Hello, 2011. Ten days in and already the supply chain chatter is in full force. In a recent post, I noted how 2010 saw an incredibly marked increase in attention to supply chain ‘greening’ and sustainability (two different things I might add). 2011 looks to carry this trend to greater heights. Why will there be increased traction in supply chain greening and sustainability? For the following key reasons:
Economics- Contrary to popular belief, making the business case for making sustainability ‘operational” within an organizational supply chain is becoming easier, not harder. With the availability of more data from ‘first movers’, procurement managers, environmental directors, design engineers, marketing/communications staff and operations managers (among others) are able now to make strong business cases in favor of looking at operations through a green lens. In addition, barriers to global trade brought on by increasing environmental regulations, more stringent restrictions on hazardous substances, greater emphasis on lean manufacturing, and increased supplier auditing and verification are creating the critical mass toward a new norm in supply chain management and expectations. Seeking efficiencies in supply chain management and producing products while reducing waste continue to be a vital imperative in a recovering economy. Those who neglect to critical evaluate their operations from a sustainability point of view this year will be cast to the side.
Climate Action- Supply chain sustainability is affecting shareholder value, company valuations and even due diligence during proposed mergers and acquisitions, the report said. It added that shareholder actions on sustainability performance and transparency were up 40% in 2009. An article in the Environmental Leader last month described how climate change was playing an integral role in corporate supply chain decisions. A very insightful report by Ernst and Young note that “As carbon pricing becomes established in various jurisdictions, organizations will face risks from compliance obligations. This will impact cash management and liquidity, and carbon-intensive sectors may see an increase in the cost of capital.” Still much work still remains to infuse green thinking in the C-Suite. Little more than a third of those executives surveyed indicated that they were working directly with suppliers to reduce their carbon footprint, or have just started discussing climate change initiatives with their suppliers. And now, the World Resources Institute is completing authoritative new supply chain and product lifecycle greenhouse gas protocols that will frame what’s expected to be a burgeoning wave of value chain sustainability accounting and reporting. Stay tuned!
Disclosure and Accountability- As I’ve previously noted, supply chain management became widely recognized in 2010 as a key factor in measuring the true “sustainability” of an organizations practices and processes, and ultimately its product or service. Increased attention will be paid this year on conflict minerals (because of the recent passage of the Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010), fair labor and other social aspects of sustainability, ongoing management of hazardous substances in toys and other consumer products, and looking at the supply chain to manage risks and liabilities from product recalls and other environmental impacts of products and services. The concept of “materiality” in corporate social responsibility and product disclosure (FTC Green Guidelines) and SEC financial reporting is taking on new meaning from a supply chain perspective. ‘Materiality’ in terms of supply chain or network management will require more rigorous implementation and oversight of ethical business practices and practicing proactive environmental stewardship through-out a products value chain. Suppliers play a key external role in managing the environmental, social or financial issues within the product value chain. I will treat the issue of sustainable supply chain management and materiality in an upcoming series. Watch for increased supplier requirements, third party verification (like ISO 14001, GS-GC1 and ULE 880) and more upstream accountability.
Innovation and Collaboration– the emergence of collaborative opportunities among larger manufacturers creates entry points in the market for smaller, intermediate products manufacturers as well. Larger companies are identifying the critical supply chain partners that have the greatest product impact and begin seeking ways to collaboratively address the environmental and social footprint of their products through the value chain. A new report even suggests that consumers will play a leading role behind greater supply chain collaboration. The report, by CapGemini suggests that while suppliers are independently seeking more open, collaborative ways to move goods, consumers may be “… the trigger for an optimized collaborative supply chain flow: this next level of supply chain optimization is based on transparency and collaboration.” More specifically, “Consumer awareness about sustainability demands a more CO2-friendly supply of products and services”, the report notes.
Life Cycle Design and End-of-Life Product Management– There are increased challenges that the waste management industry is facing, wider attention paid to greener packaging and increased emphasis on financial accountability is being felt in world markets. Establishing a reverse logistics network that supports life cycle design, Extended Producer Responsibility (EPR), and “demanufacturing” processes will take on higher meaning in 2011. According to a recent white paper issued by sustainability expert and colleague Gil Friend, EPR is a market-based approach that effectively assigns end-of-life responsibility and product stewardship to producers, requiring them to meet specific targets for material recycling and recovery, relative to the total amount of packaging that they have put into the marketplace. EPR helps to shift the responsibility for collecting packaging and end of life products from financially tapped out local government to producers. But upstream of the manufacturing process, EPR success can be achieved through incentives for companies to take a closer look at how they design products for better end-of-life management (life cycle design). Producers are not alone in addressing the social and ecological impacts of their products. Manufacturers must engage their supply networks to help drive EPR upstream; however, downstream customers play a role too. So producers and consumers should strive in 2011 to continue a dialogue about what to do to improve the profile of consumer products in a way that’s a win-win for all affected stakeholders.
So there it is from my view of the world. Five sustainability and supply chain challenges that were framed out in 2010 and look to stick in 2011.
Did I miss any? Please chime in and share your thoughts.