How Whirlpool, ThyssenKrupp unlock supply chain opportunities
How Whirlpool, ThyssenKrupp unlock supply chain opportunities
Companies face a delicate balancing act these days. On the one hand, they’re under increasing pressure from customers, investors and industry watchers to become more transparent. On the other, they have to remain competitive while striving for sustainability. Balancing those different objectives isn't always easy. But many companies are developing innovative ways to get it done.
Understanding a company’s value chain is a crucial part of the process, said James Fava, senior director at sustainability consultant PE International, during a GreenBiz webcast on value-chain collaboration this week.
He described the chain as not only including upstream elements, such as manufacturing and processing, but also downstream pieces, such as retail use and disposal.“It is really critical to know that these exist,” he said.
A whopping 80 percent of management uses just 20 percent of the available opportunities to become more sustainable and create more value, he claims.
To take advantage of the untapped 80 percent -- and create a more transparent supply chain -- strategy is key, he said.
“It’s really important to know where you are and where you want to go,” Fava said. “This is really about how to understand your risk and manage your risk and [create] opportunities for the future.”
Everything else, such as management systems and decision support tools, all are centered on a company’s strategy, he said.
“A strategic implementation framework becomes paramount in how you’re going forward,” he said.
To illustrate where transparency and traceability is headed, Fava pointed to Patagonia’s Footprint Chronicles initiative. The outdoor clothing and gear company has made its supply chain public to help it reduce its overall environmental and social impacts.
With this initiative, the company is basically saying: ‘These are the good things we’re doing, and these are the bad things we’re doing, and asking for input how to do things differently,” Fava said.
How ThyssenKrupp became more transparent
For ThyssenKrupp, a multibillion-dollar German elevator company, sustainability means using all resources efficiently, including materials, people and procedures, said Brad Nemeth, the company’s vice president of sustainability.
In its effort to become more transparent, the first thing the company -- which has three manufacturing bases in the U.S., Canada and Brazil -- realized was that it needed to have some kind of a sustainability program in place, Nemeth said.
In 2009, the company contacted PE International to conduct a life-cycle analysis of all of its products from cradle to the grave. The results came as a surprise, Nemeth said.
The company is heavy on manufacturing and uses a lot of steel, so it expected that the operational side of the business would have the greatest environmental impact. But it turned out that the company’s elevators themselves left a greater carbon footprint than their manufacture or any of the company’s other operations.
“Our elevators are in the built environment for so long that the energy use created a larger environmental impact than our own operations,” he said.
The life-cycle analysis was essential to the company’s strategy development, Nemeth said, and helped it figure out where to focus its energy. The analysis also revealed that if the business hoped to assess its full environmental impact from all of its product lines, it would need to increase the transparency of its individual products.
ThyssenKrupp started developing a list of chemicals, but “it was not as easy as we thought,” Nemeth said “Everywhere you look, there is another list of chemicals out there.”
So the company decided to combine some 10 different lists that seemed most intrinsic to its operations and cross-reference all the chemicals used in its supply chain. Afterward, ThyssenKrupp started to engage its supply chain by sending out a questionnaire asking about the chemicals that were embedded in its products.
This information helped the company set goals and create a roadmap for improvement, Nemeth said. Some chemicals were “quick hits,” he said, which were easy to eliminate, while others took more time to discover and remove.
The next step for the company was to define a health declaration for its products, a relatively new concept in the elevator industry. This was another way for the company to look at which products it needed to alter to become more sustainable, and how to remove unwanted elements from these products over the long term, Nemeth said.
By understanding the environmental and health impact of its elevators, the company is better able to communicate with its customers and suppliers. It has also helped the company stay ahead of the curve and become more innovative, Nemeth said.
“By understanding our products, we can look for key opportunities in the market and go for them,” he said.
Lessons from Whirlpool
At Whirlpool, the largest appliance manufacturer in the world, the trick was to look at compliance and risk not as a negative, but as something that could bolster the brand and make its value chain more resilient, said Ron Voglewede, North American sustainability lead at Whirlpool.
The first step is to develop a strategy, he said. This involves figuring out what’s important to a company and to its customers. The second step is to identify the main processes and map the data throughout the value chain, which helps companies understand where they need to take action.
Analytical tools, such as GaBi and life-cycle-assessment software, can show companies where their value chains have high exposure and how they can lower their costs. Voglewede recommends that companies make use of IT systems and centralized data to create better traceability, which in turn leads to better supplier management and lower risk.
Communicating with suppliers can be tricky, particularly when companies are working with smaller suppliers who may not have the resources to fill out the supplier questionnaires on their own, he said. In an increasingly globalised world, ensuring questionnaires are available in the supplier’s local language is another important detail, Voglewede added.
“In the very diverse global environment, it’s very critical you’re understood in the right manner,” he said.
Meanwhile, when it comes to saving money, there are still opportunities for companies to lower their own manufacturing costs before considering their supply chains.
"People have been looking at [their own operations] from an environmental-compliance perspective, but not as much as [from a] risk-management and business-improvement [perspective],” Nemeth said. “Focus in on your own operations first, then look one tier up and one tier down” in the supply chain.