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


Start with Sourcing

Implementing material, technology, and process innovation. Green sourcing looks at using the right kinds of materials, technology, and processes supported by the right kind of organization. In traditional strategic sourcing, this may entail finding low-cost, high-value sourcing materials; making technology more efficient; or developing new inventory control techniques. In green sourcing, it may mean working with suppliers to purchase materials with a higher percentage of recycled content, to implement technology that is more energy efficient, or to develop more paperless transactions. In all cases, implementation demands an end-to-end perspective on production and service costs, including key cost drivers.

Measuring a set of the gains. All of these elements must be supported by appropriate metrics (shown as arrows to the right of the triangle in Exhibit 2). Measurement is a critical element, yet one that few companies have tackled; those that have waded in are using a variety of standards as they attempt to certify and audit their green practices and those of their supplier network. A number of industries have heard calls for standardization, which must be heeded as soon as possible.

Difficulties in measuring results are a major reason that green initiatives fail. As with traditional strategic sourcing, the final (and ongoing) step in a green sourcing plan is to set specific targets and measure the results. One groundbreaking program that illustrates how suppliers might be involved is Wal-Mart Stores Inc., which requires its suppliers to respond to questions about their packaging, providing such details as the ratio of product to package and the amount of recycled content used in the packaging. Wal-Mart assigns the suppliers a score based on their answers. The company will use this data to reduce the amount of packaging it uses by 5 percent by 2013. About 97,000 products are currently being evaluated in this way; the company aims to put 160,000 through the process.

Hewlett-Packard Company also uses a sophisticated audit process; it evaluates its suppliers’ environmental permits and reporting, pollution prevention and resource reduction, hazardous substances, wastewater and solid waste, air emissions, and product content. The company further recognizes that its effect on the environment stretches beyond its own processes and those of its suppliers, and thus trains suppliers to audit their own partners.

Developing metrics is challenging. It is difficult to measure the benefits of green sourcing because they cut across so many dimensions. Whereas the value of reduced errors could be easily quantified during the early days of the quality movement, the positive results of, for instance, cleaning up a manufacturing process may be harder to measure because they involve so many parameters, including customer goodwill, political regulation, and operational costs. However, leading companies have already begun measuring themselves on such elements as greenhouse gas emissions, energy efficiency, the use of environmentally sustainable raw materials, the carbon footprint of facilities, and water effi­ciency. Setting concrete goals along these lines — as Cadbury Schweppes and others have done — and communicating explicit targets to suppliers are strong motivators to make sure that the vision set at the highest level is realized in practice.

In attempting to quantify the benefits of green sourcing, it’s important to remember that it is a long-term effort and to strategize accordingly. The quality movement, for instance, took several decades to achieve sustainable results, and there was a further lag before its reputation caught up. Companies should aspire to early victories to build support but recognize that green sourcing is not a quick fix.

Pushing through Uncertainty
Although many companies have undertaken some steps toward green sourcing, most have yet to take a holistic approach that provides a comprehensive view of its benefits or ties it to overall corporate strategy. Com­panies need to better assess their efforts at green sourcing and improve its impact on growth and the bottom line.

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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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