headgears.jpgI just finished reading an interview with Peter Senge in the October Harvard Business Review.  Senge, for those of you that are unfamiliar, founded the Society for Organizational Learning, is a faculty member at MIT Sloan School of Management, and the author the The Fifth Discipline and The Necessary Revolution.  Senge maintains that to make progress on environmental issues, organizations must understand that they’re part of a larger system. Senge also makes a great point that companies will be in a better competitive position if they understand the larger system that they operate within and to work with people you haven’t worked with before. And while these two skills might seem distinct, in practice they’re interwoven. This is generally because systems are often too complicated for one person to grasp, crossing over many boundaries, both internal and external.  It’s these external boundaries that supply chain management issues begin to become apparent.

 

According to Senge, and as I mentioned last month in an earlier post about Starbucks, supply chains support whole systems thinking because they focus on the “nature of the relationships”. In the HBR article, Senge maintains that in most supply chains, 90% of them are still transactional.   Manufacturer or retailers still pressure upstream suppliers to get their costs down and little incentive is given toward innovating together.  This in turn erodes trust, however, as I have mentioned in this space, changes are everywhere.  Some companies like Starbucks, Coca-Cola and Walmart are also partnering with Non-Governmental Organizations (NGO) and working in an open source manner with industry associations to innovate.   Successful ventures like Walmart/Environmental Defense Fund, Unilever/Oxfam and Coca-Cola/World Wildlife Fund are taking a collaborative approach to problem solving that drives innovation, breeds trust and industry “cred” and offer NGO’s a wider voice in addressing social, environmental performance issues in the supply chain.

 

But success in levering supply chains to impact environmental performance ultimate resides with corporate leaders.  Senge maintains to successfully engage thousands and thousands of people around the world from multiple organizations, you’ll need technical innovations, management innovations, process innovations, and cultural innovations.  And to effectively achieve these innovations take bold, often heretical leadership.  Organizations need to often take a step back from the details and “see the forest for the trees” (and hopefully not just see more trees!)

 

Research and practice in supply chain management is beginning to prove once and for all that supply chain as a “practice” offer unique learning opportunities related to triple bottom line based sustainability.  Learning experiences can range from relatively simple, incremental modifications to a current knowledge set – for example, new environmental regulations like REACH and RoHS – through to complex new approaches which will involve experimentation, small scale piloting and larger scale adaptation (such as those designed to help transporters manage their carbon emissions).

 

How does your company use “whole systems” thinking to manage supply chain issues? In coming weeks I will begin exploring supply chain learning and management through a sustainability lens, and share some findings from various manufacturing sectors.  It’s my hope that readers can then begin to understand how to apply whole systems approaches across enterprises in the supply chain.  It’s my grand plan that these ideas will gel into practical steps that add value and become a core operating principle in your company.

 

agility.jpgI recently came across a great research article written a couple of years ago and published in Elsevier Business Horizons.  The article, entitled Best Value Supply Chains: A key competitive weapon for the 21st Century (co-author is no relation, but irony is cool nonetheless), emphasized how leading edge companies have adopted “best value strategic supply chain management” as a strategic approach to stay competitive and drive efficiency.  The authors describe this type of an approach as way for companies to “excel across speed, quality, cost, and flexibility, and …require coordination across at least four supply chain elements: strategic sourcing, logistics management, supply chain information systems, and relationship management.”

 

 

In one example, the authors refer to “firms such as Wal-Mart, Toyota, and Zara [that have] have used their supply chains as competitive weapons to gain advantages over peers. For example, Wal-Mart excels in terms of speed and cost by locating all domestic stores within one day's drive of a warehouse while owning a trucking fleet. This creates distribution speed and economies of scale that competitors simply cannot match.”  Exploring this approach by WalMart a bit deeper indicates several positive outcomes from an environmental perspective also.  In the past two years WalMart has committed itself to reducing its carbon footprint by 20 million metric tons by the end of 2015. The most direct manner to do this is to control how it distributes its product.  So fleet management and control, and strategic distribution placement equals lower fuel costs, miles driven and hence carbon emission reductions.  However Walmart will also accomplish its reductions largely by working with its suppliers on their own greenhouse gas emissions.  Looking a little deeper however, shows that Walmart also reported recently that its carbon emissions as a percentage of sales went down. While that is great news using ‘normalized’ performance indicators, the not so good news is that  the company’s ‘absolute’ carbon footprint continued to grow as sales and stores were added.  So this goes to show you that it is valuable to drive value through the supply chain, taking a strategic, whole systems approach to get a handle on your direct spend and indirect environmental costs.  The only way to effectively do so is to look inside the operations of your own four walls, AND explore ways to influence the outside variables that can impact your operations.

 

 

adaptability.jpgThe authors also cite three key attributes of a strategic supply chain management process that must be optimized: agility, adaptability (think Darwin?), and alignment (or the Three A’s).  I agree in whole that in order to shape behavior and optimize sustainability goals within a supply chain, that its vital the companies seek to 1) set in place tools that increase flexibility and ability to rapidly respond to changes in customer behavior and preferences (agility) 2) reshape supply chains to new ways of thinking (adaptability) 2) align your organizational goals with those of your upstream and downstream suppliers, vendors and stakeholders through improved collaboration and relationship management (alignment).  Each of thsse success attributes plays well in the sustainability arena and in managing an organizations triple bottom line.

 

 

As I have repeatedly stated in this space, the supply chain and logistics world is changing- expanding from a company vs. company solar system to a supply chain vs. supply chain universe.  Reshaping and reforming your supply chain management practices to reflect changing business norms toward managing to the ‘triple bottom line’ makes for smart business.

 

green_seal_logo.jpgIn late 2009, Green Seal[1] announced that they had developed a pilot sustainability standard for product manufacturers called “GS-C1”. This pilot standard recognizes socially and environmentally responsible product manufacturers so consumers can make informed choices while helping companies save money by reducing the resources they use and improving their brand and sales position.

 

The Pilot Standard is now available for public review until September 30th, so it’s not too late to get your comments into the queue.

 

While the GS-C1 Pilot Sustainability Standard is under review, Green Seal will be piloting a certification program for consumer product manufacturers. The objective of the pilot certification program is to gain practical understanding about the GS-C1 requirements and procedures from companies that are going through the certification process.

 

Among the criteria included in the standard are:

 

 

  1. Transparency and accountability on environmental and social policies at the corporate level;
  2. Aggressive goals, commitments and achievements on environmental and social issues, including greenhouse gas reductions, water and waste, indigenous peoples' rights and biological diversity;
  3. Supply-chain management and accountability practices;
  4. Life-cycle analysis of product lines and commitments to reduce environmental and health impacts from manufacturing, packaging, transport and end of life; and
  5. Third-party certification requirements to verify environmental and social responsibility of products

 

 

Specific to supply chain management issues, the standard awards points for developing and maintaining environmentally preferable purchasing policies (for its non-manufacturing purchasing functions), product life cycle issues, including product design, packaging, transport/logistics and end-of product life management.  Perhaps the relevance to supply chain management is Section 3.3, Supplier Management.  Focus is paid primarily to “first tier” and highest priority and sub-suppliers.  Primary emphases are focused on:

 

 

  1. Identification of highest priority suppliers with the largest environmental and social impact/footprint
  2. Development and implementation of a documented management plan to reduce, in priority order, the social and environmental impacts of its highest-priority suppliers and sub-suppliers.
  3. Maintaining a Supplier “Code of Conduct”;
  4. Conform with Social Impact Assessment criteria described under SA8000 (including issues involving fair labor practices, bribery, governance and transparency);
  5. Monitoring of sub-suppliers (extra points are given if there is “Evidence of working with suppliers to resolve issues found during social and environmental compliance evaluations”.
  6. Accountability is recognized as well by designating a “senior officer” to be “responsible for enforcement of compliance with local laws, supplier Code of Conduct, and action plan for highest-priority suppliers and sub-suppliers.”
  7. Annually issue a publically available report on its supplier management activities and performance

 

The new standard represents a focal shift of sorts for Green Seal.  The organizations efforts to date have focused on assessing and documenting the environmental footprint of a specific product.  Now with GS-C1, the emphasis is now shifting to the entire product life cycle and all inputs and outputs from a supply chain perspective (the entire design, manufacturing, distribution and end of life management cycle).  This standard is but one of several new standards under development, such as ULE 880 (see my earlier post) that are taking a whole systems approach to manufacturing- a refreshing and necessary step to manage consumption sustainably while enhancing manufacturing efficiency.

 

Some companies are not waiting around for the specifications to be completed.  AU Optronics Corporation (AUO) is one of many examples oauoandstakeholder2_en.jpgf companies that are adapting to the new normal in supply chain management. AUO built one of a handful of factories that are (Leadership in Energy and Environment Design (LEED) certified. The company has established a proactive program with its subcontractors and suppliers and includes elements related to quality, green products, manufacturing, labor and ethics, cost and ESH (see attached Figure). A cross-functional team from the company’s Quality Department, Risk Management & ESH Department, Procurement Department, and R&D Department, conduct audit activities. The company has strict acceptance requirements and will not accept a subcontractor or supplier until all of its environmental and social aspects of its products or services are approved. The company also conducts routine management, periodic audits, and ratings for subcontractors and suppliers.  On paper at least, AUO appears to be doing things in alignment with both ULE880 and GS-C1.

 

I encourage you to consider GS-C1 and ULE 880’s positions on supply chain management and plan ahead for what is undoubtedly a sign of ‘greener’ things to come in business management.



[1] Green Seal is a non-profit organization devoted to working towards environmental sustainability through environmental standard setting, product certification, and public education. The intent of Green Seal’s standards is to reduce, to the extent technically and economically feasible, the environmental impacts associated with manufacturing and services. (Source: www.greenseal.org)

 

 

Today marked the end of the initial 45 day comment period for ULE 880 – Sustainability for Manufacturing Organizations. [NOTE: the comment period has been extended until September 21st]. This draft sustainability standard is the culmination of a partnership between UL Environment (ULE), a division of Underwriters Laboratories, aULE880.jpgnd Greener World Media.  The standard for businesses and other organizations, focusing on their environmental and social performance, was designed “to create uniform and global metrics for customers, stakeholders and trading partners”, essentially ‘harmonizing’  the wide variety of standards, guidelines and specifications for driving sustainability in organizations.

 

According to the draft document preface, “Our vision is to create a uniform, globally applicable system for rating and certifying companies of all sizes and sectors on a spectrum of environmental and social performance characteristics. ULE 880 will fill a major void in being able to consistently understand and measure how, and how well, a company is doing in understanding, addressing, and communicating its environmental and social impacts. It will also provide a standardized mechanism that allows organizations and their stakeholders to factor companies’ environmental and social performance into their core decision-making processes, thereby elevating the importance of these issues within companies.”

 

At its core, ULE  880 is designed principally as a procurement tool, allowing companies,  public agencies, and institutional buyers to assess the performance of  their supply chains and trading partners. It is intended to complement  existing and future product procurement specificationsthroughout many layers of an organizations supply chain.

ULE 880 covers five domains of sustainability:

 

  • Sustainability Governance: how an organization leads and manages itself in relation to its stakeholders, including its employees, investors, regulatory authorities, customers, and the communities in which it operates
  • Environment: an organization's environmental footprint across its policies, operations, products and services, including its resource use and emissions
  • Workplace: issues related to employee working conditions, organization culture, and effectiveness
  • Customers and Suppliers: issues related to an organization's policies and practices on product safety, quality, pricing, and marketing as well as its supply chain policies and practices
  • Social and Community Engagement: an organization's impacts on its community in the areas of social equity, ethical conduct, and human rights

 

green_checklist.jpgThe 60-plus page draft standard contains 102 questions (or "indicators"), including 18 in Governance, 45 in Environment, 15 in Workforce, 15 in Customers and Suppliers, and 9 in Social and Community Engagement. Each of the indicators has certain “weightings” and not all of them equally distributed.  The Environment, for instance covers 80 points, Governance and Customers/Suppliers 40 points each, and Workplace and Social/Community 20 points each. In addition, there are also 18 "Innovation Points" — 3 points each for 6 different indicators — that reward companies for going above and beyond the standard.

 

Sustainable Supply Chain Elements

 

Direct sustainable supply chain elements mentioned in Section 6.5.3 of the standard include requirements and related point allocations for:

 

 

  • Supply Chain Policy
  • Tier 1 and Tier 2 Supply Chain Inventory (why not Tier 3 or Tier 4?)
  • Supply Chain Monitoring and Assessment (not a great deal of detail in this element)
  • Supply Chain Reporting

 

Also, like other elements of the proposed standard, ‘Innovation Points’ are allocated for Training and Targeted Continual Improvement Metrics.  In addition to this specific clause of the standard, there are specific elements associated with Environmentally Preferable Purchasing and ‘greener’, more efficient transportation planning and logistics…all of which represent vital parts of the sustainable supply chain.

 

The ULE 880 standard offers promise to take sustainability to a whole new level e.g. organization based certification, and acknowledges that supply chain considerations are vital to a ‘sustainability-focused’ organization.  The next step for the standard will be a peer reviewed response to the more than 600 commenter’s from over 30 countries that have requested and reviewed the document to date.  In coming phases, a small set of manufacturers will be engaged to pilot  the standard and the verification/certification delivery model, prior to wider release and market implementation. Stay tuned!


 

 

 

Framing the Issue

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

"Greening” Transportation in the Supply Chain


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

 

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


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

 

Trucking companies are also relying on 3PL providers as a key growth strategy. In addition a recent article also pointed out that one of three ways for trucking companies to position themselves for success with 3PLs is to get certified "green." That is, "When 3PLs are looking for a transportation partner, those with relevant certifications provide added value. Increased consideration is often given to companies who show green commitment and  more fuel efficient transportation."

 

Solutions:


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

 

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

Business Case Examples

 

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


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

Summary

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

 

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

Customer requirements

Mode selection

Carrier relationships

Measuring/benchmarking

Regulatory impact

Carrier mergers and alliances and closings

Flexibility

 

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

 

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

 

As we here in the U.S. head into Labor Day weekend, a few news items caught my attention this week.  Each of these moves by large consumer and retail brands call to mind that there is a social side of the supply chain that adds organizational value and enhances brand reputation.  This has been made more evident recently by all the discussion regarding efforts to change U.S law to squeeze ‘conflict minerals’ associated with manufacturing of cell phones, batteries and other electronics (http://bit.ly/aaae1V)

 

csr_globe.jpgYesterday an article in Triple Pundit (The Most Important Assets are not on the Balance Sheet  http://bit.ly/9fDfd5), noted that there are several “intangible” assets that create organizational value.  Each of these “assets” clearly can (and should in my opinion) extend up and down the supply chain.  First and foremost, a company’s primary assets are its employees. The article makes a valid point that employees are “the secret in the sauce and the glue that holds the corporation together”. Without employees to produce the goods, ensure product quality, move those goods efficiently and respond to customers, other company “assets” hold little value beyond their resell potential.  Next, a company’s reputation is its most important asset, particularly if the corporation publicly declares commitment to the triple-bottom-line. As reported by Jeffrey Hollender earlier this year, Fortune Magazine has estimated that a company’s reputation represents 75% of the total value of an average business. Finally, company mission provides the long term direction on what tangible assets to acquire, align with and where to divest. It’s said that the mission is the “organization’s compass and the written articulation of corporate soul”. The article argues the importance of corporate social responsibility (CSR) as a key intangible that can affect corporate success and bottom line performance.

 

In a similar vein, several companies stepped into the spotlight this week to shine the importance of social and environmental responsibility along the supply chain.

 

coffee.jpgFirst, Nestle, the world's biggest food group, announced late last week it would invest $487 million in coffee projects by 2020 to help the company optimize its supply chain http://bit.ly/dhDhGY.  Part of this plan includes the “Beyond the Cup” Nescafe Plan (http://bit.ly/9TnCIs): distributing 220 million high-yield, disease-resistant coffee plantlets to farmers by 2020, expanding technical assistance and buying directly from growers.  The company announced its plans to double the amount of Nescafe coffee bought directly from farmers and their associations.  All of the directly purchased green coffee will meet the company’s "4C" sustainability standards by 2015, with the support of the Rainforest Alliance and the 4C Association. The Rainforest Alliance is a nongovernmental organization that certifies farms for meeting sustainability criteria. The 4C Association, registered in Geneva, works towards sustainability in the coffee sector with a code of conduct and a verification system.   Over 90,000 tons of Nescafe coffee will be sourced under the principles of the Rainforest Alliance and the Sustainable Agriculture Network, a coalition of conservation groups, by 2020, the company said.   With apologies to Maxwell House and Kraft Foods, now that’s coffee that is “good to the last drop”!

 

In an upstream supply chain twist, Corporate Express/Australia has recently announced two major initiatives designed to encourage and assist businesses to become more environmentally and socially sustainable (http://bit.ly/bMB0U8).  The company has produced the “Go Green Guide” - for a Greener Workspace” and is focused on adopting sustainable procurement practices. The 100% recyclable Go Green Guide features:

 

  • Over 1500 environmentally preferable products across all lines of business;
  • Facts and figures demonstrating the effect all businesses can have on the environment by using environmentally preferable products;
  • Explanations of certification labels to help businesses make environmentally conscious purchasing decisions;
  • An action plan that provides businesses with easy steps on how to start their journey towards creating a greener workspace.

 

Finally, Unilever has come up with a new tool designed to help reduce greenhouse gas emissions in its supply chain. http://bit.ly/aLZ9wF.  The company has developed The Cool Farm Tool.  The tool enables both supply chain managers and individual farmers to input data they have access to in their daily jobs, and uses this to calculate their total greenhouse gas emissions from fields, inputs, land use and land use change, it said.  “Farmers are then able to see the effect that making small actionable changes to their agricultural methods will have on their overall carbon emissions (such as using a different fertilizer, for example).”

 

Each of these examples underscores the “whole systems” approach that I’ve previously written about in this space and that underscore transparency and collaboration the “value” in the supply chain.  Each company recognizes that to be a truly sustainable organization, it must reach deep beyond its four walls to its suppliers and customers.

 

What is your company doing to engage it’s supply chain to enhance corporate social responsibility and implement environmentally responsible product stewardship- along the entire supply chain?  Happy Labor Day, everyone.