The Supply Chain a Focus of Sustainability Strategy

I am excited to highlight my newly published research report on supply chain sustainability.

The report draws on a survey of supply chain executives at 74 companies as well as interviews with firms such as Alcatel-Lucent, Coca-Cola, Diebold, Dow Chemical and Staples. Eric Klein, a quantitative market research jock formerly of AMR Research, designed and processed the excellent survey.  And co-author Paul Baier, head of climate consulting for Groom Energy provided great direction for the research and conducted the interviews together with Eric . The report was published last week by GTM Research.

Here are some of my favorite highlights from the research:
Three-quarters of respondents to our survey believe that their company’s environmental stance will have a material impact on customer relationships within the next three years. Just over third of them feel the issue is material with customers today.

Energy efficiency is by far the most popular sustainable supply chain activity right now. This is due to a number of factors, including the relative ease with which energy efficiency programs can be implemented and the measurable cost savings and associated carbon footprint reductions they deliver. Recent volatility in energy prices and the rising profile of energy policy on the national level may also play a role.

Many companies have not yet integrated the systems that manage their environmental information with those that manage their supply chain activities, presenting a hurdle for those companies seeking to make environmental concerns a factor in supply chain design and operations. This is an opportunity for systems integrators and tech vendors who can help companies surmount this challenge. Forty-five percent of respondents to our survey say they have just begun to integrate those systems, and nearly a quarter say they are dealing with numerous disconnected applications, databases and spreadsheet components–which are ripe for rationalization and integration.

A minority of respondents to our survey say they currently participate in third-party sustainability reporting initiatives, such as the Carbon Disclosure Project (CDP).  But, 80 percent of respondents say they will be reporting in the next 12 to 24 months. This is one of the facts that led me to laud the CDP in a recent post.

A significant majority of companies believe that greening their supply chains will pay off over time, in some combination of brand enhancement, efficiency gains and cost savings. However, many companies today say they struggle to communicate the financial rationale for sustainability programs.

Overall, supply chain spending plans remain fairly firm this year despite the recession. A majority of the respondents to our survey said that their 2009 supply chain spending will increase versus 2008 levels, by an average of 11 percent. In aggregate, respondents are increasing spending by 3.8 percent.

We segmented respondents to our survey based on the number of supply chain sustainability initiatives they were engaged in. This led us to classify 30 percent of respondents as sustainable supply chain leaders. Leaders, we found, are more likely to incorporate environmental concerns in the design of their supply chain and to review the design at least annually. They are three times as likely as sustainable supply chain laggards to believe that their business relationships with customers are materially dependent on their environmental stance; and they are substantially more likely than laggards to anticipate hard and soft payoffs from embracing sustainable business practices.

Based on this and other research I’ve done, here’s a short list of principles for sustainable supply chain success:

  • Listen to your customers – and understand that sustainability is increasingly a concern of theirs, and look for opportunities for competitive advantages.
  • Measure ROI, but be flexible about how to calculate it.
  • Be open to experimentation. Sustainability in the supply chain is an emerging area, and most companies are still learning. Be willing to experiment to find out what works.
  • Adopt a portfolio strategy: Mix quick-wins with initiatives offering a longer-term payoff.
  • Compelling strategies deliver more than cost savings. They also create new capabilities for customers.
  • Exploit all opportunities for cost savings from energy efficiency, transportation, and packaging.
  • Invest in public disclosure of GHG inventory through programs like CDP, as your competitors are or will do so soon.

I think it’s a pretty good look at sustainability in the supply chain. If this is an area of focus for you, I suggest you pick up a copy of the report. (I can get you a modest discount, too. If you’re interested, drop me a line.)

Have you identified principles for sustainable supply chain success? If so, please consider leaving a comment and sharing your insights.

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Filed under efficiency, energy prices, Supply chain, sustainability

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