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Scalable Consumption + Supply Chain + Circular Economy = Hope for Sustainable Economies

1 Mar

Consumers have unprecedented opportunity to be active shapers of the products and services they buy and use, rather than passive receivers, taking whatever companies provide.  Apples most recent litmus test on corporate social responsibility with its key Chinese supply chain manufacturing partner, Foxconn, and resulting consumer outcry is but just one example of the power that consumers have to sway products manufacturers to alter their business patterns.

At the recent World Economic Forum (WEF) in Davos, Aron Cramer (CEO and President of Business for Social Responsibility or BSR) observed at one workshop the “fast-changing relationship between businesses and consumers. The question on the minds of many of the business executives in the room was “is this good or bad for business”. The answer to this particular either/or question is undoubtedly both. Companies that stay ahead of this curve by involving consumers in product design; providing transparent information about the social and environmental content of these products, and looking at new models to provide value in new ways will prosper. Those that don’t will find growth hard to come by.”

Scaling Consumption in a Smart and Sustainable Way

The WEF has devoted a great deal of attention to the issue of scaling consumption sustainably as the world economy shifts both demographically and economically. WEF examines these issues in a report entitled: More with Less: Scaling Sustainable Consumption and Resource Efficiency. The study properly takes a “systems view” of sustainable consumption.  In other words, rather than focusing just on the demand side, WEF looks at the challenges and possible solutions through a value-chain centric lens of what they describe as:

  • consumer engagement (demand)
  • value chains and upstream action (supply)
  • policies and an enabling environment to accelerate change (rules of the game).

“Making your business sustainable in today’s world is an absolute imperative. The business case for sustainable growth is clearer than ever and the urgency of the issues we face means that business leaders have no choice but to act. ” Paul Polman. Chief Executive Officer, Unilever

As WEF explains, “The main outcome is the identification of key focus areas for business leadership through concrete goals and collaboration across industries”.  For this report, WEF engaged with chief executive officers, business leaders and experts worldwide, seeking answers and thoughts centered six key questions:

  1. What are the key trends in sustainable consumption?
  2. What is the size of the opportunity for countries, companies and consumers?
  3. What are the barriers to scaling existing models of sustainable consumption?
  4. What does getting to scale look like?
  5. What new solutions are needed to get to scale in sustainable consumption?
  6. How can we achieve scale by working collectively and creating action on new fronts?

 Barriers, Mind Sets and Complexities- Oh My!

To no surprise, the report identified a number of internal and external barriers to staving and influencing scalable and sustainable consumption, notably (according to the report):

  • Consumers lack incentives for sustainable consumption and are confused by mixed messages. The study noted that one survey of British consumers indicated that 70% were uncertain about the environmental performance of the products they buy.  I have seen similar surveys here in the United States that compare with the British results
  • Supply chains are complex, opaque and interconnected. Deep supply chains, like Apples or the textile industry, create many complexities that place  limits to in certainties sustainable sourcing
  • Technology remains costly and inadequately deployed.   The study notes that “Fewer than 20 facilities in the world are certified to melt down and recycle the cathode ray tubes of old television sets, and all are in Asia. E-waste, which at present largely originates in the US and Europe will travel across multiple countries and continents for recycling – putting the environmental benefits into question and causing additional social concerns”.  That being said, more collaborative enterprises across industries and economies can replace the linear economies that characterize western industrial nations, and create more opportunities to expand technologies further and wider.
  • Policy incentives remain weak. The report notes that “trade systems and tariffs rarely differentiate between unsustainable and more sustainable alternatives, preventing a potential increase of 7–13% in the traded volumes of sustainable products
  • Short-termism dominates the landscape, and traction in fast-growing markets remains low. Typical of capitalism and free enterprise, most companies growth targets rarely look out father than a few years, and seek short term gains to keep shareholders happy.  The WEF report noted that “55% of FTSE 100 company sustainability targets were to be achieved within 1–2 year timeframes, while only 18% looked out to 2018–2020”.

The graphic below suggests some strategies in the report to overcome these barriers along the three key value-chain points as described above.

Solutions for Scaling Economies (Source, WEF, 2012)

Moving Toward a Circular Economy

Something else also happened “on the way to the Forum” (well actually at the Forum) that may offer some insights and solutions that are discussed in the WEF report.  At Davos, Ellen MacArthur, head of the non-profit Ellen MacArthur Foundation, suggested that while” rapid technological evolution across all major industry sectors,{was taking place] … very little change within the economic model itself {has been occurring]. The economy is still based on a linear “take, make and dispose” model.”  A new report Towards the Circular Economy, analyzes the international business case behind the idea of shifting from a linear to a more circular economy.

“The essence of the circular economy lies in designing goods using technical materials to facilitate disassembly and re-use, and structuring business models so manufacturers can reap rewards from collecting and refurbishing, remanufacturing, or redistributing products they make. In this model all things are made to be made again, ultimately using energy from renewable sources[and in a less toxic manner]. Companies shift to focusing on selling performance in the place of product, and consumers now become users.” – Ellen MacArthur

Make sense?  Well if Ms. MacArthurs numbers are correct, “embracing the circular economy model could lead to an annual economic opportunity of up to $630bn a year towards 2025.”  Where do I sign up!!??  Still interested?  Read more about the circular economy, ways to leverage the entire supply chain and build sustainable, scalable consumption here and view a fascinating video here. .

As Aron Cramer mentioned in a GreenBiz article in January, the time for sustainable consumption is now.  “The need to develop new consumption patterns is the mother of all innovation challenges. The race to dematerialize is on. Some of this will come from the digital revolution, as newspapers can now be delivered wirelessly to e-readers instead of plopping dead trees on the doorstep. But some of the innovation will come from redesigning business models.”  Perhaps Mr. Cramer and Ms. MacArthur are onto something.

Are you, as consumer, as manufacturer, product designer or corporate executive, or even as fellow Planet-eer, ready to help make that change?  We can change the rules of the game together, for a stronger, more circular economy. As Captain Planet says, “The Power is Yours”.

“COP-Out”- The Durban Climate Talks and the Tragedy of the Climate Commons. Will Business Innovation Save the World?

15 Dec

Feeling a bit like the holidays for sure.  And I feel like humanity just got “scrooged”.   A year ago, I wrote about the COP16 U.N. Climate Conference in Mexico City and how governments were playing “kick the can” with climate policy. I noted that there was “some progress on establishing more robust means to appropriate and distribute micro-finance funds to support development of technologies in developing countries that lack the dollars themselves to manage their own greenhouse gas footprints.”  I also noted that many companies, rather than countries were taking unilateral initiatives to reach deep into their supply chain to develop innovative, new products that are less impacting to the environment and that can help developing-nations likely to be hit hard by global warming.

Based on what has (or has not) transpired at the recently wrapped up COP17/CMP5 in Durban the past two weeks, I am left feeling that global consensus on this issue, while not completely out of the question, is getting closer.  But the incremental, baby step pace of progress is (according to most climate scientists) insufficient to avert seemingly unstoppable rise in year over year average global temperatures.  It’s not the science that appears in question, rather it appears that there appears to be ongoing hesitancy to bear accountability and resolute responsibility on the part of those who carry or deny the mantle of developed nation status (hint: United States, China, India).  Despite the last minute efforts of the 194 nations in attendance and working past the official end of the conference, hopes for a meaningful and comprehensive global agreement appeared to be faltering.

As an example, the recent article in the Guardian stated that “The EU has found it hard to push through its “roadmap” that would establish an overarching, legal agreement committing all countries to emission cuts”.    So, the EU got what it wanted.  Also, according to an African delegate, “The US has what it wants. There is no guarantee that the new agreement will legally bind governments to cut emissions.”  The U.S. indeed got what it wanted. China and India continue to maintain they are still too undeveloped on the whole to be accountable in the same manner as western, industrialized nations and also claims they are implementing what they have already pledged to do at prior UN conferences.  Um…show me.

The one big victory I did hear that came out of the past two weeks was on an agreement on establishing a $100 billion/year climate fund to help developing countries address climate change.  But before we celebrate that breakthrough, there’s a small outstanding issue …there is no clear mechanism for how that money will be raised. In the recent words of GOP candidate Gov. Rick Perry… “Oops”.  In addition, rich countries would be allowed to offset their emissions by making payments to poor countries which protected their forests.  Is this a bilateral effort or are poorer counties expected to bear 100% of the burden of making that happen.  What is thought to be enough isn’t.  Tim Gore, policy adviser for Oxfam, stated “Governments must really get to grips with the climate crisis.”  That’s an understatement if I ever heard one.  Gore summed up his take on the winners, losers and likely impact on the poorer nations here.

So, while COP17 by most measures succeeded where prior UN gatherings failed, the agreements on which progress will be measured (using the 2015 and 2020 yardsticks established at Durban) may not be swift enough to stem the slow bleed that climate change is bringing on around the world.

Supply Chain Sector Gets Some Attention

Going into the climate conference, two key supply chain sectors, aviation and shipping, were targeted for discussion. According to the Civil Air Services Navigation Organization, “After a number of days of tough negotiations on aviation, there was still no decision on some of the key aspects of Common But Differentiated Responsibilities (CBDR) and how they relate to aviation and shipping, and the ability for countries negotiation under the UNFCCC to tell negotiators at ICAO what to do.

In the final agreed Durban Platform text on aviation, there was a brief placeholder text:  “International aviation and maritime transport Agrees to continue its consideration of issues related to addressing emissions from international aviation and maritime transport;”

Basically, there was no agreement was reached …end of story.  That being said, I have written countless posts on the administrative and technological advances underway by large intermodal shippers and transporters and the aviation industry to quell fuel use and has been exploring how to develop sustainable aviation biofuels, including in developing countries to meet the Climate Fund goals established in Durban.  Aviation and transportation stakeholders have concluded that “agreement amongst nearly all countries [is] that [International Civil Aviation Organization] ICAO is the most appropriate place to deal with aviation emissions. The industry will continue to engage with ICAO to ensure that an ambitious work program can deliver an outcome on aviation emissions by the next ICAO Assembly in 2013”.

Moving past Durban

The Huffington Post summarized the main outcome of COP17, the so-called “Durban Platform”, including the “establishment and empowerment of an “Ad Hoc Working Group” to develop a new protocol and to “complete its work … no later than 2015 in order … [for the new protocol] … to come into effect and be implemented from 2020.” The new protocol is to be a “legal instrument or an agreed outcome with legal force” with this critical stipulation: “applicable to all Parties.” Nowhere in this agreement do the words “common but differentiated appear.” (Full details in this draft document: “Establishment of an Ad Hoc Working Group on the Durban Platform for Enhanced Action.”)”

Writer and author Marc Gunther summed up the positive and negative spins on the Durban conference, and suggested that perhaps the evolution of climate negotiations will transcend universal treaties, relying more on regional, collaborative agreements and technological advances as the primary means of progress.  Gunther nails the takeaways by suggesting that “First, those companies that worry about climate change need to bring their voices more forcefully to the policy arena; they can’t assume that governments are on the right track. Second, companies ought to prepare for climate change–when they site new facilities, for example–because it’s unavoidable.”

The Durban Platforms emphasis on more dialogue, more planning and lack of clear immediate is tragic.  Not for the planet.  No sane person can look me in the eye and say with a straight face that seven billion people, with all their wants and needs, have not affected the global ecosystem.  But despite all the perversities and ravages that we’ve inflicted on Earth, the planet will survive.  But for us, the larger mass of humanity, we hold our own fate in our hands …and we are blowing it.  Why?  Because there are nations (the EU, United States, China and India among them) that cannot…or will not…move past their “self interest”.  They are just kicking the can down the road.

The Tragedy of the Commons

In 1968, ecologist Garrett Harding published “The Tragedy of the Commons in the journal Science. I was introduced to Hardin’s theory many times during my undergraduate and graduate environmental law studies. His highly controversial and criticized theory presented a hypothetical situation involving herders sharing a common parcel of land, on which they are each entitled to let their cows graze. Hardin theorized that it was in each herder’s “self interest” to put more cows onto the land, even if the quality of the common is damaged for all (through overgrazing). The herder receives all of the benefits from an additional cow, while the damage to the common is shared by the entire group. Further if all herders make the same choice, the common will be depleted or even destroyed, to the detriment of all.  Systems ecologists called this an exceedance of “carrying capacity” resulting in other tragedies likie overfishing, depletion of forest resources, water supplies and arable land.   And while the acts of an individual or one corporation may singularly have little impact, the cumulative effect can be overwhelming and often leave irreversible impacts.

Hardin’s theories have been widely criticized from an economic point of view.  Political scientist Elinor Ostrom, the first woman to win the Nobel Prize for Economics (2009), showed that the “Tragedy of the Commons” (its overuse and destruction) doesn’t happen, at least when all the people who share the commons can get together and talk about it.   Ostrom found that, when there are no internal or external forces preventing the “commoners” from a free, open and robust discussion of how they should agree to govern and limit their use of it so it doesn’t get overgrazed and thus ruined for all, then the commons goes on thriving.

And that, dear friends and readers is the tragedy of the Climate Conference in Durban…the political process and governmental self interest appeared once again come up short, co-opting the outcomes “to the detriment of all”. As noted in a National Public Radio broadcast in 2009, “Every nation wants to act in its own interest but that may not be the same as the global interest.”

Innovation, Technology and a Collective Conscience

I believe now, as I believed and wrote about during COP16 in Mexico City and after COP15 in “Nope”nhagen that governments were putting off today what we can technologically achieve now. What happened?  Has humanity lost its mojo…or is something else going on?

In a fascinating article by venture capitalist Roland Van Der Meer, Holding Off the Tragedy of the Commons, he describes some of the underlying factors that he believes have contributed to the global decline in natural resources, and lack of environmental stewardship…and it comes down to innovation.

Both governments and corporations are institutions that exist for the reason of self promulgation, actualization, and advancement (to further itself, to continue to exist, to not change). The methodologies that they deploy and back is their best practice, it is what they believe, what they will hold on to and how they will exist and thrive. And this is the failure point. It is not meant to change. Its very survival depends upon the lack of change.

What is missing is a catalyst for change. Why change? Because what worked best 100, 50,  20 or even 10 years ago is no longer the best methodology or practice.

The institution is good at doing what it was designed to do and it stubbornly holds on to that design at the expense of its own destruction or the method it protects. Change is needed.

The incumbent companies and regulations are stuck in a process and framework which prevents and disincentivizes change. They even go further to lock out or block change because it would lead to their own destruction…. it is our collective resources that are at stake. We need to be open and create the new enterprises that will create, invent and adapt in the basic resources areas.

I believe, as do organizations like the Responding to Climate Change (RTCC) that the private sector can “pick up the slack” in tackling climate change where government agreements have (up to this point) failed.   However, to effectively incentivize innovative technologies, the private sector must continue to be a part of the larger policy debate.  There is a way out of the mess we have made and one of my personal life influencers, Amory Lovins, has a plan.  In his new book, Reinventing Fire- Bold Business Solutions for the New Energy Era offers “actionable solutions for four energy-intensive sectors of the economy: transportation, buildings, industry, and electricity”. The Rocky Mountain Institutes Lovins states “business can become more competitive, profitable, and resilient by leading the transformation from fossil fuels to efficiency and renewables. This transition will build a stronger economy, a more secure nation, and a healthier environment.” Imagine if this approach can be applied at a global level, with a combination of government/business and monitored, measurable multi-national collaboration and a collective common conscience. What have we got to lose?

When it comes to real action on climate change, the upside of heretical innovation is huge…and the downside unthinkable.

With a Change in Workplace Comes Reflections on Society, Sustainability and a Balanced World

30 Nov

Source: http://www.flickr.com/photos/tsa1/5543988340/

You may have noticed that this space has been “dark” of late.  Why, since I’ve been gone and the world has spun round and round: the Occupy Wall Street launched (and perhaps corporate social responsibility entered the public eye), Kim Kardashian got married AND divorced, Libya fell, the St. Louis Cardinals won the World Series,  the debt ceiling crisis…well that’s still with us.   No, I didn’t disappear into the abyss after my Africa trip in August.  No, I didn’t burn out or give up.  Instead, I’ve moved forward a notch in the journey.

I’ve always maintained to family, friends and colleagues that “change is good”, and that it continues to drive us to continually improve on a personal and professional scale.  As I announced in early October to 800 of my closest personal friends and colleagues on LinkedIn, I recently started a full time position as Associate Director- Environment, Health & Safety (EHS) for Elan Pharmaceuticals, Inc. in South San Francisco, CA.    A long time client of mine, Elan is at the forefront of neuroscience based biotechnology.  Elan’s work includes research and development activities for neurodegenerative diseases, such as Alzheimer’s disease and Parkinson’s disease and autoimmune diseases, including multiple sclerosis.   I am proud to be aligned with a company that is focused on tackling some of the most troubling and challenging diseases of the mind and body, some of which have affected members of my own family.

With my days (and occasional evenings) fully committed with Elan, I’ll be placing ValueStream Performance Advisors on hiatus. Despite the change in venue, my enthusiasm and passion for heretical thinking, innovation, systems-based management and organizational sustainability, remains the same.  I’m happy with what ValueStream was able to accomplish through from 2009-2011 along with my many collaborators and clients

However, while my social media presence may change in the months and years ahead, I will nonetheless continue to be an ardent advocate for organizational sustainability, and proactive EHS compliance and management (which Elan has graciously endorsed as well).  I am truly appreciative of all of the support you, as readers have given me and continue to value the business relationships that we’ve established. To date, over 90,000 (!!!) visits have been made to this site to learn, share, argue and discuss key ideas and issues focused around sustainability.

Managing Change and Life’s Risky Balance

Like my change in workplace, you will also see some changes in the look and content of this site as well, starting with the banner photo.  This was a shot of the iconic acacia trees that I took while on a mini-safari this past summer in the Spioenkop Nature Reserve in the Drakensberg, KwaZulu Natal, South Africa.  Riding on horseback among the roaming wildlife (among them rhinos, giraffe, zebras and hartebeests) I was reminded of how critical it is that we all take a moment to reflect on the nature of humankind, how far we have come in a relatively short period of time on this planet, and how easily we have drifted away from lifes precious balance.    Not far from the ancient cave dwellings of the aboriginal San people, I realized how out of step humanity is with what’s around them, and what a ruinous course we may be on.  We are perhaps the species most at risk.  I also noted in my related post following that South Africa trip discussing environmental, health and safety, that ” companies must take care of basic HSE issues and lay a firm foundational framework for continual improvement first before they can progress along the sustainability journey.  …Regarding sustainability, it makes little sense force feeding a business approach that has little immediate bearing on managing organizations immediate risks.”  This is one of many reasons why I elected to refocus my career work on managing basic EHS issues to assure that a solid foundation is in place to support systematic sustainability efforts.

We are at a critical juncture on this fragile planet of ours.  We all have a moral imperative to passionately recast our “lot” in a much larger, infinitely complex global ecological system.  As Gregory Reggio so eloquently and powerfully captured in his epic 1982 film, “Koyaanisqatsi”, we live in a world…a life, out of balance.  How ironic that the United Nations COP17/CMP7 International Climate Conference has convened this week in  Durban, South Africa, to discuss  the most critical “out of balance” issue of our lifetime, climate change. …just a few short hours away from where the banner shot on this page was taken.

Humanity has the combined technical capability to use science, politics,  innovative technology and cultural awareness  to reshape the global natural, social and economic environment  to a point of balance and equity.   Do we have the collective wisdom to use that knowledge to achieve and maintain that balance?    I think we do, but like the sustainability journey we are on together,  it’ll take many steps and the political will to get there.

Please take a moment to add my new email to your contact list. I’ll retain dmeyer@valuestreamadvisors.com  address as a general professional networking address, or you can reach me here or at Elan — my new contact details are pasted below. And of course, you can still find me on Twitter and my commentary on Sustainable Business Forum, Sustainable Plant, Kinaxis Supply Chain Expert Community, and other media sites.

All the Best!

Dave R. Meyer, Associate Director- Environment, Health & Safety

Elan Pharmaceuticals Inc.

800 Gateway Blvd., South San Francisco, CA 94080

Direct: +1 650.877.7624

Email: david.meyer@elan.com

Meeting Basic Health, Safety and Environmental Risk Before Sustainability- Watch Your Step

25 Aug

This week has been all about “R-I-S-K”.  Risk that my three flights around the globe to South Africa will be on time. Risk that my luggage will accompany me.  Risk that I will meet my driver.  Risk that he will be a safe driver, negotiating darkness and harrowing roads full of heavy trucks travelling between Durban and Johannesburg.  Risk that my digestive system can handle all the amazing foods I’ll sample while at the NOSA-sponsored NOSHCON 11 conference.  Risk that my talk on integrated sustainability management systems will go off without a hitch.

Risk (noun): A situation involving exposure to danger

Risk (verb): to expose to danger or loss

The Setting Tells a Story- “From Stone Age to Hard Won Democracy”

Risk.  We all live with risk and all are in position to control and influence its outcome.  This week’s conference was devoted to exploring risk in the workplace and its related effects on worker safety, health and environmental impact.  South Africa is the perfect place to explore this issue, because of all of the social, political, economic and workplace/environmental challenges that this special country has endured over the generations.  Throughout the two-day conference I have become painfully aware of the risks that exist amid the beauty of the KwaZulu Natal and Central Drakensberg region of South Africa.

View from my Guest House Looking Toward Champagne Castle

This great place of beauty has seen wars fought over land and water for thousands of years and countless generations, between indigenous tribes first, then between the Zulu and the Dutch Afrikaners, then the British and Boers and finally blacks and whites through the practice of “apartheid”.  This place has seen the likes of King Shaka, Gandhi and Mandela walking its ground.  This is historic ground where people took incredible risks to protect what they believed in, and suffered enormous costs and joyous victories.  I won’t use this space to opine on that matter just to say that issues run deep and wounds take generations to heal.  But all citizens of the Rainbow Nation are trying their very best to level the playing field.  But all along the way, all the players in this real life drama have had to manage risk.

Snakes!!

To illustrate how risk is all around us in the workplace and at home, NOSHCON brought out the snakes…yes, snakes.  Not the safe variety…I mean the pythons and puff adders.    Through a safety company called Unplugged Communications, the idea of “Snakes for Safety” was presented to a fascinated, but somewhat skittish audience of 600.  The analogy is that puff adders are like accidents waiting to happen…they hide, camouflaged in the bush and only strike when you are right on top of them.  By then the damage has been done, injury’s result (and it the case of the puff adder, you have seven minutes to call a loved one and say goodbye!).  Cobras on the other hand represent a hazard that is harmless when small, but if left unchecked, the hazards can grow to an unmanageable point when great harm can occur. Snakes.  Risk.  Managing the basics of health, safety and the environment (HSE) in developing economies like South Africa is foremost in businesses minds and correctly so.

Risk Management and Meeting Basic HSE Needs First

“There are risks and costs to every program of action.  But they are far less than the risk and costs of comfortable inaction”- John F Kennedy

Last year I wrote a two piece series on risk management and accountability in the aftermath of the BP gulf oil spill and Massey coal mining disaster.  In the second post on risk, I noted that a continuous risk management process helps organizations understand, manage, and communicate risk and avoid potential catastrophic conditions that can lead to loss of life, property and the environment. Briefly, risk management helps organizations:

  • Identify critical and non-critical risks
  • Document each risk in-depth
  • Log all risks and notify management of their severity
  • Take action to reduce the likelihood of risks occurring
  • Reduce the impact on  business, life, and the environment

In this post I laid out a typical six-step process to achieve effective risk management and failure mode control.  I also noted ”What will be … fascinating will be the lessons learned and if businesses truly embrace risk management planning and implementation as a central function of business, take it seriously and hold themselves accountable.”

Takeaways from Far Away- Sustainability May Have to Wait

The author with a less venomous snake

My talk focused on integrated management systems and how they can leverage risk and liability and support sustainability in the business marketplace.  The audience was attentive to be sure, and I listened and observed NOSHCON delegates listen to several other fantastic presentations on corporate social responsibility, carbon management and sustainability.  My impression however is that while there are pockets of excellence in sustainability focused companies, South African businesses are just beginning to think about sustainability as a value-added aspect of their businesses. Perhaps rightly so, many companies in the mining, agricultural and heavy industry sectors continue (especially the majority small to medium-sized and under-resource companies) are focusing on the basic critical issues of life safety in the workplace, education and meeting basic environmental compliance operations first.  To meet this pressing need, organizations like NOSA have developed world-class frameworks of occupational, health, safety and environmental  risk management.  And despite rampant complaints of lax enforcement of labor and environmental protection laws, the South African government has implemented its King III corporate governance policies (similar to the U.S Sarbanes-Oxley provisions) that recognize CSR and reporting obligations.

I am firmly of the belief that companies must take care of these basic HSE issues and lay a firm foundational framework for continual improvement first before they can progress along the sustainability journey.  The central themes I heard about how this can be accomplished are through increasing monitoring, education, awareness building, management accountability and trust.  Regarding sustainability, it makes little sense force feeding a business approach that has little immediate bearing on managing organizations immediate risks.  One must be able to manage the snakes; you know….one by one and step by cautious step.

Be patient South Africa.  You have such great resources, professionals hungry to learn, and have fantastic opportunities to excel in the sustainability space in the years ahead.  I have been truly blessed and humbled to have been able to participate at NOSHCON and hope to be able to hear of great things coming out of South Africa in the coming years.

“Baie Dankie”. “Ngiyabonga kakhulu”. Thanks very much!

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.

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

14 Jun

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

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

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

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

Embedded, Baked or Bolt-on?

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

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

Source: European Financial Review

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

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

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

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

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

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

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

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)

A Year After the BP Oil Spill- a Slow Recovery, Continued Risk Management Challenges

25 Apr

A year ago last week, and for months afterward, we were bombarded with horrible images of potentially catastrophic proportions.  The Gulf Coast was under siege from the Deepwater Horizon blowout and resultant spill.  Dead or dying waterfowl and sea life haunted our dreams.  Tourists scooped up tar balls from Gulf Shores, Alabama to Pensacola, Florida.  Round the clock news coverage of the economic devastation was heaped unexpectedly on the gulf coast.   Cleanup crews deployed nearly useless 20th century solutions to a 21st century problem.  Hapless oil executives spun their stories and federal government agencies did too little, too late.  And the problem kept growing while the oil kept spewing from the blown out well, miles below the surface.

Risk Control Lacking

Just after the spill occurred, I wrote a piece on the lack of risk management protocols  and oversight that matched the nature of the work and how it was inevitable that this type of event would occur.

“I have no doubt that there has been a central breakdown in process risk management, commonly used by organizations to establish procedures to safely manage the greatest of uncertainties of its daily operations.  This means that if a company is going to drill a mile under the Gulf of Mexico, they should FIRST make certain that all possible failure scenarios are identified, evaluated, tested and implemented, before that first barrel of oil is extracted…While it’s vital that 24 hour protocols be applied to day-to-day activities that may be a threat to environmental well-being, unforeseeable events involving human error or equipment failure must be managed too… inadequate steps have been put in place to 1) evaluate “worst case” impacts associated with catastrophic failures of equipment or systems; 2) establish policies and program to mitigate short and long-term environmental risk factors and 3) assure that there are financial cushions (cleanup and reclamation bonds, for instance) that continue to hold those liable before they can run or hide.”

Spring turned to summer and finally on July 15, 2010 the leak was stopped after it had released about 4,900,000 barrels of crude oil, the well was capped.  But the troubles were far from over and as I reported shortly before the well was finally capped, recovery takes time. When writing about the possibilities of a rebounding gulf coast (both ecologically and economically), I spoke of resiliency, the “structural issues” that appeared in the oil exploration, approval and development process, and the steps needed to nurture a full recovery.

The current, devastating Deepwater Horizon oil spill and ecological crisis in the Gulf of Mexico presents a great set of uncertainties and human-induced risks not realized before in terms of scope and magnitude…Ecosystems are dynamic and ever-changing.  This changing dynamic flow continues its natural cycles and fluctuations at the same time that it continues to recovery from impacts of spilled oil.  As time passes, separating natural changes from oil spill related impacts becomes harder to distinguish.  So time will tell, and after the well is finally plugged (and it will be plugged) and the last drop of oil spills, the long term ecological “rebound” will begin.

Then the fingers started pointing, lawyers got involved, congressional testimony began and yielded few results.  Few companies claimed immediate responsibility nor were they held accountable.  BP said that they would pay “all legitimate claims”.  But that promise seemed hollow to those immediately affected, and the restitution payments flowed like the oil drifting on the surface of the gulf waters.  The status of claims paid can be found in this interview with U.S. Claims Administrator Ken Feinberg, but in a nutshell roughly 25% of the $20 billion set aside by BP has been paid out.

Government Call for Better Risk Management

On January 5, 2011, White House National Commission convened to review the oil spill released a final report detailing faults by the companies that led to the spill.  The report noted that “Better management of decision-making processes” within BP, Halliburton and Transocean (the three key players in this ordeal), “better communication within and between BP and its contractors” and “effective training of key engineering and rig personnel” would have prevented the blowout.  The panel also noted a key breakdown in communicating with government agencies, which did not have “sufficient knowledge or authority to notice these cost-cutting decisions”.

The record shows that without effective government oversight, the offshore oil and gas industry will not adequately reduce the risk of accidents, nor prepare effectively to respond in emergencies. However, government oversight, alone, cannot reduce those risks to the full extent possible. Government oversight … must be accompanied by the oil and gas industry’s internal reinvention: sweeping reforms that accomplish no less than a fundamental transformation of its safety culture. Only through such a demonstrated transformation will industry—in the aftermath of the Deepwater Horizon disaster—truly earn the privilege of access to the nation’s energy resources located on federal properties.

Economy and Ecology- Rebounding…Slowly

Flashing forward to this last week, on the economic side, only seven of the 34 deep water rigs operating at the time of the explosion are in operation (due to the moratorium that was put in place by the Obama Administration last year).  Following the sunset of that moratorium last fall, it’s been reported that off shore production may ramp up to about 15 or 20 by the end of the year, meaning the addition of the thousands of oil industry and related service jobs that have been lost since the spill.  A Wall Street Journal article last week highlighted the struggles that small businesses (small marinas, seafood restaurants, commercial fish operations etc) have had in the past year.

A BBC report last week noted that “scientists have warned that it is too soon to attempt to offer a considered assessment on what impact the Deepwater Horizon oil spill, the largest of its kind, has had on the Gulf of Mexico’s wildlife.   In short, they said, nature did not work in such a way that the full picture will present itself within just one year.  It’s clear that given the rate of recovery from the Exxon Valdez spill over 20 years ago that more data will be needed in the years ahead to assess the full extent of the ecological damage done.

But Dr. Jane Lubchenco (Administrator at the National Oceanic and Atmospheric) believed that reports of systems recovery suggest that the health of the Gulf is “much better than people feared”, but the jury was out about what the end result would be.  According to some reports, signs 60 pounds of tar balls still wash ashore daily along the 33-mile stretch of beach that runs near the Interstate 65 corridor near Orange Beach, Ala..  Meantime, one thing I can tell you is that Louisiana Governor Bobby Jindal was plugging gulf coast seafood big time last week on National Public Radio and elsewhere.

Not Out of the Woods, More Work Needed

Progress toward requiring safer drilling, protecting natural resources and compensating victims has been uneven at best.  As reported in an Op-Ed last week, “Without the reforms fully in place, the administration is plunging ahead despite the well-documented inability of industry and government to prevent accidents in deep water. For starters, the federal government needs a better understanding of how operating rigs under the intense pressure of deep water can cause blowout preventers — the so-called last lines of defense — and other critical equipment to fail…. There also should be a more complete picture of whether rig operators have the assets — people, vessels, know-how, and money— to respond to a spill.”

The Op-ed also stated “The Federal government needs a better sense of the risks of offshore drilling and a better process for sharing that analysis with other agencies — the Coast Guard, the National Oceanic and Atmospheric Administration, the Environmental Protection Agency — that play a key role in any emergency response.”  For instance,  the newly created Bureau of Ocean Energy Management has added only 4 new inspectors (now at 60) to cover more than 3,500 drill rigs and platforms in the Gulf.  New monies allocated by Congress may alleviate that serious oversight deficiency, but it will take time, training and education to get new inspectors up to speed.  Meanwhile, inspection and oversight is spread too thin and the oil industry appears to be in no rush to help fund additional inspectors (especially at the same pace they are lobbying at to get more drill rigs operating again in the Gulf).

Photo by alancleaver_2000. (via Creative Commons license)

In the second post on risk that I published last year after the gulf spill, I noted that a continuous risk management process helps organizations understand, manage, and communicate risk and avoid potential catastrophic conditions that can lead to loss of life, property and the environment.  I laid out a typical six-step process to achieve effective risk management and failure mode control.  I also noted ”What will be … fascinating will be the lessons learned and if businesses truly embrace risk management planning and implementation as a central function of business, take it seriously and hold themselves accountable.”

Last week, Bob Dudley the Chief Executive of BP, wrote an opinion letter in the Wall Street Journal.  In the piece, Mr. Dudley indicated that the company was “creating a central safety and operational-risk organization reporting directly to me. This organization has the mandate and resources to drive safe, reliable operations that comply with regulations, and it has the authority to intervene in our operations anywhere in the world. We are also linking the management of employees’ performance and reward directly to safety and to compliance with BP’s standards….We will not use rigs on our projects that do not conform to our standards. We have either turned away rigs or are negotiating for modifications to particular rigs that will bring them up to our standards.”  Dudley also noted that “… around 7% of the world’s oil supplies are coming from the deep water, a total we expect will rise to nearly 10% by the end of this decade. That means we must have better safety technology, more effective equipment and the capability to deal with a blowout in the deep water.”

Summary

The National Commission on the spill and members of industry, academia and Congress have made solid “suggestions” for beefing up the regulatory framework for oil exploration and drilling, including: tougher inspections; higher fees from industry to self-fund more policing programs; greater financial liability for companies that spill into waterways as a means to encourage responsible behavior and to cover accident cleanup and recovery costs.

It appears, looking back, that industry and government have moved in the right direction to address the systemic problems that emerged from the Deepwater Horizon spill and follow-up investigations.  But as the current status clearly shows, I’ve grave concerns about on-going performance and genuine progress in adopting genuine, effective risk management tools, oversight and governance. Until there is 100% assurance that such a system is fully in place, fully staffed, fully operational and with full oversight assurance, I am fearful of a repeat…whether it’s in deep water or in other harsh environments, such as the Arctic.

Meanwhile it’s vital that the U.S. continue expanding the search for alternative forms of land-based fuel and energy and support the funding of alternative, cleaner fuels and greener technologies.

Conflict Minerals- The “Perfect Storm” of CSR, Sustainability, Politics and Supply Chain Management- Part 1

15 Apr

Photo Courtesy of Sasha Lezhnev/Enough Project (under Creative Commons License)

Last week, it was widely reported that both Intel Corporations and Apple Computers had pulled the plug on sourcing of precious minerals typically used in the manufacturing of its high-tech products from the Democratic Republic of the Congo (DRC).  These basic building blocks of our cell phones, computers and other consumer electronics are widely known as “conflict minerals”, mainly because of the large spread connection the “artisanal” and industrial mines that produce the materials and the flow of money to supply arms to rebels fighting in the DRC.  Conflict minerals are to the 21st Century high-tech world what “blood” diamonds were to the 19th and 20th centuries.

Apple, Intel and other U.S. based corporations have signed onto the Conflict-Free Smelter (CFS) program, which applies to shipments of tin ore, tungsten, gold and coltan from Congo and its neighbors.  The CFS program demands mineral processors prove purchases don’t contribute to conflict in eastern Congo[1]. The regulations were developed by the Washington-based Electronic Industry Citizenship Coalition  (EICC) and Global E-Sustainability Initiative (GeSI) in Brussels (Belgium), representing electronics companies including Intel and Apple, Dell etc.  The program is being marshaled by the GeSI Extractives Work Group, and summarized on the EICC website.

Regulatory Framework

The CFS initiative was established in response to the conflict minerals provisions of the Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010), signed into law last July (page 838 of the 848 page Act  to be exact). 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”.

The U.S. Securities and Exchange Commission was to have issued regulations to stem purchases of conflict minerals this week.  However, on Monday the SEC delayed issuance of the specific rules to the August-December timeframe.  Ultimately, U.S. companies will be required to audit mineral supplies next year to identify purchases that may be tainted by the Congo fighting, according to draft SEC regulations.

Two groups of companies will be directly impacted by the Conflict Minerals Law: companies that are directly regulated by the SEC, and companies that are not SEC-regulated, but are suppliers to impacted companies. Starting April 1, the CFS scheme began requiring due diligence and full traceability on all material from the Congo and other neighboring conflict zones.  Then, these audits, or at least their summaries, are to be incorporated into SEC regulatory findings (in some manner, as yet to be defined by the SEC).

California Steps Up

Meanwhile, this past Tuesday, committee of the California State Senate passed a Senate Bill 861 Tuesday that will curb the use of conflict minerals from Congo.  The 9-1 vote in the Governmental Organization Committee was a first step to making California the first “conflict-free state”.   If it passes the full assembly, the bill would prohibit the state government from contracting with companies that fail to comply with federal regulations on conflict minerals.

According to D.C. attorney Sarah Altshuller (@saltshuller) “The California legislation, even if passed, is unlikely to impact many companies: it would apply only to companies against which the SEC has filed a civil or administrative enforcement action. That said, California’s legislative activity reflects significant stakeholder concern, as well as advocacy activity, regarding the ways in which the sourcing of specific minerals may be contributing to the ongoing conflict in the DRC.”  Many engaged in the initial debate were concerned too that the state was too early to move forward in the absence of final SEC rules.

Supply Chain Ripples?

Courtesy of rasberrah (Creative Commons Licence)

Leon Kaye (@leonkaye), reporting last week in Triple Pundit, “The CFS identifies smelters through independent third-party auditors who can assess that raw materials did not originate from sources that profit off the conflict in the Democratic Republic of Congo.  Now Intel and Apple have stopped purchasing minerals from this region, which has transformed a voluntary program to what the president of an exporter association in Congo called “an embargo.”

Also, as  reported also last week by Bloomberg, “There is a de-facto embargo, it’s very clear,” said John Kanyoni, president of the mineral exporters association of North Kivu, in the Democratic Republic of Congo. “We’re committed to continue with all these programs. But at the same time we’re traveling soon to Asia to find alternatives.”

Defacto or preemptive, this move is long overdue and is bound to bring to light an elephant in the room that manufacturers and consumers alike have been quick to run from and avoid.   I’ve reported in recent posts my dismay over the approach that Apple has taken in addressing its supply chain sustainability issues, especially in Asia.  The fact that Apple has electively chosen, along with Intel to be a first mover to shake the supply chain up and seek to right some corporate social responsibility wrongs is encouraging.  However as my colleague Mr. Kaye correctly notes, neither may have had a choice.

As noted in an article by Future 500’s Juliette Terzieff  this week, “buyers for Chinese, Indian and other countries’ manufacturers who are not part of the CFS program or subject to U.S. legislative requirements coming in effect in early 2012 face no regulatory requirements to ensuring their purchases are conflict-free. This could prove particularly valuable for those seeking to sidestep controls given that Chinese demand for minerals like copper are predicted to rise 7% every year between 2010 and 2014.”

How Many Companies are affected?

In an excellent analysis by ELM Consulting and reported in a series on AgMetal Miner last fall, the amount of companies falling into the two previously mentioned categories is unclear.  According to the analysis:

For the first category, the SEC estimated that 1,199 companies will require a full Conflict Minerals Report. The methodology for determining this number is worthy of mention. The SEC began by finding the amount of tantalum produced by the DRC in comparison to global production (15% – 20%). The Commission selected the higher figure of 20% and multiplied that by the total number of affected issuers, which they stated is 6,000. (75 Fed. Reg. 80966.)  Clearly, this methodology does not consider many additional factors and the actual number of companies that will require the full audit is certain to be higher. For the second category – the suppliers – no estimate has been made.  But if one anticipates 10 suppliers (we have data indicating that the number of suppliers ranges from one to well over 100 for a single directly-regulated company; an average of 10 suppliers may be conservative, especially given the wide range of conflict mineral-containing products) for each company directly regulated, the number of additional companies impacted would be 12,000.

Verifying Mineral Sources Is Tough Work

Photo Courtesy of The Enough Project

As I noted in a past post on “materiality”, 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.

According to Treehugger ace writer Jami Heimbuch , plugging the supply chain to assure the at all minerals come from conflict free zones is no easy task.  Ms. Heimbuch reported that even Apple has noted how it is nearly impossible to know the exact source.

The proposed SEC rules do attempt to take on suppliers who have “influence” over contract manufacturers who provide name brand products for larger companies.  The proposed rules also apply to retailers of private-brand products and generic brands.   Finally there is some ambiguity around how scrap electronic waste is to be treated.   The SEC has not defined what is recycled or scrap material and manufacturers have a fair degree of latitude in their disclosure reports as to how they will treat scrap/recycled material.

The BBC reports that Rick Goss, of the Information Technology Industry Council (ITIC), whose members include Apple, Dell, Hewlett Packard, Nokia, states that “it will be impossible to make sure that not one single illicit shipment entered the supply chain….It is too complicated in terms of corruption – illegal taxation – to absolutely guarantee that an illegal shipment did not enter the supply chain, regardless of all private and public sector efforts,’ he warns. The minerals could go elsewhere. Asian smelters are sourcing from any number of countries.”

Summary

If it is impossible to track the source of all the minerals going into the stream, then the big question is what countries and companies will do to fix inadequate governance and systems.   And if U.S. companies shift their sourcing to other nations, will this be enough?  Is global manufacturing merely playing “kick the can”?

The conflict minerals issue just may be the “perfect storm” that combines elements of resource consumption, consumerism, corporate social responsibility, supply chain management, politics and product stewardship.

The next post in the series will dive a bit deeper into efforts by key manufacturers in how they are auditing, validating and tracing the conflict minerals supply chain and what responsibilities we as consumers have in lessening the impacts of this perfect storm.


[1] As part of the Conflict-Free Smelter program, participating tech companies must provide third-party verification that their processors don’t contain commonly used minerals that fund armed conflicts in Central Africa, specifically the Democratic Republic of Congo. Minerals from Central Africa commonly sourced for tech components include gold, titanium, tungsten and tin; the DRC provides 5 percent of the world’s tin supply, as well as 14 percent of tantalum.