Category Archives: Sustainability

Sustainability: The Final Stretch

Over on Spend Matters, Jason Busch points out in “Sustainability Wins Because of the Market Not Regulation” that the market, and not regulation, is the reason sustainability wins. He points out that maybe we should review Malcom Gladwell’s The Tipping Point to better understand how trends become standard practice. He notes that sustainability in the supply chain is on the verge of reaching the tipping point, and this is partly because the message has reached a much broader audience than just procurement and operations practitioners. He also talks about Wal-Mart’s efforts, their recent press release, and how Wal-Mart’s President and CEO is almost missionary in his call to sustainable action. Furthermore, he posits that this evangelical commitment to sustainablility is a step in the right direction which Wal-Mart’s competitors will be forced to emulate.

Chris Jacob Abraham gave us his follow up to a brief background on sustainability issues over on @ Supply Chain Management. He notes that the crucial, unstated, assumption in most sustainability definitions is technological stasis, which is an idea that shouldn’t be sustained. It, in fact, points to a deeper issue with the very language of sustainable development – that most proponents of sustainability miss out on the fundamental nature of technology. The definitions of resource and pollutant are based upon today’s technology.

Chris argues that there are two broad-stroke problems that sustainable development should address: the Malthusian problem and the Climate-Change problem. At a simplistic level, Malthus’ believes that the constantly subsisting cause of periodical misery has existed ever since we have had histories of mankind, does not exist at present, and will forever continue to exist, unless some decided change takes place in the physical constitution of our nature. Taking the logic to its conclusion, the basic argument is that we’re living (far) beyond our means. Without innovation, we most likely are – but can we innovate our way out of the problems we create. The Climate Change problem basically boils down to Global Warming, which binds the synapses of anyone who dives into it.

Dave M offered us his third post by tackling a model of sustainable sourcing transparency over on Buyer Analytics. He says that to learn more about ethical sourcing, we need look no further than Mountain Equipment Coop, which takes corporate transparency to a whole new level. MEC fully discloses non-compliance in its supply chain. It reports material issues and openly discusses the dilemmas the company faces when it comes to ethical sourcing. It publishes an annual sourcing report with positive and negative information. It realizes the foundations of the solution to any problem, including sustainability, are truth and open discussion.

On MEC’s Ethical Sourcing blog, Harvey Chan tackles pollution, social ills, and the developing world. In the article he notes that, according to the United Nations Environment Program, Canada, on a per capita basis, produces five times more carbon dioxide than a communist apparatchik in China or an impoverished farmer in Sri Lanka, which is not all that “progressive”. The only thing us Canadians can be proud about is that we’re still slightly ahead of our southern neighbors, who produce 2.3% more equivalent global carbon dioxide emissions. He also points out that paying disposal taxes when we buy a product is brilliant because we consumers are price sensitive and making pollution costly will force us to think about our choices. This indicates that the big challenge facing government is finding similar policy instruments to reduce industry driven carbon dioxide emissions and that carbon taxes on corporations is the next logical step.

It’s Not Easy Being Green

Sustainability may be more … much more … than being green, but that doesn’t mean one should ignore the great article that recently popped up over on “Chief Executive”.

The article essentially starts off by noting that while CEOs would argue that global warming is a legitimate universal problem to be solved, they may not be as clear on which of the dizzying array of green products, strategies and promises are, in fact, about sustainability. What impact will a “green” strategy have on the environment? shareholder value? corporate finances? and how do you know if the strategy is “green“? A CEO can’t just do what she believes is right – because it’s not the company’s money, it’s the shareholder’s money. She has to balance on what is currently a tightrope walk between fiduciary responsibility and environmental correctness. She has to find the “zen of being green” – the sweet spot – that represents a decision that is good for the environment, the company, and thus the shareholders.

The article then notes that a good place to start is with conservation strategies. For example, with today’s skyrocketing energy costs, energy conservation will save your company big bucks. Waste reduction in manufacturing will allow you to produce more with less. Paper reduction will also save big – in cost and in environmental impact. And efficiency will provide cost savings all around.

Now it’s true that not every cost-efficient strategy will be environmentally friendly, just like not every environmentally friendly strategy will be cost-efficient, but since companies are going to pay one way or the other – either today by adopting more environmentally friendly practices across the board or tomorrow when they are regulated, fined, or both – companies need to start taking environmental sustainability and green seriously today. Besides, as adoption of new practices and environmentally friendly materials grows, economies of scale will eventually kick in.

The article also notes that not only do consumers expect companies to make money and profit from the sustainability work they do but that they are starting to realize that if it’s not financially sustainable, it’s not going to be environmentally sustainable. This is good news. You can’t save the whales if you can’t save yourself. (And, if you’re truly innovative, there’s no good reason why you should not be able to do both!)

The article also includes a short check-list of five things to consider while developing your earth-friendly strategy.

  • Don’t Fudge!
    If you’re behind the green curve, and your customers are noticing, don’t rush out with a half-baked scheme – otherwise, you’re likely to be labeled as a “greenwasher” or a “green-lite” organization, and will earn the scorn of the watchdogs and consumers you were hoping to impress.
  • Pick the Low-Hanging Fruit.
    Start small and wring out energy costs, for example. Gain knowledge, save money, and keep investors calm before going for the big win.
  • Partner Wisely.
    Work with organizations that have proven success rates that will work with you, not just the first nonprofit that calls. The local non-profit might have great passion for the environment, but if they’ve never worked with an organization of your size before …
  • Show Your Work.
    The best defense against a “greenwashing” label is transparency. Be sure to tell your story in a metrics-driven, fact-based manner.
  • Get the Word Out.
    Once you have an authentic, successful green strategy, advertise.

Some Recent Pieces on Sustainability

Last November, the Supply Chain Management Review ran an article on “The Sustainable Supply Chain” that noted that being sustainable is now a source of competitive advantage and a matter of corporate survival rather than a costly inconvenience.

The article, based on a study by A.T. Kearney and the ISM that surveyed a diverse group of Fortune 100 firms, revealed that 60% of firms have adopted sustainable practices to strengthen brand names and deduced that it is now time for “wave-two” sustainability: for companies to move beyond saying the right words to truly making sustainability happen.

The article states that supply managers can foster sustainability by ensuring that suppliers incorporate sustainable innovations in operations and processes. (D’uh! But then again, this is an article that says our study reveals that achieving genuine sustainability results from making supply chains more sustainable. Double D’uh!) In particular, processes and technologies that reduce dependency on scarce and expensive resources.

It then outlines the following activities of sustainable supply management:

  • The Derision of a Sustainable Strategy
    A strategy defines the values a company wants to emphasize, declares how it will enforce those values, and identifies consequences when suppliers or employees don’t meet the guidelines.
  • Retooling of the Organization
    As firms increase the role of sustainability in their supply management practices, they must draft specific guidelines and procedures, create training programs, and introduce sourcing tools that equip buyers to support sustainability goals.
  • Supplier Relations Management
    You need to have relations with your supplier.

Which is followed with some implementation guidelines:

  • Survey the context
  • Understand the risks and opportunities
  • Get Ready
  • Set Priorities
  • Go

Not bad, but it seems to assume that sustainability is just about the social and environmental issues, which, although important, don’t necessarily address all of the sustainable issues. Plus, like most joint efforts, it’s very high level and doesn’t have a lot of details on implementation.

Then, earlier this month, Supply & Demand Executive ran an article called “Building the Green Supply Chain” that suggests that going green doesn’t mean going into the red, which the doctor agrees with, providing the organization is smart about how it goes green. (In fact, really smart organizations will find ways to go green and save money at the same time.)

It suggests, unlike the previous article, that although the drive toward a greener supply chain appears to be gaining momentum, the companies that are actually making steps in this direction remain in the minority. According to the article, a McKinsey survey found that while 59% of CEOs believe that their companies ought to incorporate environmental, social, and governance considerations into how they manage their supply chains, only 27% said they currently do – 33% more than the A.T. Kearney and ISM study suggest. This tells us that while Fortune 100 companies may have caught on to the need to get sustainable fast, the majority of global companies, especially smaller ones haven’t. This would suggest that either they haven’t caught on, don’t think they have the resources, or don’t think they’ll see returns from doing so. Hopefully they’ll read this sustainability series and start thinking otherwise!

Sustainability: Rounding the Bend

Eric Hiller gave us a granola definition in his first post on sustainability over on Cost Cents. Eric’s take on the debate is that a business should understand how to cost or value the profit of a sustainability initiative, since businesses have to be sustainable themselves before they can “go green” or “save the planet”. When attempting to evaluate whether a sustainability initiative is a good decision or not, Eric advises you to see how it impacts the cost statement – as it affects the cost statement the same way ANY cost does in terms of material cost, labor cost, direct overhead cost, amortized and capital investment costs, and period / indirect overhead costs. For example, the cost of material = cost of commodity + cost of disposal + cost of secondary effects. For example, if we are evaluating materials for a SUV, then we are interested in fuel economy as a secondary effect. It can be costed as the part mass times the cost per kilogram times the material strength to weight factor (since magnesium has better strength to weight than aluminum which has better strength to weight than steel, for example). In other words, just like analyzing the carbon footprint can tell you whether Britons should import roses from The Netherlands or Kenya, analyzing the cost can tell you whether or not the effort has value.

Over on Buyer Analytics, Dave M took a stab at defining sustainable procurement. Dave points us to the International Council for Local Environmental Initiatives (the ICLEI) for a definition of sustainable procurement. Sustainable procurement aims to integrate environmental considerations into all stages of the purchasing process with the goal of reducing the impact on human health and the environment. Then Dave tells us what he believes the cornerstone of sustainable procurement to be — ethical sourcing. Dave defines ethical sourcing as an organized social approach which promotes selling goods which adhere to standards for international labor, environmentalism, and social policy. He then gives us a few reasons for insisting on ethical sourcing which include the facts that there are 2.7B people in the world who have to exist on less than $2/day and the fact that rights groups estimate there are as many as 60 Million children working in violation of the Child Labor Act. (More reasons can be found in my summary of the John Lewis Partnership “Responsible Sourcing Workbook”.) He also points out that just because you don’t purchase from suppliers in developing countries that this does not mean ethical sourcing doesn’t apply to you – you still need to ask who your suppliers themselves purchase from and trace the chain.

Andy Monin on Vendor Compliance also tackled the sustainability issue in his latest point about the contradictory dual view of the average (North) American. In his post, he points out that we all want to sustain the forests, clean beaches, and good air. However, at the same time, the average (North) American wants to sustain two cars, a morning latte, and the drive-through fast-food life style. He might be a bit greener than he was in the 90’s, carrying reusable sacks to the grocery store, installing compact fluorescent lighting (CFL), and even driving a Pius … err-r-r … Prius … but this is all for naught if he continues to want a bigger house filled with more gadgets. A few CFLs isn’t going to significantly make up for the additional energy consumption of a 15% larger house with more electronics. Andy then tries to address where the true sustainability impact will come from.

According to Andy, achievable sustainability must not degrade quality of life, must create simultaneous ripples that compound the benefits and impact felt around the world, and must have champions (like Eric’s AlGorites) that can embrace the concept based on the inherent incentives and benefits. This means large institutions, like Wal-Mart, will likely be the drivers of the greatest impacts, at least in the short term. However, we must note that Wal-Mart is not really the biggest fish in the pond. It’s just one player in a large retail industry. Furthermore, from an industry perspective, US hospitals alone represent over 1 Trillion dollars (which is nearly 5% of US GDP) and could make a real difference. He then gives four good reasons why hospitals should attempt to be the catalyst of the movement and make the jump: it’s good common sense, it will make them more competitive and attractive, it will improve their ROI, and it is socially responsible. Furthermore, hospitals have to make difficult, ethical decisions every day – who better to lead the sustainability charge and truly do no harm?

Sustainability and The Economist: Part II

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 last five.

In “do it right”, we are reminded that the industry has been more or less shaken into adopting CSR policy, that globalization is largely responsible for bringing the issue into the spotlight, but that an economic recession would be bad news for the CSR industry – as companies might then see it as a luxury that could be done without. It also tries to deduce, should corporate goodness continue to flourish, how CSR might evolve. Will it be a wave of disruptive innovation that features a new breed of “social entrepreneur” that takes over as the driving force, following Mr. Benioff’s example of committing 1% of equity, profits, and time to community good? In comparison to the state of affairs today, where the same few and familiar names pop up again and again, an entrepreneurial model of tackling social and environmental problems would stir up the CSR world.

In just good business, we are told that although CSR is now mainstream, few companies are doing it well. With such a broad focus that spans everything from volunteering in the local community to looking after employes, from helping the poor to saving the planet, many companies are finding it hard to know what to focus on. CSR today appears to be composed of three broad layers. The basic layer is corporate philanthropy where companies allocate about 1% of pre-tax profits to worthy causes. On top of that is risk management to prevent disasters and worker exploitation. On top of that is an opportunity layer, where they try to find value in CSR.

In “the feel-good factor”, we are told that many people like CSR because helping the environment and others makes them feel good. The WFP connection is partly why three out of four applications apply to TNT. KPMG employees now donate 40,000 hours a year. Volunteer programs at Salesforce.com involve 85% of its workforce. The trend is catching on – and those companies that buy in are more likely to attract talent than those that do not.

In “the next question”, we’re told that, clearly, CSR has arrived. But is it working? First of all, sceptics still matter as they are found, disproportionately, in senior management. The reality is that the welfare a company creates in the form of jobs, products, or innovation still dwarfs anything they do, or are likely to do, in the name of CSR. Furthermore, a socially conscious and bankrupt business is no good to anyone. In addition, since the focus of business should be to return value to the shareholders, they are probably limited to focussing on the “sweet spot” where initiatives are good for profits and social welfare, which might, in actuality, and unfortunately, be quite limited for the average business. But interest in Socially Responsible Investment (SRI) is on the rise, along with a general surge in interest in anything climate-change related. So CSR will march, or at least stumble, forward.

In “a stitch in time”, we are told that business leaders embrace CSR for a number of reasons. When the CEO of Wal-Mart realized that it’s “not just our customers, but our communities, our countries, and even the world”, he converted. Yahoo! started to accept it in the aftershock of being blamed for the jailing of two Chinese dissidents. And some companies are lured by the glamour of joining organizations like the Clinton Global Initiative. The rhetoric might be about doing the right thing, but a large driver appears to be risk management – about limiting the damage to the brand and bottom line that can be inflicted by bad press, boycotts, and the burdens of legal action. Not the best reason, but maybe beggars can’t be choosers.