Tag Archives: value creation

Keeping it Simple: Seven Action Steps for Manufacturers and Suppliers to Climb Up the Sustainability Ladder

29 Jun

The authors new three-string Cigar Box Guitar (made with mostly recycled parts)

This past weekend I went and finally did it.  I closed the loop on my dream to play gritty, stripped down delta blues on a cigar box guitar (CBG) in tandem with my harmonica.  At first I went to the local Recycled Arts Fair thinking I’d buy a four string CBG.  But within a few minutes of speaking with local Vancouver, WA luthier Alan Matta  at Hammered Frets (www.hammeredfrets.com), he’d convinced me to start with a 3 string and then think about a 4 (or more) string later.  Why?  Well, it’s simple.  I don’t know how to play the darn thing!  Fewer strings also means easier chords (with many requiring just one or two fingers), and more harmonic simplicity to help a newer player (like me) keep from getting overwhelmed. Plus, fewer strings means less tension on the neck and risk of bowing.   (Sidebar: I do have a musical pedigree, having played brass instruments and harmonica since I was 12), and I get music theory, but playing stringed instruments…can an old dog learn a new trick?)

If you are a small to mid-sized manufacturer for instance, getting started with a company sustainability initiative, or in greening a supply chain is a lot like learning a musical instrument.  Quite often if companies try to bite off more than they can chew (three vs. four string chords), there’s too much stress (like a guitar neck) and greater risk of failure (bowing of the neck).  Simplicity often trumps complexity when getting started down the sustainability path.  This is particularly true if companies are starting from scratch, or lack deep financial or personnel resources.  So before companies start to feel overwhelmed, there are ways to “ease” into sustainability, without the stress.

Last year I wrote about how the “look” and “feel” of sustainability depends on the level of enlightenment that a company has, the desired “end state” and on the depth of its resources to execute the change.  Also, I spoke about the importance of adequate resources to make the leap and a systematic process to keep on track.  I advocated systematic planning before moving  ahead.  This involved:

  • Building a system to plan, implement, measure and check progress of the initiative.
  • Looking for the quick wins.
  • Building an innovation-based culture and reward positive outcomes.
  • Measuring, managing, reporting and building on the early wins.
  • Building the initiative in manageable chunks.

A Systems Framework to Get the Ball Rolling

Let’s accept for a moment that if you are reading this, you already understand that sustainability as a term means many things to many organizations.  An effective sustainability roadmap and the systematic framework to manage sustainability must consider four key focal areas: compliance, operations, product sustainability and supply chain sustainability.  Bearing in mind that “one size doesn’t fit all”  there still needs to be a systematic way to get to the “desired goal”.  A systematic framework like an ISO 14001-based Environmental Management System (EMS), offers a set of processes and tools for effective accomplishment of sustainability objectives.  But in the event that a company isn’t quite ready to make the leap into the ISO world, there are alternatives.

A Cycle of Continual Improvement

“Plan- Do-Check-Act” Creates Shared, Sustainable Value

One such alternative comes from Organisation for Economic Co-operation and Development (OECD).  The OECD has produced a “ Sustainable Manufacturing Toolkit”, that as they say “provides a practical starting point for businesses around the world to improve the efficiency of their production processes and products in a way to contribute to sustainable development and green growth.” The OECD addresses the four key sustainability focal points that I mentioned previously.  As an aside, a collaborator with SEEDS Global Alliance (Sustainable Manufacturing Consulting) had a hand in contributing to this valuable project by providing detailed feedback on the toolkit.

According to the newly launched site, it offers two parts: a step-by-step Start-up Guide and a Web Portal where technical guidance on measurement and relevant links are provided.  I tested out the site, and while parts appear to still be under construction, the information there is pretty intuitive and gives the novice some basic information that they can use to get started.  For manufacturers in particular, the guidance offers 7 action steps to sustainable manufacturing:

Prepare [Plan]

1. Map your impact and set priorities: Bring together an internal “sustainability team” to set objectives, review your environmental impact and decide on priorities.

2. Select useful performance indicators: Identify indicators that are important for your business and what data should be collected to help drive continuous improvement.

Measure [Do]

3. Measure the inputs used in production: Identify how materials and components used into your production processes influence environmental performance.

4. Assess operations of your facility: Consider the impact and efficiency of the operations in your facility (e.g. energy intensity, greenhouse gas generation, emissions/discharges to air and water [ and land]).

5. Evaluate your products: Identify factors such as energy consumption in use, recyclability and use of hazardous substances that help determine how sustainable your end product is. (I’d also add water consumption and wastewater outputs).  It’s here that the upstream supply chain becomes a very important consideration.

Improve [Check/Act]

6.Understand measured results: Read and interpret your indicators and understand trends in your performance.

7. Take action to improve performance: Choose opportunities to improve your performance and create action plans to implement them.

What more can a small to mid-sized manufacturing company ask for if they are seeking basic actionable steps for starting up the sustainability ladder.  Remember folks, it’s better to start in small, incremental steps, with a scalable internal (risk and process driven) and external (supply network enabling) plan that provides “sustainable value”.

Implementing a sustainability program is best done in stages, like learning that cigar box guitar.  No organization has the resources (or appetite) to tackle the “whole enchilada” at once.  That’s why I’m keeping it simple and sticking with the three-string…for now.

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It’s Payback Time- Measuring ‘Value’ in Sustainable Supply Chain Procurement & Management

4 Jan

Over the holidays, a recent study was brought to my attention by Spend Matters Jason Busch (@spendmatters).  The report reminded me of the scene in the movie Jerry McGuire, where the sports agent coaches his client, and he shouts through the phone “Show me the Money!”.  Well, despite late 2010 surveys that suggested that companies may pull back sustainability efforts, I suggest that CFOs read this first before pulling the plug.

PwC, Insead and EcoVadis collaborated recently to construct a quantitative model to link Sustainable Procurement practices and positive economic impact. A link to the white paper download is here. The three companies went about asking the question: “Is Sustainable Procurement a true value creation initiative to be welcomed not only by customers but by shareholders and financial markets as well?” The quantitative model was created by the analysis of the three main drivers and their respective impacts on the company’s annual procurement spend, market cap and revenue. Their impact was then compared to the implementation cost of a Sustainable Procurement program.

Among the reports key findings:

  1. The payback from investing in risk reduction activities in the supply chain targeting the financial impact on “brand value from negative supplier practices (e.g., child labor, creating local pollution);economic cost of supply chain disruptions (e.g., noncompliance with environmental regulation,” etc. is eighty-five times the cost associated with the initial risk reduction investment.
  2. Additional revenue through innovation of eco-friendly products/services, price premium or income from recycling programs yielded a 58 percent payback.

Talk about showing the money!  Geesh, where do I sign up?!

The study found sustainability- driven cost reduction from energy reduction programs for instance, could fund the entire cost of a procurement initiative.  This would allow companies to benefit quickly from both risk management reduction and potential revenue growth opportunities.  The study also found that there were additional ‘value creation’ opportunities that could be realized if procurement departments collaborated more closely with the marketing and R&D departments upstream on the projects. In most cases, this requires a process modification to involve procurement experts in the design of new product and/or services.  Findings in three primary areas were covered in this report (cost reduction, risk reduction and revenue growth).  Key ‘value drivers’ for sustainable procurement and economic indicators are shown in the table below:

Cost Reduction

Reduced Internal Cost: In 2008, water conservation, energy efficiency, green building projects and other eco-friendly initiatives yielded Baxter International Inc. a total of US $11.9 million in environmental income, savings and cost avoidance.

Reduced Specifications- In 2007, Wal-Mart launched “CO2Scorecard” aimed at saving 0.6 million tons of CO2 and US $3.4 billion in costs through reduced packaging content.

Reduced Compliance Costs– The Waste Electrical and Electronic Equipment(WEEE) and Packaging taxes in the European Union paid by producers are essentially calculated based on weight and product category. However eco-design criteria are being taken into account in the calculation of these taxes (e.g., use of recycled raw materials in packaging). Cost reduction can be achieved through lighter and eco-designed products.

The study found that cost reductions per project represent on average 0.05% of the company’s total revenue, ranging from 0.005% to 0.36%- a small price to pay for conformity and enhance product revenue gains.  However, these cost reductions yielded a six times over payback for sustainable procurement initiatives.

Risk Reduction

Bad Barbie- In 2007, Mattel experienced a major crisis when a supplier used lead-contaminated paint on Mattel’s toys in addition to creating safety hazards with lead based magnets.  This fiasco caused the company to recall about 20 million products at a cost of over US $100 million. Stock price dropped 18 percent.    A big lesson learned was that Mattel’s brand reputation was significantly affected by events involving safety, environmental or social issues with poor supplier oversight and risk management. These events have also led to significant direct costs (recall of products, financial penalties) and/or indirect costs (decrease in market share, sales and market cap, product boycotts) for these companies.

Dirty Palms- As another example, the report showed that in 2006, Palm’s stock value dropped 14% in June 2006 due to suppliers not meeting the Restriction of Hazardous Substances (RoHS) directive.  This poor planning and oversight led Palm to withdraw the Treo 650 smart phone from the European market.

Overall, the study found an average 12% decrease in market capitalization after a supply chain disruption due to a sustainability issue.  Ouch.

Revenue Growth

The study found that enhanced opportunities for experiencing direct revenue growth area bit harder to quantify (due in part to so many external variables and market variations).  However, the companies did report that increases of to 0.01% to 2% of the company’s revenue could be realized, mainly due to linkages between enhanced brand’s reputation and implementation of sustainable practices in design, production, distribution and end-of-life management.

Green Procurement Strategies

The study noted the many challenges that procurement officers may have in effectively managing sustainable procurement challenges.  Particularly, upstream manufacturing of intermediate products can pose a challenge, but not necessarily close the door to change.

So when evaluating a best approach to green procurement, the report suggests that organizations consider first those “product categories that represent a high potential for cost reduction but that are not necessarily controlled by the procurement department such as energy, raw materials, chemicals used for production process, etc.”.  Other categories that can drive growth and reduce risk and that are controlled more closely by procurement might include purchasing of green energy, raw materials with a higher recycled content, etc/.

I have spoken before about how procurement staff can be the gatekeepers that can drive continuous improvement in environmental and corporate social responsibility up and down the product value chain. Here a few tips again on how to green the procurement value chain:

  1. Conduct a spend analysis and ID which product categories may have greatest environmental impact
  2. Engage  designers, production and transportation department staff and explore  the entire spectrum of the supply network costs and value chain of a  products life cycle.  Explore if the product, process or supplier is creating unnecessary wastes, risks or avoidable costs
  3. Identify alternative products to replace materials creating negative life cycle impacts
  4. Engage your suppliers and evaluate what steps they are taking to lower the environmental footprint of their products.
  5. Purchase products that disclose their environmental attributes (eco-labeling).
  6. Audit and engage suppliers to understand and more accurately evaluate their environmental performance. Collaboration and transparency with suppliers creates “reciprocal value creation” in the supply chain, where both suppliers and customers are better equipped and enabled to  recognize and quantify each other’s value contributions to a successful,  green supply chain.
  7. Work with suppliers to help them reduce environmental impacts through changes in product design and materials use.
  8. Engage in Product stewardship: Active management of all aspects of the product from raw materials to final disposal

So what’s the ‘bottom line’ on sustainable procurement?  The answer can be  lower costs, increased sales and revenue growth opportunities, enhanced  reputation and risk management, leading to increased market share.  These are all achievable targets that great, smart businesses should aspire to in 2011 and beyond.

Start making the business case- it’s payback time!

Environmentally Preferable Purchasing is an Easy Step to Manage Your Supply Chain

2 Sep

In this increasing “green” business focused economy, there are a plenitude of purchasing guides focused on assisting suppliers and customers in making environmentally friendly’ product choices.  The City of San Francisco launched a  database of products that meet the city’s preferred purchasing standards. The SF Approved List of over 1,000 required or suggested products is the result of a 2005 ordinance that instructs city staff to steer clear of environmentally harmful products.  The City established a “one-stop shop for over 1,000 green products that:

  • SF City Staff are required to buy under City ordinances.
  • SF Green Businesses are allowed to use.
  • Can green your home, small business or large organization.”

But while the newly-completed database is intended primarily to assist city staff, it’s also a helpful tool for anyone seeking unbiased information about green products.   In addition to the network of city staff that work at “keeping it real,” the city also relies on chemical hazard data from GoodGuide in making its decisions.

This transparent move by the San Francisco underscores a trend that more and more state and local governments and private companies are adopting- moving away from the “low bid always wins” mentality and toward the more flexible “best value” approach.  “Best value” allows a purchaser to incorporate a broader variety of considerations, including performance and environmental attributes, when making purchasing decisions.   Best value and environmental product specifications are making their ways into a number of common administrative, production and maintenance areas- for instance: office paper, lighting, paints and solvents, chemicals, building materials (like carpet), etc.

Characteristics and Steps to Green Your Purchasing Power

Environmentally preferable purchasing policies (EPP) can take many forms and serve a variety of pre-purchase and performance goals.  A sound EPP should:

  • Include an explicit statement of commitment from top management that explains relevance to broad goals of the organization
  • Be incorporated in standard and routine procurement procedures such as in relevant manuals or documents, procedures of purchasing agent
    • Address potential obstacles such as purchase price vs. life-cycle costing
    • Provide detailed guidance on key issues when possible (e.g., energy efficiency, toxics)
    • Explicit designation of authority and responsibility for green procurement
      • Include green purchasing in annual performance reviews for relevant employees
      • Provision of rewards or incentives for superlative performance in achieving green procurement goals
      • Require monitoring and reporting on performance against explicit targets

Getting started in developing an EPP may be easier than you think:

  • Review and analyze current purchasing by major product categories
  • Prioritize product categories in terms of environmental impact and improvement potential
  • Develop a multi-year implementation schedule based on priorities, difficulty, upcoming solicitations
  • Produce a manual of standards & specifications, address cost/availability issues that might arise
  • Review policies, procedures, organization, and make improvements as needed
  • Develop metrics and report on progress

Finally, it’s important when you develop an EPP to balance the following

  • Environmental benefits
  • Cost
  • Availability
  • Performance

Resources to Get You Started

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