Monthly Archives: January 2008

Sustainability and The Economist: Part I

The latest issue of The Economist, not wanting to be outdone, just ran a number of articles on sustainability that are, at the very least, worth a mention. Today we tackle the first five.

In how good should your business be?, the article points out that corporate social responsibility has limits and asks if the current CSR craze is a good thing for business and for society as a whole. We do know that today, a bad name is more expensive than it has ever been – and CSR is one way companies are trying to maintain a good name. However, an inconvenient truth for today’s CSR advocates is that the connection between good corporate behavior and good financial performance is fuzzy at best. (However, as the doctor has pointed out, there appears to be a strong correlation between companies with strong brands and those that remain on the Fortune 500 unscathed year after year, so, if you can use CSR to build your brand, then there is a correlation between CSR and financial performance, even though it is not yet as strong as one would like.) Furthermore, current academic research has uncovered a direct positive link, although weak, between CSR and performance, and we can only hope that this improves with time.

In get the price right, the article focussed on Europe’s attempt to cut carbon emissions. It’s main tool is the Emissions-Trading Scheme (ETS), which is expected to be tightened significantly in the near future. The ETS issues firms permits to emit a limited amount of carbon dioxide – and if they want to emit more, they have to buy more permits. If the rest of the developed world follows suit, then companies will be pressured to cut emissions, since that’s the only way they will have to avoid steep carbon permit prices and fines. If not, the problem will just shift to other developed countries as the worst polluters leave Europe to try and sidestep the issue.

In a change in climate, the greening of corporate responsibility is addressed. The article points out that reducing greenhouse gases and responsibly using resources can save money as well as cut waste. It points out that UTC has reduced its emissions by 19% over the past 10 years while doubling output, and that they plan to cut emissions by a further 5% while growing 10% over the next year or two. It also points out that a large number of companies, including names like DuPont, REI, and GE are working hard to cut emissions and be good corporate citizens.

In the good consumer, we are told that buying ethical is not always as straightforward as it seems. Even the keenest ethical consumer faces complicated trade-offs, and sometimes the apparently obvious choice between options is the wrong one. It’s always greener to buy local, right? Wrong. For example, a study at Cranfield University showed the carbon footprint of Dutch roses, to Britons, was six times the carbon footprint of air-freight roses from Kenya – because the Dutch roses had to be grown in heated warehouses. Remember, it’s not just transportation emissions that produce greenhouse gases. Furthermore, a recent study of 1,018 products in North American stores by TerraChoice found that almost all of them were guilty of some form of “greenwashing”.

In going global, the article points out that, in one form or another, CSR is spreading around the world. The UK think tanks have been great at thought leadership, but not implementation; the American corporations, like Wal-Mart, have been great about taking action when they put their minds to it; the Japanese see it as part of their shobaido (way of doing business) and shonindo (way of the merchant) traditions, and emerging economies, where pollution has literally become a problem overnight, see it as a necessity – with China becoming the new frontier. However, although the global uptake is positive, the fact that it’s not yet consistent means that many global multi-nationals might not be able to take a one-size-fits-all approach to CSR and sustainability.

Sustainability: The Bridge

Alan Buxton of Where Next threw another post into the sustainability debate, reminding that auctions are only sustainable if used properly. Done wrong, they can force suppliers to lower their prices to such a degree that they risk being driven out of business (bad for economic stability) and incentivize suppliers to cut corners in order to deliver at such low prices (bad for social and environmental sustainability). However, as has been alluded to in the wiki-paper, reverse auctions can be used sustainably. As Alan points out, the key is to weight the different suppliers so they are competing on a genuinely level playing field and to be prepared to award the contract to a supplier who provides best overall value for money rather than simply best price.

Jon Miller of Gemba Panta Rei asks what we can learn from Boeing’s lean supply chain stumbles. Was it poor planning, poor execution, or a combination of both? Regardless, any plan that does not consider risks and allow for contingencies is not a good plan. Jon also gives us three concrete actions to a better lean supply chain strategy. Develop a mindset of mutual trust and responsibility, organize your SPTT (Supplier Parts Tracking Team), and practice the skill of genchi genbutsu (where you go on-site and be hands-on with the supplier’s team) as a way of life, even in the best of times.

Over on SCM Pulse, Rink Ankrum points out that the Carbon Disclosure Project (CDP), a collaboration of over 315 institutional investors (including Goldman Sachs, Merrill Lynch, Allianz and HSBC) with assets under management of more than $41 Trillion (with a T), is now working with some of the world’s largest companies to help them assess greenhouse gas emissions throughout their supply chain. Furthermore, the CDP SCLC (Supply Chain Leadership Collaboration) now has members that include Dell, HP, PepsiCo, P&G, Nestle, and Unilever. It’s certainly nice to see more heavyweights enter the ring.

Some Thoughts on Sustainability

Today I’d like to welcome Paul Martyn of Track Management Group with his thoughts on the sustainability debate.

Friedrich Nietzsche loves sustainability.

I feel safe in saying this because sustainability is inline with Nietzsche’s philosophy of perspectivism. Not to bore you to death, but, according to Wikipedia, the basic idea of perspectivism “is that there are many possible conceptual schemes, or perspectives which determine any possible judgment of truth or value that we may make; this implies that no way of seeing the world is more correct” – much like today’s sustainability discussion, there are many ‘sustainability’ perspectives/schemes, however, in the absence of an absolute ‘standard’ (i.e. Kyoto) there is no way to say which perspective/scheme is more correct – this is where, I believe, the sustainability debate is today …

So, why all the philosophy talk?

Sustainability is enormous in scale and suffers a shortage of predictability – a philosophical approach to sustainability looks at logical tradeoffs, often, in contrast to empirical methods. As a math problem ‘sustainability’ is impossible to solve, so we must develop ‘common sense’ methods for evaluating our decision making at policy, corporate and individual levels. Philosophy has, by definition, helped us look at how we should live when confronted with an uncertain end. Sustainability is more a question of how we should live rather than a question of right/wrong. Philosophy is well suited to address the questions posed by sustainability.

Economically speaking, modern sustainability is based on the premise the current system is going to break and systematic changes need to be made to maintain a ‘set’ level of supply and service, indefinitely. It’s the ‘indefinitely’ part that makes sustainability a tricky problem to approach with a strictly mathematical approach. Given the system’s unpredictability, empirical methods are, often, less effective than common sense or a ‘sustainable’ philosophy. Not to mention the troubles that arise when trying to maintain ‘fixed’ levels of supply and service indefinitely – talk about a planning conundrum.

As Nietzsche said ‘A man without a plan is not a man’.

Sustainability must become a process or commitment to get better rather than a destination in and of itself. A sustainable plan needs to make sense in a broad and inclusive context and make more sense than just what’s best for the US or what’s ‘most profitable’ or ‘least expensive’, etc.

There are many perspectives to view sustainability and one near and dear to our hearts is ‘purchasing’; in a purchasing sense, sustainability includes a focus on responsibly evaluating the environmental, economic and social impact of your actions. Sustainable purchasing looks to put cost and quality in a context that includes looking at the environmental impact, supply levels, efficiency, consumption, labor and other, yet gathered, perspectives. A sustainable purchasing ‘common sense’ includes evaluating the environmental, economic and social impact of purchasing decisions.

At the end of the day, the value of debate is to regularly question our beliefs/definitions of living in a sustainable world and then act in a manner, across all of our roles (husband, father, consumer, professional, etc) consistent with our beliefs.

Kudos to Michael – this cross-blog series is an excellent example of gathering perspectives to define sustainability. I look forward to reading lots of other perspectives on sustainability and to keeping the dialogue lively in 2008.

Lastly, a little humor to lighten up this post:

“Heating bills this winter are the highest they’ve been in five years, but President Bush has a plan to combat rising bills. It’s called global warming.” — Jay Leno

Sustainability 2008: Quick to the Draw

Another day, and another set of posts on sustainability for you to dive into!

Randy Littleson wrote about sustainability and the impact on supply chain responsiveness over on the Kinaxis Response Management blog. Randy notes that there are substantial regulatory requirements out there today and that this creates substantial challenges for supply chain professionals, especially since requirements differ across geographies. This means that if demand increases in one market, you can’t necessarily divert product from another market to meet it. However, if you take a global view on sustainability and drive it consistently across geographies to the greatest extent possible, you can get ahead of the curve and gain an advantage in your supply chain.

Alan Buxton contributed to the sustainability argument on Where Next by point out that there are two sides to every story. By contrasting two stories on Tata from The Economist and Private Eye, he pointed out that while firms like Tata are particularly active in providing basic services, such as schools and healthcare, for local communities, the selection of the site they chose for their factory tells a different story. The 997-acre site produced three crops a year and provided a decent living to more than 20,000 people. But when Tata picked it for its new plant in 2006 … the chief minister of West Bengal … announced that the land was to be forcibly acquired. Then there’s the tribals of Bastar in Chhatisgarh, fighting to prevent their ancestral lands being torn up for a Tata iron ore mine; and relatives of 13 tribal people shot dead by police at Kalinganagar in Orissa in January 2006, a village earmarked for a Tata steel plant. Where does CSR stop and sustainability start? How do you trade one for the other? When are you actually doing more harm than good? All important questions. Maybe Eric Hiller of Cost Cents will do a post on the True Economic Cost of sustainability!

Christopher Sciacca put reduced packaging into a bigger supply chain perspective over on Who Said Supply Chains Are Boring?. Christopher points out that the packaging volume for the new MacBook Air laptop has been reduced by 50% over the precious MacBook. Not only does this reduce waste, but the smaller and lighter boxes allow more product to fit on the same plane or truck. This means less trucks on the road, which means less fuel consumption, which means less CO2 emissions. Given the number of units Apple is likely to sell, this is significant.

And the next guest post goes up tomorrow morning!

Promoting Sustainability Throughout Your Ecosystem

Today I’m welcoming Jason Rushin of Nextance who is focussing on the importance of sustainability throughout the ecosystem.

What is sustainability? As the doctor mentioned in the kickoff post for this series, there are many definitions. But, I like the UN’s view that it is the intersection of social, environmental, and economic concerns. To truly sustain your business, your surroundings, and yourself, you have to take all three of these aspects into consideration.

If moving to more energy-efficiency requires you to cut costs in other areas, like workforce reductions, is that truly sustainable? Does a decrease in carbon emissions offset an increase in unemployment? Or, in reverse, would an increase in carbon emissions be OK if it came with a decrease in unemployment? How you define sustainability – social, environmental, and economic factors – is very relevant to how you achieve sustainability. But, how far you extend your vision of sustainability means even more.

Are you truly working towards your definition of sustainability if you are doing so with an inward-only focus? Sure, that’s the best place to start, but to be truly sustainable, you need to promote that vision throughout your ecosystem of employees, suppliers, partners, and customers.

Internally, responsible business practices are becoming more and more important to maintaining a progressive, diverse workforce, and enhancing and growing a business. Look at Google and how they offer free shuttles to employees to cut down on commuters, $5,000 rebates to employees who purchase hybrid cars, and their “solar panel project”, designed to reduce their use of carbon-generated electricity. These items are all cultural components of Google’s business, and are reflected in the way that they treat their employees, customers, and partners. It permeates their workforce and it expands their vision of sustainability into everything those employees do in their jobs.

Looking externally, your first thought might be on the supplier side, forcing (or incenting) suppliers to invoke more sustainable practices. But, that can have the effect of just moving the “bad” part of the supply chain farther away from your business. Sure, it makes for a great sound bite to say that you and your tier one suppliers are on a sustainability kick. But, if that just means production of hazardous materials is moved from Pennsylvania to China, did you really accomplish anything?

A recent article on Dell touted their support of the “Carbon Disclosure Project”, which standardizes the measurement of carbon emissions. This not only makes it easier for suppliers to comply with requests for carbon emission rates, it allows a baseline measurement system to reduce (or just maintain) carbon emissions going forward. Even Wal-Mart has an ambitious “greening” program, and their first step was to identify metrics. To quote Peter Drucker, “What gets measured gets managed.”

The point here is again that you need to focus on your entire ecosystem as a whole. Working with suppliers to identify areas of concern and plans for improvement is the key. It is not sustainable to pass the carbon (or social or economic) buck down the supply chain.

Granted, a large corporation has a high level of influence with suppliers, especially the Dells and Wal-Marts of the world. But, what about their customers? Obviously, given the proliferation of green ad content these days, consumers are responding to a “greener” message from their favorite brands.

Apple announced responsible business practices to increase the cachet of their brand and their products. Not that Apple needs any help increasing their coolness factor, but they are progressive enough to know that sustainability matters to their customers. A few years ago, the iPod came in a package nearly the size of a shoe box. Now, they are in a tiny box barely bigger than the iPods themselves – a reduction in packaging of 69%. Apple even made note of reductions in harmful chemicals in their just-released MacBook Air laptop. It may not increase sales, but it surely helps maintain their lead as the most desirable tech brand out there.

A green message is easy, but it is difficult to actually influence the actions on the customer side of your ecosystem. Do Apple’s actions actually get customers to change their behavior? A truly sustainable organization needs to be more proactive on the customer side.

Companies that simplify a sustainable process, like Hewlett-Packard with their ink and toner cartridge return programs, are promoting sustainability beyond their walls and into their customer’s homes and offices. HP makes it easy for their customers to recycle by giving them a pre-printed, postage-paid return label and easy-to-understand instructions right on the box. It’s just as easy to recycle the cartridge as it is to throw it away.

These are all great examples of how companies are successfully promoting sustainability – however it’s defined – throughout their ecosystems. Looking inward is the first step, but then turning that view around and helping your suppliers and customers to do the same is the only way to become truly sustainable.

Even on a personal level, each of us has our own ecosystem, and our every-day choices impact that ecosystem. For the most part, I have the naive belief that when it comes to sustainability, most people want to do the right thing. I guess that’s the ultimate definition of sustainability: everyone doing the right thing, whether in their homes or at their jobs.