Category Archives: Sustainability

Another Decade Has Passed. How Are You Doing on the 10 Rs?

Ten years ago (yes, this blog has been around for a long time, especially in internet years), we picked up on a great article by SupplyChainBrain on Ten Steps to Green Packaging in the CPG Industry which was a great article not just because it demonstrated just how many ways there were to make packaging green, but because it gave us so many ideas on how to make our entire supply chain green.

In brief, the ten steps were:

  1. Replenish
    Purchase raw materials from suppliers who employ sustainable resource management practices.
  2. Re-use (Re-explore)
    Use recyclable material.
  3. Reduce
    Use ergonomic design and optimization to minimize the use, and size, of packaging material.
  4. Replace
    Replace hazardous and harmful substances with eco-friendly materials.
  5. Reconsider
    Use renewable materials whenever possible.
  6. Review
    Inspect, monitor, and control waste in the packaging process.
  7. Recall
    Immediately recall harmful packaging and put processes in place end harmful packaging.
  8. Redeem
    Collaborate with retailers and collect reusable and recyclable packaging materials.
  9. Reinforce
    Set up a Centre of Excellence (COE) to disseminate environmental best practices.
  10. Register
    Sign up for a carbon reduction commitment initiative and follow-through.

And they are globally applicable.

  1. Replenish
    Regardless of what you are buying, you want a supplier who is focussed on sustainability.
  2. Re-use (Re-explore)
    Modern science has advanced us to a point where most materials are reusable and recoverable. You should be working to get to 90% re-used/recycled/replenished content within a decade.
  3. Reduce
    Modern structural analytic techniques (especially with the low-cost availability of high-powered computing, low-power cores, and the ability to host data centers in naturally cooled environments) allow for the usage of much less material than before, without compromising any structural integrity
  4. Replace
    There is no need for hazardous materials in the majority of products on the market today. Science has delivered us alternatives.
  5. Reconsider
    Non-renewable materials are becoming limited. It’s not just a cost or green consideration anymore, it’s becoming a necessity.
  6. Review
    Waste should be minimized inside your organization and eliminated in your supply chain. Waste to you can be raw material to someone else. Food stuffs don’t meet your level of quality for human consumption? Might more than surpass the level of quality for animal consumption and, if not, there’s always bio-mass energy production. Metal scraps? Straight to smelting and recycling. And so on. Your waste can always be someone else’s inputs if you are smart about your process.
  7. Recall
    Whatever you are creating should be benefiting the consumer, not harming them. If you screw up, recall the product, immediately fix or recycle it, and improve your processes so it doesn’t happen again. (Don’t reprimand the workers, but fire the pointy haired idiot who requested it or was responsible for guiding the workers. And yes, SI still disdains the average Master of Bullshit Administration.)
  8. Redeem
    Make all of your packaging reusable and get it back. (Considering how many empty miles exist in the trucking industry, this is not a big deal or big cost if properly planned. Coupa Sourcing Optimization and Jaggaer One Advanced Sourcing Optimization in particular have models customized for transportation and reverse transportation. USE THEM!)
  9. Reinforce
    … and mandate! Set up the COE, make an executive mandate that policies must be followed, and green your operation.
  10. Register
    Make a public commitment to carbon reduction, waste reduction, and energy usage reduction, measure annually, publicly report, and follow-through. (And don’t just buy carbon credits or carbon offsets. Don’t make your problem someone else’s.)

Sustainability isn’t hard anymore … and the organizations that start now will be the ones that will be around in the decades ahead.

CSR, Procurement and North America: Creating a Market

In our previous article, we asked if you could solve the modern compliance challenge, and, more specifically if you could do it with Ecovadis. This is because compliance has morphed over the past few years from insuring you weren’t doing any illegal trading and simply satisfying the tax man (and import/export compliance is essentially just respecting the legality of the country you are trading with and satisfying its tax man) to having to comply and deal with a lot of regulations around financial reporting and global trade to having to respect the environment (pretty much everywhere but the US, with the exception of California) to having to take corporate social responsibility for the organization’s entire supply chain and ensure there is no violation of worker’s rights, child labour, or human trafficking — or face the consequences that can not only include bad press (at internet speed) and large fines but, in some countries, criminal charges against the officers of the corporation.

We also noted that solving the compliance challenge was tough because you needed environmental data, sustainability data, social compliance data, and even third party audits on your suppliers, and sources of this data (outside of internal surveys that were unverifiable without site audits) were few and far between. The few players with even remotely recognizable names that exist are in Europe, and Ecovadis is the largest. As a result, it likely has the best shot at championing a market in North America, especially with its increasing partner footprint, supplier database (with over 55K assessed companies), and global reach (as they cover suppliers across 155 countries).

But Ecovadis is not a household brand in North America. To become one, it really must drive material commercial traction outside of the EU and, most important, prove that the market for CSR ratings and compliance in North America is as central to supplier management as other supplier management initiatives (e.g., risk, EHS, etc.) to truly “go global”.

The case for an Ecovadis model is sound. Most major procurement departments at US F500s and larger mid-size companies are still focussed on cost-cutting. And using Ecovadis to get the sustainability data the organization needs is roughly 20% of the cost of trying to do it in house.

Further:

  • Organizations that are embarking upon more strategic category management want deep supplier information before selecting potential strategic suppliers and the response rate to Ecovadis-initiated assessments is 90%
  • The average organization will struggle with a 70% response rate in such initiatives, especially when you consider the average supplier turn-over (as identified in a recent QIMA survey) is 27%
  • Once a supplier is in the Ecovadis network, the chances that their overall CSR rating will improve on their next (annual) assessment is 64%
  • For an average company, unless they initiate a supplier development program and work with the supplier, the chances the supplier will otherwise improve on their own is, as we all know, closer to 6.4% than 64%

Less money. Better results. You’d think it would be an instant buy, but it’s not. So why. Is it because it’s European?

Not necessarily — Jaggaer One+ and Jaggaer One Direct from Jaggaer, which is one of the S2P juggernauts, has good NA penetration, and those solutions (formerly BravoSolution and Pool4Tool) are European.

So that’s not it.

Is it because the space is new or unproven? Can’t be. Ecovadis has been around for 12 years and Sedex Global for 18. Plus, there are a number of other players in the space. Is it because the solution is not user friendly? No — it’s delivered via a simple SaaS platform and they even have public quotes from F500s to that effect. So what’s the problem?

North American companies.

First of all, with apologies to Spike Lee, many will “only do the right thing” when they are forced, and then only to the extent necessary (although this may be changing).

Second, they’d rather profit today than save tomorrow (even if the long term savings would be multiples of the short term profit gains). This means that for them to invest in a solution, they want to see a large, immediate, sometimes unreasonable ROI.

Third, they tend to only act when they’re scared (e.g., losing budget if they have extra).

This means that, unless something changes, for Ecovadis to create a true market in North America with a similar reasonable TAM for say, the compliance management side of supplier / contractor management, it will need to lead with evangelism and, perhaps, more.

All things are possible. But as Vincent Ngo speculated decades ago, it takes a superhero to change the mind of the corporate culture. Can Ecovadis be that superhero?

For the sake of procurement and a better world, we hope that they’ll do it — or someone else.

For more information on Ecovadis, check out Spend Matters’ recent post on Catching Up on a Provider to Know (which also includes links to a deep 3-Part Vendor snap-shot co-written by the doctor and the maverick).

Can You Solve the Modern Compliance Challenge? Can Ecovadis?

Compliance used to be easy. Collect the tax information. Make sure the other party is not on a denied party list. Don’t buy or sell a restricted material without the right permits and don’t buy or sell a banned substance. Done.

But then came globalization. Now you had to collect information for import / export requirements. Satisfy a new slew of tax regulations. Comply with additional inspection and security requirements. Track all of the restricted substances, denied materials, and denied parties of another country. And then as supply chains lengthened and ships made multiple port stops, multiply these requirements.

And that was manageable, but then came a new round of financial regulations, like SOX, in the wake of corporate meltdowns (like Enron) which made compliance more cumbersome. And that was somewhat doable. But with the global penetration of the internet, news spread faster and faster and the unsafe and sometimes inhumane working conditions that outsourced providers were comfortable with made the news regularly, the dangers of poor “recycling” efforts which just saw almost toxic waste dumped on mass to ill-equipped “recycling” centers, and the use of slave/child labour where it was not known before.

As a result, ethical countries started implementing laws on environmental protection, dangerous substances, especially around recycling and disposal, ethical and safe working conditions in the supply chain, and even anti-trafficking and anti-slavery laws — all of which the last link in the chain, the end buying organization, was responsible for.
This makes compliance a bit more tricky. There’s lots of data on financial performance and financial risk, certifications, import/export, and even public sector performance data, but when it comes to corporate social responsibility — environmental compliance, worker’s rights, anti-trafficking, and so on – where do you get that data. Not D&B. Not BvD.

This is where a new generation CSR player comes into play – one that tracks environmental data, sustainability data, social compliance data, and third party audits. But there aren’t many players here yet, and Ecovadis is the largest. But will they be able to take their European success and globalize? While there are a few other players in Europe (Sedex Global, FLO-CERT, e-Atestations, etc.), there are few, if any in North America.

Ecovadis likely has the best shot, especially with their ever-increasing partner footprint, but they need to be the first to scale and win over the hearts (and wallets) of global procurement organizations, especially those in North America, which generally are not as advanced around CSR tracking compared with their European counterparts. The road ahead will be interesting to watch.

Reuse, Recycle, Re-manufacture … Now! (Updated)

Sourcing Innovation has been promoting sustainability since the beginning and design for recycle since the very early days, which is essentially what you are doing if you are designing for remanufacturing, which is taking way too long to take hold in the manufacturing sector, with even fashion poised to overtake it (considering H&M and Zara are not only taking back clothes, but working on technology to create fabrics that can be more easily reused in the future).

When you think about the average complexity of today’s consumer products, especially in electronics, it becomes clear that when a product breaks, it is typically only one component that is broken and a replacement of that component makes the product useable again. That’s why a lot of computer, tablet, and phone manufacturers have entered the refurbishment business — once the damaged or defective part in a product that was returned under warranty or reclaimed upon disposal by a customer, it can be reused and, more importantly, resold.

But the concept doesn’t end with electronics, and doesn’t end with refurbishment. Electronics can be designed more modularly with re-manufacture in mind, so that parts can be upgraded en-masse when the products are returned en-masse in a regular upgrade cycle. For example, if laptops were designed for easy replacement of not only memory and drives, but processors and peripheral connectors (in anticipation of USB 4, Thunderbolt 2, etc.), the previous generation models could become the next generation models and resold as either lower-end offerings in the same market or new offerings in a foreign, emerging market.

And automotive suppliers, who not only know that parts wear out, but when parts are likely to wear out, and which parts wear out together, could not only design their engines to make it easy to replace parts, such as spark plugs, batteries, belts, filters, and pumps that wear out quickly, but also the engine block as a whole, that is going to wear out in 7 to 15 years, depending on the average annual mileage, if the rust-proof frame can last for 15 to 30 years. Given the choice, many people on a fixed income (who don’t live by the ocean and have rust to worry about) would rather replace the engine for 3,000 to 5,000 and keep the car for another 7-10 years if the frame is fine than pay 25,000 or 30,000 for a new car. And while this may not look as attractive from a bottom line perspective to a manufacturer, it significantly reduces the chance of the customer migrating to a different car company, which is very common if a competitor is offering a significantly better deal on a comparable car.

Plus, if the components are themselves designed for remanufacturing, it will be relatively easy for the manufacturer to reclaim the raw materials from the damaged or defective components, which is where a lot of the cost comes in, especially if we are talking rare earth metals. For example, the price of praseodymium-neodymium oxide exceed 1.70 an ounce and prices of terbium oxide (a semi-conductor that is used as an activator for green phospors in colour TV tubes) exceeded 112.00 an ounce this summer, and it keeps rising!  Gold, a metal used in many electronics products, is now hovering around $1500 an ounce. And while there is not much gold in a single laptop, when you put fifty of them together, you’d likely get an ounce. And given that there are roughly 100 Million PC laptops and computers sold a year, that’s close to 2 Million ounces of gold that need to be reclaimed!

And, as per a now classic green & clean article, remanufactured products offer cost savings in the 45% to 60% range! So if doing the right thing isn’t enough, that should be enough of a justification to invest in remanufacturing! This goes double if you are in electronics (for some of the reasons given above) or automotive, where the global market for remanufactured auto parts is projected to reach $91 Billion by 2026. (Source:
Persistence Market Research)

So, regardless of what you want to call it, it’s time to do it. It’s not just good environmental stewardship, it’s good economics.

You Need To Get Sustainable On Your Own Because Customers Still Won’t Pay …

A recent survey by Accenture, summarized on their newsroom in June (Source found the same thing the Trade Extensions survey found five years ago — while customers say they want sustainable, the most important factors are quality and price, with 89% and 84% of customers, respectively citing those as their most important considerations … with environmental impact only cited by 37% of respondents.

So, even though slightly more than half of consumers indicated they would be willing to pay more for sustainable products designed to be re-used or recycled, you can bet that the premium is still limited to 5% or less (which is the maximum amount of cost increase an average consumer would tolerate, as per Trade Extensions’ 2014 survey as reported here on SI in do as I say, don’t do as I do).

So even though the inclination of your senior buyers might be to forego sustainability and ethics when sourcing on the go for the supplier that provides the best value for money, quality, or price, especially since that’s what the average buyer wants, this approach is, now more than ever, the exact opposite of what you should be doing as you need to be quadrupling down on sustainability efforts.

Inflation is here to stay, raw materials are getting scarce and increasing at multiples of the inflation rate, and with Trump inciting the trade-wars to new heights, if you’re not sustainable to the full extent possible, you can expect costs to skyrocket much faster than you can increase prices (as average salaries aren’t going up as fast as cost, and with GDP growth slowing globally, you can expect salaries to stagnate due to lack of market exuberance).

And when we say raw materials are getting scarce, we mean it. Let’s remind you as to what the average consumer wants to buy. Fashion. Electronics. Media. Now consider what these items are made of. Cotton. Rare earth Minerals. Paper. All of these items are in limited, decreasing, supply. Increased drought and increased need of limited farmland for food production are causing cotton prices to increase. (If even leading global clothing brands are starting to invest in recycling programs to try and harvest back cotton, you know scarcity is real and project cost increases significant.( Rare earth minerals are decreasing but demand in modern electronics gadgets is steadily increasing. And paper, well, there are only so many trees and some take decades to grow.

In other words, costs are going to go way up — and, at some point, costs are going to go up to the point the product becomes unaffordable to produce (as it won’t be able to be sold at a profitable price point … and then what does the organization do?). At that point in time, the best strategic sourcing and negotiation skills in the world aren’t going to be worth a dime because you can’t source for less than cost, and if costs skyrocket because there is (much) more demand for the materials than there is supply, your costs skyrocket and your consumers go elsewhere.

But if you quadruple down on sustainability, and source products that use alternative, more readily available, and if possible, renewable materials, from suppliers that focus on recycling and material recovery, then your costs will stay down while your competitors’ costs go up. That’s why, despite your inclination to follow your customers, you have to do a 180 in the other direction to make sure that you keep those customers as time moves on.

And if you design your products for reuse and recycling, even better!