Sustainable Business Strategy: More Than Social Responsibility

Sept. 17, 2009
Suppliers can turn to an Eco-Operations oriented value chain which is a supply chain with sustainability intelligence built into it.

In light of Wal-Mart's recent announcement that it's launching a Sustainable Product Index and will invest upwards of $500 million in sustainability projects, the pressure for global corporations to "go green" finally has some punch behind it.

In a speech broadcast to all of Wal-Mart's facilities last November, CEO Lee Scott set several ambitious goals: increase the efficiency of its vehicle fleet by 25% over the next three years; eliminate 30% of the energy used in stores; reduce solid waste from U.S. stores by 25% in three years. And while this seems like a grand task, much of the work will actually fall on the shoulders of Wal-Mart's more than 60,000 global suppliers who will need to collaborate with the retail giant on lowering energy and carbon intensities of their operations, redesigning packaging and increasing the efficiency of shipments to Wal-Mart distribution centers.

Mike Duke, Wal-Mart's new CEO, recently reiterated the company's commitment to sustainability and called upon Wal-Mart's top tier suppliers to step up to the challenge. After all, the largest part of a company's environmental footprint actually lies deep within its extended supply chain (some 50%-90%) -- meaning that it's not merely the retailers that need to watch their energy use and GHG emissions, but also the manufacturers, suppliers and logistics providers connected across multiple tiers of the supply chain.

In addition to Wal-Mart, governments are also advocating for stronger regulations. The Obama administration has appointed a number of climate hawks to government agencies like energy and environment. President Obama has stated that his scientists' advice will be heeded, even when it's not convenient.

Increased regulations from government agencies mean increased requirements from OEMs and retailers, who are ultimately accountable for environmental law compliance. This means that it is fast becoming a core competency of companies to understand how their energy is being used and in what ways it can be more effectively managed. And energy use is no longer contained within a company's four walls, but rather radiates throughout its extended supply chain-on both the supply and demand sides-often involving hundreds or thousands of geographically disparate trading partners.

And if government and consumer pressures aren't convincing enough, the bottom-line benefits offered by a lean and green supply chain certainly will. Sustainability means durable business value; the ability to sustain operations into the future indefinitely.

Enter the advantages of a smart demand-supply network. An Eco-Operations oriented value chain is essentially a supply chain with sustainability intelligence built into it-enabling it to maximize the use of resources and energy, and minimize the use of hazardous materials.

The so-called "intelligence" of the supply chain is achieved by enabling total visibility, collaboration, and control across all tiers of trading partners. Stock outs and product surpluses result from a lack of transparency across the supply chain, where consumer demand (or lack thereof) is not communicated to suppliers, manufacturers, or logistics providers until it is too late to shift production. But a supply chain that is equipped with the right software to enable real-time visibility and collaboration across all partners is better positioned to supply the market with what it actually needs-no more, no less while having a much lower environmental impact.

This not only means that less energy is used to produce a particular product, it also means that less money and resources are required to get products to market-and even more importantly, that supply is actually meeting demand. The net savings? For some of the world's industry-leading companies currently utilizing B2B connectivity and a shared application interface that functions in real time-the savings are in the hundreds of millions.

So how does a company begin to transform its supply chain into a smart Eco-Operations network? The first step is enabling multi-enterprise B2B integration that supports multiple protocols; this enables trading partners of various technical sophistications to connect to a single platform. In place of manual processes that rely on spreadsheets, email, faxes, and constant human intervention, an automated multi-enterprise B2B platform significantly reduces lag time and improves data integrity by connecting trading partners on a single virtual platform.

But actually implementing sustainable practices and business processes-and migrating towards a smart Eco-operations network-requires more than just academic support of "green" principles. "Acceleration of ECO-Operation" is a recent report commissioned by the Business Performance Management (BPM) Forum and my own company, E2open, in order to measure and analyze the ways in which companies today are managing supply chain complexities and environmental concerns.

And while the survey indicated that nearly 90% of supply chain and operations professionals feel their management subscribes to ECO-Operation principles of enhanced visibility, flexibility, and verifiable sustainability, a lack of leadership and standardized sustainability metrics seems to be hampering efforts. Nearly two-thirds of respondents reported little to no visibility across all tiers of the supply chain, and 78% rated the level of synergy and accountability in their global trading network as suboptimal.

In light of these findings, it appears that the majority of companies are not fully prepared to follow Wal-Mart's lead of transitioning to a sustainable demand-supply network. Yet the complex issues surrounding global warming and resource limitations are only increasing. Government and consumer pressures to "go green" are also here to stay-even despite a down economy.

My recommendation? Get serious about sustainability, and then get educated. Start translating corporate "talk" into an actionable "Eco-Operations" corporate agenda. Sustainability, after all, is not simply a social responsibility any longer, but a real, cash-conscious business imperative.

Rich Becks is a Senior Vice President of Strategic Supply-Demand Solutions at E2open, a Foster City, Calif.-based company that offers software-as-a-service solutions to help corporate clients manage their global demand-supply networks.

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