Greening of the Supply Chain: Sustainability Goes Horizontal

{mosimage}The concept of a green supply chain, once the domain of a very select number of companies, is gaining interest among operations practitioners as a sustainable and profitable undertaking, according to Diamond Management & Technology Consultants, Chicago. Foodservice distributors are advised not remain on the sidelines of this evolution.

“We are suggesting that companies and the supply chain take a holistic view of green, sustainability and environmentally-friendly initiatives and put them into a holistic context by looking across their entire supply chain both internally and externally,” Mark Baum, partner with the consultancy, told ID in a recent interview. “This is not only good business but good for the business.”

Baum, who has analyzed the consumer packaged goods industry and is also familiar with foodservice distribution, believes the benefits will be greater long-term growth prospects for companies as they reduce overall costs of doing business, become more efficient in their supply-chain practices and processes, get better on issues like energy conservation and use, recycling, waste, and reducing overall carbon footprint.

“Distributors also benefit economically from enhanced supplier and operator relationships and more intimate, dynamic relationships with the consuming public, proactively staving off regulatory actions, and creating standards with which they can govern themselves as an industry,” he said.

Baum said a distributor’s external actions would engage up and downstream trading partners in developing a framework for prioritizing those initiatives that would fit into a holistic mode.

“Not everything that a distributor does will necessarily deliver an immediate return on investment. But what you need to do as a company is to determine those initiatives that are supply-chain improvements per se that happen to have an environmentally-friendly or green dimension to them,” he said.

“This is not only good business but good for the business.”
Baum advised distributors and their supply-chain partners to begin making sustainability demands of each other, many of which are already being undertaken to a greater or lesser degree. He said efforts to make route distribution enhancements or adopting environmentally-safe packaging were done in the name of supply-chain improvements and productivity though they also could have been categorized as green initiatives.

Distributors’ efforts at reducing costs and energy consumption and inventory management should not only be regarded as projects meant to reduce costs and keep the company from closing its doors. They can also be included under the green supply chain rubric.

“That provides further incentives to continue with these efforts because the distribution industry is subject to many macro influences of the economy, such as energy pricing and employee costs. The more that we can measure our effectiveness of undertaking green projects, the more they will incentivize us to do more and get better at it,” he said.

Since the concept of a green supply chain is “fairly nascent in its development and fairly embryonic in its maturity,” Baum admitted that it would be difficult to monitor and verify comprehensive sustainability of supply-chain partners “and we’re not suggesting that.” However, he added, the time is ripe to begin examining this issue in a horizontal plane.

“These discussions between trading partners ought to be taking place and companies ought to be coming up with prioritized lists of what to do. The discussions ought to be led by senior management or else they won’t go anywhere and they ought to be considered within the context of bottom-line improvements. The participants ought to come up with specific frameworks for trading partners,” he said.

In a study by Diamond Management & Technology Consultants called “The Case for a ‘Green’ Supply Chain: Turning Mandate into Opportunity,” Baum and his colleagues determined that implementing this plan means generating value for the participants.

“In the emerging value-creation model, implementing green initiatives along a company’s supply chain can raise productivity, enhance customer and supplier relations, support innovation and enable growth,” the report said, noting that the initiative is not merely about green issues – or hugging trees as some have said – but also about generating efficiencies and cost containment.

“The key to extracting business value lies in establishing a long-term green strategy that is aligned with corporate strategy.”
The study said a green supply chain results in a better perception of the company by the public and shareholders at a time when governments are increasing their focus on environmental friendliness of corporations and how quickly they adopt environmental initiatives.

“While green initiatives can lead to better supply chain efficiencies, the key to extracting business value lies in establishing a long-term green strategy that is aligned with corporate strategy and approached top-down—with strong sponsorship,” the study said.

As examples of the movement’s early success, the consultancy offered the following case studies:

  • Wall-Mart, which in 2005 launched a sweeping business sustainability strategy, recently set the goal of a 5% reduction in packaging by 2013. The giant supermarket expects the cut in packaging will save 667,000 metric tons of carbon dioxide from entering the atmosphere. Moreover, the company anticipates $3.4 billion in direct savings and roughly $11 billion in savings across the supply chain.

  • Nestle employs an ongoing company-wide sustainability program that has generated significant environmental and financial benefits. The company has applied the strategy to its use of product packaging by initiating an integrated approach that favors source reduction, re-use, recycling and energy recovery. In particular, the company’s packaging material savings between 1991 and 2006 led to $510 million in savings, worldwide.

    The consultancy suggests that green projects are best accomplished in small steps such as in areas that have the greatest business and environmental impact so that companies can look for quick wins before moving forward.

    By participating in this supply-chain movement, companies will transition from complying with mandates to becoming more proactive and generating more efficiencies, raising productivity, and containing costs and energy consumption, Baum pointed out.

    “Foodservice distributors that operate on razor-thin margins are always looking for continuing improvements in their supply chain operations,” he noted.

    Baum recommends that distributorships begin creating a governance model to guide green initiatives within their companies and create definitions that they will require in order to begin having a dialogue with their suppliers and operators.

    “It would be extremely beneficial for the industry to get organized under the umbrella of its trade association to create a framework for an industry effort that would also help them set standards, provide specifications and benchmarks that they need as an industry to measure progress,” Baum said.

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