June 5, 2008

Supply Chain Managers Are Architecting A Green Future

All along the supply chain, costs are skyrocketing and competition is intensifying. The focus on sustainability-focused supply chain strategies allows companies to combine a muscular set of strategic and tactical actions and processes aimed at optimizing overall business, environmental, and social performance. In fact, a green-optimized supply chain has become a focus of corporate innovation and social responsibility that has powerfully impacted efficiency, profitability, and the very nature of global relationships, all along the value chain. In a recent report, Building a Green Supply Chain: Social Responsibility for Fun and Profit, AberdeenGroup benchmarked the green supply chain initiatives of over 350 firms, world-wide.

Evidence that a growing number of companies are moving from green rhetoric to sustainable action, the study found that 83% of respondents have completed or are planning the green-focused redesign of all or key areas of their supply chains. As the graph below shows, companies have a variety of objectives for performing supply chain network redesign - ranging from compliance to warehouse consolidation to carbon modeling.

Supply chain network design is an important component of this overall green redesign of the supply chain. Adding green/sustainability criteria to the complex process of determining the optimum configuration for physical supply chain layout and planning is the foundation for many of these new initiatives. Green supply chain network design tools give companies superior visibility and control over the complexities of supply chain operations and their ecological impact. The ability to efficiently analyze supply chain performance impacted by the changing dynamics of demand, sourcing, distribution support, costs, and climate change, can make or break the performance of the entire value chain.

The following key steps are essential for optimizing the supply chain based on its carbon footprint:

• Assign executive-level responsibility for your green supply chain initiatives, and ideally for all enterprise-wide green/sustainability programs. Laggards are less than 1/2 as likely as Best-in-Class companies to have any central point of coordination and management for CSR, sustainability or green. Without an executive champion, initiatives take longer to implement and are less likely to yield the anticipated results. The green supply chain executive must have overall responsibility for delivering on the project objectives, and as a result must also either have the authority to remove internal roadblocks, or be a peer of the other executives affected by the program.
• Establish clear metrics and track green performance in a variety of areas. Best-in-Class companies are 50% more likely to define, track and report key program metrics. “You can’t improve what you don’t measure”, so performance management is a key area in which to focus your efforts. Metrics should align with the process areas and objectives of your initiative, but common elements to monitor are energy usage and logistics/transport costs. If you build methods with which to gather the data, cleanse it, and present it in a simple, easy to understand format, you will be able to optimize these parts of your business, and use that experience to define and track other relevant measurements.
• Engage the use of network design technology and services as part of your green supply chain initiative. If you are not sure where to begin, engage with a network design solution provider to assist you with program selection and prioritization.
  
• Use network design technology for more frequent strategic decision making. Companies should increase the frequency of their network strategy assessment to at least once per year, and use this process for assessing business growth scenarios, supplier network design, etc.
• Implement the strategic network design through an inventory optimization solution. It is not enough that the strategic network is designed based on optimizing around the carbon footprint. It needs to be implemented by respecting the constraints identified through the design process. This can be done by leveraging a demand planning and inventory optimization solution which can help operationalize the network.

Jhana Senxian specializes in sustainability and green-oriented business process transformation for a cross section of practice areas at Aberdeen Group including Supply Chain Management and Retail.

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