Here’s a prediction for 2007: all those crazy sustainable supply strategies I’ve been touting here on Supply Excellence will hit the mainstream. However, I disagree with conventional wisdom on why this will happen.

I refute the notion that the move to sustainable supply strategies will solely be motivated by responses to counter increasingly stringent environmental regulations. (A point claimed in Spend Matters’ recent warning that pegs environmental responsibility as “the most dangerous supply risk of all.”)

Such myopic thinking is based on the premise that environmentally or socially sound supply strategies are merely an added expense. If your approach is to only consider sustainable supply approaches in reaction to regulatory penalties, you’re doomed to failure. (But if fear is your motivation for sustainable supply, here’s something that will certainly scare you into action.)

Instead, there is ample evidence that leading supply management organizations view sustainable supply strategies as an investment — one that will pay off great dividends in the form of lower supply costs, more secure supply, and greater sales and profits.

Consider these examples:

• Hewlett-Packard has recycled more than 1 billion pounds of used PCs, monitors, and other electronic waste. The company now gets 60% more of the precious metals — like copper and gold — it uses in its products from its recycling program than from mining. Considering the all-time high prices and supply shortages for these metals recently, this strategy has paid off both in reduced costs and risks. Competitors Apple and Dell have been scrambling recently to step up their own recycling efforts.
• Toyota and Honda have developed local supply in formerly rural and recessed regions of the U.S. The move has helped the automakers reduce taxes, transportation costs, and supply risks. It has also helped the automakers overcome U.S. consumer resistance to foreign automakers. (Toyota and Honda also moved first to develop suppliers that could provide hybrid engines, giving them a critical edge in the market for these vehicles.)
• HP, Airbus, and others are pushing sustainable supply strategies across the supply chain by embedding environmental and social responsibility in supplier selection criteria and performance metrics. In fact, HP’s sustainability guidelines serve as the foundation of Electronic Industry Code of Conduct (EICC), which promotes responsible manufacturing and business practices across the global electronic supply chain.
• As profiled here, over the next three years Wal-Mart will invest $500 million in sustainability projects that will cut costs and boost profits over the longhaul. Initiatives include reducing, recycling, and reusing packaging; improving the vehicle fleet efficiency by 25%; cutting energy use (and costs) by one-third; and slicing solid waste from U.S. stores by 25%. In addition, Wal-Mart is developing and protecting small suppliers — particularly those using organic farming and harvesting methods. The moves not only will help the environment, but Wal-Mart also reaps high profit margins on organic and fair-trade products. And it caters to the higher-income clientele that Wal-Mart is so desparately trying to attract to its stores.
• Speaking of fair trade (which promotes sustainable farming methods and fair labor practices), Starbucks, which arguably brought the concept to the mainstream, has used the concept to maintain higher profits and price increases on its premium coffees. Personal case in point: my wife sent me to the the grocery store to purchase Starbuck’s Breakfast Blend, which retails at $12.92 per pound, a 60% premium over the comparable store brand.
• Similarly, high-end specialty retailer Patagonia has been selling fleece jackets made from recycled soda bottles for more than a decade — and charging a premium for it. Competing outdoor clothing specialist Timberland now provides an environmental “footprint” or impact label on its products, indicating the recycled materials, energy, labor practices, and location used to make the product. Next month, Timberland will add a “Green Index” to the label, indicating the overall rating of the product based on greenhouse gas emissions; chemicals and solvents used in manufacturing; and the use of organic, renewable, and recycled materials.
• Adobe Systems has become the first company to receive a platinum award from the non-profit U.S. Green Building Council by retrofitting existing offices at its San Jose headquarters by installing everything from fluorescent lights to motion sensors to waterless urinals. The moves yield an annual savings of $1 million. Bank of America is going one step further by building the world’s most environmentally sound skyscraper. (More on that in a future post.)
• Interface Inc., the world’s largest carpet manufacturer, has committed to having a “zero environmental footprint” by 2020. Interface sourced and developed suppliers to provide usable industrial and consumer discards, redesigned or recycled plastic, and bio-based raw materials. In the first decade of the program, the company saved more than $260 million from waste reduction. Better yet, customer preferences for greener products is increasing company revenues.

The list could go on (and will in future posts). But the point is this: sustainable supply strategies are not merely a cost of doing business. On the contrary, they are a new method for lowering costs, securing supply, and contributing to your company’s top-line revenues and profits.

I challenge you to examine your environmental footprint and identify just one area where you can employ a more environmentally or socially responsible supply strategy. It can be something as simple as retrofitting your building with more energy efficient lighting. Or something more challenging, like collaborating with engineering, suppliers, logistics, and your aftermarket service organization to assess ways reduce waste, reuse and recycle materials, and improve transportation efficiency.

The move will not only help you comply with existing (and pending) environmental regs, but will also make you more competitive in the global marketplace.

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