By Rich Becks
The trouble with "green business" is that it conjures up images of a movement without shedding much light on how environmentally focused operations lead to greater corporate profitability. While it is understandable that marketing departments are excited about being viewed as "green," from an operations point of view, it doesn't really help the businesses understand how to respond to new consumer preferences or pending environmental legislation.
Consumers are becoming increasingly aware of the environmental impacts of the products and services they choose. In fact, studies have shown that about 10 percent of consumers today are willing to pay a little more for a "green" product while 25 percent of them couldn't care less. For marketing, however, the real prize is the remaining 65 percent of consumers who have yet to make up their minds. If building brand value is all about associating your products with newly identified needs and wants, then it is especially true if the next generation of consumer choices differ from those of their parents.
But haven't we been doing Lean manufacturing for years? It is true that Lean and Total Quality efforts of the past were very effective at eliminating waste but are not necessarily well calibrated to reduce future risks and costs. Lean manufacturing will tell you a great deal about how your current activities generate waste, but it won't tell you much about how the cost of energy will impact you in the future and what you should be doing about it today. "Green business" is really about the sustainability of your operations and your supply chain and, ultimately, about your products' impact on the planet.
It is clear now that environmental regulations and their costs will only increase, whether from straight carbon taxes or more stringent limitations on the use of hazardous materials. Though many of these costs will be borne directly by suppliers rather than brand owners, they will be passed on throughout the network, eventually resulting in higher-priced products. As costs rise, companies' imperatives to heed and improve their environmental records will move from idealism and marketing strategy to a more straightforward economic concern.
Another reason that a green demand-supply network will become a necessity lies in the pressure retailers are placing on manufacturers. For instance, in recent supplier communication meetings by Walmart CEO Mike Duke, the topic was "green." Walmart's corporate goals for 2009: increase the efficiency of its vehicle fleet by 25 percent over the next three years; eliminate 30 percent of the energy used in stores; and reduce solid waste from U.S. stores by 25 percent in three years. Furthermore, Walmart delivered the messages that all of its suppliers would be open to auditing, that sustainability and environmental standards would not be optional, and that moving factory locations to avoid accountability would not be tolerated. While Walmart is a leader in this field, others are likely to follow — not merely because "going green" is good for the environment, but more so because it's actually good for business.
Challenges in Implementing Sustainable Strategies
Though many see the advantages of creating a sustainable demand-supply network, achieving one is anything but simple. The impediments faced are fourfold:
- The majority of a product's carbon footprint lies deep in the extended demand-supply network.
- Demand-supply networks have become much more malleable, with mergers and acquisitions and other activity frequently changing the participants.
- Clear performance indicators by which to drive sustainability can be difficult to come by and can make aligning incentives within a sustainable demand-supply network arduous.
- The incredible amount of data to be digested to orchestrate business processes across a network can make gaining insight difficult.
A Smart Demand-Supply Network: A Strategic Imperative