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strategy and business
Published: June 10, 2008

 
 

Start with Sourcing

Determining action. With a vision in place, companies must define the activities that will make it a reality. These fall loosely into two categories. First (identified as “strategic” in Exhibit 2) are the broad, all-encompassing activities that support the execution and branding of greenness at the company level. These are the measures that allow the company to meet the objectives outlined in its vision — to take the Cadbury example, using alternative energy sources would be one of the activities underscoring the company’s vision of reducing carbon emissions. Marketing efforts, such as the creation of the Purple Goes Green program and its dissemination to the public, are also included in this category. The marketing of green efforts should generate recognition and goodwill among consumers, employees, and other stakeholders.

The second category is made up of more narrowly targeted operational and tactical activities that are specifically intended to drive business and increase revenue and profit for a particular brand, product, or service. An example is the promotion of a newly repackaged product that can be promoted to consumers on the basis of its reduced material content or its new bio­degradable packaging.

Managing demand. In strategic sourcing, demand management typically entails specifying the right product with the right characteristics and the right price point to provide the best value to the customer without creating a disadvantage for the company — for instance, by adding unnecessary cost complexity. Green sourcing has the same goals, but seeks to meet customers’ needs while adhering to an even more stringent set of specifications, such as trying to identify opportunities to reduce emissions. Companies need to understand their customers’ needs and develop their green strategy around those needs, providing visibility into customers’ habits versus the value and cost associated with options in, for example, product design or packaging specifications. With this information on the table, companies can work to serve customers while crafting solutions in line with the company’s overall green strategy.

Building collaborative supplier relationships. Suppliers can be key partners in helping companies de­velop green sourcing strategies, offering ideas about product innovation and how to reduce environmental harm throughout the supply chain. For instance, a company sourcing a particular kind of produce would need suppliers’ input to determine which would have more of an effect on the overall carbon footprint — sourcing produce grown locally that require a hothouse or sourcing them at a distance with the associated transportation impact. This was the trade-off that the U.K.’s Marks & Spencer PLC studied in early 2007, when the retailer announced that it would double its regional food sourcing, minimize the amount of food transported by air, and mark all food that did travel by air freight with the label “flown” to make consumers aware of the carbon impact of that purchase. Companies can also work with suppliers to develop the suppliers’ own green sourcing initiatives, as integrated health plan and provider Kaiser Permanente is doing with its partners.

Conducting cradle-to-cradle life-cycle analysis. Such analysis examines the entire life cycle of a product or service with the goal of producing it, distributing it, and disposing of it (or, in the case of a service, disposing of the materials and by-products associated with it) in a way that renders its total impact environmentally neutral. As one can imagine, it’s an intensive exercise, and may not be realistic in every case. However, even a focus on a few high-leverage areas can uncover significant savings. For example, Sonoco Products Company, a supplier of industrial and consumer packaging, found that if it used com­posite materials instead of steel in its cans, it could reduce the cans’ weight by 27 percent, the en­ergy they require by 34 percent, and greenhouse gas emissions by 20 percent.

 
 
 
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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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