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April 27, 2008

Lean And Clean With Green Purchasing

Mickey North Rizza
AMR Research

For years, sourcing and procurement organizations have focused on perfecting lean business processes, guided by the fundamentals of strategy, size, management, and financial performance. But now the collective resources, regulations, and reputations of companies are at stake around the world. Current world population is outpacing resources and fostering concern about the social responsibilities of companies for fair labor practices, ethics, and environmental impacts.

At the recent Supplier Management conference hosted by eyeforprocurement, sustainability and green purchasing was a hot topic with executives. This article looks at green procurement initiatives and the results that make a “clean” difference.

Green procurement defined

Green purchasing is often referred to as environmentally preferable purchasing. It’s the selection and acquisition of products and services that minimize environmental impact throughout the course of the manufacturing, transportation, use, and recycling or disposal lifecycles.

As the core of the inbound supply chain, supply management plays a vital role in finding green opportunities. However, putting them in context can be difficult.

A good reference point for any organization is to first understand what elements fall under the sustainability umbrella. Here are some of the greatest opportunities with which supply management can help their companies:

• Switching from toxic to nontoxic substances
• Water reuse in manufacturing of supplied products
• Air emission and hazardous waste reductions
• Supplier energy efficiency

Where to start on the green purchasing journey?

The difficulty lies in figuring out where to start: commodities and category plans, metrics for all suppliers, or asking about current supplier initiatives?

Some companies start with the elements and then measure suppliers, but this can lead to quick failure if the businesses don’t know what performance they’re trying to drive from their suppliers. Others are asking suppliers for yearly updates on any new green initiatives, and then tracking those initiatives and reporting with technologies like Aravo’s Sustain. Another approach that’s gaining in popularity is the use of lean principles as a starting point for green.

Merging clean with lean

When lean principles are applied to business processes, typical results include the elimination or reduction of defects, over-production, queue time, non-utilized resources, transportation, inventory, motion, and extraneous processing.
The Green Supply Network (GSN)-a joint effort of the U.S. Environmental Protection Agency (EPA), the U.S. Department of Commerce, the National Institute of Standards and Technology, and the Manufacturing Extension Partnership Program-took the proven principles of lean and merged them with pollution prevention and the EPA’s environmental initiatives.

GSN’s marriage of clean initiatives to the principles of lean provided the following lessons learned:

• Optimizing material use for less scrap yields reduced solid waste.
• Reducing inventory for less chemical spoilage equates to reduced hazardous waste.
• Reducing overproduction means less run time and an energy savings.
• Less transportation means a reduction in fuel consumption, which reduces air emissions.

Opportunities abound: case studies from the Supplier Management conference

How real is lean and green supply management? At the Supplier Management conference, a CPO of a furniture manufacturer reported she had asked a segment of her suppliers to participate in the GSN study and three agreed. Each supplier took a different approach, but all of them made a difference in the use of resources, compliance to regulations, and the protection of customer and company reputations.

Here are their stories:

Supplier A: Electrical specialty business

Approach: The supplier agreed to work with GSN, but had already started on its green journey.

Challenges: It was concerned it might be doing something wrong and didn’t want to appear like a bad supplier.

Changes: The company used the results as a marketing advantage.

Results: First cradle-to-grave certified product made for a customer that was PVC free and reduced hazardous
substances.

Supplier B: Chemicals and lubricants for pretreatment program at customer sites

Approach: After the GSN evaluation, the supplier took the information and provided the customer with a green solution.

Challenges: Securing business after showing cost reductions.

Changes: There were significant changes made in the customer’s finishing operations, which produced a savings
of $1M. In addition, the supplier decreased costs and became a more strategic supplier.

Results: Customer cost reduction, 60% energy reduction in BTUs required, 80% less water required, 20% to 30% less volume based on innovative chemistry solutions, 85% waste reduction, and a more than 50% labor reduction for washer maintenance.

Supplier C: Plastic components

Approach: The customer paid for the GSN assessment.

Challenges: The customer was reducing the supply base and would only use top-five suppliers. The supplier just made it onto the top-five supply list prior to the GSN changes.

Changes: Applied green principles and identified $400,000 of potential cost savings. Implemented material type and product flow changes.

Results: Lowered overall operating costs by 20%, increased inventory turns by 30%, moved from three-day to one-day lead time on parts, and reduced the travel distance for product flow. The supplier became more competitive and important to the customer. Additional events have led to a reduction in equipment run times and upgrades, as well as increases in the production square footage area of the facility.

Discrete manufacturer embeds green into procurement

A U.S. discrete manufacturer embedded green procurement in its supply chain. The company took a new concept product that will not hit the consumer market for years and started a green pilot process during the design phase, embedding green procurement opportunities. Each assembly and component will be reviewed with every supplier for opportunities to support its green initiatives:

• Review of toxic and alternative nontoxic substances
• Optimization of raw material resources
• Review of water use for possible wastewater reductions
• Review of carbon-emission reductions
• Reduction of solid and hazardous wastes, plus development of treatment centers
• Energy efficiency

The manufacturer hopes its suppliers will not only find alternatives and innovative products, but also provide resource savings as well.

Conclusion

Green supply is here, but it’s still in early stages. Collectively, organizations can’t afford to wait for it to become a trend that provides greater business opportunities. The proof is in the results, and supply management is a key contributor.

Mickey North Rizza is a Research Director at AMR Research.

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