APPrsquos deforestation efforts begin at nurseries such as this one where trees are grown from seedlings before being transplanted to the rainforest

Who’s Taking Responsibility for Your Supply Chain?

May 29, 2017
Manufacturers are being held to a higher standard of corporate social responsibility, and are developing new best practices to adapt their supply chain ecosystems accordingly.

Economist Milton Friedman once said that “the social responsibility of business is to increase its profits,” but then again, Friedman spent his entire career in academia, not manufacturing. He never had to face down shareholders and customers demanding that his company establish sustainability goals and then regularly report on their progress toward reaching those goals. For manufacturers today, it definitely matters that companies include corporate social responsibility as part of their standard business practices. If a company appears to be lax on the CSR front, it can take a lot of time—and-money—to restore their reputation. Just ask Asia Pulp & Paper (APP), the third biggest paper manufacturer in the world.

As a multi-national company whose products are agricultural-based, APP uses a lot of natural resources to create its paper-based products, including tissue and packaging materials. The paper production process involves the cutting down of a lot of trees, amounting to more than 20 million metric tons of pulp and paper per year. APP is headquartered in the island nation of Indonesia, which has the largest rainforest in Asia and the second largest in the world (after Brazil).

There’s a fine line between the business of producing paper and reckless deforestation practices, and according to activist non-government organizations (NGOs) like Greenpeace and the World Wildlife Fund, APP crossed that line and then some, since the charges were leveled that the company was endangering both the flora as well as the fauna of the rainforest by stripping bare the habitats of tigers and orangutans, threatening the lifestyles of indigenous peoples living in the rainforest, and even contributing to climate change due to a large amount of greenhouse gas emissions.

The seriousness of the charges against APP was sufficient to convince several major customers, such as Mattel, Office Depot, Staples and Walmart, to end their relationships with the paper company. That fall from grace, coupled with the loss of a lot of business, prompted APP to embrace CSR in a big way, which resulted in its Forest Conservation Policy. The central premise behind the FCP is APP’s intent to dramatically reverse the effects of deforestation by halting the harvesting of natural forest timber throughout its entire supply chain. Among other things, APP’s stated plan is to be completely reliant on plantation-sourced (as opposed to rainforest-sourced) pulpwood, and that carbon emissions will be reduced by 26% by 2020. To prove to the world that it meant what it said, APP also invited the Rainforest Alliance, a prominent NGO, to independently evaluate the company’s progress.

Early reports are promising, though the Rainforest Alliance’s finding concludes that APP has gotten off to a good start but still needs to do a lot more. At a media event in Indonesia, Aida Greenbury, APP’s managing director of sustainability, acknowledged that more work does indeed need to be done, but as she told IndustryWeek, “We can’t do it alone. We’re addressing our legacy, but to achieve zero deforestation with our suppliers and other producers, we have to work together to find solutions.” Speaking by way of analogy, she explained, “We’ve started with the foundation, and have started building the house, but we’re not to the roof yet. We’ve got a good blueprint and a good foundation, but we’re still early in the process.”

Merely promising to eliminate deforestation wasn’t going to win back any business for APP; the company had to actually demonstrate how that was going to happen. On the island of Sumatra, within APP’s R&D center, forests are actually being created, one tree at a time. APP’s scientists have created a new and hardier crop of acacia and eucalyptus trees (the types of trees the company harvests for paper), which can grow to their full height of 65 feet in about five years. These trees, developed as seedlings in a lab setting, offer visual proof that APP has figured out a way to replenish the natural resources it depends on, one seedling at a time. And APP’s public commitment to deforestation has won back several of the customers it had lost, including Staples and Walmart.

Will It Go Round in Circles?

Buzzwords are as prevalent in sustainability discussions as any other area of manufacturing, and the term circular economy has emerged recently to describe companies’ efforts to reuse and recycle as much raw material as possible, with the idea of keeping products from ever ending up in a landfill. The circular economy aims to turn waste into wealth by keeping resources in productive use—in effect, becoming a kind of closed-loop supply chain.

More than 90% of companies told consulting firm Accenture that they are implementing circular business models in their supply chains, particularly for material recovery and recycling. However, it turns out that many manufacturers are adopting circular economy strategies due to competitive pressure, and not with the intent of putting circularity at the front and center of their supply chain operations, notes Sudipta Ghosh and Harry Morrison, managing directors with Accenture. In a recent study of 500 companies with revenues over $1 billion, Accenture discovered that companies are more likely to be motivated by low-cost rivals or warranty issues, and not the social responsibility aspect.

“Most efforts don’t decouple production from primary resource use,” Ghosh and Morrison note. “Not only is this leading to sizable losses in cost-savings and efficiencies, but it is also resulting in missed opportunities to unleash growth and profitability across the business.”

It’s also just as likely that companies are going green because, well, they don’t have much choice, particularly if they’re consumer packaged goods (CPG) manufacturers who sell to big-box retail giant Walmart. In April 2017, Walmart launched Project Gigaton, which aims to reduce 1 billion tons of greenhouse gas emissions from its global supply chain by 2030. The retailer is expected to urge the new project on its suppliers by following the same basic supply chain modus operandi it used in years past when pushing for EDI, RFID and labeling standards: Do it if you want to continue doing business with us. As Laura Phillips, Walmart’s senior vice president of sustainability, told Bloomberg, most of the carbon reductions will come from key CPG suppliers, such as General Mills, Campbell Soup and Unilever.

In launching Project Gigaton, Walmart collaborated with some key NGOs, such as the World Wildlife Fund and the Environmental Defense Fund, to develop an emissions reduction toolkit. As APP learned, having the NGO community supporting your efforts goes a long way in winning the all-important battle for good publicity.

Slaves to Their Jobs

While environmental activists can often identify pollution by sight alone, as both water and air tend to take on unnatural hues when exposed to chemicals, it’s nowhere near as easy to spot the incidences of slavery and human trafficking in the workplace, despite the fact that slavery is a problem of global proportions, says consultant Robert Kuhn, chair of ISM’s Sustainability and Social Responsibility committee. Nearly 46 million people live subjected to some form of involuntary servitude, according to the Global Slavery Index, but rescuing those people will require the collective efforts of all manufacturers closely monitoring their own supply chains as well as the supply chains of their suppliers, both upstream (e.g., mining or agricultural workers) and downstream (e.g., apparel sweatshops).

“Eradicating modern slavery is first and foremost a moral imperative, but it is also an issue of reputational risk and regulatory compliance,” Kuhn explains. In fact, the ISM’s guiding principles on human rights recommend, in part, that all supply chain professionals:

• Communicate organizational human rights policies and expectations to suppliers and throughout the supply chain.

• Be vigilant as to possible human rights violations in the supply chain.

• Implement appropriate organizational policies and procedures upon learning of suspected abuse.

Easier said than done, though. Although almost half of all slaves are in India, it’s a myth that modern slavery only occurs in Third World or emerging countries. For instance, more than 1.5 million people working in slavery-like conditions live in Europe, North America, Australia and Japan, points out Helen Carter, a consultant with Action Sustainability. Also, as the history of human misery has proven time and again, slavery is quite lucrative to the slaveholders. “Forced labor in the private economy generates $150 billion in illegal profits every year,” Carter notes.

It’s also a myth, she adds, that sex trafficking represents the majority of all instances of modern slavery; in fact, sex trafficking makes up only about 20% of all cases. By far the majority occur in manufacturing, construction, agriculture, mining, textiles, utilities and domestic work.

So how do you ensure that the raw materials your company sources or the piecework done to produce your final products weren’t the result of forced labor? For starters, it’s vital that a company spell out its specific policies toward slavery and forced labor standards, which should include a process for protecting whistleblowers and supporting victims of slavery practices, Carter says. It’s also important that the company’s leaders, extending to the very top of the corporate ladder, are in full support of your anti-slavery policies, and that all employees are trained on the company’s approach to thwarting labor exploitation.

Then conduct a risk and opportunity assessment, she suggests, and determine the measures you’re going to use. She recommends that companies analyze their spend and map out their supply chain. You need to know where your biggest risk is for exploitation, and how to circumvent those risks.

Ultimately, Kuhn admits, identifying and eliminating forced labor is a huge undertaking, as “bad actors have gotten quite good at hiding their subversive activities.” Nevertheless, through collaboration with supply chain partners and working with NGOs, substantial progress toward ending slavery can be made.

Plugging the Skills Gap

While the incidence of forced labor can be undetectable, one labor practice that is most definitely front-and-center to manufacturing executives is the training and retention of skilled employees, particularly in an era that seems far more focused on furthering the advances of technology and automation than on the development of people to facilitate those advances. If a company’s first responsibility is to its own workforce, then it’s incumbent upon companies first and foremost to meet the needs of its employees.

“U.S. manufacturing job openings are outpacing qualified candidates, resulting in a widening skills gap across the industry,” points out Philippe Cochet, chief productivity officer with global conglomerate General Electric. To plug that gap, GE has launched a program called Brilliant Learning that aims to train more than 150,000 global supply chain employees in the use of digital technologies and new manufacturing processes.

“Brilliant Learning is our skills curriculum to train global supply chain employees for the new, highly valuable jobs that are needed in our evolving digital industrial workforce,” Cochet explains. “The initiative is based on GE’s Brilliant Factory strategy, which combines lean, advanced, additive and digital manufacturing to increase productivity.” While the program is initially being rolled out to the company’s supply chain employees, it will also be available to all employees, in multiple languages across all levels of manufacturing roles.

“As a digital industrial company, we utilize digital technology across our businesses and work streams,” Cochet continues. “New technology is already augmenting the capabilities of our workers and elevating what it means to work in manufacturing. For example, we are leveraging Big Data to develop energy management insights through our Predix software platform, which is a huge productivity and resource efficiency opportunity. We are also paying close attention on how to best use these types of digital industrial applications in our sustainability program to lower energy costs and emissions.”

On the environmental front, Cochet points out that sustainability isn’t considered an initiative at GE; rather, it is integrated into the company’s core business strategy. In energy management, for instance, GE has applied its own innovations in on-site solar and LED lighting at numerous facilities.

Just as importantly, GE works very closely with its suppliers, with the emphasis on including them in sustainability efforts. “Our suppliers often come to us for best practice advice on how they can implement similar strategies,” Cochet observes. “We believe this is good business practice.”

About the Author

Dave Blanchard | Senior Director of Content

Focus: Supply Chain

Call: (941) 208-4370

Follow on Twitter @SupplyChainDave

During his career Dave Blanchard has led the editorial management of many of Endeavor Business Media's best-known brands, including IndustryWeekEHS Today, Material Handling & LogisticsLogistics Today, Supply Chain Technology News, and Business Finance. He also serves as senior content director of the annual Safety Leadership Conference. With over 30 years of B2B media experience, Dave literally wrote the book on supply chain management, Supply Chain Management Best Practices (John Wiley & Sons, 2010), which has been translated into several languages and is currently in its second edition. He is a frequent speaker and moderator at major trade shows and conferences, and has won numerous awards for writing and editing. He is a voting member of the jury of the Logistics Hall of Fame, and is a graduate of Northern Illinois University.

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