CREATING BUSINESS OPPORTUNITIES THROUGH SUPPLY CHAIN ENVIRONMENTAL MANAGEMENT

Transcription

1 CREATING BUSINESS OPPORTUNITIES THROUGH SUPPLY CHAIN ENVIRONMENTAL MANAGEMENT Analyzing companies best By Professor Ralf Seifert and Joana M. Comas - September 2010 IMD Chemin de Bellerive 23 PO Box 915, CH-1001 Lausanne Switzerland Tel: Fax: info@imd.ch

2 These days it s rare to see pop stars or Hollywood actors give an interview without mentioning their hybrid car or their commitment to composting. Over the past 25 years, caring about the environment has become cool. Governments have reacted to this public pressure with increasingly stringent legislation, while many businesses now measure their performance against a triple bottom line in other words, against environmental and social factors as well as financial success. At the same time, an increase in international trade has also seen these organizations supply chains become more complex and far more globalized. Over the past decade, it has also become clear that companies cannot claim to be truly sustainable unless they can account for the environmental and social impact of their entire supply chain. The result? Supply chain environmental management (SCEM) is now emerging as the new frontier in corporate sustainability initiatives. Organizations are already developing guidelines such as the Greenhouse Gas Protocol, a corporate accounting and reporting standard, but surveys suggest that there is still a clear lack of well-established, robust methods for measuring and reporting supply chain environmentally. All key stakeholders customers, governments, communities and other pressure groups support the idea of SCEM, but questions still need to be asked about the extent to which this approach is actually incorporated into. In our latest research, we analyzed the corporate sustainability reports published by 12 businesses to assess their SCEM s. Each business, from one of six different sectors, is a recognized leader in corporate sustainability. Our review produced some interesting results. Firms proactiveness SCEM proactiveness varied significantly across sectors, but remained similar within them. Our analysis showed that the electronic equipment and automobile sectors had by far the most IMD - Page 2/6

3 proactive approach, while the clothing sector obtained the lowest score. Even leading firms in this sector seem to be more concerned with social than environmental issues. Supply chain vs. firm orientation The need to tackle environmental issues not only at the firm level but more comprehensively along the whole supply chain is becoming increasingly clear. We therefore wanted to analyze whether firms are supply chain-oriented or remain firm-oriented instead when managing environmental performance. We began this part of the assessment by identifying the supply chain or lifecycle stages in which the environmental performance (or the environmental performance of which) was meant to be improved by firms action(s): materials extraction; raw materials; packaging; tier one suppliers; tier two suppliers (includes the operations of the companies supplying products or resources to the firm s primary suppliers); additional (includes building construction and demolition, business travel, employee commuting, and equipment not core to a firm s operations, such as office equipment); firm; downstream echelons (refers to intermediaries between the firm and its final customers for example, retailers or dealers); distribution; product use; product disposal; packaging disposal; total (category covers a whole supply chain or product lifecycle; it applies when conducting a lifecycle assessment); and external. When we measured the emphasis that each company gave to these different stages we again observed significant differences across sectors. The building materials sector, which invests heavily in its manufacturing base, is most firm-oriented, while the computer hardware and electronic sector which has made widespread use of outsourcing in the past decades, is the most supply-chain oriented. Certain stages, such as tier two suppliers and downstream echelons, received relatively little attention from firms in any sector. IMD - Page 3/6

4 Regulation and public pressure Some supply chain or lifecycle stages are subject to major regulation, which can lead to particularly noticeable efforts by affected sectors. For example, the fact that the computer hardware and electronic sector devotes considerable attention to both upstream and downstream environmental issues can be explained by the fact that it is subject to EU directives both on the hazardous substances it uses (RoHS) and on its products disposal (WEEE). Similarly, EU vehicle emissions standards explain why firms in the automobile sector are working to develop cleaner technologies that reduce vehicles impact during their use phase. In contrast, the buildings materials sector is affected by regulations concerning processes owned by the firm itself, and we can therefore see a very clear firm orientation. In the clothing and footwear sector, the pressure usually applied by the public rather than regulators falls on the suppliers stage where production takes place, given that outsourcing is common. This is why suppliers working for branded companies are subject to monitoring and auditing processes. In other words, regulation and public pressure play a critical part in determining whether or not firms adopt a supply chain approach to environmental management, and explains why taking a supply chain or a firm-oriented approach varies across sectors. Going beyond However, while these are strong drivers for SCEM, leading companies go beyond this, often for financial reasons. For example, in 2008 HP saved $7.7 million by diverting 92 percent of its non-hazardous waste from landfill. In other cases, companies comply with stringent standards, such as those set by the EU, even in regions where such regulations are not in force. Going beyond compliance can help IMD - Page 4/6

5 companies to achieve a first-mover advantage, while also reducing the cost of managing the complexity that would arise from offering a number of different products that had to comply with different standards according to where they were produced and sold. In some cases this approach can also lead to the development of new lines of business. For example, HP s effort to cut the cost and waste associated with book printing saw them identify a market for on-demand printing technologies. When it comes to traditional operational and financial performance, the benefits of supply chain integration have already been proved. Now it is time for managers to take it to the next level by comprehensively improving corporate environmental performance. Not only is it the right thing for good corporate citizens to do; it is also a chance to improve efficiency and develop new business opportunities. Ralf W. Seifert is Professor of Operations Management at IMD. He directs IMD s Mastering Technology Enterprise program, which prepares technical managers for the challenges of general management. He also teaches on the Managing the Global Supply Chain (MGSC) and the Orchestrating Winning Performance programs. Joana M. Comas is a PhD candidate at the Chair of Technology and Operations Management of the College of Management of Technology at EPFL. She previously worked for Nestlé- Nespresso after obtaining a Master s in Industrial Engineering from the Technical University of Catalonia, UPC-Barcelona. IMD - Page 5/6

6 RELATED PROGRAMS MASTERING TECHNOLOGY ENTERPRISE - Preparing technical managers for the challenges of general management Program Director Ralf W. Seifert - Prepares technically trained managers from technology- or knowledge-based industries to be company leaders - Gain a deeper understanding of the business functions, processes and challenges facing the technology enterprise - Grow personally, develop your leadership potential, boost your self-confidence and learn how to use cutting-edge management tools to lead organizational change - Get ready for IMD s Executive MBA degree MANAGING THE GLOBAL SUPPLY CHAIN - Growth through productivity and efficiency - Understand and manage global supply chain complexity and risks - Protect sales and revenue growth through efficient execution of sustainability programs - Anticipate surprises and avoid problems within your global material, information and financial flows - Explore collaboration and various forms of integration that allow you to take advantage of uncertainty IMD - Page 6/6