Sunday, March 25, 2012

From Expense to Revenue - Is your Sustainable Supply Chain v1.0 or v2.0?

Image taken from The High Profit Supply Chain - Deloitte (referenced below)

In my last blog I referred to the impact of scarce resources on the supply chain.  Given the number of organisations quoted by E&Y, which believe their core business objectives will be affected by natural resource shortages over the next 3-5 years, it would seem obvious to focus strategic attention on the supply chain.

Peter Senge, speaking to Harvard Business Review said it’s only when issues like water, energy and waste in the supply chain are seen as strategic that organisations will get serious.

Senge says Sustainability issues are often actually supply chain issues.  As mentioned in my blog on Leadership and Sustainability, Senge points to the need to understand the larger systems we operate in and to work with people we haven’t worked with before.  The article mentions Coca-Cola’s work with the WWF and Unilever’s statement that, “you can’t source everything sustainably unless you engage thousands of people around the world”.  Another HBR article mentions the work of Esquel, Posco, Nike, Starbucks and the joint venture between HP, Electrolux, Sony and Braun around recycling, which was later extended to include Apple, Dell, Microsoft, Nike and Nokia.  This article ends by saying ‘Sustainability has become a competitive concern and should be handled accordingly.’

Deloittes highlighted the significant savings opportunities (upstream and downstream) that are to be made within supply chains. For example, projects can reduce the usage and production of energy, carbon, water, materials and waste, remove cost and offer rapid return, at some of the lowest risk.  Typically these types of projects are heralded as Sustainable practices.  However, Mark McElroy writing for Sustainable Business challenges this view.

Mark draws the distinction between what he calls ‘eco-efficiency’ (where focus on efficient resource use can be described as Sustainability 1.0) and sustainability performance (where resource use compared to resource availability is labelled Sustainability 2.0).  An issue here is what has come to be known as the Jevons Paradox, where decreases in product costs result in greater affordability, and therefore higher demand, energy and material use and potentially waste – this is the unintended impact which can cause setbacks in the supply chain.   Mark’s view is that Context-based sustainability (CBS) could have a game-changing effect on the sustainability of industry. And his question is who will be the first to embrace it!

Asda announced in February its plans to improve its water, energy and waste efficiency by initiating a peer-to-peer learning and problem solving scheme, where suppliers can share best practice techniques and explore opportunities to work with the grocer.  The new platform is part of Asda’s Sustainability 2.0 strategy, which involves the retailer shifting focus to targets for its products and supply chain.  This represents a shift from a more traditional model of transactional activity with suppliers to a more collaborative way of working.

An HBR article “Don’t Let Your Supply Chain Control Your Business” supports Asda’s approach from the point of innovation, identifying shifts in the economy, as well as ensuring that suppliers are operating sustainably.  It asks a searching question about whether organisations need to replace people who only have commercial expertise with those who have analytical skills and deep knowledge of commodity markets!

I’m expecting to be challenged on and learn more about each of the areas in this and my past blogs as I start the Cambridge University Postgraduate Certificate in Sustainable Business next month.  I look forward to sharing my learning with you – and getting your feedback

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