Green Supply Chain and Corporate Ethics
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Perhaps partly due to customer awareness and perhaps equally due to business opportunities such as cost reduction, companies have become increasingly aware of the need to develop and maintain supply chains which are environmentally and ethically sound – such supply chains are increasingly termed green supply chains.
But what is a green supply chain and how can it be best characterised? – the term green is perhaps at best a panacea – there are no hard and fast rules – no procedure that can be provided that clearly dictates what a green policy should or shouldn’t contain – it will mean different things to different companies and different geographical locations.
However, green policies will commonly include thoughts on sourcing, waste reduction, energy, recycling and materials. Markets that have seen one organization adopt certain policies with success are likely to see fellow competitors follow with similar policies shortly after. Increasingly markets are seeing associations developing offering best practice.
Is green just ethics wrapped up in a different name?
The use of child labour has hit the headlines in recent years –a number of high profile companies having been found to be utilizing child labour either directly or indirectly through their supply chain – the resultant bad press and hasty policy changes have shown that business are, rightly so, taking such challenges seriously. There can be much blurring of context around these social and ethical issues and a Green policy, with such issues often being championed under the same corporate responsibility banner. In reality the green policy is more focused on environmental issues than social ones.
Examples of green and social policies in action
To help better understand how green supply chains and ethical policies have risen in importance and deployment lets look at some examples.
1/ General Motors – Corporate responsibility
Covered under the organizations corporate responsibility banner – GM has a strong “environmental commitment.” GM states “We work with governmental, business, and non-governmental organizations to assess the impact of our products and plants and to develop approaches that improve our environmental performance.” And is a key member of http://www.supplierspartnership.org/. Further information at http://www.gm.com/corporate/responsibility/
2/ Marks & Spencer’s Plan A
Marks and Spencers are one of the UK’s leading retail stores selling everything from clothing to homeware and food. Launching Plan A – its umbrella for ethics and environmental policies – the organization has been keen to publicise its foray into sustainable and ethical management. – M&S’s Plan A is far reaching and incorporates a target to be the worlds most sustainable retailer by 2015 as well as targets over energy usage and recycling – more can be found at http://plana.marksandspencer.com/.
3/ The Body Shop
For an organization like the body shop (which produces environmentally and ethically produced cosmetics) – such policies come easy as they are already part of the fabric of the company from the outset. Body Shop founder the late Anitta Roddick stated I just want The Body Shop to be the best, most breathlessly exciting company – and one that changes the way business is carried out. That is my vision.” Using its own community trade suppliers – Body shop targets responsibility in material sourcing – with all suppliers operating within a corporate code of conduct which suppliers have to sign upto before trading with the body shop. For organizations like Body Shop – Green supply chains are not a nice to have but form part of the fabric that makes the company (http://www.thebodyshop.co.uk/_en/_gb/values-campaigns/index.aspx) and any failures on behalf of the company to keep up this strategy could have serious consequences for the brand image.
4/ Airbus
Airbus is one of worlds leading aerospace manufacturing companies. As part of its corporate responsibility program it aims to place the “highest priority on environmental performance” Airbus endeavours to implement full life cycle responsibility from inception and design through to disposal.
In accordance with Airbus’ “mitigation” approach, the company aims to increase the aviation industry’s environmental performance by supporting green economy and technologies transfers, especially in developing countries, creating a sustainable “virtuous circle.”
More information at http://www.airbus.com
Wise words or a real commitment?
What stands out from this short foray into corporate responsibility is that the practical application of green policies varies from company to company – most large organization proudly publicize their environmental credentials as part of their public relations (check out most blue chip company websites) but a key “take home” point is that these should be more than just a mission statement – compare with companies that have put these to action and see how these have been implemented. Wise words are one thing but data from improvement initiatives are another!
Whilst it looks like green supply chains are here to stay, irrelevant of the motives behind them – the tactics and strategy behind them will become an ever more important element in the supply chain executive’s tool kit. It is likely that “how green are you” will continue to be a market differentiator with the customer and it will be interesting to keep a watching brief in the future to see how such initiatives gain notoriety through clever PR.
Whilst the purchasing organizations in large and small companies often share the same core functions – structure, organization and culture can be very different. Large companies with multiple business units (often geographically dispersed) are typically faced with the question of how to tackle their procurement function, providing continuity of supply, minimizing risk and leveraging spend across the organization.
Procurement functions typically fall into one of three models.
1/ De-centralized
This is characterised by business units executing their procurement activity locally – they will typically be responsible for supplier selection – executing orders, and managing supplier relationships and improvement initiatives.
2/ Centralized
Most if not all procurement is carried out by a central function within the organization – this is often facilitated through a single MRP system where requirement and fulfilment can be managed through a single system. Supplier relationships are managed centrally and performance management takes place centrally.
3/ Hybrid
The third option, and arguably the most common, is a hybrid of centralized and decentralized where the operational element of the procurement activity (i.e. the requisition and purchase order process are carried out within the business unit) and either part of or all of the strategic procurement element (supplier selection, performance management, deploying key initiatives) are run centrally.
Key Benefits of Consolidated procurement
There are a variety of benefits associated with consolidated or centralized procurement – these include
• Centralized deals and contracts with major suppliers
• Consolidated performance measurement
• Relationship management
• Deploying key initiatives and championing technology
The key benefit from centralized procurement is a global view of the supply chain, total visibility across all suppliers from a top level – viewing the consolidated spend not just of individual suppliers but from suppliers within groups or holding companies. This view can facilitate effective account management and consolidation of spend.
Problems of Group Procurement
Whilst deploying a group procurement function can bring many benefits it is not without its problems – some of these are:
1/ Communication challenges – both with the external suppliers and with internal customers
2/ Maverick Spend outside of agreements made by some business units not buying into group procurement deals
3/ Cultural issues around ownership of the purchasing process
4/ Product/Niche knowledge
Reasons for deploying centralized procurement
Large organizations deploy group procurement initiatives for two traditional reasons
1/ Cost Saving
2/ Efficiency
Cost savings are traditionally obtained through consolidating spend (supplier rationalization) and negotiating discounts based on that spend. Large and geographically spread companies will often have a diverse and fragmented supplier base. Through the deployment of commodity programs spend can be grouped and appropriate deals be found (including through sourcing suppliers in low cost countries).