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Strong, sustainable performance management strategies create links among like-minded businesses—and with your customers.
By Don Carli
If your company isn’t planning to address greening your supply chain this year, you may want to rethink your plan. More likely than not, your customers, your competitors and your government are already making plans and progress with the greening of their supply chains, despite the economic meltdown of 2009.
Business and government leaders around the world are finding that recovery from unprecedented and simultaneous economic, environmental and social turmoil calls for new approaches to decision making and dramatic changes in the production and consumption of goods and services. The central strategies being employed are sustainability performance management and the greening of their supply chains.
The new green movement
Unlike the environmental movement a generation ago, sustainability management carries a strong connotation of win-win benefits, game-changing innovation, stakeholder engagement and long-term thinking. Increasingly, fact-based management, standards-based lifecycle analysis, systems thinking, triple bottom line analysis and transparency are the core principles behind the new approaches being taken to avert potential disaster, in a worst-case scenario, and then to restore confidence.
An increasing number of firms are aligning their decisions with the four sustainability system conditions called for within the not-for-profit organization The Natural Step ‘Framework.’ This calls for reducing and eventually eliminating the ways that goods and services purchased or produced contribute to:
- Ongoing buildup of substances taken from the earth’s crust
- Ongoing buildup of substances produced by society
- Ongoing degradation of natural systems by physical means
- Undermining the ability of other people to meet their social and economic needs
In addition to sustainability frameworks such as The Natural Step, The Living Principles for Design developed by AIGA, the professional association for design, there are a growing number of standards, sustainability management tools, social networks and open source Web 2.0 capabilities that are increasing the ability to track product lifecycles.
Knowing the difference
The availability of these resources is especially important because consumers are growing increasingly skeptical of unsubstantiated ‘green’ claims and wary of brands that fail to address sustainability in a transparent and systematic manner. In response, the U.S. Federal Trade Commission (FTC) and Environmental Protection Agency (EPA) have already begun more intense scrutiny and are stepping up enforcement for general or unsubstantiated green marketing claims (‘greenwashing’).
The ramifications for not knowing the difference between green and greenwashing is significant; it could result in a fine and even imprisonment. To illustrate, in an enforcement action based on green marketing claims, the EPA filed a lawsuit on September 22, 2009 claiming that VF Outdoor Inc., which makes and sells outdoor apparel under the trade name The North Face Inc., made unsubstantiated public health claims regarding unregistered products and their ability to control germs and pathogens—a violation of the Federal Insecticide, Fungicide, and Rodenticide Act (FIFRA).
The North Face made and marketed more than 70 styles of footwear containing a silver ion-treated footbed. The company said this would prevent disease-causing bacteria and fungus; but products that kill or repel bacteria or germs are considered pesticides and must be registered with the EPA before distribution or sale. The EPA’s civil administrative lawsuit says that The North Face did not register the products and accuses the company of 162 counts of sale or distribution of an unregistered pesticide, each punishable by a fine of as much as $6500. This suit’s 162 counts could potentially cost VF more than $1 million.
Moving toward the mainstream
GTM Research (a Greentech Media company) has recently released a new report, “Greening the Supply Chain: Benchmarking Sustainability Practices and Trends,” that sheds light on the factors that are driving and are likely to hinder current and future supply chain sustainability initiatives. According to the report, leading corporations across all industry sectors are increasingly making sustainability an integral element of governance priorities and strategy, from product development to manufacturing and supply chain functions, as well as to marketing and communications. For many companies, sustainability is expanding to supply chain sustainability despite—or perhaps because of—the recession.
There is some good news for companies who have not yet addressed the sustainability of their supply chains. Sustainability lies in the middle of the pack of supply chain priorities today, behind cost cutting. The GTM study found that despite its growing prominence, sustainability is neither a core part of most companies’ strategies today nor a prime driver of their supply chain agendas … yet. Pragmatic supply chain managers may be reluctant to get ahead of the curve when it comes to greening initiatives, but they are under growing pressure to make headway.
While there are a limited number of high-profile sustainability leaders, the majority still require that reducing supply chain risk and improving customer service come first, profitability comes second, and green initiatives get addressed where feasible. However, the relative importance of these priorities is changing rapidly. With growing demand from consumers, retail brands and regulators, supply chain managers paying too little attention to sustainability and green initiatives can put their profitability, competitiveness and survival at risk. That’s why benchmark firms are finding ways to align priorities and pursue initiatives that address critical financial objectives, while simultaneously increasing the sustainability performance of their supply chains.
The coming tsunami
Backed by organizations and multinational corporations, a supply chain ‘tsunami’ is building. Companies that are not prepared to surf the inevitable wave could be caught in the undertow. At the least, the long-term trend is that supply chains will be subjected to increased pressure to address sustainability.
One of the major forces driving this is the Sustainability Consortium, a global partnership of researchers from leading global universities, nongovernment organizations (NGOs), governmental agencies, and business partners including Walmart, Proctor & Gamble, Cargill, Church & Dwight, Colgate-Palmolive, Dial, Disney, General Mills, Henkel, Monsanto, PepsiCo, SC Johnson, TetraPak, Tyson, Unilever, Waste Management, Alberto Culver, Clorox, Earth Friendly Products, the EPA and Seventh Generation.
A well funded and highly committed coalition, the consortium has set an initial, ambitious goal of establishing scientific standards to measure the sustainability of consumer products and their supply chains. In addition, many large companies have begun to set explicit objectives for minimizing the negative impact of their products, including the impact caused by their suppliers. In response, several major supply chain management organizations such as the Institute for Supply Management (ISM) and the BuySmart Network have developed sustainable supply chain and green purchasing initiatives.
Assessing sustainability
Members of the BuySmart Network take multiple factors into account: the economic value for money (price, quality, availability, functionality) as well as the environmental, social and ethical impacts of the goods and services they purchase—at local, regional, and global levels. When purchasing products, the BuySmart Network members consider
- What the product is made from and how long it lasts
- The energy, material and emissions footprints associated with its manufacture and transport
- Who has made it, how it’s made, and under what working conditions
- How it will ultimately be disposed of
- Whether the purchase needs to be made at all
While factors like eco-toxicity and recycled content remain important to consumers, three specific environmental metrics—water use, energy use and global warming potential (GWP)—are of increasing concern to supply chain professionals and regulators due to the relevance of current energy and climate change issues. GWP combines emissions that trap heat in the atmosphere into units of CO2 equivalents (CO2e), or the amount of CO2 that would have an equivalent effect as the emitted greenhouse gases.
With cap and trade legislation expected from the U.S. Congress and a new global climate change treaty expected to be agreed upon in Copenhagen, Denmark this month, a host of new ‘carbon management’ software applications are coming to market that can help suppliers to major corporations and government agencies address rising demand for lifecycle data and sustainability performance reporting.
How to tell your customers
It’s important that companies learn how to verify and disseminate information about their own environmental standards—including their supply chain—to their customers. There are literally thousands of books, journals, magazines and blogs focusing on sustainability as well as hundreds of conferences, seminars, training programs, not-for-profit organizations, universities and consortia that are addressing sustainable supply chain transformation.
In addition to the resources already mentioned, the Institute for Sustainable Communication has developed an array of resources that are available on its website, and if you are interested in participating in a community of practice that is building a comprehensive sustainability knowledgebase and developing an open sustainability assessment model, consider participating in the Object Management Group’s (OMG) Sustainability Special Interest Group. OMG is an international, open membership, not-for-profit consortium that develops enterprise integration standards for a range of technologies and industries.
As a wider array of stakeholders become more engaged in environmental issues and more focused on the lifecycle impacts of corporate supply chains, their scrutiny of green marketing claims and their demand for transparency and substantiation of sustainability performance is likely to grow. Joel Makower, co-founder and executive editor of Greener World Media Inc., refers to this trend as ‘death by disclosure’ and warns that the new green ‘gospel’ has become “Judge thyself, lest ye be judged in your stead.”