Industry Market Trends
Demystifying "Green" Supply Chains: 5 Steps for Manufacturers
March 28, 2013
By Yves Leclerc, West Monroe Partners Being "green" is no longer a new concept. Whether it's improved public perception or bottom line results, organizations ranging from global enterprises to nimble start-ups understand that embedding green initiatives is just good business. But, for a mid-sized manufacturer without deep pockets or a team dedicated to such initiatives, where do you begin? It can seem overwhelming given all of the complexities and inner workings of your supply chain. But, it can also make real financial sense. For decades, many manufacturers turned to Lean as the answer to cost savings and efficiencies with little focus on sustainability. Unfortunately, many of these Lean initiatives only eliminated waste on a temporary basis. Without an internal Lean team to oversee processes constantly, waste can creep back in, disrupting process flow. Today's manufacturers should focus on optimization through engineering to build sustainable and green operations across all aspects of the supply chain. They can do this by following these five steps. Step 1: Operationalize the corporate strategy to enable a green supply chain. Be smart when developing your strategy. Set realistic goals and then define an action plan to get you there. Review the gaps between business environmental objectives and operational reality. Manufacturers that assess supply chain risks against a sustainability framework (see Figure 1) can identify opportunities to improve resiliency while minimizing risk. This assessment should include a full or partial modeling of the physical network and the movements of goods, as appropriate. Successful manufacturers understand that they must consider the environmental impact of their supply chain decisions in much the same way they consider costs and service levels. It's non-negotiable in today's economy. Consider incorporating environmental target key performance indicators (KPI) for things like carbon footprint into your overall supply chain governance process. Step 2: Develop a series of steps to move closer to a profitable, sustainable and green supply chain. These steps don't have to be complex or daunting or achieved through a "black box" solution. Establish a process that considers environmental impact before any decision is made. Make sure your sourcing initiatives consider location, sustainability of material, ability to reuse or recycle and ease of disposal - not just cost. Revisit the way you manage inventory to reduce waste, eliminate hazardous or harmful materials and minimize consumption of non-renewable energy. Finally, plan transportation routes methodically, optimizing travel to minimize distance, maximize load efficiency and leverage backhauling whenever possible. Step 3: Think holistically - your sustainability program should cover the entire supply chain and product lifecycle. Many manufacturers mistakenly focus all of their sustainability initiatives on transportation and logistics. Yes, ships, trucks, trains, and planes are all responsible for carbon emissions. But, a short-sighted focus won't help you build a viable sustainability framework. Often, the best place to start is with design -- how do you configure the supply chain network to meet cost, quality, service and environmental objectives? Organizations typically have to deal with several conflicting objectives at any given time. A single decision in one area can diminish the realized value of another objective. The key is to consider these conflicts thoughtfully to achieve the best overall results. Think strategically about where you get materials, balancing local and global sourcing based on cost, quality, reliability, agility, and environmental sustainability. Optimize your inventory deployment and demand management processes to eliminate inventory obsolesces, end of life and/or shortages. Look for creative ways to maximize capacity in your warehouses and distribution centers. Consider production planning and scheduling optimization where manufacturing efficiency might have a huge impact on your energy consumption, and make sure your workforce is adaptable to changing needs and trained to work efficiently. Step 4: Get buy in and share responsibility and accountability across the organization. As a guiding principle, green activities should become mainstream and the responsibility of everyone in the business from design through delivery. Understand that this may be a significant cultural change for many involved, so proceed with caution and communicate to avoid any confusion. Once you do get buy in, make sure to incorporate your approach into your company values so that it becomes intrinsic to the company and isn't overlooked. Also consider how vast your reach is - these changes impact groups well beyond your supply chain organization to include R&D teams, marketing, and sales. Step 5: Measure! Measurement drives behavior. In an industry with tight margins and growing customer demands for "better, faster, cheaper" products, the programs that survive are those that show hard dollar ROI. Analyze your supply chain program quarterly and make adjustments to areas that are under delivering on your expectations. Share reports with key stakeholders so that they remain invested in the success of the program and understand the total environmental impact generated through the lifecycle of products. Think of your sustainability program like any change management initiative -- base it upon a continuous improvement framework with an outward, channel-based focus. Assign sufficient program management resources and engage your executive team. Don't underestimate the power of data analytics in helping you focus on the right areas for improvement. Profit is what your executive team will remember, but manufacturers must not undervalue customer service either. In today's environment, customers are acutely aware of climate change and environmental impact - and they've demonstrated a willingness to pay more for local and fairly traded products. Similarly, investors are increasingly aware of the risks of bad press around environmental or social "irresponsibility" and the damaging affect it can have on stock valuations. With the ever growing influence of online and social media channels, information on your organization and how and where it manufactures goods is readily available. Sustainable supply chains are a true win-win for manufacturers. Many manufacturers are surprised to see how well their "green" objectives align with other stated business goals. For example, many manufacturers want to shorten their supply chains to minimize risk and volatility, which in turn also reduces carbon emissions. Reducing energy use with skyrocketing prices shrinks costs and helps the environment. The key to success is to be pointed in considering cost, service levels, and environmental impact together upfront and make your decisions based on a blend of all three priorities. Then, apply an engineered approach to ensure that your enhancements are sustainable. We don't have to wait for some sort of legislation to be passed in order to act and be more socially responsible. Going greener can result in lower costs, increased demand, increased profit margins, and can reduce share price volatility. Who can argue with that? About Yves Leclerc Yves Leclerc is a director and leader of West Monroe's supply chain practice across North America. He works closely with our alliance partner, BearingPoint, to deliver supply chain solutions globally. Special thanks to BearingPoint contributors Yvon Donval and Xavier Houot.