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Published: June 10, 2008

 
 

Start with Sourcing

Procurement lies at the heart of a successful green strategy.

Illustration by Paul Wearing

Recently the senior vice president of supply chain management and sourcing at a global consumer packaged goods (CPG) company decided to look into procuring more environmentally responsible materials and packaging. He knew what he didn’t want: a “greenwashing” program with no strategic objectives, except the right to say that the company was reducing its carbon footprint. As with any other major initiative, he had a mandate from his executive team to create substantial benefit for the business, with a connection to a target market and a fundamental link to the brand proposition. Beyond that mandate, however, he was less certain. Having identified green sourcing as the right goal to pursue, what should he do next?

Today, organizations around the world are being compelled — by their employees, their customers, consumers, and their supply chain partners — to undertake green initiatives. But although they are caught in a deluge of information and opinions about the importance of being green, they find much less reliable information and advice about the mechanics of beginning, let alone maintaining, an effective green shift in operations.

Although this particular senior vice president didn’t know where to go, he was starting in a good place. Sourcing, having gained its credibility in the C-suite, lies at the nexus of a number of functions and business units, and is therefore in a position to influence action across an organization; it can be a strong leverage point for starting a green initiative. By working with senior leaders in other functions, sourcing executives enable a successful, holistic, multifunctional strategy for reducing environmental impact while cutting costs and building better relationships with suppliers and communities. They can do so by making gradual improvements and continually making the green initiative more relevant to the company’s overall strategy.

A Clear Look at Green
Green sourcing is not a departure from the way sourcing is currently being practiced; it’s an augmentation. When considering the trade-offs between one material, service, or supplier and another, the sourcing function has traditionally measured the value of each by analyzing either the economics of the deal or the deal’s impact on the customer. Green sourcing starts with the same considerations, but it also takes into account the environmental impact of a particular choice, be it transportation, materials, energy source, or packaging design, on the ecological footprint made by a product or service.

It’s essential that companies have a rigorous and carefully structured sourcing program in place before attempting a green sourcing initiative. It requires even deeper insight than does a traditional strategic sourcing program, because the choices among environmentally friendly products and services can be extremely complex, and thus a network of suppliers that can provide the necessary transparency is essential. To fully understand the trade-offs inherent in their choices, sourcing executives must be able to analyze the entire value chain of a product or service, in terms of both cost and environmental impact. In doing so, they can make certain that various components in that chain interact in a way that benefits the whole system.

The classic example of these value chain inter­dependencies is a 32-watt energy-efficient lightbulb that costs US$6. It may appear more expensive than a 100-watt bulb that is available for 75 cents, but the green bulb actually has a lower cost of ownership once other factors are taken into account. Its 10,000-hour life is 10 times longer than the life of the cheaper bulb — and it will burn only $48 worth of electricity compared to $150 worth for the conventional bulb. A shift in lightbulb supplies, however, may be worth making only when multiplied across a company’s dozens of facilities around the world.

 
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Resources

  1. Daniel C. Esty and Andrew S. Winston, Green to Gold: How Smart Companies Use Environmental Strategy to Innovate, Create Value, and Build Competitive Advantage (Yale University Press, 2006): Numerous examples of companies that prove that sustainable can also mean profitable.
  2. eyeforprocurement, “Green Purchasing Report,” July 2007: Results of a survey on current practices in green sourcing.
  3. Georgina Grenon, Joseph Martha, and Martha Turner, “How Big Is Your Carbon Footprint?” Supply Chain Quarterly, Fourth Quarter 2007: Companies are looking for opportunities to conserve energy and reduce carbon emissions in their supply chains.
  4. Art Kleiner, “Materials Witnesses,” s+b, Fall 2005: The hidden challenges of green sourcing, including learning to overcome competitive secrecy and diverging specifications.
  5. William McDonough and Michael Braungart, Cradle to Cradle: Remaking the Way We Make Things (North Point Press, 2002): Discussion of the need to create carbon-neutral products.
  6. Hardin Tibbs, “How Green Is My Value Chain?s+b Leading Ideas Online, 10/23/07: An argument for turning the value chain into a value loop.
  7. Carbon Trust Web site: Provides a variety of resources for reducing carbon footprints, including case studies.
  8. For more on global perspectives, sign up for s+b’s RSS feeds.
 
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