driven organization, recruiting new members and servicing existing members- this is how the CTTA grows. Mr. Frost states that providing services to customers like GSA, the DoD, NASA, Boeing and others allows the CTTA to recruit small and mid-sized business members and is another example of the business synergy the CTTA pursues.

What Can Be Done to Harmonize Green Procurement?

The CRS report raised many of the questions about the efficacy of legislative initiatives or federal rulings that came to my mind in the months since I participated in a GSA GreenGov Summit in Portland, so I figured I’d just repeat just a few of them here:

  • What, if any, are the most useful and appropriate policy goals for green procurement?
  • Are the means by which different green-procurement preferences, programs, and other initiatives have been established the most appropriate for meeting policy goals?
  • How effectively are agency implementation and performance of green procurement being assessed?
  • How successful are current programs and initiatives at meeting policy goals?
  • Are policies on the acquisition of green services sufficient?
  • Are the preferences and the methods of implementing them sufficiently harmonized and integrated?
  • Are there significant gaps in the various federal preferences for types of green products and services?
  • Are there implementation methods not currently used by the federal government that should be considered?
  • Is training of procurement officials sufficient?

Until these questions are fully explored, I suggest the Federal government hold off on finalizing its interim rule and consider the collaborative private sector example being implemented by the CTTA.  In a perfect scenario, the White House should instruct representatives from the GSA, OMB, DoD, DoE, USDA, EPA, and Agriculture (and others) to come together in one place, at one time.  Attendees should also be invited from the private sector too- the best brains in the science, engineering and design of clean technology, standards development, policy, manufacturing and procurement/material acquisition.

In systematic and structured manner, they can hammer out a viable, results driven framework for sustainable sourcing and procurement.  This in turn (I am sure), will promote new technologies and drive the creation of new “green economy” markets….without all the confusion and lack of harmony.

Whether Baked or Embedded, Experts Agree: Sustainability is Part of Organizational & Supply Chain DNA

14 Jun

In a new report, sustainability in the supply chain is one of four key indicators covered.  The report is entitle The Chief Supply Chain Officer Report 2011 and is  co-authored by Dr. Hau Lee (from the Stanford Graduate School of Business), and Kevin O’Marah (group vice president, supply chain research for AMR Research).  Over 750 global executives completed the survey, including SCM World members and non-members, with over 50% of respondents at VP-level and above within their organizations.

The authors prioritized issues across four key areas:  value-driving supply chain management, globalization, sustainability and talent management.   One of the key findings (and it’s no surprise in my mind is that sustainability “ increasingly forms part of the DNA for high performing supply chains, with 65% of respondents characterizing pressure from senior management and the board as the source of sustainability efforts “.    The second source of sustainability efforts is pressure (interesting enough) comes from customers (46%), followed by pressure from government (35%).

The study also surveyed whether the use of the “carrot” or “stick” had greater effectiveness in encouraging supplier collaboration. The study found that companies appear to react to supplier breaches in sustainability standards by warning i.e. the “stick” and then taking punitive actions, while some act even more promptly without warning.  Most companies use reduced business as the “stick” (73% would reduce business after warning and 56% would reduce business without warning), while some act even more drastically, terminating the business relationship with suppliers (36% after warning and 42% without warning). On the “carrot” side of the study, enhancing  business relationships through “ preferred supplier status” or increased business engagements were found by most companies surveyed to be effective in supplier collaboration  (66% and 48% respectively).  The study compared well with some thoughts I shared in this space last year on the effectiveness of the carrot and stick approaches in changing supplier behavior (using examples such as Walmart, GE and Hewlett-Packard).

The authors concluded that “Ultimately, customer relationships and business opportunities with customers form the most important cornerstone of all sustainability activities” and that that the survey results positively indicate that “sustainability forms an integral part of a company’s supply chain improvement journey”.  So besides working within its own four walls, organizations continue to realize this year (like the previous few years) that sustainable supply chain management and responsible procurement has taken a solid place in business circles to enhance the corporate brand and deliver further value.

Embedded, Baked or Bolt-on?

The Chief Supply Chain Officer report  finding  on supply chain sustainability lends itself well with a key thought communicated at last week’s Sustainable Brands ’11 conference by Dr. Chris Laszlo (I was there and hopefully some of you found my Twitter stream).  Laszlo and Dr. Nadya Zhexembayeva have coauthored a new book, Embedded Sustainability: The Next Big Competitive Advantage, which explores the operational advantages, cost efficiencies and reputational gains that can be made from embedding sustainability, rather than taking a “bolt-on” approach.  Being a fan of baked goods, I have often referred to “baked in “sustainability practices, but it’s all semantics when you get down to it and the outcomes remain the same.

“Embedded Sustainability is the incorporation of environmental, health, and social value into the core business with no trade-off in price or quality – in other words, with no social or green premium.”- Laszlo and Zhexembayeva

Source: European Financial Review

As noted in the graphic, the goals, scope and outcomes associated with embedded sustainability (as compared to a “bolt-on” approach) drive  deeper and farther . In their research, the authors noted some interesting “lessons learned” from the many leading, innovative global companies that have embraced an embedded sustainability perspective.  One of those takeaways was that “the pursuit of sustainability involves hidden choices – whether to reduce negatives or provide positive solutions, and whether to pursue incremental change or heretical innovation – which are proving crucial to business strategy.”  In other words, it’s not easy to make the types of change needed without making some tradeoffs along the way.

In a crisp summary by Jen Boynton (@jenboynton) of Triple Pundit,   Dr. Laszlo deftly summarizes “three ways that sustainability initiatives build value for a firm:

  • Declining Resources-as energy and other inputs get more expensive, it makes financial sense to conserve them.
  • Increasing Expectations– customers, investors, regulators and employees expect more (as I mentioned above) and therefore a company has to deliver more in order to remain competitive.
  • Radical Transparency, often associated with CSR reporting, puts NGOs, unions, and government officials on the outside looking in with no secrets. A company has to do good things, otherwise their reputation and brand value will quickly suffer.”

As both authors noted in a European Financial Review article, “the linear throw-away economy, in which products and services follow a one-way trajectory from extraction to use and disposal, can no longer be supported, as we are simply running out of things to unearth and place to landfill. Consumers, employees, and investors are beginning to demand socially and environmentally-savvy products without compromise, while radical transparency is putting every company under a microscope.”  Just as I stated in last week’s blog, which addressed the threats and impacts of increased consumerism on sustainability itself, both businesses and consumers have an obligation to rethink the entire “make-consume” model, and explore design and end of life product management at both ends of the value chain.

The authors suggest that for companies to embrace the embedded approach to sustainability, “four interdependent and interconnected lines of action [can] help guide the journey:

  • Getting the Right Start: mobilizing, educating, and acting around specific low hanging fruits. Building momentum in the organization for sustainability projects that support existing business priorities and provide demonstrable pay-off.
  • Building the Buy-In: aligning company, value chain, and all other stakeholders around the vision of embedded sustainability.
  • Moving from Incremental to Breakthrough: developing clear but unorthodox goals, designing the strategy and capturing value through co-creation and innovation.
  • Staying with It: managing learning and energy while making sustainability ubiquitous but largely invisible in the business practice.”

So before you leap, plan ahead.  Build a system to plan, implement, measure and check progress of your sustainability initiative.  Look for the quick wins.  Build an innovation-based culture and reward positive outcomes.  Bake the initiative into the governance, operational, and communications of every corner of the four walls.  Expand your reach upstream to your key suppliers and spread the word to your customers.  Measure, manage, report and build on the early wins.  But more than anything, keep on baking…

“Eeny, Meeny, Miny, Moe”- Selecting Best Conflict-Free Minerals Supply Chain Sourcing Strategies (Part 3)

10 May

(Photo courtesy of Julien Harneis under a Creative Commons license)

Part 1 of this series highlighted the issues, regulatory and supply chain complexities and efforts by industry to tighten the control of precious minerals sourcing.  Part 2 of the series dove a bit deeper into efforts by key manufacturers in how they are auditing, validating and tracing the conflict minerals supply chain.  The post also presented some ideas on and what responsibilities non-governmental organizations have had in shaping the debate over conflict minerals, and the roles or responsibilities that we as consumers should take in this thorny human rights- environmental impacts meets consumer products issue.

The final part of this series highlights specific international guidance and steps that industries and consumers can and are taking to proactively address supply chain minerals sourcing and maintain a high level of corporate social responsibility.

But before I go further, a postscript to Part 2.  Following my second post, I was contacted by Suzanne Fallender of Intel with an update on the company’s efforts that I described in the second post.  In her response, for which he apologized for the delay, she provided a copy of a white paper prepared and posted in late April.  In it, the company states “we continue to work diligently to put the systems and processes in place that will enable us, with a high degree of confidence, to declare that our products are conflict-free. Our efforts on conflict minerals are  focused in three main areas: (1) driving accountability and ownership within our own supply chain through smelter reviews and validation audits; (2) partnering with key industry associations, including the Electronic Industry Citizenship Coalition (EICC) and the Global e-Sustainability Initiative (GeSI); and (3) working with both governmental agencies and NGOs to achieve in-region sourcing”. 

The Intel white paper concludes by stating “From the time we became aware of the potential for conflict-metals from the DRC to enter our supply chain, we have responded to this issue with a sense of urgency and resolve. We have approached this issue like we would address other significant business challenges at Intel.”  I believe Intel and their efforts to date bear that out.  They are encouraging comments on their plans and efforts, which can be submitted at http://www.intel.com/about/corporateresponsibility/contactus/index.htm.

By the way, I am still waiting on Apples reply to my inquiries.

Comparing Proposed Steps to Action

As mentioned in the second post, the OECD guidance, Due Diligence Guidance for Responsible Supply Chains of Minerals from Conflict-Affected and High-Risk Areas, serves as a common reference for all suppliers and other stakeholders in the mineral supply chain.  The guidance also meshes well with current industry-driven schemes like the EICC and GeSi and AIGG guidance, and clarifies expectations regarding responsible supply chain management of minerals from conflict-affected and high-risk areas.

The OECD guidance approaches minerals sourcing and supply chain management from a “risk management” and “due diligence” perspective and offers a framework to promote accountability and transparency.  A fundamental problem with the OECD guidance is that it’s voluntary.  And with any voluntary guidance, there’s reluctance or little pressure to fully commit to implementation, unless key market or financial drivers threaten or pressure companies to do so.  Also, what is challenging as mentioned before are the many steps and sometimes fragmented nature of the minerals sourcing supply chain.  The myriad of hands that minerals often pass through on the way to the smelter, and in turn on to intermediate and final product manufacturers is numerous and admittedly difficult to accurately trace. Risk levels are particularly high when minerals are derived from the artisanal mining operations (as compared to larger scale operations).  Consequently, being able to control and influence risk along the entire minerals sourcing network and assure that adequate due diligence mechanisms are in place to keep track of intermediary activities is daunting to say the least.  All the more reason to seek ways to streamline the sourcing process by limiting the number of materials exchanges, stepping up oversight, and disengaging activities with underperforming  or high risk suppliers

The OECD suggests a five step framework for risk-based due diligence in the mineral supply chain  that strongly advocates for traceability and accounting systems for both upstream and downstream supply chain organizations:

Step 1: Establish strong company management systems

Step 2: Identify and assess risks in the supply chain

Step 3: Design and implement a strategy to respond to identified risks

Step 4: Carry out independent third-party audit of smelter/refiner’s due diligence practices

Step 5: Report annually on supply chain due diligence

In some contrast to the OECD guidance, the Enough Project offers its own set of valuable ideas and frameworks for the electronics sector and others working in east Africa to follow.  Enough Project, in its recent report entitled  Certification: The Path to Conflict-Free Minerals from Congo , states that international certification efforts are vital to long-term solutions to conflict minerals issues  and on assuring revenue “transparency”.  The Enough Project offers its “five key lessons that should be incorporated into a certification scheme for conflict minerals:

  • A “conductor” is needed to convene a high-level diplomatic partnership on certification and help transform words into action. A “conductor”—a leader with gravitas and political support—is needed to bring stakeholders to the table and to issue a call to action. President Bill Clinton provided a precedent for this when he called together companies and sweatshop labor campaigners in 1996, resulting in the Fair Labor Association certification process.
  • Certification should be governed and funded by a multi-stakeholder body that includes companies, governments, and NGOs. The legitimacy of a process rests on a multi-stakeholder governing and funding framework that ensures accountability.
  • Certification must include independent third-party auditing and monitoring. Regular independent audits assure the public that the process is credible, and on-the-ground monitoring ensures accuracy.
  • Transparency of audits and data is essential to making certification work. Certification processes are moving rapidly towards full disclosure of data and audits.
  • Certification must have teeth. Certification can only work if its standards have meaning on the ground and are enforced through penalties for noncompliance.”

The Enough Project report calls on the United States, through Secretary of State Hilary Clinton, to convene a senior partnership on certification with industry and the International Conference on the Great Lakes Region (ICGLR).  The report also states that “the United States must act quickly, as minerals traders in Congo are already seeking alternative, opaque markets for their minerals. An internationally accepted certification process would deter this development.”  Last week, a letter writing campaign launched encouraging U.S. Secretary of State Clinton to state a public U.S. position on this issue and convene a high-level partnership on certification with leading electronics and end-user companies, together with Congolese President Kabila and regional governments.  The goal of this summit would be “aimed at unifying the regional and industry-led initiatives and gaining consensus on a system of independent checks on the ground”.

Meantime, Conflict-Free Smelter the industry protocols proposed and under development by the EICC and GeSi are focused on two key areas targeted at what they characterize as the “pinch point” in the supply chain- the smelter:

Business Process Review: Evaluate company policies and or codes of conduct relating to conflict minerals

Material Analysis Review: 1) Conduct a complete material analysis to demonstrate that all sources of materials procured by the smelting company are conflict-free; 2) Evaluate whether source locations are consistent with known mining locations; and 3) Establish whether material identified as “recycled” meets the definition of recycled materials.

The CFS program is moving forward in spite of the delay by the SEC for final rulemaking.   CFS assessments for tantalum began in the fourth quarter, 2010 and are expected to be posted on the EICC website starting this month.  Tin, tungsten and gold are planned to commence later this year.

What Makes a Good Auditor?

In addition to “what” types of certification schemes are needed and how they should be administered or governed, there’s the matter of “who” should do the auditing and third- part certifying.  What I see as critical here is Step 4 of the OECD process and Step 3 of the Enough Projects documents, both of which the EICC and GeSi programs are attempting to fulfill.  However, key to this audit process is the “independence” and competency factor as well as what qualifications auditors have to perform these assessments.  The Enough Project gleaned through numerous frameworks in order to develop its proposed certification approach, which deserves careful consideration.  In addition, while the SEC has yet to clarify the specifics of the Dodd-Frank provision, ELM Consulting’s Lawrence Heim in a recent AgMetal Miner series, notes:

… There are a number of auditor certifications that could be considered applicable to this scope of audit, but none should be considered to automatically qualify an auditor for these engagements. These audits require a unique blend of expertise in general auditing processes/procedures, environmental knowledge, accounting basics, chemistry/industrial processes, procurement controls, contracts and supply chain fundamentals. Finally, the auditor must be able to execute the engagement in accordance with the auditor/engagement standards of the Government Auditing Standards, such as the standards for Attestation Engagements or the standards for Performance Audits (GAO–07–731G) GAO-07-731G contains standards on auditor independence.

Associations consist of multiple members who have varying degrees of business relationships with each other and the audited entities, putting the auditor in a position of serving “multiple masters” relative to influence over the audit scope, process, information, report and payment. Our research and inquiries to qualified experts in SEC auditing requirements indicates that there appears to be no precedent in any other legally-required audit in the US that has been fulfilled in this manner.

Comparisons and Contrasts

I had the chance last week to listen in on an informative webinar by STR Responsible Sourcing.  The company is an accredited monitor for numerous social certification programs, and partners with many organizations that share our mission of assuring responsible sourcing practices.  The company compared governmental, regional, industry schemes for addressing minerals mined in conflict regions.  The figure below summarizes each of the initiatives and target areas.

According to STR, there are a series of challenges lying ahead for both upstream suppliers (e.g. miners (artisanal and small-scale or large-scale producers), local traders or exporters from the country of mineral origin, international concentrate traders, mineral re-processors and smelters/refiners) and downstream users (e.g. metal traders and exchanges, component manufacturers, product manufacturers, original equipment manufacturers (OEMs) and retailers) of precious minerals.   Downstream Supply Chain parties are faced with some unique challenges, namely:

  • No clearly defined requirements of “due diligence”
  • No guarantees for “conflict-free”
  • Limited transparency in upstream supply chain
  • No traceability in downstream supply chain
  • No generally accepted standard / certification

For the upstream supply chain, primary challenges include:

  • Complexity of the supply chain
  • Difficulty to include small and artisanal mining
  • Challenges for implementation of traceability schemes in the DRC due to militarization of mines and widespread lack of formalization of small scale mining

Meanwhile, according to STR,  the downstream supply chain might consider the following approaches to start on the path of responsible sourcing of precious minerals:

  • Implement a procurement policy and due diligence procedures
  • Develop consistent supplier engagement processes (awareness raising, communication and training) throughout the supply chain
  • Monitor downstream suppliers’ due diligence procedures and gather data on organization of supply chain (desktop or onsite)

For the upstream supply chain consider the following:

  • Support certification schemes and industry efforts
  • Join certified trading chains / buy certified products
  • Government lobbying

Where to Start

If you are a manufacturer of electronics, jewelry, automotive parts or other goods that may be subject to sourcing through the DRC or other conflict prone areas of the world, consider (at a minimum), the following steps:

  • Read the OECD and Enough Project guidance documents to understand the issues and risks associated with responsible sourcing
  • Stay tuned into the progress that your industry associations are achieving to bring a better sense of responsible management to this issue
  • Follow the development of the SEC conflict mineral guidelines
  • Work with procurement, operations, legal, environmental and communications staff to craft a procurement policy & selection of supplier selection process (along the lines that Intel, HP, Motorola and others have)
  • Request origin and chain of custody documentation for purchases to assure traceability
  • Establish adequate record-keeping system
  • Ensure that relevant staff is trained on procurement policies, procedures to receive material and identification of potential conflict material

If I were to look at where industry was a few short years ago on this issue compared to now, there’s no doubt that increased minerals sourcing tracing and accountability in conflict-free minerals is improved.   The system as presently planned, in pilot stages or in process certainly has some flaws as most new initiatives have.  But given the industry, region, national and international levels of cooperation that is rapidly becoming evident, I’ve no doubt that the positive outcomes will be great.

Aaron Hall, Policy Analyst at the Enough Project in a recent interview with Resource Investing News said “It’s a start. You have to take small steps forward. The fact that governments and industry are thinking about this shows concern and to a large extent they are willing to tackle the problem,” said Hall. “I think it’s remarkable that the multiple stakeholders involved in this process have been able to come together in such a short amount of time and make progress towards setting up a regional certification regime for these minerals.”