A global survey of the Green Supply Chain, undertaken by management and technology consultancy BearingPoint, in partnership with Supply Chain Standard, sheds new light on what business is doing to meet consumer and shareholder demand for action. Are companies prepared?
Going Green? It’s a PR thing… right? Vocal disagreements about the science of climate change may still rage, but one thing is beyond argument – the environmental impact of companies, their products and services matters more than ever.
The moral argument for thinking green is unchanged, but it has been joined by a new driver: whether in the form of increasing regulation, or consumer choice, placing your business on a green footing can improve your bottom line.
In recent years this has mattered most at the consumer-facing end of the operation, but increasingly consumers (and legislators) are asking, and in some cases demanding, that companies demonstrate that a product or service is green from design to delivery.
The most obvious example of this is in food, where the growth in ”fair trade” produce is now meeting consumer concerns about the air miles involved in buying items produced so far from the point of consumption. British supermarkets now spend large sums advertising how locally some of their produce is grown.
Nor is this sea change limited to the consumer markets. Investors are increasingly aware of the risks of bad press around environmental or social ”irresponsibility” and the damaging affect it can have on stock valuations. This is leading to demands that corporations incorporate social responsibility, including the environment, within their business strategy. Indeed, in some instances companies taking an environmental lead in their sector can achieve a stock price premium or, at least, reduce the impact of recent stock market volatility.
There is another reason supply chain directors should be building their green strategies too, albeit a more pragmatic one. Energy and commodity prices are at, or near, all-time highs – driven by market volatility, uncertainty about long-term supply and the onward march of the oil price. Going greener could also mean cutting costs.
So, regulation, consumers, shareholders and rising costs are driving the case for action. The message seems clear: adapt or be left behind. In 2008, therefore, supply chain directors should be going to their CEOs with a green strategy before the call comes the other way.
BearingPoint”s major global survey, undertaken in association with Supply Chain Standard, examines the impact of the environmental agenda on this crucial business area, and looks at what companies are doing, why they are doing it and, if not, why not.
The green supply chain survey (GSCS) questioned 601 senior managers from companies ranging from major global corporations to firms with a sub €70m ($100m) turnover in a cross section of market sectors, and on a global basis.
Overall, two thirds of respondents held positions associated with the management of the supply chain in the broad sense, with the balance coming from a cross section of strategy, IS and finance and managing directors.
The results are revealing. Despite the vast majority (83 per cent) of respondents claiming to factor environmental concerns into their strategic decisions, real action on the supply chain was dramatically lower (35 per cent claimed to have a ”green supply approach”).
Unsurprisingly, it appears that the bigger the company, the greater the level of interest in the green supply chain: 54 per cent of companies with turnover in excess of €700m ($1bn) claim to have established green initiatives, but this drops to 29 per cent for companies with turnover of less than €70m ($100m).
Instinctively, many who drive the green agenda in politics or campaigning might think that it was costs that dissuaded the majority of firms from action, but some of the most revealing results of the GSCS show that the opposite is true.
Only nine per cent of respondents cited investment costs as the reason for not acting, with by far the largest number, 36 per cent, claiming it was lack of information from governments and non-governmental organisations on regulations and best practice which left them with a limited view of what to do or implement.
Even accounting for a little, reasonable cynicism about these numbers, the scale of the gap between costs and information is great enough to alarm those who claim to be at the vanguard of thought leadership on these issues.
Even the second most common reason cited for not acting – ”complexity of approach” – could be argued to be information-dependent. However, those who accuse business of only acting on green issues at gunpoint will feel justified by some of the other findings of the global survey.
When questioned about how much of their budget they invest in the green supply chain, the survey found either minimal investment – almost 50 per cent say they invest less than 10 per cent of the total supply chain operations budget – or no visibility of the level of investment (38 per cent).
Where money was being spent, it was broadly concentrated on four priorities:
l Regulatory requirements (22 per cent): compliance with relevant laws and anticipation of future requirements.
l Brand Image and ”influence” on a market (19 per cent): compliance with customer requirements. The figures reveal that companies operating in the CPG, Distribution/Retail sectors tend to be driven more by this type of motive and implement measures that are ”more visible” to consumers.
l Innovation – product/processes (15 per cent): the different green supply chain approaches (logistics, sourcing, manufacturing, design, reverse logistics) are assimilated to new sources of innovation.
l Cost-cutting (13 per cent): reducing the volume of purchases and consumption, process optimisation, improving the efficiency of the organisation. This motivating factor, which focuses on optimising costs and processes, is cited mainly by companies in the B2B and industrial sectors.
And where investment was being made, practitioners saw the key benefits in terms of image (70 per cent of responses), improving customer relations (62 per cent), providing a competitive advantage (57 per cent), or cost reduction (52 per cent in logistics).
Most managers who were acting on green supply issues focused their efforts on transportation and logistics, which is consistent across all regions.
Whilst, on one level, this seems sensible, a recent statement from the German Environment Agency which claimed that ”80 per cent of a product”s environmental impacts are determined during the design phase” indicates that the debate is moving on from transport alone.
From the survey results themselves, and the subsequent interview with respondents, it was clear that nobody claims to have a ”black box” solution – the answers seemed to be in making small adjustments to multiple areas of the business.
As many as 81 per cent have taken action in transport and logistics, the most common initiative (41 per cent) being reorganising to reduce the number of journeys, as well as changing modes of transport (31 per cent).
Danone is an excellent example of how this approach can be made to work, and of the benefits which can be achieved. The company has been working to reduce the impact of its transport activities on the environment, using three levers to reduce the environmental footprint:
- Optimising networks and flows – locating factories close to the consumption zones whenever possible.
- Optimising modes of transport and use of multimodal transport – the use of rail is encouraged and the bulk of exports are shipped by waterway or ocean transport.
- Optimising the journeys and the route – by various means such as training drivers to drive in a less polluting way, better loading of trucks and pallet optimisation techniques.
Meanwhile, Hewlett Packard, driven by regulations required of the electronics industry, embarked on an initiative to design products which use as few materials as possible, are energy-efficient and easy to recycle.
Both companies have shown that taking action which makes them ”greener” can also help make them more efficient, and provide a better service to their customers.
Despite supply chain directors” concerns about lack of information, steps to start turning your supply chain green are not as hard to take as they might seem.
The answer is unlikely to be revolution, but evolution. That said, introducing an effective green element to supply chain is major change and not one to be lightly undertaken. Of course, not everything needs doing on day one and some projects will continue to be run locally. Local or global, though, everything should run to an agreed set of targets.
As a guiding principle, companies should look to reduce their carbon footprint across all operations – from design, through sourcing, manufacturing, warehousing and distribution to returns and disposal – in a consistent and coordinated manner. That said, we have yet to agree a global standard for measuring carbon footprint. However organisations need only be concerned with agreeing their own measurement approach, then using it.
Going green is best achieved through a co-ordinated set of projects, prioritised according to their contribution to the overall strategy, but run locally, more akin to lean and continuous improvement initiatives and always supported by a realistic financial investment case.
But will these step by step improvement initiatives be enough? If up to 80 per cent of the environmental impact of a product is designed-in. Bad product design can have a huge impact on a company”s carbon footprint. Poor material choice or manufacturing processes can result in costly sourcing and supply or recycling costs. Conversely, good product design balances the product performance ”needs” and service levels with environmental impact of the materials, packaging or manufacturing processes.
Companies should adopt a ”Design for the Environment” approach to both product and the associated supply network design, particularly bearing in mind that legislation is likely to grow in this area. With the remaining 20 per cent of the environmental impact coming from operations and support, companies should look to adjust their decision-making to ensure environmental impact carries more weight, alongside cost and service.
In a green supply chain:
- planning decisions which traditionally balance supply and demand (distribution, inventory, production and purchasing) to minimise cost and maximise service will give equal weight to minimising environmental impact;
- sourcing decisions will consider, for example: the location of the source (and corresponding transportation), sustainability of the material source and ease of disposal when selecting, developing and managing a supplier;
- manufacturing will continue to strive to reduce waste and inventory at the same time as innovating to eliminate hazardous or harmful materials, reduce effluent, minimise consumption of non renewable energy;
- transportation planning and route optimisation will minimise truck miles, maximise load efficiency and use backhauling wherever possible.
Being green becomes mainstream
In this way, being green becomes mainstream and, crucially, becomes the responsibility of everyone in the supply chain from design through to delivery, every day.
So, as we have seen in the global survey, most companies consider the environment when making strategic decisions but less than half have implemented ”green supply chains”, citing the lack of information as the main reason.
Furthermore investments in ”green” initiatives account for a small proportion of supply chain budgets and most are stand-alone rather than part of a wider supply chain strategy.
Environmental regulations – the biggest motivator for companies to act, will continue to emerge and companies will need to stay up to date or face heavy penalties.
”Going green” is a journey of discovery towards what is currently an ill-defined final destination. It lacks global standards for measuring carbon footprint, and companies must first decide whether to lead or follow in delivering green products and services. The decision to act is about much more than corporate responsibility. It is about what companies need to do across their supply chain to remain competitive in global markets. By integrating the green agenda into their operational strategy and supply chain, executives can make the appropriate trade-off decisions between service, cost and environmental impact.
These are things which will, eventually, have to be done. The question for supply chain directors is whether to do them now, on their own terms, or wait to be forced to do so later by legislation or a need to compete.
To download a copy of the detailed results of the BearingPoint survey go to www.supplychainstandard.com.
Laurence Dupras is director of supply chain services in Europe for BearingPoint. firstname.lastname@example.org