Is 'Green' A Byproduct of Supply Chain Optmization?

April 10, 2008
New report recommends thinking about green initiatives as a balanced portfolio, with some initiatives being done on an investment basis.

According to a new report from Diamond Management & Technology Consultants, Inc., a consulting firm, companies that take a holistic view of their supply chains and incorporate environmentally-friendly principles at key points along the way will create opportunities to increase shareholder value.

"Becoming green is no longer an end in and of itself, but the byproduct of optimizing a supply chain," said Mark Baum, a partner at Diamond who leads the firm's Consumer Packaged Goods practice. "At the same time, transitioning to a Green Supply Chain while also maximizing efficiency is not a clear-cut process."

The report, entitled "The Case for a 'Green' Supply Chain: Turning Mandate into Opportunity," provides a set of recommendations for a Green Supply Chain framework. A company should continually evaluate and prioritize green investments in the supply chain based on their returns --in both financial and non-financial terms according to the report. "When prioritizing potential opportunities, it is important for companies to keep in mind that not every initiative will have a positive return on investment," said Baum. "Therefore, it is essential to think about all green initiatives together as a balanced portfolio, with some initiatives being done on an investment basis."

A Green Supply Chain requires strong sponsorship from key executives and stakeholders and a robust business case that highlights a prioritized list of targeted opportunities, according to the report. Diamond's report notes that the business case should include specific metrics--not only for measuring success, but also to continuously look for opportunities to improve.

"Part of a long-term strategy is realizing that a full-blown Green Supply Chain implementation may, in some cases, have a short-term negative impact on the company's bottom line," said Yug. "That is precisely why companies are best served tackling it in smaller stages, beginning in areas that have the greatest business and environmental impact. Environmental initiatives need to be integrated with other companywide projects to ensure one doesn't compromise the other."

The report points out examples of Green Supply Chains at work:

-- Johnson & Johnson's energy efficiency program resulted in an estimated $30 million in annualized savings over the 10 years prior to 2006. Also, Johnson & Johnson's Green House Gas reduction projects are achieving an average 16% internal rate of return, according to the company's 2006 sustainability report.

-- Nestle's packaging material savings between 1991 and 2006 -- part of an ongoing, company-wide sustainability program - -resulted in $510 million of savings worldwide.

-- Heineken aims to reduce fuel and electricity costs by 15% for the period between 2002 and 2010. As of a 2006 sustainability report, Heineken had achieved a savings of 6% -- even after the acquisition of new breweries.

-- Wal-Mart recently set the goal of a 5% reduction in packaging by 2013. It has been widely reported that the retail giant expects the cut in packaging will save 667,000 metric tons of carbon dioxide from entering the atmosphere. Moreover, the company anticipates $3.4 billion in direct savings and roughly $11 billion insavings across the supply chain.

To obtain a complete copy of Diamond's report, send an email to [email protected]

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