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

27 Apr

(Photo Courtesy of Milosz1 under the Creative Commons license)

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

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

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

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

Chemical Data 101

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

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

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

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

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

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

(Photo Courtesy of Nebarnix under Creative Commons license)

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

Ways Leading Companies are Engaging Suppliers

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

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

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

Managing Confidential and Proprietary Information

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

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

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

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

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

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

Get Your Green Chemistry Hat On

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

Photo: © Sebastian Kaulitzki - Fotolia.com

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

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


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

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

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

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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.

Can Apple Redeem Itself on Supply Chain Sustainability? Taking a Cue on Accountability from Nike’s Playbook

3 Feb

NOTE: Portions of this piece originally appeared as a guest column in Sustainable Business Oregon

Last week, on the way to a business meeting in downtown Portland I tuned into the local sports radio station.  Nationally syndicated sports commentator Dan Patrick (“DP”) was providing his one minute Above the Noise segment.  The focus was on if, how and when sports icons that have fallen from grace (due to an off the field indiscretion) they could ever redeem themselves in the public court of opinion.  And could they ever regain public acceptance to be ‘marketable’ commodities again.  Think player product endorsements.  Think Tiger Woods, Michael Vick, Ben Roethlisberger, Kobe Bryant, Ron Artest- well the list is WAY to lengthy to cover here, but you get the idea.  Most that have regained endorsement status (like Bryant) have either redeemed themselves through community service and on field performance, but often the public-at-large (er, consumers) just forget.  The past indiscretions have faded from the tabloids.

So I got to thinking that this sounded very familiar when it comes to companies (manufacturers and service industries in particular), and the ways in which they address sustainability matters.  I am thinking of manufacturers who have made environmentally impactful products, and willingly or knowingly conducted socially irresponsible or possibly unethical business practices that have led to public backlash.  And I thought about how some have been able to successfully “redeem” themselves and regain a positive marketplace reputation, while others never quite recovered.

Since this past week Apple was in the news, I thought DP’s radio op-ed was a perfect parallel.  According to a report issued by anti-pollution activists in China, Apple is more secretive about its supply chain than almost every other American company operating in the country. Apple came up among the laggards among 29 major electronics and IT firms in a transparency study drawn up by a coalition of China’s leading environmental groups.  The reports focused on “the openness of IT firms and their responsiveness to reports of environmental violations at suppliers”.  Though Apple is known in the industry for the secrecy it wraps around its newest product offerings, the “mystery of its supply chain is more a matter of covering up than preventing leaks”, the report stated. The report claimed that Apple’s suppliers have been involved in breaches of environmental regulation, including major waste discharge violations in recent years at several Chinese firms that are believed to be  part of Apple’s supply chain.  To be fair, Nokia, LG, SingTel, Sony and Ericsson also fared poorly in the survey, but Apple stood out in how it did not address and respond to the findings.

Apples Supplier Commitment

Of course this revelation was not the first time that Apple’s supply chain management oversight (or lack thereof) has been ‘shaken to its core’. Despite Apples Supplier Code of Conduct, it appears that they are not fully conforming to their own internal commitment and policies.  An insightful post from back in mid 2009 highlighted the series of issues that Apple has had with its supply chain, from human rights violations and pollution to lax supplier oversight and unfortunate subcontractor worker suicides.  Apple itself admitted its complacency in addressing social and environmental sustainability issues in a pragmatic but resolved manner.

Nikes Redemption Story- a Work in Progress

Apples current predicament is not unlike another company that relies on a deep contractor supply chain, whose headquarters in my backyard- Nike.  In the late 1980’s reports were starting to circulate from Indonesia and Asia concerning Nikes alleged “sweatshops”.  Over the course of the 1990’s, continued exposure of unscrupulous labor and human rights practices, combined with intensive public protests and campaigns continued to hound Nike and dragged down its reputation.

By 2001, the issue erupted and Nike was stung by reports of children as young as 10 making shoes, clothing and footballs in Pakistan and Cambodia.  Phil Knight, Nikes CEO admitted the company “blew it”. Nike, like many other companies (like Nestle, PepsiCo, Wal-Mart and other consumer products manufacturers and retailers) learned the hard way that taking liberties with “social license” to operate (especially in foreign countries) has its negative financial and reputational consequences.

That’s not to say of course that all is perfect in Niketown.  But with the corporate and supply chain infrastructure now in place to monitor, validate and continually improve supplier relations and accountability, fewer violations have occurred. Nike has continued to push open innovation and environmentally focused product design with social accountability in mind.  The Ethisphere Institute named Nike as one of the World’s Most Ethical Companies for 2010. The Institute recognizes organizations annually that “promote ethical business standards and practices by going beyond legal minimums, introducing innovative ideas benefiting the public and forcing their competitors to follow suit.”   Also, last October, Newsweek magazine took 500 of the largest publicly traded U.S. companies and produced a 2010 Green Rankings List.  Nike, was 10th on the list, and was noted for having a strong commitment to evaluating and improving the environmental footprint of its suppliers.  They also scored a 97 in the reputation category. (Apple by the way scored 65th, with a reputation score of 71.  I guess that low score represents that missing piece in Apples iconic logo.

Stepping Up to the Plate on “Social License to Operate” and Accountability

A great research study from 2002 (from the Center for the Study of law and Society at University of California Berkeley)  highlights the steps that companies in the apparel, forest products, consumer goods, oil and energy and other highly capitalized industries have gone through to “redeem” themselves and restore brand trust.  They’ve achieved this through rigid compliance with local environmental rules, product  and environmental stewardship, verification  and proactive social engagement.

Apple needs to do the same thing and implement a proactive supplier sustainability and verification program.  As I have laid out in prior posts, companies like Nestle, Corporate Express, Danisco, Starbucks, Unilever and the apparel industry stepped up in a big way to address human rights, fair labor and sustainable development in areas in which they operate throughout the world.  So too have major electronics companies like Hewlett Packard and IBM in leveraging their supply chains in assuring that corporate sustainability performance objectives are met.   Further, in 2010 the International Organization for Standardization (ISO) unveiled its ISO 26000 Corporate Social Responsibility guidance document.  In addition, two prominent organizations, UL Environment and Green Seal unveiled and vetted two sustainability focused product (GS-C1) and organization (ULE 880) standards this past year, both of which may markedly affect supply chain environmental and social behaviors in the future.  That’s not to mention the issue of conflict minerals, which strikes deep at the cell phone manufacturing sector.  Finally, the age of openness and collaboration has arrived on the heels of Wikileaks and numerous high profile reputational back breakers.

Engaging and Leveraging the Supply Chain

The most successful greening efforts in supply chains are based on value creation through the sharing of intelligence and know-how about environmental and emerging regulatory issues and emerging technologies.  Leading edge, sustainability –minded and innovative companies have found “reciprocal value” through enhanced product differentiation, reputation management and customer loyalty.  Suppliers and customers must collaboratively strengthen each other’s performance and share cost of ownership and social license to operate.  But supply chain sustainability and corporate governance must be driven by the originating manufacturers that rely on deep tiers of suppliers and vendors for their products.

So Apple should take a cue from Nikes playbook- “Just Do It!”  This issue will not go away on a wing and a prayer.  Here’s how to get it done- right:

1)  As the 2009 post that I mentioned said, get your company on the ground and enforce your Supplier Code of Conduct – now.

2)  Open Up and reach out to external stakeholders, not just your suppliers.  Engage non-governmental organizations early and often.   Find a respected international organization or other third-party to facilitate the engagement process.   Treat communities, NGO’s and suppliers with respect.

3) Work with your supply chain and with industry peers to standardize requirements. Create or revisit the resources allocated in internal procurement networks to collaborate on environmental and social sustainability issues.

4) Construct environmental and social accountability requirements at the purchasing phase. Build environmental and social conformance criteria into supplier contract specs and incorporate sustainability and environmental staff on sourcing teams

5) Inform suppliers of corporate environmental concerns. Standardize supplier questionnaires and make sure that the Supplier Code of Conduct lands in the right hands.  Promote exchange of information and ideas by sponsoring charettes to facilitate discussions between customers and suppliers on environmental and social license issues.  Develop a supplier/vendor peer or mentoring program that promotes co-innovation on sustainability issues

6) Build environmental considerations into product design w/ suppliers. Apple already considers Design for environment (DFE) product innovation and life cycle analyses in its product design.  You’d be well served to coordinate minimization of environmental impact in the extended supply chain and work with suppliers to manage end-of-pipe environmental issues.  Give your suppliers an incentive to reduce their environmental loading associated with their products and improved worker conditions.

7) Follow up! Without adequate on-the-ground follow-through, on-going supplier engagement and long-term commitment of human and financial capital, your sustainability problems will persist.

So like sports stars, business stars can redeem themselves and their reputations.  But it first takes admitting that you have a problem before you can start down that path.  Apple has had a pretty rough year, what with CEO Steve Jobs taking medical leave, its products having persistent quality problems and its connection with negative environmental and human rights issues.  I’m hopeful that Apple and others will get the message that ol’ Ben Franklin stated so long ago but holds true today:

“It takes many good deeds to build a good reputation, and only one bad one to lose it.” -Benjamin Franklin

Until then, “I’m a PC”.

The Quest for Personal & Organizational Sustainability- The Path to 2011 & Beyond

24 Dec

A great article was brought to my attention this past week by sustainability colleague and sage Gil Friend (@gfriend) this week.  The article by Peter Shallard talks about ditching New Years resolutions and reminding yourselves that you are on a journey- a quest.

“The holidays give you the window of opportunity to do this important thinking – not the date on the calendar. Take advantage of the time you’ve got to review the past and be grateful. Then, think of the future and be excited….Dismiss the date. Embrace the introspection.”- Peter Shallard

For individuals, organizations and communities, sustainability can be a walk in the forest, a chance meeting or a seminal event that jogs the mind, creating an urgent call to action that is transcendent.   For me at least, this shift towards sustainability has truly been a quest- sometimes a quiet, almost transparent change, other times a deliberate, “in your face” awakening. Either way, questing for sustainability involves embracing whole systems thinking that allows us to view ourselves and the business relationships that we have with others differently perhaps as a value chain of innovation and creativity.

My Journey

A few moments come to mind in my journey toward sustainability and my professional path (dates are approximate) that I’d like to share- come along with me please- read on:

Riding the Range (South Central Montana, 1964)- that's me on the left with my Dad & brother

1964: My family takes “The Great Western Road Trip”- one month in a loaded Ford Country Squire, exploring the wide open Western U.S., riding horses in Montana, exploring the Colorado back country, and marveling at Yellowstone National Parks natural wonders.  I vow to move west one day. I eventually do in 1977 to finish out my college education in natural resources ecology and management.

1969: Memories of recycling glass, plastic and newsprint with my Dad at the huge new recycling center in my hometown (Highland Park, Illinois).  I liked the shattered glass sounds.

1972-1976: Camping in Wisconsin’s Northwoods and making a conscious decision while on a “walk in the woods” to pursue a natural resources career.  I read Rachel Carson’s Silent Spring and Ed Abbeys Desert Solitaire and am changed forever.

1982: I developed and unveiled a groundbreaking employee environmental training program that changed the way of thinking for hundreds of coal miners in Utah.  Their changes in behavior and proactive efforts led to a stellar number 1 environmental compliance ranking and state-wide recognition.

1983: I watched the groundbreaking movie Koyaanisqatsi: Life out of Balance while I was working for a coal mine in New Mexico.  As I saw smoking, exposed coal seams from the surface mining activities, I began questioning if who I was working for was contradictory to my belief in natural systems, conservation and environmental protection.  So I reached out to Amory and Hunter Lovins (@hlovins) at the newly founded Rocky Mountain Institute for advice on how to manage my moral and ethical environmental center.  Their sage wisdom enabled me to continue my environmental work.  I embraced  internal change management, policy development, environmental awareness and education,  advocacy for proactive compliance management and supporting land conservation and  site restoration.

Emergency Site Cleanup-Utah, 1986

1984-1990: I called this period ” the Tyvek Years”.  I had numerous transcendent experiences conducting high profile federal and state-led hazardous waste site investigations and emergency cleanups.  It was sometimes very nasty work.  The experiences left me wondering how to prevent future environmental calamities like the ones I was helping to clean up.  This  led me toward developing proactive compliance and environmental management frameworks for clients and take a more active role in community planning groups.

1990: Captain Planet and the Planeteers debuts on Turner Broadcasting.  The Captain Planet Foundation still exists to support hands-on environmental projects for youth in grades K-12.

Mr. Science goes to pre-school for Show-and-Tell (1991)

1991: My four-year old son brings me to pre-school as his show and tell project.  He introduces me as follows: “This is my Dad- he saves the Planet”.  What a better way to spend the lunch hours in enlightening the next generation about environmental issues and the wonders of science.

1993:  I participated with an international team in a solid waste facility siting project in Barbados.  The political process trumps good engineering and science, and demonstrates lack of value placed on natural parklands and sustainable development.  The government ignores all technical recommendations made by the team following years of study and eventually sites the project in the middle of a proposed national park.  Really!?  I leave the island tanned but disillusioned and even more committed to advance science in effective sustainable development policy-making.

1995: I complete my Masters degree in Environmental Policy and Management as a charter member of University of Denvers groundbreaking and pioneering post secondary education curriculum.  My Capstone Project, an “Environmental Policy Toolkit” becomes available to hundreds of small to large businesses through the Denver Metro Chamber of Commerce.   While the younger grads are passing alcohol filled bota bags at graduation ceremonies, my professional colleagues and I are passing “Tums” around!  My son gets to see his Dad who “saves the planet” walk up to accept his diploma- that was cool.

1996: Recalling my talk in 1983 with the Lovins’, I was confronted by an old time miner while working at my company’s booth at a mining expo in Spokane.  He saw that I worked for an environmental services firm and said: “so I see you’re an environmentalist- so, are you ‘fer or ‘agin mining!?”  I answered ” I’m ‘fer environmentally responsible mining”.  That stumped him but he said he’d “accept that” answer.  I gave him trinkets for his five grandkids, and he left happy.

1998: I had the pleasure of planning and developing several successful and industry groundbreaking ISO 14001 environmental management system (EMS) certifications (the first of more than three dozen I have installed since).  Bubble shattered in 1999 by a retired Washington state Senator, who quipped to me on a Washington D.C. street that environmental policy is not science-based.  I am dumbfounded (post script: last week the Obama administration finally released its  long awaited “scientific integrity” policy statement).

City of San Diego Water Department ISO 14001 Champions (I'm in the 3rd row)

1998-2004: The public sector years.  During this time I assisted major water, wastewater and solid waste utilities in implementing award winning ISO 14001 EMS’s, improving operations and saving taxpayers millions in real and avoided environmental liabilities.   I knew I could flush, drink water and recycle in confidence knowing that my city operations were “doing the right thing”.  After my latest utility client successfully received its ISO 14001 certification in 2004, one of  the organizations chief protagonists quietly pulled me aside to thank me “for getting us to do what they would not have done themselves”.

2010: I finally seek out and find the link between my Jewish identity and environmentalism.  I become a Bar Mitzvah and find that the Torah and Jewish scholars have taught extensively about environmentalism over the past 5771 years- guess I was a little late to the party!.  Many Talmudic themes specifically center around the concept of “sustainability”. Here in the U.S., the Coalition on the Environment and Jewish Life (COEJL) has helped tens of thousands of Jews make a connection between Judaism and the environment.  There are even green tips to have an ‘eco-kosher’ New Year.

A quest is superior to a goal because the journey itself is rewarding. It’s an epic ongoing voyage which will immediately go down in folklore as a story worth telling.  Ditch your goals in favor of choosing the journey that you want to go on. Pick a quest that will necessitate the accomplishment of your goals along the way.

So that’s my story….or at least some of the highlights.  There’s more to share but that’s perhaps another chapter in this journey.  I hope you found this first story worth the telling.  As you can see, sometimes its the little things that (when I take the time to think about it) have slowly moved me forward, or sometimes the events have been larger and have catapulted me further .

A Call to Action

Mr. Shallards piece distills preparation for a successful quest as a series of four essential steps.

…focus on equipping yourself for your journey.  Ask yourself:

  • What kind of person do I need to be to be the hero in this story?
  • What beliefs and values do I need to hold?
  • What capabilities do I need to develop?
  • What habits and behaviors do I need to master?

The suggestions by Mr. Shallard can easily be adapted to an organizational  and supply chain level when considering best methods to transform a “business-as-usual” organization into a sustainability-minded one, or instill changes in policy and implementation at the community level.   A few other ideas to turn your organization toward a “top-line”, first mover one can be found here as well.

I can’t begin to reel off the names all of the family, friends, colleagues, teachers and organizations that have made such a huge difference in my quest  of the past 50 plus years on this planet.  Suffice it to say that it takes many wings to fly in this world and I am indebted to each and every one of you who’ve made a small or large contribution to my quest along the way.   I will thank Gil Friend though for bringing Mr. Ballards perspective to my attention.   Meantime, I’ll just simply say that if you are reading this, I truly appreciate your continued support and interest in my ideas and experiences this past year.

I’d love to hear your stories too and hope you’ll share them in the comments below!

Here’s to a very happy, health, sustainable & prosperous 2011!

Paz- Dave

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

16 Dec

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

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

Recalling Michael Douglas’ character “Gordon Gecko “ in the 1987 film “Wall Street” statement that “Greed is Good”, MIT Sloan’s basic message is a bit of a twist- “Green is Good”.  Manufacturing is showing with increased frequency, that companies incorporating lean practices in manufacturing, are (by design or accident) becoming more “green”.  In fact a 2009 study by a research group suggested that “lean companies are embracing green objectives and transcending to green manufacturing as a natural extension of their culture of continuous waste reduction, integral to world class Lean programs.”  This is especially true for companies that integrate a number of proven methods e.g. ISO quality and environmental management systems, to meet environmental compliance and stakeholder needs.  This is more rapidly accomplished with a dedicated corporate commitment to continual improvement, and incorporating ‘triple top line’ strategies to account for environmental, social and financial capital.

What is “Lean”?

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

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

The Lean, Green and Supply Chain Intersect

As I have previously said, even without specifically targeting environmental outcomes, lean efforts have been demonstrated to yield substantial environmental benefits (pollution prevention, waste reduction and reuse opportunities etc.). However, because environmental wastes and pollution are not the primary focal points, these gains may not be maximized in the normal course of a lean initiative. This is because lean waste is by its nature not always in sync with typical environmental wastes.[1] I argue that by looking deep into your your value chain (upstream suppliers, operations and end of life product opportunities) with a ‘green’ or environmental lens, manufacturers can eliminate even more waste in the manufacturing process, and realize some potentially dramatic savings

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

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

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

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

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

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

5.      All waste by-products are potentially new products

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

 

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

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

Extending Lean and Green to the Supply Chain

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

Lean Tools You Can Use

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

Value-Stream Mapping

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

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

Typical steps in value stream mapping include:

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


 

Vendor Survey and Qualification

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

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

Lean-Green Synergies Are Not Without Challenges

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

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


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

Sir Bransons Climate Challenge to Sea Cargo Shippers- Carbon Accounting Successes & New Tools

7 Dec

In prior posts I have discussed the importance of transportation and logistics as critical elements in anchoring a sustainable supply chain (see separate posts here and here).  Last week I discussed the key linkages between supply chain sustainability and climate change.   No comes a bit of encouraging news from the Cancun Climate Summit (COP16), still in progress through this week.  A free internet database was announced over the weekend, the focus of which will list the energy efficiency of almost every ocean-going vessel, in a scheme designed to reduce shipping emissions by nearly 25%.  This effort is important not only because it recognizes shipping and transport as a backbone” of commerce, but because of the value of transparency in enhancing supply chain efficiencies.

“By eco-labelling clean and dirty ships, we hope to change the mindset in shipping and begin making gigaton-scale reductions in emissions,” said Peter Boyd, director of Carbon War Room.  The Carbon War Room was a co-founded by Sir Richard Branson.  Using publicly available data on the engine size and CO2 emissions of nearly 60,000 ships, exporters and importers, as well as holidaymakers on cruises, will be able to choose between ships that run on cleaner fuels and have other technologies designed to reduce environmental “loads”.

The initiative, called Shippingefficiency.org, rates ships on a scale from A to G in a similar fashion to ratings given to fridges or washing machines. According to the site, the Energy Efficiency Design Index (EEDI) ratings for an individual ship are calculated by assessing the values for that ship to overall average values for all ships of that type (e.g. bulk carriers) and to other ships of a similar size within this type. It will “allow supermarkets, oil and mining companies, food importers, retailers and manufacturers” to specify that their goods are sent from point to point by the least polluting ships.

The “Dirt” on Sea Shipping…

The shipping industry has been challenged for decades to find ways to efficiently deliver the majority of goods from point of manufacture to point of use.   Ocean transport carries more than 90 percent of the world’s traded goods and contributes between 3 percent and 4 percent of global emissions.  Shipping has been slow to address carbon emissions, choosing to focus on containment and control of other critical pollutants such as sulfur dioxide (SOx) and nitrogen oxides (NOx)[1]. According to the International Maritime Organization (IMO), the UN body that governs shipping, the industry has an opportunity to make substantial money by reducing the first 250 million tons of its CO2e.[2]

Shipping has a number of inherent institutional issues that hamper demand for widely available fuel-efficient technologies.  For instance, the worlds shipping fleet has been driven for years by engines designed to burn the cheapest, dirtiest “bunker” fuel, passing on the cost. Nearly 15% of the world’s ships account for about half of all the industry emissions.  In addition, most shipping lines traditionally pass on most of the fuel costs to charterers, providing few incentives to build more efficient ships (often referred to as the “landlord and tenant scenario”).  In addition, shipyards worldwide always charge an often cost prohibitive premium to operators for new designs and technologies

Also, its shipping-attributed pollution can pose serious human and environmental health risks.  For instance, particulate matter emissions from ships have been reported to contribute to an estimated 60,000 premature deaths annually (with most deaths occurring near coastlines in Europe, East Asia, and South Asia), as reported in a 2007 study published in Environmental Science & Technology.

…and What the Industry is Doing About It

Mr. Branson’s announcement in Cancun adds another initiative to the increased attention being paid to the transport industry in managing pollutants, including greenhouse gas emissions. As I recently noted in a recent post on shipping and logistics, Inbound Logistics Magazine earlier this year released its Top 50 Green Partners listing earlier this year.  Eight of the companies and organizations listed were ocean carriers.  These appear to be true leaders in implementing improved operational practices designed to lower the environmental impact of their operations.

Also, back in the early 2000’s, the Business for Social Responsibility (BSR) launched the Clean Cargo Working Group (CCWG). The group consists of over 60% of the leading multinational manufacturers (shippers) and freight carriers and forwarders (carriers).  The group is dedicated to” integrating environmentally and socially responsible business principles into transportation management”.  Unlike the new EEDI rating, the CCWG methodology is the only existing standardized approach to calculate CO2 emissions for ocean going container vessels. The data is put in the form of emissions factors to enable shippers and liners calculate carbon emissions in a consistent manner.  This allows trade routes to be compared. In addition, the CCWG annually benchmarks member lines’ environmental performance, further increasing focus and reducing environmental footprint.

Other collaborative efforts that cover other transport modes include EPA’s SmartWay Transportation Partnership, Ecological Transport Information Tool, and the GreenShip Project.  Each of these and other transportation-focused groups have made strides in developing tools and methods for different parts of the sector.

Case Studies

Reducing emissions is technically feasible using current technology, and, in the case of efficiency measures to reduce fuel consumption, can contribute cost savings that make it economically attractive with appropriate financing of upfront costs. Of those emission reductions, the first approximate 25% of reductions could be achieved “profitability”, according to the IMO GHG Study.

Big Players Getting it Done: At a transportation conference convened this past summer by the U.S. Department of Transportation, Federal Highway Administration, Lee Kindberg of Maersk Lines (one of the top 50 Green Partners reported by Inbound Logistics) reported that “… vessels are becoming more energy efficient and reducing emission. This is due to technologies, operations, the speeds we operate at, and the vessel sizes as there definitely are economies of scale. …Since 2002 [Maersk] reduced our CO2 emissions per container per kilometer by 20% and set a goal of an additional reduction of 25% by 2020.  In addition Kindberg indicated that the company was switching to a distillate fuel instead of the heavy fuel oil, resulting in sulfur oxide emission reductions of 95%, particulate matter emission reductions by 86% and the NOx emissions reductions by 6% to 12% depending on the vessels.  Reducing ship speeds, reducing ship drag, or ballast water optimization and treatment systems has also increased ship efficiencies along with improvements in ship procedures, crew training and performance measurement using independent third party environmental certifications like ISO 14001.

The Little (Hybrid) Tug That Can: Major cargo seaports are also collaborating with companies to introduce new technology to comply with stricter air quality regulations.  The world’s first hybrid electric tugboat, Foss Maritime’s Carolyn Dorothy which works in Southern California’s San Pedro Bay at the Port of Long Beach, California, emits 73 percent less soot (tugs are known high soot contributors), 51 percent fewer nitrogen oxides and 27 percent less carbon dioxide than a standard tug of comparable size.  The tug also can claim improved fuel efficiency and a quieter operation, all contributing to a lower environmental footprint.

Conclusions/Food for Thought

This past weekend’s announcement at Cancun and the slew of industry cross-sector, multi-modal collaborations are encouraging.  Whether it’s sea shipping, air cargo, rail or road transport, all modes play a vital key to solving part of the climate change puzzle.  As Maersks Kindberg stated this year at the FHWA conference, “We have to keep in mind that it’s the total lifecycle footprint that matters. Transportation is often only a small part of the total …If you focus on improvements and actually incorporate the carbon impact into business decisions, you can actually make real progress on both and perhaps also improve your business.’

It’s clear that all the nodes of a supply chain (from design to manufacturing and from point of use to end of life) and all the modal components in between want to be part of the solution, not part of the problem.  Businesses are stepping up to the challenge.

As we head into the final week of climate negotiations at Cancun, are the world’s climate negotiators up to the task?


[1]According to the Carbon War Room, the shipping industry is the largest emitter of NOx and is also one of the largest emitter of SOx.  It’s been estimated by the IMO that demand will increase, and CO2e emissions from ships will reach 18% of all manmade Greenhouse gas emissions by 2050 under “business as usual”.

[2] The IMO GHG Study 2009 estimates that eco-efficiency technologies could reduce CO2e emissions from shipping by between 25% and 75% with substantial monetary advantages.