Businesses Increasingly Rationalize Supply Chain Sustainability
More companies are aggressively pursuing sustainability in their supply chains, according to Bruce Tompkins, the executive director of the Supply Chain Consortium. Part of their motivation is to get out in front of regulatory requirements. “Companies want to shape the future of sustainability,” Tompkins said recently in a podcast on the topic, “and it’s easier to stay ahead of the game than trying to catch up to regulations.”
In the podcast “Risk, Economics and the Environment – Defining Sustainability and Best Practices for Businesses,” Tompkins tells interviewer Cheyanne Ritz that many sustainability concerns are found in the supply chain. In fact, he says, “about 50 percent of a company’s carbon emissions typically come from [its] supply chain.”
The private sector, he says, is moving forward on issues like climate change in spite of government efforts. In the U.S., the Securities and Exchange Commission (SEC) is now requiring sustainability and carbon emissions reporting, so in fact regulatory requirements are putting pressure on companies to take action. But Tompkins also believes that companies are adopting policies and practices around sustainability to stay ahead of the curve.
“They don’t want to be dictated to, and they want to make and set policy,” Tompkins says. “A lot of the future is in helping to shape where sustainability. I see that as being an important thing.”
The Carbon Disclosure Project’s (CDP) “Supply Chain Report 2012” confirms that concerned companies “are now pushing their suppliers to report more climate change-related information and take greater action to reduce their emissions.” In its 2011 annual information request, CDP found that out of its 49 reporting companies in the supply-chain category, 90 percent had a climate change strategy with at least a set of procurement guidelines.
Sixty-two percent rewarded their suppliers that practiced carbon management — a figure that has risen from only 19 percent in 2009. Thirty-nine percent of respondents said they will soon begin rejecting suppliers that don’t adopt carbon-management practices.
The business case for supply-chain sustainability is strong, says CDP, and the implications are clear: “Suppliers that do not measure, quantify, and manage their greenhouse-gas emissions will soon see their business move to competitors that can provide better information and clearer evidence of change.”
Strategy for a Sustainable Supply Chain
To implement sustainable practices in the supply chain, Tompkins stresses the importance of having “an overall strategy for emissions and resource consumption, and reporting,” he tells Ritz in the podcast. “You have to have a strategy before you can put in place the structural or tactical items.”
In an interview, I asked Tompkins to elaborate on what he thinks a company should do to implement sustainability in its supply chain. While stressing that every company is different and will have distinct needs and approaches, he feels that in general, “the first step is to get a senior executive to sponsor sustainability efforts or hire a person to fill this role.” Next, he tells me:
I would identify the areas where the most opportunity for improvement exists, whether that is in transportation or network design or in manufacturing process improvement, and develop a series of improvement initiatives in these areas. Staff the initiatives with people who are interested in saving the company money and in moving sustainability efforts forward for the “right reasons” — like morale, being a good citizen and so on. Then I would put in place a performance tracking process to ensure results are being achieved by the initiatives and a reporting structure to ensure the benefits are captured and which meets the company’s regulatory needs. After that it becomes a process of continuous improvement, looking for ideas to improve sustainability and reduce costs, water and energy usage, and emissions.
When I asked Tompkins why supply-chain sustainability matters, he circled back to a data point that he mentioned in the podcast: “Approximately 50 percent of all energy and emissions for a company are found in the supply chain.” This figure, he tells me, comes from a 2011 report by the CDP. In fact, the organization’s 2012 report says those indirect emissions from the supply chain can “represent as much as 86 percent of a company’s total emissions.” “This places supply chains in the crosshairs for improvements in sustainability,” Tompkins says.
The Supply Chain Consortium’s executive director continues:
As some major companies are learning, there are tremendous financial returns from making sustainability improvements. Sustainability is now more than just a feel-good type of initiative. Companies are creating ROI measures and P&L statements which focus on the benefits of sustainability efforts. Companies are now more comfortable putting sustainability improvements in financial terms and seeing the true impact that sustainability has on the bottom line and top lines.
Tompkins identifies three “hot spots” in the supply chain, or areas where companies are likely to find the greatest sustainability benefits:
- The most important area is use of water and energy in manufacturing processes, as well as emissions.
- The second area is transportation: “We have seen significant innovation in mode usage and ways to improve the efficiency of tractor trailers, for example.”
- The third area is what Tompkins calls “network design,” in which “the sustainability effort is focused on reducing the miles goods are moved to get through the supply chain.”
This last point about network design speaks to one of the crucial dilemmas in supply-chain sustainability: their complexity involving scores of partners and suppliers. And a company might have limited ability to mandate sustainable practices from its suppliers.
However, Tompkins thinks one obvious step “is to make the supply chain less complex and minimize the distances that product travels and make sure it is on the most efficient transportation modes… If you can’t take miles out of the process you can make sure those miles are as efficient as possible,” he says. Packaging design can also remove a lot of energy waste from the supply chain by increasing the number of units per truckload.
The Supply Chain Consortium is made up of some 350 companies in retail, manufacturing, wholesale and distribution. The group delivers benchmarking services and best-practices knowledge to its members, which include such companies as Domino’s Pizza, GlaxoSmithKline, Hallmark, Ingram Micro, Miller-Coors, The Coca-Cola Co. and Target. The organization is administered on behalf of a board of directors by Tompkins International, of which Jim Tompkins is founder and CEO.