The Opinion Page
News and comments about the issues facing today's SCM and Inventory Management professionals.
My article as shown below was published in the November 2011 edition of Durham Business Times:
Realizing sustainable business practices continues to be a key objective amongst progressive retail business enterprises. What is it that drives leading companies to implement green practices? What results might a firm expect to achieve by following a sustainable path? Precisely what are industry leaders doing to achieve superior results?
In June 2010, Industry Canada, in cooperation with Supply Chain & Logistics Canada (SCL) and the Retail Council of Canada (RCC) released a report titled “Green Supply Chain Management: Retail Chains and Consumer Product Goods – A Canadian Perspective.” The report reveals the findings from an exhaustive survey conducted by SCL of over 1,165 business entities, including Canadian retail chains, Consumer Product Goods (CPG) suppliers and so-called third-party providers of logistics and transportation services.
A key finding in the report was that while contributing firms were virtually unanimous in their feeling that Green Supply Chain Management (GSCM) practices were strategically important, less than 60% of retail chains reported having GSCM practices already in place.
Three important drivers emerge: the high cost of inbound/outbound transportation, high costs of energy and fuel, and the desire to achieve competitive advantage. Green initiatives are further motivated by executives who feel that a commitment to sustainability will enhance brand equity, create a positive image with customers, and satisfy new and emerging government regulations.
Best-in-Class (BiC) companies cite numerous tangible business benefits arising from GSCM, including improvement in compliance and conformity to recycling and packaging regulations, reduced energy consumption, decreased waste, decreased packaging, improved customer retention, reduced distribution cost, greater distribution efficiency, and increased service differentiation.
Training on green practices, investment in green initiatives in the community, joint process improvement initiatives with supply chain partners, establishment of third party green certification for major suppliers, purchasing renewable energy, adopting an internationally recognized reporting framework (performance on green metrics), and rewarding supplier practices are all listed as effective GSCM facilitators.
BiC retail chains concentrate green efforts on activities within distribution centres: energy management control, employment of reusable/sustainable pallets, installation and maintenance of dock seals and canopies, paperless DC processes, motion detector lights, recycling of waste, optimized space utilization, and use of reusable/sustainable shipping platforms or containers are all common initiatives.
Retail giant Walmart Canada has achieved tangible results through sustainability initiatives. In May 2011, Toronto-based trade group PAC-The Packaging Association held its fifth annual Packaging Sustainability Conference. Walmart Canada’s President and Chief Executive Officer, David Cheesewright, was a keynote speaker.
While it seems that some businesses have not yet made the connection between sustainable practices and cost savings, it is certainly understood at Walmart. “For 49 years and from the word ‘go’, Walmart has always been about selling for less and saving people money,” commented Cheesewright. “To do that, you have to be passionate about reducing costs, about eliminating waste and about being efficient – many of the things we now call sustainability.”
Walmart identified packaging as an important area of focus. Its Sustainable Packaging Scorecard tracks over 240,000 products. Greenhouse gases emitted per ton of production, material value, product/package ratio, cube utilization, transportation, recycled content, recovery value, renewable energy, and innovation are detailed for each item.
Collaboration is critical. “When it comes to sustainability,” said Cheesewright, “we’ll even work with our competitors. We’ll share everything we have with anybody. If we work together on sustainability, and work on it across boundaries in a way that perhaps we haven’t done in the past, we can make progress at a rate that I don’t think the industry has seen before.”
Walmart’s Director of Sustainability, Jeff Rice, pointed out that for a large majority of companies with whom the retailer works, most of their environmental impact can be found in their supply chain.
“In fact, we found that for 50 percent of companies, 90 per cent of their environmental impact occurs either in their supply chain or in their downstream value chain – in the way that their customers use and dispose of their products,” said Rice. “This underscores the importance of collaboration.” To support broad sustainability, Walmart uses a Life-Cycle Assessment (LCA) measurement system for new packaging, meant to measure true cradle-to-grave cumulative carbon footprint impact.
“Don’t just say this is too hard to do,” said Cheesewright, because there are a lot of things that seem ‘too hard to do’ that can get done – with the right creativity.
Even the wind is controversial.
Advances in technology combined with environmental advocacy have presented Canadians with an array of solutions in pursuit of clean, renewable energy sources. Efforts to harness the power of sun, wind, and waves are well-intentioned, although each energy production option must be weighed in terms of its true costs and benefits. Electricity derived from the kinetic energy of wind using turbines provides one such alternative with considerable potential.
On May 14 2009, the Ontario Green Energy Act (GEA) became law, with facilitation of wind energy as a centrepiece. The interaction of this legislation with communities, industry, and political interests has precipitated heated debate.
The Empire Club of Canada hosted two keynote speakers in separate events this year. On April 8, Ms. Adarsh Mehta, Chair of the Canadian Wind Energy Association (CanWEA) delivered a speech titled “Wind Energy: Powering Canada’s Future.” An energetic rebuttal was delivered on June 2, by Mr. John Laforet, President of Wind Concerns Ontario. His speech, titled “Wind Generated Controversy: Ontario’s Green Energy Act,” challenged many of the notions advanced by CanWEA, the industry, and the GEA.
Ms. Mehta’s mandate is to help formulate and guide wind energy growth in Canada. CanWEA represents the interests of over 460 members, including wind energy turbine manufacturers, service providers, component suppliers, contractors, and developers.
Today, wind energy services about 2% of Canada’s electricity demand. CanWEA’s goal is to grow this contribution to 20% by 2025. This, Mehta contends, will translate to $100 billion in total private sector investment, half of which will remain in Canada, will create 50,000 jobs, generate $125 million in lease payments to landowners, and $125 million in annual tax and community benefit revenues.
Governments need to provide stable, sustained, long-term policies to support wind energy deployment, argued Mehta, to enable Canada to attract global investment.
Three key benefits of wind energy were outlined: more clean energy production, increased green employment opportunities, and economic benefits to communities through lease payments and tax revenues.
John Laforet became involved in a grass roots movement that challenged the GEA from human health, environmental, financial, legal, and political perspectives. Learning that Ontario Hydro had planned to install 60 to 100 wind turbines 2 to 4 kilometres off the Scarborough Bluffs, Laforet joined a local residents’ group called “Save the Scarborough Bluffs,” opposing the plan. Subsequently, Wind Concerns Ontario was formed.
“The Government of Ontario has yet to do any form of legitimate scientific assessment into the negative impacts of industrial wind development on human health or the environment,” stated Laforet. “When industrial turbines have been installed in a community, some people always get sick.”
At least 135 Ontarians have reported a variety of illnesses thought to be linked to nearby wind turbines. Symptoms include sleeplessness, migraine headaches, and ringing in the ears.
Laforet asserted that the GEA seeks to remove local democratic control from the planning process. Once a project has received Ontario government approval, he argued, the municipality is powerless to act. As such, roughly 80 municipal councils representing 2 million Ontarians have allied themselves with Wind Concerns Ontario.
Laforet cited examples of ecological damage that follow installation of turbines. Evidence included clear cutting and blasting at the Norwester Escarpment and in Dorion near Thunder Bay, the plight of the endangered Blanding’s Turtle at Ostrander Point in Prince Edward County, and troublesome bird and bat mortality at Wolfe Island.
Ontario’s feed-in tariff program (FIT), developed with the GEA to offer stable prices under long term contracts for green energy, requires the province to purchase electricity from industrial wind developers when generated. “Electricity must be purchased regardless of demand,” said Laforet, “at rates that are often 300% higher than those available on the open market.” He attributes much of the recent increases in electricity prices to the GEA, even in the face of decreasing demand.
Pointing to a report from the CD Howe Institute that estimates the rate of subsidy for each “green” job to be $179,000, Laforet challenged claims to economic benefits. His position is that wind energy fails to enhance local economies as emigration of households and businesses erodes property values and the tax base.
True social, ecological and economic costs and benefits remain unclear. Objective third-party analysis is required to move beyond rhetoric, and to determine whether the solution justifies the cost.
Often profound answers may be found by examining the simplest of business models.
Hoping to earn some pocket money, siblings Jim and Patty secured a job delivering newspapers to houses in their neighbourhood. Supported by their parents, their new responsibilities educated them about small business management: exposure to customer service, cash management and bookkeeping, logistics, and materials management processes was invaluable. In time, the children gained insight into advanced business virtues such as Lean and Green, learning how a business can benefit by embracing the value of sustainability.
Initially, Jim and Patty worried that newspapers provided an example of poor environmental stewardship. They believed that the industry consumes trees and wastes energy, understanding the emergence of the paperless internet as a key source of newsworthy information. While their parents were pleased with Jim and Patty’s environmental acuity, they wanted the children to know that there were many ways for them to help reduce the noble newsprint industry’s carbon footprint.
The children’s mother, a foreperson in the automotive industry, explained to the children the basics of a new way of thinking in manufacturing called “Lean”: “Lean aims to reduce or eliminate waste,” she said. “Furthermore, it works to reduce the use of resources, lower the space, handling and energy required to do a job, and to increase output per resource used.”
Their father, a developer of solar alternative energy technologies, commented that Lean Thinking is consistent with Green. “The Reduce, Reuse and Recycle mantra is very important and remains relevant. Disposal of materials is a last resort. It is better to prevent waste, rather than handle it once it exists. ‘Lean’ can help us with that.”
Jim and Patty got busy listing ways to assemble and deliver newspapers in a Lean/Green manner.
Lesson 1: Lean/Green processes can please consumers by catering to their unique needs, while reducing waste, saving materials costs, and protecting the environment.
The children surveyed their customers. Does each customer have a mailbox? Does she have a covered porch, protecting newspapers from rain and snow? The analysis helped the children plan their use of assembly materials, such as rubber bands and plastic sleeves. Rubber bands are only needed to wrap papers to protect them from the wind. Customers with covered mailboxes don’t need banded papers. Plastic sleeves are needed only in foul weather, and only for houses with no porch protection. Three flexible assembly processes emerged: flat, banded, and sleeved newspapers.
Lesson 2: A Lean/Green approach saves energy, money, and avoids pollution.
Jim and Patty deliver papers by walking, rather than by car. They therefore avoid using gasoline unnecessarily. Further, sorting papers properly into the delivery wagon according to route and customers needs saves delivery time.
Conflicting goals did arise. Walking the route takes more time than driving. Adding time to a process conflicts with Lean philosophy. The Waste Hierarchy and Daly Rules helped guide the children. They chose to favour pollution prevention over faster delivery time as the predominant objective, appreciating that they had some surplus “slack” time available each day. Opportunity cost of time was minimal. Further, walking introduced no risk of late deliveries.
Lesson 3: Embracing Lean/Green avoids unnecessary production and logistics costs, improves public relations and can have beneficial side effects such as improved safety and security.
Jim and Patty react quickly to customers who ask that deliveries be stopped, either permanently or for vacations. They dislike losing customers, and they do everything they can to retain clients. Sometimes customers’ tastes and needs change for reasons beyond their control. They stop such deliveries promptly to avoid delivering papers unnecessarily. Household security is enhanced for the family on vacation. They avoid delivering or scrapping unwanted papers. Changes are communicated quickly upstream to the front office, and production is adjusted.
Lesson 4: Scrap is often inevitable. Try to eliminate it. If it occurs, re-use it, or recycle it.
Any scrap materials, such as newspapers or flyers that have been damaged by rain or snow and that cannot be re-used, are recycled. Contributions to landfill are virtually zero.
The Ultimate Lesson: Being Lean/Green is a journey, not an end. In the spirit of continuous improvement, enlightened businesses of all shapes and sizes - from sole proprietorships to multinationals - are constantly searching for ways to realize new efficiencies, to affordably improve customer satisfaction, to gain new customers, and to increase profit. Lean/Green facilitates these pursuits, in sustainable ways.
Like many seismic shifts in social priorities, the pursuit of responsible environmental stewardship is vulnerable to exploitation by unethical commercial behaviours. Unscrupulous firms will try to convert demand for green virtuousness into profits, unashamedly using snake oil sales and marketing techniques. The term “green-washing” describes the act of misleading consumers regarding the environmental practices of a company or the environmental benefits of a product or service.
California-based TerraChoice advocates meticulous ethical standards in environmental marketing. While applauding the emergence of “green products” in the market today, it warns against deception. They articulate the Seven Sins of Green-washing:
Businesses, governments, and households are painting themselves green.
Sustainable development (SD) was once the exclusive territory of activists and altruists. Today, businesses of all configurations must face the fact that SD has evolved into a virtue that is both a competitive requirement and a regulatory necessity. SD has evolved from being a philanthropic “nice to have” to an asset critical for organizational success.
The United Nations defines sustainability as “the management of environmental, social, and economic impacts, and the encouragement of good governance practices”. With a sizeable proportion of many firms’ environmental footprint being attributed to the supply chain, operations management presents special opportunities.
Successful firms surfing the SD wave toward improved profits routinely export socially responsible culture beyond the supply chain through the corporate strategic plan. SD transcends environmentalism: it expounds the Triple Bottom Line: social responsibility, environmental stewardship, and enduring economic prosperity - “people, planet, and profit”.
In a competitive arena characterized by rapidly increasing energy prices, targeted regulatory measures, and broad social awareness, SD has become a “go to” concept for firms looking to concurrently reduce costs and improve image.
SD is now a “best practice.” The best companies consider sustainable supply chain management to be a top strategic priority. Studies show that top-performers have incorporated sustainability criteria into some or all of their supply chain management processes. Four key drivers attract winners to SD:
× The desire to achieve competitive advantage in the marketplace
× The need to ensure compliance with current and future regulations
× The urgency to improve bottom line financial performance
× The requirement to fulfil customers’ demand for eco-friendly products and services
Successful integration of SD principles must start with top management. Executives should enable education of the workforce, build SD considerations into the Strategic Plan, and champion its incorporation in operational objectives. Best practices that align with SD include Lean, eco-design, optimized packaging, and green building enhanced by LEED.
While manufacturing practitioners were the first to become familiar with Lean Thinking, the idea has been found to be beneficial in numerous functional areas throughout the typical company.
Lean is green. Its purpose is to reduce use of resources, to reduce waste, to reduce space and handling (energy) and to increase output per unit of resource used. Further, it can be easily extended to non-production areas. Lean recognizes that there is no positive side to waste and that reducing energy usage and emissions can have a positive impact on cash flow.
New Product Development
Design for the Environment (DFE), or “eco-design” is a process that enables users to consider the potential environmental impact of a product and the processes employed to make that product. A facet of product life cycle management, DFE uses practices that recognize environmental responsibility while reducing costs, promoting competitiveness, and encouraging innovation. Impact assessments include the selection of low-impact input materials, reduction of energy use, optimization of production techniques, design of the distribution system, and end-of-life planning. Green inputs are transformed into green outputs. At the end-of-life, those green outputs become raw material for future creations.
Smart packaging concepts support SD. Optimized packaging design avoids damage, thereby reducing loss of product value, minimizing second shipment costs, curtailing refurbishing effort, lessening return handling, and improving customer satisfaction. Benefits are cumulative, as products progress through the value chain, and downstream into customers’ facilities. Reductions in input materials, transportation, storage, handling, and disposal costs can be realized.
LEED (Leadership in Energy and Environmental Design) has emerged as the definitive standard for determining the “greenness” of a building. LEED certification applies to existing buildings (EB) and new construction (NC). The program presents an array of criteria, ranging from the design of HVAC, lighting, and water systems, to cleaning and maintenance processes. Many corporations insist upon LEED certification from third party logistics providers. Green buildings can mitigate variable costs and have a direct bearing on the productivity and well-being of the people who occupy them.
Best-in-Class companies define sustainable development broadly, beyond just environmentalism. SD is seen as a matter of ethics while acting as an agent of improved financial results and corporate image. While the Triple Bottom Line of people, planet and profit implies some trade-offs, appropriate balance can be found.
Profitability and sustainability are not mutually exclusive pursuits. With creativity and a stakeholder-focused sense of responsibility, the best of both worlds can be enjoyed.
I am currently writing an article for a business publication on the subject of sustainable development. It is truly a fascinating subject, punctuated with both the noblest of intentions and the worst of misinformation.
This morning at breakfast, I happened to mention my project to my two children. "What's sustainable development, Dad?" they asked. And my mind searched for a good example. It was sitting right in front of me. I asked the two of them if they could think of a business-related situation with which they were familiar.
My son manages a small paper route. He commented that newspapers are a good example of poor environmental stewardship. His rationale was that producing newspapers kills trees and consumes energy, in an era where many people are migrating to the internet as their primary source of newsworthy information. Fair comment. And yes, being an environmentally-conscious young person, I was pleased that he would think critically about a business that was actually signing his paycheck.
As President Obama would say, this was an excellent learning opportunity. I asked them if there were a positive side of the business. We looked at ways that we have tried to deliver our newspapers in an environmentally-friendly manner. We had lots of examples, including:
- he delivers the papers while walking, with a grocery buggy. I could drive him around his route, but we would burn fuel unnecessarily. As a side benefit, the family saves some gas money - maybe just a little bit each day, but over time the savings add up. Lesson 1: being green, and lean can save energy, money, and avoid pollution.
- we did an initial analysis of his customers when he started the paper route. We asked ourselves: does the customer have a mailbox? Do they have a covered porch that would protect the newspapers from the rain and snow? Using this initial analysis, were were guided in our use of materials, such as rubber bands and plastic sleeves. Rubber bands are really only needed to wrap papers to protect them from the wind. If the customer has a covered mailbox, my son simply carefully folds the paper and puts it in the mailbox. Plastic sleeves are really only needed if the weather is, or threatens to be, foul. So, he only sleeves the papers when the weather is poor, and he does not sleeve papers that are going to houses that have no porch protection. He creatively calls the three wrapping options "tortillas" (no rubber banding or sleeve necessary), "tacos" (when the paper needs a rubber band applied) and "taco deluxe" (papers requiring plastic sleeves in foul weather). Lesson 2: being lean and green can please consumers by catering to their unique needs, while reducing waste, saving materials costs, and protecting the environment.)
- he reacts quickly to customers who ask that they be removed from the route, or to those who want their deliveries suspended because they are planning a vacation. He never likes to lose a customer, and he does what he can to make the customers happy about his service, but sometimes customers tastes and needs change for reasons beyond his control. We stop such deliveries promptly to avoid delivering papers unnecessarily. For the family on vacation, it improves household security. He avoids delivering papers that are destined immediately for the trash bin. Changes are communicated quickly upstream to the front office, so that production can be adjusted. We don't waste time and energy delivering unwanted newspapers. Lesson 3: being lean and green avoids unnecessary production and logistics costs, improves public relations and can have beneficial side effects such as improved household security.
- he recycles any unusable scrap material, such as extra newspapers or flyers that cannot be re-used. Contributions to landfill are virtually zero. Lesson 4: Some scrap is inevitable. Try to eliminate it. But when it occurs, re-use it, or recycle it.
Finally, we dicussed the fact that while newspaper production does "kill trees", and we acknowledged that newsprint producers need to exercise great responsibility vis-a-vis the environment, there was no reason for him to feel guilty about being in the industry. It is still of great value, communicating vital information to thousands and millions of people, and acting as a great social catalyst for .
It was a great breakfast conversation. We could have gone on for an hour. And it taught me that lean thinking, and sustainable development, are valid philosophies regardless of the size of your enterprize. And I also learned that this is not rocket science. These principles can be understood, and applied by children.
John Skelton is the Principal Consultant and founder of Strategic Inventory Management.