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Will Apple Finally Embrace Corporate Social Responsibility & Sustainability w/ Tim Cook at Helm?

19 Jan

If you have been a frequent reader of this space, you’d know my position on Apple and the manner in which it’s conducted its supply chain sustainability programs…or hasn’t.

2011: Game On (or the Collective Karma Ran Over Your Dogma)

Last fall, I wrote about the follow up efforts by Chinese NGO Institute of Public and Environmental Affairs (IPE), who performed five more months of research and field investigations and reported that “the pollution discharge from this enormous industrial empire has been expanding and spreading throughout its supply chain, seriously encroaching on the local communities and their environment… the volume of hazardous waste produced by suspected Apple Inc. suppliers was especially large and some had failed to properly dispose of their hazardous waste.”

Six months before that (nearly a year ago), I presented my thoughts about the IPEs report that leveled complaints against the IT/Electronics industry and the overall performance of nearly 30 major manufacturers and their respective key parts suppliers.  The report focused on “the openness of IT firms and their responsiveness to reports of environmental violations at suppliers”.  Concerns were raised in the report regarding levels of environmental toxins and pollutants being discharged in rivers and streams and into air sheds.

Many people have asked me over the past half-year why Apple is being uncooperative or secretive.  Well, “secrecy” has always been part of the Apple mystique, but of course so has evolutionary and disruptive innovation. The problem as I saw it then (and this thought has now been vindicated) is when it comes to corporate social responsibility and sustainability, transparency is the name of the game, not secrecy.  I also suggested that Apples supplier network may be too big to handle and they lack the tools, systems and technologies to perform adequate supplier training and oversight.  Combined with inconsistent Chinese regulatory agency oversight on its industrial manufacturers, this presented difficult challenges to a workable, and meaningful sustainable supply chain solution. But Nike did it, so why couldn’t (or wouldn’t) Apple, I asked?

My advice last September to Apple and new CEO Tim  Cook was to step up and be as evolutionary on corporate social responsibility and sustainability matters as it is with its products.  My exact words were: “show humility, take responsibility, and act swiftly and collaboratively.”

Gladly I am happy to report that Apple has wised up and stepped voluntarily under the glare of public scrutiny.

2012: Enter Mr. Cook…the New, Improved, Socially Responsible Apple?

"Good Apple"

In its Supplier Responsibility 2012 Progress Report, the company states it is “committed to driving the highest standards for social responsibility throughout [its] supply base”. It adds: “We require that our suppliers provide safe working conditions, treat workers with dignity and respect, and use environmentally responsible manufacturing processes wherever Apple products are made.”

The 156 companies it lists alongside the report on its Supplier Responsibility website account from more than 97 per cent of what Apple pays to suppliers to manufacture its products.  A complete picture of all the thousands of suppliers in Apples supply chain may be daunting, but at least the company has captured the suppliers where the “greatest spend” is.

Highlights from the 2012 Report

  • In 2011, we conducted 229 audits throughout our supply chain — an 80 percent increase over 2010 — including more than 100 first-time audits. We continue to expand our program to reach deeper into our supply base, and this year we added more detailed and specialized audits that focus on safety and the environment.
  • Apple-designed training programs have educated more than one million supply chain employees about local laws, their rights as workers, occupational health and safety, and Apple’s Supplier Code of Conduct.
  • Our audits have always checked for compliance with environmental standards. In 2011, in addition to our standard audits, we launched a specialized auditing program to address environmental concerns about certain suppliers in China. Third-party environmental engineering experts worked with our team to conduct detailed audits at 14 facilities. We uncovered some violations and worked with our suppliers to correct the issues. We will expand our environmental auditing program in the coming year. [violations unearthed included dumping wastewater onto a neighboring farm, using machines without safeguards, testing workers for pregnancy and falsifying pay records]
  • We have a zero-tolerance policy for underage labor, and we believe our system is the toughest in the electronics industry. In 2011, we broadened our age verification program and saw dramatic improvements in hiring practices by our suppliers. Cases of underage labor were down significantly, and our audits found no underage workers at our final assembly suppliers. [Apple said it found six active and 13 historical cases of underage labor at some component suppliers, but none at its final-assembly partners]
  • We offer continuing education opportunities at our suppliers’ facilities free of charge. More than 60,000 workers have enrolled in classes to study business and entrepreneurship, improve their computer skills, or learn English. And the curriculum continues to expand. We’ve also partnered with some local universities to offer courses that employees can apply toward an associate degree.

Apple has vowed to deal with worker abuses, hoping to deflect criticism it was turning a blind eye to cases of poor working conditions in a mostly Asian supply chain. Perhaps in a huge move, Apple will allow independent auditors from the Fair Labor Association to also be part of the future auditing process.  In an interview last Friday, Mr. Cook said Apple’s vow to double the number of supplier audits along its supply chain is “raising the bar” for the entire high technology industry, and that more change is on the way.  Cook said “All of this means that workers will be treated better and better with each passing year…It’s not something we feel like we have done what we can do, much remains to be done.”

The San Jose (California) Mercury News quoted analyst Ken Dulaney with Gartner Research who wondered why this may have taken so long to happen. “Who knows why they didn’t do this sooner? It could have been because of Steve Jobs. Maybe with Cook’s financial background he’s trying to move Apple toward less secrecy, which would be a very good thing. It’s part of their trying to be a good global citizen.”

Under Scrutiny

Either way, Apple will continue to be under watchful eyes, as environmentalist and labor activists continue to push for more reforms by American companies doing business overseas.  Apple still will need to double down its efforts to respond more proactively to the many environmental impact related issues reported in the past by its major suppliers, especially in China.  But for a company that has played its cards extremely close to the chest, it’s a major breakthrough, if time proves the intent to be true.

Judy Gearhart, executive director of the International Labor Rights Forum in Washington, D.C, said that how the industry as a whole responds” depends how engaged they [Apple] are going forward. You see companies make these commitments and there’s often a lot of fanfare, but it doesn’t always pan out the way they say it will.”

Maybe Mr. Cook is the one “Good Apple” that will save the bunch.  Let’s hope so.

Chinese NGO Claims Apple Supply Chain Sustainability is ‘Rotten to the Core’. Will Consumers Agree?

2 Sep

Photo by i.hoffman under CC License

Here we go again.  Six months ago, I presented my thoughts about a report by Chinese NGO Institute of Public and Environmental Affairs (IPE) that leveled complaints against the IT/Electronics industry and the overall performance of nearly 30 major manufacturers and their respective key parts suppliers.  The report focused on “the openness of IT firms and their responsiveness to reports of environmental violations at suppliers”.  Concerns were raised in the report regarding levels of environmental toxins and pollutants being discharged in rivers and streams and into air sheds.

Worker complaints about unsafe working conditions and acute health problems were presented.  The IPE gave opportunities to every company referenced in the report to initiate an open and two-way dialogue, and most did …except Apple Electronics.  According to the report, Apple was more secretive about its supply chain than almost every other American company operating in the China.  Apple came up among the laggards among 29 major electronics and IT firms in a transparency study drawn up by a coalition of China’s leading environmental groups.

These are the iPad and iPod guys for crying out loud!  The evolutionary wizards who have shaped and fundamentally changed the way that most consumers behave, work, interact and get on with their daily lives.  Those guys who at one point this summer became the wealthiest company in the United States…this before iconic CEO Steve Jobs retired.

Apple- Skinned Again

Following the early 2011 report, the IPE performed five more months of research and field investigations and reported that “the pollution discharge from this enormous industrial empire has been expanding and spreading throughout its supply chain, seriously encroaching on the local communities and their environment… the volume of hazardous waste produced by suspected Apple Inc. suppliers was especially large and some had failed to properly dispose of their hazardous waste.”

The IPE reported (rather colorfully I might add) that 27 suspected suppliers to Apple had known environmental problems.  The IPE noted that in Apples ‘2011 Supplier Responsibility Report’, “where core violations were discovered from the 36 audits, not a single violation was based on environmental pollution. The public has no way of knowing if Apple is even aware of these problems. Again, the public has no way of knowing if Apple has pushed their suppliers to resolve these issues. Therefore, despite Apple’s seemingly rigorous audits, pollution is still expanding and spreading along with the supply chain.”

IPE reported that “during the past year and four months, a group of NGOs made attempts to push Apple along with 28 other IT brands to face these problems and the methods with which they may be resolved. Of these 29 brands, many recognised the seriousness of the pollution problem within the IT industry, with Siemens, Vodafone, Alcatel, Philips and Nokia being amongst the first batch of brands to start utilizing the publicly available information. These companies then began to overcome the spread of pollution created by global production and sourcing, and thus turn their sourcing power into a driving force for China’s pollution control. However, Apple has become a special case. Even when faced with specific allegations regarding its suppliers, the company refuses to provide answers and continues to state that “it is our long-term policy not to disclose supplier information.

The IPE offered its opinion that “Apple has already made a choice; to stand on the wrong side, to take advantage of the loopholes in developing countries’ environmental management systems, and to be closely associated with polluting factories.”

IPE concluded that Apple needed to own up and be accountable for its supply chain for the following four reasons:

  1. “… any company that produces a large amount of hardware must bear the responsibility for the environmental and social costs incurred during the manufacturing process.
  2. Secondly, the suppliers who violate the standards for levels of pollutants emitted and who ignore environmental concerns and workers’ health do these things with the aim of cutting costs and maximizing profits.
  3. Thirdly, Apple Inc. understands that when passing the blame for social responsibility it can be difficult to pull the wool over the eyes of the general public…; and
  4. Fourthly, many people do not understand that Apple and other brands’ outsourcing of production is not the same as ordinary purchasing behavior. Various sources of information show that Apple is deeply involved in supply chain management—from the choice of materials to use to the control of clean rooms in the production process.”

So What’s Wrong With Apple?

Apples image problem appears to be getting worse before it gets better and it may be more than just a public relations problem; and it’s not just in China that Apple is facing criticisms.  Apple, like most consumer electronics manufacturers is a major user of highly sought after precious minerals, many of them associated with conflict areas (so-called ‘conflict minerals’). Apple in fact sources tin from 125 suppliers that use 43 smelters worldwide.  That’s an awful big challenge from a supply chain management perspective. But Apple was still a bit slow to step up like other key IT companies like Dell and Intel and collaborate with the Electronics Industry Citizenship Coalition in developing a framework to address conflict mineral traceability.

Further complicating the issue is the sheer size of Apples supply chain and the general difficulty that comes in managing dispersed multi-tired supply chains in other countries.  In an excellent piece published in GreenBiz this week, Environmental Defense Fund Project Manager Andrew Hutson suggested that  “If you’ve got an office in Shenzhen or Hong Kong, it’s very  hard to keep tabs on the perhaps thousands of factories you have across  China in any given moment”.  The article went on to discuss how scrutiny can sometimes  lead contractors to move factories to more remote areas, farther away  from watchdogs, suggesting that “the sheer distance from headquarters created by chasing low-cost labor  to developing countries can effectively reduce accountability”. While cheap labor in far off lands certainly has its benefits, clearly it has its disadvantages and Apple is paying the price.

Many people have asked me over the past half-year why Apple is being uncooperative or secretive.  Well, “secrecy” has always been part of the Apple mystique, but of course so has evolutionary and disruptive innovation. The problem is when it comes to corporate social responsibility and sustainability, transparency is the name of the game, not secrecy.  In this “WikiLeaks” world of ours, mystique only gets companies mired deeper into areas of suspicion and distrust.

Photo via Michael Holden under Flikr CC License

But perhaps there is more to the issue to noodle on. Is it entirely possible that Apple isn’t ignoring the problem, but rather its supplier network is just too big to handle and they lack the tools, systems and technologies to perform adequate supplier training and oversight?  Or is it that Chinese regulatory agencies also lack the resources or institutional oversight necessary to monitor compliance over in-country industrial manufacturers that service multiple consumer brands?  Or is it possible that as consumers our insatiable appetite for Apple products is partly responsible for creating such high demand that Apple must reach out to hundreds if not thousands of suppliers to fulfill its orders and keep Apple product lovers happy?   Or is the problem a combination of rampant, unsustainable consumerism, poor regulatory oversight, a supply chain ‘gone wild’, AND a deviated moral center on the part of Apple (as the IPE suggests).  You see, its complicated and maybe, just maybe, we should all take a close look in the mirror and question our own culpability in this mess.

For any of my dedicated readers, I am by no means being an apologist for Apple.  You all know where I have stood in the past by constructively calling for Apple to step up and be as evolutionary on corporate social responsibility and sustainability matters as it is with its products.  I noted in my prior post the many key steps that Apple can and must take to effectively make a difference in its supply chain.  In addition Treehugger writer extraordinaire Jaymi Heimbuch offered some outstanding advice to new CEO Tim Cook, not the least of which was “requiring transparency in the supply chain and being more direct with suppliers about standards”.  My advice is simple Mr. Cook: show humility, take responsibility, and act swiftly and collaboratively.

Rest assured there are more activist organizations shaking Apples tree.  And what I fear (as Apple should too), is that one day all that shaking will bring that big old tree down.

Lean Design, Lean Manufacturing, Lean Inventory/Supply Management – A Sustainability “Trifecta”

16 Aug

Source (Popular Mechanics)

You’d have to be living in a mountain cave or vacationing on the south coast of France to not know that world stock markets are being whipped around these past two weeks.  The USA Today has attributed what’s been happening in the markets here in the U.S. along seven key elements, all of which is related more to external factors such as the European money woes, general investor fear and lack of policy direction from the federal government.

The general market fear and scurrying for shelter reminds me that when hikers are caught in a sudden storm, they often seek shelter in a “lean-to” or other protective cover until the skies clear.

I thought that in light of the economic body slamming that has been going on this past week, it’s worth reflecting on some efficiency-based ways that  businesses can use to overcome (or at least buffer) some of the external factors that are causing such economic uncertainty.  Like the hikers seeking shelter from the storm, there are some “lean-to”-like steps that company’s can take to exert some control and influence — and it all relates to a leaner, greener, smarter enterprise.

The Lean and Green Enterprise

Last winter I wrote about how importance a “lean and green” enterprise was in establishing a smarter, leadership position in a rapidly changing global marketplace.  I noted then that a 2009 study suggested that “lean companies are embracing green objectives and transcending to green manufacturing as a natural extension of their culture of continuous waste reduction, integral to world class Lean programs.”  Lean was more rapidly accomplished with a dedicated corporate commitment to continual improvement, and incorporating ‘triple top line’ strategies to account for environmental, social and financial capital.  I also argued by looking deep into an organizations value chain (upstream suppliers, operations and end of life product opportunities) with a ‘green’ or environmental lens, manufacturers can eliminate even more waste in the manufacturing process, and realize some potentially dramatic savings

So I was reminded this past week that Lean in design, Lean in manufacturing, and Lean in inventory can individually or collectively be key success factors in managing waste in all its many forms.  Collectively, this can have a measurably positive effect on a company’s financial, and hence, business performance.  A couple of recent articles touched on this topic this week while you were watching your 401(K) equity or stock value tank.   But first let’s touch on Lean Design.

Lean Design

I came across an older but very relevant article written in the aftermath of the Internet stock crash in the early 2000’s.  The article described product development as involving “two kinds of waste: that associated with the process of creating a new design (e.g., wasted time, resources, development money), and waste that is embodied in the design itself (e.g., excessive complexity, poor manufacturing process compatibility, many unique and custom parts).”  The article cautioned that because the design process is the cradle of creative thinking, designers needed to carefully watch what they “lean out” or risk cutting off the creative process to reduce waste.  What has happened in the ensuing years has been an incredible emphasis on “green design” that focuses on full product life cycle value, such that “end of life management” considerations have taken on a more relevant and embedded nature in manufacturing.

A Lean Manufacturer Can be a Sustainable Manufacturer

In yet another recent article by manufacturing consultant Tim McMahon (@TimALeanJourney), he notes that “Lean manufacturing practices and sustainability are conceptually similar in that both seek to maximize organizational efficiency. Where they differ is in where the boundaries are drawn, and in how waste is defined”.  He notes, as I have in my past posts, that Lean manufacturing practices, which are at the very core of sustainability, save time and money — an absolutely necessity in today’s competitive global marketplace.

The key areas to control manufacturing waste and resource use during the design and manufacturing cycle, can be broken down  and managed for waste management and efficiency in the following five ways:

Reduce Direct Material Cost – Can be achieved by use of common parts, common raw materials, parts-count reduction, design simplification, reduction   of scrap and quality defects, elimination of batch processes, etc.

Reduce Direct Labor Cost – Can be accomplished through design simplification, design for lean manufacture and assembly, parts count reduction, matching product tolerances to process capabilities, standardizing processes, etc.

Reduce Operational Overhead –  Efficiencies can be captured by minimizing impact on factory layout, capture cross-product-line synergies (e.g. a modular design/ mass-customization strategy), improve utilization of shared capital equipment, etc.

Minimize Non-Recurring Design Cost – Planners and practitioners should focus on platform design strategies to achieve efficiencies, including: parts standardization, lean QFD/voice-of-the-customer, Six-Sigma Methods, Design of Experiment, Value Engineering, Production Preparation (3P) Process, etc.

Minimize Product-Specific Capital Investment through: Production Preparation (3P) Process, matching product tolerances to process capabilities, Value Engineering / design simplification, design for one-piece flow, standardization of parts.

Can a Lean Inventory Management Drive Sustainable Resource Consumption?

Business Colleague Julie Urlaub from Taiga Company  (@TaigaCompany) summarized a post in a recent Harvard Business Review by green sage Andrew Winston (@GreenAdvantage).  The article, Excess Inventory Wastes Carbon and Energy, Not Just Money describes how the global marketplace “ is sitting on $8 trillion worth of ‘for sale’ inventory [the U.S. maintains a quarter of that  inventory].  These idle goods not only represent a tremendous financial burden but an enormous environmental footprint ” that was generated in the manufacturing of those goods.  Mr. Winston maintains that “If we could permanently reduce the amount of product sitting idle, we’d save money, energy, and material.”  The problem is predicting and managing inventory in such fickle times.   Winston went on about new predictive tools being advanced by companies that hold promise in nimbly driving inventory demand response up the supply chain.  For instance, he noted that “ using both demand sensing software and good management practices, P&G has cut 17 days and $2.1 billion out of inventory. All that production avoided saves a lot of money in manufacturing, distribution, and ongoing warehousing. It also saves a lot of carbon, material, and water.”

What Mr. Winston found shocking though (me too!) was that “even with the fastest-selling, most predictable products, the estimates are off by an average of more than 40 percent. Imagine that a CPG company believes that 1 million bottles of a fast-turning laundry detergent will sell this week. With 40 percent average error, half the time sales will actually fall between 600,000 and 1.4 million bottles. And the other half of the time sales will be even further off the mark.”  The process becomes self perpetuating and the inventory racks up along with the parallel environmental footprint, unless somehow the uncertainty can be better predicted.  While companies like to have on hand what Mr. Winston referred to as “safety stock”, I have come to know as reserve inventory driven by “just in time” ordering .  But that process was shown to have its own flaws such as when orders for goods dried up overnight in 2008 and when it came time to ramp up in early 2010, part counts were insufficient to meet the rising demand.

I really pity the supply chain demand planner, who like the weatherman is subject to the fickle nature of an unpredictable force.  Winston wrapped up his article by stating that “ reducing the inventory itself could be the greenest thing [logistics executives] can do”.  I had the chance to speak and attend the 2010 Aberdeen Supply Chain Summit where demand response planning was discussed at length and where green supply chain issues were recognized as one of many key attributes in effective supply chain management.  In such a volatile economy, its vital that companies keep inventory management in mind as a way to leverage its costs and simultaneously look toward environmental improvements that can reduce waste.

Partnering for Progress

A relatively recent pilot program in the State of Wisconsin just shows how partnering to create a lean focused sustainable manufacturing cluster can have enormous dividends.  According to a recent article in BizTimes.com, the Wisconsin Profitable Sustainability Initiative (PSI) was launched in April 2010 by the Wisconsin Department of Commerce and the Wisconsin Manufacturing Extension Partnership (WMEP). The goal according to the article is “to help small and midsize manufacturers reduce costs, gain competitive advantage and minimize environmental impacts”.  Forty-five manufacturers participated in over 87 projects evaluated. These projects focused on “evaluating and implementing a wide range of improvements, including reducing raw materials, solid waste and freight miles, optimizing processes, installing new equipment and launching new products.  The initial results show that the projects with the largest impact do not come from the traditional sustainability areas such as energy or recycling. Instead, outcomes from the initial projects suggest that transportation and operational improvements are places where manufacturers can look to find big savings, quick paybacks and significant environmental benefits.”

The program is projected to generate a five-year $54 million economic impact, including: $26.9 million in savings, $23.5 million in increased/retained sales and $3.6 million in investment.

Lean design,  Lean manufacturing, Lean inventory management – a Waste Containment and Efficiency “Trifecta”

Together, lean design,  lean manufacturing  and effective, lean inventory management offer a “trifecta” approach for industry to identify, reduce or eliminate and track waste.  Effective use of these tools cannot only drive both in how the product is designed and  produced but offers opportunities all the way up the supply chain to manage effective inventory and resource consumption. As the University of Tennessee studied concluded,  the implications of lean strategies are 1)  Lean results in green; and 2) Lean is an essential part of remaining competitive and maintaining a quality image.  Put the two together and a company can virtually be unstoppable…or a least a bit more recession-proof and “shelter from the storm”.

This One’s for Ray- Reflections on the Passing of a Sustainability Giant & Radical Industrialist, Ray Anderson

8 Aug

Ray Anderson died this week.  Most of us in the business just called him “Ray”, because he really was such an approachable guy.  I saw him speak in San Diego three years ago, and even to a business green business veteran like me, he was sage-like.  To most outside the world of sustainability in business, the name hardly rang a bell.  But to those of us within its three concentric circles, Ray was an icon.  As many know, Ray Anderson ran InterfaceFLOR.  As the leader of a major global carpeting brand, which at that time relied on heavy use of industrial chemicals, hydrocarbon based products, energy and water use, InterFaceFLOR, like other carpet manufacturers was enduring a major challenge to rethink how its products were being made.

By the mid 1990’s when Ray had become the company’s CEO, more customers were asking questions about the company’s sustainability efforts.   In 1994, Ray had an awakening of sorts (his so-called  “point of a spear into my chest” moment), when after having a number of meetings and discussions with his staff and reading Paul Hawkens the Ecology of Commerce,  he became an enlightened, radical industrialist. He had come to the  conclusion that the environment was at risk and a lot of that was caused by industry and companies such InterfaceFLOR  that were based on petrochemicals and energy.

I, myself, was amazed to learn just how much stuff the earth has to produce through our extraction process to produce a dollar of revenue for our company. When I learned, I was flabbergasted. We are leaving a terrible legacy of poison and diminishment of the environment for our grandchildren’s grandchildren, generations not yet born. Some people have called that intergeneration tyranny, a form of taxation without representation, levied by us on generations yet to be. It’s the wrong thing to do.-Ray Anderson

The Radical Industrialist Takes on the Supply Chain

Ray was simply on a mission- for InterfaceFLOR to not only cut waste, but to be a leading, responsible business.  He became the face of the “radical industrialist” (the title of his last autobiographical  book which I received signed by him just two months ago is called Confessions of a Radical Industrialist) and in 1994 launched InterfaceFLOR into a first mover role to reduce its environmental and social footprint.  The data is quite extraordinary in the 17 years since the company launched its many environmental initiatives. Of course, Ray started with a plan- one that by necessity started small- but was across the board, an overhaul affecting every link of the supply chain.  Ray also smartly knew that go get his shareholders on board, he needed “obliterate costs/footprint associated with waste; silencing the shareholders that were uncomfortable with the risk involved with completely revolutionizing your company”.

We began to tackle the face of mountain we identified as waste. We defined waste, by the way, as any cost that we incurred that does not add value to our customer and that translates to doing everything right the first time, every time. It’s not just waste material, scrapped and low quality and so forth. If you send something to the wrong destination and have to get it back and reship it — that’s waste. If you incur a bad debt — that’s waste. So we defined waste very broadly and over time we actually said that any energy that comes from fossil fuel by our definition is waste and we need to eliminate it. We really began to think in different ways about our business in terms of climbing this mountain and it became very clear very quickly this was the smart thing to do. Not only did we start to generate answers for those customers, they embraced us for what we were trying to do. The goodwill in the market place has just been stunning. The rest of the business case is pretty simple. I cost it down not up. – Ray Anderson

According to Lindsay Parnell, InterFaceFLOR’s CEO for Europe, the Middle East, Africa, and Asia, the company has “reduced waste to landfill by 80 per cent since 1996, curbed water use by the same amount, reduced energy use per unit of production by 43 per cent, and cut greenhouse gases 44 per cent, partly by generating 30 per cent of its energy from renewable.  But what also stands out (and what made Ray such a business visionary) was that there was a phenomenal financial payback that could be realized from “going green”.  According to Parnell, “We could see that the millions of dollars were stacking up.  Between 1995 and 2010 we have saved $433m – that is a huge amount for a company with revenues of around $1bn. There is no way we have invested $433m in this, but that is what it has saved.”

It’s not just the right thing to do, it’s the smart thing to do. – Ray Anderson

Climbing Mount Sustainability

Rays efforts were noticed for sure.  Time Magazine featured him in an article this past spring and Fortune Magazine called him “America’s greenest CEO”.  He went out and “evangelized” over 150 times a year, until his fight with cancer started to finally slow him down.  The awards and honors bestowed on Ray and the companies over the past two decades are too many to mention here. Recently, Interface ranked 11th worldwide in the 2010 Sustainability & Innovation Global Executive Study & Research Project by MIT Sloan Management Review and The Boston Consulting Group.  They ranked second behind Unilever in the 2011 Global Sustainability Leaders Survey from GlobeScan Inc. and SustainAbility Ltd.  Suffice it to say though that InterfaceFLORs efforts disruptively changed the way the carpet, building materials and textile industry operate today as compared to 20 years ago.

Meanwhile, in the last couple of years the company launched its highly ambitious  Mission Zero ™  sustainability strategy, which aims to turn InterfaceFLOR into a zero-impact organization.  Ray often spoke about how climbing the sustainability mountain in business was akin to climbing Mount Everest and that there were seven paths or fronts to get there:

  • Eliminate Waste: Eliminating all forms of waste in every area of business;
  • Benign Emissions: Eliminating toxic substances from products, vehicles and facilities;
  • Renewable Electricity: Operating facilities with renewable electricity sources – solar, wind, landfill gas, biomass, geothermal, tidal and low impact/small scale hydroelectric or non-petroleum-based hydrogen;
  • Closing the Loop: Redesigning processes and products to close the technical loop using recovered and bio-based materials;
  • Resource-Efficient Transportation: Transporting people and products efficiently to reduce waste and emissions;
  • Sensitizing Stakeholders: Creating a culture that integrates sustainability principles and improves people’s lives and livelihoods;
  • Redesign Commerce: Creating a new business model that demonstrates and supports the value of sustainability-based commerce;

Making the Business Case

When you are being asked to make the business case for sustainability – perhaps ask them to make the business case for being un-sustainable. – Ray Anderson

You see, for the past 30 years I’ve been evangelizing like Ray for organizations to make “the business case” on behalf of reducing waste of any kind (be it over-consumption, generation of waste, human productivity waste, etc) so the bottom line is optimized and employees, communities and the environment are protected.  To me it’s a “no brainer” and for folks like Ray it took an epiphany to make that realization.  Since Ray’s awakening in 1994, and especially in the past half decade or so, more CEO’s and manufacturers with local to global reach are coming to their own realizations and drawing their own conclusions.

Ray stepped out of his comfort zone to challenge the status quo.  He forged a new business normal that called for a respect of the land, responsible use of resources, smart design and innovative end of life (cradle to cradle) management of products.  Mission Zero will continue for the many thousands of employees of InterFaceFLOR around the world- all because of one man’s vision. All because of Ray.

As Ray said back in 2008 when I saw him, “There are noble fortunes to be made in the transition to sustainability.” That inspirational quote stands right up there with my son’s from back in 1991 when he introduced me to his pre-school class as the Dad who “saves the planet”.   Sometimes, being radical is not such a bad thing.

Mr. Anderson…er, Ray, thanks for all the inspiration- this one’s for you.

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!

Manufacturing, Suppliers & Retailers- Partnering for Better Chemical Data in the Supply Chain

27 Apr

(Photo Courtesy of Milosz1 under the Creative Commons license)

“WARNING: This area contains a chemical known to the State of California to cause cancer, birth defects or other reproductive harm.”

Now that I have your attention, have you ever seen one of these warnings posted outside your local convenience store or place of business?  Well, this is one of the many ways that consumers and workers are informed of the presence of chemicals in our everyday lives and the responsibilities that companies have to notify the public and workers of potentially hazardous substances.

This past week, GreenBiz editor Jonathan Bardeline highlighted a cross-sectoral effort by a unique assemblage of manufacturers and retailers, focused on meeting consumers demand for less toxic products. “Meeting Customers’ Needs for Chemical Data,” is a tool with information from major companies such as Johnson & Johnson, Walmart and Hewlett-Packard, SC Johnson, Nike and Seagate, detailing how they interact with chemical suppliers.  The scope of the document focuses on assisting suppliers to product fabricators and formulators[1] , and steps they can take to collaborate to bring safer products to the consumer.

The guidance document was prepared by the Green Chemistry in Commerce Council (GC3)[2], which promotes itself as a “business-to-business network which provides an open forum for participants to discuss and share information and experiences related to advancing green chemistry, design for environment, and sustainable supply chain management.  The projects focus is to “provide the opportunity for cross-sectoral collaboration on enhancing chemical data sharing along supply chains”.   The guidance provides clear signals to suppliers on the needs that fabricators and formulators have for chemical data and the consequences of not providing such data.

Chemical Data 101

To begin to understand what we are really talking about, let’s start at the beginning.  The document lays a great foundation by describing what types of chemical data exist.  Basically, chemical data includes, but is not limited to, the following types of information:

1. Chemical name, trade name, and CAS number of all chemical ingredients in an article or chemical mixture, including known impurities.

2. Function of a chemical ingredient in an article or chemical mixture (e.g. catalyst, plasticizer, monomer, etc.).

3. Human health and ecotoxicological characteristics of chemical ingredients and chemicals used in making that ingredient, as well as their physical safety properties such as flammability.

4. Potential for human or environmental exposure to chemical ingredients in an article or chemical mixture.

Much of the chemical data that exists for products is typically captured in Materials Safety Data Sheets (MSDS) or Safety Data Sheets (SDS).  A great deal of the chemical data must be made available to employees coming into contact with these materials in the workplace through Hazard Communication rules or (in the case of California, Proposition 65).  Other chemical disclosure requirements like TSCA, REACH, RoHS, WEEE[3] are in place to assure proper notification to customers of the potential of toxic constituents and to meet country or sector specific restricted materials rules.

(Photo Courtesy of Nebarnix under Creative Commons license)

Generally, this information is not necessarily required to be made available to the public unless that are product safety related issues i.e. lead or BPA free products.  The SC3 guide correctly notes that “MSDSs are often a company’s only resource for chemical ingredient, hazard, and toxicity information. While they could be more useful, they are better than having no information at all. Unfortunately, MSDSs fall short of providing enough information to satisfy the chemical data needs of many fabricators and formulators.”  This is primarily due to the fact that many MSDS’s do not contain all product constituents, different MSDS’s exist for a similar chemical constituent offered by different manufacturers, and MSDS’s do they apply  to specific products or intermediate products.

Ways Leading Companies are Engaging Suppliers

There are already many efforts already underway within various product sector supply chains to actively share relevant chemical information between fabricators, formulators, and their suppliers, and this report has no shortage of fantastic examples.  When engaging suppliers, the report suggests a few basic steps that every company depending on a deep supplier base must consider taking:

  • Written guidance detailing chemical information needed
  • Supplier questionnaires with specific questions addressing chemical ingredients, concentrations, toxicity information on chemical ingredients, etc.
  • Web portals for chemical data entry.
  • Training suppliers on chemical data reporting requirements

For example, the report cites Hewlett-Packard and how they developed a web portal that suppliers use to enter chemical data (the company uses the SAP/Environmental Health and Safety module to process the information.  SC Johnson provides training to suppliers on its internal Greenlist™ raw material rating system. The company focuses particularly on obtaining toxicity data from its suppliers for scoring chemicals and materials.

Managing Confidential and Proprietary Information

Notwithstanding suppliers efforts to obtain data, there are natural concerns that many suppliers may have in releasing confidential and/or proprietary information.  The GC3 guide offers some valuable advice and examples that companies can use to protect the often proprietary nature of their products.  As I have reported before, high-end office furniture manufacturer Herman Miller executed hundreds of Non-Disclosure agreements with its Tier 1 -4 suppliers in its effort to attain zero-landfill waste status and reduce its overall product life-cycle footprint. Method uses a third-party reviewer to evaluate all chemical ingredients for safety prior to their selection for a product formulation.  And SC Johnson uses three layers of confidentiality protection depending on the public availability, types, quantities and specialty formulations of the materials.

On the regulatory front, the U.S.  Environmental Protection Agency last year that it is taking steps to increase the public’s access to chemical information of consumer products, by restricting efforts chemical manufactures to keep chemical information confidential, except under narrower circumstances.  This only underscores the increased emphasis on product transparency, pushing the envelope on placing proprietary information in the public domain, and the possible negative consequences on a company’s business competitiveness.  Or maybe such openness can have a positive business outcome too!

Chemical Industry and the Consumer …Two Green Peas in a Pod

This development gels nicely with the issues recently brought up at the European Petrochemical Association Interactive Supply Chain Workshop that I attended. During my keynote speech on sustainability efforts by the chemical industry, I noted that a number of key indicators were coming to light, particularly in the chemical industry. I noted growing customer concern, public-driven mandates, product preferences, and growing demand for supply chain transparency. I noted too that customers and consumers want to know what’s in that product, it’s environmental footprint, what chemicals it contains, the carbon emissions generated in manufacture.

For many year the internationally accepted Responsible Care Initiative has been a hallmark effort within the chemical industry in safeguarding materials transport and driving innovation in manufacturing, and making safer products. Along with Responsible Care, there has been increased emphasis on environmental and “greener” specification in logistics, and the expansion of communications relating to toxic and hazardous materials. Now, the industry is seeing the growth of environmental indexing, environmental footprints and benchmarking, and less toxic) products in response to the demands of consumer-facing customers such as WalMart and other major retailers.

There is, as the GC3 document states “ a need for communication to be a two-way street to enhance the ability of suppliers and fabricators, formulators, and retailers to work more effectively together in advancing transparency, product safety, and sustainability.”

Get Your Green Chemistry Hat On

Demands for chemical data are likely to increase as government agencies, customers and consumers ask for detailed information on life-cycle impacts of chemicals, materials, and products.  Therefore, its advantageous for suppliers to jump ahead of coming trends, work with their customers to identify data gaps and work collaboratively to fill them.

Photo: © Sebastian Kaulitzki - Fotolia.com

So if you are a supplier just starting to collect chemical data for your customers; or if you are currently responding to customers’ requests for chemical information and additional information that to fulfill your customers ‘requirements; or are a chemical user that needs to communicate with your suppliers about their chemical data; it’s time to begin gathering this value-added data.

The GC3 Guidance provides some great advice, offers solid tools and case studies to drive the business case, and tools to effectively engage both upstream suppliers and downstream customers to green up the supply chain, support product stewardship,  and make consumer products safer.


[1] The document defines “fabricator” as a manufacturer (or a company that directs suppliers to fabricate) of an “article”. The document defines an” article” as a “finished product, component of a product (such as a circuit board), or source material (such as a textile or leather) sold to other organizations or directly to consumers.  The document also describes a “formulator” as a manufacturer of a chemical preparation or a mixture of substances, such as paint, liquid cleaning products, adhesives or a surfactant package”.

[2] a project of the Lowell Center for Sustainable Production at the University of Massachusetts Lowell (http://www.greenchemistryandcommerce.org)

[3] Toxic Substances Control Act (TSCA), Registration, Evaluation, Authorisation and Restriction of Chemicals (REACH), Restriction of Hazardous Substances (RoHS) Directive, Waste Electrical and Electronic Equipment Directive (WEEE)

Consumerism & Supply Chain Meets Sustainability in the Chemical Industry

10 Mar

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:

  1. 84% of consumers prepared to pay an average 27% premium for green products, services.
  2. Only 43% of business believes consumers to be willing to pay more  or even produce or trade green products in China, India and Singapore.
  3. 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:

  1. Safe transportation to our customers
  2. Evaluate and support partner companies
  3. Monitoring of suppliers
  4. Product types and sources important
  5. Providing advice for better services
  6. China: sustainability in the value chain
  7. 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.

“First Movers” Use Materiality Analysis to Link Sustainability, Supply Chain Management & CSR

25 Jan

By Dave R. Meyer (SEEDS Global Alliance)

Note:  this is the second of a three-part series exploring “materiality” and  the intersection of supply chain management, sustainability and  corporate social responsibility.

My first post in this series suggested that there was an intersection or cross-walk between sustainability, corporate environmental responsibility and supply chain management.  This “sweet spot” can be found in conducting “materiality” analyses.  Although the concept of materiality in the finance sector has a long track record in accounting circles, its application in the sustainability space is much newer.  Whereas financial reporting has taken a more short-term view and approach to handling performance and risk, sustainability generally factors in a much longer, strategic planning and implementation horizon.

Businesses have learned that in a world that has grown more transparent, they need to clearly identify what is material to their operations and stakeholders, and communicate this in trustworthy and convincing ways in order to drive creativity and innovation.  Materiality determination is a lot like the aspects and impacts analysis that is common to ISO 14001 based Environmental Management Systems.  ISO 14001 seeks to identify those elements of their activities, processes, services and products that have the greatest impact on the environment.  Materiality analysis does not only that but dives deeper into operations and stakeholder issues.  Let’s take a moment to explore materiality’s origins in the sustainability space.

Roots of Materiality in Sustainability Reporting

In 2003, The UK- based think tank, AccountAbility developed the  AA1100 Standard.   AA1000AS (2008) assurance provides a “comprehensive way of holding an organization to account for its management, performance and reporting on sustainability issues by evaluating the adherence of an organization to the AccountAbility Principles and the reliability of associated performance information. It also provides a platform to align the non-financial aspects of sustainability with financial reporting and assurance through its understanding of materiality”.    The framework for a materiality assessment is depicted in the adjoining graphic, jointly developed by AccountAbility, BT Group Plc and LRQA (The Materiality Report- Aligning Strategy, Performance and Reporting- November 2006).

The AA1100 Standard was revised in 2008.  In it, the AA1000 Materiality Principle requires that the “Assurance Provider states whether the Reporting Organization has included in the Report the information about its Sustainability Performance required by its Stakeholders for them to be able to make informed judgments, decisions and actions.”  Materiality norms taken into account by this standard are:

(a) Compliance performance (considering those aspects of non-financial performance where a significant legal, regulatory or direct financial impact exists).

(b) Policy-related performance (considering identification of aspects of performance linked to stated policy positions, financial consequences aside).

(c) Peer-based norms (considering how company’s peers and competitors address the same issues, irrespective of whether the company itself has a related policy or whether financial consequences can be demonstrated; and

(d) Stakeholder-based materiality (taking into account stakeholder behaviors and perceptions).

The Global Reporting Initiative has developed a framework for materiality determination as part of the G3 Sustainability Reporting Guidelines The GRI considers materiality as “ the threshold at which an issue or indicator becomes sufficiently important that it should be reported.”  The GRI defined a series of internal and external criteria to be considered when performing a materiality analysis.  Later in 2009, the GRI convened a to evaluate and create more specific guidance for determining materiality.  The draft content recognized that materiality analysis was one of the “least systematized aspects of reporting”:

“Identification of material issues and boundaries are core challenges for any standard risk assessment process. Despite the importance of these challenges to good reporting processes, they represent the most difficult and underdeveloped areas for most companies.” – Draft Report Content and Materiality Protocol, page 2.

The draft Report Content and Materiality Protocol review period closed last fall and is in review at this time.

Materiality “First Movers”

A number of companies have taken a “first mover” position in documenting materiality in their corporate sustainability reports.  Most have used a format similar in scope and criteria as the GRI or AA1100 frameworks, with some modifications.  Companies that have reported on materiality and that reach out to stakeholders what they find to be material to their interest and have some “reasonable control” over include companies from diverse manufacturing sectors such as automotive (Ford[1], BMW, Volvo), communications (BT), energy development (Exxon, Mobil) pharmaceuticals (Novo Nordisk, Pfizer, Johnson & Johnson), electronics and control Systems (Cisco, GE, Omron), consumer products (Gap, Starbucks) and mining (Holcim, Rio Tinto), among many others.  One such company is Danisco A/S.

I recently had the opportunity to visit with Mr. Jeffrey Hogue (@jeffreyhogue) of Danisco.  Mr. Hogue is Sustainability and Corporate Social Responsibility (CSR) Global Leader at Danisco A/S.  Danisco is a worldwide manufacturer of food and beverage products, including cultures, emulsifiers, gums & systems and natural sweeteners.  The company does business with the world’s largest food manufacturers.  Daniscos’ 2009/2010 Sustainability Report is extremely comprehensive and has been awarded some of the highest honors for corporate social responsibility reporting in the past year.  The company looked deeply into materiality issues in its report and has developed  strong operational programs to manage its supply chain in a proactive manner.  It’s web site indicates that they have developed and implemented a “new supplier management system…to strengthen our global supplier and material assessment programme through better audit portfolio management tools, detailed assessments, prioritised audits and improved collection of supplier and raw material data.”

Danisco catalogued and assessed stakeholder input from a variety of internal and external surveys and other sources, then indexed them according to their impact on its business. Issues emerging from the data were ranked according to their impact on the business and the degree of importance to stakeholders, forming the basis for the Materiality Matrix (see Figure 1 below).  The company strategically decided to address sustainability risks and opportunities identified as having “medium-to-high impact” on its business and being of “medium-to-high” interest to our stakeholders.


I asked Jeff if he could shed some insight on the company determined materiality and its resulting high ranking for supply chain (criteria, indicators etc).  I also asked Jeff if he’d share his thoughts on the critical nature of supply chain management relative to triple bottom line based materiality (as well as risk management).

“I think that there are three dimensions of this subject and why our supply chain is very important to our success.


Risk reduction – With a supplier base of over 3000 key suppliers it is crucial for us to manage any risk that may be present in our upstream value chain to eliminate the impact on our operations and our customers.  Therefore it is a baseline requirement that we scrutinize our supply chain and develop robust and systematic programmes to address and mitigate risk. Most of our customers expect it — and although it is in a lot of ways a compliance programme, we do derive value in knowing that we will maintain consistent raw material quality, avoid issues related to labor and human rights, and supply security.  We also have the ability to anticipate and mitigate other sustainability related endpoints like the impacts on agricultural raw materials from climate change, water scarcity, regulation, etc.

Opportunity harvesting – We also see the need to understand the potential synergies between our organization and our suppliers.  In many cases we do this to provide shared value in terms of capacity and livelihood building for our suppliers alongside our need for more secure raw material sources.  We often do this on a case by case basis — mainly on a regional level where it makes sense

Value chain pressures and expectations – We are experiencing a world where retailers and our largest customers see these issues in the light of their entire value chain and are actively seeking ways to reduce their indirect impacts.  This of course is cascaded down their supply chains through our organization to our suppliers.  We also see a tremendous opportunity in this area to be first movers and to act now based on how the retailers are moving.  This will put us in a position where we can be proactive and are faster to respond to value chain pressures.”

Materiality in CSR Reports of the Future

I also had the pleasure of several e-mail exchanges with Ms. Elaine Cohen (@elainecohen).  Elaine is a well known CSR consultant, Sustainability Reporter, HR Professional (and self-avowed ice cream addict).  She’s  the Founding partner at BeyondBusiness Ltd (www.b-yond.biz/en) and consults to companies on CSR strategy, processes and sustainability communications. I asked Elaine what trends she has seen in CSR reporting these past few years where supply chain has been classified as having “high materiality” to a company’s operations and to their stakeholders.

“I believe supply chains have been becoming increasingly more important over the past few years, as the effects of inadequate supply chain accountability are more and more visible in our market place. We can split these issues broadly into two: the human rights issues in supply chains and the sourcing issues in supply chains.  The HR issues surfaced mainly with the apparel issues in the late 90’s. But the last five years have been characterized by significantly greater transparency  due to the spread of the internet and ease of access to information.”

“… Additionally, I believe the increasing focus on Human Rights and the work of John Ruggie [Special Representative of the United Nations Secretary-General on Business & Human Rights], have been clear about squarely placing the responsibility for clean supply chains on the manufacturer. There is almost nothing more material for apparel suppliers than human rights in their supply chains – just take a look at some of their Sustainability reports. Regarding sourcing, this has also become a major issue – Starbucks and Ethiopian coffee farmers, Unilever and others in palm oil issues, Nestle and the Greenpeace KitKat campaign . Manufacturers are getting clearer that sourcing decisions are now much more visible than in the past, and much more risky. So for these companies, raw materials sourcing is most definitely high materiality. Sustainability reports are reflecting these trends and the space allocated to human rights, responsible sourcing and factory auditing is significantly greater that it was some years ago.”

Trending forward in 2011, I asked Elaine to read the tea leaves on supply chain management, CSR and materiality.

“I believe these issues will continue to maintain high-profile and ultimately move towards cross sector alliances to resolve issues that affect all players in a sector such as the Round Table on Sustainable Palm Oil , work done by the apparel sector and the electronics industry  to determine common standards. We might see multi-company collaboration on third-party factory inspection and evaluation. We might see a set of industry wide agreements on core issues….countries such as China and India are also aware of risks, and greater legislation and enforcement in these countries may help resolve some issues.

Takeaways on Materiality in the Supply Chain.

Jeff related to me that a key NGO with a critical stake in Daniscos’ supply chain affairs remarked that supply chain management and sustainability go hand in hand and is basically a foundational aspect of business operations and risk management.   The challenge, according to Jeff, is in finding the “shared value proposition” that is often difficult to achieve, especially across multiple layers of an often globally distributed supply chain.  Finding localized suppliers and establishing multi-stakeholder collaborations hold promise as models where stakeholder interests and large-scale products manufacturers can find the needed common ground to advance supply chain sustainability.

Elaine summed up our dialogue with the following suggestions: “For manufacturers, don’t underestimate the importance of high-quality supply chain management – get it right before it gets you right, learn from the mistakes of others, think of supply chain management as a core business issue which goes to the heart of strategy and brand decisions, not just something that is tacked on to a new project as a deliverable…In terms of materiality, make sure you “engage, engage, engage” at [the] local level with a wide range of stakeholders, so that you are not demanding deliverables which are not reasonably  feasible. Report transparently on all aspects of supply chain because, if nothing else, this will assist in identifying hidden costs and areas of potential risk.”

Thanks Elaine! I couldn’t have said it better myself.

In Part 3 of this series, I’ll lay out the business case for materiality assessments to strengthen supply chain management and a straightforward framework for materiality analysis.


[1] Ford’s 2008/09 Sustainability Report includes an interactive materiality matrix that categorizes issues based on two dimensions: the degree of stakeholder concern and the extent of the current or potential impact on the company.