Supply Chain Gain: Shades of Green

Tags: Green Logistics, Supply Chain Management

Sustainability efforts can help companies grow more efficient supply chains.

From renewable energy development to carbon emissions calculators to recycling and reverse logistics, lean packaging, LEED-certified warehouses, and hybrid electric delivery vehicles, green is everywhere. Consumers are buying the idea, government is regulating it, carriers and logistics service providers are mandated by it, manufacturers and retailers are selling it, and supply chains are posturing to varying degrees of greenness.

Even with the media and market attention that blankets sustainability, there are leaders and laggards, and those looking to take advantage of a good thing. Businesses are capitalizing on obvious, inexpensive ways to operate more efficiently and protect the environment; many have followed suit for pure economic reasons.

“Energy efficiency in machine use and processes has been industry’s biggest win,” says Patrick Penfield, assistant professor of supply chain practice at Syracuse University’s Whitman School of Management. “We have a long way to go, but we have made strides compared to energy consumption 10 years ago.”

Much of this progress is a consequence of better technology, processes, education, and efforts to mitigate global fuel price volatility.

Setting the Standards

Penfield cites material waste as an area that needs improvement. In the context of supply chain management, this raises an interesting point.

Businesses can individually create green objectives, benchmark progress, and continue to remove waste from the process. Internal functions within an organization can do as much. But efficiencies gained at one touchpoint may be lost at another, unless standards are broadly communicated and enforced.

In trying economic times, compliance is often challenged for one simple reason— true supply chain sustainability requires time, money, talent, and thought.

The business case for being sustainable is saving money. The global economic recession placed industry in a position to squeeze costs out of the supply chain. In the process, many companies achieved notable sustainability gains— whether they realized it or not.

A red light on green?

When Inbound Logistics surveyed third-party logistics providers in early 2009 as part of its annual 3PL Market Perspectives industry overview, nearly 40 percent of respondents indicated that sustainability was a top priority among their outsourcing customers. In 2010, that number dropped to 21 percent. Why the difference? Did companies suddenly give the red light to green?

To some degree, this marked drop is a matter of perspective. Businesses that entertain opportunities to be more efficient— optimizing transportation, realigning distribution networks, outsourcing more— don’t necessarily identify these efforts as “green.” When the recession was in full swing, day-to-day optimization and cost reduction were a priority over everything else.

Creating more efficient vehicle routes and mandating drivers not to idle trucks are, first and foremost, operational achievements. By comparison, purchasing a new fleet of hybrid-powered trucks or holding suppliers compliant to specific sustainability operating procedures are green progressions. In reality, efficiency and sustainability are intrinsically tied and difficult to tell apart.

For the most part, these instances of shared gains are positive. It’s hard to find fault with companies that grow leaner and greener together. Identifying and executing a business case for protecting the environment is a necessary first step.

A problem arises, however, when a sustainability improvement is the by-product of another optimization— and not directly attributed to a specific green goal. Its value and ROI often become obscured.

isolating sustainability investments

A recent report by global consultant Accenture speaks to this issue, and the challenges companies face trying to unbundle, then distill, the real worth of sustainability investments.

Can Business Do Well By Doing Good?, by Bruno Berthon, David Abood, and Peter Lacy— all managing directors in Accenture’s Sustainability Services global group— offers follow-up insight on a 2010 Accenture-United Nations study that captured how global CEOs are dealing with the long-term perspective of sustainability and the near-term pressures of the bottom line.

While research suggests that sustainable business practices correlate closely with high performance, “on an operational level, sustainability is not yet seamlessly woven into the fabric of business,” the authors write. “Executives still must make, almost daily, difficult trade-offs between practices that meet short-term business needs and those that will contribute to sustaining the needs of future generations.”

This snag is apparent within many organizations and supply chains, where individual functions and departments, or suppliers and service providers, arbitrarily work toward different sustainability standards. While some might cut corners to reduce costs, others hold fast to their own guidelines— perhaps to their own detriment in meeting customer expectations. Relatively few companies in the world have the clout and sophistication to dictate comprehensive compliance inside and outside the enterprise.

Some companies, unfortunately, are taking advantage of the green movement. But sustainability is here to stay, especially with the growing population base and lack of resources.

“This conflict can be seen on another level, as well,” Accenture’s analysts continue. “Investments in sustainability today are seldom reflected in next quarter’s earnings announcement. This misalignment…a function of basic financial performance analysis, must be reconciled before sustainability can be integrated and embedded in operations— that is, before sustainability becomes a truly integral part of what it means to be a high-performance business.”

Geographic, political, and cultural factors make widespread compliance even more challenging for globe-spanning enterprises.

This isn’t to say that businesses aren’t trying or have been unsuccessful in their efforts. There are some well-publicized examples among both large and small manufacturers and retailers— from Stonyfield Farm to Walmart— that have committed significant capital and time toward making sustainability a seamless function within the extended value chain.

As critical links between supply and demand, many carriers and 3PLs have helped steer customers along a greener path as well. This remains a current and future goal for the transportation and logistics segment at large.

There’s something to be said for the cascading impact green best practices can have within an organization, then within a supply chain, then across other supply chains. In addition to standardizing processes, increased communication, visibility, and collaboration are bound to follow. Internally, many forward-thinking companies are developing their own sustainability benchmarks and using them to measure performance among business partners.

“Companies are grappling with this issue,” says Penfield. “Organizations are working with suppliers to institute their own environmental policies, then follow up with audits.”

These types of progressions will bring greater transparency to sustainability efforts and hold businesses accountable for meeting customer, industry, and government expectations. In the meantime, some will continue to spin the marketing cachet of “greenness” without backing it up— largely because its true value has yet to be fully appreciated.

“Some companies, unfortunately, are taking advantage of the green movement. But I truly believe sustainability is here to stay, especially with the growing population base and lack of resources,” says Penfield.

Sustainability in its purest form implies continuity. It’s not a one-off; it carries the entire lifecycle of a product from source to shelf; and its empirical value, in relation to revenue growth and cost savings, still needs to be more broadly qualified.

That’s the tomorrow for today’s supply chain sustainability visionaries.