Pearson on Excellence: The business value of supply chain sustainability
June 01, 2013 - LM Editorial
Supply chain decision makers are well-positioned to help the world become a more habitable place, and to benefit financially from their efforts.
This was the conclusion drawn from a joint research project spearheaded by Accenture and the Carbon Disclosure Project (CDP)—a not-for-profit organization that has developed a global system for helping companies and cities measure, manage, and share environmental information.
The report’s finding that going green can move you further into the black—is not revelatory. However, the report does break new ground by demonstrating how seriously the survey’s 2,415 respondents are about climate change, and how convinced they are of sustainability programs’ ability to drive environmental and business benefit.
What’s good for the environment…
Nobody should be shocked that supply chain sustainability initiatives can also be good for business. At most manufacturing companies, after all, supply chains account for between 50 percent and 70 percent of total expenses.
So it makes sense that things such as greener facilities, better fuel consumption, and more efficient manufacturing processes are potential money makers. But what may be surprising to logistics and supply chain professionals is the rapid payback periods perceived by the research respondents.
The report also goes beyond the benefits associated with reductions in energy usage—and even here the business benefits and case studies are plentiful. Here are five examples.
1. Risk reductions
Seventy percent of the survey respondents identified a current or future climate change event that could significantly impair their business. The report also profiled companies working to mitigate climate related risks. One such organization is Johnson & Johnson (J&J), which has analyzed its current and future “water scarcity risk” using applications such as the “global water tool” from the World Business Council on Sustainable Development. After identifying regions that may experience these risks, J&J works to decrease water consumption and implement focused risk management programs.
2. Product innovations
Many survey respondents believe that new low carbon products can be a large contributor to corporate growth. In fact, 10 percent of participating CDP supply chain members said that their companies already are deriving more than 50 percent of their revenues from low carbon products. Dutch electronics manufacturer Philips believes that its green products will constitute 50 percent of total sales by 2015. In the near future, Dow Chemical expects to increase its annual sales of clean energy enabling products from $5 billion to $15 billion.
3. Service innovations
Many survey respondents noted the profit potential associated with using their company’s internal supply chain capabilities to create sustainability related service offerings. BASF offers customers a variety of sustainability services through its “Success—Added Value through Sustainability” initiative, whose solutions include energy management consulting and the assessment of products and value chains using eco-efficiency and lifecycle analyses.
4. Premium pricing opportunities
Many companies find they can charge premium prices for products or services with sustainability related benefits to the customer. Brazilian chemical company Braskem responded to its customers’ interests in low carbon raw materials, and leveraged its experience in ethanol manufacturing, by developing a product called Green Polyethylene. This is a relatively inexpensive biopolymer, but it commands a high price compared to conventional polyethylene-based fossil fuels.
5. Enhanced corporate reputations
Survey respondents were particularly enthusiastic about the potential of their supply chain sustainability efforts to improve reputations and brand images. The report cites one recent study showing that Honda’s brand value increased 28 percent and General Electric’s 17 percent due to their work to improve supply chain and product sustainability.
Another example is Daimler, which expects its role as a major player in fuel cell technology to boost car sales. A company’s reputation for sustainability can also help it attract and retain skilled workers. The report cited a recent Hill+Knowlton report in which 75 percent of top MBA students claim that corporate reputation will play a critical role in their decision about where to work.
Into the green, into the black
More and more companies are concerned about risks associated with climate change, weather events, and water shortages; and a growing number are looking to supply chain management for answers.
At the same time, organizations are also more aware of supply chain management’s potential to drive innovations such as low carbon products, sustainability related services, green packaging designs, and other solutions that could save money and increase revenues. It’s this combination—solutions to existing problems and the growing prevalence of bottom line opportunities—that make sustainability and supply chain management a powerful tandem.