Tag Archives: GreenBiz

Consumerism & Supply Chain Meets Sustainability in the Chemical Industry

10 Mar

Next week, I’ll have the honor being the dinner keynote speaker at the European Petrochemical Associations 2nd Interactive Supply/Demand Chain Workshop in Brussels, Belgium. This years’ theme is “21st Century Supply Chains for the Chemical Industry”.  The topic is timely given how there’s been so much talk concerning over-consumption, consumer behavior, corporate social responsibility and increased growth of sustainability in manufacturing and supply chain management.  And the chemical industry indeed plays a large role in much of what we consume.  It reminds me of the old Monsanto commercial…”without chemicals, life itself would be impossible”.  It’s just that these days, chemicals in the global marketplace appear to be getting ‘greener’.

Consumer Demand for Sustainable Products

Consumer demand appears to be contributing (at least in part) to some of the gains in eco-friendly and sustainability focused design and manufacturing progress that’s being made in the global marketplace.  There is certainly a higher degree of consumer awareness and understanding of the need to make healthier, socially conscious and eco-friendly products.  However, the Green Confidence Index, a monthly online survey (~2,500 Americans by GreenBiz.com) noted last year that U.S. consumers cite price and performance as the principal reasons for not buying more green products- the flat growth was partially attributed to stale economy.  The slow economic growth of 2010 appeared to also be slowing widespread innovation by small to medium-sized businesses focused on green manufacturing.

In contrast, the consumer business disconnect appears to be alive and well in other parts of the world. In fact, it’s my thinking that businesses are significantly underestimating consumer interest and awareness in sustainability and green issues.  For instance, consumer demand for sustainably manufactured or ‘green’ products and services in China, India and Singapore are outstripping supply (according to an independent survey conducted by TÜV SÜD Asia Pacific). I’ve no doubt the same is the case in Europe, often considered way ahead in terms of consumer sensitivity regarding sustainability. The TÜV SÜD Asia Pacific found that:

  1. 84% of consumers prepared to pay an average 27% premium for green products, services.
  2. Only 43% of business believes consumers to be willing to pay more  or even produce or trade green products in China, India and Singapore.
  3. 74% of businesses either do not have a policy or guideline to  minimize environmental in place or are failing to clearly communicate  they have one.

Chemical Industry Response to Sustainability and Supply Chain Impacts

Manufacturers in the chemical industry and peripheral services have progressively been responding to end-consumer and customer driven pressures. The emergence of ‘green, (or sustainable) chemistry” and restricted materials initiatives over the past half-dozen or so years have propelled the chemical industry and global consumer products manufacturers to rethink how products are made, consumer health effects and long-term eco-impacts.  Traditionally, supply chain management of hazardous products has focused more on reducing the exposure to hazards than on hazard elimination. The advent of green chemistry has provided opportunities to refine supply chain management, including procurement policies and practices, by developing safer products. Redesigned products and processes can dramatically reduce the risks encountered in manufacturing, storage, transportation and waste control by mitigating the hazards associated with them. From a risk management perspective, since it is fundamentally better to mitigate hazards than to try to protect against them, green chemistry has proven to be highly beneficial and contributes by default to greener supply chain management and supply chain-related risk management

Many manufacturers have risen to the occasion in recent years to drive green chemistry and supply chain management to lessen their eco-footprints and support development of safer products.  Global chemical manufacturer BASF chooses its carriers, service providers and suppliers not just on the basis of price, but 0n their performance in the fields of environmental and social responsibility when making our sourcing decisions. In addition to following the internationally recognized Responsible Care program requirements for environmental, health and safety, BASF has established product stewardship goals designed to reduce its overall eco-footprint.

“What counts for us is acting responsibly throughout the entire supply chain because we want to build stable and sustainable relationships with our business partners. This is why we choose carriers, service providers and suppliers not just on the basis of price, but also include their performance in the fields of environmental and social responsibility when making our decisions.”

The company also maintains several key features of its global supply chain management program, including:

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

Meanwhile, DuPont’s Mission is focused on “creation of shareholder and societal value while we reduce the environmental footprint along the value chains in which we operate”.  Throughout the production-supplier-consumer value chain, DuPont strives through end to end supply chain communication to 1) manage risk and be adaptable; 2) gain efficiencies & profitable flexibility; and 3) enable sustainable product performance and verification through its entire supply chain. Sustainability efforts are tracked and managed for continual improvement through a combination of business management integration approaches and supply chain design and operation.

On the retail side, Walmart has asserted itself in the past several years, by clarifying its stance about reducing toxics in products.  In response, American Chemistry Council members have pledged to lower GHG intensity by 18% by 2012 using 1990 as a base-reporting year and has exceeded that initial commitment and has reduced carbon intensity by 36%.  In addition, Dow Chemical’s is working to harmonize the Walmart goal with its own sustainability objectives of decreasing its environmental footprint and maximizing product performance throughout the supply chain.

“Given the challenges associated with running a global chemical manufacturing supply chain, we have been focused on sustainability for a long time – not just our own but also how we address sustainability with our customers and our customers’ customers,” – Anne Wallin, director of sustainable chemistry and life cycle assessment at Dow Chemical.

Logistics Providers Stepping Up to the Challenge

Among supply chain and logistics businesses, the 2009 14th Annual 3PL Study found that shippers want to create more sustainable, environmentally conscious supply chains. The survey found a need to strike a balance between labor & transportation costs.  Surveyed 3PL’s also noted the market value of carbon-reducing processes, compressed production cycles, and less carbon intensive transportation modes that beat the competition.

Most recently, American Shipper just published its Environmental Sustainability Benchmark Study of over 200 shipping companies.  According to the study, “survey respondents clearly see environmental sustainability has an emerging impact and increasing importance in their supply chain. On a scale of one to five (one lowest; five highest) the study average ranked sustainability as 2.42 two or three years ago, 3.41 today, 3.95 in five years, and 4.17 in 10 years”. Interestingly, customer demands, at 25% percent (see graphic below) are on a par with company policies as a leading driver of environmental sustainability adoption.  Most respondents saw potential return on investment (ROI) although ROI was clearly a potential barrier to sustainability adoption.

In response, leading 3PLs and fourth party logistics providers (4PL’s) are focusing more attention on business practices that are intentionally drive business efficiencies , but (perhaps unintentionally) enhance overall environmental performance, namely:

  • In-Store Logistics
  • Collaborative warehousing & infrastructure
  • Reverse Logistics
  • Demand Fluctuation Management
  • Energy/Fuel Use Management

End consumer preference certainly has its place in deriving sustainability in the 21st century, but as I see it, the chemical industry and its shipping and logistics partners are showing proactive leadership in embedding sustainability in the “source, make, deliver and return” product value chain.

My next post will explore how competitive collaboration, or “co-opetition”, is making resurgence in the supply chain sustainability conversation.  In the meantime, I’m looking forward to next week’s conference and all the hospitality that Brussels has to offer.

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Using Sustainability Metrics to Drive Business Performance, Innovation and Stakeholder Satisfaction

12 Jul

Environmental metrics were not much of an issue when I started as a young environmental coordinator at a Utah coal mine 30 years ago. The few environmental metrics I used were mainly driven by regulatory-agency permits, inspections and audits.  How many spill occurred this month?  How many fines did we get this quarter?  Did we exceed waste water discharge requirements? Our entire environmental compliance philosophy was driven by permit limits, rules and regulations.  My company was actually more concerned about environmental pollution and managing impacts of operations on the environment than most companies in a large western state at that time.   But at that time, there was a major disconnect between environmental performance and business performance. Environmental protection was seen by management as a cost “sink”, and not as an integral part of conducting business. Metrics weren’t designed to optimize our environmental performance or to understand the long-term impacts of our decisions on either our business or the environment. All decisions were made within a limited point of view.

Like the mining company I worked for, and like most businesses today, it’s clear that the ship has turned.  Companies are looking strategically at how environmental performance can have a direct impact on the bottom line of an organization.  Some are even taking a top-line approach to business success by accounting for social, natural and financial capital (http://bit.ly/93VBWG). Drivers such as globalization of markets, customer and shareholder preferences, regulatory pressures and business process re-engineering can claim a role in this sea change of decision-making.  This approach has fundamentally changed the way companies operate, design, manufacture, and distribute products.

Why Measure Anyway?

Well, the two old axioms state that “you are what you measure” and “what gets measured gets managed”.  Without a way to establish an internal benchmark for continual improvement, it becomes harder to innovate, advance and proactively respond to stakeholder expectations.  Key advantages to monitor and measure environmental and organizational performance include:

  • Setting Effective and Value-Added Priorities
  • Benchmarking to Continuously Improve
  • Encouragement of Bottom Up, Organization-wide Innovation
  • Reinforcing Personal and Organizational Accountability
  • Strengthening Strategic Planning and Goal-Setting Processes
  • Improved Internal and External Communication

Metrics can do one of two things: They can tell you what you should do, or they can tell you what you should have done. If you use them to tell you what to do, you’ll be using them to measure your successes. But if you use them to tell you what you should have done, you’ll be using them to measure your failures. So clearly it’s the first approach, not the latter, that forward-thinking companies should focus on.

The Advent of Verification and Triple Bottom Line Focused Metrics

In the not too distant past, as I noted above, environmental performance was primarily based upon a company’s compliance with local, state or federal permits and environmental regulations. With the advent of the ISO 14001-2004 Standard and Specification and its companion guidelines over the past 15 years, companies are taking a broader look at the ways they measure environmental performance (http://www.iso.org/iso/iso_14000_essentials). In addition, the ISO 14031 Guidelines on Environmental Performance Evaluation provide for establishment of measurable and verifiable environmental performance indicators (EPIs) appropriate to any public or private enterprise.

Many of the potential benefits from linking environmental and economic performance depend on the ability to integrate environmental management practices into the normal course of a company’s operations.  The ability to quantify environmental performance in a meaningful way is critical to the effectiveness of this integration.

Adding to the mix of the benchmarks for environmental indicators are the Global Reporting Initiative (GRI)  (http://www.globalreporting.org), Global Environmental Management Initiative (GEMI) http://www.gemi.org) and the World Business Council for Sustainable Development (WBSCD) guidelines (www.wbscd.org).  Each of these measurements and reporting frameworks provide for reporting on the sustainability-economic, environmental, and social – dimensions of an organizations activities, products, and services.  More recently, Joel Makower (@makower) and the staff at GreenBiz.com (@GreenBiz) have been engaged with UL Environment to develop and commercialize a company-level standard for sustainability. This latest effort is being initiated in an attempt to harmonize all three of the above approaches and dozens of others into one global, measurable and verifiable third-party standard for sustainability (http://bit.ly/ajHxKy).

What to Measure and How to Frame the Message

Do your performance metrics have you tied up in knots?  Once organizations decide they have to do more measuring then the key question becomes: What do we measure and how do we measure it?  A few tips:

  1. Measure things that add value to organizational decisions. Measuring for the sake of measuring is a waste of time.
  2. Think about ways to measure things differently that your competitors.  Novel and unique metrics are just as important to differentiating you as your products.
  3. Measure at a minimum the same way others around the world were measuring, as this assures that globally focused metrics are harmonized.
  4. If you are a large company with multiple department, divisions or sites, the metrics of the individual parts must be able to be “rolled up” in a way that addresses the entire organization but still meets site or department specific needs.

When establishing appropriate measures (whether they are social, environmental, operational or financial), consider that metrics must be:

  • Representative
  • Understandable
  • Relevant
  • Comparative
  • Quantifiable
  • Time-based and Normalized
  • Unbiased and Validated
  • Transferable

Also, make sure that the metrics address the needs of all internal and external stakeholders in other words, your employees, customers, local community, government and shareholders.

Finally, good metrics if applied properly will foster innovation and growth.  Focus on continuous improvement as the primary driver for monitoring and measuring performance. If metrics don’t add value, they will not support continuous improvement and eventually will not be used.

Summary

Many of today’s environmental metrics evolved from the end-of-pipe command-and-control regulatory approach that has been implemented in a piecemeal fashion over the past 30 years since I joined the environmental profession. Why let regulatory agencies drive the key performance metrics that in turn drive business performance?  While compliance is a key benchmark for environmental performance, don’t stop there!

In this highly competitive, quickly changing and unstable business climate, organizational success requires agility.  Success also depends on having the correct set of metrics in place to gauge progress in meeting short and long-term business objectives.  Measuring performance with a sustainability lens is just one of the new responsibilities that companies can quickly embrace to nimbly drive organizational value.