New approach for sustainable supply chains needed, cites ARC report

Jeff Berman, Senior Editor -- Logistics Management, 1/28/2008

DEDHAM, Mass.—Despite the advent of environmentally conscious, carbon reducing or “green” initiatives occurring in the supply chain and logistics sectors these days, there are various tradeoffs that can occur when shippers and carriers strive to take a sustainable route, according to a recent report by Adrian Gonzalez, director of the Logistics Executive Council at ARC Advisory Group.

In his report, entitled ‘Green’ Asbestos,’ Gonzalez notes that these tradeoffs exist because most products, manufacturing processes and supply chains were not built with sustainability in mind. And he adds that although sustainability is weaving its way into the industrial world, Gonzalez writes, change will occur slowly. With this being the case, he said that both companies and consumers will have to manage these tradeoffs for many years to come.

With so much talk and activity focused on green initiatives in the supply chain and logistics sectors, a lot of people in this space “are equating green with only reducing their carbon footprint,” Gonzalez told LM in an interview. And in the whole spectrum of being environmentally-friendly, one can make the argument that prioritizing energy-efficiency projects and things that reduce carbon footprints should be a higher priority, because of things like the price of oil and climate change, among others, he added.

“What is happening is that the conversation [about green initiatives] is becoming too myopic,” said Gonzalez. “What I see lacking in many reports on this topic is a one-dimensional focus on energy efficiency without taking a look at how supply chains are a system. When part of a system is tweaked, it will affect another part of it. That is not to say you shouldn’t do it, but there are definitely some supply chain drawbacks.”

Among these drawbacks are a transition to bio-fuels and ethanol-based initiatives that—while more energy-efficient are also more costly and may raise food prices, Gonzalez points out. There are also societal impacts of this example, like the possibility of increasing poverty, because it diverts investments from one area to another, resulting in a tradeoff, said Gonzalez.

Another thing to keep in mind when making green-based tradeoffs is the possibility of shippers having to change up their business or pricing models, because these tradeoffs can impact costs, according to Gonzalez.

“There are two ways [for shippers] to think about it,” said Gonzalez. “One way is to work within the existing constraints you have, because of the way supply chains and products are currently designed. Things like recycling were put in place, because supply chains and products were not designed with sustainability in mind to begin with.”

Gonzalez said the other way for shippers to think about these tradeoffs from a product development standpoint and from a business model and supply chain standpoint is to start fresh and take a new approach. This concept, he said, is a major theme of “Cradle to Cradle: Remaking the Way We Make Things,” a book by William McDonough and Michael Braugnart, which focuses on how industry can be transformed through ecologically intelligent design.

“That book’s message was that you almost need to have a new industrial revolution to really make changes and think about the materials that are going into the products and really think about the business models,” he said.

Examples of taking a fresh approach cited by McDonough and Braugnart are the concept of renting equipment rather than buying it, where materials can be easily reclaimed and reused and design can be improved.

What companies are doing today on a green level is a good start, but more needs to be done, explained Gonzalez. He cited a recent Wall Street Journal article which reported how it is becoming harder for the pharmaceutical industry to come out with new drugs, coupled with some newer drugs having a tough time being approved due to things like side effects or a lack of proven effectiveness.

“Current ‘green’ efforts are like traditional drugs that primarily treat the ‘symptoms’ of products, [and] manufacturing processes, and supply chains that weren’t design with sustainability in mind,” said Gonzalez. “It’s important for companies to also look for completely new ‘green’ strategies, just like the pharmacy industry is shifting to biotechnology and stem cell research, which tackles diseases from a completely different perspective and approach.”

To effectively do this, companies need to take a paradigm shift approach to supply chain sustainability to see improvements to transforms supply chains and products, he said.

And while there are many impressive green initiatives underway by shippers, retailers and carriers, such as Wal-mart’s environmental scorecard and the EPA SmartWay program, Gonzalez said it is important to realize that not everything is based on carbon reduction.

There are other things to focus on, such as paying more attention to the materials side, in terms of companies making efforts to reduce the amount of hazardous materials that are in their products, according to Gonzalez. Another area to focus on is reverse logistics infrastructure, he added.

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