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strategy and business
 / Summer 2008 / Issue 51(originally published by Booz & Company)


Start with Sourcing

With consumer interest in green products on the rise, many investors are more attracted to green companies, as evidenced by the creation of the Dow Jones Sustainability Indexes and its U.K. counterpart, the FTSE4Good Index Series, which track the performance of, respectively, sustainability-driven companies and companies meeting global CSR standards. Institutional funds that invest along social guidelines in Europe and the U.S. also appear to be encouraging more businesses to think about sustainability: In recent years, these funds have reached $4 trillion in assets — enough to buy 91 percent of all outstanding Nasdaq stocks and more than enough to ensure that green stays at the top of every corporate agenda.

Meanwhile, as both internal and external pressures drive the need for change in sourcing practices, a number of elements are making such change more feasible. Foremost among these elements is the increasingly collaborative nature of supplier relationships. This allows more visibility into sourcing decisions and makes it easier to define mutually beneficial goals. For instance, DuPont Packaging and Industrial Polymers announced in 2007 that it was collaborating with Plantic Technologies Limited, an Australian bioplastics com­pany, to develop polymers based on corn starches that could be used for cosmetics and food packaging and to market them under the DuPont Biomax brand. The partnership offered advantages to both companies: It broadened Plantic’s market reach, and it brought DuPont closer to its goal of growing revenues from nondepletable resources to $8 billion by 2015 — a goal that the company clearly states it can achieve only by supplementing its own research and development with that of strategic partners.

Another element making green sourcing more feasible is an increase in requests from the top. Procurement officers have been tasked by the C-suite with investigating alternatives and weighing trade-offs among price, service, quality, and sustainability. For instance, they might be asked to determine whether the company can save costs by substituting tools and supplies that use energy and water more efficiently, have more recycled fiber, are built to last longer, or can be sourced somewhere nearer to where they are needed. Furthermore, because it influences 40 to 45 percent of the cost base of most companies — a percentage that is growing — sourcing is recognized as a strong potential agent of change. Sourcing’s control over those expenditures today tends to be more comprehensive than it once was, since the sourcing function extends more and more to operations that touch every part of the company, including those areas not traditionally under the in­fluence of procurement, such as marketing and professional services like the legal department. Sourcing is now recognized as a competitive tool to manage costs, services, and supplier relationships.

Finally, green sourcing is enabled by new technologies — including more efficient energy options, brighter LEDs, and transportation designed to burn cleaner fuels — and by new processes, thanks to computer models that help companies analyze options and trade-offs.

Justifying the Investment
Despite the pressing need for greener practices and the recent advances discussed above, good practices (let alone best practices) in green sourcing are not yet clearly defined, and there are still hurdles to overcome in creating those definitions. At one large CPG com­pany, for instance, a number of executives stated that they are committed to green initiatives and sustainable sourcing — but they had trouble defining what that meant in terms of their day-to-day decision making. Green sourcing is still treated as an incremental part of the procurement function, rather than as a full-fledged dimension of strategic sourcing. According to the Green Purchasing Report, only 31 percent of 188 companies surveyed in a variety of industries were actively practicing green purchasing. Even some companies that have launched green sourcing initiatives have not tied them to one another, to goals at the business unit or brand levels, or to the company’s overall strategy.

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  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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