How Real is the Green Supply Chain?

How Real is the Green Supply Chain? by Dan Gilmore  I have held off writing about "the Green Supply Chain" and Sustainability for a long time, but here we go…As usual, I will probably get myself in a little trouble.. My "First Thoughts" on the subject – and what are to me the two key questions related to Green – are in this column. More over time. Let's be clear upfront that in developed economies virtually 100% even of corporate executives, many environmentalists may be surprised to know, want a clean environment. All anyone has to do is visit Hilton Head Island, Yosemite National Park, or any of hundreds of other fantastic places and who could want anything but a wonderfully healthy ecosystem? The story is different in many developing economies, which is where we were 100 years ago. Still, as with everything in life, there are trade-offs. We could outlaw cars tomorrow and get rid of a huge chunk of our carbon emissions, but of course only a few on the fringe would opt for that. And by the way, that might lead to a resurgence of horse-based transportation, which would have its own, shall we say, negative environmental impact (more on that theme in a bit). The point is that clearly not every Green decision is worth the trade-off. Undoubtedly, in this environment, where Green is all the rage, it's hard for any company or individual to swim against the tide – and probably no one should. But I also get the sense right now that in many companies and circles if anyone was to actually suggest there are trade-offs to be considered, it might be a career-ending move, or make it appear you are some greedy, smog-loving cretin, which is nonsense. Some points worth pondering: It's no wonder many CEOs are at least publicly on board. When Fortune magazine named GE the world's most respected company a few years ago, it cited CEO Jeff Immelt's focus on Green as among the key factors. Other CEOs were watching, and would love to have themselves and their companies recognized in the same way. It's clear to me at least that much of the corporate support for Green is as much for the potential to sell new products/technologi es as it is about saving the planet. As we recently reported, for example, a McKinsey survey found that 37% of manufacturing executives surveyed thought the risks and opportunities from the Green movement were roughly balanced for their firms, and another 21% thought the opportunities far outweighed the risks. So, you should take some of the Green rhetoric coming out of corporations with a grain of salt. (See Talk is Ahead of Action on Green Supply Chain, According to McKinsey Study.) GE may truly be interested in Green, but it's also happy to sell new, more expensive light bulbs and a new class of power generation equipment. I don't like some of the coerciveness of the whole movement. I don't fully understand it, but there is something partly troublesome in the Carbon Disclosure Project's heavy hand in co-opting large investment banks to help pressure corporations to report carbon emissions, and sets in place a number of slippery slopes. There are many obvious improvement areas that in retrospect should have been "No Brainers." Were transportation and packaging materials ever really so cheap that companies could afford to ship excess cube and pay for extra paper and plastic that were simply superfluous? I am confident that in the majority of cases, the return for the effort in improved packaging was always there, but was a treasure right in front of us that we just couldn't see. Nothing but positives here. The interest in being Green obviously has been helped by the incredible rise in transportation and commodity costs. Whether you put a Green wrapper on it or not, taking out miles driven through network redesign, packaging changes, collaboration, etc., is just smart business right now. We have to be very careful, however, to avoid knee-jerk decisions and the Law of Unintended Consequences. Easy example – certain cities banning plastic grocery bags in favor of paper, when it turns out - in total -the plastic is actually much more favorable to the environment. But there are many more examples. Most of us are aware, for instance, that the push for ethanol as a fuel has in part led to surging food prices worldwide, as demand for corn for energy purposes drove up the price for corn, led farmers to plant fewer soy beans, etc.  But it goes further than that. Farmers around the coast of Lake Erie in Ohio, for example, had been receiving some modest government incentive for leaving land fallow. Now, they find it more profitable to plant corn again. The result: the lake is being damaged by severe run off from the chemicals in the fertilizer that the farmers are now using again near estuaries. To me, though, there are really two key questions. First, will the consumer, or business customers, really pay more for the environmentally friendly product? I really haven't seen much data either way. One thing we absolutely know is that neither the consumer nor business will pay more for the "Made in the USA" product – but we think they will do so for the environmentally- friendly ones? Some segment, probably at the high end, likely would, but I am not sure how many beyond that, if offered a real choice. The implication of that, if it is accurate, is that Green improvements have to be at least cost neutral, and/or Green products must be mandated by government or Wal-Mart, Home Depot, etc. Second, how will companies actually make Green decisions? My favorite example – what if there is a more environmentally- friendly industrial adhesive that will cost a couple of cents more a pound. Will a company buy that product instead of the regular adhesive? What if the raw material cost is the same, but manufacturing has to run the packaging line a bit slower because of slightly reduced performance? The real issue is what framework will be put in place for making such decisions. Does the procurement manager have some guidelines in place that says you can increase supply chain costs under these circumstances or within these limits for a given level of Green improvement? How can any company manage these trade-off questions across potentially hundreds of decisions on a regular basis? Will it really be willing to increase supply chain costs to be more Green? And should the adhesive supplier put R&D into making the more Green product instead of reducing the cost of the current one? I was at a recent conference and asked a new VP of Sustainability at a large consumer goods company these very questions. It was clear he wanted no part of an answer, and blew me off with some non-response about things will evolve. But that said a lot to me about the true state of affairs right now. That's my perspective. As always, I am just trying to get at what's real.

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