Growing public concern for the environment is driving companies to pay more attention to their ‘green’ footprint – not just in the products they manufacture, but also in the supply chain that carries them. What first started as an image improvement effort has evolved into a business imperative and, in the most advanced companies, a competitive advantage.
The environmentally sustainable supply chain not only delivers cost savings and efficiencies, but can also generate new sources of revenue by capturing residual value from products at end of life. Companies with the foresight to transform their view of environmental sustainability – from meeting obligations to seizing opportunities – can capitalize on this strategic approach.
Unlike the traditional one-way supply chain, the environmental supply chain creates a closed-loop system that manages products and materials through to end-of-life disposal. Environmentally sustainable supply chain management and practices can help organizations reduce their total carbon footprint, and optimize their end-to-end operations to achieve greater cost savings and profitability.
Three major forces are driving the shift toward the ‘green’ supply chain:
• Escalating consumer pressure
• Pressure to improve efficiency and reduce costs
• The compliance squeeze
Additionally, companies are starting to realize that there is a direct link between a green supply chain and profitability improvement. This improvement stems from either direct revenues from capturing value from the recycling waste stream, or indirect savings stemming from elimination of waste throughout the supply chain.
Social responsibility is now a business imperative. “Gone are the days when a brand name can distance itself from a far-away manufacturer or landfill site where their products end up,” asserts one supply chain executive from a global high-tech company. “In an era of social media, where commercial reputations can be smashed overnight, there is no alternative but to take a holistic view, and be responsible environmental stewards along the entire lifecycle of a product, from raw material to disposal.”
The retail consumer goods sector is particularly influenced by customers’ growing concern for sustainability. A study by consulting firm KPMG found that brand perception and enhancement is the number one reason why companies adopt sustainability practices.
This brings another important factor into play: the risks of liability and loss of brand image. “For example, if waste for recycling or reuse is handled poorly,” says Chris Jackson, Vice President, Envirosolutions at DHL, “and goes to a country that doesn’t have the infrastructure to deal with it, you end up with a photograph in the international press showing a child handling glass from a smashed TV with the brand name clearly visible. That’s the last thing a brand wants to be associated with.”
“Leading companies create value by modifying their supply chains to manage the key inputs and outputs: energy, carbon, water, materials and waste,” states a report by Deloitte Consulting. “These 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.”
Adopting a more sustainable approach to managing all of these supply chain inputs and outputs frequently uncovers opportunities to reduce costs while at the same time improving a company’s environmental footprint. For example, reconfiguring the transportation network to either use more efficient modes or reduce empty miles conserves energy and improves the supply chain’s carbon output, while at the same time saves money.
“You don’t have to sacrifice profitability to achieve sustainable logistics,” stressed Huw Waters, Product Supply Director for Procter & Gamble UK and Ireland, in a recent essay. “The two go hand in hand.” Since 2002, according to Waters, P&G has worked internally and with its supply chain partners to more than halve the impact it has on the environment across energy usage, CO2 emissions, waste disposal and water usage. These operational results have led to nearly $1billion in cost savings.
Leading companies no longer view supply chain sustainability as an added cost; they now see it as a business opportunity. Green practices in the supply chain reduce energy consumption, reduce or eliminate waste and deliver other similar benefits. Beyond that, however, embracing environmentalism in the supply chain can drive profitability by creating entirely new revenue streams, securing sustainable supply sources, or simply improving consumer opinion about the company.
Building the New Environmental Supply Chain
The new environmental supply chain is based on managing inputs and outputs according to four principles: reduce, reuse, recycle and recapture (the four Rs of supply chain sustainability). These apply to the supply chain itself and the waste it produces, as well as to the products it delivers and returns. These include:
- Reduce: eliminating waste in the supply chain by installing high-efficiency lighting in the warehouse, reducing empty truck miles, switching from all-truck to truck-rail intermodal, using less packaging material
- Reuse: reusable pallets, collection and refurbishment of consumer electronics products
- Recycle: recycling waste
- Recapture: breaking down end-of-life products to harvest residual value in the materials (e.g. precious metals, plastics)
Early efforts to green the supply chain focused on ‘low-hanging fruit’, such as reducing energy consumption in warehouses by switching to LED lighting, installing rooftop solar panels and shifting to more efficient transportation modes.
Building the new sustainable supply chain is avirtually untapped opportunity to capture value andpotentially drive new topline revenue. “Think ofwaste disposal management as the mirror image ofthe complex supply chain processes that go on atthe front end of the production of any product, andthen add in new processes that help manage thisstream while at the same time adding value,” saysJackson. “This is the opportunity proposition – toadd or capture value from what once was justconsidered waste.”
What kinds of solutions can companies deploy tocapitalize on this opportunity? In leading supplychains, best practices and solutions are emerging.These include:
• Lead Environmental Partner (LEP) and the control tower approach
• Closed-loop supply chain management – includes integrated waste recycling, value recovery and
EPR compliance management
• Carbon and energy management
Lisa Harrington is associate director of the Supply Chain Management Center and Faculty Lecturer on Supply Chain Management at the Robert H. Smith School of Business, University of Maryland. She is also President of the lharrington group LLC, a firm providing strategic consulting services across global supply chain strategy, operations and best practice.
This report was excerpted from a new study written by Harrington titled "Closing the Loop: Building the Environmental Supply Chain." A second excerpt will be published next week. The report was sponsored by DHL. Click here to download the full report.