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The Evolving Supply Chain: Lean and Green

By Erica Velis & David Linich


The Evolving Supply Chain

"Leading companies are now finding that a green supply chain doesn’t just improve the public’s perception of their company and brand; it saves money by using resources more efficiently and reducing waste."

Sustainability and supply chain improvement have traditionally been treated as separate worlds. While many businesses are passionate about cutting costs and boosting supply chain efficiency, some of their most important stakeholders — including customers, employees, and investors — feel just as strongly about sustainability and social responsibility. The good news is these seemingly conflicting priorities are starting to converge.

Leading companies are now finding that a green supply chain doesn’t just improve the public’s perception of their company and brand, it saves money by using resources more efficiently and reducing waste. It also helps manage risk by insulating a company from shortages and price shocks, and by reducing the chances that a supplier will do something that gets them in hot water.

The Evolving Supply Chain

Wasting resources—and money

“Three years ago, I did an interview with The Financial Times and readers were surprised when I noted that P&G’s supply chain design was upside down,” relates Keith Harrison, former Global Product Supply Officer at Procter & Gamble. “A lot of supply chains were designed in a world of $10 oil. Sites were relatively inefficient, which led to consolidating factories and centralizing production. Shipping was not a big deal. Over the past decade, however, the price of oil — and subsequently transportation costs — skyrocketed. It got to the point where transportation costs were higher than manufacturing costs. It was suddenly imperative to do a complete relook of supply chain design with a focus on reducing transportation distances and costs. Sustainability is very much a byproduct of this dilemma.”

Everyone in business today can see that things are changing. Rising commodity prices, consumer demand, new levels of transparency, and increased regulatory pressures are rewriting the rules of the game. The cost and environmental consequences of relying on fossil fuels, particularly oil, have shifted the landscape—and priorities. Many companies, especially large multinationals, are starting to recognize the impact of their global footprint and are, increasingly, reaping the financial benefits of smart resource management.

"Many companies, especially large multinationals, are starting to recognize the impact of their global footprint and are, increasingly, reaping the financial benefits of smart resource management."

Leading companies create value by modifying their supply chains to manage five key inputs and outputs: energy, carbon, water, materials, and waste. These five resources are ubiquitous throughout the supply chain and thus offer vast potential for improved efficiency and cost reduction. Energy is expensive to use; carbon, in the form of emissions, represents dollars gone up in smoke; scarcity and commodity inflation are driving up the price of water and materials; and waste is potential profit thrown away.

Fortunately, improvement initiatives focused on resource efficiency are some of the easiest ways to take costs out of a supply chain. Often, they require only simple changes that can be replicated across multiple locations, quickly generating significant payback with very little risk. The resulting savings can be shared between a company and its suppliers to help everyone in the value chain reinvest in new product development, reduce product costs, improve margins, and/or reduce product prices to grab market share—all of which can boost a company’s competitiveness and shareholder value.

Everyone in business today can see that things are changing. Rising commodity prices, consumer demand, new levels of transparency, and increased regulatory pressures are rewriting the rules of the game. The cost and environmental consequences of relying on fossil fuels, particularly oil, have shifted the landscape—and priorities. Many companies, especially large multinationals, are starting to recognize the impact of their global footprint and are, increasingly, reaping the financial benefits of smart resource management.

Resource efficiency isn’t just good for the environment; it’s smart business. If a supply chain uses too much energy, water, or materials—or produces too much carbon or waste—chances are good that money is being wasted. “The global marketplace is always changing, so you have to be proactive — now more than ever before. You have to try to see what’s coming and help your organization to adapt accordingly,” notes Keith Harrison. “Supply chain is one of those areas companies have to examine to ensure that their strategies and designs are appropriate — and that they’re working with the best suppliers and using resources in the best way.”

The Evolving Supply Chain


Keeping an eye on the company you keep

If businesses are mainly going green because they’re seeing green, they’re becoming more ethical because they can’t afford not to be. These days, leading brands are judged by the company they keep. With awareness growing by the day, consumers, investors, business partners, regulators, and media organizations now expect a company (and its entire supply chain) to be ethical.

A supplier-generated scandal is one of today’s biggest (and least foreseen) business risks. And when it happens, the biggest brand in the chain usually gets stuck with the blame. Therefore, the bigger you are, the more it pays to take precautions, be vigilant, and know your suppliers. There’s a good chance that sooner or later their actions will have a direct impact on the way your business functions and how your brand is perceived.

The Evolving Supply Chain

Prove it

Like the proverbial tree falling in the forest that no one hears, if an initiative delivers results but no one measures them, the effort is likely to go unrecognized. Using a sustainable supply chain approach to create value depends on three things: executing the approach, choosing the right metrics, and then accurately measuring and tracking performance with those metrics. Leading companies are usually pretty good at formalizing their supply chain processes and applying them systematically across the enterprise. But they often come up short when trying to measure the impact of their sustainability improvements. If you can effectively measure what you do, you’ll able to prove your supply chain is walking the sustainability walk, not just talking the talk.

The Evolving Supply Chain

Aligning performance with perception

But what about things that can’t be measured? Company mission. Market position. Brand promise. If you don’t actively control how your company is perceived in these critical areas, someone else will (most likely your competitors or the media). And if your company’s performance does not align with the perception you have created, you’re just asking for trouble.

In the past, many companies believed their obligations and responsibilities were largely limited to their direct employees. But in today’s world of virtual enterprises and extended supply chains, a business needs to hold suppliers to the same high standards it applies to its own people.

If your company’s claims exceed the performance that its supply chain actually delivers, you expose yourself to criticism and accusations of “greenwashing.” In that case, you either need to step up your efforts to improve resource efficiency, or scale back your green image and messaging. On the other hand, if your company’s actual performance is better than people perceive it to be, you may be selling yourself short and need to make a concerted effort to publicize your green initiatives and accomplishments. By aligning perception and performance, you can greatly amplify the value of any operational improvements your company chooses to make.

The Evolving Supply Chain

Say what you do. Do what you say.

Many companies keep quiet about their green and Corporate Social Responsibility (CSR) initiatives because they worry that going public about the good things they are doing will open them up to criticism for the things they aren’t doing. This is a valid concern, but it is easily addressed through transparency. After all, no company is perfect. As long as you are open and honest about what you are doing — and where you still need to improve — people will give you credit for your efforts. Tell an authentic story about your journey to sustainability, bolstered by defensible facts, and you will earn the public’s trust—and most likely their forgiveness if anything ever goes wrong.

"When a company operates with integrity, it helps the brand and drives profit."

As retired P&G executive, Keith Harrison, says, “In order to execute a sustainable business model, a number of constituencies have to be satisfied—employees, customers, suppliers, government agencies, and the communities in which you operate. Garnering the trust and commitment of all stakeholders is not just about profitability; it’s also about responsibility.”

When a company operates with integrity, it helps the brand and drives profit. There is a very strong correlation between proactive leadership, sustainable practices, and a heightened corporate image. A company’s performance and reputation in the area of sustainability has a great impact on its brand.

David Linich is a Senior Manager in Deloitte’s Sustainable Operations & Supply Chain practice. Erica Velis is a Content Editor in Interbrand’s Global Communications department.

Click here to read Keith Harrison’s exclusive Best Global Green Brands interview.