Supply Chain Sustainability Comes of Age

Stephen DeAngelis

August 06, 2014

“There was a time when business investments in education, community initiatives, disaster relief or environmental conservation were treated as corporate philanthropy,” writes Sarah Murray (@seremony). “But as groups confront everything from resource scarcity to the threat of business interruption from social unrest, companies are beginning to recognise that these investments are an essential part of doing business.” [“Responsible Business: Sustainable efforts show signs of paying off,” Financial Times, 9 July 2014] John Mandyck (@JohnMandyck), Chief Sustainability Officer at UTC Building & Industrial Systems, adds, “Green is much more than an environmental imperative or social responsibility cause – it’s an essential strategy for savvy businesses looking to differentiate and grow the bottom line. And it’s important to every aspect of business, starting with manufacturing.” [“Not Going Green? You’re Losing Profits and Clients,” IndustryWeek, by John Mandyck, 15 May 2014] Since I first started writing about supply chain sustainability, I’ve insisted that decisions to invest in sustainability efforts need to be based on good business practices. I’m not against philanthropy or social causes; but, I know that the only business activities that have legs are those that benefit the bottom line. When times get tough, non-business-related activities are the first to go. As the two articles cited above indicate, sustainability efforts are now recognized as good business practices. Their time has come of age.

Will Green (@willhgreen) reports, “More than three quarters of supply chain executives and operations managers predict their organisations will increase their focus on sustainability over the next three years, according to a survey.” [“Three quarters of executives expect increased focus on sustainability,” Supply Management, 26 May 2014] I can assure you that those executives are considering these actions because it makes good business sense. Michael Fournier, Michael Fournier, Brand Manager at Procurify, admits that sustainability efforts are great for corporate social responsibility (CSR) and public relations (PR), and that such programs can improve profit margins from reduced waste as well as improved consumer opinions; but, along with all the good stuff, Fournier notes that there are also challenges. He writes, “There are problems that need to be addressed further down a value-chain you go. And these problems can be a plethora of items including a level of uncertainty regarding: market position, stakeholders concerns, and change.” [“A Brief Introduction to the Problems Facing Green Supply Chain Management,” Business2Community, 25 February 2014] Concerning market position, Fournier writes, “Manufacturers and suppliers will fear that by operating along green supply chain practices they could become too expensive compared to their competition.” Murray counters, “The experiences of companies in industries such as palm oil and mining have demonstrated that those failing to treat local communities equitably can face disruptions to their operations – and sustain damage to their reputations globally.” Sally Uren (@sallyuren), chief executive of Forum for the Future, told Murray, “There’s overwhelming evidence to say that companies ignore these big social and environmental issues at their peril.”

Concerning challenges involving stakeholders, Fournier says that both company employees and investors can be a source of disruption. Many, if not most, investors are looking for the best bottom line for their money. They might view sustainability activities as cutting into company profits. Simon Pringle (@simonpringle), head of sustainability and cleantech at the accountancy group BDO, indicates that one way to counter such views is to point out that most sustainability efforts simply make good business sense. Pringle told participants at a 2013 roundtable “about a discussion he’d had with a business leader who disagreed that ‘making the business more efficient, spending less money on resources and wasting less’ were necessarily ‘sustainable’ issues. To the business leader, they were simply ‘common sense’. Pringle therefore stressed the need to make the language of sustainability relevant to the boardroom by placing it in context. ‘If businesses are talking about sustainability being in some way separate from the “day job” … we won’t make the same level of progress as if those roles dissolve into the fabric of the business and it becomes part of people’s day jobs.'” [“Why sustainable supply chains make business sense,” The Guardian, by Craig Scott, 31 October 2013] Scott (@crgsct) continues:

“Other delegates agreed that making the business case for introducing sustainable practices across companies and their supply chains was key. Jonathan Maxwell, CEO of Sustainable Development Capital Limited, pointed out that ‘this isn’t about trying to sell morality into the boardroom, it’s about providing the ability for businesses to make better decisions to reduce costs, improve productivity, support growth and take longer-term decisions’. Introducing a more sustainable way of doing business ‘stands a good chance in the boardroom’, he added, by focusing on the ‘resource-efficiency agenda’.”

Fournier reports that internal challenges from employees can be just as difficult to deal with as external challenges. He explains:

“The likelihood of implementing green supply chains can be diminished when employees running the supply chain are adverse to change. For example, perhaps they’ve been using paper purchasing processes and they’re only comfortable faxing invoices between departments. Although the firm can easily save money by installing an e-procurement software to reduce paper waste and increase purchase tracking; the firm cannot easily continue with e-procurement software because employees can be intimidated by change.”

Change is never easy; but, it can be made significantly easier if it accompanied by good training. Employees fear that new systems will undermine their current expertise and threaten their jobs. By providing them with training that ensures they quickly achieve a level of expertise with the new systems will boost their confidence and reassure them that their position is not in jeopardy. This is a win-win for a company because they will have a more efficient system and a more productive employee. Green reports that not all internal challenges come from the bottom. He notes that one of “the biggest barriers to the success of sustainable practices was a lack of leadership support.” Another internal challenge, he notes, is that there can be “‘significant confusion’ about company goals on sustainable supply chains.” For most sustainability programs, the goals should be easily identified: reduce waste, improve efficiency, and increase profits. Beneficial side effects of these programs include an improved public image, the ability to attract next-generation workers who have a keen interest in sustainability, and the satisfaction of knowing that you are helping the planet. Concerning opportunities associated with sustainability programs, Murray writes:

“With their eye on sales of technologies and systems designed to battle climate change and help society adapt to its effects, companies are investing in the development of products and services that can contribute to a low-carbon economy. Green products are becoming more popular with consumers particularly when – as in the case of hybrid vehicles or energy efficient lightbulbs – those products help them save money. Companies are also looking for ways to achieve a circular economy – one in which, through redesign, reuse and recycling, raw materials are returned to the industrial supply chain.”

When it comes to manufacturing green products, Mandyck writes, “Green products need to start with a green company, which makes sustainable manufacturing facilities key.” He continues:

“Forty percent of the energy we consume in the United States is used to operate our buildings. … We have the technology available today to improve the energy-efficiency of buildings by 30%. Doing so would have an internal rate of return of 28.6% over a 10-year period – that’s four times better than average corporate bond yields and double the returns seen by high-performing venture capital firms. Most green building options cost the same or only slightly higher than conventional alternatives, yet they deliver significant energy savings. For instance, new green buildings decrease operating costs by 8% over one year, and 15% over 5 years. Over time, the argument that green is more expensive becomes invalid. The potential for savings is even more critical when you consider the fact that the cost of energy is increasing and our global demand is becoming insatiable.”

Colin Mayer, professor of management studies at University of Oxford’s Saïd Business School, told Murray, “There’s been quite a lot of studies appearing recently that show sustainable companies demonstrate superior financial performance compared to other companies – particularly if one measures that over the long term.” Companies need to take the long view when it comes implementing sustainability efforts because in the long run they make good business sense.