According to a recent McKinsey survey of global business executives, about half of them concede to a direct link between their suppliers’ carbon performance and their own carbon management strategies, yet only one quarter of these global brands have implemented sustainable, or green supply chain programs. But that is changing. Although many business-to-business suppliers don’t yet realize it, the green supply chain tipping point is around the corner.
The most valuable brands in the world have drafted their suppliers into their fight for sustainable brand leadership. Global brands such as HP, Purolator, Microsoft, FedEx, Boeing, Staples, Steelcase, GM and Subaru have led the charge and their suppliers are becoming well indoctrinated in the new way of meeting the specs of their major customers.
This change is happening because it has become a competitive strategy that is creating new market champions, and because the financial markets are causing the world’s biggest brands to look to their suppliers for solutions that reduce their sustainability risk.
While some companies are waiting for the ever-evolving regulatory maze to become clear, others have seized the first-mover opportunity. These companies are finding that most carbon reduction investments really are paying for themselves through lowered energy and materials input costs. The result? Improved bottom lines from cost efficiencies and stronger brand equity.
As a supplier in a business-to-business value chain, your response to this trend will determine whether you will be in or out of your customers’ future value chain. Your opportunity is to proactively come forward with adaptations, or new ways of doing business with your customers. This enables you to align with their brand’s image, and enable them to meet their corporate sustainability goals and possibly help drive the specification the business will later be competing for.
HP: leadership in IT
Judith Glazer, director of global and social environmental responsibility operations for HP helps manage this important consideration in their $50 billion supply chain. The company’s approach is to minimize social and environmental impacts throughout the entire product life cycle. This involves applying design for environment principles to product development, materials packaging, manufacturing processes, and distribution. Then they look upstream in the supply chain and evaluate how the customer uses the product, energy efficiency and paper use, as well as reuse and recyclability factors.
As one of the largest supply chains in the electronics industry, HP is in a position to co-opt their suppliers into their sustainability programs. HP has clear guidelines concerning restricted substances, responsible manufacturing processes, and carbon footprint measures and they apply a global approach to these guidelines. For example, in response to a European directive, HP focused on eliminating lead from all of their products. This was then implemented worldwide through its global product design and manufacturing specifications for new products. Their internal labour health, safety and ethics guidelines are also hard-coded into their standard supplier contracts. Then they do onsite audits and spot testing of their suppliers to ensure compliance and maintain program integrity.
What’s driving your customer’s specifications?
As an early entrant into green supply chain programs, HP benefits from proactive actions of its suppliers. For example, a pallet provider came forward with a plastic pallet for their overseas air shipments. These pallets have reduced the carbon load of their logistics operations, and are reusable and recyclable, unlike their heavy wooden predecessors. And through HP’s participation in the US EPA’s SmartWay program, the company was able to improve the carbon performance of their trucks through operating and idling practices.
So if a supplier is reading a spec that asks for horsepower and tire pressure ranges, they should be thinking carbon footprint, because that’s what their customer is thinking. Anything a supplier can do to up the ante in terms of reducing carbon impact of their offer, is bound to win points in the competitive bid.
HP sees their green supply chain program as a key customer facing strategy. For instance, HP is the first company to put the SmartWay logo on the some of their products – making their green supply chain strategy link directly to brand equity and reputation. They view communications about these successes as a means to both reach their customers with the brand value, as well as help recruit new talent.
The full impact is coming
Round six of The Carbon Disclosure Project (CDP 6) is fast approaching, with this year’s reports due to be released in October. CDP is a global coalition of 315 institutional asset managers and asset owners with over $41 trillion assets under management. For the past five years they sent letters directly to the Chairs of the 2,400 largest companies in the world by market capitalization, asking for full disclosure of their ‘carbon risk’ and plans to mitigate that risk. Their position is that this information is now essential for a proper assessment of shareholder risk.
The CDP asks for disclosure of hard quantitative data, as well as qualitative reports on carbon strategy, and technology innovation and operations to execute these strategies. Reporting companies reveal a trend of moving from awareness and baseline measuring of carbon emissions, to corporate-wide reduction strategies and implementation. Last year, 64 per cent of the respondents had a formal greenhouse gas (GHG) management system in place, targeting energy conservation and efficiency, and that figure has increased year over year since CDP was launched.
An offshoot of CDP is the Supply Chain Leadership Collaboration, which encourages suppliers to report on their contributions to the CDP reporting company’s carbon footprint. Walmart was a key driver in this offshoot initiative, and with 80 per cent of its carbon footprint coming from suppliers, that’s not a surprise.
If you are a supplier, you need to start measuring your own footprint, and estimate the ‘embodied carbon’ of your products and services. You should at least know what your product’s carbon, water and waste variables are. What impact will you have on your customers’ carbon footprint, because that’s how you will be competing for your customer’s business in the very near future.