Competing on the true color of your Supply Chain
Since the year 2005, AMR has been publishing the list of the world's top 25 most admired and well run supply chains. The typical parameters or KPIs used to compare and rank as depicted in the reports are Return on assets, Inventory turns and Revenue growth. Additionally, opinions of peers and AMR are also factored in when these ranks are arrived at.
I was wondering if these rankings also factor in the green element in the supply chain and whether it had any bearing on them - if not, at least if they were correlated. This year's report specifically mentions sustainability as a key point that merged on examining this year's winners.
On examining the reports for the last few years one can see that Apple's supply chain is topping the charts for the third consecutive year this time around. It is among those very rare examples where the financial metric of inventory turnovers has jumped from 45 in 2009 to 60 levels in 2010 (which is only 2nd to McDonalds from this year's list). Coming back to our focus on sustainability and greening and what is the motivation for treading that path, I decided to have a look at the annual reports of these top supply chain companies. Though we all understand that even these biggies collaborate with multiple partners and vendors for an efficient supply chain, the true measure of greening cannot discount the partner's green thumb.
Critics argue that the way global sourcing and technological advances have become a part of modern supply chains, an inherent collision logistics and environment has crept into the system which is overlooked in the wake of "lean" practices. The collision can be illustrated in a case where a lean mean supply chain, with leaner inventory could result in more frequent trips between locations which could result in higher fuel consumption. In a report published by MIT Sloan Management Review, only 22 of fortune 500 companies have started "blunting" their supply chains' impact on the environment. Though this research focused on transportation practices at these companies, Apple among many others from the AMR list are missing from this subset of 22 fortune 500 firms. The Insight that this brings to the fore is in spite of having well defined sustainability scorecards and efficiency KPIs, not many organizations have been able to effectively internalize the same into their respective supply chains. Let us explore this in detail as we delve on few leading supply chains and their true color.
Talking about our chartbuster Apple, it shot down the proposal for a "sustainability reporting", the term if searched on Google takes you to a page which tells the story behind Apple's environmental foot print. The site goes on to explain the breakup of its green house emission in the entire life cycle:
So, bifurcating the functions using the SCOR model, 48% percent of all emissions can clearly be attributed to source, make, deliver and return functions of the supply chain. Over the years, Apple claims to have reduced the average weight of iMac and saved 10,000 metric tons in material. Today's 20-inch iMac uses 55 percent less material than its first-generation, 15-inch predecessor. These examples point to the fact that especially in an industry fired by innovation, the journey towards an efficient and sustainable supply chain begins much ahead in the value chain as in this case, at the drawing board itself.
Talking about transportation research shows that to make one Apple iPhone material comes from 3 countries ( Singapore, Taiwan, US) travels to China to get assembled, inventoried and finally it gets fulfilled to customers and retailers from here. Apple assigns a 5 % percent figure to emissions due to transportation .The 2007 figure from department of energy states that transportation accounted for 28.4% of U.S. energy consumption and 33.6% of carbon dioxide emissions. Here too, the company's superior and minimalist design philosophy has resulted in 50% more boxes in each airline shipping container.
One Supply Chain leader that is highly respected in the industry by peers and analysts alike is Procter and Gamble. It has always rightfully earned positions ranging from 2nd to 4th in the last five AMR reports. P&G is among those few organizations which has clearly articulated its sustainability strategy, goals and progress measures. The sustainability report named "Designed to Matter " clearly delineates how focus areas like product sales, operations, social responsibility, people sensitization and partner collaboration are aligned and meshed to the environmental cause.
P&G as a part of "Products Strategy" set sustainability goals for sales of "sustainable innovation products" which have an improved environmental profile. The FMCG major boasts of cumulative sales of $ 13.1(billion) since 2007 for such products. Similarly for "Operations Strategy" it set sustainability goal of 20% reduction (per unit production) in energy, water usage and waste disposal from its Manufacturing locations. It also went ahead and profiled its customers and segmented them into three categories viz-a-viz niche, sustainable mainstream and basic based on sustainable product propensity. Once this was done, products were designed, keeping in mind the largest segment that were inclined to sustainably profiled products (which of course, provided their idea of performance and value). Here we see that clearly "green" as a philosophy is clearly embedded in the DNA of the organization. These examples with clearly outlined, articulated goals, KPIs can be seen in the areas of transportation and logistics too. In one another example P&G shifted to seal tight plastic bags from cardboard boxes thus saving 20% space on its shipments. Additionally, reduction in the amount of packaging material, identification of goods while stock management and movement , better convenience for retailers are the add on benefits being realized across the supply chain. Within transportation management P&G has been using intermodal strategies and making use of boats and rails thus reducing carbon emissions. Global pilot programs in Europe, Brazil and NA have done away with thousands of trucks plying on the roads. These technology and process led steps are also reflecting in the company's comprehensive stake holder engagement policy with suppliers. Suppliers are communicated about the sustainability guidelines and also evaluated on a regular basis based on parameters leading to a sustainable business ecosystem.
Supply chains like the above, along with leading names for example, Dell and HP who have been consistent performers in AMRs list, have been recognized for taking steps for a sustainable future. The set of motivating factors for greening among companies can be broadly classified into (a) regulation, compliance(R&C) and (b) driven by market forces. Market forces in today's world mandate competition based on sustainable products and operational strategies. Supply chains who had embraced it as a marathon at the right time and not as a 100m dash (or a knee jerk reaction to what many call sustainability as the new "Y2K") have catapulted their supply chains to the next level with measurable bottom-line benefits.
As we see here, there is a strong correlation in being a leading supply chain and being a champion of sustainable measures. Supply chain and operations being the major enabler of any demand fulfillment, this management concern has a mammoth stake in green initiatives. Of course, this function needs a supporting framework from corporate strategy perspective and executive commitment. As it is said "Companies don't compete -only supply chains do". Sustainable supply chains can give competition a whole new meaning very much in everyone's interest.
I would like to know the view of our esteemed readers - what do you think is the future of sustainable supply chains? Would it find its way from reports and whitepapers into manufacturing locations and transportation hubs? What do you think about end consumers and their enlightenment as enablers in making sustainably profiled products a success? What is the true color of competing supply chains you see around you?