“Continual Improvement” Using Sustainability Metrics Takes Planning, Accountability & Resources

"Jump Start" by Jenny P (CC License)

Note:  This post marks the 75th since I started writing in early 2009.  When I launched ValueStreaming, I did so with the intent of providing timely, relevant, quality content over quantity.  The feedback that I’ve consistently received  is that this blog gives readers detailed, value-added content and thought leadership in the sustainability, supply chain and environmental policy space.   I humbly thank you all for your readership and support…you are the sustaining “wind in my sails”.  Paz, Dave

“On your mark, get set”…BANG.  As a competitive swimmer in my youth, I learned the rhythm of a good start off the blocks, kept my head down and paced myself through to the finish line.  I never won the “big” race, but always went for my personal best.  It’s that way with sustainability initiatives. Having a good baseline and pushing the limits to improve to the next level

Back in the late 1990’s I was working with one of my many semi-conductor clients on their ISO 14001 Environmental Management System.  A hallmark of ISO 14001 is “continual improvement”, focused primarily on going beyond compliance to reducing the overall environmental impacts and footprints of operations.  This particular company had identified hazardous waste generation as a “significant aspect” of its operations and developed some programs and targets intended to reduce generation.

One of the facility engineers was very excited one day when I showed up at the facility, proudly telling me that the company had managed to reduce waste generation by 25% over the past several months since he’d started tracking metrics.  “That’s great!” I said. “How’d you do it?”  He responded, “Well I ‘m not sure exactly”.  So I prodded.  “How has production at the plant been the last quarter?” “Well, it’s down…um, about 25%”, he answered in a muted tone.  See a problem here?  The company didn’t “normalize” the data (pounds of waste generated per number of units produced, for instance).  So in effect, there was no “continual improvement.  Oh well, back to the drawing boards!

Setting the Sustainability Mark…and Missing It

So it was interesting to read a summary of Green Research’s latest report, “Setting and Managing Sustainability Goals: Trends and Best Practices for Sustainability Executives.  I had the pleasure of meeting Green Research’s founder, David Schatsky, at the recent Sustainable Brands ’11 Conference in Monterey,  California.  In this latest report, David seems to have touched on some issues which get to the core of a value-added sustainability initiative…that being, demonstrating “continual improvement”.

As  this week’s by Mr. Schatsky article in Environmental Leader notes, while a flood of public and private companies (across many sectors) are “increasingly using public goals to signal their commitment to sustainability and their superiority to rivals…many are unprepared to meet those targets”.  The report suggests that sustainability planning, implementation, and performance measurement are still in an early maturation phase compared to financial and other operational goals.  Some of the key findings were:

• A quarter of the 32 sustainability executives surveyed in Europe and North America for the study say their companies have set “aspirational” sustainability goals and lack a clear plan to achieve them.
• Over 40 percent said progress on sustainability goals is reported to senior management only semi-annually or annually.
• 57 percent of respondents characterized at least some of their sustainability goals as “stretch goals” – that is, challenging but probably achievable – and 54 percent said at least some of their goals are “realistic”.

 “Despite the best of intentions, even some excellent companies are challenged to execute on the sustainability goals they announce,” said David Schatsky, principal at Green Research

As I noted back in August 2010 in a post on Environmental Leader, there are two old axioms:

1)      “You are what you measure”, and

2)      “What gets measured gets managed.”

As Green Research’s study revealed, without an effective strategy to establish an internal benchmark for continual improvement, it becomes harder to innovate, advance and proactively respond to stakeholder expectations. Finally, good metrics if applied properly will foster innovation and growth.  Therefore, it’s vital that there be a systematic process in place that maintains focus on continual improvement.  Continual improvement is the primary driver for monitoring and measuring performance. If metrics don’t add value, they will not support continual improvement and eventually will not be used.  It’s a vicious cycle that can be avoided if the proper system is firmly implanted in organizational strategy and operations.

Setting Goals That Matter

Many times over the past several months, I’ve been asked by colleagues and clients”what can I measure that means something”.  And I answer them usually by asking “what matters to your organization and its stakeholders”?  “I see what your saying”, they say “but I can’t always see the payback”.  Well, sometimes the “payback” is hidden and can’t always be realized in tangible, hard dollar terms. Sometimes, especially if companies are not water, energy or resource intensive, or don’t produce a lot of waste byproducts, you need to peel off some layers.  What this often means is looking at other production, operational or worker activities that can’t be measured in hard dollars but in terms of “efficiency”.  Sometimes metrics can be measured in terms of avoided costs rather than actual expenditures.  As an example,  a client of mine “avoided” $2.4 million in accrued fines and violations (over a three year period) due to enhanced sewer infrastructure maintenance and reduced response times to effluent spills when they occurred.

"Bullseye" by TimSnell (CC License)

As the Green Research found, many companies initially establish said that “targets for realistic or stretch goals…through a bottom-up process, beginning with a baseline of current performance.”  I view this finding as similar to what I coach my clients to do in environmental management system or sustainability engagements- perform a risk-based evaluation of what poses the greatest environmental, social or governance risk and establish measurable (and achievable) objectives and targets.   Some of my clients like the Natural Step “back casting” process too , which attempts to envision a company’s “desired state”, measure a baseline “current state”, and fills in the gaps with programs and activities intended to reach the desired state.

Remember, when companies establish sustainability objectives (whether they are social, environmental, operational or financial) and define their targets, here are a few simple things to remember about metrics.  They must be:

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

Staying on Track Within the Four Walls and in the Supply Chain

As I mentioned in last year’s post, once organizations decide what’s important to measure to meet sustainability related objectives, they needed to assure that they actually track metrics, report, calibrate and keep on measuring.  It’s called keeping your eye on the ball.  And this applies to supply chain management as well.  As I have reported in this space many times before, supply chain sustainability and responsible sourcing are two key ingredients for an organization to consider itself to be “truly” sustainable.  Many of an organizations greatest product and operations related impacts (like carbon emissions, resource or toxic chemical inputs, etc.) actually come from within its upstream supply chain.

Photo by HeraldMM (CCLicense)

A few tips to get your continual improvement process started:

1. Measure things that add value to organizational decisions. Measuring for the sake of measuring is a waste of time.
2. Make goal-setting a 360-degree exercise- Look inward through the organization rank and file for innovative ideas.  Seek advice and input from external stakeholders too (your suppliers and customers matter too!).
3. Commit to what you can control or influence.  Don’t make broad declarations that you cannot achieve because you’ve no influence. Don’t over commit ( although a few heretically goals here and there aren’t too dangerous)
4. Get some quick wins under your belt.  This will enhance the momentum behind the effort.  Remember to scale performance incrementally in line with the financial and labor resources that you’ve budgeted
5. Own the goal and be accountable.  It’s not likely that organizations will succeed in meeting their goals without someone keeping track.  Make sustainability performance part of personal or group performance evaluations.
6. Measure, Report, Repeat.  Don’t stop at the first sign of success or trouble.  Look for ways to press on, raise the bar and continually improve.  Report progress regularly (sometimes monthly, sometimes quarterly.  It all depends on what is being measured. 
7. Go Short, Go Long.  Set some targets as short term goals, but think long term too (three to five years out), and in alignment with corporate strategies.  Most large companies like my client (Johnson & Johnson), Unilever, Sony and many others usually set five to eight year planning horizons.
8. Measure things that compare well but slightly differentiate yourselves from your competitors. Novel and unique metrics are just as important to differentiating you as your products.
9. Seek out globally-recognized metrics (like the Global Reporting Initiative) to assure that multi-national companies who also measure sustainability metrics can apply the data to their own goals.
10. If you are a large company with multiple department, divisions or sites, the metrics of the subordinate organizations must be able to be “rolled up” in a way that addresses the entire organization but still meets site or department specific needs. 
11. Report the Bad with the Good:  No one’s perfect and a little self deprecation, even in business can pay handsomely from a reputational point of view.  In this WikiLeaks era, information moves swiftly.  Stay ahead of “the story”, own up to the shortfalls, you’ll be forgiven and given more credit for your successes.
12. Build off of prior continual improvement initiatives to track perform over longer periods of time.  It’s not like you flicked on a switch one day and became the sustainable organization that you aspire to be.  It takes time.

On second thought, I did win a “big” race.  My freshman year in high school I placed first in a 100 yard Individual Medley event against an arch rival high school in the Chicago suburbs.  That was my greatest moment in the pool…for a race many said I wouldn’t even finish.

Navigating Sustainable Supply Chain Management in China Takes a Keen Eye & Business Sense

2010 marked a watershed moment in supply chain sourcing among worldwide manufacturers and retailers. Sustainability observers and practitioners read nearly weekly announcements of yet another major manufacturer or retailer setting the bar for greener supply chain management.  With a much greater focus on monitoring, measurement and verification, retailers and manufacturers Wal-Mart, Marks and Spencer, IBM, Proctor and Gamble, Kaiser Permanente, Puma, Ford, Intel, Pepsi, Kimberly-Clark, Unilever, Johnson & Johnson, Herman Miller among many others made major announcements concerning efforts to engage, collaborate and track supplier/vendor sustainability efforts, especially those involving overseas operations.  Central to each of these organizations is how suppliers and vendors impact the large companies’ carbon footprint, in addition to other major value chain concerns such as material and water resource use, waste management and labor/human rights issues.Meanwhile, efforts from China’s manufacturing sector regarding sustainable sourcing and procurement, was at best, mixed with regard to proactive sustainability.  From my perspective as a U.S. based sustainability practitioner (with a passion in supply chain management), the challenges that foreign businesses with manufacturing relationships in China can be daunting.  Recent events concerning Apple Computers alleged lax supplier oversight and reported supplier human rights and environmental violations only shows a microcosm of the depth of the challenges that suppliers face in managing or influencing these issues on the ground.  Apple recently did the right thing by transparently releasing its Apple Supplier Responsibility 2011 Progress Report, which underscored just how challenging and difficult multi-tiered supply chain management can be.  But all is certainly not lost and many companies have in recent years begun to navigate the green supply chain waters in China. 

According to a World Resources Institute White Paper issued in the fall of 2010, China faces a number of supply chain challenges.  First, the recent spate of reports alleging employee labor and environmental violations can place manufacturing partnerships with global corporations at risk.  According to the report, Chinese suppliers that are unable to meet the environmental performance standards of green supply chain companies may not be able to continue to do business with such firms. Wal-Mart has already gone on record, announcing that it will no longer purchase from Chinese suppliers with poor environmental performance records. In order to be a supplier to Wal-Mart, Chinese companies must now provide certification of their compliance with China’s environmental laws and regulations.

Photo Courtesy of http://www.flickr.com/photos/scobleizer/ under Creative Commons license

Wal-Mart, like many other IT and apparel manufacturers also conducts audits on a factory’s performance against specific environmental and sustainability performance criteria, such as air emissions, water discharge, management of toxic substances and hazardous waste disposal. These actions are extremely significant as Wal-Mart procures from over 10,000 Chinese suppliers.  This increased scrutiny on environmental and corporate social responsibility through supplier scoring and sustainability indexing, says the WRI report may trump price, quality, and delivery time as a decisive factor in a supplier’s success in winning a purchasing contract.

Chinese Government Stepping Up Enforcement

Finally, what good news I hear about the depth of environmental regulations on the books in China is buffered by the apparent lax enforcement of the rules and regulations.  That is however appearing to change.  The WRI report indicated that the Chinese State Council is directing key government agencies, including the National Development and Reform Commission, the Ministry of Finance, and the Ministry of Environmental Protection to prohibit tax incentives, restrict exports and raise fees for energy intensive and polluting industries, such as steel, cement, and minerals extraction.   Also, it’s been reported in the past years that the People’s Bank of China and the Ministry of Environmental Protection are also working with local Chinese banks to implement the ‘Green Credit’ program, which prevents loans to Chinese firms with poor environmental performance records. In addition, the National Development and Reform Commission and the Ministry of Finance have issued a notice to all Chinese central and local governments to purchase goods from suppliers that are ‘energy efficient’. Finally, on a local level, governments have developed preferred supplier lists for companies producing environmental-friendly products for their purchasing needs.

Supplier Challenges Are Not Just Environmental

A China Supply Chain Council survey conducted in 2009 identified a huge gap in knowledge between (1) clear understanding of which environmental issues posed the greatest risk (2) what to do to manage significant environmental risks.  Also, nearly 40% of the company’s surveyed thought sustainability to be cost prohibitive, too complicated or where particular expertise was lacking don’t have the expertise (on the other hand 60% did!).  Two- thirds of respondents did consider sustainability to be a supply chain priority, although many were not confident of the return on investment.  However, more than half of the respondents reported that they had begun collaborating with their larger supply chain partners.    In fact, according to the World Resources Institute White Paper, despite increasing pressures to improve their environmental performance, Chinese suppliers face many financial challenges to operating in a more sustainable manner

World Resources Institute White paper notes increasing  non-environmental pressures, including: “Extended green investment “payback”: While improving resource consumption, such as energy and water, provides long-term cost savings, the payback for making such environmental investments may be as long as three years, which is financially impossible  for many Chinese suppliers. Lack of financial incentives from green supply chain buyers: Multinational buyers are often unwilling to change purchasing commitments and long-term     purchasing contracts to Chinese suppliers that make the investments to improve their environmental performance. Rising operational costs: Chinese suppliers face  rising resource and labor costs. For example, factory wages have increased  at an average annual rate of 25 percent during 2007 to 2010. Rising costs dissuade suppliers from making environmental investments which may raise  operating costs. Limited access to finance: The majority of Chinese suppliers are small and medium-scale enterprises (SMEs) with limited access to formal financing channels such as bank loans.  Chinese SMEs account for less than 10 percent of all bank lending in China,  and as a result, Chinese suppliers frequently do not have the capital to     make the necessary environmental investments. Intense domestic and global competition: Chinese suppliers face intense competition from thousands of firms, both  domestic and international, within their industries. This intense competition puts constant pressure on suppliers to cut costs, which can  include environmental protections, in an effort to stay in business.

Leveraging the Supply Chain to Gain “Reciprocal Value”

Leading edge, sustainability –minded and innovative companies have found “reciprocal value” through enhanced product differentiation, reputation management and customer loyalty.  I recently highlighted the model efforts that GE has implemented with its China based suppliers to implant responsible and environmentally proactive manufacturing into their operations.  GE’s comprehensive supplier assessment program evaluates suppliers in China and other developing economies for environment, health and safety, labor, security and human rights issues. GE has leaned on its thousands of suppliers to obtain the appropriate environmental and labor permits, improve their environmental compliance and overall performance.   In addition, GE and other multi-national companies (including Wal-Mart, Honeywell, Citibank and SABIC Innovative Plastics) have partnered to create the EHS Academy in Guangdong province.  The objective of this no-profit venture is to create a more well-trained and capable workforce of environmental, health and safety professionals.

Summary

Many of my prior posts have highlighted the critical needs for increased supply chain collaboration among the world’s largest manufacturers in order to effectively operationalize sustainability in Chinese manufacturing plants. This is especially evident for large worldwide manufacturers operating subcontractor arrangements in developing nations and “tiger economies”, such as India, Mexico and China (and the rest of Southeast Asia). Global manufacturer efforts underscore how successful greening efforts in supply chains can be based on value creation through the sharing of intelligence and know-how about environmental and emerging regulatory issues and emerging technologies.

Suppliers and customers stand so much to gain from collaboratively strengthening each other’s performance and sharing cost of ownership and social license to operate.  But as I have stated before, supply chain sustainability and corporate governance must first be driven by the originating product designers and manufacturers that rely on deep tiers of suppliers and vendors in far-away places for their products.

Note: This piece is adapted from a recent article that I wrote, “Navigating China’s Green Road” that appears in China Sourcing Magazine

A Roadmap to Perform Supply Chain-Focused Materiality Assessments

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

Part One of this three-part series explored materiality as the “nexus” point that linked sustainability, corporate social responsibility (CSR) and supply chain management.  Conflict minerals were explored in detail and highlighted the key role that developing nations and commodity goods are playing in driving supply chain management and CSR.   The second post in this series highlighted the roots of materiality analysis in the sustainability space, case studies and highlights of interviews conducted with two key sustainability and corporate responsibility thought leaders, @Jefferyhogue and @ElaineCohen.

From a corporate social responsibility reporting point of view, a materiality analysis is an ordered, rigorous evaluation of the sustainability (environmental, social, financial) issues significant to the company and its stakeholders.  This type of analysis can provide an organization with critical, informed insight that can drive strategic direction as well as tactical change management.

Typical elements of the materiality analysis process include:

1. Identification of a universe of relevant economic, social, environmental, and policy/governance issues for consideration,
2. Evaluation and ranking of the level of internal and external stakeholder concerns regarding each issue,
3. Evaluation and ranking of the potential impact on the company of each issue
4. Development of a matrix-based prioritization of the issues, and
5. Execution of a structured, collaborative strategy planning, implementation and reporting process.

Materiality Assessment Templates

The CERES 21^st Century Roadmap for Sustainability 2010 provides a high level overview of materiality analysis.  The first step is to identify which stakeholders there are that interact with an organization. In this first phase, CERES recommends that organizations “engage with stakeholders to obtain feedback on the relevance of existing and proposed policies and to identify gaps. These policies should guide the company’s activities across its operations, the supply chain, logistics, the design and delivery of products and the management of its employees.

When engaging stakeholders, organizations should identify key business and operational issues of concern to the company and share this analysis with external stakeholders. CERES recommends that “stakeholder dialogue can be to identify additional issues, prioritize efforts, and recognize emerging risks that could become increasingly important to the business over the long-term. The company should then explore the links between identified material issues [that are considered significant to stakeholders] and the leadership team’s vision and strategy…and provide an explicit response to that feedback”.

AA1100 Assurance standard creator and international institute AccountAbility has established what they refer to as a “Five-Part Materiality Test” .  Like the CERES approach, this robust test is designed to help organizations 1) identify what issues are most material, or relevant, to their business and its stakeholders and 2) what information should be disclosed or reported in corporate social responsibility reports. The five different materiality tests (shown in the graphic below) are:

Test 1: Direct short-term financial impacts: Evaluate short-term financial impacts resulting from aspects of social and environmental performance

Test 2: Policy-based performance: Consider policies that are core to a business rather than add-ons

Test 3: Business peer-based norms: Issues that company peers deem to be important

Test 4: Stakeholder behavior and concerns: Identify issues relevance to stakeholders in terms of reasonable evidence of likely impact on their own decisions and behavior; and

Test 5: Societal norms:  Considerations taken from both a regulatory and non-regulatory point of view.

The issues of most significant concern would be vetted with stakeholders and validated by an external party and set the framework for ongoing action and demonstrated continual improvement.

8-Phase Supply Chain Focused Materiality Assessment

Taking a cue from CERES, AccountAbility, the ISO 14001 based environmental aspects and impacts process, and basic principles of risk management, I offer my eight point plan to effectively engage internal and external stakeholders in querying, assessing and prioritizing supply chain materiality.

1. ID Key Supply Chain Products re: Environmental Loading Characteristics and Operational Practices
2. Identify Governance, Operational and Regulatory Constraints versus Supply Chain Practices/Policies
3. Risk Management Evaluation-Screen internal  & external supply chain issues against current  business objectives & strategy, policies, current processes  & programs
4. Materiality Risk Ranking Matrix and Determination of Threshold Action Levels (Internal and External Stakeholder Specific & Aggregated)
5. Development of Materiality Mitigation Action Plans- Prioritize, Assign Resources, Timeframes & Measurement Metrics
6. Stakeholder Engagement and Issues Identification (against major supply chain variables)
7. Management Review including Strategy Performance and Reporting, and
8. Internal/ External Stakeholder Alignment; CSR Reporting

As a general rule when evaluating the ‘materiality’ of any issue (supply chain driven or not) , significance must consider a company’s short and long-term business objectives and strategy, policies, risks, and current processes and programs. Also, in order to factor into account resource management variables, it’s advised that companies consider the levels of control or influence they have over an existing or future issue to determine its significance, and ultimately management strategies and tactics.

Likely outcomes of using a structured continual improvement approach in addressing and documenting supply chain materiality are:

• Targeting and prioritizing the most significant supply chain issues to manage in the short-term, at a scale that matches existing labor, financial and capital resources
• Proactive planning to budget future resource allocations to address capital or resource intensive activities for long-term management
• Acknowledging and integrating a wide variety of interested party concerns and perspectives into strategic business planning at an early stage
• Providing a foundation for continual improvement through structure risk assessment, action planning, communication and reporting.

Materiality Assessments- The Sustainable Value Proposition

Materiality analysis can help organizations to clarify issues driving long-term business value; identify, prioritize and address risks; and capture new market opportunities.  Through structured efforts to align sustainability and business strategies with supply chain management, materiality assessments that account for financial and non-financial issues will not only strengthen business relationships with suppliers but forge collaborative bonds with external stakeholders.  This targeted focus on collaborative innovation, adaptive management, performance measurement and reporting has the potential to drive stronger brand reputation and competitive advantage over time.

Strategic Sourcing & Procurement: Great Starting Points to a Green Supply Chain

Reports surfaced this week about a Deloitte survey of a relatively small group of 50 executives taken from late 2009 to early 2010. However, the survey covered five industry sectors: automotive, consumer products, process and industrial, technology, and telecommunications.

While there was disagreement in some industry’s over what constituted a ‘green job’, there was widespread agreement in a number of areas.  Almost all surveyed indicated that sustainability priorities were at least partially aligned with their companies’ priorities. A total of 65 percent discussed priorities related to improving the environmental sustainability of their companies’ products.

Also, according to the survey, there were several areas of ‘greatest opportunity’ for becoming more sustainable while enhancing business profitability:

– 46 percent cited opportunities related to manufacturing process and operations

– 31 percent brand enhancements and perception

– 21 percent supply chain

The survey indicated a clear recognition (and a growing one) that ‘sustainability’ as a business enhancement plays an importance role in the future of business.  In its summary, Deloitte cited four key success factors that can aid a company’s ability to leverage sustainability, increase business value and emphasize supply chain management:

– Aligning sustainability strategy with business  strategy.

– Integrating sustainability into operations and processes across the value chain.

– Structuring non-traditional collaborations and extending existing collaborations.

– Setting up a governance structure that is supported by the right infrastructure.

On the supply chain point, the survey recommended as I have several times in this space the importance of driving sustainability upstream (vendors) and downstream (customers) in the product/service value chain through collaboration.  Efforts taken throughout the value chain broadens the reach of sustainability initiatives and makes it less isolated.

Implications to Supply Chain Management

So if you’re a supply chain pro (as I assume that if you’re here, that’s the case), you may be asking “Where do I get started down this green path’?”  The aspects of supply chain management that can benefit from a sustainability focus, are well, all of them:  product design, planning/ forecasting, manufacturing, order management, transportation, distribution, service management and reverse logistics. However, if you wish to start somewhere and get some huge bang for your buck, start with sourcing and procurement.

When you think of sustainable sourcing, consider it as a process of purchasing goods and services that takes into account the triple bottom line  or TBL (People, Planet, Profit) aspects of a product and its use. Sustainable sourcing considers how products are made, where and from whom they (and their components) come from, how they are transported, and how they are ultimately disposed of. Companies excelling at sustainable sourcing strive to ensure that their products and components meet or exceed environmental and social expectations.

To meet this need, many organizations are revamping their spend analysis tools to layer in a sustainability component (looking at the Total Cost of Ownership (TCO), or full range of costs- from an environmental and social perspective as well as financial). Simply put, TCO is:

Total Acquisition Cost- Total Lifecycle Cost = Total Cost of Ownership

In future postings, I will delve more deeply into TCO related methods to supplement spend analysis in the procurement process.  In the meantime, rest assured that more companies that are seeking to manage the life cycle environmental impact of their products.  They’re finding sustainable procurement to be a valuable tool to quantify and compare a product or component’s lifetime environmental and social impact while positioning the company for smart growth in a rebounding economy.

This post was originally published on my New Green Supply Chain Blog, which can be found at https://community.kinaxis.com/people/DRMeyer/blog

Sustainable Sourcing with a “Green” Supply Chain Brings Competitive Advantages

Well, can the economic tides be turning?  In my former home base of San Diego, they had a saying: “It takes a long time to carefully turn an aircraft carrier around”.  Capgemini Consulting’s new study of 300 leading companies across Europe, US, Asia-pacific and Latin America states that economic recovery has surpassed economic downturn in the list of business drivers for 2010.

Some key findings of note from a supply chain perspective:

• Over 58 percent of the supply chain managers say their main business driver for 2010 is “Meeting (changing) customer requirements”.  (Well, I guess that is a no-brainer, as a successful business should be nimble and always responsive to customers’ needs to succeed in the marketplace)
• More than 50 percent of the participating companies indicate they will start up or continue with operational excellence / LEAN.  Another obvious direction – reduces waste, optimize resources.  This should translate into bigger profits and competitive position.
• Sustainability is the second most important business driver for 2010 — up 16 percent over last year. However, the survey results suggest that this has not yet directly translated into a significant increase in supply chain sustainability projects.  Well, remember that aircraft carrier quote that I just mentioned?

These findings really suggest that while the road to recovery is long, that much foundational work remains.  But the trend from survival to revival is in play now.

Perhaps the biggest take-away from this report is the increasing emphasis of supply chain management in creating the proper ingredients of a successful business strategy. And coincidentally, the concept of a Green Supply Chain is gaining interest among operations practitioners as a sustainable and profitable undertaking. A Green Supply Chain can be thought of as a supply chain that has integrated environmental thinking into core operations from material sourcing through product design, manufacturing, distribution, delivery, and end-of-life recycling.

The implementation of Green Supply Chain initiatives has evolved from strictly a compliance issue into a means of generating value. Traditionally, companies incorporating green projects have focused solely on cost avoidance by assuring compliance, minimizing risk, maintaining health, and protecting the environment. In the emerging value-creation model, implementing green initiatives along a company’s supply chain can raise productivity, enhance customer and supplier relations, support innovation, and enable growth. The Green Supply Chain is no longer exclusively about green issues, but also about generating efficiencies and cost containment. As organizations restructure to reduce their company’s environmental footprint, supply chains have increasingly become a key area of focus. Improvements in transportation efficiency, operations, raw material selection and packaging are all topping the list of “green” supply chain initiatives.

Source: Diamond Management & Technology Consultants

Green Supply Chains enable organizations to:

• specialize and concentrate manufacturing efforts in a way that manages environmental risks and costs of compliance with existing or new regulations;
• improve product, process, and supply quality and productivity.
• make innovative decisions that respond to “green economy” requirements;
• gain access to key markets through ISO 14001 registration or other certifications;
• improve or create brand differentiation and customer loyalty by offering unique capabilities to address environmental related requirements and expectations;
• reduce customer pressure and even gain preferred status; and

The ISO 14001 Certification / Supply Chain Nexus

Over the past several years, studies have been performed worldwide comparing ISO 14001-2004 and its value in development of green supply chains.

• One recent study found that more than 75% of manufacturing executives surveyed had ISO 14001 certification or were in process in order to enhance their competitive supply chain position,
• Companies that are already ISO 14001 certified are 40% more likely to assess their suppliers’ environmental performance and 50% more likely to require that their suppliers undertake specific environmental practices,
• Preference in market share is often given to suppliers that have attained ISO 14001-certification,
• Consumer preferences are increasingly important drivers for many companies to improve their supply chain environmental activities,
• Procurement officers increasingly use ISO 14001 certification as a required vendor qualification,
• Suppliers without an environmental management system will feel increasing pressure to modify their practices or risk losing customers, and will be subject to higher costs for licenses, inspections and insurance.

Questions and issues to consider when developing your Supply Chain/Value Network:

• Will the service provider enhance the cause of sustainability both upstream (i.e., primary customer/end customer) and downstream (i.e., all tiers of supply base, including logistics service providers)?
• Will some relationships drive significant redesign of the supply chain, including product innovations and modifications (e.g., collaborative development of decomposable packaging material?
• Is your supply chain implementing progressive environmental management systems to manage their environmental footprint?
• Establish a more cohesive collaborative model in transport, warehousing and distribution that will drive efficiencies up and incremental costs down, while reducing environmental impacts throughout the supply chain.

The Green Economy Post assembled a number of Green Supply Chain studies to assist you in your efforts to understand and address these issues in your business (15 Green Supply Chain Studies You Should Know About http://bit.ly/6X3YDU).

Environmentally responsible procurement, in alignment with your company’s environmental sustainability values, is critical for organizations that desire to manage their environmental risk and maintain a competitive advantage.

Not only does this mean that businesses must choose their suppliers well, they also have to ensure that suppliers comply with the standards they claim to meet.

I will have the honor of conducting a breakout session on this topic on April 13th at the Aberdeen Research’s Supply Chain Management (SCM) Summit in San Francisco, CA (http://summits.aberdeen.com/index.php/Supply-Chain-Management-Summit/2010-scm-summit-overview.html).  Hope to see you there!

Green Transportation- All It Takes is Innovation and Drive

Framing the Issue

“Only 22 Fortune 500 companies have begun blunting their supply chain’s impact on the environment” The amount of cargo shipped is “expected to triple in the next 20 years” Measuring ghg emissions is the “fundamental starting point” of “any serious entity” When reducing transportation emissions, “it is best to begin with the ‘low-hanging fruit’” Rail transport is four times more efficient per ton than motor and 600 times more efficient than air transport ‘Greening” Transportation in the Supply Chain

“Logistics” is the integrated management of all the activities required to move products through the supply chain. Generally, “green logistics” focuses on seeking ways to manage the environmental footprint of the supply chain associated with your product, from point of manufacture through to the end user.  This translates often to taking a life cycle approach to manufacturing and distributing your product (as well as reverse logistics in some cases).

Transportation is a very key element of the logistics process and the supply chain which runs from vendors through to you to your customers. It involves the movement of product, service/speed and cost which are three of the five key issues of effective logistics. It also impacts with the other two logistics– movement of information and integration within and among suppliers, customers and carriers.

The 2009 14th Annual 3PL Study found that newer concepts and technologies are emerging to help both 3PLs and shippers cope with a “new, slower growth world”. The report advocated creating “horizontal, cross-company supply chains refereed by neutral third parties. This innovation is based on the concept that by clustering specific logistics activities and consolidating supply chains, significant economies of scale can be achieved in terms of efficiency (logistics cost), effectiveness (customer service) and environmental sustainability (carbon footprint)”, and as noted below.

Solutions:

From a logistics standpoint, 3PL providers might consider development of strategies to eliminate unnecessary materials handling or avoidable transport, and look for efficiencies that could move more product at a time.  Trucking, rail, marine and air modes of transport all have their up and down sides and it’s best to look at point to point options that will result in lower energy/fuel costs, use of modes that use cleaner fuels (LNG, ultra low sulfur diesel), and generate fewer greenhouse gas emissions (use of larger ships that employ more efficient equipment or operational practices).

Any number of “green” strategies to enhance the competitive position of freight-forwarding services are being implemented worldwide , including at key ports of entry here in the U.S.  Most freight related environmental issues generally involve solutions to reduce energy consumption and limit greenhouse gas emissions.  Naturally some carbon or energy intensive issues can be managed only if they are directly controlled by freight forwarding companies, while other activities not under direct control can only be influenced in practice (for instance contract carriers).

Business Case Examples

• Freightliner Trucks. Freightliner Trucks addressed the issue of fuel savings by focusing on more efficient aerodynamics. The aerodynamic features to the company’s Cascadia truck result in 7.8 percent to 22 percent less drag than other aerodynamic tractors, resulting in annual fuel savings of $900 to $2,750 per truck.

• Nortel: Nortel shifted from air to sea transportation to deliver significant cost reduction and took major adjustments in production planning and order scheduling to make it work For Nortel, the increased use of sea freight has saved more than $1,000,000 versus the more expensive air freight cost, as well as the opportunity to negotiate improved pricing that has realized approximately $500,000 of cost reduction.

• The 2009 14th Annual 3PL Study: This study found that shippers want to create more sustainable, environmentally conscious supply chains. That means striking a balance between labor and transportation costs and the market value of carbon-reducing processes, compressed production cycles and less carbon intensive transportation modes that beat the competition.

Summary

Eyefortransport’s Green Transportation & Logistics European Report  (2008-09)  indicated the “The results from this year’s survey show that the supply chain industry has increased its focus on green initiatives from last year, and anticipates this trend to continue for some time yet. This has been shown in most of the topics of the survey, from increased adoption of initiatives, greater awareness of options available, growing incentives for greening whilst barriers are diminishing, to greater anticipated ROI and effectiveness of supply chains. …While those companies who have adopted strategies are gaining, those who have been left behind are finding it harder to implement changes. “

A 3PL green logistics strategy, regardless of whether you are involved with domestic or international, to be effective in gaining a competitive foothold, must recognize the criticality of:

• Customer requirements
• Mode selection
• Carrier relationships.
• Measuring/benchmarking
• Regulatory impact.
• Carrier mergers and alliances and closings
• Flexibility

Looking at these basic challenges through a sustainability lens offers greater opportunities to find innovative opportunities to optimize resources, leverage risk and maintain cost volatility through enhanced supply chain relationships

It goes to say that a sustainability-focused 3PL strategy one innovative way to respond to the dynamics of your business, its customers, suppliers and operation through cost-effective, value added supply chain solutions.