Currently Being Moderated


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…

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