Category Archives: Sustainability

Strategies to Design For Supply

Even though it’s a topic the doctor mentions regularly (see “AMR’s 7 Supply Chain Best Practices”, and Procurement Lead Time Optimization, and The Benefits and Risks of Global Product Development, for example), it’s something that he rarely dedicates a post to. However, since, Supply and Demand Chain Executive recently published an article by Heather E. Domin, James Wisner, and Matthew Marks on nine strategies you an apply when you “Design for Supply Chain”, now seems like a good time to dedicate a post.

Design for Supply Chain, or, Design for Supply, is the process of optimizing the fit between supply chain capabilities, product designs, costs, and expected revenues. It is the application of supply chain management processes, techniques, and innovations that aim to simultaneously increase customer satisfaction, minimize total costs, mitigate risks, and maximize the flexibility to adapt to unexpected events.

The authors are right when they note that, “efficient product design is not just a way of squeezing out cost savings, but a competitive weapon to be leveraged for strategic advantage” (especially since good design for supply uses TRIZ). Furthermore, as the article notes, “applying a product life-cycle management mentality as early on as the conceptual design stage, a product can be developed from the ground up to be a truly supply-chain-efficient creation.

But what the doctor really liked about this article was that all of the the nine strategies outlined in the article were sound. They were:

  1. Optimize Levels of Product Integration
    Determine the optimal level of pre-assembly at upstream suppliers. Balance flexibility (the ability to configure parts in different ways, replace parts, or use parts in alternate products) with assembly time (as assembling all of the parts yourself can take time and add labor cost).
  2. Leverage Industry Standards
    Whenever possible, use industry standard parts unless the proprietary part creates a competitive advantage.
  3. Minimize Premium Freight
    Thanks to continuously rising fuel costs, increased regulatory requirements, and continuously shrinking free capacities, freight costs are no longer an insignificant part of the total cost of any buy. Sometimes, they are a majority cost – especially when you have to ship express. Be sure to design the chain with acceptable lead times and sufficient safety stock of common components or alternate components.
  4. Design for Life Cycle
    The product design should be amicable to potential component or configuration changes throughout its intended life-cycle.
  5. Configure the Selected Supply Chain
    Make sure the supply chains are designed in accordance with the company’s strategic network plans, at the category group level and not the individual product level.
  6. Design for Demand & Supply Planning
    Good designs include commonality, modular design, universal function, and final configuration postponement to allow for pooling of demand and labor.
  7. Minimize Inventory Costs
    Design your supply chain to maximize velocity and minimize lead times as much as possible to reduce the amount of stock and safety stock you have to keep on hand.
  8. Optimize Order Management
    Products should be designed to provide the maximum amount of flexibility to the customer with little or no additional internal cost.
  9. Minimize Warranty / Service Costs
    Create a reliable, high-quality product with easy to diagnose faults and customer replaceable parts that have a high warranty redemption value.

And this is a good start.

Sustainability: The Bridge, Part II

Over on Spend Matters, Jason Busch gave us a teaser when he asked “how green / sustainable procurement will play in a recession”. According to Jason, while it would be easy to dismiss green and sustainable procurement practices as a luxury for companies to invest in when times are good, I actually believe that they could help organizations to buoy their top lines and pull up from a spiraling downturn or period of contraction. Whether it’s better marketing the benefits of green supplier practices to customers to spur pent-up demand or making investments in supplier development initiatives which reduce unnecessary packaging, supplier-focused sustainability initiatives have the potential to drive sales and reduce costs.

Over on 2sustain, Tim Albinson recounted the good news and bad news he took back from his recent trip to Washington, D.C. where he spent a day on Capitol Hill. According to Tim, the good news is that people are engaged in the environmental discussion, understand that action must be taken, and are preparing for a significant coming change with the new administration, but the bad news is that while the leaders may “get it” on an individual level, the institutions themselves seem incapable of doing anything in an expedited fashion. It appears that many deem a slow, methodical approach to legislation as appropriate. However, as Tim says, given the crisis nature of the current situation we face – melting ice caps, species on the brink of extinction, brutally over-fished seas, rampant global industrialization, etc – now is not the time for multi-year legislative cycles. It looks like it is going to be left up to industry and NGOs to pick up the slack.

Over on Deal Architect, Vinnie Mirchandani reminds us that, unfortunately, despite the growing moral pressure for companies to adopt more environmentally friendly products, many companies are unfairly pricing green products at a premium, or greenwashing products that really aren’t all that green. Vinnie also says that even though we all want to do good by Mother Nature, it’s not fair to sucker the consumer into bearing all of the cost. Or, as in the example Vinnie gave, paying a markup that is well beyond the additional cost … to the point where it should be illegal (just like raising prices in a state of emergency is illegal in enlightened developed economies).

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 on the e-Sourcing Wiki [WayBackMachine], 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