The business case for green supply chains

Posted on 7 Oct 2010 by The Manufacturer

The benefits of twenty-first century environmental thinking go beyond mere corporate responsibility. Steve Smith, senior vice-president, EMEA, Manhattan Associates and TM’s Edward Machin highlight the considerations for a greener supply chain.

“Going Green” carries increasing clout these days, as manufacturers realise that blending business with eco-friendly initiatives involves more than social responsibility. In today’s environmentally-sensitive consumer environment, going green also makes good business sense. Companies are finding that demonstrating green credentials requires far more than simple improvements and changes in marketing or sloganeering. Meticulous consumers and a host of experts and analysts are combining to truthfully evaluate which companies are making serious efforts to go green — beyond their advertising claims.

Indeed, a recent survey by consumer group Which? found that almost half of the brands it investigated — including Tesco, Sainsbury’s, Green Force and Ecover — market products with sustainability claims that could not be substantiated by the manufacturer’s evidence.

One area in which businesses can make meaningful progress toward becoming greener is in their management of supply chains. Traditionally, businesses seeking to optimise their supply chains have focused on moving product and reducing inefficiencies in the supply chain, and not on all the other things that can be done to positively affect the environment.

As companies begin to evaluate and change their environmental thinking, they need to look closely at their supply chains as a source of eco-value.

If properly planned and executed, “greening” the supply chain offers a win-win situation for both companies’ operations and the environment.

Martin McCann, head of sustainability, SAP UKI, says, “We are finding that companies closer to the supply chain’s drivers have broadly figured out what a sustainable supply chain means for them — at least in the medium term. Those further down the line, somewhat insulated until the CRC’s [Carbon Reduction Commitment] introduction earlier this year, are only now beginning to adopt such attitudes around what the sustainable supply chain means. The old adage, ‘You can’t manage what you can’t measure,’ very much applies here. Before the CRC, many manufacturers didn’t have a good enough understanding of their impact on the gamut of sustainability issues. By establishing baselines on both products and the wider organisational strategies, we are now seeing maturity travel further up the supply chain.”

Stewardship in the supply chain
Environmental responsibility involves mitigating the risks already affecting businesses today: global warming and climate change, shortages of natural resources and shifts in consumer preferences.

In their book, From Green to Gold: How smart companies use environmental strategy to innovate, create value and build competitive advantage, Daniel Esty and Andrew Winston highlight how companies can move into the vanguard of the green movement.

On a more granular level, environmental risks already are directly affecting supply chains in the areas of product design, materials selection, sourcing, product movement, facilities management, customer retention and supplier collaboration. In fact, there are so many facets to building a greener supply chain that it’s often difficult to determine just where to start. SAP’s McCann concurs: “Can it be daunting? Absolutely,” he says. “If a company doesn’t know where it needs to get to [sustainability targets] initially, then it is very much grappling in the dark. As green thinking begins to percolate down the supply chain, organisations are starting to focus on the fact that they must have clear, operational and cost revenue objectives that drive the supply chain strategy.” Before investing heavily in redesigning products and facilities, there can be considerable benefits to starting within the four walls — for example, applying the latest innovations in inventory, order, and distribution management technologies as the foundation for green initiatives. The following are examples of how realworld technology applications can combine traditional supply chain strategies with an eco-friendly approach to produce benefits for both the business bottom line and the health of the environment.

● Inventory management — Companies can optimise order frequencies with replenishment optimisation tools that examine the economics of various ordering cadences. For example, by moving to an every-other-day shipment schedule, a big-box retailer, traditionally receiving daily deliveries of inventory, has the potential to realise both fuel and labour savings while reducing emissions by as much as 40%.

● Order management — With the right technology, companies can dynamically re-route inventory being received at distribution hubs. By shipping products directly from a supply location to a retail outlet, a company has the opportunity to reduce lead times and delivery miles which in turn adds up to fuel savings and reduced CO2 emissions.

● Distribution management — Companies can get smarter and greener about the way they pack goods. Through the latest innovations in distribution management technology, a manufacturer supplying goods to an online retailer can optimise order packing via cubing algorithms, which consider weight, volume, product dimensions, constraints, nesting, protection, and other variables. This manufacturer and its retail client will more than likely reap the financial benefits of reduced packaging requirements, as well as a reduction of CO2 emissions, by more effectively and efficiently packing products to maximise three-dimensional space within cases, pallets and trucks.

When evaluating each of these strategies, manufacturers will need to carefully consider the impact to their operations. There is no ‘one-size-fitsall’ when it comes to supply chain optimisation or sustainability initiatives. Each of these strategies has eco-benefits, but they also have trade-offs. Once companies ensure the change provides a positive impact to both the environment as well as the bottom line, the desired win-win will be achieved.

The holistic approach
As outlined above, there are functional areas within the supply chain that should warrant initial examination before beginning any environmental programme. Keep in mind that in order to truly lessen a business’s impact on the environment, ultimately we must take a broad, holistic perspective of the environmental impact of businesses — it is not a siloed problem.

Supply chain professionals have to measure the effects of any environmentally sensitive or compliant changes, both upstream and downstream, to determine the overall impact from an eco-business perspective. While tactical efficiencies can be gained within an organisation by making changes to supply chain operations, often these changes push inefficiencies upstream to trading partners or downstream to end customers. Protecting and preserving the environment requires global collaboration and long-term solutions. However, one should not be deterred by the potentially complex and massive change involved with global collaboration. Companies can start now by taking a practical view on the technologies available to them that help increase efficiency. In many cases, that same technology can give supply chain professionals a green advantage at little to no extra cost. In the end, it’s simply about what makes good business sense.

Says McCann, “All the indications suggest that if you don’t have a sustainable supply chain strategy in place you’re going to struggle to compete over the next five years.” Together with an improvement in attitudes towards sustainability, or a company’s lack of it, “The legislative agenda is set to become wider in coming years,” he adds.

“Water and waste, for instance, are set to receive similar levels of regulation to carbon, while reporting on wider sustainable issues will become mandatory within two to four years. The overriding message remains that, with manufacturing so heavily influenced by sustainability requirements, those without a holistic, measured approach to greening the supply chain will almost certainly lose significant momentum and market share.” You have been warned.