Growing a Culture of Sustainability
Ford Motor Company’s corporate social responsibility journey offers a roadmap for industry to travel.
Corporate America has been preaching green for the past decade. In the halcyon days of the mid 2000s it was easy, capitalizing on consumer demand for environmentally friendly products and solutions. Cash was flush. Green was a marketable trend.
Then a funny thing happened. The U.S. economy tumbled into a three-year tailspin. Industry contracted. Organizations cut operational fat. Fuel prices started rising. Cost reductions were deliberate and decisive. Green was an accidental consequence.
Following the recession, many companies understandably maintained a certain measure of austerity within their organizations. It was business prudence with a benevolent upside.
More recently, the maturation of social media and the matriculation of millennials into the workforce and consumer market—one creates transparency, the other demands it—has brought to industry a heightened sense of conviction that goes beyond green. Sustainability has become an indisputable truth.
Supply chain practitioners know this well. The logistics sector has long been on the leading edge of green innovation simply because efficiency and economy go hand in hand with reducing environmental impacts.
But supply chain has also become a target. The Internet and social media give consumers visibility to the seedier side of sourcing and procurement—where workers’ rights, conflict minerals, and environmental impacts come under greater scrutiny. Consumers demand transparency and accountability, which is forcing manufacturers and retailers to double down on the triple bottom line.
Finding a common ground between cost and corporate social responsibility (CSR) remains a challenging proposition—unless organizations nurture a culture of sustainability.
“A business that makes nothing but money is a poor business,” claimed 20th-century industrialist Henry Ford. It’s a mantra that still resonates today for the automotive manufacturer.
Ford Motor Company’s lean and green journey is a century in the making. Like other automotive manufacturers, the Dearborn, Mich.-based company is in a unique position. The products rolling off its assembly lines are mandated to be more fuel-efficient by regulatory and consumer demand. But there are internal pressures to reduce waste as well—a reality born from Henry Ford’s own lean philosophy.
A Lean and Green Culture
Culture is a word laden in meaning. In the business sense, it can be defined as a shared system of beliefs or thinking imbued within all functions of an organization—sometimes, external value chain partners as well—that dictates the way people behave. Culture doesn’t play well where silos exist. So as technology and business process assimilation help supply chains become more integrated across functions and extended global partners, companies have more opportunities to initiate sweeping sustainability mandates.
In 2007, Ford introduced a formal Blueprint for Sustainability to describe actions it was taking to increase fuel economy and reduce greenhouse gas emissions in its products. The plan struck a nerve. Ford has since expanded that roadmap to embrace sustainability in a much broader way.
“Sustainability is the intersection of social, economic, and environmental factors,” explains Mary Wroten, senior manager, supply chain sustainability at Ford Motor Company. “If the good we’re doing today puts us out of business tomorrow, then that’s not a sustainable solution.”
Wroten leads Ford’s global supply chain sustainability team, which focuses on three pillars: environmental responsibility within Ford’s supply chain, human rights and working conditions, and conflict minerals. The sustainability office works with both internal and external organizations to provide regulatory and technical expertise.
The roots for this formal roadmap were planted one century earlier, then revised at the dawn of the millennium. Henry Ford was notably obsessed with eliminating waste—in terms of both material and time. It was the driving force behind the automotive company’s just-in-time manufacturing ethos and “verticalization,” as Ford looked to control the means of transportation as well as supply.
The capitalist also bucked convention in 1914 when he introduced a $5 daily wage for assembly line workers—more than double the average pay of the day. It wasn’t complete altruism. Ford recognized that paying workers well reduced turnover and created a middle class that could afford to buy the Model T—which helped popularize the fledgling idea of “automotion.”
Steering a New Vision
In 1999, William Clay Ford Jr., Henry Ford’s great-grandson, steered a new 21st century vision when he decided to create a sustainability organization within the company, handpicking his own key leaders to fill out the team. One year later, the company announced it would follow the Ceres principles, a voluntary 10-point corporate code of conduct that pledges continuous environmental improvement and performance beyond that required by government regulations. The non-profit was established after the Exxon Valdez disaster in March 1989.
The automotive company’s advocacy was not without some opposition, as Ford Jr. recounts in the company’s 2013-2014 sustainability report.
“My announcement was greeted with alarm in some quarters and skepticism in others,” Ford Jr. writes. “Some felt that our commitment to sustainability would harm our business results; others believed it was an empty gesture that would not change how we operated. But in the years that followed, sustainability became a core element of our business plan.”
2000 proved to be a watershed year. Apart from adopting the Ceres principles, the company also initiated a formal dialog regarding human rights in the supply chain. This was followed by the introduction of a Code of Basic Working Conditions (CBWC) in 2003, which covered workplace issues such as child labor, compensation, forced labor, freedom of association and collective bargaining, harassment and discrimination, health and safety, and work hours. A 2007 revision featured topics such as community engagement and indigenous population, bribery and corruption, and environment and sustainability. Importantly, the CBWC applies to all of Ford’s facilities, as well as joint ventures and suppliers.
Also in 2000, Ford Jr. addressed the issue of water conservation—a timely topic today. Between 2000 and 2013, the manufacturer reduced water use across its global footprint by 61 percent, the equivalent of more than 10 billion gallons of water.
That the company’s decision to create an internal sustainability task force in 1999 precipitated this cascade of initiatives is no small coincidence. Corporate social responsibility remains a continuous improvement journey.
“We continue to work with our supply base,” says Wroten. “In 2014, we saw our first conflict minerals assessment; we’re now getting ready to file our second report. Sustainability has been in our culture since day one.”
Defining sustainability remains a challenge for industry at large, which further complicates broader CSR efforts.
“Every company has a different definition,” says Wroten. “Ford identifies sustainability as great product, strong businesses, and a better world—or the intersection of social, economic, and environmental factors. But how we define sustainability today will probably change in the next 10 years, especially as we factor in wireless connectivity and technology.”
Once an organization has a clear understanding of its sustainability priorities, it can then set about creating a framework to measure and benchmark performance. Ford, for example, has an annual business plan review process where it defines critical needs.
“We have a forecast we work toward,” Wroten says. “We have metrics, and define risks and opportunities. We constantly monitor the business environment—what’s happening in the world around us—to see if we need to adjust the plan.”
Senior governance is important. For example, when Alan Mulally came over from Boeing in 2006 to succeed Ford Jr. as president and CEO of Ford Motor Company, he brought with him the idea of creating a value roadmap —Ford only works on things that add value to the company.
So the manufacturer has metrics in place to deliver according to its value roadmap. When problems occur, senior leadership can help steer adjustments. Transparency up and down the chain of command is compulsory.
The importance of visibility in Ford’s sustainability roadmap extends well beyond the enterprise. Consider that the company works with 1,200 suppliers with 4,400 production sites spread across more than 60 countries.
“Our biggest concerns often happen deep within the supply chain,” says Wroten. “We’re many layers removed from where minerals come out of the ground.”
Ford has made a commitment to partner with its tier-one suppliers and make sure they are aligned in terms of human rights, working conditions, and the environment. It has a program in place to share knowledge and best practices—metrics to reduce water consumption, for example—with select vendors. The hope is that these partners will then cascade this information through their own respective networks.
Since 2003, Ford has also been training suppliers on its expectations for CSR. It recently developed an e-learning program, in collaboration with four other original equipment manufacturers (OEMs) and the Automotive Industry Action Group, that addresses human rights, ethics, the environment, and sustainable business practices. The manufacturer regularly audits facilities to drive compliance.
“We work with a third party that visits supplier facilities to ensure they are meeting our expectations,” explains Wroten. “We believe workers are more likely to be productive when they are afforded decent working conditions. If we help our suppliers ensure their facilities are up to par, they will ultimately make a better quality product.”
At Ford, meeting and exceeding internal sustainability requirements doesn’t go far enough. As the automotive industry becomes more integrated, and as technology continues to shape new product innovation, more opportunities arise to extend sustainability best practices within and beyond the automotive industry.
Many OEMs share the same tier-one suppliers, creating greater incentive for the industry to work collaboratively and ensure that expectations for human rights and the environment trickle down even further.
“The paradigm is changing,” explains Wroten. “If we look out 10 years, we will not only have collaboration across the auto industry, we’ll have cross-sector responsibilities as well. Our cars are ‘computers with wheels,’ requiring more alignment with the electronics industry in order to gain supply chain transparency.”
3PLs Walk the Talk
Not all companies have the resources or resolve of a global automotive manufacturer; nor are they in the camera’s eye. Making a business case for sustainability can be a challenge , which is why many companies rely on their third-party logistics (3PL) partners for direction.
“We have a thriftiness DNA that lends itself to green,” says Ken Heller, vice president of supply chain excellence for DSC Logistics, a Des Plaines, Ill.-based 3PL.
Indeed, 3PLs have a mandate to be efficient. Asset-based service providers operate on thin margins, so they have extra incentive to squeeze out costs, whether it’s transportation, labor, or energy.
The sustainability play has become increasingly important as shippers demand it. Still, when it comes to outsourcing, most companies are fixated on cost.
“When we deal with customers, we focus on the economic and environmental aspects of sustainability—in that order—and less so on social. As a 3PL, we’re driven by cost. We can bring up sustainability with our customers, but we’re only going to be able to make that work if there’s a return on investment,” explains Rick Dineen, vice president of operations for DSC Logistics.
Following the Leaders
Leadership buy-in is another important consideration. For example, DSC has been trying to implement a lighting project that would save money and reduce energy consumption for a customer.
“The ROI was there as advertised, and better, but we got pushback,” says Heller. “Finally the right people in the organization looked at it and they flipped the switch.”
Dineen acknowledges that green considerations can be a tipping point if the expected ROI exceeds the norm. “It’s about tying sustainability to cost control and adding value,” he notes.
Finding a green ROI though, especially in a shorter-term 3PL contract, can present difficult choices.
Deni Albrecht, leader of sustainability for Kenco, a Chattanooga, Tenn.-based 3PL, offers an example. Kenco was working on a project with a customer to make lighting upgrades at a leased distribution facility in California. The 3PL had successfully completed four other installations for the company elsewhere around the country. But California’s Title 24 specifications for energy upgrades make companies jump through hoops to get the necessary controls.
“Because the lease life in that facility was running out, the project was tabled,” he explains. “With this customer, we focused on sustainment of the margin, not sustainability.”
That’s the nature of outsourcing. Decisions often simply come down to cost. But on other occasions, logistics providers and their customers become true gain share partners.
To point, Kenco is working with another client to construct a greenfield distribution facility—with instructions to make it LEED certified. Albrecht counseled the company to build the new facility with required green features, but to qualify it later as an existing facility rather than a new one. This way the customer has fewer upfront hurdles and capital investment.
That’s the real value 3PLs bring to the table as neutral benchmarks. In many cases, shippers depend on them to perform the necessary due diligence, then make recommendations.
“We’re looking at 50 different buildings—15 to 20 customers,” says Heller. “If each one has a clever idea, and we can share that around our customer base, it’s that much more powerful. Typically if it works for one company it will work for another.”
Sustainability efforts often feed off grassroots action. In a vacuum, small impacts build momentum and eventually generate greater support. In a corporate environment, however, senior-level buy-in is critical. Without appropriate governance, supply chain collaboration can be difficult.
“You can go broke being green. It’s not sustainable,” says Kenco’s Albrecht.
“Sustainability is about being lean, green, and a good corporate citizen. You have to do it all,” he adds. “Sustainability is the mortar within all the different functional bricks that empower us to make core business decisions that are just as good today as they are tomorrow.”
When companies appreciate supply chain and sustainability excellence in the same vein, opportunities abound.