Smart Companies Leverage Green Supply Chains for Competitive Benefits
September 2, 2014
Green supply chains bring major benefits, including better brand image and, more than ever, competitive advantage. Many companies are still just reacting to sustainability, due partly to upfront costs and efforts. But, as many other organizations have proven, there is a lot of pay-it-forward and hidden value to be realized.
At first going green was a nice but not required corporate endeavor to make the public relations folks happy. As the sustainability movement grew and became a more serious issue, the federal government began to establish rules and regulations around various practices, while businesses, industries, and non-governmental partners also set up guidelines and best practices to govern themselves. Today CFOs are filing sustainability reports in conjunction with financial reports to detail their companies’ economic, environmental, and social impact, and stakeholders are using those reports to evaluate companies.
Going green has never been so important, yet many companies are still just reacting to the ongoing scrutiny of consumers and the government alike, instead of managing sustainability for the benefits it will bring to them.
Managing a green supply chain is about finding the balance between the economic and environmental benefits. It’s everything from environmental awareness and involvement, to capturing, measuring and reporting greenhouse gas emissions, to finding ways to divert material from waste streams, to modifying business practices to reduce the use of energy. As with most new activities, sustainability is not easy and it’s not cheap. But if it’s done well, it will improve a company’s operations and bottom line.
Companies can realize four broad benefits by going green:
1. Lower costs
2. Better brand image
3. Better business practices
4. Competitive advantage.Lower Costs From the simple practices of recycling paper and switching to energy-efficient light bulbs, to the more complex ones of changing product packaging and reducing the carbon footprint, companies can save a great deal of money with their sustainability efforts.
To lower their costs, companies must take the time to examine their supply chains closely and/or bring in a third-party team to collaborate with them in uncovering the hidden opportunities within. With recovery, reuse, and recycling, companies can create closed-loop systems or packaging that will reduce costs and expenses as well as material usage and waste.
Here are three examples:
- Employees at a beer company realized if they reduced the size of packaging, they could eliminate some cardboard partitions without bottle breakage. Not only did they reduce the purchase price of the packaging material, they also eliminated wasted time on the packaging assembly line.
- A phone manufacturer replaced its return merchandise packages -- which were discarded after one use -- with a bio-based, lighter-weight, durable plastic case designed to be used multiple times. It created a closed-loop packaging system predicated on recovery, which reduced costs, material usage, and waste. This “industry first” recovery and reuse program that diverted product from the waste stream was designed by Ecospan, a California material science and clean technology firm that engineers sustainable plastics. While the price of the new bio-based plastic case cost more than the conventional corrugated box, the price came down dramatically over the period of multiple reuses.
- A Fortune 500 electronics company that was experiencing costly recurring damages of a highly valued component brought in a third-party team to help identify the problem and develop a solution. The electronics company eventually replaced its in-line, inexpensive, thermoformed trays with a more durable, bio-material-based, reusable one that was produced via injection molding. While the initial higher pricing for the injection molded trays raised upfront costs, they outperformed the thermoformed trays with multiple uses and a stackable design. The electronics manufacturer realized greater efficiency and a significant increase in its ROI through:
- significant reduction in the consequences of in-transit damages (e.g., storage, shipping)
- reduced material costs as a result of the trays' reusability
- reduced labor costs as a result of no longer having to examine and discard broken thermoformed trays
- total product protection as a result of the stackable design, which allowed for modular placement at the end of the production line
- complete elimination of the need for outer containers, reducing labor and material costs.
For example, consumers expect electronics companies and retailers to offer voluntary “take back” programs to recycle and possibly reuse electronics and keep them out of landfills. In the food industry, consumers are looking for organically grown, sustainable products. They appreciate retailers that purchase products from local farmers, supporting the local community and reducing the carbon footprint to transport the produce to market.
Companies that are good stewards of the environment earn the goodwill, trust and, most important, loyalty of their customers.Better Business Practices As a result of their efforts to manage green supply chains, companies become much better at developing, implementing, and tracking metrics. In some instances, they have to do it to meet government rules and regulations. In other instances, they chose to because they know the metrics will help them track and improve their sustainability function and thus their business operations.
Monitoring metrics also can change the perspective about a company’s performance to much longer periods of time than just quarter to quarter. Precise metrics will enable a company’s senior management, other stakeholders, and key investors to project a company’s strength and stability well into the future.Competitive Advantage Together, all of these benefits – lower costs, better brand image, and better business practices – create a competitive advantage. Companies that adhere to sustainability practices and manage green supply chains will realize more efficient business operations and greater profits in the long term, as they are rewarded with increased sales by their loyal customers.
Going green is much more than just a public relations effort. Perhaps one of the most ambitious illustrations of this fact is Dell’s 2020 Legacy of Good Plan. In the plan, which covers the categories of environment, people, and communities, Dell commits to achieving serious and very measurable goals by the year 2020 to leave “a positive, measurable, and lasting contribution to our planet and our society.”Top photo credit: digitalart at FreeDigitalPhotos.net
Jimmy Anklesaria is the founder of Anklesaria Group Inc. He is a Fellow Member of the Institute of Chartered Accountants and holds a law degree and an MBA. He is the author of Supply Chain Cost Management: The AIM & DRIVE Process for Achieving Extraordinary Results (AMACOM, 2007) and is co-author of Zero Base Pricing: Achieving World-Class Competitiveness Through Reduced All-In-Cost with David N. Burt and Warren E. Norquist. One of the world's most sought-after speakers on cost management, Jimmy has positively influenced the procurement transformation process at numerous Fortune 500 companies. He has taught graduate and undergraduate level courses in strategic cost management, finance, and investments at several universities and currently teaches supply chain management at the Rady School of Management at the University of California, San Diego.