Most companies direct their greenhouse reduction efforts at the emissions produced by their operations, as well as tier one and two suppliers. With studies showing that supply chains make up the bulk of a company’s carbon footprint, business leaders are scrambling to implement efficiency partnership with their vendors.
"The average industry has only 14 percent of its total greenhouse gas emissions in tier one and 12 percent in tier two," says Chris Hendrickson, co-director of the Green Design Institute at Carnegie Melon University in Pittsburgh, Pa.
He defines tiers three and four as the extended supply chain, including products' delivery, use and disposal. "The contribution of those tiers to the total carbon footprint of the business can be much more significant," he says.
While many leaders are slowly becoming aware of the sprawling environmental impact of their businesses, it appears few have a handle on what to do about it.
A recent McKinsey survey of more than 2,000 global executives, for example, shows that while nearly half of respondents say climate change is an important issue to consider in purchasing and supply chain management, fewer than one-quarter say their companies regularly take climate change into account in these areas.
Among high-tech and other manufacturing executives who participated in the survey, 54 percent and 56 percent of respondents respectively, say climate change is important in purchasing, yet these executives were no more likely than average to say it was considered in practice.
Part of the problem, says Hendrickson, is the lack of control over suppliers' operations. "Companies don't have enough data about their supply chains and they may have different perspectives about sustainability than their suppliers," he says. "It leaves business owners worrying about things that are out of their control."
But that control can be secured. Like quality and cost expectations, greener business practices can be factored into the supplier relationship, and many businesses are already making it a central part of supplier contracts and partnerships with vendors to promote environmentally friendly initiatives across the supply chain.
Key Tips for a Greener Supply Chain
Prioritize environmental stewardship in your supply chain reward system
Help suppliers identify areas for improvement in their operations, and partner with them to achieve these goals.
Show suppliers how energy reduction programs lead to cost savings to get them on board
Begin with simple solutions that deliver fast results, such as waste reduction, before moving on to more innovative solutions.
Supply Chain Emissions May Represent 'Greatest Impact'
Global computer giant, Dell, is striving to meet its goal of becoming the "greenest technology company on the planet." That includes becoming carbon neutral and meeting a goal of avoiding 99 percent waste from its operations by 2012.
Dell leadership understands the only way to achieve this goal is to first clearly define the company's overall environmental impact. Then it introduces greener policies across the supply chain from raw materials to products' end-of-life, says Tod Arbogast, Dell's director of sustainability.
"Companies that don't focus on the environmental impact of their supply chain and product, along with their own operations, are likely missing their greatest impact," he says.
Dell, based in Round Rock, Texas, is currently conducting a life-cycle analysis of the greenhouse gas emissions generated by the entire business, from end to end.
"We don't have all the numbers yet," Arbogast reports, "but I can tell you our tier one and tier two operations make up the smallest part, by a significant measure, compared to our external supply chain and product impact."
Recognizing that suppliers represent one of the greatest opportunities for improvement, Dell is implementing programs across its supply chain to reduce its global carbon footprint, beginning with product design. "We start with a precautionary approach to chemical use," he says.
Dell publishes its chemical policies on its website and shares it with all suppliers, along with a list that dictates chemicals and chemical levels that suppliers can and can't use. Dell wants to eliminate the use of all brominated flame retardant (BFR) chemicals and polyvinyl chloride (PVC) plastics in its products.
"We ask our suppliers to look for alternatives and substitutes and we reward those who help us expedite the use of a new material," Arbogast says.
Dell also partners with suppliers to improve energy efficiency and develop sustainable materials. Best practices are shared with other suppliers so everyone benefits. The company recently launched an initiative through the Carbon Disclosure Project to help suppliers measure and reduce their carbon footprints. Dell works directly with vendors to set their reduction targets and rewards those that achieve their goals.
"The wonderful thing about our operations and our supply chain is that the primary carbon impact we make is based on energy use," Arbogast says. "That gives everyone significant motivation, because reducing the impact of energy use also reduces operating costs."
Hendrickson is quick to point out these types of win-win opportunities, in which environmental and economic incentives can be simultaneously achieved, are abundant in third and fourth tier suppliers.
"In most cases it's much easier and more cost-effective to implement waste reduction programs and energy savings goals with partners than it is to launch major green initiatives, like switching to biobased plastics for feedstocks," Hendrickson points out. "Start with simple solutions, like moving from truck to rail for transportation, and using more recycled materials."
Arbogast agrees, noting that environmentally-focused programs at Dell always begin with improving efficiencies before moving to optimization and innovation.
For example, he points to the company's effort to reduce water consumption throughout the supply chain.
"We began by minimizing landscaping at facilities, then we deployed an IT tool that measures attributes of the soil to make smarter decisions about when and whether to irrigate," he says. "We cut water usage by 40 percent through those efforts."
Looking at improving its environmental footprint through the lens of innovation has also led Dell to many improvements it might otherwise have overlooked or given up on, such as using post-consumer recycled paper in its catalogs. "Four years ago everyone said we couldn't manage our cost and quality if we embedded sustainably practices into our paper procurement," he says.
Yet Arbogast's group pushed, incentivizing suppliers to seek solutions that delivered high-quality recycled paper at reasonable costs. "Today, 50 percent of our catalogs are made from post-consumer recycled paper and it added no costs to the process."
Method's Method for Going Green
Like Dell, Method, the green household cleaning products company in California, sets high expectations for its supply chain, using a combination of the 'carrot and stick' approach to achieve its environmental goals, notes Paul Tasner, senior director of operations.
"Whether we are buying packaging, or raw materials, or transportation services, our suppliers go through a rigorous filter and we clearly state what they can and cannot do," he says. "We provide forms that state precisely what we expect them to do, down to who they can purchase materials from. If they want to do business with us they have to get behind sustainability. If they don't meet our criteria, we move to someone who can."
Because of Method's green reputation, every choice and relationship the company makes centers around environmental stewardship. The company is very clear about its expectations from every vendor, and it has lists of chemicals and materials it wants to avoid or prefers to use. "We will make compromises if it's the only way to launch a beneficial product, but we always err on the side of safety and non-toxicity," Tasner says.
Method's challenge: It doesn't own any element of its supply chain. From packaging and product manufacturers to warehousing and trucking fleets, the company relies entirely on its supply chain to follow and promote its environmental goals.
"If we owned our own plants we could set our own rules, but we can't do that with suppliers," he says. "So we rely on building strong relationships with vendors, and give them the incentive of future business if they follow our goals."
The company depends on a small list of preferred vendors that have won its confidence and trust over the years. "We develop relationships for life with people who have what it takes to partner with Method," Tasner says.
To back up its faith in those tried-and-true vendors, Method regularly audits supplier operations to ensure its standards are being met. It also tests products for quality and contaminants. "Most of our contract manufacturing organizations have multiple clients, many of who are less concerned about sustainability than we are," he points out. "So we have staff who monitor production to make sure everything is as expected, and no cross contamination occurs."
Few problems arise, however, because the suppliers working with Method are excited about opportunities to improve their processes. "We don't start relationships with vendors who need to be baby-sat," he says. "That's a very bad sign."
In fact, many core vendors come to Tasner asking for advice on how they can further clean up their acts. His team works directly with them to implement energy savings and waste reduction programs, assess the viability of alternative energy, and implement water recirculation programs to avoid waste re-entering the ecosystem.
Along with its carbon offset partner, Native Energy, Method recently launched a program to create financial incentives for suppliers to green their operations. "When they exhibit greater sustainable practices, they become eligible for reimbursement," Tasner says of the program. "We made it a condition of our relationship with Native Energy, that everything trickles down to our partners."
This is one more way that Method's suppliers gain from getting its business. "If you want to incent suppliers to go green," Tasner says, "you have to be creative."
Riding Green Coattails
While Method may not be as lucrative a client as other global product manufacturers, the company does benefit from its reputation as a green leader. Method's environmental standing draws world-class vendors to its door angling for the chance to win the company's business, even though it represents a small fraction of work compared to larger clients.
"We get a lot of extras because of who we are," Tasner admits. "A lot of companies like to say they do business with us because it's seen as a value-add to other clients."
Recently, five of the country's largest trucking companies fought for Method's business. The vendor that won the contract, J.B. Hunt, is now partnering with the company to convert some trucks to biodiesel.
"We are a very small client for them, but they like who we are," Tasner says, noting that J.B. Hunt covered its first two biodiesel trucks with Method graphics and logos. "It's a rolling billboard for Method, but they are just as excited about it as we are," he says. "They've gotten a lot of good press for themselves from those trucks."
Whatever industry you are in, the path to greening the company starts with understanding and working with the supply chain, advises Hendrickson. "Do a supply chain analysis to get an idea of where emissions are coming from," Hendrickson says, "then talk to your suppliers about what you can do to reduce your impact."
Arbogast agrees. "These changes require cross collaboration between stakeholders, suppliers and the industry," he says. "Companies have to prioritize sustainability and challenge their supply chain to execute goals and drive change across the business. It's the only way things are going to get done."
Sarah Fister Gale is a freelance writer based in Chicago, Ill.