When Going Green Means More Green
As the saga in the Gulf of Mexico continues to unfold we're all reminded of our collective responsibility as stewards of the environment. The impact the oil spill is having can be easily seen and will likely have a long term negative impact on the fragile ecosystem in the Gulf of Mexico. The environmental impacts of many other decisions we make on a day-to-day basis aren't always so easy to see and, even if you are aware of them, making a more sustainable choice will often cost you more. The complexity and costs involved with sustainability have made it easy for many companies reprioritize its importance lower or ignore it altogether. However, consumer sentiment is changing and more and more companies are beginning to realize that going green doesn't always translate into red. In fact, the world's largest company has found ways to make green by going green. I am, of course, referring to Wal-Mart.
For decades, Wal-Mart achieved incredible growth by driving cost out of its supply chain network while providing consumers with value at the lowest possible price. Wal-Mart recognized early on that collaborating with their suppliers through increased visibility across their supplier network was the key to a more efficient and lower cost supply chain. In 2005, Wal-Mart launched their new sustainability strategy with some pretty ambitious goals. Once again, they extended their initiative across their entire network of suppliers by creating a metrics system by which they could evaluate their suppliers based on their strategic goals. It also created a sustainable value network to support these initiatives and invited its suppliers to participate in return for a closer, more stable relationship with Wal-Mart. In order for these programs to be sustainable, they had to provide both an economic benefit as well as an ecological benefit. For example, increasing fuel efficiency in a truck fleet not only reduces CO2 emissions, but it also reduces costs. Other examples include reduction in energy use at facilities, reduction in solid waste and the use of electric power units that don't require the engine to be running in refrigerated vehicles. The sustainable value network allowed it to pursue these goals across the other 90% of the end-to-end network represented by its suppliers.
But, Wal-Mart isn't alone. Andrew Winston recently highlighted Pepsi's efforts to reduce its environmental impacts across the value chain in his blog post, Greening Pepsi, from Fertilizer to Bottles. On the one hand, they collaborated with the GreenOps division of Waste Management to implement a reverse vending machine for recycling called Dream Machine that rewards consumers for their participation. This program has already increased the recycling rate of their beverage containers from 34% to over 50%. On the other hand, they performed a full life-cycle analysis of their Tropicana orange juice product line to identify opportunities for carbon footprint reduction. To their surprise, the biggest contribution came during the agricultural stage, namely the process for making fertilizer. They began to work with suppliers and farmers to find different ways to make and apply fertilizer with a lower carbon footprint. While they're still in the process of testing the results of these improvements, they are hoping for a 15% overall reduction in CO2 emissions with no additional costs for their suppliers. Like Wal-Mart, they took a holistic approach with their initiatives and were able to achieve more meaningful results.
How are these companies able to do this? They've linked the consumption of resources with the processes that consume them, either directly or indirectly, for each product across the entire supply chain. They were already tracking the key drivers of CO2 emissions, such as energy consumption and fuel consumption. The challenge is linking these drivers to the processes required to produce and deliver products to customers. What's required is a resource demand-based process analysis model that can not only identify the demand for these drivers, but also produce the carbon footprint (cost) for each process in the value chain. Sound familiar? It should. The same methodology is also used to determine the actual costs associated for each process in the value chain. Companies with capable profitability modeling and optimization systems should be able to extend these to help them better identify and manage their carbon footprint as well. Those that take the extra step by holistically examining their entire value chain will be rewarded with opportunities to not only save money, but also reduce their environmental impact as well.
Innovative companies will find new ways to incorporate social responsibility into their business in ways that will set them apart from their competition. Leading companies will formulate a balanced strategy that satisfies both shareholders and customers. A critical success factor will be their ability to create transparency around their value chain because it fosters trust among consumers and collaboration among the supplier network. The good news is that you can address sustainability using the same means as effective cost management with capable profitability modeling and optimization solution. Who wouldn't choose to make a more responsible decision if it didn't cost you anything more, or better yet, made you more money? Perhaps it's time to take a deeper look at your company's impact. The solutions may be simpler than you think, but only if you can accurately measure it first.