A roadmap for sustainable supply management

Achieving environmental sustainability for supply management is a goal which may also help boost firms' overall competitiveness in these fretful economic times. But despite the hype surrounding everything "green" these days, many companies wishing to embark on environmental sustainability programs do not know where to begin. Before you set up strategies and tactics and develop metrics for supply management environmental sustainability, define what environmental sustainability means to your organization, says management Professor James Hershauer. A new report from the W. P. Carey School's CAPS Research helps companies learn to define, understand, create, measure, and test their supply management environmental sustainability plans.

With all the hype surrounding everything "green" these days, it is not surprising that many companies wishing to embark on environmental sustainability programs do not know where to begin. It is easy for companies and their suppliers, in the race to declare themselves green, to lose sight of just what environmental goals they wish to accomplish.

For that reason, it is crucial for businesses wishing to make their supply management practices more environmentally friendly to begin by developing their own definition of environmental sustainability, says management professor James Hershauer, senior research associate for CAPS Research, the W. P. Carey School's strategic supply management center.

"Before firms can set up strategies and tactics and develop metrics for supply management environmental sustainability, they have to define what environmental sustainability means to their organization," Hershauer explains. Doing that helps avoid situations where people within the same company have conflicting ideas and plans about sustainability goals.

"If your CEO has one understanding of what environmental sustainability means and your CPO has another understanding, and these ideas differ from what your engineers and your marketing people think about environmental sustainability, you can all get together and think you've reached an agreement about your company's plans, and then all four of you go out and do something totally different," he says.

Defining environmental sustainability is the first stage in a five-stage process guide that CAPS Research recently developed to assist buyers and suppliers in their quest for supply management environmental sustainability. Culled from discussions with purchasing executives in a variety of industries, the CAPS Critical Issues Report offers a roadmap to help organizations tackle this key business issue. The report is one of a series of CAPS studies by several researchers on supply management environmental sustainability.

"There is a growing awareness that if you're going to be in business you've got to embrace environmental sustainability, and see it as an opportunity to differentiate your company," Hershauer says. "If you're not doing something to gain competitive advantage in tough economic times, you're going to fall further behind." The report also helps fill a void because industry-specific standards for developing and measuring environmental sustainability programs have not yet been fully developed.

Getting Started

In addition to defining environmental sustainability for supply management, companies must also understand their corporate sustainability commitments before they can begin greening their supply management practices, says Hershauer. Key to that effort is for companies to focus not only on their own practices, but also on the practices of their suppliers.

A company cannot, for example, tout its product as environmentally friendly if it does not understand and measure the environmental impact made by each of the suppliers who contribute to that product. "Environmental sustainability for supply management must focus on the entire process of producing a product or service — going all the way up the supply chain to the raw materials, and all the way down the supply chain to consumer use and reuse and recycling," explains Hershauer.

Once a company has completed the first two stages recommended by CAPS, it can embark on the process of creating a plan for achieving supply management environmental sustainability. Putting in place an appropriate team of people to lead the effort — and giving them a mandate from executive management — is crucial.

"Start by finding someone to drive the sustainability effort, and then be sure that the whole issue is in the mindset of every employee," advises Hershauer. Companies should not make the mistake of siphoning off sustainability efforts to one person or department, but rather ensure that the plan cuts across all facets of the organization.

Supply managers, therefore, should work together with experts in different departments to coordinate sustainability efforts and help solidify the corporate support that is crucial for success. "Firms need to be careful to not just create a separate department and assume that department has all the responsibility for environmental sustainability — that won't work," Hershauer notes. "We learned that lesson the hard way from the quality movement."

Measuring and Proving Success

Creating goals and metrics is the next stage in the CAPS roadmap to supply management environmental sustainability. As with any supply management initiative, having concrete measurements is key for evaluating the success of environmental sustainability efforts, and metrics in this area have become a major focus for many companies. "For corporations, it's not a matter of if we do this or when we do this, it's a matter of how fast can we do it and how do we get started," Hershauer says.

For most supply management organizations, the need for metrics is two-fold: to measure internal sustainability efforts, and to track goals and targets for suppliers. Some of the common metrics include greenhouse gas emissions, hazardous waste output, and energy consumption. "It is good to initially tell your suppliers you want them to be more environmentally sustainable, but at some point you have to put metrics in place," notes Hershauer.

For example, he says, a company may want a supplier to reduce its facility's carbon dioxide output from two million tons per year to one million tons. However, Hershauer warns, these metrics must be reasonable and attainable or suppliers will likely balk. "If the technology won't allow your supplier to cut its carbon dioxide production in half in one year, you've got to come up with a better target that will let the supplier meet the goals and still stay in business," he explains.

Forcing suppliers to meet metrics can backfire — if the only way for a supplier to achieve the buying company's targets is to add cost to the supply chain, the result will be low margins and lost revenue for the buying company. Because efforts around environmental sustainability are fairly new in supply management, many buying companies are working closely with their suppliers to develop metrics that are fair and help both companies achieve their environmental goals.

These investments in supplier development, however, may be short lived; eventually suppliers who cannot comply with sustainability standards may be dropped from the supply chain. And the pressure is prevalent on the demand side of the equation as well: companies looking to sell products to retailers may be expected to provide metrics that show their products are less damaging to the environment, Hershauer notes.

To test and prove the validity of their plans for supply management environmental sustainability, the CAPS report advises companies to conduct pilot supplier partnerships. Suppliers that have experience in the sustainability arena are a logical place to start — an idea that stems from basic process change theory.

"If one of your suppliers is already way down the road in terms of developing solutions, it is smart to partner with them and create something that will be successful. Anytime you can show success and demonstrate that your plan is a viable concept, it is not hard to get people to buy in and move along with you," Hershauer explains.

Another key to successful pilots is to pull from a wide cross-section of the supplier base. For instance, instead of doing a pilot operation only with companies that supply a particular raw material or component, buying companies are better served by looking at their entire mix of suppliers and developing pilots within each of those areas. "Otherwise," says Hershauer, "you get a one-off atmosphere where suppliers from other areas assume the pilot has no bearing on them."

Ultimately, following the five stages outlined in the CAPS report can help companies begin the long process of achieving environmental sustainability for supply management — a goal which may also help boost firms' overall competitiveness in these fretful economic times.

Though companies are slashing jobs and budgets in all areas, Hershauer believes environmental sustainability is one goal that companies will continue to work toward. "Now that the economy is down, we are actually seeing a stronger interest in sustainability," he says. "Companies understand that this is a matter of eco-efficiency — eliminating waste also eliminates cost."

The Bottom Line

• Environmental sustainability has become a key issue for buying companies and their suppliers, but with limited resources, standards, and metrics available to guide their endeavors, many firms are struggling to create and achieve sustainability plans.
• CAPS Research has published a guide to initiating a program for supply management environmental sustainability consisting of five stages: defining environmental sustainability for supply management; understanding corporate sustainability commitments; developing a sustainability plan; creating goals and metrics; and running pilot supplier partnerships.
• Companies that focus on environmental sustainability can gain a competitive advantage by eliminating waste in their supply chains, which helps to reduce overall costs.