'Greening' your supply chain

22nd June 2008

As clients and consumers pressure companies on environmental issues businesses are looking outwards and attempting to force their supply chains to follow suit. Mark Dye, FSNs contributing editor, reports.

One way or another we're all being coaxed into going 'green' as consumers by taking every opportunity to reduce our carbon footprints and the like. Now, while such efforts being made are to be applauded and can only be a good thing, it got me thinking about whether or not businesses would continue to care about this and the 'greening' of their supply chains if we slip into a recession?

I guess the answer to this is both 'yes' and 'no'. While some, notably the public facing companies, are duly making the necessary changes to both internal and external processes to move with this line of thinking, others will merely pay 'lip service' to the idea until they are either forced by regulation or a lack of clients. Companies also hate tinkering with their supply lines out of a very real fear of over-complicating things and 'burning' money in the process. After all, spending on going green is a great way to go out of business.

That said, it's happening everywhere in its different forms: Sun, Fujitsu and Microsoft have all recently spent millions to make their data centres more green and efficient, while Tesco is reducing its carbon footprint by building new stores with turfed roofs, wind turbines and solar panels. Every little helps.

Why? Clients and consumers alike are demanding change. It's also widely accepted now that those companies making the effort to be green enjoy both higher customer satisfaction, higher revenue per employee and - of course – greater profits.

"When you're engaged with clients they actually now require you to set out your Corporate Social Responsibility (CSR) sustainability agenda and expect you to have a policy around that and have a track record in this," explains Nigel Issa, associate partner and private sector supply chain team leader, at Atos Consulting. "HSBC, for instance, have just stuck the biggest solar panels in the world on the top of their building. So, what you'll start to see is sustainable energy sources to power their resources."

"All the suppliers we speak to have embarked on 'green' campaigns because of the pressure from customers," confirms Barry Matthews, head of ITO practice at Alsbridge. And following a period of publicity without any real substance behind it, or what Matthews refers to as 'greenwash', he believes that things have gathered pace over the past 12 months.

"Now companies are demanding it from their suppliers through things like sustainability, how they run their data centres and what type of renewable energy they use," he says. "Typically on an ongoing basis there will be service levels within contracts which will measure the percentage improvements over time for the percentage of power used."

"Cutting down on power utilisation, making greater use of existing assets and extending their life and so on all make both financial and green sense," adds Clive Longbottom, service director, Business Process Analysis, at Quocirca.

It's not easy though and partnerships can often represent the way forward. Take that of ProcServe, a provider of procurement and marketplace connectivity solutions, and Green 2020, a specialist environmental software consultancy.

ProcServe is using Green 2020 to provide expertise in the development of environmental policy, environmental management systems, carbon management systems, real-time energy monitoring and carbon foot print calculation, and performance certification at both organisation and product level as it edges towards a greener future. With a particular expertise in CO2 emissions reduction in procurement and the supply chain, Green 2020 will also help ProcServe measure and improve the environmental performance both of its buyers and suppliers.

Indeed, it even appears boards are prepared to pay for those who are environmentally friendly, with 43 percent of IT leaders stating a willingness to pay a premium for goods and services from sustainable suppliers, according to a recent report. The Cisco Sustainable Business Practice Study found that three-quarters stated they are willing to pay a premium of up to 10 percent, with the remaining quarter willing to pay between 10 and 50 per cent for this.

Thirty percent of businesses also anticipate budgets for technologies aimed at improving sustainable business practice to go up over the next year, with a quarter predicting this could rise by as much as 25 percent. The report also found that organisations are looking to increase the impact of a range of initiatives to support sustainable efforts, some of which form the base of any sustainability policy. These included recycling (85 per cent), the use of low-energy lighting (60 per cent) and things like the use of digital video communications, web 2.0 and instant messaging tools.

"Most companies still think that travel and heating are their largest source of greenhouse gases," adds David Symons, Director of Corporate Services at WSP Environmental. "But for most, it's actually in the goods they buy and from their products once they've been sold. Understanding where the biggest impacts are helps companies take the most effective action – and usually this isn't telling executives to fly less."

"The key question to ask is 'what is the real cost of my supply chain?'" says Alastair Clifford-Jones, CEO , UK , ABeam Consulting. He reasons that financial directors will have to rethink their whole supply chain to include this green currency, tallying up costs in both financial and environmental terms and adjusting the company's operations accordingly. "Currently, rising fuel prices are sending transport costs through the roof, and there's no sign that that trend is going to stop or reverse any time soon," he adds.  "Could the assembly and distribution of products be brought closer to consumers in an effort to bring down transport costs?"

As we've heard, much of this involves upfront investment, and supply chain professionals themselves are worried, with nearly half citing cost as a barrier to implementing any green initiative, according to research from Infor. In fact, of the 100 supply chain professionals within UK companies that were polled, two thirds believe their environmental initiatives should be subsidised by the government. Interestingly, 67 per cent say they are more likely to offshore parts of their supply chain compared with two years ago.

Yet while corporations have been examining internal processes for their sustainability and environmental efficiency standards, says Matthews, they need to realise that if they are outsourcing their green approach should extend to their suppliers as well. "Outsourcing IT shouldn't absolve the client organisation from its environmental ethics," he adds. "Businesses are realising that in this day and age, it is not enough to pass on responsibility for their IT operations – out of sight does not mean out of mind."

"As the momentum around green grows, companies with a green supply chain will gain a competitive advantage as consumers and the Government demand for credentials for environmental sustainability," adds Clifford-Jones. "Those companies that are able to prove that they are green will thrive – and those that refuse to recognise green as the new international currency will be left behind."