Category Archives: Sustainability

I Guess Some Companies Still Can’t Do Simple Math!

I was shocked by this recent headlin on CNet that said that “companies conserving water [are] surprised by savings”. After all, simple math alone demonstrates the savings potential.

Let’s say you have a chain of 50 small hotels that each use 1,000,000 gallons of water per month. That’s a monthly utility bill of roughly $100,000 (in the US). That’s a yearly utility bill of $1,200,000. Let’s say you installed water efficient bathroom fixtures, washing machines, and appliances and cut water utilization by 30%, which is not unreasonable. That’s an annual savings of $360,000! Now imagine you’re a larger hotel chain or an international brewery. Simple math and you quickly see that it’s a multi-million dollar opportunity.

So don’t be surprised next time a sustainability initiative generates massive savings. That’s ultimately what sustainability means.

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Getting Execution Right in a Megatrend

A couple of posts ago, we told you that sustainability is the current megatrend and that your organization needed to adapt. Then, in our last sustainability megatrend post, we discussed the four stages of value creation that traditionally identified megatrends and what they meant to your supply chain. In this post, we’ll offer some tips on getting execution right, courtesy of the Harvard Business Review and its article on “the sustainability imperative”.

While vision, and a good working knowledge of the value creation process, is important, the key to success ultimately relies in execution. Specifically, a company has to get leadership, methods, strategy, management, and reporting right. In each area, the company must transition from tactical, ad hoc, and siloed approaches to strategic, systematic, and integrated ones.

Leadership: Strategic sustainability initiatives need C-level leadership. The leader needs to be able to move the company through progressive levels of environmental maturity, from regulatory compliance through energy conservation to the design and creation of products that are totally green and free of hazardous materials . The leader will do this by redefining performance expectations, specifying accountability, tracking results, and rewarding success at each stage of maturity.

Methods: The company must adopt new methods of value assessment that assign value to sustainability and adequately capture the risks associated with not going green as well as the benefits of a proposed solution. Business case analysis, scenario planning, risk modelling, and even cost accounting must all be updated to encompass environmental sustainability.

Strategy: The focus must be on the creation of strategies that are sustainable at the core. This will become easier over time as more analytical data from sustainable initiatives becomes available and as more companies adopt open-source and crowd-sourcing approaches that engage outsiders with expertise in sustainability.

Management: For sustainability to truly take root in an operation, a firm must integrate sustainable goals into day-to-day management. Success lies in operations, and managers on the ground have to lead the charge. Sustainable objectives should be incorporated into processes, training, and compensation plans.

Reporting: With increasing public scrutiny, governmental regulations, and customer expectations, companies will need to include sustainability reporting in annual reports and forward looking statements in addition to sharing required information on energy usage, carbon footprints, etc. with new environmental agencies.

In addition, the leaders will adopt sustainability scorecards to keep track of their success. This will ultimately enable a company to chart their impacts in financial terms, which will make it easier for market analysts to identify the advantages of companies that have embraced eco-platforms.

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How Will Your Organization Deal with the Sustainability Megatrend?

In a recent post we explained how “sustainability is the current megatrend”, but we did not give you any tips on how to deal with this information. In this post we’ll overview some of the advice provided in a recent Harvard Business Review article on “the sustainability imperative” and address how the sustainability imperative may impact your supply chain.

The first piece of advice given in the article is to learn from past megatrends. For example, in both the IT and quality business megatrends, the market leaders evolved through four principal stages of value creation:

  1. Cost, Risk, and Waste ReductionInitially, companies focussed on reducing costs, and on risks that could drive costs up and waste that also unnecessarily increased costs.
  2. Performance Optimization of Product, Process, or Business FunctionsIn this stage, businesses moved from doing old things in new ways to doing new things in new ways. Processes were transformed using new tools and methodologies so that overall operations were more efficient and more cost effective.
  3. Integration of Innovative Approaches into Core StrategiesInnovation was no longer relegated to a black-ops skunkworks unit as entire business strategies were built around continuous product innovation.
  4. Value Proposition Differentiation through New Business ModelsInnovation was extended throughout the enterprise and transformed the underlying business models.

So what do these classic stages of value creation mean to your organization, and, ultimately, your supply chain?

  1. Cost, Risk, and Waste ReductionIn this stage, a company will focus on outperforming competitors on regulatory compliance and environmental risk management. The company will implement trade manage solutions to keep abreast of current and upcoming regulations, switch to greener raw materials when a choice is available, and switch to suppliers with a lower carbon footprint.
  2. Performance Optimization of Product, Process, or Business FunctionsIn this stage, a company will optimize natural resource efficiency across the value chain. Products will be redesigned to remove environmentally harmful materials and reduce the environmental impact of the production process. Lean, Six Sigma, and related approaches will be applied where appropriate to minimize waste.
  3. Integration of Innovative Approaches into Core StrategiesIn this stage, sustainable innovations become the source of new revenue and growth. For example, the organization will switch from manual paper processes to automated systems to improve efficiency, move to the utilization and creation of energy efficient products, and embrace frugal innovation to capture an increasing share of emerging markets.
  4. Value Proposition Differentiation through New Business ModelsIn this stage, a company will embrace a new business model to the point where it permeates the corporate brand and employee engagement. For example, a car manufacturer may switch its entire product line to hybrids.

And that is how your organization will begin to deal with the sustainability megatrend.

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More Headlines You Hate To See

Editor’s Note: Today’s post is from Dick Locke, Sourcing Innovation’s resident expert on International Sourcing and Procurement. (His previous guest posts are still archived.)

Your supplier’s employees are committing suicide. News articles are showing up mentioning your company’s name as a major customer. Your actions are being tracked carefully. (Apple and Dell investigate Foxconn plant)

Headlines like: Foxconn Makes Employees Promise Not to Kill Themselves [DailyTech.com], “Plenty of Foxconn shame to go around”, and Foxconn suicides: capitalism and Marxism treat men like animals cover articles that name Apple, HP, Nokia and Dell as key customers. The term fair trade electronics gets increased currency.

What went wrong here? It would be professional malpractice to even venture a guess without talking to any of the principals involved. Instead I’ll write about electronic industry practice and ask a question or two.

The electronic industry has an Electronic Industry Code of Conduct that major buyers require suppliers to agree to follow. You can download a copy from the EICC site. You can also see the logos of their members, which include Foxconn. It looks like a good specification to me. It covers the key issues of employee relations and environmental responsibility and requires that signers require at least their first level suppliers to comply.

Of course, a key question is whether Foxconn actually complies or just agreed to comply. I don’t think anyone not directly involved can answer that.

So here are my questions:

  1. What do others think of the EICC specification?
  2. And do other industries have similar, cooperatively developed codes of conduct (on a global scale)?

Let’s get some discussion going.

Dick Locke, Global Procurement Group and Global Supply Training.

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Is Sustainability the Current Megatrend?

According to a recent article in the Harvard Business Review on “The Sustainability Imperative”,

over the past 10 years, environmental issues have steadily encroached on businesses’ capacity to create value for customers, shareholders, and other stakeholders. Globalized workforces and supply chains have created environmental pressures and attendant business liabilities. The rise of new world powers, notably China and India, has intensified competition for natural resources (especially oil) and added a geopolitical dimension to sustainability. “Externalities” such as carbon dioxide emissions and water use are fast becoming material – meaning that investors consider them central to a firm’s performance and stakeholders expect companies to share information about them.

Furthermore, these forces are magnified by escalating public and governmental concern about climate change, industrial pollution, food safety, and natural resource depletion, among other issues. Consumers in many countries are seeking out sustainable products and services or leaning on companies to improve the sustainability of traditional ones. Governments are interceding with unprecedented levels of new regulation – from the recent SEC ruling that climate risk is material to investors to the EPA’s mandate that greenhouse gases be regulated as a pollutant.

As a result, managers can no longer afford to ignore sustainability as a central factor in their companies’ long-term competitiveness.

Considering that a megatrend is a great force in societal development that will very likely affect the future in all areas in the next 10-15 years (Gitte Larsen on “why megatrends matter”), and that sustainability affects each and every one of us, it’s pretty easy to see that if sustainability isn’t the current megatrend, it soon will be. Less than 2.5% of the water on the planet is fresh, and two thirds of this is frozen. In recent years, energy crises have arisen in a number of US states, Central Asia, South Africa, Pakistan, and China and current oil reserves will empty within 50 years. Carbon dioxide levels have increased 36% in the past 180 years and is now about 25% higher than historical highs over the last 400,000 years! And this is just the beginning.

Environmental responsibility has pervaded the consumer mindset across the developed countries and is quickly taking root in the mind of the customer in the emerging market … where consumers are tired of smog filled cities, dirty water, and regular rolling black-outs. Consumers want a product that’s green, made with recyclable material in an environmentally friendly process, and produced in a socially responsible manner. Furthermore, they want a product that is high quality and cost effective — proving that sustainability cuts through the business and consumer worlds.

In short, sustainability is the current megatrend and an imperative. So what does this mean to your organization? That’s the subject of a future post.

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