Greener pastures for supply chain
Government regulations and customer demand are making environmental responsibility an increasingly important factor in everything from materials procurement to distribution. Building a truly green supply chain is a major undertaking, but getting started might be easier than you think.
In Summary:
| • | Though regulations increasingly make environmental responsibility mandatory, compliance can provide a competitive advantage. |
| • | Careful planning and self-evaluation should be the starting points of any green supply chain initiative. |
| • | Implement green supply chain reforms internally before asking your suppliers to comply as well. |
Many executives share today's widespread concerns for the health of the planet. Far fewer of them, unfortunately, have successfully translated those concerns into action by adopting environmentally sustainable, green supply chain practices. Businesses worldwide continue to use toxic chemicals, wasteful packaging, and transportation practices that produce clouds of gases that may contribute to global warming.
However, from materials acquisition and manufacturing to packaging, logistics, and distribution, every stage of the supply chain offers opportunities to reduce waste and pollution. What's more, building a green supply chain is not only socially responsible but smart business—and there are practical ways to get started now.
Why a green supply chain matters
 | Any pollution is waste, and waste costs money. |  | | Joseph Sarkis
Environmental management professor,
Clark University | |
|
Altruism aside, regulatory mandates such as the European Union's restrictions on hazardous substances and electronic equipment (see sidebar detail) increasingly require companies to adopt greener practices. Such laws have business decision makers examining both their own operational processes and those of their suppliers. Organizations can be held liable for the ecologically irresponsible actions of their vendors in a court of law, the court of public opinion, or both.
Moreover, suppliers with lax environmental policies are likely targets for government prosecutions and even shutdowns, which can impede their ability to fill your orders. "One hiccup in your supply chain and the customer isn't going to be peeved with the supplier. They're going to be peeved with you for not getting the product out on time", says Andrew Armstrong, a director at the consulting firm WSP Environmental in London.
Encouragingly, though, managers are beginning to realize that green business practices can deliver significant benefits to the bottom line. In fact, 51 percent of companies with corporate social responsibility programs credit those initiatives with providing a competitive advantage, according to a 2007 study of U.S. and European businesses by the Boston-based (IT) analyst firm AMR Research. For one, a greener supply chain is usually a more efficient one. "Any pollution is waste, and waste costs money," notes Joseph Sarkis, professor of operations and environmental management at Clark University in Worcester, Massachusetts, and the editor of Greening the Supply Chain.
Generally, customers also prefer doing business with environmentally aware companies. "To the extent this is becoming a greater issue for [customers], it needs to be a greater issue for you," says Laura Commike, manager of advisory services at Business for Social Responsibility, a nonprofit organization based in San Francisco.
How to adopt green supply chain practices
Building a truly green supply chain is a major undertaking, but here are some initial steps to get you started.
1. Develop a strategic plan
Start by setting clear, comprehensive objectives for your green supply chain initiative. A cross-section of employees should participate in these discussions, including managers and the line workers who will have to implement the new policies. Above all, make sure that senior executives both contribute to and support the planning process and the program. Few green supply chain efforts succeed without high-level backing.
Numerous organizations offer resources that can aid in planning. For example, many industries have formed voluntary associations—such as the Electronic Industry Code of Conduct (EICC), to which Microsoft belongs—that define performance targets for environmental and social responsibility. Also, the nonprofit Global Environmental Management Initiative, based in Washington, D.C., offers a sustainable development planning tool on its Web site.
2. Assess your current environmental impact
Your next step should be to measure your company's current environmental performance against your newly established goals. To assist with that process, Microsoft is developing an environmental dashboard that will help companies using Microsoft Dynamics ERP systems to collect and monitor information about their energy consumption and greenhouse gas emissions. Scheduled to launch later this year, the environmental dashboard will be a free download on the Microsoft Dynamics Snap Web site.
3. Implement green practices internally
Begin by modifying internal supply chain practices, where you have maximum control. For example, consider replacing gas-powered delivery trucks with more fuel-efficient hybrid vehicles. They will not only reduce CO2 emissions but lower your fuel spending as well. If you operate diesel trucks, consider switching to biodiesel, which produces fewer pollutants than petroleum fuels and runs in conventional diesel engines. "Biodiesel is a great solution because it doesn't really require any change to [existing] infrastructure," says Daniel Sanker, president and chief executive officer of CaseStack Inc., a Santa Monica, California-based logistics services provider that promotes biodiesel adoption.
Sanker also encourages businesses to reduce energy consumption in their warehouses by adding solar panels and skylights, and to burn less fuel by shipping more cargo on fewer trucks. "At least a third of truck capacity is empty at any given time," he notes. Transportation management software can help businesses plan shipments more carefully and decrease unused space (see "Control your transportation costs"). "Everything we can do to fill trucks completely is pure gold, because if the truck is one-third empty it's still using the same amount of fuel," he adds.
4. Address your suppliers' environmental responsibility
After you've put your own house in order, begin working with your supply chain partners to improve their environmental performance. Start with suppliers that are most vulnerable to tightening regulations or that are likely to benefit from conservation, recycling, or packaging reduction programs. "We promote taking a risk-based approach in which you focus your efforts where you'll have the most impact," says Brad Bennett, a sustainable development manager at Intel and current chair of the EICC. Microsoft Dynamics supply chain management software can help you identify high-risk suppliers.
Next, communicate your company's environmental policies to your suppliers, and have them complete a self-assessment questionnaire about current practices. Audit the responses to ensure they're accurate. If a vendor is out of compliance with one of your requirements, help it develop a remediation plan.
If all this sounds daunting, try a few smaller steps instead, like using recycled paper in your packaging. "There's no reason not to try some of this stuff," Sanker notes. "Why not experiment? It's really not that expensive." Starting slowly on a green supply chain initiative is fine. What's important is to start now.
The regulatory scene
The steady proliferation of environmental regulations is one of the best reasons to begin taking green supply chain practices seriously. In Europe, three regulations are especially large:
| • | The Restriction of Hazardous Substances (RoHS) Directive, which curbs the use of six ecologically harmful chemicals. |
| • | The Registration, Evaluation, Authorization, and Restriction of Chemicals (REACH) regulation, which imposes a variety of health and safety requirements on makers and importers of toxic chemicals. |
| • | The Waste Electrical and Electronic Equipment (WEEE) Directive, which makes electronics manufacturers responsible for facilitating the safe disposal of used hardware. |
China, among other nations, has passed similar laws. In the United States, few such mandates exist at the federal level, but California's Appliance Efficiency Regulations and Energy Efficiency Standards for Residential and Nonresidential Buildings are just two examples of the many state and local environmental laws.
 | Rich Freeman is a Seattle, Washington-based freelance writer specializing in business and technology. He has more than 14 years of strategic marketing and communications experience in the IT industry. |
