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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)

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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.

How ‘Materiality Analysis’ Can Drive Corporate Social Responsibility & Sustainability in the Supply Chain- the Case of Conflict Minerals

19 Jan

By Dave R. Meyer (SEEDS Global Alliance)

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

As the ongoing Wikileaks controversy has made very clear, the political and business world is on information overload.  Some of the information that is disclosed can reveal damaging and often jaw dropping news- and somewhere, interested stakeholders either celebrate or shudder. If a company is questioned about its work practices, environmental impacts of its products or services, it’s too late to claim “it’s not my problem”.  By the time the conversation happens, it’s already a “material” issue.  We are (as former Beatle George Harrison penned) indeed “living in the material world”.

“Materiality” is a term that is frequently used in corporate financial circles, especially as it relates to corporate responsibility, risk and liability management.  A “material issue” is commonly understood in the financial industry as a factor that can have a significant financial impact on a company. These issues are generally disclosed to shareholders, quantified to a degree in annual financial reports, and addressed within the strategic planning process.

Tomorrow’s effective corporate social, environmental and economic reporting must communicate information that is ‘material’ to stakeholders in making coherent decisions and taking planned and timely actions relevant to their interests. An appropriate redefinition of materiality is therefore essential for business managers, for policy makers establishing tomorrow’s regulatory frameworks, and for those involved in their implementation and oversight.- excerpt from Redefining Materiality -Practice and public policy for effective corporate reporting (AccountAbility, 2003)

As sustainability meets supply chain networks, the issue of ‘materiality’ is taking on a new meaning.  Maintaining a “responsible supply chain” involves ensuring that human and labor rights are acknowledged along the supply chain.  Leading companies are engaging their stakeholders to assure that proactive institutional controls are in place to manage the environmental footprint of the value chain.  In addition, companies are increasingly promoting ethical business practices and fostering community based initiatives that support companies “social license to operate”.   As one example, on average, 40% to 60% of a typical consumer product manufacturing company’s carbon footprint is from its supply chain[1]. For retailers, the figure is closer to 80%, with an equally high supply chain exposure to human rights and social issues. By managing supplier and community engagement in a way that achieves and maintains the highest social and environmental standards, a company can achieve performance goals while creating a ripple effect that raises standards deep within the supply chain.

A recent report by Ernst and Young stresses a number of factors that are contributing to more companies expanding their supply chain initiatives in support of sustainability.  Key factors cited in the report are:

  • “Changing consumer preferences toward environmentally responsible (green) products
  • A call for better public availability of product data across the entire value chain
  • Major supply chain risks, including human rights, national security, environment  and  climate change, each of which individually can   collectively affect the nature of a companies sourcing activities.
  • Potential impacts of a products reputation and brand value associated with potentially harmful supply chain practices.”

It’s the last two points that touch most closely on the concepts and issues of ‘materiality’.

“Materiality” 101

As I noted above, ‘materiality’ analysis requires identifying the issues that are of high concern to your stakeholders and also of high strategic relevance to your company.  These are the issues that should be at the core of your corporate responsibility approach and communications strategy, both internally and externally. The concept of “materiality” for sustainable strategic planning widens the analytical spread to address significant environmental or social impacts—as understood by the company AND its stakeholders.

“Topics and indicators that reflect the organization’s significant economic, environmental, and social impacts, or that would substantively influence the assessments and decisions of stakeholders.” -Global Reporting Initiative G3 Sustainability Reporting Guidelines, October 2006.

Stakeholders can generally be defined as: investors, employees, customers, communities, non-governmental organizations (NGO), regulators, and (of course), suppliers. Suppliers upstream of core manufacturing operations hold a critical place in operationalizing organizational sustainability initiatives.  They can serve a key external role in determining if an environmental, social or financial issue that can be encountered within the product value chain is great and unmanageable or small and can be contained.  If manufacturers can control or influence supplier behavior, the environmental footprint of the product before it enters the production cycle, its likely that the entire product life-cycle footprint can be narrowed downstream at the point of use and end of life. Also, in softening the environmental and social “load” the residual effect would likely be greater stakeholder confidence, enhanced financial assurance and managed reputation.

The Case About “Conflict Minerals” and Supply Chain Management

Photo by Mark Craemer

Making the rounds in sustainability and supply chain circles so far this year is closer examination of the Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010), signed into law last July.  Within the body of this voluminous Act (page 838 of the 848 page Act  to be exact) is a six-page section that may have a marked impact on the supply chain for companies across many industries. This law and the issue of conflict minerals (and other commodity driven issues like palm oil extraction, cocoa or coffee production) is a golden example of where supply chain management meets social responsibility and ethics.  This issue sits squarely in the world of materiality, both to internal operations and to external stakeholders.

Section 1502 of the Dodd-Frank Act promulgates new requirements that will have companies reporting to the Securities and Exchange Commission (SEC) on the origins of many precious metals and minerals in their products, including gold, tin, tantalum and tungsten. The focal point of this legislation is targeted on so-called “conflict minerals”.  Most of these minerals are sourced in the Democratic Republic of the Congo (DRC).  Many of the proceeds from the sale of the minerals entering the supply chain are believed to be funding armed militia groups. The new provisions will create potential penalties for failing to comply with the SEC reporting requirements.  Also, the provisions require that companies respond adequately to customer or third-party requests for information about how these minerals are included in a company’s products or manufacturing processes.

According to a recent white paper on the Dodd-Frank Act by Supply Chain Executive and IHS, Section 1502 requires companies to make an annual disclosure to the Securities and Exchange Commission regarding whether potential conflict minerals used in their products or in their manufactur­ing processes originated in the DRC or an adjoining country. If the minerals were sourced from these countries.  Companies must report on the due diligence measures used to track the sources of the minerals if they were derived from the DRC or neighboring nations. In addition, the Act will require a 3rd party audit to verify the accuracy of the company’s disclosure. Finally, a declaration of “DRC conflict-free” must be provided to support that goods containing minerals were not obtained in a manner that could “directly or indirectly … finance armed groups in the DRC or an adjoining country”.

This Act and others like it are likely to create difficult, but attainable challenges for electronics manufacturers. The steepness of the challenge depends on the depth of the supply leading from initial extraction of materials to production and the frequency that the minerals exchange hands through the chain-of-custody.  Most surveys taken from manufacturers suggest a lack of confidence in being able to confidently trace conflict minerals to the source (excluding the likelihood that illegal extracted minerals are also blending into the marketplace).  So you could see the difficulty in companies demonstrating due diligence in tracing the chain of materials flows from point of origin.

Meanwhile, major manufacturers in sectors affected by the law already (electronics, cell phones etc) are starting to push new reporting requirements down their supply chains.  Also, a number of industry associations are working with their members to develop codes of conduct associated with conflict minerals.  They are also developing tracking tools and mechanisms to more accurately account for conflict mineral movement in compliance with Dodd-Frank.  And still other NGO’s continue to fight conflict minerals on the ground and through public action.

The second post in this series will look at the successes and challenges surrounding materiality in the supply chain and the intersection with corporate social responsibility.  I’ll present some industry leading examples of materiality analyses in corporate social responsibility reporting, and the criteria that went into determing levels of supply chain materiality .  The third part of this series will dive into how to conduct a detailed materiality analysis and best methods for engaging the supply network to create positive, verifiable benefits and leverage risk.


[1] Medical products manufacturer Baxter estimates that 38% of the company’s overall carbon footprint is represented by its suppliers. As part of its green supply chain initiative, Baxter “concentrates its efforts to green its supply chain on minimizing transportation-related emissions, procuring raw materials and other goods and services with reduced environmental impacts, and helping suppliers improve their environmental performance.”

Five Reasons that Sustainability and Supply Chain “Greening” Will Stick in 2011.

11 Jan

Hello, 2011.  Ten days in and already the supply chain chatter is in full force.  In a recent post, I noted how 2010 saw an incredibly marked increase in attention to supply chain ‘greening’ and sustainability (two different things I might add).  2011 looks to carry this trend to greater heights.  Why will there be increased traction in supply chain greening and sustainability?  For the following key reasons:

Economics- Contrary to popular belief, making the business case for making sustainability ‘operational” within an organizational supply chain is becoming easier, not harder.  With the availability of more data from ‘first movers’, procurement managers, environmental directors, design engineers, marketing/communications staff and operations managers (among others) are able now to make strong business cases in favor of looking at operations through a green lens. In addition, barriers to global trade brought on by increasing environmental regulations, more stringent restrictions on hazardous substances, greater emphasis on lean manufacturing, and increased supplier auditing and verification are creating the critical mass toward a new norm in supply chain management and expectations.  Seeking efficiencies in supply chain management and producing products while reducing waste continue to be a vital imperative in a recovering economy.  Those who neglect to critical evaluate their operations from a sustainability point of view this year will be cast to the side.

Climate Action- Supply chain sustainability is affecting shareholder value, company valuations and even due diligence during proposed mergers and acquisitions, the report said. It added that shareholder actions on sustainability performance and transparency were up 40% in 2009.  An article in the Environmental Leader last month described how climate change was playing an integral role in corporate supply chain decisions.  A very insightful report by Ernst and Young note that “As carbon pricing becomes established in various jurisdictions, organizations will face risks from compliance obligations.  This will impact cash management and liquidity, and carbon-intensive sectors may see an increase in the cost of capital.”  Still much work still remains to infuse green thinking in the C-Suite.   Little more than a third of those executives surveyed indicated that they were working directly with suppliers to reduce their carbon footprint, or have just started discussing climate change initiatives with their suppliers.  And now, the World Resources Institute is completing authoritative new supply chain and product lifecycle greenhouse gas protocols that will frame what’s expected to be a burgeoning wave of value chain sustainability accounting and reporting.   Stay tuned!

Disclosure and Accountability- As I’ve previously noted, supply chain management became widely recognized in 2010 as a key factor in measuring the true “sustainability” of an organizations practices and processes, and ultimately its product or service.   Increased attention will be paid this year on conflict minerals (because of the recent passage of the Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010), fair labor and other social aspects of sustainability, ongoing management of hazardous substances in toys and other consumer products, and looking at the supply chain to manage risks and liabilities from product recalls and other environmental impacts of products and services.  The concept of “materiality” in corporate social responsibility and product disclosure (FTC Green Guidelines) and SEC financial reporting is taking on new meaning from a supply chain perspective. ‘Materiality’ in terms of supply chain or network management will require more rigorous implementation and oversight of ethical business practices and practicing proactive environmental stewardship through-out a products value chain.  Suppliers play a key external role in managing the environmental, social or financial issues within the product value chain. I will treat the issue of sustainable supply chain management and materiality in an upcoming series. Watch for increased supplier requirements, third party verification (like ISO 14001, GS-GC1 and ULE 880) and more upstream accountability.

Innovation and Collaboration– the emergence of collaborative opportunities among larger manufacturers creates entry points in the market for smaller, intermediate products manufacturers as well.  Larger companies are identifying the critical supply chain partners that have the greatest product impact and begin seeking ways to collaboratively address the environmental and social footprint of their products through the value chain.   A new report even suggests that consumers will play a leading role behind greater supply chain collaboration.  The report, by CapGemini suggests that while suppliers are independently seeking more open, collaborative ways to move goods, consumers may be “… the trigger for an optimized collaborative supply chain flow: this next level of supply chain optimization is based on transparency and collaboration.”  More specifically, “Consumer awareness about sustainability demands a more CO2-friendly supply of products and services”, the report notes.

Life Cycle Design and End-of-Life Product Management– There are increased challenges that the waste management industry is facing, wider attention paid to greener packaging and increased emphasis on financial accountability is being felt in world markets.   Establishing a reverse logistics network that supports life cycle design, Extended Producer Responsibility (EPR), and “demanufacturing” processes will take on higher meaning in 2011.   According to a recent white paper issued by sustainability expert and colleague Gil Friend, EPR is a market-based approach that effectively assigns end-of-life responsibility and product stewardship to producers, requiring them to meet specific targets for material recycling and recovery, relative to the total amount of packaging that they have put into the marketplace. EPR helps to shift the responsibility for collecting packaging and end of life products from financially tapped out local government to producers.  But upstream of the manufacturing process, EPR success can be achieved through incentives for companies to take a closer look at how they design products for better end-of-life management (life cycle design).  Producers are not alone in addressing the social and ecological impacts of their products. Manufacturers must engage their supply networks to help drive EPR upstream; however, downstream customers play a role too. So producers and consumers should strive in 2011 to continue a dialogue about what to do to improve the profile of consumer products in a way that’s a win-win for all affected stakeholders.

So there it is from my view of the world. Five sustainability and supply chain challenges that were framed out in 2010 and look to stick in 2011.

Did I miss any?  Please chime in and share your thoughts.

Solving the Sustainable Sourcing & Green Supply Chain Management Puzzle: A 2010 Rewind

22 Dec

2010 is nearly ‘in the books’, and I vowed that I would not fall prey to the endless lists and recounting of annual accomplishments.  However, never in my 30 years in the sustainability and environmental business has there been so much attention paid to the influence of supply chain management and its role in the greening of business.  2010 has been truly remarkable in a number of key areas of green supply chain management from a number of perspectives, including: policy and governance, operations and optimization, guidance and standardization and metrics.  The green pieces of the supply chain and sustainability puzzle appear to be nicely falling into place.  Key themes that I can glean from this most incredible year are:

Big Industry Movers and Government Green up the Supply Chain- over the past year, observers and practitioners read nearly weekly announcements of yet another major manufacturer or retailer setting the bar for greener supply chain management.  With a much greater focus on monitoring, measurement and verification, Wal-Mart, IBM, Proctor and Gamble, Kaiser Permanente, Puma, Ford, Intel, Pepsi, Kimberly-Clark, Unilever, Johnson & Johnson, Herman Miller among many others made a big splash by announcing serious efforts to engage, collaborate and track supplier/vendor sustainability efforts.  Central to each of these organizations is how vendors impact the large companies carbon footprint, in addition to other major value chain concerns such as material and water resource use, and waste management.  Even government agencies here in the U.S. (General Services Administration) and abroad (DEFRA in Britain) have set green standards and guidelines for federal procurement.  More and more companies are jumping on the green train and the recognition is flowing wide and deep.

Supply Chain Meets Corporate Social Responsibility- Adding to many companies existing concerns over environmental protection, large products manufacturers such as Nestle, Corporate Express, Danisco, Starbucks, Unilever and the apparel industry stepped up in a big way to address human rights, fair labor and sustainable development in areas in which they operate throughout the world. Each of these companies and others like WalMart have embraced the “whole systems” approach that I’ve previously written about in this space and that underscore transparency and collaboration the “value” in the supply chain.  Each company recognizes that to be a truly sustainable organization, it must reach deep beyond its four walls to its suppliers and customers.

Emerging Sustainability Standards Embrace Supply Chain Management- This year, the international Organization for Standardization (ISO) unveiled its ISO 26000 Corporate Social Responsibility guidance document.  In addition, two prominent organizations, UL Environment and Green Seal unveiled and vetted two sustainability focused product (GS-C1) and organization (ULE 880) standards, both of which may markedly affect supply chain behaviors in the future.  Central to all these standards and guidelines is how important supply networks are in supporting the entire product ‘value chain”, not only from an environmental perspective, but from a social and community focused perspective.

Transparency and Collaboration Take on a Green Hue– in April, I had the honor of addressing C-suite supply chain managers and practitioners at the Aberdeen Supply Chain Summit in San Francisco.  A central theme of this conference involved the critical importance of collaboration throughout supply networks to enhance efficiencies and optimize value.   My talk (linked here) focused on how the most successful greening efforts in supply chains (like those used by Unilever, Herman Miller and Hewlett Packard) were based on value creation through the sharing of intelligence and know-how about environmental and emerging regulatory issues and emerging technologies.  Suppliers and customers can collaboratively strengthen each other’s performance and distributing cost of ownership.  Practitioners have found “reciprocal value” through enhanced product differentiation, reputation management and customer loyalty. And the continuing Wikileaks controversy is boldly reminding the business world that accountability and transparency and corporate social responsibility is vital and may even be a game changer in how products and services are made and delivered to the global marketplace.

Logistics Turning to Greener Solutionsnumerous studies and surveys conducted by peer organizations this year underscored how sustainability among carriers and shippers was central in the minds of most logistics CEO’s.  Whether it was by land, air or sea, shipping and logistics embraced sustainability as a key element of business planning and strategy in 2010.  I also had the pleasure of visiting briefly with FedEx’s Vice President, Environmental Affairs & Sustainability (@Mitch_Jackson) this fall and learned of the myriad of operational innovations and sustainability focused metrics that the company is tracking throughout its operations and maintenance activities. And UPS even mentioned its efforts to manage its carbon footprint in its catchy new brand campaign “I Love Logistics”.  Finally logistics companies are partnering with manufacturing to support reverse logistics efforts designed to manage end of life or post consumer uses of products or resources.

Lean Manufacturing Meets Green Supply Chain as manufacturing continues its slow rebound from the Great Recession, companies are recommitting themselves to implementing less wasteful production as a way to leverage cost and enhance savings.  Parallel efforts are in play also to incorporate more environmentally sustainable work practices and processes.  Enhancing this effort to lean the product value chain is recognition of upstream suppliers and vendors work practices and possible impacts they may have on manufacturing outputs. Lean efforts have been demonstrated to yield substantial environmental benefits (pollution prevention, waste reduction and reuse opportunities) as well as leverage compliance issues.  More and more, companies are exploring the overlaps and synergies between quality-based lean  and environmentally based ‘green’ initiatives.

Supply Chain and Climate Action Rounding out the year, the climate summit in Cancun (COP16) produced modest results (given the low expectations all around, what was accomplished looked huge by comparison to Copenhagen).  Activities at COP16, especially by the private sector were geared toward identifying key linkages between supply chain sustainability and climate change.   Perhaps the biggest news to emerge from the two-week conference was an effort by apparel manufacturers to enhance supply chain social responsibility and an internet database that will list the energy efficiency of most ocean-going vessels, in a scheme designed to reduce shipping emissions by nearly 25%.  As I noted, this effort is important not only because it recognizes shipping and transport as a backbone” of commerce (as other industry sponsored programs have recognized already), but because of the value of transparency in enhancing supply chain efficiencies.

Looking Forward to 2011

Yes indeed, it’s been a big year for supply chain management and its intersection with sustainability.  I see little for 2011 that will slow down this upward green trajectory, and naturally I am glad.  I am glad that more businesses “get it” and don’t want to be viewed as laggards in leaning towards a business ethic that values sustainability and socially influenced governance. I am glad that more companies are seeking out green innovation through new technologies and being ‘first movers’ in their respective business spaces.

And I am glad that you (my readers) and I am here to be part of the change.

Lean, Green Manufacturing Intersects with Sustainable Supply Chain Management, Creates Value

16 Dec

An efficient manufacturing process is the essence of sustainability…and is by its very nature, green.  This was the gist of the business case that I posted last year and that is captured in an article published in the MIT Sloan Management Review.   MIT presents two ways of thinking:

  • Old Thinking: Companies have long mistakenly thought that adopting environmentally friendly processes adds costs.
  • New Thinking: Green practices like recycling, reusing and reducing waste can cut costs because they make a company more efficient.

Recalling Michael Douglas’ character “Gordon Gecko “ in the 1987 film “Wall Street” statement that “Greed is Good”, MIT Sloan’s basic message is a bit of a twist- “Green is Good”.  Manufacturing is showing with increased frequency, that companies incorporating lean practices in manufacturing, are (by design or accident) becoming more “green”.  In fact a 2009 study by a research group 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.”  This is especially true for companies that integrate a number of proven methods e.g. ISO quality and environmental management systems, to meet environmental compliance and stakeholder needs.  This is 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.

What is “Lean”?

‘Lean’ Manufacturing is a set of continuous improvement activities closely connected with the Toyota Production System (TPS) and Just-In-Time Manufacturing systems.  One emerging working definition of Lean is “The elimination of waste everywhere while adding value for customers”.  This definition is a natural fit with sustainability and the “Lean and Green” business ethic.  Lean manufacturing has demonstrated how companies have saved or avoided enormous operating and maintenance costs and significantly improved the quality of their products.

Lean manufacturing looks at manufacturing from a systems perspective, which includes a thorough evaluation of upstream and downstream process inputs and outputs.  Viewed this way, suppliers and customers play a critical role in successful lean manufacturing.  Heavy emphasis is placed on design and innovation and obtaining  input of from supply chain partners, individuals and organizations through a process called ‘value-stream mapping’ (hey that’s my blog name too- ironic?…not).

The Lean, Green and Supply Chain Intersect

As I have previously said, even without specifically targeting environmental outcomes, lean efforts have been demonstrated to yield substantial environmental benefits (pollution prevention, waste reduction and reuse opportunities etc.). However, because environmental wastes and pollution are not the primary focal points, these gains may not be maximized in the normal course of a lean initiative. This is because lean waste is by its nature not always in sync with typical environmental wastes.[1] I argue that by looking deep into your your 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

Where ‘lean’ creates a positive view (future state) of a process without waste, ‘green’ creates an alternative view of a sustainable future for organizations that play in the global marketplace or offer a unique disruptive innovation.  Lean and green approaches to manufacturing not only leverages compliance issues but also puts companies on the path to going beyond compliance. The graphic below from the U.S. Environmental Protection Agency applies the key ‘lean waste’ types in an environmental context, and crosswalks how lean waste issues can have direct environmental impact on an organization.

Using an example set by Subaru of Indiana,the MIT study shows how there are many proofs to the axiom that prevention of pollution and continually improving efficiencies with an environmental benefit works even in lean economic times. Subaru found that:

1.      Profits come by increasing efficiency and reducing waste—but they don’t always come immediately.

2.      Management’s leadership is vital in setting goals and getting departments to cooperate.

3.      The front line workers have to be engaged to spot opportunities to reduce, reuse, recycle, and find other ways to create efficiencies.

4.      Sustainability initiatives achieve maximum benefit from involvement of their supply chain.

5.      All waste by-products are potentially new products

6.      Green initiatives foster creativity and can enhance competitive advantage.

 

Source: Green, Lean, and Global Supply Chain Strategies, Univ. of Tennessee

As previously mentioned, becoming a green organization as part of a lean initiative occurs sometimes by design, and sometimes by accident.  A research study from the Sustainable Supply Chain Group at the University of Tennessee, College of Business Administration found some interesting results when evaluating how lean manufacturing, sustainability and supply chain management may at times be complementary.   The study found, among other things that: 1) Firms tend to have more sophisticated lean strategies than green strategies, and because of this awareness of ‘sustainability’ in supply chain management circles is less mature; and 2) Lean and green initiatives overlap, where projects that meet lean objectives often provide unanticipated green benefits.

Extending Lean and Green to the Supply Chain

Establishing initial goals for manufacturing efficiencies include maximizing parts, machine and material utilization, human movement and of course reducing waste. This series of continuous improvement steps offer a cornerstone for reaching both a green and efficient supply chain. But how can manufacturers work beyond the ‘four walls’ of their organizations to green their supply chain?  A green focus in supply chain management requires working with upstream suppliers and downstream customers, performing analyses of internal operations and processes, reviewing environmental considerations in the product development process, and looking at extended stewardship opportunities across the life-cycle of one or more intermediate or final products.

Lean Tools You Can Use

So far, I’ve laid a foundation for Lean Manufacturing and the intersection with supply chain management. This next section presents a couple of widely accepted practices that are used in Lean design and manufacturing, which can be modified to capture supplier network considerations.

Value-Stream Mapping

A strategic approach to mapping  environmental and lean opportunities would be to map the ‘value-stream’  of one or more products as a way to seek where the greatest waste  reduction and environmental impact reduction opportunities are. Value stream mapping arrived on the business process landscape with the emergence of Lean engineering, design and manufacturing.  A process-and systems based methodology, value stream mapping can help organizations to identify major sources of non-value added time and materials resources i.e. waste that flow into the manufacturing of a particular product or (even) service; and to develop an action (or “Kaizen”) plan to implement less wasteful practices and processes.   From an environmental perspective, practitioners can also look at processes from an environmental, health and safety point of view, focusing on processes tending to use great amounts of resource inputs and that generate waste outputs.

To illustrate what I mean, a value-stream map example (presented below) in a report issued by the U.S. EPA on Lean and the Environment depicts how supply chain vendors can interact in the production of a product and the resource waste that can result.  The areas noted in green represent interaction points with environmental, health and safety and related environmental loads associated with intermediate production steps.  Clearly the four vendor points of interaction can carry their own environmental footprints just in the trucking and distribution of raw materials and products (air and waste emissions for instance).

Typical steps in value stream mapping include:

  1. Select a product or process(es)
  2. Through interviews and work observations, collect data on the ‘current state’ of the value stream (inputs and outputs)
  3. Using a cross functional team (CFT) of knowledgeable staff, develop a ‘current state’ value stream map; focus on identifying over consumptive or waste generating activities
  4. With the CFT in place, brainstorm ideas to improve resource use, production flow, waste capture and reduction, reuse and off spec material reuse, and labor/time management
  5. Create a future state’ value stream map that identifies areas, targets and key performance metrics for continual improvement.
  6. Develop a implementation plan, complete with authorizes and responsibilities
  7. Develop continual improvement measurement and monitoring program
  8. And last but not least…get started!


 

Vendor Survey and Qualification

Manufacturers also supplement their Lean efforts by surveying their supply chain partners and  asking a series of questions designed to identify where the resource consumption and waste management opportunities may lie.  These  questions will help determine if technology, operational practices,  enhanced training and awareness or other tools can make their company  more sustainable and lead them down the path to make the decision that  best meets their business needs. These questions include but are not  limited to:

  1. How can I leverage my manufacturing capabilities and processes in a way that optimizes per unit material resource consumption?
  2. Can I reduce waste generation through improving material use, scrap/off spec reuse and improved equipment maintenance?
  3. Can  I work collaboratively with my intermediate parts or materials  suppliers to use life cycle design practices and manufacture parts with  lowered environmental footprints?
  4. How  can I encourage suppliers to increase equipment efficiency, reduce  manufacturing cycle time, reduce inventories, streamline processes or  seek quick returns on investment?
  5. Can I improve my sales and operations planning to optimize production runs and reduce resource loads or generated wastes?
  6. How  can I work more closely with logistics and transportation partners to  optimize shipment schedules, customer deliveries, warehousing, routing  and order fulfillment?
  7. Can  I work with my customers and product designers to improve packaging to  optimize space reduce materials use and improve load management?
  8. How can I collaborate more closely with customers to enable reverse logistics and profitable product reusability?
  9. What  types of value-added training and development programs can I develop to  promote lean and green opportunities with my suppliers?

Lean-Green Synergies Are Not Without Challenges

The  same University of Tennessee authors who explored the intersect of  lean, green and supply chain also discussed found that some potential  conflicts with certain types of lean strategies leading to changes in  supply change management.  For instance, they noted that  “lean strategies that require just-in-time delivery of small lot sizes  require increased transportation, packaging, and handling that may  contradict a green approach. Introducing global supply chain management into the green and lean equation increases the potential conflict between the green and lean initiatives.”

So  as companies begin to implement lean and green strategies in supply  chains, especially large and complex global supply chains, manufacturers  need to explore the overlaps and synergies between quality-based lean  and environmentally based ‘green’ initiatives, and understand the  various trade-offs required to balance possible points of conflict.  If  your organization been reluctant to engage your supply chain or  implement or maintain environmental initiatives in your product  manufacturing because of the perception that you can’t afford it, then  think again.  It is more likely that you cannot afford to ignore it.


[1] Typical classifications of environmental ‘waste’ nodes include: Energy, Water, Materials, Garbage, Transportation, Emissions, and Biodiversity