Should Companies Use "Green" Initiatives as a Competive Weapon?

Back in February, I presented at the Green Supply Chain Forum organized by The Ryder Center for Supply Chain Management at Florida International University (FIU). In preparation for that conference, ARC and FIU developed a web survey to determine the current state of "Green" Supply Chain Management. The survey focused on answering the following questions: Are we still in the ‘early adopter’ phase or is this trend more widespread? What types of “green” initiatives are companies prioritizing? What factors are driving companies to become more "green"? Who manages these initiatives and how is success measured?

We recently published the results of this survey in a report titled "The State of Green Supply Chain Management," co-written by me and Dr. Walfried Lassar, the Director of the Ryder Center for Supply Chain Management at FIU. You can register to download the report for free by clicking here.

The survey results confirmed many of our hypotheses, but there were a few surprises. For example, we asked the respondents which external parties they are currently collaborating with on "green" initiatives, or plan to work with in the future. The chart below summarizes the results.

Not surprising, companies are working primarily with suppliers and customers on "green" initiatives today; they're also working with transportation companies and Logistics Service Providers. What is surprising, however, is that the vast majority of the people who answered this question have "no plans to engage with [competitors] on these issues." Why not? Will this attitude limit how much progress companies can make, and how quickly, in reducing the environmental impact of their supply chains?

Dr. Lassar and I hope to explore these questions further in phase two of our research, which we're kicking off this month (if you'd like to participate, please send me an email at adriang@arcweb.com). But here are my theories, based on a few conversations, as to why companies may not want to work with competitors on "green" initiatives:

• "Green" can be used as a competitive weapon, especially from a brand perspective. For example, if a company reformulates one of its leading products to be more environmentally-friendly, and it costs less and performs better than the existing version and competing products, the company could potentially take market share away from its competitors.


• "Green" can reduce a company's operating costs, thus strengthening its financial performance and shareholder value. If a retailer, for example, finds a way to reduce the amount of energy used by its stores by 30 percent, the financial benefits could be great.
  
• Working with competitors is always problematic from a regulatory perspective (e.g., risk of being charged with collusion).

It's important to note, however, that the sample size of our survey is relatively small (70 total respondents). And the respondents were primarily logistics executives. If we had surveyed 1,000 CEOs instead, I'm sure the results would have been different. But in favor of more or less collaboration?

Some early adopters of the "green" movement are certainly collaborating, at least via third-party initiatives. Dell and HP, for example, are working with the Carbon Disclosure Project, and so are P&G and Unilever. At this stage of the game, industry-level collaboration is critical for developing standard metrics and measurement methodologies, a key pre-requisite for accelerating the adoption of "green" practices. Most of the collaboration taking place today is along these lines.

But will these same companies share best practices and intellectual property that would benefit the environment greatly if widely adopted, but could also provide them with a significant market advantage if they kept the knowledge to themselves? The answer, I suppose, will depend on how broadly companies define social responsibility.

What do you think? Should companies view their "green" initiatives as a competitive weapon, or should they share their best practices and IP with other companies, including their competitors? Where do you draw the line when it comes to collaborating on "green" initiatives?

Inconvenient Truths About 'Green' Supply Chains

On December 28th, at around 2:30 in the afternoon, I was sitting at the kitchen table reading through a pile of mail when the phone rings. It’s my mom, and I can tell by the sound of her voice that something is wrong. A minute into the conversation she says:

Dad has lung cancer.

Bam! Just like that my world changed. New Year’s was just a few days away, and everything I had been planning and thinking about for the coming year, was now in disarray.

My dad has small cell lung cancer, which is the rarer and most aggressive form of the disease. He completed his first chemotherapy sessions last week, where the doctors dripped two chemicals into his body, carboplatin and etopiside, to stop the tumors from growing and spreading. I say chemicals because, in essence, that’s what today’s medicines are. In most cases, we take medicines not to cure the disease, but to treat and alleviate its symptoms—to bring the fever down, relieve the body ache, or control our blood pressure. And in cases like my dad’s, we take medicines to drive the cancer into remission and prolong our life.

Virtually all medicines, however, have side effects. The drugs that will hopefully prolong my dad’s life will also cause his hair to fall out; they will lower his white blood cell count, making him more susceptible to sickness and infections; and they will make him feel nauseous and lose his appetite.

Traditional medicine is about tradeoffs, it’s about accepting some negatives in exchange for a greater benefit.

So, what does this have to do with ‘Green’ Supply Chains?

If you go back a year or two ago, just about every magazine and newspaper had an article about the environment, how we’re in the midst of a “green” revolution that even corporate giants, like Wal-Mart, were not only supporting, but actually leading the charge. “’Green’ is good for business” was the battle cry, a logical extension of Total Quality Management, Six Sigma, Lean, and other business practices.

But the headlines are starting to change. “Little Green Lies” was the cover story in last October’s Business Week. “The Dark Side of ‘Green’ Bulbs” in the Wall Street Journal. “The Truth About Recycling” in The Economist. “The Six Sins of Greenwashing” and so on.


So, what’s going on here?

This brings me to the first inconvenient truth about green supply chains: many ‘green’ initiatives are like today’s pharmaceutical drugs—they have negative side effects that are finally getting recognized and talked about.

For example, compact fluorescent lights consume a lot less energy than incandescent bulbs, but they also contain mercury. So, on the one hand, power plants will emit a lot less CO2 and mercury, but on the other hand we could end up with a huge environmental problem if millions of these bulbs are tossed in the garbage and end up in landfills.

Using more bio-fuels will reduce our dependence on oil, but the trade-off is higher food prices and increased deforestation, as farmers race to create new feedstock plantations.

Recycling keeps materials out of our landfills, but only temporarily. And chemicals often have to be added to recycled materials like plastics to restore their properties and make them useful again. As the authors of the book Cradle-to-Cradle state: “Just because a material is recycled does not automatically make it ecologically benign, especially if it was not designed specifically for recycling”.

And just like pharmaceutical drugs, there’s a limit to what can be accomplished with current ‘green’ initiatives because today’s products, manufacturing processes, and supply chains were not designed with sustainability in mind. I started my career as a product development engineer, and the first thing you’re taught is that fixing problems during the design phase takes exponentially less time, money, and resources than trying to fix problems after a product is already in volume production.

And that’s essentially what we’re trying to do today: we’re trying to fix the environment while keeping the production lines of a fast-growing, global economy running. We’re treating the symptoms, the negative side-effects, of supply chains that were not designed with sustainability as a criterion.

Now, don’t get me wrong. I’m not saying that companies shouldn’t optimize their transportation operations, or reduce the amount of packaging in their products, or look for ways to conserve energy and eliminate hazardous materials from their products and processes. These and many other ‘green’ initiatives are making a difference. Just look at what companies like Stonyfield Farm, HP, SC Johnson, Wal-Mart, and others are accomplishing.

What I’m saying, however, is that there’s a limit to what these initiatives can accomplish compared to the size of the environmental problem and how much time we have to fix it or drive it into remission.

And this brings me to the second inconvenient truth: creating “green” supply chains that are truly sustainable will be costly and messy, and we’re all going to have to pay for it, one way or another.

Yes, it’s true: ‘Green’ is good for business. But this is true because, for the most part, only “green” projects that are good for business (or required by law or Wal-Mart) get done.

Now, I don't have an argument with this. Companies are in business to make money, not lose it. I certainly don’t want to work for a company that drives itself into bankruptcy and leaves me jobless by undertaking “green” projects without any fiscal discipline. But we must also recognize that there’s a limit to how much progress we can make, and how quickly, if “good for business” is the only litmus test we use. Eventually, the law of diminishing returns will kick in, and then what will we do?

Thomas Friedman, the New York Times columnist, gave a speech at the Aspen Ideas Festival last July where he questioned the notion that we’re in the midst of a “green” revolution. “Have you ever seen a revolution in history,” he asked, “where nobody got hurt?” “We’re having a green party, not a green revolution,” was Friedman’s conclusion, and I agree.

At some point, the party must end if a “green” revolution is to occur, and it will be costly and messy. There will be winners and there will be losers. Some jobs and industries will suffer or disappear, while others will develop, grow, and prosper. Some countries will emerge as leaders, while others will fall behind. And each of us will have to pay more, either via higher taxes or prices, for energy, food, transportation, clothing, and other consumer goods.

No pain, no gain—that’s what my dad used to tell me growing up, and it’s what he tells himself today as he battles cancer. No pain, no gain is also true when it comes to reducing the environmental impact of supply chains.

As we reach the limits of what traditional medicines can accomplish, the pharmaceutical industry is investing heavily in biotechnology and stem cell research, revolutionary new ways to treat diseases. It’s not about ingesting chemicals to treat symptoms; it’s about deciphering the inner workings of our DNA, understanding how a group of cells turn into a lung, or a heart, or a liver, so that when our organs are afflicted with disease, we can generate new ones. This is the future of medicine, and it’s quickly approaching.

And as we reach the limits of what current ‘green’ initiatives can accomplish, we need to transform the DNA of our supply chains. We must change the way we design products and supply chain networks; we must create completely new business models and redefine supplier and customer relationships; and we must reshape our expectations as consumers.

The sooner we stop the party and start the revolution, the better off we’ll be.

WSJ Article on "Green" Bulbs

In my "Green Asbestos" posting, I mentioned that I had yet to come across any articles in the trade or business press that highlighted how compact fluorescent lights (CFLs) contain mercury, how consumers shouldn't throw them away in the garbage, or what to do if you break one at home. Well, today the Wall Street Journal ran an excellent article by Sara Schaefer Munoz titled "The Dark Side Of 'Green' Bulbs" (subscription required).

The article discusses how leading retailers like Best Buy, Wal-Mart, and Office Depot, as well as manufacturers like Apple and Dell, are helping consumers recycle their used electronics. It also highlights the fact that many consumers are not aware that CFLs contain mercury or know what to do with them when they burn out. Paul Abernathy, the executive director of the Association of Lighting and Mercury Recyclers, states that only about 25% of all mercury-containing bulbs are recycled. "Everywhere we go," Mr. Abernathy says in the article, "we are being encouraged to use [compact fluorescent bulbs], but there's really a lack of reasonably accessible drop-off spots [when they burn out]." There are only about two dozen licensed facilities in the U.S. for processing mercury waste.

The article also quotes Ellen Silbergeld, a professor of environmental health sciences at Johns Hopkins University. Ms. Silbergeld is concerned about the environmental impact if millions of CFLs end up in landfills or incinerators. "I don't think anybody has really grappled with this," she says.

On a related matter, my kids came home from school earlier this month with a packet of information promoting a new fundraiser. The students are selling CFLs provided by NSTAR (our local utility) and the school gets to keep the profits. Great idea, so we committed to buy a few bulbs. But the letter accompanying the packet, like most articles you read about CFLs, only highlighted the environmental and cost benefits of these lights; nowhere in the letter, nor in the 4-page color brochure produced by NSTAR, was mercury mentioned or any information provided about responsible handling and disposal of CFLs. Not even in fine print!

A few days later, we received an email from the principal addressing the mercury issue, presumably in response to other parents who noticed the omission and contacted the school. The basic message of the email: Yes, these bulbs contain mercury and they need to be recycled, but the amount of mercury in each bulb is minuscule and the energy-saving benefits greatly outweigh this negative. There's an underlying assumption, however, that when a CFL burns out, we'll all get in our cars and drive a few miles to the recycling center on the other side of town, instead of walking a few feet to the garbage can in the kitchen. After all, the amount of mercury in a bulb is so minuscule, how much harm can it do?

'Green' Asbestos

I'm learning that green doesn't go with everything, like those strange-shade-of-green pants abandoned in my closet. The last time I wore them, all it took was a raised eyebrow from my wife for me to head back upstairs, head-down defeated.

These days, it's me doing the eyebrow raising, as I'm bombarded with ads and press releases linking 'green' (as in "environmentally friendly") with all sorts of products and services. Is Bubble Wrap®, for example, a 'green' product? The folks at Shoplet.com think so. The product is included in the "Shop Green" section of its website (tagline: "Save Money, Save the Planet"), along with telephones, cameras, pens, and other items that contain recycled or recyclable materials (apparently, recyclability is the only criteria Shoplet.com used in making its 'green' selections).

On the one hand, Bubble Wrap® allows companies to protect their products with less packaging material compared to alternatives such as loose fill or paper. Sealed Air, the manufacturer of Bubble Wrap®, also encourages customers to reuse the material as much as possible to "delay [it's] final disposal and reduce the amount of materials needed to manufacture new products." On the other hand, Bubble Wrap® is a petroleum-based material, a co-extrusion of nylon and polyethylene that can't be processed at many municipal recycling locations. Sealed Air has seven sites where customers can ship used material for recycling, but customers have to pay for shipping and the wrap must be free of tape, labels or any foreign materials. (In this case, it's important to note that the product is being promoted as 'green' by the retailer, not the manufacturer).

This example illustrates an inconvenient truth of many 'green' products and initiatives: there are tradeoffs that companies and consumers must acknowledge and address. Negatives may still exist, even if the net results are positive. It’s like prescription drugs: you can take a little purple pill to treat your heartburn, but you may have to deal with headaches, diarrhea, and dry mouth in the process.

Tradeoffs exist because most products, manufacturing processes, and supply chains were not designed with sustainability in mind. Although sustainability is weaving its way into the industrial world, change will occur slowly, so companies and consumers will have to manage these tradeoffs for many years to come. But what are the tradeoffs? Unfortunately, you won't find the answer in most articles about 'green' and sustainability.

For example, I've read countless articles highlighting the energy-saving benefits of compact fluorescent lights (CFLs). According to ENERGY STAR, if every American home replaced just one incandescent bulb with an ENERGY STAR qualified CFL, we would "save enough energy to light more than 3 million homes for a year, more than $600 million in annual energy costs, and prevent greenhouse gases equivalent to the emissions of more than 800,000 cars." It's the feel good story of the moment, which is why I've replaced most of the incandescent bulbs in my house with CFLs.

But I can't recall a single article shedding light (no pun intended) on how these bulbs contain mercury, on how consumers shouldn't throw them away in the garbage, or what to do if you break one at home, as happened to me (see EPA site for what to do). Unlike some folks writing on this topic, I'm optimistic about Wal-Mart's commitment to sustainability, including its actions to promote broader use of CFLs. But if you go to Walmart.com to buy a CFL, you'll see plenty of information about the cost and energy benefits of the bulbs, but no mention of mercury or responsible handling and disposal information.

Granted, the amount of mercury in each CFL is miniscule compared to old thermometers. And earlier this year, lighting company members of the National Electrical Manufacturers Association (NEMA) voluntarily committed to cap the amount of mercury in each 25 watt or less CFL at 5 milligrams (see March 13, 2007 press release). Also, a coal-powered plant releases more mercury powering an incandescent lamp, over a five year period, than a comparably luminous CFL.

So, yes, the benefits of CFLs far outweigh the negatives. But if these negatives are not recognized and dealt with effectively, are we really making progress? Taking five steps forward and one step back keeps you moving in the right direction, but eliminating the backward step will get you to the final destination faster and with less negative impact on the environment.

If recyclability alone does not define a 'green' product, what does? Being made from natural materials? Helping to lower greenhouse gases? Asbestos is made by Mother Nature herself and its insulating properties help reduce energy use, leading to lower carbon dioxide emissions. Viewing asbestos from this perspective only, it's irresponsible for us to spend billions of dollars on lawsuits and asbestos-removal projects to eliminate a material that can significantly lower our carbon footprint. But as radio legend Paul Harvey reminds us each day in his broadcast, knowing "the rest of the story" helps us to reach more accurate and complete interpretations of history, people, problems, and opportunities.

Defining 'green' is not a trivial task, especially when tradeoffs exist. Several organizations have developed certification programs in this area, including MBDC and The International Oeko-Tex Association. The Federal Trade Commission (FTC) is also tackling this question, announcing in late November that it's beginning a regulatory review of its environmental marketing guidelines (last updated in 1998). The FTC was planning to review the guidelines in 2009, but "because of the current increase in green advertising claims, the Commission is reviewing the guides at this time to ensure they reflect today’s marketplace." I hope this means I'll be raising my eyebrows less next year.

As for my pants, the rest of the story is the same: they're still hanging in the dark corner of my closet. The holidays have come and gone, and although I received several nice shirts as presents, none of them match the pants. So I'm going to wait a few more months and see what happens on my birthday. If no luck, I'll give the pants to my kids, let them make dragon and frog puppets with the fabric--after I test the pants for lead, of course.

Thoughts on 'Green' Supply Chains by a Carbon-Neutral Analyst

I was listening to the radio this morning and an ad played for the station, promoting how they play today's hit music, with few commercial interruptions. The promo, voiced by a woman with a soothing voice, ended with what I'm guessing is the station's new tagline: "92.9 WBOS, A Carbon-Neutral Radio Station." What the heck does that mean, I wondered. It seems like everybody is jumping on the "green" bandwagon these days, including everyone in supply chain management.

Wal-Mart outlined its supply chain sustainability vision and objectives about two years ago, in a speech presented by Lee Scott titled "Twenty First Century Leadership." Other companies, particularly in Europe and in the high-tech industry, were already making inroads in this area, driven to action by regulations such as Restriction of Hazardous Substances (RoHS) and Registration, Evaluation, Authorization and Restriction of Chemical substances (REACH). But Wal-Mart's ambitious goals rippled through the supply chain industry, as well as the mainstream media, due to its massive size and influence. Today, you can't pick up the Wall Street Journal, Business Week, or any other business or trade publication without at least one article about the benefits of "going green."

A couple of weeks ago, I chaired a track on "Sustainability: Creating 'Green' Supply Chains" at this year's Council of Supply Chain Management Professionals (CSCMP) Annual Conference. Speakers from Herman Miller, HP, Whirlpool, Campbell Soup, Stonyfield Farm, Dow, Corporate Express, and other companies presented excellent case studies on this topic. The sessions were well attended, but a bit below my expectations considering all of the hype. Most of the attendees I spoke with were in "information gathering" mode, their companies still in the early stages of launching a green initiative.

Here are my main takeaways from the CSCMP presentations and the research I've conducted so far.

In order to achieve the greatest benefits, with the least cost and effort, companies have to consider sustainability at the design phase, both product design and network design. Unfortunately, most consumer products are designed with the assumption that they'll be thrown away someday. As a former product development engineer, I know that my design decisions and material selections would certainly be different if I had to take the product back at the end of its useful life, disassemble it, and re-introduce the materials back into manufacturing or nature. Drew Schramm, Senior Vice President, Global Supply & Quality for Herman Miller, provided an excellent case study of their Design for the Environment (DfE) process that illustrates this point perfectly (a write-up of the case appeared in the Journal of Industrial Ecology).

Similarly, carbon-footprint reduction has not been a consideration for most companies when designing their supply chain networks. It's highly unlikely that any company would optimize its network based solely or primarily on lowest carbon footprint, but by understanding the tradeoffs, companies may reach different decisions and prevent sustainability constraints from being "designed into" the network. Software vendors with network design solutions, including i2 Technologies, Infor, and Ilog, are actively exploring this area at the moment.

Being "less bad" is not the same as being good. Ken Alston, CEO of MBDC, made this point in his presentation; it's also a key message in the influential book "Cradle to Cradle: Remaking the Way We Make Things" by William McDonough and Michael Braungart, the founders of MBDC. Most corporate sustainability reports highlight year-over-year reductions and long-term targets for carbon dioxide emissions, energy consumption, and other metrics. But focusing solely on reductions, while important and necessary, is not enough. To borrow Apple's phrase from years ago, companies also have to "think different" and address sustainability not within the confines of existing supply chain processes and constraints, but by designing completely new processes and ways of working that are inherently sustainable.

Many supply chain continuous improvement initiatives, typically driven by cost reduction or productivity improvement objectives, can also be viewed from a green perspective. For example, the reason most companies implement a Transportation Management System (TMS) is to reduce their transportation costs. It just so happens that load consolidation and route optimization translate into fewer trucks on the road, driving fewer miles, consuming less fuel, and emitting less carbon dioxide. This example lends credibility to the "what's good for the environment can also be good for the bottom line" argument. But a cynic might take a different perspective: this is applying a "green" label to a fundamental supply chain practice.

More work is required on global standards and metrics. There are already standards in this area, such as ISO 14000, but differences still exist between industries and countries, particularly with regards to calculating and reporting carbon footprint. The speakers at the conference generally agreed that calculating carbon footprint was a challenging task, especially if you have a multi-tiered global supply chain. How far back into their supply chains should companies go? Does HP, for example, have to track the carbon emissions involved in converting sand into silicon? And how do you get this data from vendors in places like Vietnam? Stonyfield Farm mapped out its carbon footprint a few years ago, but Ryan Boccelli, their Director of Logistics, conceded that they had to make a lot of assumptions.

Regulations and mandates drive action. The companies leading the way in sustainability are predominantly those with operations in Europe or suppliers to Wal-Mart. In other words, companies that face regulations and mandates. Would these companies have the same focus on sustainability if they weren't forced to? Hard to say, but since some of these companies haven't voluntarily implemented their European sustainability practices in the US, the answer is probably no. The lack of supporting infrastructure and services for reverse logistics is certainly a contributing factor, but the main reason is much simpler: they don't have to do it. I'm not a big fan of regulations, but if we expect industries to act with more urgency, the government will need to exert greater pressure or provide incentives. Wall Street and the investment community, especially "socially responsible investors," can also push companies to act. The speaker from Campbell Soup, for example, said that a large shareholder contacted the company inquiring about their corporate sustainability statement and objectives. The shareholder suggested that he may sell the stock if Campbell's sustainability efforts were not aligned with his "socially responsible" investment criteria.

Are consumers willing to pay more for green products? This is the million dollar question, and most people think the answer is no, except for certain niche products. It'll be interesting to see what happens to the toy industry this holiday season, after the ongoing recalls of toys manufactured in China containing lead and other toxic substances. Then again, consumers haven't cared much that Apple's iPhone contains brominated flame retardants (BFRs) and polyvinyl chloride (PVC), toxic substances that other phone manufacturers have eliminated from their products. Apple has sold over 1.4 million units since the end of June, and analysts forecast strong sales during the holidays. At the end of the day, consumers vote with their wallets; if we don't change our buying decisions, why should companies change their practices?

Also, if a radio station can promote itself as carbon-neutral, why can't I? Sure, I exhale my fair share of carbon dioxide into the atmosphere, but I offset it with a couple plants in my office and a bunch of trees in my backyard that dump countless leaves on my lawn. Come by this weekend and watch me rake my leaves, the old-fashioned way, without a gas-powered leaf blower. I'm sure that counts for a few extra carbon credits, which I'm willing to sell for the right price.