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May 24, 2008

Supply Chain In Spotlight at Ceres Conference

John Davies
AMR Research Inc.

At the recent Ceres conference, investors, environmentalists, and business executives came together to address a wide range of sustainability challenges from stakeholder engagement and corporate governance to resource scarcity and climate change. This year, though, it was encouraging to see a strong focus on supply chain issues from diverse companies such as Stonyfield Farm, Timberland, McDonald’s, and Levi Strauss & Co.

Using creative tension to get results

Ceres is a national network of investors, environmental organizations, and other public interest groups working with business to address sustainability challenges such as corporate governance and global climate change. This non-profit organization’s mission is to “integrate sustainability into capital markets for the health of the planet and its people.” While often associated with the concept of socially responsible investing (SRI), Ceres shouldn’t be viewed in terms of traditional SRI functions such as establishing screening criteria (e.g., no investments in tobacco or weapons). Instead, Ceres is an organizational catalyst focusing corporations and their investors on sustainability issues. One of its major contributions in this area is its work ten years ago in creating the Global Reporting Initiative (GRI), the world’s most widely used sustainability reporting framework.

Kicking off its recent conference, Ceres President Mindy Lubber noted that more than 1,500 multinationals were now using the GRI and that sustainability governance has now reached the highest levels of organizations. In describing how Ceres works with investors and corporations, she reiterated a theme of creative tension with the humorous mission to “dance at the intersection of our differences.” As one of the examples of how Ceres has engaged with business, Ms. Lubber highlighted the efforts of Dell Inc. and its work with a broad stakeholder group to develop a comprehensive recycling program. Dell would later be acknowledged with a commendation for product stewardship reporting as its latest sustainability report describes how the company is working to integrate sustainability considerations into the design, manufacture, and recovery of its products.

SRI is supply chain responsible investing

The co-winners for Best Sustainability Reporting at the conference were Ford Motor Company and Timberland. In accepting the award, Timberland President and CEO Jeffrey Swartz came on stage wearing his ubiquitous Boston Red Sox baseball cap and thanked his co-workers, customers, and others by telling a story about how his mother taught him to call everyone a partner. In describing his business in terms of sustainability, he pointed out that “I want to sell them something they don’t want to buy and I want to charge them more than they want to pay, so we call them partners.” Setting the tone for the rest of the morning, he pointed out that the key to building solutions is by increasing engagement across a company’s complex value chains. To accelerate this for his company, Mr. Swartz announced that Timberland will be publishing updates to their corporate social responsibility report on a quarterly basis-a first-of-its-kind initiative.

Joining Mr. Swartz on stage was Triple Bottom Line author Andy Savitz and Stonyfield Farm President and CE-Yo Gary Hirshberg. With the goal to create a company that could serve as a model of socially responsible business practices, Mr. Hirshberg’s company was the first signatory of the Ceres principles. But, as he noted in his recently published book Stirring It Up, Mr. Hirshberg’s perspective is not the “delusional rant of a child of the sixties…but a passionate capitalist who measures progress with hard numbers and productive assets listed on balance sheets. I have little patience for big talk and no do.”

Both CEOs provided numerous examples extolling the point that “supply chain is everything.” Mr. Swartz described how sustainability initiatives can create unusual partnerships as Timberland worked with competitor Nike and others to develop water-based adhesives to lessen the environmental impact of their products and manufacturing processes. Mr. Hirshberg noted that every sustainability effort Stonyfield Farm has made to improve its supply chain has had a positive return, and “now we not only look like geniuses, but we also look like idiots for not doing more.” One example cited by Mr. Hirshberg is his assertion that Wal-Mart is going to give more shelf space to companies that reduce their carbon footprint. He recounted that after giving a talk one Saturday morning in Bentonville to Wal-Mart associates, his company’s efforts were rewarded with a purchase order for four SKUs for 2,000 stores that it never even bid on or negotiated.

McDonald’s and Levi’s reinforce supply chain message

During an earlier panel, McDonald’s vice president of Corporate Social Responsibility Bob Langert and Levi’s Michael Kobori discussed the intersection of sustainability and supply chain. Mr. Langert described McDonald’s efforts as “how we use our size and leverage to improve the world.” He then provided three tips for integrating sustainability into the supply chain:

• Dedicate a full-time supply chain sustainability manager. Sustainability has to have a seat at the table for every important decision made.
• Create a governance body for corporate sustainability.
• Use a Supplier Performance Index to focus efforts upstream in the supply chain. McDonald’s has been adding sustainability criteria to the supplier index incrementally over the past five years.

Mr. Kobori also described Levi’s approach in terms of three key points as he underlined the need to integrate, collaborate, and dream. Mr. Kobori described how Levi’s outsourced production to over 800 manufacturers in 42 countries, which required the establishment of a code of conduct in 1991 to manage all those relationships. In terms of collaboration, Mr. Kobori cited statistics that the average factory gets visited over 25 times per year, making it a very inefficient process. Following Nike’s early lead, Levi’s began publishing the list of factories it does business with, which allowed it to discover who else used the same suppliers. As a result, it began sharing responsibilities for factory audits and saved over 20% in the process.

In response to questions as to who bears the cost of sustainability initiatives, Mr. Langert asserted that “sustainability shouldn’t be a luxury item” and all of the members on the panel agreed that it was “a cost of doing business.” The importance of integrating sustainability efforts with supply chain operations has never been greater.

John Davies is Vice President of Green Research at AMR Research, Inc. Send an email to John at jdavies@amrresearch.com.

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