Shopping for Green
By Kyle Tanger
Retailers can have a big impact on sustainability, but tweaking store operations and changing light bulbs is not enough.
Retailers occupy a unique place in the value chain, sitting squarely in the middle between manufacturers and consumers. As such, they are ideally positioned to affect — and be affected by — sustainability trends on both sides of the marketplace. Retailers are greatly influenced by shifting consumer preferences, but also have great power to shape those preferences through the products they offer and the marketing messages they deliver. Similarly, while retailers serve as conduits for the products that manufacturers want to sell, they can also exert considerable influence over what those products look like. If retailers make sustainability a top priority, consumers and manufacturers are likely to follow suit.
Companies in the retail industry also have a strong incentive to ramp up and improve their own sustainability efforts. Most retailers face intense competition and operate on razor-thin margins, so they need to be as efficient as possible in everything they do. That includes using natural resources wisely and eliminating unnecessary waste. In recent years, retailers around the world have taken steps to become more sustainable through initiatives such as installing low-energy lighting. However, such initiatives only scratch the surface, and for many there are still significant improvement opportunities in other operational areas such as refrigeration, heating and cooling, vehicle fleets, etc. — anywhere that resources are used or waste is generated.
In fact, the biggest improvement opportunity for retailers may not even reside within the four walls of their own stores and operations — but within their global supply chains. In our experience, the resource footprint of a retailer’s supply network can be 100–200 times larger than the resource footprint of its own operations. That’s a huge opportunity just waiting to be tapped.
"Most retailers face intense competition and operate on razor-thin margins, so they need to be as efficient as possible in everything they do. "
When oil prices spike, the typical TV news story starts with footage of a consumer pumping gas, but often wraps up by showing someone standing in line at a retail store accompanied by the voice over “. . . higher gas prices mean that consumers will likely find themselves paying more at the check-out counter.”
This sequence of events is generally bad news for retailers. The good news is there is something you can do about it. By improving resource efficiency and reducing waste — particularly in your global supply chain — you can reduce costs and help insulate your business from the risk of resource shortages and price shocks. And since the gap between supply and demand for scarce natural resources is only getting larger, an increased focus on sustainability and resource efficiency is no longer a luxury; it’s a strategic imperative.
No matter how much your business has already done to reduce costs through improved sustainability, there’s a good chance you are still leaving money on the table. For example, one of our teams recently conducted a follow-up assessment on a major retail distribution center that had just completed a series of internal sustainability initiatives. We found that while the organization had made great strides toward resource efficiency, there were still many other ways to improve — improvements that could reduce costs by an additional 30% and pay for themselves in less than two years.
The first big step toward a greener, more efficient supply network is to assess your existing operations and identify opportunities to use resources more efficiently. Pick a couple of specific resources to focus on — for examplel energy and water. Identify the places where those resources are used, and how much goes into each product over its entire lifecycle — from raw materials to production to distribution — and how much of it is wasted. Then, hone in on the areas with the greatest potential for savings.
But don’t stop with your own operations, because there's a good chance that the biggest improvement opportunities will reside within your supply chain. The shortest path to improving resource efficiency through your suppliers is to choose suppliers that already have highly efficient practices — including resource use and waste. It’s also smart to consider where a supplier is located, since different parts of the world often present very different cost and risk profiles thanks to local variations in everything from water availability and social stability to energy prices and carbon taxes.
The next level of supplier improvement involves actively working with them to develop and promote resource-efficient operating practices. This can be tricky at times, particularly in situations where suppliers and retailers have traditionally viewed each other as adversaries in a zero-sum game. It is important to identify common goals and then actively look for ways to share the benefits so each party wins. You will probably find that some suppliers are happy to collaborate, while others are initially reluctant but eventually come around. However, it’s likely at least a few will dig in their heels and refuse to participate, which may force you to look for alternate sources.
When approaching suppliers about collaborating on sustainability practices and cost reduction, it helps to have a compelling story to tell. For example, a leading U.S. automaker was able to enlist the support of its suppliers by saying “It’s us versus our competitors. If we survive, you survive. But in order to do that, we need to work together to cut costs by x%.”
"At the end of the day, any kind of inefficiency — including resource inefficiency — is an expensive way to do business. "
At the end of the day, any kind of inefficiency — including resource inefficiency — is an expensive way to do business. As a retailer in today’s highly competitive marketplace, that’s something you just can’t afford. Thankfully, there are a number of things you can do to improve. Switching to energy-efficient light bulbs is a good start, but it’s not nearly enough. To really make an impact on your bottom line, you need to think big. That means focusing a lot of attention on your supply chain. Helping your suppliers use resources more efficiently can be much more challenging than simply sticking to your own operations, but the potential rewards and impact can be literally hundreds of times greater.
Kyle Tanger is a Director in the Sustainability Services practice for Deloitte Consulting LLP.
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