Is 'Green' Business Smart Business or Just Smart Marketing?

6 characteristics of a 'Smart Demand-Supply Network' that can help manufacturers gain control over their products' lifecycles and cut costs while reducing their carbon and energy footprint

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.

Of course, the profusion of challenges faced when moving towards a sustainable demand-supply network means that effective leadership is vital to achieve success.

But leadership is precisely what seems to be lacking, according to a recent survey commissioned by the Business Performance Management (BPM) Forum in partnership with the Global Renewable Energy and Environmental Network (GREEN) and my own company, E2open. The survey is part of a larger initiative dubbed The Acceleration of ECO-Operation, aimed at bringing business gain to the value chain through enhanced trading partner visibility, flexibility and new levels of verifiable sustainability across the demand-supply network.

According to the survey, while executives claim to support ECO-Operation principles in theory, their companies are critically lacking in the means, metrics and visibility into the supply chain necessary to make it happen. Nearly two-thirds have inadequate visibility across all tiers of their value chain, with only 20 percent utilizing a single hosted platform to improve such visibility. This means that decision-makers are not armed with the metrics required to enforce sustainability throughout the supply chain and are ill-prepared to meet the changing requirements of an increasingly Earth-conscious market.

A Smart Demand-Supply Network: A Strategic Imperative

In keeping with the ECO-Operation tenets of visibility, flexibility and verifiable sustainability across the value network, achieving a Smart Demand-Supply Network has become the business imperative of the times. To achieve real sustainability requires visibility across the entire network of suppliers and buyers associated with a product. A Smart Demand-Supply Network then becomes a control tower for companies to orchestrate the activities up and down multiple supply chains. Doing so serves the needs of end customers who desire safe, quality products made from the judicious use of natural resources. Once customer needs are met, companies will find that products made from low-carbon/energy sources without the use of hazardous materials can actually cost less and command a higher selling price.

What does a Smart Demand-Supply Network look like? Here are six necessary features that comprise such a value network:

Business Processes Orchestrated across the Network — A Smart Demand-Supply Network provides the multi-enterprise orchestration that has been missing from many supply chains today by collecting data in near real time, validating for completeness and prompting errors to be corrected at their sources. Once the data has been gathered, it is then transformed into the protocol of choice for each trading partner and presented through a shared Web application layer, making execution seamless for each partner in the network.

An Intelligent Software-as-a-service Hub — According to the ECO-Operation survey, only 20 percent of business leaders currently use a single, hosted platform to integrate, coordinate and control their value network. Acquiring and managing carbon footprint information throughout the extended demand-supply network will remain problematic if it is hardwired into the brand owner's backend system, especially as suppliers and channel partners continue to change and merge. Finding a suitable, neutral service provider that can isolate the churn within the network from the brand owner's internal systems allows for simpler access to the underlying data, while outsourcing the need to remain abreast of all changes and software requirements of the network participants.

Timely Compliance Assurance — One of the key requirements for a sustainable demand-supply network strategy is the ability to effectively manage compliance within environmental regulations and to clearly assign responsibility for any failures. In addition, once compliance information has been provided, the brand owner will want to be able to synchronize the delivery of such information with the physical flow of goods so that the goods can move unimpeded over the various regulatory boundaries they meet on their way to the end customer.

Proactive Exception Management — Once the system is running and information is being shared throughout the demand-supply network, the system must be able to trigger alerts whenever exceptions to predefined business rules occur. For example, should the brand owner find itself oversupplying to a particular geographic market, it should be able to dynamically reroute product to a region where there is greater demand, ensuring that the product meets the regulatory requirements for that region.

Insight into Cost Drivers — No system will be complete unless it gives a feel for where the environmental and cost burdens lie and what underlying factors are driving these costs. Only through such information can the brand owner and network participants determine how to optimize the entire product lifecycle, thereby enabling significant improvement not only in the sustainable manufacture, but also in the design, distribution, use and reuse of the product.

Flexible Distribution Options — Finally, the brand owner must have the ability to choose a global logistics provider whose skills and resources maximize the effectiveness of product distribution by region. This means that instead of aggregating and parsing data from multiple logistics providers, a Smart Demand-Supply Network would provide a platform to integrate logistics data from all providers and to seamlessly pass information.

Today's product manufacturers have effectively become extended network managers, making it exceedingly difficult to accurately account for all the energy and raw materials used to create a particular product. Despite these challenges, there are significant cost advantages and brand enhancements to be achieved — and regulatory requirements to be met — by improving demand-supply network sustainability.

By employing a Smart Demand-Supply Network, manufacturers can gain visibility and control over their products' lifecycles, reduce the carbon and energy footprints of their trading partners, and attain "green" brand and cost leadership in an increasingly environmentally conscious business climate. ¦