Sustainability and Supply Chain Management: Green's Paradigm Shift

Supply chain management used to be a narrow, back-office, low-profile function.

Decisions, which were made somewhere else in the company, were simply implemented, based on efficiency and cost. Those decisions usually covered product/service offerings, design, selecting and sourcing raw materials, facilities and manpower, production processes, shipment, marketing, distribution, and end-of-life disposal.

No more.

Move over procurement, there’s a new game in town. And, it’s likely to be taking over the wheel for a long time to come. Sustainability is being driven by the growing concern about how everything we do will impact Planet Earth. We are, as a collective business sector, more aware than ever before about the reality of shrinking resources such as fossil fuels.

In its 2011 survey of 185 companies spanning 32 industries, A.T. Kearney found that 90 percent now frame that old-line procurement activity as “supply chain management” and have integrated it as part of the overall business strategy. It’s also gone high-profile. The decisions made and how they are executed are being monitored and measured by consumers, investors, national and international regulators, and environmental and human-rights activists.

No surprise, more and more companies have gone public in a big way about how they manage their supply chains. Those include GE, Wal-Mart, Johnson & Johnson, Procter and Gamble, Ford, Pepsi, and Unilever. In their public statements the term “sustainability” resonates.

Yet, sustainability has taken on so many meanings that the whole subject can be confusing. The simplest understanding is provided by Patrick Penfield at Syracuse University’s Whitman School of Management. In essence, “sustainability” in supply chain management, notes Penfield, is “the process of using environmentally friendly inputs and transforming them … (so that the) byproducts can improved or be recycled.”  The goal is to cut costs while limiting environmental impact. The global economic downturn accelerated that focus on cost. Sustainability savings come in a number of ways. The top three are, according to an article written by Penfield, are to:

• Lessen risk in sourcing through searching for alternates to what is iffy in supply and volatile in price, ranging from skilled labor to fossil fuel.
• Design products and services using fewer resources such as water and material and increasing energy efficiency for production and shipping.
• Prevent loss of sales, negative publicity, fines, and reduced investor confidence through violations of carbon-emissions agreements, safety standards especially with food, human rights codes in treatment of vendors, and waste disposal.

One major challenge with this strategic imperative is that there is no accepted standard for what categories of information must be disclosed, what criteria to use in measuring that, and how to report it. Moreover, at this time, most of those reports aren’t audited. One way some companies are dealing with this is by agreeing to comply with the sustainability guidelines of the Global Reporting Initiative (GRI). About 80 percent of the 250 largest corporations now use the GRI guidelines, according to Bloomberg.com.

In addition, companies such as Wal-Mart have also developed supply chain sustainability indexes unique to their needs. The group Wal-Mart formed of retailers, vendors, and research experts – the Sustainability Consortium – continually creates green standards for over 50 product categories, ranging from laundry detergent to towels.

What factors must be tracked, how they will be measured and reported, and what third party will do the auditing have to be agreed up by the diverse constituencies concerned about sustainability in supply chains. Until that becomes an operational reality, business will have a difficult time telling its story in a way that is persuasive with those who influence its financial performance and stock price.

The only way to prove that sustainability is a cause worth taking on is to start saving energy – and money – in your own place of business. Consider monitoring energy usagein your companies’ facilities. If you are tracking exactly what’s being used and comparing it to monthly utility bills, your company can make choices that will add up.

In the end, whether companies are willing to pay for sustainability at-large is still up for debate. However, the topic is alive and well on corporate agendas. And, in the back of everyone’s mind is the nagging knowledge that if we don’t start to pay financially for sustainability today, we, as a population, will be paying for it in other ways for a long time to come.