12 March 2008

Sustainability Within the Supply Chain

 

Chart courtesy of Patrick C. Penfield

Chart courtesy of Patrick C. Penfield

By Patrick C. Penfield

The focus for most companies today is the development of a sustainable supply chain — one that is robust enough to support itself and actually improve the environment.

Patrick C. Penfield is assistant professor of supply chain practice at the Whitman School of management at Syracuse University in Syracuse, New York.

We are living in a dynamic time period and one of unprecedented growth throughout the world. Commerce between countries is increasing at exponential rates. At the same time, the world’s resources are being depleted and used faster than ever before, and raw materials are becoming costlier and scarcer. Many companies are struggling with expenses while trying to increase profits.

The focus for most companies today is developing a “sustainable” supply chain — one that is robust enough to support itself and actually improve the environment.

Every company in the world has a supply chain. A supply chain is simply input leading to transformation leading to output (see Image 2). One example of a supply chain would be a car manufacturer that takes steel and other components (inputs), assembles them with labor and machines (transformation), and produces a car (output). An example of a supply chain within a service environment would be a package delivery service that takes in packages (input), stores and puts the packages en route for delivery (transformation), and then delivers the packages to the recipients (output).

The supply chain generally costs a company money, and this is why companies are so focused on sustainability. The truth is, with the increasing costs of raw material and energy, it now makes sense for companies to embrace sustainability. The return on investment is now feasible for companies so that they can employ processes that use less energy and material.

Reducing Costs and Eliminating Waste

Over the past year, I have been developing a model called the Sustainable Green Supply Chain. Many companies are moving in this direction, and supply chains will evolve in this area. Ideally, the goal of the supply chain model is to be environmentally friendly with the material and processes being used and to eliminate any waste within the supply chain in order to become as sustainable as possible.

By moving toward a sustainable green supply chain, companies will uncover new opportunities to reduce costs.

 

Image 2: Supply Chain

Image 2: Supply Chain

Another focus for many companies will be “entire” system thinking versus “component-level” thinking. Component-level thinking — a mindset that many companies are still employing — is the concept of getting the lowest price on a component and disregarding the costs to the system generated by this component. Many times, component-level thinking is employed because it’s a goal or objective determined by a company or organization. If you look at the overall costs being produced by a component, however, it may become obvious that it would have made sense to spend more money up front on a more expensive component that reduces the entire system cost.

As Paul Hawken, Amory Lovins, and L. Hunter Lovins tell us in their book Natural Capitalism: “Single components are usually considered in isolation. Designing a window without the building, a light without the room, or a motor without the machine it drives works as badly as designing a pelican without the fish. Optimizing components in isolation tends to pessimize the whole system and hence the bottom line.” Many companies struggle with this issue because they do not effectively measure the cost of each component within the entire system.

Some companies are employing a two-pronged approach to “green” their  processes. One aspect is to move existing processes to the sustainable green supply chain model, and the other is to take new processes and design them for sustainability. The U.S. global conglomerate 3M has a program called Pollution Prevention Pays (3P). The company’s policy, as described by Daniel Esty and Andrew Winston in their book Green to Gold, is that “anything not in a product is considered a cost. As 3M execs see it, everything coming out of a plant is either product, by-product (which can be reused or sold), or waste. Why, they ask, should there be any waste?” This is a policy that every company needs to start emulating.

Energy Costs and Conservation

The major focus for many companies regarding the supply chain these days is energy. With oil trading at more than $100 per barrel, companies are having difficulties absorbing this cost. The emphasis for most companies is figuring out how to use less energy or coming up with an alternative energy option to offset the increased expense. In the United States, ethanol, biomass, fuel cells, wind, solar, nuclear, and other various energy options are being evaluated by companies.

The other big energy initiative is conservation. Retail giant Wal-Mart has become a major sustainability player. This company has dedicated space on Wal-Mart Web site showcasing what it is doing to help the environment. The focus has been on reducing the amount of fuel used by their trucks and stores by using alternative energy and conservation.

As stated on the Wal-Mart Web site: “We have a goal to be supplied by 100 percent renewable energy, to create zero waste, and to sell products that sustain our resources and environment.” Wal-Mart is using compact fluorescent bulbs in many of its stores, employing hydrogen fuel cells for its lift trucks, placing doors on refrigeration units, replacing fluorescent lighting with LED (light-emitting diode) lighting, and conserving the power used when trucks in its fleet are idling. Wal-Mart’s expectation is that the company will save millions of dollars by being sustainable.

Other companies also have focused on sustainability and reduced their costs. According to Esty and Winston, chipmaker AMD modified a “wet processing” tool to use fewer chemicals and, ironically, less water to clean silicon wafers. The process, which once used 18 gallons of water per minute, now uses fewer than six. Shoe manufacturer Timberland redesigned its shoe boxes to eliminate 15 percent of the material used in them — a dramatic savings when you ship more than 25 million pairs of shoes per year.

A Look to the Future

The big advantages for companies in becoming sustainable are reducing costs and helping the environment. In the United States, there are many pieces of environmental legislation in Congress waiting to be approved. In the meantime, companies are being proactive and focusing on sustainability. Many citizens throughout the world are demanding environmentally friendly products.

In the coming years, we can expect to see more stringent environmental standards for all companies. The future of sustainability looks green!

The opinions expressed in this article do not necessarily reflect the views or policies of the U.S. government.