Greening Your Supply Chain. Mark Buckley, Vice President, Environmental Affairs Staples, Inc. (508) ;

Transcription

1 Greening Your Supply Chain Mark Buckley, Vice President, Environmental Affairs Staples, Inc. (508) ; 93 rd Annual International Supply Management Conference, May 2008 Abstract. Leading edge companies know that greening is not just a nice thing to do for the environment, it is an important thing to do for business, and they are using green tactics to create sustainable supply chain and procurement processes. Sustainability means lower risk and greater resilience, which translates to better long-term business performance and a competitive advantage for your company. As our global economy becomes ever-more complex and demand for natural resources grows, sustainability will become as important a business discipline as quality and efficiency are today. Building a Sustainable Supply Chain It s More than Just Going Green. The increased publicity around the Green Supply Chain has created some misperceptions. The major misconception is that greening is just a nice thing to do for the environment, not an important thing to do for your business. Indeed, Green Supply Chain is a misnomer, because what leading edge companies are really doing today is using green tactics as part of a larger effort to create sustainable supply chain and procurement processes. These companies no longer think about business practices in terms of traditional bottom-line profitability. They think about them in terms of what is known as the Triple Bottom Line financial, environmental, and social benefits. In other words, these companies work with their suppliers to jointly develop sustainable business practices, as well as products and services, which are commercially viable, preserve our environmental resources and look after our workforce and communities. We live in an age of globalization, where demand for natural resources is growing at a rapid rate and many resources are in short supply and not renewable. With the emerging megaeconomies in China and India, this competition for resources will become even more acute. This is why today we see greater price fluctuations for raw materials such as timber, metals, and petroleum, because once-plentiful resources are now in high demand everywhere. And new applications for commodities are adding even more turbulence to the equation. Who ever thought we d see the day when the price of tortillas in Mexico City would largely be determined by the demand for ethanol in the U.S.? Additionally, supply chains are becoming more complex. Outsourcing and offshoring have radically extended the reach of supply chains and impaired visibility into them. As a result, your outsourced partner may also be outsourcing to suppliers you don t know about. This too introduces risk, because you can t implement controls on your suppliers if you don t know who they are. In this context, sustainability becomes a critical competency for supply chain and procurement professionals. Yes, sourcing renewable raw materials and partnering with companies providing sound environmental, social, and financial value propositions is good for our planet. But it is also good for your business, because it creates a more efficient, resilient, and predictable

2 supply chain. It also creates a tremendous opportunity for supply chain and procurement professionals to play a more strategic role in their organizations. Sustainable Business: Good for the Earth, Good for People, Good for Business. As our global economy becomes ever-more complex and demand for natural resources grows, sustainability will become as important a business discipline as quality and efficiency are today. Sustainability means lower risk and greater resilience, which translates to better longterm business performance for your company. Reliance on oil-based energy is perhaps the most vivid example of how a traditionally green notion has been subsumed by the greater mandate for sustainability. The price of a barrel of oil recently hit an all-time high and some analysts expect the price of unleaded regular gasoline to reach $4 per gallon this year. At Staples, we determined some time ago that reliance on oilbased energy was simply not sustainable, because prices are going to continue to escalate and sources will eventually run out. We did something very simple to reduce our exposure to fuel prices -- we worked with our truck supplier to limit the top speed of our delivery trucks to 60 miles per hour. Today, this is saving us more than 500,000 gallons of diesel fuel per year. If you do the math, this single act adds roughly $1.5 million to Staples bottom line. Coupled with our other sustainable energy efforts, including reducing energy use across all our facilities, Staples has significantly reduced the impact of oil price fluctuations on our overall cost structure. By adopting this one sustainability initiative in our supply chain, we not only reduced the carbon footprint of our truck fleet we also significantly lowered the business risk tied to the cost of oil and, most importantly, delivered seven-figure financial benefits to Staples and our shareholders. This is a great example of how one simple modification limiting truck speeds can deliver significant benefits to the business, while also being good for the environment. This is also an example of the Triple Bottom Line concept. Our truck fleet initiative delivers environmental benefits, because we generate fewer harmful air emissions. It generates social benefits, because capping speeds improves safety and reduces air pollution. And it delivers financial benefits in the form of over $1 million per year in reduced costs. The Triple Bottom Line is an excellent tool to use when exploring opportunities to build sustainable processes. If you are considering an initiative that does not meet all three bottom lines, then it may not be an idea worth pursuing. However, if it does meet all three bottom lines, then it is most likely the right thing to do. Another example of the Triple Bottom Line comes from the coffee industry. Recently, a large coffee retailer implemented a set of purchasing guidelines based on a foundation of sustainability, where every member of the supply chain is entitled to a fair profit. As part of this program, the company actually pays a 50 percent premium for its coffee beans over the price set by the coffee futures market, but it also demands complete visibility right down to the farmer level, which is challenging in the coffee industry, where 50 percent of the world s supply is grown on small family farms. The company has also developed a supplier scorecard that includes metrics around quality, social responsibility (how suppliers treat their workers) and environmental leadership (using sustainable farming practices).

3 The company launched the program in 2005 and its goal is to have 80 percent of its coffee supply conform to its supplier scorecard standards by The program offers obvious social and environmental benefits. However, it also ensures the long-term stability of the coffee retailer s access to the highest-quality coffee beans, because its suppliers and the individual farmers have adopted processes that will keep them productive and profitable over the long term. By following the Triple Bottom Line in principle, the coffee retailer has created a virtual win-win-win for all the many stakeholders involved. Sustainability Raises Strategic Value of Supply Chain and Procurement. The sustainability trend represents a major opportunity for supply chain and procurement professionals to significantly raise their profile as strategic change agents within their organizations. The sustainability trend is currently in its early stages where only a handful of leading-edge companies are aggressively pursuing enterprise-wide sustainability programs. By becoming champions of sustainable business processes within their own sphere of influence, supply chain and procurement professionals can take a leadership role in driving their organizations to be more profitable, sustainable and responsible business models. This opportunity exists because globalization has simultaneously expanded supply chains and made them less stable. When you combine these factors, it creates risk that rivals any other source of risk your company may be facing. For example, your company may contract with an overseas manufacturer to reduce costs. However, your company may not know that the contract manufacturer subcontracts component fabrication to other partners. The subcontractor you don t know about may be using materials that are harmful to the environment or sourced illegally. Staples recently terminated a contract with a supplier of paper for this very reason we discovered that the supplier was sourcing paper using forestry practices that did not support our Triple Bottom Line. By terminating the contract, we reduced our exposure to risk from having a supplier with suspect social and environmental practices. We also eliminated the potential for bad publicity that could result from the practices of a supplier who, had we not been vigilant, could have been invisible to us. This example illustrates how sustainable business processes simply are not possible unless you have visibility into all of the moving parts within your supply chain. By achieving this kind of visibility, supply and procurement professionals can reduce the potential for non-conforming partners in the supply chain, and thus reduce the risk of product recalls, production delays, lawsuits, negative publicity, and other disruptive events. Likewise, federal and international regulations are a source of risk for companies. Risk not only from violating existing regulations, but also from not being prepared for future ones. Understanding the changing regulatory landscape can position the supply and procurement professional as a key strategic asset to the company. To put this in perspective, it is likely the United States eventually will become part of an international accord to reduce greenhouse emissions. Companies that have already implemented programs to reduce their carbon footprint will have a competitive advantage once this type of accord goes into effect. For example, Staples has committed to reducing its carbon footprint by 7 percent by 2010, using 2001 as the baseline even though we are increasing

4 our physical footprint all the time by adding new stores and facilities. We are accomplishing this through small changes like routing trucks more efficiently so they make fewer trips and implanting energy-saving lighting and technology in facilities, to more complex undertakings like installing solar energy systems in distribution warehouses and stores. This initiative is already saving the company a significant amount of money each year, and the long-term benefit will be even greater if we do enter an era were carbon emissions are regulated, because we will be prepared to compete in such a constrained environment. However, the opportunity isn t only in helping your organization manage risk. Supply chain and procurement professionals can also use sustainability to drive real business growth. For example, a national sneaker manufacturer is under significant pressure to grow revenue and earnings at a time when athletic footwear sales are relatively flat. The newest version of the company s flagship shoe was designed from the ground up to be environmentally friendly and highly efficient to assemble. The shoe is made out of recycled materials from old shoes, and its assembly requires no toxic glues. Additionally, the company has implemented new lean manufacturing processes for the shoe s assembly, which has reduced production costs by 15 cents per shoe. Combined, these factors are enabling the company to deliver its next-generation athletic shoe to market more costeffectively than previous generations, and the company has eliminated potential risk from future concerns around the use of toxic materials in shoe manufacturing. It s also tapping into increasingly growing market of green consumers who are more conscious about the things they buy. The new sneaker is the first phase of the company s broader program to transition all footwear to meet its new requirements for sustainability by Not every company is in a position to adopt an aggressive sustainability program. However, by developing a plan for operating in a resource-constrained environment where future regulations may impose burdens, supply chain and procurement professionals can take a strategic leadership role in ensuring the long-term sustainability of their companies while delivering immediate cost-savings and business value. By looking at existing products and services and finding new ways to make them more eco-friendly, supply chain professionals can help grow revenue and create a positive brand image for their organizations. Creating Sustainable Processes: Where Do I Start? The trash heap of business history is littered with the wreckage of ambitious projects that were not practical. And when we consider the meaning of practical, we should consider factors like: Does my company have the resources to successfully undertake this project? Will the project be politically acceptable? Will we be able to show short-term results that encourage executive buy-in for the greater project? Am I 100 percent confident that the project will deliver my projected results? What is the total cost of ownership based on the life cycle impacts? Evolving a traditional supply chain to a sustainable supply chain, obviously, is an ambitious project. Therefore, it is important to consider the points above. To lay the groundwork, it is first important to think about the business objectives of your project. What results would be most

5 beneficial to your business? Improving the predictability of your supply chain? Reducing costs? Improving your company s competitive position? Once you define the business objectives, you can move forward to analyzing your supply chain and all of the opportunities for green improvements. Key points to consider would include: Raw materials Transportation Manufacturing Distribution Disposal Within each of these, you should look for the symptoms of opportunity anything that generates pollution or waste represents an opportunity to implement green initiatives. A quick win for any company is to reduce the number of deliveries you are getting from suppliers. Staples, for example, works very closely with its contract customers to reduce the number of small orders they make (for example, ordering one box of pens) and looks for ways to consolidate multiple purchases to limit delivery truck trips. Not only does this help our customers reduce their carbon footprint, it also reduces fuel used by Staples trucks. Often when you identify one opportunity to reduce waste and pollution, it will benefit multiple areas within the supply chain. Staples move to recycled products is a prime example of this. Staples currently offers more than 2,000 products made from recycled paper. Through the sale of these products, Staples and its customers currently save the equivalent of 2 million trees annually. The benefits of our recycled paper offering, however, transcend simple raw material procurement and extend through our partners manufacturing processes. As part of our effort to adopt recycled materials, we helped our suppliers understand that the issue we were addressing was not just green, but rather sustainability. This required some evangelism on our part, because it can be difficult to convince partners to change their manufacturing processes. Our file folder manufacturer was quite resistant to this change, saying, You re our only customer asking for this. It s going to be a lot more expensive. However, when we analyzed the manufacturer s processes, we found that the company was buying fiber on the spot market, which is expensive, and using old manufacturing equipment, which was highly inefficient. We showed the partner how installing modern manufacturing equipment and moving to recycled content would actually increase its profitability and improve its competitiveness. The company wound up doing just that, and today it enjoys lower and more predictable raw material costs, and much more efficient manufacturing capabilities. Going green has enabled the company to bring products to market much more efficiently than it could before, while also radically reducing the environmental impact of operations. This example also highlights the importance of having complete visibility into your supply chain. By understanding our manufacturers processes, we can diagnose potential areas of risk and drive important efficiency changes that benefit everyone. Transparency also provides

6 you with the information you need to identify opportunities to apply the Triple Bottom Line and improve sustainability. At the same time, your suppliers can be a great resource for you in your sustainability program. Many of them will already have adopted initiatives to improve sustainability, and they can provide valuable insight into how you can work together to create more sustainable processes. Finally, if you re going to implement sustainable business practices in your supply chain, it is important to walk the walk and adopt these practices yourself. It is amazing how many companies put on a green face by advertising the environmental friendliness of their products, but when you walk into their offices, you see they don t even recycle office paper. Sustainability is not a selective discipline it needs to be part of the corporate culture, just like customer service, manufacturing quality, sales excellence and other disciplines that drive successful companies. You can start creating a culture shift toward sustainable business practices in your company by making small improvements. This can be as simple as putting up signs asking people to turn off the lights when they re done with a room, setting double-sided printing as the default on printers, or having every employee use an signature that includes a line about think twice before you print this . These small changes plant the seeds for a greater culture shift. And make no mistake about it sustainability will require a culture shift in your company. Human beings are naturally resistant to change and sustainability initiatives are invariably met with skepticism from the but we ve always done things this way crowd. By starting small with easily adopted changes, you can begin to make this culture shift at the grass roots level. These early successes will deliver positive results, which ultimately will help you reduce resistance when you want to roll out more ambitious undertakings that drive your company to true business sustainability.