Picture2.jpgConsumers have unprecedented opportunity to be active shapers of the products and services they buy and use, rather than passive receivers, taking whatever companies provide. Apples most recent litmus test on corporate social responsibility with its key Chinese supply chain manufacturing partner, Foxconn, and resulting consumer outcry is but just one example of the power that consumers have to sway products manufacturers to alter their business patterns.

 

At the recent World Economic Forum (WEF) in Davos, Aron Cramer (CEO and President of Business for Social Responsibility or BSR) observed at one workshop the “fast-changing relationship between businesses and consumers. The question on the minds of many of the business executives in the room was "is this good or bad for business". The answer to this particular either/or question is undoubtedly both. Companies that stay ahead of this curve by involving consumers in product design; providing transparent information about the social and environmental content of these products, and looking at new models to provide value in new ways will prosper. Those that don't will find growth hard to come by.”

 

Scaling Consumption in a Smart and Sustainable Way

 

The WEF has devoted a great deal of attention to the issue of scaling consumption sustainably as the world economy shifts both demographically and economically. WEF examines these issues in a report entitled: More with Less: Scaling Sustainable Consumption and Resource Efficiency. The study properly takes a “systems view” of sustainable consumption.  In other words, rather than focusing just on the demand side, WEF looks at the challenges and possible solutions through a value-chain centric lens of what they describe as:

  • consumer engagement (demand)
  • value chains and upstream action (supply)
  • policies and an enabling environment to accelerate change (rules of the game).

"Making your business sustainable in today’s world is an absolute imperative. The business case for sustainable growth is clearer than ever and the urgency of the issues we face means that business leaders have no choice but to act. " Paul Polman. Chief Executive Officer, Unilever

As WEF explains, “The main outcome is the identification of key focus areas for business leadership through concrete goals and collaboration across industries”.  For this report, WEF engaged with chief executive officers, business leaders and experts worldwide, seeking answers and thoughts centered six key questions:

 

  1. What are the key trends in sustainable consumption?
  2. What is the size of the opportunity for countries, companies and consumers?
  3. What are the barriers to scaling existing models of sustainable consumption?
  4. What does getting to scale look like?
  5. What new solutions are needed to get to scale in sustainable consumption?
  6. How can we achieve scale by working collectively and creating action on new fronts?

 

Barriers, Mind Sets and Complexities- Oh My!

 

To no surprise, the report identified a number of internal and external barriers to staving and influencing scalable and sustainable consumption, notably (according to the report):

  • Consumers lack incentives for sustainable consumption and are confused by mixed messages. The study noted that one survey of British consumers indicated that 70% were uncertain about the environmental performance of the products they buy.  I have seen similar surveys here in the United States that compare with the British results
  • Supply chains are complex, opaque and interconnected. Deep supply chains, like Apples or the textile industry, create many complexities that place  limits to in certainties sustainable sourcing
  • Technology remains costly and inadequately deployed.   The study notes that “Fewer than 20 facilities in the world are certified to melt down and recycle the cathode ray tubes of old television sets, and all are in Asia. E-waste, which at present largely originates in the US and Europe will travel across multiple countries and continents for recycling – putting the environmental benefits into question and causing additional social concerns”.  That being said, more collaborative enterprises across industries and economies can replace the linear economies that characterize western industrial nations, and create more opportunities to expand technologies further and wider.
  • Policy incentives remain weak. The report notes that “trade systems and tariffs rarely differentiate between unsustainable and more sustainable alternatives, preventing a potential increase of 7–13% in the traded volumes of sustainable products
  • Short-termism dominates the landscape, and traction in fast-growing markets remains low. Typical of capitalism and free enterprise, most companies growth targets rarely look out father than a few years, and seek short term gains to keep shareholders happy.  The WEF report noted that “55% of FTSE 100 company sustainability targets were to be achieved within 1–2 year timeframe's, while only 18% looked out to 2018–2020”.

 

The graphic below suggests some strategies in the report to overcome these barriers along the three key value-chain points as described above.

Solutions for Scaling Economies (Source, WEF, 2012)

Moving Toward a Circular Economy

 

Something else also happened “on the way to the Forum” (well actually at the Forum) that may offer some insights and solutions that are discussed in the WEF report.  At Davos, Ellen MacArthur, head of the non-profit Ellen MacArthur Foundation, suggested that while” rapid technological evolution across all major industry sectors,{was taking place] … very little change within the economic model itself {has been occurring]. The economy is still based on a linear "take, make and dispose" model.”  A new report Towards the Circular Economy, analyzes the international business case behind the idea of shifting from a linear to a more circular economy.

 

“The essence of the circular economy lies in designing goods using technical materials to facilitate disassembly and re-use, and structuring business models so manufacturers can reap rewards from collecting and refurbishing, remanufacturing, or redistributing products they make. In this model all things are made to be made again, ultimately using energy from renewable sources[and in a less toxic manner]. Companies shift to focusing on selling performance in the place of product, and consumers now become users.” – Ellen MacArthur

 

Make sense?  Well if Ms. MacArthurs numbers are correct, “embracing the circular economy model could lead to an annual economic opportunity of up to $630bn a year towards 2025.”  Where do I sign up!!??  Still interested?  Read more about the circular economy, ways to leverage the entire supply chain and build sustainable, scalable consumption here and view a fascinating video here. .

 

As Aron Cramer mentioned in a GreenBiz article in January, the time for sustainable consumption is now.  “The need to develop new consumption patterns is the mother of all innovation challenges. The race to dematerialize is on. Some of this will come from the digital revolution, as newspapers can now be delivered wirelessly to e-readers instead of plopping dead trees on the doorstep. But some of the innovation will come from redesigning business models.”

 

Perhaps Mr. Cramer and Ms. MacArthur are onto something. Are you, as consumer, as manufacturer, product designer or corporate executive, or even as fellow Planet-eer, ready to help make that change?  We can change the rules of the game together, for a stronger, more circular economy. As Captain Planet says, “The Power is Yours”.

If you have been a frequent reader of this space, you'd know my position on Apple and the manner in which it’s conducted its supply chain sustainability programs…or hasn't.


2011: Game On (or the Collective Karma Ran Over Your Dogma)


Last fall, I wrote about the follow up efforts by Chinese NGO Institute of Public and Environmental Affairs (IPE), who performed five more months of research and field investigations and reported that “the pollution discharge from this enormous industrial empire has been expanding and spreading throughout its supply chain, seriously encroaching on the local communities and their environment… the volume of hazardous waste produced by suspected Apple Inc. suppliers was especially large and some had failed to properly dispose of their hazardous waste.”


Six months before that (nearly a year ago), I presented my thoughts about the IPEs report that leveled complaints against the IT/Electronics industry and the overall performance of nearly 30 major manufacturers and their respective key parts suppliers.  The report focused on “the openness of IT firms and their responsiveness to reports of environmental violations at suppliers”.  Concerns were raised in the report regarding levels of environmental toxins and pollutants being discharged in rivers and streams and into air sheds.

 

Many people have asked me over the past half-year why Apple is being uncooperative or secretive.  Well, “secrecy” has always been part of the Apple mystique, but of course so has evolutionary and disruptive innovation. The problem as I saw it then (and this thought has now been vindicated) is when it comes to corporate social responsibility and sustainability, transparency is the name of the game, not secrecy.  I also suggested that Apples supplier network may be too big to handle and they lack the tools, systems and technologies to perform adequate supplier training and oversight.  Combined with inconsistent Chinese regulatory agency oversight on its industrial manufacturers, this presented difficult challenges to a workable, and meaningful sustainable supply chain solution. But Nike did it, so why couldn’t (or wouldn’t) Apple, I asked?


My advice last September to Apple and new CEO Tim  Cook was to step up and be as evolutionary on corporate social responsibility and sustainability matters as it is with its products.  My exact words were: “show humility, take responsibility, and act swiftly and collaboratively.”


Gladly I am happy to report that Apple has wised up and stepped voluntarily under the glare of public scrutiny.

2012: Enter Mr. Cook…the New, Improved, Socially Responsible Apple?

"Good Apple"

In its Supplier Responsibility 2012 Progress Report, the company states it is “committed to driving the highest standards for social responsibility throughout [its] supply base”. It adds: “We require that our suppliers provide safe working conditions, treat workers with dignity and respect, and use environmentally responsible manufacturing processes wherever Apple products are made.”


The 156 companies it lists alongside the report on its Supplier Responsibility website account from more than 97 per cent of what Apple pays to suppliers to manufacture its products.  A complete picture of all the thousands of suppliers in Apples supply chain may be daunting, but at least the company has captured the suppliers where the “greatest spend” is.


Highlights from the 2012 Report


  • In 2011, we conducted 229 audits throughout our supply chain — an 80 percent increase over 2010 — including more than 100 first-time audits. We continue to expand our program to reach deeper into our supply base, and this year we added more detailed and specialized audits that focus on safety and the environment.
  • Apple-designed training programs have educated more than one million supply chain employees about local laws, their rights as workers, occupational health and safety, and Apple’s Supplier Code of Conduct.
  • Our audits have always checked for compliance with environmental standards. In 2011, in addition to our standard audits, we launched a specialized auditing program to address environmental concerns about certain suppliers in China. Third-party environmental engineering experts worked with our team to conduct detailed audits at 14 facilities. We uncovered some violations and worked with our suppliers to correct the issues. We will expand our environmental auditing program in the coming year. [violations unearthed included dumping wastewater onto a neighboring farm, using machines without safeguards, testing workers for pregnancy and falsifying pay records]
  • We have a zero-tolerance policy for underage labor, and we believe our system is the toughest in the electronics industry. In 2011, we broadened our age verification program and saw dramatic improvements in hiring practices by our suppliers. Cases of underage labor were down significantly, and our audits found no underage workers at our final assembly suppliers. [Apple said it found six active and 13 historical cases of underage labor at some component suppliers, but none at its final-assembly partners]
  • We offer continuing education opportunities at our suppliers’ facilities free of charge. More than 60,000 workers have enrolled in classes to study business and entrepreneurship, improve their computer skills, or learn English. And the curriculum continues to expand. We’ve also partnered with some local universities to offer courses that employees can apply toward an associate degree.


Apple has vowed to deal with worker abuses, hoping to deflect criticism it was turning a blind eye to cases of poor working conditions in a mostly Asian supply chain. Perhaps in a huge move, Apple will allow independent auditors from the Fair Labor Association to also be part of the future auditing process.  In an interview last Friday, Mr. Cook said Apple's vow to double the number of supplier audits along its supply chain is "raising the bar'' for the entire high technology industry, and that more change is on the way.  Cook said "All of this means that workers will be treated better and better with each passing year…It's not something we feel like we have done what we can do, much remains to be done."


The San Jose (California) Mercury News quoted analyst Ken Dulaney with Gartner Research who wondered why this may have taken so long to happen. “Who knows why they didn't do this sooner? It could have been because of Steve Jobs. Maybe with Cook's financial background he's trying to move Apple toward less secrecy, which would be a very good thing. It's part of their trying to be a good global citizen.''


Under Scrutiny


Either way, Apple will continue to be under watchful eyes, as environmentalist and labor activists continue to push for more reforms by American companies doing business overseas.  Apple still will need to double down its efforts to respond more proactively to the many environmental impact related issues reported in the past by its major suppliers, especially in China.  But for a company that has played its cards extremely close to the chest, it’s a major breakthrough, if time proves the intent to be true.

Judy Gearhart, executive director of the International Labor Rights Forum in Washington, D.C, said that how the industry as a whole responds” depends how engaged they [Apple] are going forward. You see companies make these commitments and there's often a lot of fanfare, but it doesn't always pan out the way they say it will.''


Maybe Mr. Cook is the one "Good Apple" that will save the bunch.  Let's hope so.

durban-climate-change-conference.jpgFeeling a bit like the holidays for sure.  And I feel like humanity just got “scrooged”.   A year ago, I wrote about the COP16 U.N. Climate Conference in Mexico City and how governments were playing “kick the can” with climate policy. I noted that there was “some progress on establishing more robust means to appropriate and distribute micro-finance funds to support development of technologies in developing countries that lack the dollars themselves to manage their own greenhouse gas footprints.”  I also noted that many companies, rather than countries were taking unilateral initiatives to reach deep into their supply chain to develop innovative, new products that are less impacting to the environment and that can help developing-nations likely to be hit hard by global warming.

 

Based on what has (or has not) transpired at the recently wrapped up COP17/CMP5 in Durban the past two weeks, I am left feeling that global consensus on this issue, while not completely out of the question, is getting closer.  But the incremental, baby step pace of progress is (according to most climate scientists) insufficient to avert seemingly unstoppable rise in year over year average global temperatures.  It’s not the science that appears in question, rather it appears that there appears to be ongoing hesitancy to bear accountability and resolute responsibility on the part of those who carry or deny the mantle of developed nation status (hint: United States, China, India).  Despite the last minute efforts of the 194 nations in attendance and working past the official end of the conference, hopes for a meaningful and comprehensive global agreement appeared to be faltering.

 

As an example, the recent article in the Guardian stated that “The EU has found it hard to push through its "roadmap" that would establish an overarching, legal agreement committing all countries to emission cuts”.    So, the EU got what it wanted.  Also, according to an African delegate, "The US has what it wants. There is no guarantee that the new agreement will legally bind governments to cut emissions.”  The U.S. indeed got what it wanted. China and India continue to maintain they are still too undeveloped on the whole to be accountable in the same manner as western, industrialized nations and also claims they are implementing what they have already pledged to do at prior UN conferences.  Um…show me.

 

The one big victory I did hear that came out of the past two weeks was on an agreement on establishing a $100 billion/year climate fund to help developing countries address climate change.  But before we celebrate that breakthrough, there’s a small outstanding issue …there is no clear mechanism for how that money will be raised. In the recent words of GOP candidate Gov. Rick Perry… “Oops”.  In addition, rich countries would be allowed to offset their emissions by making payments to poor countries which protected their forests.  Is this a bilateral effort or are poorer counties expected to bear 100% of the burden of making that happen.  What is thought to be enough isn’t.  Tim Gore, policy adviser for Oxfam, stated "Governments must really get to grips with the climate crisis."  That’s an understatement if I ever heard one.  Gore summed up his take on the winners, losers and likely impact on the poorer nations here.

 

So, while COP17 by most measures succeeded where prior UN gatherings failed, the agreements on which progress will be measured (using the 2015 and 2020 yardsticks established at Durban) may not be swift enough to stem the slow bleed that climate change is bringing on around the world.

 

Supply Chain Sector Gets Some Attention

 

Going into the climate conference, two key supply chain sectors, aviation and shipping, were targeted for discussion. According to the Civil Air Services Navigation Organization, “After a number of days of tough negotiations on aviation, there was still no decision on some of the key aspects of Common But Differentiated Responsibilities (CBDR) and how they relate to aviation and shipping, and the ability for countries negotiation under the UNFCCC to tell negotiators at ICAO what to do. In the final agreed Durban Platform text on aviation, there was a brief placeholder text:  “International aviation and maritime transport Agrees to continue its consideration of issues related to addressing emissions from international aviation and maritime transport;”

Basically, there was no agreement was reached …end of story.  That being said, I have written countless posts on the administrative and technological advances underway by large intermodal shippers and transporters and the aviation industry to quell fuel use and has been exploring how to develop sustainable aviation biofuels, including in developing countries to meet the Climate Fund goals established in Durban.  Aviation and transportation stakeholders have concluded that “agreement amongst nearly all countries [is] that [International Civil Aviation Organization] ICAO is the most appropriate place to deal with aviation emissions. The industry will continue to engage with ICAO to ensure that an ambitious work program can deliver an outcome on aviation emissions by the next ICAO Assembly in 2013”.

 

Moving past Durban

 

The Huffington Post summarized the main outcome of COP17, the so-called “Durban Platform”, including the “establishment and empowerment of an "Ad Hoc Working Group" to develop a new protocol and to "complete its work ... no later than 2015 in order ... [for the new protocol] ... to come into effect and be implemented from 2020." The new protocol is to be a "legal instrument or an agreed outcome with legal force" with this critical stipulation: "applicable to all Parties." Nowhere in this agreement do the words "common but differentiated appear." (Full details in this draft document: "Establishment of an Ad Hoc Working Group on the Durban Platform for Enhanced Action.")”.

 

Writer and author Marc Gunther summed up the positive and negative spins on the Durban conference, and suggested that perhaps the evolution of climate negotiations will transcend universal treaties, relying more on regional, collaborative agreements and technological advances as the primary means of progress.  Gunther nails the takeaways by suggesting that “First, those companies that worry about climate change need to bring their voices more forcefully to the policy arena; they can’t assume that governments are on the right track. Second, companies ought to prepare for climate change–when they site new facilities, for example–because it’s unavoidable.”

 

The Durban Platforms emphasis on more dialogue, more planning and lack of clear immediate is tragic.  Not for the planet.  No sane person can look me in the eye and say with a straight face that seven billion people, with all their wants and needs, have not affected the global ecosystem.  But despite all the perversities and ravages that we’ve inflicted on Earth, the planet will survive.  But for us, the larger mass of humanity, we hold our own fate in our hands …and we are blowing it.  Why?  Because there are nations (the EU, United States, China and India among them) that cannot…or will not…move past their “self interest”.  They are just kicking the can down the road.

 

The Tragedy of the Commons

 

In 1968, ecologist Garrett Harding published "The Tragedy of the Commons in the journal Science. I was introduced to Hardin’s theory many times during my undergraduate and graduate environmental law studies. His highly controversial and criticized theory presented a hypothetical situation involving herders sharing a common parcel of land, on which they are each entitled to let their cows graze. Hardin theorized that it was in each herder's “self interest” to put more cows onto the land, even if the quality of the common is damaged for all (through overgrazing). The herder receives all of the benefits from an additional cow, while the damage to the common is shared by the entire group. Further if all herders make the same choice, the common will be depleted or even destroyed, to the detriment of all.  Systems ecologists called this an exceedance of “carrying capacity” resulting in other tragedies like overfishing, depletion of forest resources, water supplies and arable land.   And while the acts of an individual or one corporation may singularly have little impact, the cumulative effect can be overwhelming and often leave irreversible impacts.

 

Hardin’s theories have been widely criticized from an economic point of view.  Political scientist Elinor Ostrom, the first woman to win the Nobel Prize for Economics (2009), showed that the “Tragedy of the Commons” (its overuse and destruction) doesn’t happen, at least when all the people who share the commons can get together and talk about it.   Ostrom found that, when there are no internal or external forces preventing the “commoners” from a free, open and robust discussion of how they should agree to govern and limit their use of it so it doesn’t get overgrazed and thus ruined for all, then the commons goes on thriving.

 

And that, dear friends and readers is the tragedy of the Climate Conference in Durban…the political process and governmental self interest appeared once again come up short, co-opting the outcomes “to the detriment of all”. As noted in a National Public Radio broadcast in 2009, “Every nation wants to act in its own interest but that may not be the same as the global interest.”

 

Innovation, Technology and a Collective Conscience

 

I believe now, as I believed and wrote about during COP16 in Mexico City and after COP15 in “Nope”nhagen that governments were putting off today what we can technologically achieve now. What happened?  Has humanity lost its mojo…or is something else going on?

In a fascinating article by venture capitalist Roland Van Der Meer, Holding Off the Tragedy of the Commons, he describes some of the underlying factors that he believes have contributed to the global decline in natural resources, and lack of environmental stewardship…and it comes down to innovation.

 

Both governments and corporations are institutions that exist for the reason of self promulgation, actualization, and advancement (to further itself, to continue to exist, to not change). The methodologies that they deploy and back is their best practice, it is what they believe, what they will hold on to and how they will exist and thrive. And this is the failure point. It is not meant to change. Its very survival depends upon the lack of change.

 

What is missing is a catalyst for change. Why change? Because what worked best 100, 50,  20 or even 10 years ago is no longer the best methodology or practice. The institution is good at doing what it was designed to do and it stubbornly holds on to that design at the expense of its own destruction or the method it protects. Change is needed.

 

The incumbent companies and regulations are stuck in a process and framework which prevents and disincentivizes change. They even go further to lock out or block change because it would lead to their own destruction…. it is our collective resources that are at stake. We need to be open and create the new enterprises that will create, invent and adapt in the basic resources areas.

 

I believe, as do organizations like the Responding to Climate Change (RTCC) that the private sector can “pick up the slack” in tackling climate change where government agreements have (up to this point) failed.   However, to effectively incentivize innovative technologies, the private sector must continue to be a part of the larger policy debate.  There is a way out of the mess we have made and one of my personal life influencers, Amory Lovins, has a plan.  In his new book, Reinventing Fire- Bold Business Solutions for the New Energy Era offers “actionable solutions for four energy-intensive sectors of the economy: transportation, buildings, industry, and electricity”. The Rocky Mountain Institutes Lovins states “business can become more competitive, profitable, and resilient by leading the transformation from fossil fuels to efficiency and renewables. This transition will build a stronger economy, a more secure nation, and a healthier environment.”

 

Imagine if this approach can be applied at a global level, with a combination of government/business and monitored, measurable multi-national collaboration and a collective common conscience. What have we got to lose?

 

When it comes to real action on climate change, the upside of heretical innovation is huge…and the downside unthinkable.

Screen-shot-2011-03-23-at-10_49_48-AM-s41b8a-300x281.pngYou may have noticed that this space has been “dark” of late.  Why, since I've been gone and the world has spun round and round: the Occupy Wall Street launched (and perhaps corporate social responsibility entered the public eye), Kim Kardashian got married AND divorced, Libya fell, the St. Louis Cardinals won the World Series,  the debt ceiling crisis...well that's still with us.   No, I didn’t disappear into the abyss after my Africa trip in August.  No, I didn’t burn out or give up.  Instead, I’ve moved forward a notch in the journey.

 

I've always maintained to family, friends and colleagues that "change is good", and that it continues to drive us to continually improve on a personal and professional scale.  As I announced in early October to 800 of my closest personal friends and colleagues on LinkedIn, I recently started a full time position as Associate Director- Environment, Health & Safety (EHS) for Elan Pharmaceuticals, Inc. in South San Francisco, CA.    A long time client of mine, Elan is at the forefront of neuroscience based biotechnology.  Elan's work includes research and development activities for neurodegenerative diseases, such as Alzheimer’s disease and Parkinson’s disease and autoimmune diseases, including multiple sclerosis.   I am proud to be aligned with a company that is focused on tackling some of the most troubling and challenging diseases of the mind and body, some of which have affected members of my own family.

 

With my days (and occasional evenings) fully committed with Elan, I’ll be placing ValueStream Performance Advisors on hiatus. Despite the change in venue, my enthusiasm and passion for heretical thinking, innovation, systems-based management and organizational sustainability, remains the same.  I’m happy with what ValueStream was able to accomplish through from 2009-2011 along with my many collaborators and clients

 

However, while my social media presence may change in the months and years ahead, I will nonetheless continue to be an ardent advocate for organizational sustainability, and proactive EHS compliance and management (which Elan has graciously endorsed as well).  I am truly appreciative of all of the support you, as readers have given me and continue to value the business relationships that we’ve established.

 

Managing Change and Life's Risky Balance

 

313701_2334706810789_1343379358_2710975_6239044_n.jpgThis was a shot of the iconic acacia trees that I took while on a mini-safari this past summer in the Spioenkop Nature Reserve in the Drakensberg, KwaZulu Natal, South Africa.  Riding on horseback among the roaming wildlife (among them rhinos, giraffe, zebras and hartebeests) I was reminded of how critical it is that we all take a moment to reflect on the nature of humankind, how far we have come in a relatively short period of time on this planet, and how easily we have drifted away from lifes precious balance.    Not far from the ancient cave dwellings of the aboriginal San people, I realized how out of step humanity is with what's around them, and what a ruinous course we may be on.  We are perhaps the species most at risk.  I also noted in my related post following that South Africa trip discussing environmental, health and safety, that " companies must take care of basic HSE issues and lay a firm foundational framework for continual improvement first before they can progress along the sustainability journey.  ...Regarding sustainability, it makes little sense force feeding a business approach that has little immediate bearing on managing organizations immediate risks."  This is one of many reasons why I elected to refocus my career work on managing basic EHS issues to assure that a solid foundation is in place to support systematic sustainability efforts.

 

Supply Chains Place in Managing EHS Issues

 

You may ask "what does supply chain management have to do with EHS issues"...well quite a lot actually.  Every day, manufacturers bring chemicals and products into the workplace.  Many of these materials may be hazardous to the environment or to the user (they may have toxic, carcinogenic, teratogenic or mutagenic effects).  My job is to protect workers from the potential harms that these materials might pose.  It's also my job  to seek out less harmful materials that could achieve the same goal, and using life cycle processes, seek ways to "design' out hazardous components of a product or processes.  This may often involve working with multiple tiers of suppliers to seek safer product alternatives, and also source locally to reduce transporation related greenhouse gas emissions associated with getting those products to my company's doorsteps.  My role is focused on managing risk and redcing harm...to the environment, to workers and co-workers and to the company and community in which it operates.

 

Mission Critical

 

balance-stones-200x300.jpgWe are at a critical juncture on this fragile planet of ours.  We all have a moral imperative to passionately recast our “lot” in a much larger, infinitely complex global ecological system.  As Gregory Reggio so eloquently and powerfully captured in his epic 1982 film, "Koyaanisqatsi", we live in a world...a life, out of balance.  How ironic that the United Nations COP17/CMP7 International Climate Conference has convened this week in  Durban, South Africa, to discuss  the most critical "out of balance" issue of our lifetime, climate change. ...just a few short hours away from where the banner shot on this page was taken.

 

Humanity has the combined technical capability to use science, politics,  innovative technology and cultural awareness  to reshape the global natural, social and economic environment  to a point of balance and equity.   Do we have the collective wisdom to use that knowledge to achieve and maintain that balance?    I think we do, but like the sustainability journey we are on together,  it'll take many steps and the political will to get there.

 

Please take a moment to add my new email to your contact list. I’ll retain dmeyer@valuestreamadvisors.com address as a general professional networking address, or you can reach me here or at Elan — my new contact details are pasted below. And of course, you can still find me on Twitter and my commentary on here and on other media sites.

 

All the Best!

 

Dave R. Meyer, Associate Director- Environment, Health & Safety

Elan Pharmaceuticals Inc.

800 Gateway Blvd., South San Francisco, CA 94080

Direct: +1 650.877.7624

Email: david.meyer@elan.com

4692108470_abd3a06d1c.jpgHere we go again. Six months ago, I presented my thoughts about a report by Chinese NGO Institute of Public and Environmental  Affairs (IPE) that leveled complaints against the IT/Electronics  industry and the overall performance of nearly 30 major manufacturers  and their respective key parts suppliers.  The report focused on “the  openness of IT firms and their responsiveness to reports of  environmental violations at suppliers”.  Concerns were raised in the  report regarding levels of environmental toxins and pollutants being  discharged in rivers and streams and into air sheds.

 

Worker  complaints about unsafe working conditions and acute health problems  were presented.  The IPE gave opportunities to every company referenced  in the report to initiate an open and two-way dialogue, and most did  …except Apple Electronics.  According to the report,  Apple was more secretive about its supply chain than almost every other  American company operating in the China.  Apple came up among the  laggards among 29 major electronics and IT firms in a transparency study  drawn up by a coalition of China’s leading environmental groups.


These  are the iPad and iPod guys for crying out loud!  The evolutionary  wizards who have shaped and fundamentally changed the way that most  consumers behave, work, interact and get on with their daily lives.   Those guys who at one point this summer became the wealthiest company in the United States…this before iconic CEO Steve Jobs retired.


Apple- Skinned Again


Following the early 2011 report, the IPE performed five more months of research and field investigations and reported that “the  pollution discharge from this enormous industrial empire has been  expanding and spreading throughout its supply chain, seriously  encroaching on the local communities and their environment… the volume  of hazardous waste produced by suspected Apple Inc. suppliers was  especially large and some had failed to properly dispose of their  hazardous waste.”

 

The IPE reported (rather colorfully I might  add) that 27 suspected suppliers to Apple had known environmental  problems.  The IPE noted that in Apples ‘2011 Supplier Responsibility  Report’, “where core violations were discovered from the 36 audits,  not a single violation was based on environmental pollution. The public  has no way of knowing if Apple is even aware of these problems. Again,  the public has no way of knowing if Apple has pushed their suppliers to  resolve these issues. Therefore, despite Apple’s seemingly rigorous  audits, pollution is still expanding and spreading along with the supply  chain.”


IPE reported that “during the past year and four  months, a group of NGOs made attempts to push Apple along with 28 other  IT brands to face these problems and the methods with which they may be  resolved. Of these 29 brands, many recognised the seriousness of the  pollution problem within the IT industry, with Siemens, Vodafone,  Alcatel, Philips and Nokia being amongst the first batch of brands to  start utilizing the publicly available information. These companies then  began to overcome the spread of pollution created by global production  and sourcing, and thus turn their sourcing power into a driving force  for China’s pollution control. However, Apple has become a  special case. Even when faced with specific allegations regarding its  suppliers, the company refuses to provide answers and continues to state  that “it is our long-term policy not to disclose supplier information.

 

The IPE offered its opinion that “Apple  has already made a choice; to stand on the wrong side, to take  advantage of the loopholes in developing countries’ environmental  management systems, and to be closely associated with polluting  factories.”


IPE concluded that Apple needed to own up and be accountable for its supply chain for the following four reasons:

  1. “…  any company that produces a large amount of hardware must bear the  responsibility for the environmental and social costs incurred during  the manufacturing process.
  2. Secondly, the suppliers who violate  the standards for levels of pollutants emitted and who ignore  environmental concerns and workers’ health do these things with the aim  of cutting costs and maximizing profits.
  3. Thirdly, Apple Inc.  understands that when passing the blame for social responsibility it can  be difficult to pull the wool over the eyes of the general public…; and
  4. Fourthly,  many people do not understand that Apple and other brands’ outsourcing  of production is not the same as ordinary purchasing behavior. Various  sources of information show that Apple is deeply involved in supply  chain management—from the choice of materials to use to the control of  clean rooms in the production process."


So What’s Wrong With Apple?


Apples  image problem appears to be getting worse before it gets better and it  may be more than just a public relations problem; and it’s not just in  China that Apple is facing criticisms.  Apple, like most consumer  electronics manufacturers is a major user of highly sought after  precious minerals, many of them associated with conflict areas  (so-called ‘conflict minerals’). Apple in fact sources tin from 125  suppliers that use 43 smelters worldwide.  That’s an awful big challenge  from a supply chain management perspective. But Apple was still a bit  slow to step up like other key IT companies like Dell and Intel and  collaborate with the Electronics Industry Citizenship Coalition in  developing a framework to address conflict mineral traceability.

 

Further complicating the issue is the sheer size of Apples supply chain and the general difficulty that comes in managing dispersed multi-tired supply chains in other countries.  In an excellent piece published in GreenBiz this week, Environmental Defense Fund Project Manager Andrew Hutson suggested that  "If you've got an office in Shenzhen or Hong Kong, it's very  hard to keep tabs on the perhaps thousands of factories you have across  China in any given moment". The article went on to discuss how scrutiny can sometimes  lead contractors to move factories to more remote areas, farther away  from watchdogs, suggesting that "the sheer distance from headquarters created by chasing low-cost labor  to developing countries can effectively reduce accountability". While cheap labor in far off lands certainly has its benefits, clearly it has its disadvantages and Apple is paying the price.


Many  people have asked me over the past half-year why Apple is being  uncooperative or secretive.  Well, “secrecy” has always been part of the  Apple mystique, but of course so has evolutionary and disruptive  innovation. The problem is when it comes to corporate social  responsibility and sustainability, transparency is the name of the game,  not secrecy.  In this “WikiLeaks” world of ours, mystique only gets  companies mired deeper into areas of suspicion and distrust.


But perhaps there is more to the issue to noodle on. Is it entirely  possible that Apple isn’t ignoring the problem, but rather its supplier  network is just too big to handle and they lack the tools, systems and  technologies to perform adequate supplier training and oversight?  Or is  it that Chinese regulatory agencies also lack the resources or  institutional oversight necessary to monitor compliance over in-country  industrial manufacturers that service multiple consumer brands?  Or is  it possible that as consumers our insatiable appetite for Apple products  is partly responsible for creating such high demand that Apple must  reach out to hundreds if not thousands of suppliers to fulfill its  orders and keep Apple product lovers happy?   Or is the problem a  combination of rampant, unsustainable consumerism, poor regulatory  oversight, a supply chain ‘gone wild’, AND a deviated moral center on  the part of Apple (as the IPE suggests).  You see, its  complicated and maybe, just maybe, we should all take a close look in  the mirror and question our own culpability in this mess.

 

For  any of my dedicated readers, I am by no means being an apologist for  Apple.  You all know where I have stood in the past by constructively  calling for Apple to step up and be as evolutionary on corporate social  responsibility and sustainability matters as it is with its products.  I  noted in my prior post the many key steps that Apple can and must take to effectively make a difference in its supply chain.  In addition Treehugger writer extraordinaire Jaymi Heimbuch offered some outstanding advice to new CEO Tim Cook, not the least of which was “requiring transparency  in the supply chain and being more direct with suppliers about  standards”.  My advice is simple Mr. Cook: show humility, take responsibility, and act swiftly and collaboratively.


Rest  assured there are more activist organizations shaking Apples tree.  And  what I fear (as Apple should too), is that one day all that shaking  will bring that big old tree down.

survival-2-0208.jpgYou’d have to be living in a mountain cave or vacationing on the  south coast of France to not know that world stock markets are being  whipped around these past two weeks.  The USA Today has attributed what’s been happening in the markets here in the U.S. along seven key elements,  all of which is related more to external factors such as the European  money woes, general investor fear and lack of policy direction from the  federal government. The general market fear and scurrying for  shelter reminds me that when hikers are caught in a sudden storm, they  often seek shelter in a “lean-to” or other protective cover until the  skies clear.


I thought that in light of the economic body slamming  that has been going on this past week, it’s worth reflecting on some  efficiency-based ways that  businesses can use to overcome (or at least  buffer) some of the external factors that are causing such economic  uncertainty.  Like the hikers seeking shelter from the storm, there are  some “lean-to”-like steps that company’s can take to exert some control  and influence -- and it all relates to a leaner, greener, smarter enterprise.


The Lean and Green Enterprise


Last winter I wrote about how importance a “lean and green” enterprise was in establishing a smarter, leadership position in a rapidly changing global marketplace.  I noted then that a 2009 study suggested that “lean companies are embracing green objectives and  transcending to green manufacturing as a natural extension of their  culture of continuous waste reduction, integral to world class Lean  programs.”  Lean was more rapidly accomplished with a dedicated  corporate commitment to continual improvement, and incorporating ‘triple  top line’ strategies to account for environmental, social and financial  capital.  I also argued by looking deep into an organizations value  chain (upstream suppliers, operations and end of life product  opportunities) with a ‘green’ or environmental lens, manufacturers can  eliminate even more waste in the manufacturing process, and realize some  potentially dramatic savings


So I was reminded this past week that Lean in design, Lean in manufacturing, and Lean in inventory can individually or collectively be key success factors in managing  waste in all its many forms.  Collectively, this can have a measurably  positive effect on a company’s financial, and hence, business  performance.  A couple of recent articles touched on this topic this  week while you were watching your 401(K) equity or stock value tank.    But first let’s touch on Lean Design.


Lean Design


I came across an older but very relevant article written in the aftermath of the Internet stock crash in the early  2000’s.  The article described product development as involving “two  kinds of waste: that associated with the process of creating a new  design (e.g., wasted time, resources, development money), and waste that  is embodied in the design itself (e.g., excessive complexity, poor  manufacturing process compatibility, many unique and custom parts).”   The article cautioned that because the design process is the cradle of  creative thinking, designers needed to carefully watch what they “lean  out” or risk cutting off the creative process to reduce waste.  What has  happened in the ensuing years has been an incredible emphasis on “green  design” that focuses on full product life cycle value, such that “end  of life management” considerations have taken on a more relevant and  embedded nature in manufacturing.


A Lean Manufacturer Can be a Sustainable Manufacturer


In yet another recent article by manufacturing consultant Tim McMahon (@TimALeanJourney),  he notes that “Lean manufacturing practices and sustainability are  conceptually similar in that both seek to maximize organizational  efficiency. Where they differ is in where the boundaries are drawn, and  in how waste is defined”.  He notes, as I have in my past posts, that  Lean manufacturing practices, which are at the very core of  sustainability, save time and money — an absolutely necessity in today’s  competitive global marketplace.


The key areas to control manufacturing waste and resource use during the design and manufacturing cycle, can be broken down  and managed for waste management and efficiency in the following five ways:


Reduce Direct Material Cost – Can be achieved by use of common parts, common raw materials,  parts-count reduction, design simplification, reduction   of scrap and  quality defects, elimination of batch processes, etc.


Reduce Direct Labor Cost- Can be accomplished through design simplification, design for lean  manufacture and assembly, parts count reduction, matching product  tolerances to process capabilities, standardizing processes, etc.


Reduce Operational Overhead-  Efficiencies can be captured by minimizing impact on factory layout,  capture cross-product-line synergies (e.g. a modular  design/ mass-customization strategy), improve utilization of shared  capital equipment, etc.

 

Minimize Non-Recurring Design Cost– Planners and practitioners should focus on platform design strategies  to achieve efficiencies, including: parts standardization, lean  QFD/voice-of-the-customer, Six-Sigma Methods, Design of Experiment,  Value Engineering, Production Preparation (3P) Process, etc.


Minimize Product-Specific Capital Investment through:  Production Preparation (3P) Process, matching product tolerances to  process capabilities, Value Engineering / design simplification, design  for one-piece flow, standardization of parts.


Can a Lean Inventory Management Drive Sustainable Resource Consumption?


Business  Colleague Julie Urlaub from Taiga Company  (@TaigaCompany) summarized a  post in a recent Harvard Business Review by green sage Andrew Winston  (@GreenAdvantage).  The article, Excess Inventory Wastes Carbon and Energy, Not Just Money describes how the global marketplace “ is sitting on $8 trillion worth  of ‘for sale’ inventory [the U.S. maintains a quarter of that   inventory].  These idle goods not only represent a tremendous financial  burden but an enormous environmental footprint ” that was generated in  the manufacturing of those goods.  Mr. Winston maintains that “If we could permanently reduce the amount of product sitting idle, we'd save money, energy, and material.”   The problem is predicting and managing inventory in such fickle  times.   Winston went on about new predictive tools being advanced by  companies that hold promise in nimbly driving inventory demand response  up the supply chain.  For instance, he noted that “ using both demand  sensing software and good management practices, P&G has cut 17 days  and $2.1 billion out of inventory. All that production avoided saves a  lot of money in manufacturing, distribution, and ongoing warehousing. It  also saves a lot of carbon, material, and water.”

 

What Mr.  Winston found shocking though (me too!) was that “even with the  fastest-selling, most predictable products, the estimates are off by an average of more than 40 percent.  Imagine that a CPG company believes that 1 million bottles of a  fast-turning laundry detergent will sell this week. With 40 percent  average error, half the time sales will actually fall between 600,000  and 1.4 million bottles. And the other half of the time sales will be  even further off the mark.”  The process becomes self  perpetuating and the inventory racks up along with the parallel  environmental footprint, unless somehow the uncertainty can be better  predicted.  While companies like to have on hand what Mr. Winston  referred to as “safety stock”, I have come to know as reserve inventory  driven by “just in time” ordering .  But that process was shown to have  its own flaws such as when orders for goods dried up overnight in 2008  and when it came time to ramp up in early 2010, part counts were  insufficient to meet the rising demand.

 

I really pity the supply  chain demand planner, who like the weatherman is subject to the fickle  nature of an unpredictable force.  Winston wrapped up his article by  stating that “ reducing the inventory itself could be the greenest thing  [logistics executives] can do”.  I had the chance to speak and attend  the 2010 Aberdeen Supply Chain Summit where demand response planning was  discussed at length and where green supply chain issues were recognized  as one of many key attributes in effective supply chain management.  In  such a volatile economy, its vital that companies keep inventory  management in mind as a way to leverage its costs and simultaneously  look toward environmental improvements that can reduce waste.


Partnering for Progress


A  relatively recent pilot program in the State of Wisconsin just shows  how partnering to create a lean focused sustainable manufacturing  cluster can have enormous dividends.  According to a recent article in BizTimes.com,  the Wisconsin Profitable Sustainability Initiative (PSI) was launched  in April 2010 by the Wisconsin Department of Commerce and the Wisconsin  Manufacturing Extension Partnership (WMEP). The goal according to the  article is “to help small and midsize manufacturers reduce costs, gain  competitive advantage and minimize environmental impacts”. 

 

Forty-five  manufacturers participated in over 87 projects evaluated. These projects  focused on “evaluating and implementing a wide range of improvements,  including reducing raw materials, solid waste and freight miles,  optimizing processes, installing new equipment and launching new  products.  The initial results show that the projects with the largest  impact do not come from the traditional sustainability areas such as  energy or recycling. Instead, outcomes from the initial projects suggest  that transportation and operational improvements are places where  manufacturers can look to find big savings, quick paybacks and  significant environmental benefits.”

 

The program is projected to  generate a five-year $54 million economic impact, including: $26.9  million in savings, $23.5 million in increased/retained sales and $3.6  million in investment.

 

Lean design,  Lean manufacturing, Lean inventory management – a Waste Containment and Efficiency “Trifecta”

 

Together,  lean design,  lean manufacturing  and effective, lean inventory  management offer a “trifecta” approach for industry to identify, reduce  or eliminate and track waste.  Effective use of these tools cannot only  drive both in how the product is designed and  produced but offers  opportunities all the way up the supply chain to manage effective  inventory and resource consumption. As the University of Tennessee  studied concluded,  the implications of lean strategies are 1)  Lean  results in green; and 2) Lean is an essential part of remaining  competitive and maintaining a quality image. 

 

Put the two together and a  company can virtually be unstoppable…or a least a bit more  recession-proof and "shelter from the storm".

ray_anderson.jpgRay Anderson died this week.   Most of us in the business just called him “Ray”, because he really was  such an approachable guy.  I saw him speak in San Diego three years  ago, and even to a business green business veteran like me, he was  sage-like.  To most outside the world of sustainability in business, the  name hardly rang a bell.  But to those of us within its three  concentric circles, Ray was an icon.  As many know, Ray Anderson ran InterfaceFLOR.   As the leader of a major global carpeting brand, which at that time  relied on heavy use of industrial chemicals, hydrocarbon based products,  energy and water use, InterFaceFLOR, like other carpet manufacturers  was enduring a major challenge to rethink how its products were being  made.


By the mid 1990’s when Ray had become the company’s CEO,  more customers were asking questions about the company’s sustainability  efforts.   In 1994, Ray had an awakening of sorts (his so-called  “point  of a spear into my chest” moment), when after having a number of  meetings and discussions with his staff and reading Paul Hawkens the Ecology of Commerce, he became an enlightened, radical industrialist. He had come to the  conclusion that the environment was at risk and a lot of that was caused by industry and companies such InterfaceFLOR  that were based on petrochemicals and energy.


I,  myself, was amazed to learn just how much stuff the earth has to  produce through our extraction process to produce a dollar of revenue  for our company. When I learned, I was flabbergasted. We are leaving a  terrible legacy of poison and diminishment of the environment for our  grandchildren's grandchildren, generations not yet born. Some people  have called that intergeneration tyranny, a form of taxation without  representation, levied by us on generations yet to be. It's the wrong  thing to do.-Ray Anderson


The Radical Industrialist Takes on the Supply Chain


Ray was simply on a mission- for InterfaceFLOR to not only cut waste, but to be a leading, responsible business.   He became the face of the “radical industrialist” (the title of his  last autobiographical  book which I received signed by him just two  months ago is called Confessions of a Radical Industrialist)  and in 1994 launched InterfaceFLOR into a first mover role to reduce  its environmental and social footprint.  The data is quite extraordinary  in the 17 years since the company launched its many environmental  initiatives. Of course, Ray started with a plan- one that by necessity  started small- but was across the board, an overhaul affecting every  link of the supply chain.  Ray also smartly knew that go get his  shareholders on board, he needed “obliterate costs/footprint associated with waste; silencing the shareholders that were uncomfortable with the risk involved with completely revolutionizing your company”.


We  began to tackle the face of mountain we identified as waste. We defined  waste, by the way, as any cost that we incurred that does not add value  to our customer and that translates to doing everything right the first  time, every time. It’s not just waste material, scrapped and low  quality and so forth. If you send something to the wrong destination and  have to get it back and reship it -- that’s waste. If you incur a bad  debt -- that’s waste. So we defined waste very broadly and over time we  actually said that any energy that comes from fossil fuel by our  definition is waste and we need to eliminate it. We really began to  think in different ways about our business in terms of climbing this  mountain and it became very clear very quickly this was the smart thing  to do. Not only did we start to generate answers for those customers,  they embraced us for what we were trying to do. The goodwill in the  market place has just been stunning. The rest of the business case is  pretty simple. I cost it down not up. - Ray Anderson


According  to Lindsay Parnell, InterFaceFLOR’s CEO for Europe, the Middle East,  Africa, and Asia, the company has “reduced waste to landfill by 80 per  cent since 1996, curbed water use by the same amount, reduced energy use  per unit of production by 43 per cent, and cut greenhouse gases 44 per  cent, partly by generating 30 per cent of its energy from renewable.   But what also stands out (and what made Ray such a business visionary)  was that there was a phenomenal financial payback that could be realized  from “going green”.  According to Parnell, "We could see that the  millions of dollars were stacking up.  Between 1995 and 2010 we have  saved $433m – that is a huge amount for a company with revenues of  around $1bn. There is no way we have invested $433m in this, but that is  what it has saved."


It's not just the right thing to do, it's the smart thing to do. - Ray Anderson

 

 

From a supply chain point of view, InterfaceFLOR realized that to be e truly sustainable organization the company had to reach into its supply chain, especially at the end of a products life. InterfaceFLOR has since launched  new sustainable supply chain concepts across its customer reach to reduce costs and offer cost savings opportunities for its freight forwarders. The company also set up its ReEntry scheme in 1995, collecting carpets at the end of their lifecycle. Any  product which cannot be re-purposed is recycled or downcycled into a new  product. According to Melissa Vernon, Director of Sustainability Strategy for InterfaceFLOR, the company also "consciously seeks out suppliers who share [InterfaceFLOR's] environmental commitment and entrepreneurial spirit ...and...has found it more  effective to sit face-to-face with suppliers and discuss how they can  help ... achieve... sustainability goals.

 

Climbing Mount Sustainability


Rays efforts were noticed for sure.  Time Magazine featured him in an article this past spring and Fortune Magazine called him “America’s greenest CEO".  He went out  and "evangelized" over 150 times a year, until his fight with cancer  started to finally slow him down.  The awards and honors bestowed on Ray  and the companies over the past two decades are too many to mention  here. Recently, Interface ranked 11th worldwide in the 2010  Sustainability & Innovation Global Executive Study & Research  Project by MIT Sloan Management Review and The Boston Consulting Group.   They ranked second behind Unilever in the 2011 Global Sustainability  Leaders Survey from GlobeScan Inc. and SustainAbility Ltd.  Suffice it  to say though that InterfaceFLORs efforts disruptively changed the way  the carpet, building materials and textile industry operate today as  compared to 20 years ago.


Meanwhile, in the last couple of years the company launched its highly ambitious Mission Zero ™  sustainability strategy,  which aims to turn InterfaceFLOR into a zero-impact organization.  Ray  often spoke about how climbing the sustainability mountain in business  was akin to climbing Mount Everest and that there were seven paths or fronts to get there:

  • Eliminate Waste: Eliminating all forms of waste in every area of business;
  • Benign Emissions: Eliminating toxic substances from products, vehicles and facilities;
  • Renewable Electricity:  Operating facilities with renewable electricity sources – solar, wind,  landfill gas, biomass, geothermal, tidal and low impact/small scale  hydroelectric or non-petroleum-based hydrogen;
  • Closing the Loop: Redesigning processes and products to close the technical loop using recovered and bio-based materials;
  • Resource-Efficient Transportation: Transporting people and products efficiently to reduce waste and emissions;
  • Sensitizing Stakeholders: Creating a culture that integrates sustainability principles and improves people’s lives and livelihoods;
  • Redesign Commerce: Creating a new business model that demonstrates and supports the value of sustainability-based commerce.


Making the Business Case


When  you are being asked to make the business case for sustainability -  perhaps ask them to make the business case for being un-sustainable. -  Ray Anderson


You see, for the past 30 years I’ve been evangelizing like Ray for organizations to make “the business case” on behalf of reducing waste of any kind (be it over-consumption,  generation of waste, human productivity waste, etc) so the bottom line  is optimized and employees, communities and the environment are  protected.  To me it’s a “no brainer” and for folks like Ray it took an  epiphany to make that realization.  Since Ray’s awakening in 1994, and  especially in the past half decade or so, more CEO’s and manufacturers  with local to global reach are coming to their own realizations and  drawing their own conclusions.


Ray  stepped out of his comfort zone to challenge the status quo.  He forged  a new business normal that called for a respect of the land,  responsible use of resources, smart design and innovative end of life  (cradle to cradle) management of products.  Mission Zero will continue  for the many thousands of employees of InterFaceFLOR around the world-  all because of one man’s vision. All because of Ray.


As Ray said back in 2008 when I saw him, “There are noble fortunes to be made in the transition to sustainability.” That inspirational quote stands right up there with my son’s from back  in 1991 when he introduced me to his pre-school class as the Dad who  “saves the planet”.   Sometimes, being radical is not such a bad thing.


Mr. Anderson…er, Ray, thanks for all the inspiration- this one’s for you.

 

In Part 1 of this series on sustainable procurement, I laid out my vision of the heart of a sustainable, green supply chain that runs through its procurement function.  It’s simple to show how every product has a hidden human health, environmental and social impact along the entire supply chain.  However, it’s been challenging to bring sustainable procurement into a central decision making role in line with organizational business goals.  The results to date have been a mixed bag, as I alluded to when I mentioned Aribas new Vision 2020 report and companion dialoguing process, now underway.


Sustainable Procurement: back to management!


On the heels of the Ariba effort comes a promising benchmark report recently released by HEC-Paris and Ecovadis. Entitled Sustainable Procurement: back to management! this study (available for download on Ecovadis’ site) has risen to rescue and tempered my fears of devolving sustainable procurement.  In fact, the report may suggest a positive "tipping point" in favor of sustainable procurement.  The efforts behind the 2011 edition of the HEC/EcoVadis Sustainable Procurement Benchmark were carried out between the fall of 2010 and early 2011.  This benchmarking process started in 2003 and the 5th conducted since that time.


The objective of the benchmark is to provide a snapshot on what’s trending in the area of Sustainable Procurement practices.  According to the authors, the following overarching questions were explored:

  • How has the vision of the Chief Procurement Officers (CPOs) evolved?
  • What tools and initiatives seem to be the most effective over time to drive changes?
  • How is Sustainable Procurement progress measured?
  • What are the remaining challenges faced by most Procurement organizations?


The study identified three main drivers behind Sustainable Procurement initiatives: Risk Management, Value Creation,and Cost Reduction.  These findings mirror some of the trending areas and critical issues identified in the Ariba report.  HEC and Ecovadis suggested that these three drivers’ shows that many organizations are now facing new expectations in terms of Corporate Social Responsibility and Sustainability from the Procurement Departments of their clients and, suggest that having a sustainable procurement program in place can become a competitive advantage.


Sustainable Procurement Remains High on Executives Agenda


  1. 92% of the surveyed Companies consider Sustainable Procurement a “critical” or “important” initiative, even though for the 1st time this year, “Risk Management” took over as a priority initiative.
  2. The major progress made in 2011 is on the support from the Top Management (+24%) thus demonstrating that Sustainable Procurement is attracting more and more interest from Executive Committees, and significant progress was made in implementation of tools and organizational changes.
  3. Significant organizational changes have been implemented: 45% of companies already have “dedicated teams” and 57% report having trained a majority of procurement staff on Sustainability.
  4. Whereas in 2007 only 1/3 of companies were using formalized methodologies for assessing their suppliers’ sustainability performance, in 2011 two-thirds of them are now implementing dedicated tools (either internal or leveraging 3rd parties).
  5. Finally 92% companies have increased (56%) or maintained (36%) their budgets related to Sustainable Procurement, which should yield more changes in the future years.

Tools for Sustainable Procurement on the Rise


The HEC/Ecovadis study found that basic tools such as “Suppliers Code of Conduct” ,  “CSR contract clauses” and “Suppliers self-assessment“ were now the rule rather than the exception among companies surveyed by a ratio of 2 to 1,  but interestingly were still found to  limited value in terms of risk management.  What I found encouraging was that the study found maturation in the types of tools used, including “Supplier Audits” and “Supplier CSR information databases“.  This type of work has clearly been evident in what I have reported in the past, especially among multi-national companies with contractor manufacturing operations in developing economies (like China, India and Brazil). 


These advanced tools offered more opportunities for suppliers to engage directly with buyers, allow for data verification, and offer direct recommendations for supplier CSR and sustainability improvement.  Over half of the companies surveyed had advanced to this next level.  Finally, when asked what the most effective uses of resources were in developing a Sustainable Procurement Program, respondents mentioned 1) top level support, 2) creation of cross functional teams and 3) training, as key success ingredients.   All three of these success factors had shown substantial improvement over the past several benchmark cycles, according to the study.


Sustainable Procurement Creates Value


This is not the first study that has come along that demonstrates value and return on investment from sustainable procurement.  I wrote earlier of a joint study by Ecovadis, INSEAD and PriceWaterhouseCoopers that demonstrated similar results.  In that study, payback from most green procurement activities was huge. Companies surveyed were able to benefit quickly from risk management reduction and potential revenue growth opportunities, due in part to sustainable procurement.  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.


Also, a study in 2009 by a company named BrainNet (Green and Sustainable Procurement: Drivers and Approaches”)  looked at sustainable procurement and value creation and found that "… procurement with an ecological and social conscience is not a cost factor, but a value factor…Companies that pursue a consistent approach to green and sustainable procurement receive an above-average return on capital deployed."  The study produced what they describe as an “evolution curve for sustainable procurement” that describes the maturity of various approaches of sustainable procurement.  This curve compares well with the most recent EcoVadis/HEC findings and suggests that there may be a widening gap between leaders and laggards.

Sustainable ‘green’ procurement embraces a holistic approach, one that encompasses organization, people, process, and technology to create greater product value along the entire supply chain.  This type of value creation can managed by establishing firm triple bottom line based metrics from upstream suppliers to downstream users and using the procurement function to support product and process innovation and accounting for total cost of ownership (TCO).


What’s Next?


According to the most recent HEC/EcoVadis benchmark report, it is clear that new green and social business models depend upon innovation, and a gap still among many organizations to implement a truly Sustainable Procurement vision.  This was clearly in evidence by the lack of mentions by Chief Procurement Officers that I discussed last week in the Ariba study.


The HEC/Ecovadis report suggests that when implementing Sustainable Procurement practices, a three phase process can get the ball rolling, starting first by orienting and energizing the procurement function through:


“1. Communication activities: Building awareness among employees regarding the approaching change, the benefits and the steps to be implemented.

2. Training and Performance support: ensuring that the initiative is being understood among those who are to execute the change or be part of it, and leading to buy-in of the key stakeholders.

3. Rewards and recognition: ensuring that employees – and suppliers – who embrace change are properlyrecognized and rewarded. This final step is when implementation is not only measured, but also celebrated.”


I’m going to say it again…and again. All sustainable business roads lead through the procurement function.  The procurement function is the perfect nexus and a critical organizational player that touches product designers, engineers, multiple tiers of suppliers and subcontractors, manufacturing operations, logistical warehousing and distribution and the end users.  Yes indeed, things are looking up for sustainable procurement…it’s ‘game on’.

4018985290_3c5ef1e74b.jpgTo paraphrase  a timeless Bob Dylan song, “The Times They Are A’ Changin’” is no understatement.  You can read the details from across the globe in the news every day and are rapidly happening simultaneously on political, economic and social levels. And business is also making radical changes in the sustainability and corporate social responsibility (CSR)  frontier.

 

One area that appears to be in movement is Procurement. You know, those folks on the third floor in the back that order stuff?  Well, wrong! I’ve maintained that the heart of a sustainable supply chain runs through its procurement function.  That’s because every product- every single purchase- has a hidden human health, environmental and social impact along the entire supply chain.  My previous posts have discussed how the procurement function is a vital cog in product value chain.

 

Purchasing staff are the “gatekeepers” that can access powerful tools and serve as a bridge between supplier and customer to assure that sustainability and CSR issues are taken into account during purchasing decisions.  2010 was a watershed year for sustainability initiatives and supply chain management and I predicted that 2011 would see greater progress.

 

So I was incredibly excited when I recently got my hands on a relatively new white paper from Ariba, entitled “VISION 2020 -Ideas for Procurement in 2020 by Industry-Leading Procurement Executives”.  According to the conveners of the document, the “objective [of the effort initiated in 2010] is to initiate a dialogue on the future of procurement and to create a roadmap for how to get there.”  For that, they connected with leading practitioners and executives from around the world and across a variety of sectors to share their ideas, best practices and to read the tea leaves as to where procurement might be in 10 years.

 

And while the initial report laid out some pretty intriguing and widely varying trends and predictions about the state of procurement in the corporate function, I was unfulfilled.  I was all ready to read about how the emergence of sustainability in the marketplace was going to drive procurement decisions.  I expected to hear how top flight companies around the world were collaborating with their supply chain, implementing staff training on ‘green purchasing’ practices, and implementing sustainability driven supplier audits and ratings scorecards.

 

Boy, was I wrong!  Only ONE  mention of the word “sustainability” (thank you Dr. Heinz Schaeffer, Chief Procurement Officer, Northern and Central Eastern Europe for AXA), and no mentions of “responsible sourcing”, “green supply chain” or “sustainable sourcing”.  I would have expected more from chief procurement representatives from the likes of KeyBank, Maersk, Sodexho, and former execs from Hewlett- Packard, General Motors, and DuPont.  Most of these companies are generally considered leaders in the sustainability space.  So why would there be a disconnect between what companies are doing in design, manufacturing and product life cycle management and the procurement function?

 

Sustainable Procurement- a Systems Based Approach

 

Before we go too far, its helpful to define what "sustainable procurement" is.  While there is no singular definition for it, I like the definition offered up by the  UK-based Chartered Institute of Purchasing & Supply (CIPS).  CIPS definition is “a process whereby organisations meet their needs for goods, services, works and utilities in a way that achieves value for money on a whole life basis in terms of generating benefits not only to the organisation, but also to society and the economy, whilst minimising damage to the environment.".  And what CIPS defines as  ‘whole life basis’ is that "sustainable procurement should consider the environmental, social and economic consequences of design; non-renewable material use; manufacture and production methods; logistics; service delivery; use; operation; maintenance; reuse; recycling options; disposal; and suppliers capabilities to address these consequences throughout the supply chain" [emphasis added].

 

cover_vision2020.gifKey TakeAways

 

It’s a good thing that the authors from Ariba stated that “The [2020 Vision]report is intended not as an end, but rather as a point of departure for much discussion and debate around where procurement can and should be setting its sights for the year 2020 and beyond.  In fact, Ariba invites readers to “join the debate and to extend the discussion with new ideas by joining the conversation.  I have and I hope you will too.  But I think I’ll start right here first.  Here were some of the key findings, captured in six major themes:

 

  1. Procurement devolves- with spend management requirements shrinking, companies are being forced to optimize what resources they have and make better informed decisions.  More work at the business line level will occur, possible eliminating the central procurement function entirely.  Money and metrics will drive most decisions as companies face leaner profit margins.  There will be a need to engage end customers more and more and leverage relationships.
  2. The new supply management emerges- some traditional sourcing functions may become outsourced.  Strategy “will tie directly to an enterprise’s end customers and it will be more cognizant of the diversity of desires and requirements within the customer base”.
  3. Skill sets change.  The Chief Procurement Officer and staff must have broader skills that allow them to not only create opportunities for revenue enhancement internally and optimized “spend”, but also be more in touch with end customer values-driven needs. Procurement staff need to be tuned into multiple tiers of the supply chain, dive deep “inside the supply chain and bring [issues] forward to the designers within [individual] companies”.
  4. Instantaneous intelligence arrives.    Market pricing will become more transparent [the Cloud forces transparency to some degree].  Companies will have to rapidly extract innovation and other value from supplier bases, and build exclusive commercial relationships with leading suppliers that share both risks and rewards.
  5. Collaboration reigns- There will be as the report notes a “big emphasis on driving and taking innovation from the supply base… the supply role will be less ‘person-who-brings-innovation-in’ and more ‘person-who-assembles-innovation-communities-and-gets-out-of-the-way’.  Suppliers are being asked more often to participate in early design and product development as a way to leverage risk and control overall product life cycle management risks.
  6. Risk management capacity and demands soar- as companies are already realizing, effective procurement relies on response to risk management variables (financial, ethical, and operational performance).  Companies must create “360-degree performance ratings and provide greater transparency into market dynamics, potential supply disruptions, and supplier capabilities”.  A few participants noted that  there will be a “big expansion in the kinds of risks companies address in their supply chains, considering, for example, such things as suppliers’ sustainability, social responsibility…."

      Now if I read in between the lines, I can easily pluck out a number of key procurement trends from the 2020 report that transfer well to sustainability and responsible sourcing.  Risk Management.  Collaboration.  Design phase (life cycle) engagement of multi-tiered suppliers.  Key performance metrics. Responding to consumer demands. Supplier performance ratings.

       

      3654840791_173b5d6aa4.jpgOne takeaway for me appears that there may be a disconnect still between the procurement function and other functions within organizations. So is the procurement function still operating in obscurity in most organizations?  It all depends who you talk to but also on your skill at reading the tea leaves.

      Rest assured that compared to only a few years ago, more companies that are seeking to manage the life cycle environmental impact of their productsfrom design and acquisition of materials through the entire production, distribution and end of life management.  They’re finding sustainable procurement to be a valuable tool to quantify and compare a product or component’s lifetime environmental and social impact early on in a products value chain while positioning the company for smart growth in a rebounding economy.  We may be at a sustainable procurement "tipping point" and Part 2 will present the results of a very promising benchmark report recently released by HEC-Paris and Ecovadis, which tells a much different story.

       

      The times they are [indeed] a’changin’.

       

     

    “I make my living off the evening news

    Just give me somethin’, somethin’ I can use

    People love it when you lose

    they love dirty laundry”(Don Henley)



    4953991560_e1d7ec2854_m.jpgI was reminded of that Don Henley (The Eagles) solo hit from back in the 1980’s when I read about Greenpeaces latest initiative and report…aptly  titled…you guessed it, “Dirty Laundry”.  The report focuses on the high  levels of industrial pollutants being released into China’s major  rivers like the Yangtze and the Pearl and commercial ties between a  number of international brands such as Adidas, Nike and Li-Ning with two  Chinese manufacturers responsible for releases of those hazardous  chemicals.  Greenpeace has also launched the challenge ‘Detox’ Campaign, calling “brands, especially Adidas and Nike, to take the initiative and use their influence on its supply chain.”  The organization unfurled its characteristic banners at Adidas’s main retail store in Beijing this week. There are several nuances to this story that are important to pass on  and collaborative opportunities (rather than the finger-pointing that  has plastered Twitter and other media the past 24 hours) to explore.


    Supply Chain Challenges …Again!


    This latest supply chain environmental wrinkle underscores the  challenges multi-national organizations (MNC) are facing daily in  oversight and enforcement of first tier, second tier or lower contract  manufacturers.  If it’s not Apple under the radar, its Nike, or Adidas,  or GE…who’s next?  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.


    To be fair, although the pollution is real and the threat of toxics  contamination very real, it’s possible that Greenpeace may be  sensationalizing Nikes and Adidas’s culpability.  In fact, neither  company directly is involved with the key manufacturers labeled in the  Greenpeace report.  The two manufacturers are the Youngor Textile  Complex in Ningbo, an area near Shanghai along the Yangtze River Delta,  and Well Dyeing Factory Ltd. in Zhongshan, China, along the Pearl  River.  The Younger Group is China’s biggest integrated textile firm.

    “Game on, Nike and Adidas.  Greenpeace is calling you out to see which one of you is stronger  on the flats, quicker on the breaks, turns faster and plays harder at a  game we’re calling ‘Detox’,” “Whether you’re ‘All in’ with Adidas or  believe in the Nike motto to ‘Just do it,’ you can challenge the brand  you wear to win the race to a clean finish.” -Greenpeace DeTox campaign’s website.

    TextilevalueChain.png


     

    Both Nike and Adidas admitted jointly that said their work at Youngor is limited to cut-and-sew production — not “wet processing” such as dyeing and fabric finishing that Greenpeace says is the cause of the chemical discharge.  Greenpeace did not hide behind that fact but made the point (perhaps rightly so) that “As brand owners, they are in the best position to influence the environmental impacts of production and to work together with their suppliers to eliminate the releases of all hazardous chemicals from the production process and their products”. I agree on the grounds that effective supply chain sustainability practices and corporate governance must be driven by the originating manufacturers that rely on deep tiers of suppliers and vendors for their products.



    That being said, I think that to call out Nike and Adidas  specifically (along with other companies like Puma) is to suggest that  they are not doing the right thing as regards sustainability in the  apparel industry.  For instance, Nike has learned from its mistakes if the past (especially on the labor/human rights side of social responsibility)  and implemented aggressive governance frameworks and on the ground  oversight programs. Also, the  Nike Considered Index evaluates  solvents, waste, materials, garment treatments and innovation, and the  company has an internal working group constantly evaluating Restricted  Materials lists.

    Kick ‘em when they’re up

    Kick ‘em when they’re down

    Kick ‘em when they’re up

    Kick ‘em all around- (Don Henley)

    Chinese Laws and Regulatory Oversight- Not in Sync


    As I noted recently,  China is still in the “ramp-up” phases of economic development.  Plus  it’s been evident for some years that enforcement of environmental laws  and regulations by government agencies has not been on par with the  intent of the laws.  According to the report, samples taken from the  facilities contained heavy metals and alkylphenols and perfluorinated  chemicals, which are restricted in the United States and across the  European Union.  These chemicals have reproductive and hormone  disruptive effects Therein lies another institutional problem…the laws  in the home countries of the MNC’s are not in sync with those in the  host manufacturing country- in this case, China.


    Writing yesterday in China Hearsay,  Beijing based lawyer Stan Abrams offered this up.  “This is a classic  law versus CSR problem. The law here in China allows for this activity,  yet the allegation is that this is a harmful activity. Should the  companies in question merely follow the law or “do the right thing” and  either sever ties with the polluter or pressure it to change its  behavior?”


    It’s likely that (for the foreseeable future) Chinese political and  economic systems will remain focused on rapid development at all costs.  So it’s critical that local/in-country government policies be aligned as  well to support capacity-building for companies to self-evaluate, learn  effective auditing and root- cause evaluation, institute effective  corrective and preventive action programs and proactively implement  systems based environmental management systems (can you say ISO 14001?).


    Multi-Sector Collaboration is the Answer


    The apparel industry as a whole has taken a very proactive stance in  looking at ways to redesign sustainably, produce its goods taking a  cradle-to cradle perspective, and manage toxic chemical use and waste  streams so that human and environmental exposures are minimized.  The  multi-stakeholder Sustainable Apparel Coalition ironically includes Nike, the Gap Inc, H&M, Levi Strauss, Marks  & Spencer, and Patagonia (some of whom are also being targeted by  Greenpeace).  Over 30 companies have committed to collaborating in an  open source way to drive the apparel industry in developing improved  sustainability strategies and tools to measure and evaluate  sustainability performance.  In addition over 200 outdoor products  companies from around the world have been working together on  sustainability best practices and standards, called the Eco-Index, led by the Outdoor Industry Association and European Outdoor Group.


    The most successful greening efforts in supply chains in “tiger  economies” are based on value creation, sharing of intelligence and  technological know-how, and support in developing environmental  regulatory frameworks that have the force of law. MNC’s and contract  manufacturers can collaboratively strengthen each other’s performance,  share cost of ownership and social license to operate and create  “reciprocal value”.  Greenpeace wants MNC’s to establish “  clear  company and supplier policies that commit their entire supply chain to  the shift from hazardous to safer chemicals, accompanied by a plan of  action that is matched with clear and realistic timelimes”.  Agreed with  that sentiment, but many hurdles remain to cross.


    Youngor Textiles, Adidas and others cited in the report have not  hidden from the findings, and Youngor has committed to working jointly  with Greenpeace to find a workable solution to remove potentially  harmful toxics from the apparel manufacturing supply chain.  Solving  this problem on the ground will take a multi-stakeholder effort to 1)  balance contractual arrangements among many parties, 2) craft good law  and enforceable regulations, 3) drive clean chemistry, 4) redesign  production processes and use advanced manufacturing technology, and, 5)  develop, implement and maintain robust contactor monitoring.


    I will be watching carefully to see how this collaborative effort  with an NGO giant and big business unfolds…er, should I say “unfurls”.

    660164754_06a1c58079.jpgThe pea pod is possibly the greatest sustainable packaging nature can  provide.  It packs a lot in a small space, efficiently uses the minimum  amount of resources…and best of all it's compostable…well sort of unless I eat it!


    And like the simple pea pod, few sustainability attributes in a supply chain come together across the value chain than packaging. Packaging and repackaging is ubiquitous along every step of the chain,  from product design, prototyping, procurement production, distribution,  consumer end use and post consumer end-of-life management. And the more  parts that are in use in making of a product, and steps along the way  to deliver the parts, the greater the packaging (and hence environmental  footprint) involved along that chain. And for every packaged part that comes from someplace else to make a product, a similar carbon, energy  and resource use can be measured.


    That’s why sustainable practices in packaging are so important in  driving supply chain efficiency…and why innovation in the “green”  packaging sector has been “white hot” the past several years. A study by Accenture found that retailers can realize a 3 percent to 5 percent supply chain  cost savings via green packaging initiatives. So if you extrapolate that  type of savings out across multiple tiers of supply chain activity, where packaging is the common denominator, the efficiencies and savings can rack up quickly.


    A new report from research organization Visiongain finds that because of a variety of drivers such as carbon emissions, extended producer responsibility and waste reduction targets plus  advanced packaging technologies, the sustainable and green packaging  market’s worth is expected to reach $107.7 billion in 2011. Their report  shows varying degrees of growth from developed to developing nations; however what’s striking is that the growth trend is weathering the slumping global economy and higher production costs.


    Sustainable Packaging 101


    Sustainable packaging solutions deliver around two colors according to the Accenture report: black (deliver reduced costs) and green (reduce  environmental impacts). Sustainable packaging relies on best engineering, energy management, materials science and lifecycle thinking to minimize the environmental impact of a product through its lifecycle. Given the past decade or so of science and engineering work around sustainable packaging, there are some discovered and tested attributes, such as:


    1. Reducing packaging and maximizing the use of renewable or reusable materials
    2. Using lighter weight, less toxic or other materials which reduce negative end-of-life impacts
    3. Demonstrating compliance with regulations regarding hazardous  chemicals and packaging and waste legislation ( such as the European  Directive 94/62/EC on Packaging and Packaging Waste)
    4. Optimizing material usage including product-to-package ratios
    5. Using materials which are from certified, responsibly managed forests
    6. Meeting criteria for performance and cost (e.g., minimize product damage during transit)
    7. Reducing the flow of solid waste to landfill
    8. Reducing the costs associated with packaging (i.e., logistics, storage, disposal, etc.)
    9. Reducing CO2 emissions through reduced shipping loads


    Best in Class Examples


    I have seen companies stress the importance of the 6 R’s of sustainable packaging (refill, reduce, recycle, repurpose, renew, reuse; Walmarts 7 R’s of Sustainable Packaging (Remove Packaging, Reduce Packaging, Reuse Packaging , Renew(able),  Recycle(able), Revenue (economic benefits), and  Read (education); and even the 10 R’s eco-strategy (Replenish, Reduce, Re-explore, Replace, Reconsider, Review, Recall, Redeem, Register and Reinforce).

     

    Associations are stepping up to the plate as well as manufacturers in  a variety of consumer product markets. In March of this year, the  Grocery Manufacturers Association (GMA) announced the results of survey research by McKinsey that indicated elimination of more than 1.5 billion pounds  (800 million pounds of plastic and more than 500 million pounds of  paper) since 2005, and another 2.5 billion pounds are expected to be  avoided by 2020. Over 180 packaging initiatives were identified and  evaluated. The GMA estimated that the reduction would be equal to a 19  percent reduction of reporting companies’ total average U.S. packaging  weight.


    In the fast moving consumer goods category Coca Cola’s packaging  efficiency efforts just in 2009 avoided the use of approximately 85,000  metric tons of primary packaging, resulting in an estimated cost savings  of more than $100 million. The company rolled out of short-height  bottle closures, reducing material use, implemented traditional  packaging material light weighting; and used more recycled materials in  packaging production. At the end consumer point, the company has also  supported the direct recovery of 36% of the bottles and cans placed into  the market by the Coca-Cola system and continues to work with  distributors on increasing recovery efforts.


    5459146564_d3bfa01d6c.jpgIn  the electronics space, Dell Computer committed in 2008 to reduce cost  by $8 million and quantity by 20 million pounds of packaging by 2012  centered around three themes (cube, content, curb):

    • Shrinking packaging volume by 10 percent (cube)
    • Increasing to 40 percent, the amount of recycled content in packaging (content)
    • Increasing to 75 percent, the amount of material in packaging to be curbside recyclable (curb).


    As an example, Dell wanted to find a greener, more cost efficient way  to package its computers by eliminating foams, corrugated and molded  paper pulp. The solution was sustainably sourced bamboo packaging  certified by the Forest Stewardship Council.  So far, Dells efforts have  resulted in eliminating over 8.7 million pounds of packaging, and they  have nearly met their recycled content goal.


    Perhaps most significantly, WalMart took a huge step in 2007 to seek  supplier conformance around packaging. Since then, despite the initial  uproar, there has been an uptick in design and innovative product  activity by thousands of key suppliers in response to the mega-retailers  challenge. By reducing packaging in the Wal-Mart supply chain by just  five (5) percent by 2013, that would 1) prevent 660,000 tons of carbon  dioxide from entering the atmosphere, keeping 200,000 trucks off the road every year (that’s a green attribute) and save the company more  than $3.4 billion (a black attribute). Walmarts bottom line was to put more products on its shelves in the same space, and also recognized the  sustainability attributes that change would make. They also knew that most consumers (me included) just despise excess packaging.  Here are  two examples of Walmart supplier efforts from a small and large supplier:


    Alpha Packaging: the company has a new bottle design for Gumout Fuel Injection Cleaner. The company concentrated the product and switched from PVC bottles (which are not  recyclable) to much smaller bottles made from PET (which is recyclable and has 30% post-consumer recycled content). This led to 1) reduced  product weight by up to 51% and 2) capability to transport a truck  filled with new 6 oz products (formerly 12 oz) equating to 153,600 bottles as opposed to 61,000 originally.


    General Mills: the company took a novel approach and they looked at the product first.  They straightened its Hamburger Helper noodles, meaning the product could lie flatter in the box. This,  in turn, allowed General Mills to reduce the size of those boxes. According to the company, that effort saved nearly 900,000 pounds of  paper fiber annually. The company effort also managed to reduce greenhouse gas emissions by 11 percent, took 500 trucks off the road and  increased the amount of product Wal-Mart shelves by 20 percent.


    Win-Win-Win.  For the environment, for manufacturers and suppliers, and for consumers.


    Full Circle Collaboration is Vital to Drive Sustainable Packaging


    What makes sustainable packaging compelling is that it’s one of the  key elements of a product that consumers can see, touch and feel.  Over  packaging or improper packaging can produce high reaction levels, right?  (Remember last year’s noisy Sun Chips compostable bag dust up?)  But in  an interesting post last year in Packaging Digest by Katherine O’Dea of the Sustainable Packaging Coalition, she  mentioned the critical importance of collaboration between brand owners  and retailers. What was a scary statistic is that “brand owners and  retailers may have direct control over as little as 5 percent of the  environmental impacts of packaging and only indirect control over the  other 95 percent.” On the other hand, another study conducted by the market research firm Datamonitor showed of U.S. consumers surveyed, 49%  felt that packaging design has a medium or high level of influence over their choice of food and drink products.


    Just as there are challenges to drive consumer acceptance of more  sustainable types of package designs (especially aesthetics), there are  equally challenging design factors (such as package strength,  permeability, and other physical factors that may compromise product  integrity during shipment.


    Opportunities to Leverage the Supply Chain from Design to Post Consumer Package Management


    High performing manufacturing companies are clearly using sustainable packaging design and manufacturing as a way to lever efficiencies  through the product value chain. Companies are finding that using less complex packaging helps cut sourcing, energy production and distribution  and fuel costs across the supply chain. The glory days of corrugated packaging as the one stop solution are being replaced with reusable  packaging options. Also, reducing the consumption of raw materials, carbon emissions and waste generation reduces manufacturing costs.


    Since disposal by consumers is one of the largest waste streams in the supply chain, using less packaging of direct-to-consumer shipments also offers great opportunities for supply chain optimization. The previously mentioned Accenture report recommends that  through route planning and sourcing software, “collaboration across the  companies in the supply chain is necessary to maximize freight  utilization. In particular, retailers need to proactively encourage vendors to provide pallet or “trailer feet” specifications for  collecting shipments…retailer’s planners can determine the optimum transportation mode and look for multi-stop opportunities.”

    Optimized Supply Chain (Accenture)


    As shown in the accompanying diagram above, Accenture suggests there are  opportunities to reduce the packaging/un-packaging cycle by addressing  the product lifecycle and optimized material use. Through ongoing  recycling and the use of alternative materials throughout the product  value chain, opportunities are created to reduce the volume of packaging  waste. Also, take back programs create a two-way transportation flow, with reusable packaging materials being sent back up the supply chain rather than to a landfill.


    Remember too that there are several key association and initiatives that can be tapped into, including:

    1. Sustainable Packaging Coalition: http://www.sustainablepackaging.org/default.aspx
    2. Greener Package: http://www.greenerpackage.com/
    3. Sustainable Packaging Alliance: http://www.sustainablepack.org/default.aspx
    4. Sustainable Biomaterials Collaborative http://www.sustainablebiomaterials.org
    5. Reusable Packaging Association: http://reusables.org/


    Some final pointers to consider when designing packaging for sustainability:

    • Source alternative sustainable packaging materials--the innovative options are plentiful.
    • Evaluate product lifecycle impacts as a way to discover design options that could lead to less packaging.
    • Anticipate the total energy and resource use over an entire products package life
    • Evaluate materials disposal and post consumer end-of-product life opportunities
    • Design products for efficient transport

    IMG_2012.JPGThis 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:


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

     

     


     

    A Systems Framework to Get the Ball Rolling

     


    Picture2.pngLet’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.

     


    “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.

     

    2192123409_694efd5f83_m.jpg“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.  What 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:

    1. 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.
    2. Over 40 percent said progress on sustainability goals is reported to senior management only semi-annually or annually.
    3. 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,” - 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.”

     

     

    So 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. It’s vital that there be a systematic process in place that maintains focus on continuous 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 them “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.  Like when 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.


    2425782551_fda7d8ed0f_m.jpgAs 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.

     

    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:



    1. Representative
    2. Understandable
    3. Relevant
    4. Comparative
    5. Quantifiable
    6. Time-based and Normalized
    7. Unbiased and Validated
    8. 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 they need 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. 


    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. 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.
    4. 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)
    5. Get some quick wins under your belt, scale performance incrementally in line with the financial and labor resources that you've budgeted
    6. 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.
    7. 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.
    8. 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.
    9. 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.
    10. 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.
    11. 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.
    12. 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.

     

    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.

    In a recent article by Tracey de Morsella (editor of the Green Economy Post (GEP)), the Federal Acquisition Regulations Council (FARC) released an interim rule on green procurement at the end of May, 2011.  The draft rule specifically says that Federal agencies must:

    “leverage agency acquisitions to foster markets for  sustainable technologies and materials, products, and services. The head  of each agency shall advance sustainable  acquisition by ensuring that  95 percent of new contract actions,  including task and delivery orders,  for products and services, with the  exception of acquisition of weapon  systems, are energy-efficient  (Energy Star or Federal Energy  Management Program (FEMP)-designated),  water-efficient, biobased,  environmentally preferable (e.g., Electronic  Product Environmental  Assessment Tool (EPEAT)-registered), non-ozone  depleting, contain  recycled content, or are non-toxic or less toxic  alternatives, where  such products and services meet agency performance  requirements.”

    GreenGov.jpgAccording to the GEP article, the effort was “spearheaded by the  Defense Department, NASA and the General Services Administration, and  part of the Obama administration’s campaign to lead by example in sustainable purchasing.  The interim policy also requires all federal contractors to support the  government’s goals in environmental management, and includes new  requirements for electronic or other paper-saving methods for submitting  documents required by contracts.”

    The interim rule on green procurement it is a follow-up to President Obama’s 2009 executive Order EO 13514 which requires agencies to meet a number of energy, water, and waste reduction targets, including:


    • 95% of all applicable contracts will meet sustainability requirements;
    • Leverage Federal purchasing power to promote  environmentally-responsible products and technologies to foster markets  in these sectors.
    • Advance sustainable acquisition


    This is a great development for the Federal government.  Not only  does EO 13514 drive new markets but requires government agencies to 1)  define sustainable acquisition and 2) track sustainable contract actions  and …get this…3) educate the acquisition workforce.

    The GEP article notes that “the effects of President Obama’s  Executive Order have been rippling through the federal government  purchasing community for a while.”  The article summarizes efforts by  the U.S. Federal Trade Commission (FTC) which issued its Guides for the Use of Environmental Marketing Claims,  Also the  U.S. EPA is evaluating its role in evaluating products  across their entire lifecycle, including “defining criteria for more  sustainable products, generating eco-labels and standards and verifying  products meet green standards “


    The  U.S. General Services Administration (GSA) has also initiated its  GreenGov program, primarily focused on identifying products and  practices designed to reduce the governments environmental (specifically  carbon footprints).  As I noted in an article this past winter, according to Council on Environmental Quality Chair Nancy Sutley,  “The Federal Government purchases $500 billion in goods and services  annually, so you could say the Federal supply chain represents an  enormous opportunity to support a clean energy economy”.  Participating  companies will share their experiences to help GSA develop a phased,  incentive-based approach to developing contracting advantages to  companies that track and disclose their greenhouse gas emissions.   This  process appears to be glacial in its pace, compared to the light speed pace of technology development in countries like China.


    As the GEP post noted,  GSA is developing and evaluating green technologies and practices in  several areas including: electronics stewardship, innovative building  technologies and greening the supply chain. These latest activities by  GSA are in addition to individual efforts that the Departments of Energy  and Defense, NASA, USDA and Department of Agriculture have been  implementing for many years.

    On the surface this sounds all good, in fact, great.  But there are  some underlying systemic issues related to the timing of the FARC  interim ruling, and industry groups and procurement agencies are  scratching their heads.


    Left Hand, Meet Right Hand.


    In  response to the FARC interim draft rule , several industry associations  requested that  the government , specifically the FARC to stop issuing  rules that change federal procurement policy without first considering  public comment.


    mixedmessagesblog.jpgEven though the “interim rule” is based on directives within  executive orders (like EO 13514) from 2007 and 2009, the organizations  (including members of the Council of Defense and Space Industry  Associations, the U.S. Chamber of Commerce (no surprise), Professional  Services Council and TechAmerica) came out and stated that increasing  reliance on “interim rules” is a misuse of the “urgent and compelling”  circumstances those rules are supposed to be issued under.  The groups  asked that the FARC withdraw the interim rule and republish it as a  “proposed rule”, allowing for public comment.

     

    The FARC maintains that the interim rule only mandates what previous  executive orders, laws and sustainable programs have asked agencies to  do and should not impact the agencies economically.  But that may not be  the case.


    While many of the agencies that I mentioned above are well on the way  to responding to the previously issued Executive Orders (and I applaud  them for their efforts!), they appear to be doing this in different  ways- which may inadvertently find some suppliers being able to respond  to one agencies tender processes and not to another. 

     

    It only took me a  few moments to “Google” “government + green purchasing + requirements”  to find remarkably outdated and variably detailed documents from Federal  agency to Federal agency, some going as far back as the Year 2000!   Even a report from the Congressional Research Service from April 2010 indicated that “The federal approach to green procurement is arguably  largely piecemeal and fragmented.” Also, it would appear that agencies  may still lack consensus on product “green” performance standards, which  is clearly a part of the EO 13514 mandate

    There is little in the way of specifics behind the statement that  they must be “energy-efficient, water-efficient, bio-based or non-ozone  depleting, and are certified as environmentally friendly, contain  recycled content, or are nontoxic or less toxic than alternative  products.”  And it’s this lack of specificity and consistency among  agencies that vexes small and large businesses alike.

    “ there appears to be significant ambiguity about  which type of green product or service agencies should procure in  situations where multiple types could meet their needs. For example, the  FAR requires agencies to acquire recovered-content products instead of  biobased ones when both types would meet agency needs.  However, no  similar guidance exists for the other types of preferred products and  services discussed in this report. That leaves agencies without guidance  in determining whether, for example, they should procure Energy Star or  FEMP-designated products, or recovered-content or environmentally  preferable products.” Green Procurement: Overview and Issues for  Congress, Congressional Research Service 7-5700,  R41197 www.crs.gov

    Why am I not surprised at the discontinuities that  exist within Federal government (he asked rhetorically)?  Even President  Obama alluded these redundancies and inefficiencies in his January  State of the Union address. According to a Government Accountability Office report released in January, the U.S. government has more than 100 programs  dealing with surface transportation issues, 80 for economic development,  47 for job training, and 17 different grant programs for disaster  preparedness, 15 agencies or offices handle food safety, and five  agencies are working to ensure the federal government uses less  gasoline.  Really?!  Inefficiencies are wasteful…plain and simple.  This  is no way to run a government let alone a business.  And let’s face it,  government is BIG business.


    Training, Training, Training


    What’s also concerning to me is that agencies may not have not  adequately trained procurement staff that are prepared to implement  detailed operational related to the “interim rule”.  I also am concerned  that federal acquisitions staff  lack the technical training on green  supply chain management to make informed choices beyond how to price and  negotiate a contract.  As a matter of fact the CRS report states that  “…certain requirements, most notably those involving environmentally  preferable products, may be difficult for the existing workforce to  implement because agencies must consider multiple attributes of products  when determining which product to purchase.”


    According to Neal Couture, President of the National Contract  Management Association (which represents public and private contracting  officers), “Contracting people that I talk to have received very little  training in the area of sustainability”.  Additional cases in point, as  described in a recent Federal Times article:


    • The Federal Acquisition Institute, which provides training for the federal acquisition workforce, offers no courses specifically addressing green procurement.  The Defense Acquisition University (DAU) offers an optional, two-hour  course devoted to the Defense Department’s Green Procurement Program.
    • Leslie Deneault, program director for acquisition services at DAU,  said there are optional courses available that cover the many  legislative actions that affect acquisitions.
    • Professional Services Council executive vice president Alan Chvotkin  said contractors and government officials may find it hard to get  needed products and services that meet environmental standards, possibly  due in part to other contract specifications that often limit local  sourcing or small business participation.
    • Program managers who write the requirements will need to know to  which environmental standards certain products and services should be  held, according to Mr. Couture said.


    And you think one interim rule is going to straighten the green  purchasing issue out?  There’s got to be a better way, and it may be  found within the private sector.


    Collaborative Cleantech Partnerships Rising to Meet the EO 13514 Mandate


    Header.pngOne organization that is taking the initiative in responding to the interim rule on green purchasing and EO 13514 is the Clean Technology Trade Alliance,  based in Bremerton, Washington.  According to Mark Frost, the Executive  Director of the organization, the CTTA provides the ultimate  partnership between business and environmentalists by creating a  market-based reason to become sustainable and operate with efficient,  environmentally responsible products and services. In addition, the  technologies and products associated with CTTA members fit nicely into  the Federal government’s EO 13514 vision for sustainable and  environmentally preferable products.


    The  CTTA mission is to drive the expansion of global clean technology by  connecting buyers with sustainable solutions. One part of this mission  that fits squarely into the Federal government procurement model and  most recent FARC interim rule is identifying and verifying clean  technology solution providers for business and government. Since it’s  essential to validate the extent of sustainable practices of member  businesses, the CTTA is getting ready to roll out an independent review  process to validate clean tech solution providers.  In doing so, the  CTTA will reviewing each organizations operational processes and  products and giving them a score based on defined criteria, using life  cycle, product foot print, energy and multi-resource consumption and  efficiency factors, etc. This review effort has the opportunity to  become a market driver that moves companies to meet the highest “green  and clean” technology standards in order to be more profitable and  competitive. The CTTA also provides the means to discover clean  technology solutions that will enable these companies to improve their  score and profit from their efforts.


    In addition the CTTA assists its members in 1) making  commercialization of products easier with a trained sales force, that  provide members qualified leads, and facilitating distribution lines for  both established and unseasoned products; and 2) developing synergies  between businesses that create new technologies, open new markets and  discover new efficiencies. Those who collaborate with the CTTA receive a  single point of contact to find clean technology business solutions,  and most importantly a market reference point for making clean  technology purchasing decisions.

    The CTTA is uniquely positioned to provide the Federal government  with a single, unbiased, point of entry for identifying and vetting  clean technology solutions. First the basic identification and reporting  service is a no cost service. Second if the CTTA does not have a  member, or several members, that can provide the solution they will  conduct a search to identify potential solution providers and conduct a  basic survey to provide an initial vetting for the requestor. Third if  the solution exists they will find a provider, if it does not they can  work with companies to develop the solution if there is a sustainable  market. The CTTA is a membership-driven organization, recruiting new  members and servicing existing members- this is how the CTTA grows. Mr.  Frost states that providing services to customers like GSA, the DoD,  NASA, Boeing and others allows the CTTA to recruit small and mid-sized  business members and is another example of the business synergy the CTTA  pursues.


    What Can Be Done to Harmonize Green Procurement?


    The CRS report raised many of the questions about the efficacy of  legislative initiatives or federal rulings that came to my mind in the  months since I participated in a GSA GreenGov Summit in Portland, so I  figured I’d just repeat just a few of them here:


    1. What, if any, are the most useful and appropriate policy goals for green procurement?
    2. Are the means by which different green-procurement preferences,  programs, and other initiatives have been established the most  appropriate for meeting policy goals?
    3. How effectively are agency implementation and performance of green procurement being assessed?
    4. How successful are current programs and initiatives at meeting policy goals?
    5. Are policies on the acquisition of green services sufficient?
    6. Are the preferences and the methods of implementing them sufficiently harmonized and integrated?
    7. Are there significant gaps in the various federal preferences for types of green products and services?
    8. Are there implementation methods not currently used by the federal government that should be considered?
    9. Is training of procurement officials sufficient?

    barcode_pzl.jpg

     

    Until these questions are fully explored, I suggest the Federal  government hold off on finalizing its interim rule and consider the  collaborative private sector example being implemented by the CTTA.  In a  perfect scenario, the White House should instruct representatives from  the GSA, OMB, DoD, DoE, USDA, EPA, and Agriculture (and others) to come  together in one place, at one time.  Attendees should also be invited  from the private sector too- the best brains in the science, engineering  and design of clean technology, standards development, policy,  manufacturing and procurement/material acquisition.

     

    In systematic and structured manner, they can hammer out a viable,  results driven framework for sustainable sourcing and procurement.  This  in turn (I am sure), will promote new technologies and drive the  creation of new “green economy” markets….without all the confusion and  lack of harmony.


    dna_500.jpgIn a new report, sustainability in the supply chain is one of four key indicators covered.  The report is entitle The Chief Supply Chain Officer Report 2011 and is  co-authored by Dr. Hau Lee (from the Stanford Graduate School  of Business), and Kevin O’Marah (group vice president, supply chain  research for AMR Research).  Over 750 global executives completed the  survey, including SCM World members and non-members, with over 50% of  respondents at VP-level and above within their organizations.

    The authors prioritized issues across four key areas:  value-driving  supply chain management, globalization, sustainability and talent  management. 


    One of the key findings (and it’s no surprise in my mind  is that sustainability “ increasingly forms part of the DNA for high performing supply chains,  with 65% of respondents characterizing pressure from senior management  and the board as the source of sustainability efforts “.    The second  source of sustainability efforts is pressure (interesting enough) comes  from customers (46%), followed by pressure from government (35%).


    The study also surveyed whether the use of the “carrot” or “stick”  had greater effectiveness in encouraging supplier collaboration. The  study found that companies appear to react to supplier breaches in  sustainability standards by warning i.e. the “stick” and then taking  punitive actions, while some act even more promptly without warning.   Most companies use reduced business as the “stick” (73% would reduce  business after warning and 56% would reduce business without warning),  while some act even more drastically, terminating the business  relationship with suppliers (36% after warning and 42% without warning).  On the “carrot” side of the study, enhancing  business relationships  through “ preferred supplier status” or increased business engagements  were found by most companies surveyed to be effective in supplier  collaboration  (66% and 48% respectively).  The study compared well with  some thoughts I shared in this space last year on the effectiveness of  the carrot and stick approaches in changing supplier behavior (using examples such as Walmart, GE and Hewlett-Packard).


    The authors concluded that “Ultimately, customer relationships and  business opportunities with customers form the most important  cornerstone of all sustainability activities” and that that the survey  results positively indicate that “sustainability forms an integral part  of a company’s supply chain improvement journey”.  So besides working  within its own four walls, organizations continue to realize this year  (like the previous few years) that sustainable supply chain management  and responsible procurement has taken a solid place in business circles  to enhance the corporate brand and deliver further value.


    Embedded, Baked or Bolt-on?


    The Chief Supply Chain Officer report  finding  on supply chain  sustainability lends itself well with a key thought communicated at last  week’s Sustainable Brands ’11 conference by Dr. Chris Laszlo (I was  there and hopefully some of you found my Twitter stream).  Laszlo and Dr. Nadya Zhexembayeva have coauthored a new book, Embedded Sustainability: The Next Big Competitive Advantage,  which explores the operational advantages, cost efficiencies and  reputational gains that can be made from embedding sustainability,  rather than taking a “bolt-on” approach.  Being a fan of baked goods, I  have often referred to “baked in “sustainability practices, but it’s all  semantics when you get down to it and the outcomes remain the same.

    “Embedded Sustainability is the incorporation of  environmental, health, and social value into the core business with no  trade-off in price or quality – in other words, with no social or green  premium.”- Laszlo and Zhexembayeva


     


     

     

    table2.gifAs noted in the graphic, the goals, scope and outcomes associated with embedded sustainability (as compared to a “bolt-on” approach) drive deeper and farther . In their research, the authors noted some interesting “lessons learned” from the many leading, innovative global companies that have embraced an embedded sustainability perspective.  One of those takeaways was that “the pursuit of sustainability involves hidden choices – whether to reduce negatives or provide positive solutions, and whether to pursue incremental change or heretical innovation – which are proving crucial to business strategy.”  In other words, it’s not easy to make the types of change needed without making some tradeoffs along the way.


    In a nice summary by Jen Boynton (@jenboynton) of Triple Pundit,   Dr. Laszlo deftly summarized “three ways that sustainability initiatives build value for a firm:

     

    1. Declining Resources-as energy and other inputs get more expensive, it makes financial sense to conserve them.
    2. Increasing Expectations- customers, investors, regulators  and employees expect more (as I mentioned above) and therefore a company  has to deliver more in order to remain competitive.
    3. Radical Transparency, often associated with CSR reporting,  puts NGOs, unions, and government officials on the outside looking in  with no secrets. A company has to do good things, otherwise their  reputation and brand value will quickly suffer.”


    As both authors noted in a European Financial Review article, “the linear throw-away economy, in which products and services  follow a one-way trajectory from extraction to use and disposal, can no  longer be supported, as we are simply running out of things to unearth  and place to landfill. Consumers, employees, and investors are beginning  to demand socially and environmentally-savvy products without  compromise, while radical transparency is putting every company under a  microscope.”  Just as I stated in last week’s blog, which addressed the threats and impacts of increased consumerism on sustainability itself,  both businesses and consumers have an obligation to rethink the entire  “make-consume” model, and explore design and end of life product  management at both ends of the value chain.


    The authors suggest that for companies to embrace the embedded  approach to sustainability, “four interdependent and interconnected  lines of action [can] help guide the journey:


    1. Getting the Right Start: mobilizing, educating, and acting  around specific low hanging fruits. Building momentum in the  organization for sustainability projects that support existing business  priorities and provide demonstrable pay-off.
    2. Building the Buy-In: aligning company, value chain, and all other stakeholders around the vision of embedded sustainability.
    3. Moving from Incremental to Breakthrough: developing clear but unorthodox goals, designing the strategy and capturing value through co-creation and innovation.
    4. Staying with It: managing learning and energy while making sustainability ubiquitous but largely invisible in the business practice.”


    Alignment2.jpgSo before you leap, plan ahead.  Build a system to plan, implement, measure and check progress of your sustainability  initiative.  Look for the quick wins.  Build an innovation-based culture  and reward positive outcomes.  Bake the initiative into the governance,  operational, and communications of every corner of the four walls.   Expand your reach upstream to your key suppliers and spread the word to  your customers.  Measure, manage, report and build on the early wins.   But more than anything, keep on baking…