Four steps to 'Green Business as usual'

sustainability

Four Steps to ‘Green Business as Usual’ Creating a sustainable supply chain requires a new way of thinking, says Paul McNeillis, Director of Sustainability Solutions at PE International.

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any leading organizations now recognize that the impact of their supply chains on the environment may be an order of magnitude greater than that of their direct operations. For a great number of companies, the supply chain can represent between 40–60% of their carbon footprint and for retailers this figure can be as high as 80%.

While customers and consumers increasingly hold the brands at the top of these chains accountable for reducing the adverse impacts within them, the brands realize that they cannot reduce these impacts alone. Hence the dual rhetoric from companies: on the one hand, calling for nearterm collaboration from their suppliers and, on the other, (56% of the CDP group) saying that in future they will deselect suppliers who fail to manage carbon. So the motivation for companies to work together is strong.

There have been no shortage of programmes or initiatives, with more than 50 global corporations taking part in the Carbon Disclosure Project’s supply chain group and more than 60 organizations road-testing the new scope 3 (supply chain) and product life-cycle accounting and reporting standards from the World Resources Institute. But actual reports of significant supply chain reductions have been scarce — although many sustainability reports claim to be on target for some fairly ambitious reductions posted out in 2020 or beyond.

With so much talk about green supply chain initiatives on the conference circuit, why can’t we just pick out our favourites, distil out the ‘best practices,’ adapt them to our organizations and string them together into our own successful green supply chain programme? For most organizations the reality will not be that simple, as there are four fundamental issues, which may present a barrier to companies wishing to ‘green’ their supply chains: • A backward looking perspective focused on risk over opportunity

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Paul McNeillis

• Failure to engage several key business functions fully to a new ‘business as usual’ • Low trust, with suppliers blocking collaboration • A lack of co-ordinating leadership These issues relate to ways of thinking, as much as specific practices, and therefore need changes in attitude to unblock process and allow best practice to deliver real success.

Notice that all of them are either entirely internal factors or have significant internal dimensions and so are, potentially, within the grasp of organizations to seize and change.

First, on the issue of risk perspective, I have a confession. For the last 3 years I, too, have often been looking at the world through the rear view mirror of risk. It is easy to do.

Managing reputational risk in supply chains has an established currency with Boards, senior teams and procurement functions. If brand reputation is under threat, you will get the resources you need to at least identify and assess the highest risks — and maybe even get some resources to actually do something about it. Some great industrywide risk management systems have been established, which offer a standard way to

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screen suppliers on environmental, social and governance risk factors.

But, screening out environmental risks is quite a different challenge from identifying opportunities for reducing impacts; so different, in fact, that it has often been split into separate programs and teams. The sustainability teams look for opportunities to reduce impacts, while the corporate responsibility teams usually examine the same issues from the complementary perspective of risk. Splitting the agenda, the organization, and the mindset in this way — before ultimately trying to reintegrate it within the procurement function — has done little to simplify an already complex set of issues, and speaks to a wider need for joined up thinking and engagement of key business functions aligned to the leadership agenda.

Let us review the attempts made so far by sustainability teams to engage the key business functions in a supply chain. The obvious place to start is procurement, since this is the function that manages sourcing decisions, enforces compliance programmes and controls the relationship with suppliers.

How prepared has procurement been for the green message? To be honest, and many of you have attended those same meetings, procurement’s state of readiness to embrace this agenda in most companies has, to date, been somewhere between, “we’re real busy” and “get lost!” That might seem critical of category directors and buyers, but, actually, it is a testament to their honesty, because in short it has told us: “we have not been incentivized, directed or led to this as a key goal. Moreover, no one has equipped us with the tools to do anything about it if we were directed in that way.”

One electronics company, in Boston, whose sustainability team was supported by senior management, came the closest I have seen to cracking this issue. They understood completely their procurement function; identified key points of integration; set out responsibilities in clear RACI format,

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provided and trained buyers with key tools and generally won them over. They, and some few others, were the exception and may, therefore, be emerging leaders on this issue. Even companies like this though, have had to grapple with the fundamental issue of trust, when it comes to collaboration with suppliers. Supply chain relationships are notoriously transactional and within that context a compliance message is likely to get attention, but on a shallower level than a really significant collaborative approach. Under these tough economic conditions, most suppliers are prepared to do whatever the buyer wants to win the business.

Well it is motivation of a kind and to some degree should it matter why suppliers catch the train as long as they stay on for the journey. But how do things change when that immediate transactional reward is spent? Consider for a moment that you prequalified as a supplier and ticked the box, but now to make real improvements and reduce organizational and product impacts would require you to make substantial investments. The return on investment timescale may go way beyond any commitment from your customers to stay with you. Meanwhile, you carry the higher costs and your customers’ procurement teams could ditch you on cost criterion alone. In other words, unless the evaluation mechanisms for suppliers and buying teams alike are genuinely changed to reward green investments and actions, then doing the right thing could cost you the business.

The bottom line on this issue is that working out sustainable supply chain solutions collaboratively requires time. This is why the Dow Jones Sustainability index rewards longer-term supply relationships and why the companies winning the supply chain sustainability awards are typically glowing examples of companies willing to invest in trust and collaboration as much as technological

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The key to sustainable supply chains may be beyond the narrow focus of the procurement department.

solutions. But actually, the key to sustainable supply chains may lie beyond the narrow focus of the procurement department and may require examination of all stages of the entire value chain, along with all business functions influencing or interacting with it. A good place to start is the marketing function. As professionals who are focused on understanding customers’ needs and communicating value, they should be powerful allies for the sustainability cause.

So how has the sustainability community embraced this powerful and influential profession? Well, a favourite word on the lips of sustainability folk in 2010 has been ‘Greenwash.’ Any attempt to communicate on green issues and achievements has been stifled not only by NGOs and activists, but also in the sustainability bubble by throwing around the ‘G’ word. This singular failure to mobilize (and in some cases to alienate) marketing was probably the biggest misfire of the year, and must not be repeated. In fact, there is a new emerging term ‘Greenhush,’ which applies to companies saying nothing for fear of being accused of the ‘G’ word.

Clarity and wide dissemination of measurement standards can help to restore the right balance of confidence and credibility to sustainability communications.

This year should see companies building on the newly available standards for scope 3 supply chain emissions, product carbon footprint, and making wider use of environmental product declarations to get accurate and robust messages defined. Of course, ‘translating’ these actions into messages that customers can understand and absorb, without losing integrity, is a challenge where real collaboration between sustainability and marketing professionals will be required. Ultimately, marketing and sustainability professionals share the same goal — as one sustainability leader eloquently put it recently, “we should do something good and then speak about it.”

Increasingly, companies are ready to position themselves as selling greener solutions.

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sustainability

In 2008, the SMART 2020 report was commissioned by the Global E-Sustainability Initiative, from McKinsey and Climatecare, on behalf of the global ICT industry, and made the case that while this industry contributes 2% to global emissions their solutions have the potential to reduce global emissions by 15%. Last year, there were the first signs that specific providers were really starting to pick up on that generic claim and propose their specific commercial solutions as having the potential to reduce impacts in areas relevant to supply chain, like smart logistics. We should embrace the fact that companies like these are mobilizing real commercial commitment behind the green agenda. Buying and selling of greener solutions is a good thing for sustainability and should be supported.

Technical and engineering functions have, perhaps, had a better time of it. After all, they have deep knowledge of processes and products that link them to their peers in the supply chain. Technical mindsets fit well together — wherever they sit in the value chain — and work readily to find solutions, given a chance. Life-cycle thinking and assessment has now become a key and well-established discipline in science and engineering professions, leading to a growing competence in both specialist advisory firms and in-house teams to examine the impacts within value chains with a rigour and accuracy that informs a whole new level of sustainable decision making. Where technically-driven companies draw on their technical talent pool for senior management roles, this thinking is well placed to gain further influence, in time, as these individuals’ careers advance and life-cycle thinking advances along with them.

Then there is the design function. The opportunity to influence decisions, like material choices at the design stage, has long been held out as the ultimate point of leverage, and for those who have embraced it, the benefits appear compelling. Chairing the recent LCA product design Europe conference, in London, recently, the message came across clearly: “democratize green design.” To date, the tools for modelling product impacts have needed technical experts to operate them. This has

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Life-cycle thinking and assessment has now become a key and well established discipline in science and engineering professions, leading to a growing competence. separated sustainability management from the live act of design and, therefore, removes the opportunity to get desktop influence at the earliest stage. By not having tools available that are built to facilitate or enable green design options, opportunities are being missed. Now providers have addressed this issue head on and designers can get their hands on interfaces, which are user friendly for them and which, nevertheless, pull in robust information about environmental impacts. Real-time green design promises to be amongst the ‘killer’ trends for sustainable supply chains in 2011.

Other functions also have a role to play.

The legal department is a prestigious business function that has often held sway in discussions on sustainability. A very honest legal counsel, who I met in the US last year,

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admitted to me that if the company received adverse information on suppliers, but did not have the capacity to act on it, this could create a potential liability for the brand.

More heartening was a recent example of a European company that stated, after many long debates within its organization, that they had finally got senior level support to write into their supplier contracts a year-on-year commitment to reduce their impacts if they wanted to retain the business.

And where has senior leadership been in all this? Divided is the trite answer, as the sustainability agenda has been split — like the countless conferences — into corporate responsibility, sustainability, risk management, EHS, quality, sustainable supply chain and across the many core business functions described here. The single biggest opportunity for companies to drive sustainability through the supply chain, and other key business functions, has been to pull all of these fragments together, usually under the leadership of new senior sustainability positions variously entitled — Chief Sustainability Officer, Vice President of Sustainability, or similar. These people, often from senior business operational positions, have the experience, breadth of vision and now the authority to pull together different stakeholders and business functions around key agendas, like greening the supply chain, in a truly holistic way.

Ultimately, it is this holistic life-cycle thinking, examining the entire value chain from raw materials to end use by customers, and considering all internal business functions in a coherent operating model that holds the key to achieving real success. So, as we look to 2011, out go the tactical initiatives, albeit with a great legacy of lessons learned, and in come the heavyweights, with an opportunity to get real implementation of sustainability into supply chains. While they have a challenge, there is great optimism that new thinking will complete the integration of sustainability into the new ‘business as usual’ — a transition from “green to blue.” •

More information www.pe-international.com

January/February 2011