Why “Green” Equals Good Business

More and more companies are discovering that a greener, more sustainable supply chain is good not just for the environment but also for the business.

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When Wal-Mart threw its hat into the “green” ring a couple of years ago, corporations around the world sat up and took notice. After all, the retailing behemoth wasn't talking about just installing energy-efficient light bulbs or cutting down on paper waste…it was taking square aim at its supply chain. That meant all trading partners up and down the chain would be assessed—and ultimately affected—by Wal-Mart's dogged determination to become a green enterprise.

That determination goes beyond mere rhetoric. Already known for its innovative supply chain strategies, Wal-Mart in partnership with the Carbon Disclosure Project, asked suppliers across seven product categories to report how much energy they use when manufacturing the products that they sell to the retailer.

More recently, Wal-Mart asked suppliers to meet stricter quality and environmental standards. It also awarded the World Resources Institute (WRI) a $420,000 grant to develop tools that companies can use to measure their supply chains' carbon footprints (defined as the total set of greenhouse gas emissions caused directly and indirectly by an individual, organization, event or product).

Many other companies are following in Wal-Mart's footsteps and developing their own green supply chain strategies. “Pretty much everyone is trying to figure out how to do this, namely because the marketplace is demanding it,” says Dale Rogers, director of the center for logistics management and a foundation professor of supply chain management at the University of Nevada.

Rogers says that while much of the focus is on developing environmentally-friendly or “green” practices, the bigger target should be long-term sustainability. “At the end of the day, companies should be looking to their supply chains as a source of sustainability and operational continuity,” says Rogers, “with green being just one part of that overall picture.”

Technology vendors like LeanLogistics of Holland, Mich., are helping supply chain managers paint those pictures in the most efficient way possible. Chris Timmer, the company's senior vice president of business development and marketing, says he's seeing an increasing number of firms making “very practical decisions to reduce energy consumption,” thus creating an immediate and significant impact on the overall supply chain and on bottom-line costs.

Supercenter retail chain Meijer, carrier Con-way Freight and pallet and container pooling service CHEP rank among those companies that are using LeanLogistics' technology to achieve their green supply chain goals. CHEP, for example, has reduced empty miles through collaborative strategies, while food manufacturer Dannon has adjusted routes to reduce miles and optimize backhauls.

“Right now we're working with a number of clients to identify additional opportunities for backhauls and reduction in miles,” says Timmer. “It just makes great business sense, as well as environmental sense.”

In this article, we'll delve more deeply into the greening of the supply chain, show why its eco-friendly practices make good business, sense and lay out the challenges and rewards associated with going green.

Green Now a Competitive Necessity

Ask Cathy Rodgers why companies would spend the money and time going green in an economy where orders are down and margins are thinner than ever, and her answer is simple and to the point: “It's a competitive necessity,” says Rodgers, vice president of global opportunities for IBM and chair for the Institute for Supply Chain Management's committee on sustainability and social responsibility.

Rodgers credits the emergence of the ethical consumer and the growing interest in green initiatives, carbon footprints and sustainability with driving that competitive necessity. “To no one's surprise, all of this has had a significant impact on supply chain professionals,” she explains, “and how they're driving strategic change for their companies.”

Also directing the need is the perception that green is no longer “leading edge” or “pioneering,” and is expected by many to be a normal part of a company's operations. “People realize that sustainability and socially responsible initiatives are good for business,” says Rodgers. “Firms that want to stay on top of their games need a cohesive and comprehensive sourcing strategy that addresses environmental issues and the challenges we're facing in this realm.”

David Marsh, chief marketing officer at Hub Group, Inc., a Downers Grove, Ill., provider of intermodal shipping, transportation management and supply chain solutions, says green supply chain initiatives fall under a much larger umbrella that finds people doing what they can to leave behind a healthy, clean, safe environment for their children.

Marsh says the retail, consumer products and durable goods providers the Hub Group works with are all looking at how to make that happen across the supply chain. “What we're seeing is that the retailers, from a business perspective, are requiring the durable goods providers and consumer product organizations to become more green,” he says.

Achieving that goal isn't always easy. Marsh says firms that have been most successful at it are the ones that give their supply chains a thorough review, and that identify areas that could benefit from green efforts. “There are usually myriad different areas—from the transportation component to the warehouse to the plant—where improvements can be made,” says Marsh. He points to heating, cooling and lighting (within a warehouse, for example) as three obvious areas for companies to consider.

Looking outside of their own walls, supply chain managers can expedite more effectively, work only with reliable suppliers, strive to reduce lead times and—like Wal-Mart is already doing—demand to see exactly what business partners are doing to be more green themselves.

Profitability a Main Requirement

Supply chain managers looking to implement the most effective green strategies need to remember that, “If the green initiatives aren't profitable, they won't be sustainable,” says Rodgers, who cautions companies against using green policies and procedures for the sake of going green.

“Don't just implement or try something out that makes no sense, and that won't pay for itself in the long run,” says Rodgers. “Before testing anything out, ask yourself what your supply chain partners are doing to go green, what new initiatives might fit under the green banner, while also reducing your costs or your customers' costs and where you can remove both energy and materials out of your operations.”

To get the most accurate answers to those questions, companies must first take a step back and knock down a few roadblocks. Perceptions that green is a “transient” strategy, or one that will cost an awful lot of money, for example, tend to stand in the way for many shippers—despite their supply chain manager's good intentions. Stephen Stokes, vice president of sustainability and green technology for Boston-based AMR Research, says those issues can often be overcome by establishing a benchmark of organizational performance.

“You have to get a sense of where you are right now before you can look at where you want to go,” says Stokes. “The greatest part of a sustainable transformation is deciding what that journey is.” Start with a firm baseline of operational performance, he explains, and then use it to plot on a short-term, medium-term and/or long-term time scale exactly what targets you want to hit.

Stokes points to Dow Chemical's “Human Factor” program as a good example to follow when working through the early stages of a green supply chain initiative. Dow uses the program to track 15 environmental, sustainable-rated KPIs, says Stokes. Those KPIs range from energy usage to greenhouse gas emissions to the number of miles that toxic chemicals have traveled.

“By setting long-range targets in these 15 areas, and by making those targets very public throughout the organization, Dow has been able to exceed its [green supply chain] goals on a regular basis,” says Stokes, who notes that the company has also shaved about $8 billion off its fuel bill over time as a result of its efforts. “Even a small amount of savings can make a big difference in a firm's bottom-line costs.”

Creating a Sustainable Future

Expect more supply chain managers to don their “green” hats in the coming months as consumer demand for sustainable, eco-friendly business practices and products continues to expand. Also expect to see green standards developed in the near future, says Rodgers, as well as an upswing in the regulatory requirements surrounding sustainability.

“Consumers have access to, and a desire for, information about sustainability—information that influences their buying decisions,” says Rodgers. “The sooner companies recognize this and provide that data in a relevant, transparent way, the better off they will be.”

Stokes concurs, and says that companies that want to stay in business should put green supply chain initiatives at the top of their “to do” lists. “It's indisputable that we're going through a substantial economic transformation that encompasses issues like energy consumption and optimization,” says Stokes, who sees compliance (with government regulations, for example), environmental regulation and increased operational efficiencies as the three areas of sustainability that companies should be looking at right now.

Eventually, Stokes says the branding and messages being created to promote companies' green supply chain efforts will go the way of the 8-track, namely because everyone will be doing it. Much like the “organic” label was once a great differentiator for a select few food producers, green will eventually become mainstreamed into every aspect of society. (For a look at the key drivers for sustainability in 2008 and 2009, see Exhibit 1, which shows the results of a study by AMR Research.)

“It's going to become harder and harder to differentiate oneself solely on sustainability efforts in a world where the entire marketplace is going green and concerned about the environment,” says Stokes. “The good news is that the companies using the sustainability mantra as a basis for operational efficiency, and to reach their compliance goals, will also achieve cost savings while doing their part to help create a more sustainable future for everyone.”

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