Your Supply Chain and the Environment
Recent years have seen an explosion in environmental awareness. Green technology, green buildings and green products have entered the thoughts and lexicons of professionals world-wide. But while industry leaders in construction and manufacturing have seen the advantages of going green, other sectors of the economy have been slower to hop aboard the green bandwagon.
One area that has proven resistant to greening is also an area most in need of it: the supply chain. The supply chain for many businesses represents a precarious balance, one that it seems all too easy to topple if it is upset. There are as many ways to simplify and save money by greening the supply chain as there are chances to over complicate and consequently lose money.
And logistics professionals have made some impressive strides to reduce the environmental impact of managing supply chains. The United States Postal Service has seen significant cost savings for direct mail vendors by working with them to implement plans to reduce waste. The USPS estimated in 1997 that these plans resulted in savings of as much as $500 million.
The Environmental Impact of Logistics
New findings from a Brockmann & Company survey released in February of 2008 finds that companies who make the effort to be green enjoy both higher customer satisfaction and higher per employee revenue. The Brockman survey demonstrates that employees at green firms generate more than 170% (or 1.7 times) the amount of revenue per employ than similar employees at non-green firms. Such firms also enjoy an employee satisfaction rate that is 4.7 times greater than non-green firms. And, a recent survey by the audit firm KPMG found that a majority of consumers were willing to pay more in order to go green. The survey, released at the end of 2007s holiday shopping season, found that 88% of consumers described themselves as very concerned about the environment. The survey further found that fully 74% indicated that they purchase environmentally friendly products while a majority reported that theyre willing to spend more for environmentally-friendly items, and that they make a special effort to support retailers with a green reputation.
An April 2008 study by Diamond Management & Technology Consultants points out that heavyweight companies in a variety of sectors from Heineken to Nestle to Johnson & Johnson have recently taken steps to integrate a greener supply chain as a part of their companys overall environmental strategy. Diamonds report identifies five questions to ask when considering greening your supply chain -
1) Have we aligned our Green Supply Chain goals with business goals?
2) Have we evaluated how our supply chain impacts the environment and how we could use this to create value?
3) Have we evaluated how collaborating with suppliers and customers could derive shared benefits through a green agenda?
4) Have we created a business case to evaluate, justify, and prioritize changes that could result from a Green Supply Chain?
5) Have we assessed the full range of our adverse environmental impact, and have we chosen the least burdensome alternative?
The Impact of the Environment on Logistics
Greening your supply chain means understanding your logistics operations environmental footprint. Your supply chain demands energy, consumes resources, produces waste products, and causes the release of emissions all factors that affect our shared environment. A sophisticated 3PL will have in place a network to monitor all levels of your logistics operations and can likely use their existing infrastructure to measure these impacts. Getting a clear look into these impacts is the first step in greening your supply chain.
Julie Paquette of the Massachusetts Institute of Technologys Engineering Systems Division lays out many of the reasons for building a greener supply chain. These include responding to pressures from regulations, increased costs of resources, the importance of ethical (in this case green) business practices, and the growing expectation among customers that companies will work to reduce their environmental impact. In her 2005 paper The Supply Chain Response to Environmental Pressure, she rightly points out that, as environmental pressures promise to grow ever-more comprehensive, a companys supply chain response may confer significant competitive advantage over companies who are less quick to respond to regulatory pressures, increased energy costs, and growing public expectations.
Too many companies, however, have been slow to focus on the potential gains that green supply chains can cause. One reason for this, identified in the EPAs report The Lean and Green Supply Chain, is that cost accounting systems often hide the size of the environmental costs companies incur. Just because they are often difficult to see on a conventional spreadsheet, does not meant that these costs are not real or measurable. Ms. Paquette cites a study by Michael Porter and Claas van der Linde that describes categories of cost that companies incur from environmental factors. These include the value gained by the substitution, reuse, or recycling of production inputs; more effective utilization of waste and by-products through conversion to usable forms; lower energy consumption; cuts in material storage and handling costs; savings from safer conditions, and cost reductions for waste disposal and discharge activities. While this list is in no way exhaustive, it does illustrate the ways in which environmental costs can be effectively accounted for and reduced.
Going Green by Outsourcing your Supply Chain
For many businesses, turning away from core competencies and towards something as foreign as building a green supply chain can be a scary proposition. To avoid unnecessary and costly mistakes, many companies choose to outsource their green needs to a third-party logistics provider (3PL). An experienced 3PL can pinpoint where the opportunities are for greener practices within a supply chain, while identifying the best way to implement those practices for the lowest cost.
The flexibility needed to confront these challenges is what a 3PL brings to a supply chain. Collaborating closely with supply chain partners like 3PLs can, according the US Environmental Protection Agency, enable a company to reduce inventory, decrease product obsolescence, lower transaction costs, react more quickly to changes in the market, and respond more promptly to customer requests.
A Green Future for Logistics
The future looks green and businesses that ignore their environmental impact do so at considerable risk. A companys supply chain is no different, and their logistics should align with a comprehensive corporate environmental strategy. Companies in a variety of sectors are increasingly turning to third-party logistics providers (3PLs) to organize and green their supply chains. 3PLs bring experience and specialized skills that can most efficiently measure a companys environmental logistics impact and the ways available to reduce that impact. As demonstrated by a number of studies, this will not only help to save the world, but will help businesses save another kind of green money.
Ron Cain, author of Green Logistics: Should Your Supply Chain Turn Green? is the President /CEO of TMSi Logistics (www.tmsilog.com) with locations in New Hampshire and Florida. He can be reached at (603) 373-7233 or at ronc@tmsilog.com.
