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Beating the Green Supply Chain Blues

In 2005, when Walmart announced an ambitious series of sustainability goals, then-executive Tyler Elm explained the company’s decision to focus on green supply chain management: “We recognized early on that we had to look at the entire value chain. If we had focused on just our own operations, we would have limited ourselves to 10 percent of our effect on the environment and eliminated 90 percent of the opportunity that’s out there.”

In the years since the retail giant introduced its sustainability initiative, many other corporations have followed suit by exploring or incorporating eco-friendly strategies such as minimizing packaging, redesigning goods and products to focus on recycling, and moving manufacturing or assembly operations closer to home.

Walmart is not the only powerhouse trendsetter in the arena of green supply chains. IBM has long been a driving force in the move toward supply chain sustainability in the electronics and IT sectors. The company is a founding member of the Electronic Industry Citizenship Coalition, which promotes social, environmental and economic responsibility, and also helped create the organization’s Code of Conduct.

In 2010, IBM announced that it would require its suppliers to meet the international green operating standards established by the International Organization for Standardization. As the company notes on its website, “IBM is committed to doing business with environmentally responsible suppliers.”

Another IT behemoth, Microsoft, recently bolstered standards for its thousands of vendors worldwide. Among its supply chain initiatives: measuring the greenhouse gas emissions of contractors, and purchasing wind energy for European operations.

For global companies such as Walmart, IBM and Microsoft, collaboration and interdependence are necessary for success, particularly in the face of a challenging economy, a finite supply of natural resources and growing consumer demand for green products and services.

Business executives and other company leaders wrestling with the prospect of greening their supply chain could consider incorporating some of these innovative approaches:

Long-Haul Loyalty: This could be an excellent tactic for encouraging sustainably sound behavior by suppliers without shelling out large amounts of capital upfront. In 2006, for example, Walmart committed to buying all the organic cotton produced by a group of farmers over a five-year period. Guaranteed business may provide enough of an incentive for suppliers to invest in more sustainable operations.

Outsource Training and Assistance: Numerous nonprofit organizations offer assistance to businesses seeking to go green. In the late 2000s, Walmart enlisted some of those groups as part of its Sustainable Value Networks, which gauge how well the company’s suppliers are performing in terms of environmental factors.

Walmart turned to one such nonprofit, BSR, in 2008 to help improve the energy efficiency of the retailer’s 200 biggest suppliers in China. BSR’s efforts included offering training and developing measurement tools.

Create a Badge of Honor:  Given the increasing premium customers are placing on green products, sustainability-minded companies should encourage their suppliers to certify eco-friendly and organic products, and license green innovations. Businesses that can boast of green suppliers may enjoy financial advantages, in addition to the environmental benefits.

Construct Coalitions: Obviously, not every company has the buying power and prestige of an IBM or Microsoft. Sometimes, the only way to institute change is to pool influence, aggregating demand for environmentally sustainable products and processes. This doesn’t necessarily mean partnering with a close competitor, although that may be appropriate in some instances. In a global marketplace, companies can form alliances across industries and geographic borders to demand change that will protect consumers, profits and the planet.

Establishing a green supply chain is an ambitious endeavor that may be fraught with false starts and pitfalls. It is best thought of as a process rather than a destination, particularly given the changing landscape of resources, regulations and customer preferences.

However, it can be managed with the right combination of innovation and cooperation up and down the supply chain.

As Walmart notes on its website: “At Walmart, we know that being an efficient and profitable business and being a good steward of the environment are goals that can work together.”

Dean Vella writes about supply chain management and sustainability for University Alliance, a division of Bisk Education Inc.

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One thought on “Beating the Green Supply Chain Blues

  1. Infrastructure was severely compromised in Japan which, in turn, impacted the ability to both manufacture and distribute. Even if companies had stockpiled parts, it was a long time before product flow was back to normal in Japan, so these inventories were eventually depleted.

    INSIGHT’s Jeff Karrenbauer has been evangelizing for years the need for companies to be sure their supply chains are prepared for disasters. But few companies undergo the expense of determining vulnerabilities within their supply chains, until a disruption occurs. When the Japan earthquake happened last year, the automobile and electronics industries in the US felt the impact of the Japanese disruptions because they could not get parts and many plants were shut down.

    To mitigate supply chain risk, companies need to have a strategic supply chain plan in place. Possible components of the plan include inventory positioning, alternative sourcing, transportation options, etc. Strategic supply chain plans incorporating inventory analysis balance the cost of extra stock against the risk of lost sales, lost customers and a negative impact on bottom line profitability. Too much inventory results in higher costs, negative impact on cash flow, and too much working capital tied up and unavailable for other initiatives. Too little inventory results in missed sales, lost customers, and poor service. Strategic planning ensures companies have alternative sources of parts and supplies along with balanced inventory levels.

    INSIGHT helps companies take a holistic look at their supply chain, including determining optimal network designs, identifying vulnerabilities, developing mitigating strategies, including alternative raw material and manufacturing sourcing plans, determining optimal inventory policies and levels and more to sustain companies affected by current events. For one client, INSIGHT helped them determine the optimal way to get their products into an area destroyed by a hurricane. They looked at all the transportation modes, routes, fuel costs, etc. to determine the best way to get the products to the customers when they needed them, where they needed them.

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