Greening the supply chain to up profits, cut costs and get ahead

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When you hear people talk about going green, it’s easy to visualize these efforts on a small scale. You think about recycling, using paper instead of plastic, driving less and biking more. But going green has become a critical necessity for multi-national corporations with hundreds of billions of dollars hanging in the balance.

At this scale, greening operations is all about supply chain. Where things are sourced, where they go, and how they get there — all of these questions come into play, and more often than not need to be rethought entirely. Exactly how big and global is this trend?

Most recently, sustainable supply chains was influential in Apple’s decision to bring manufacturing back to the United States. British retail juggernaut Marks and Spencer said this year that 50% of its inventory — over 1 billion products — going forward will meet high ecological and ethical standards. And, perhaps most convincingly, Walmart announced this fall that it will save a whopping $150 million in 2013 from to its supply chain sustainability programs alone — this on top of the $231 million it saved this year from waste reduction.

So how are they doing it? What are the building blocks of a green supply chain and how are some of the biggest names in tech putting them in place to cut costs and boost their green image?

1. Reduce, reuse, recycle
In October, General Motors said that it actually made $1 billion by recycling and reusing 97% of the waste from its manufacturing processes. As a role model for not only auto manufacturers, but all major manufacturers around the globe, GM is sending a message that supply chains don’t end with waste. In fact, that’s where they should begin. This couldn’t be more relevant than now, with the prices of raw materials spiking everywhere.

Reducing is the number one way companies have started cutting costs and pumping up profits in this area. Five years ago, Hewlett Packard pared down its packaging practices significantly, slashing 30,000 cubic feet of polystyrene computer packaging and 6 million pounds of PVC packaging, allowing it to save money and reduce its carbon footprint by 20%. These efforts have made HP one of GreenPeace’s picks for top environmentally-conscious electronic companies.

How can supply chain managers get this going? They can start thinking about waste as a mini-supply chain within the larger system. It becomes vital to track all of the materials coming into, being used, and being generated by a company enterprise-wide. Determining what to do with byproducts is just as important as designing processes that create less of them.

And fostering recycling and reuse is just as much about culture as it is about process. In the case of GM, zero-waste standards came down from the top and were communicated as a core value throughout every branch of the company. Engagement was prioritized and feedback from all employees was encouraged. The company also made it a point to communicate this new strategy to its suppliers and to nurture closer, more sustainable relationships with suppliers who are also committed to zero-waste programs. Walmart and Procter and Gamble have even created scorecards for their vendors so they can get together and make sure that environmental and labor standards get met throughout.

2. Get smart about power
All of the processes involved in reducing, recycling and reusing materials require energy. Where this energy comes from is central to the green supply chain question — especially when greenhouse gas generation is involved. Every day it seems like there are more standards and regulations governing how companies use energy and manage emissions — all of which make it increasingly expensive for violators.

When it comes to energy use in tech, there’s no better case study than Facebook. This year, the social network giant actually shared its greenhouse gas emission data, including emissions attributed to electricity consumption. Naturally, there are a lot of eyes on Facebook — users, the government, other tech companies are all watching to see how green it’s willing to go.

With total emissions of 285,000 metric tons (the equivalent of 56,000 cars), Facebook is committed to greening its power mix. Right now, 27% of the energy it uses comes from coal while 23% is categorized as “clean and renewable.” 17% comes from natural gas, 13% is nuclear and 20% is uncategorized (purchased from utilities with an unknown source). The company has a goal to get to 25% renewable energy by 2015 — and it’s no doubt a role model for peer companies to do the same.

Switching to renewable power may sound like it will cost more than it will save, but with energy market fluctuations and dropping costs of solar and hydro energy, the companies that establish a strong base in using green energy may have a significant advantage in even the short-term.

3. Keep an eye on transport
The third area where great gains can be made is transport. Major companies move materials, product and supplies around millions of miles cumulatively every year by plane, ship, truck, etc. All of these conveyances require fuel, increase the collective carbon footprint. Right now, logistics and transport emissions account for up to 15% of a product’s lifecycle emissions.

It’s more important than ever to work with transport companies — most of which are contracted — to make sure carbon emissions comply with standards, slash fuel use (especially in this time of great fuel price volatility) and keep an eye on where customers are and how they can be most efficiently reached. The World Economic Forum found that adopting alternative fuels, like biofuels, could reduce transportation costs by as much as 30%.

To remain competitive, transport providers are adopting fuel-efficient vehicles and technologies. And the companies themselves need to start streamlining how they ship things — not only by eliminating packaging, but by identifying easier ways to move products where they need to go. Before now, many retail and tech companies weren’t paying attention to sourcing from efficient production locations or keeping track of the shortest distances possible to cover. Oftentimes freight transports are only 50% full. Fixing these issues not only saves time and costly energy, but also delivers a better customer experience.

Slashing carbon emissions isn’t just a matter of cutting costs, it’s also important to generating profits. A World Economic Forum survey showed that 85% of consumers said they were extremely or somewhat concerned about climate change, and 81% believe that it will directly impact their lives. With consumers making their decisions based on the green quotient, very public-facing brands can’t afford to ignore these demands.

And with information more publicly available than it has been in the past on the internet and in the form of consumer reports that highlight sustainability, making sure supply chains are green all the way through is mission critical.

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