Editor’s note: Business strategy expert Yossi Sheffi is the Elisha Gray II Professor of Engineering Systems at the Massachusetts Institute of Technology (MIT) and Director of the MIT Center for Transportation and Logistics. He’s also the author of three award-winning books on logistics and supply chain. His most recent book, “Balancing Green: When to Embrace Sustainability in a Business (and When Not To),” offers a pragmatic exploration into corporate sustainability.
APICS Editor Kia Wood recently spoke with Sheffi about what corporations are getting right with regards to sustainability, what they’re getting wrong and how to balance seemingly competing needs when developing successful business models.
Wood: Your book is titled “Balancing Green.” What exactly do you mean by that term?
Sheffi: The slogans that people use are “planet versus profit” or “people versus profit.” My point is that the real balance is between some people versus other people. There are people who want a clean environment and worry about what will happen to the kids and global warming, and there are people who worry about jobs and being able to afford stuff. The point I’m trying to make is both of them are right. There’s a balance, … and companies should understand that they are responsible for the balance. On the one hand, they are polluting by using energy, by using our resources, and they are affecting the environment. On the other hand, they are the organizations providing jobs and getting to people what they want at prices that they can afford. “Balancing Green” is balancing environmental consideration with jobs and affordability.
Wood: Can you share an example of a successfully balanced sustainability effort?
Sheffi: The Environmental Defense Fund [EDF] is working with Walmart. EDF put six people in Bentonville, [Arkansas]— Walmart’s headquarters. They work with them to understand what can be done and cannot be done.
For example, they understand now that you cannot change the contract before the contract is due. If Walmart signs a three-year contract with a supplier, they cannot change the supplier, and they cannot change the requirements on the supply.
They understand how business works. Now, the EDF professionals work in Walmart headquarters with [Walmart employees] to try to change … That’s what they should be doing. We should be working together.
The EDF is educating Walmart about where they should go in terms of sustainability. Walmart is educating the EDF for what can and cannot be done. It brings some reasonable solutions.
Wood: You’ve written a lot of books on supply chain. What made you decide to tackle the topic of sustainability?
Sheffi: People don’t understand that sustainability is a supply chain issue, not a corporate issue. Two-thirds of the carbon emissions from most companies are in their upstream supply chains. For some products, most of the emissions are in the use phase, downstream. Think about car emissions. Think about laundry detergent, where most of the energy used in the carbon footprint is in heating the hot water.
Just looking at a company’s environmental impact is misleading. For example, you would think companies like Apple, Microsoft and Cisco are great — are almost carbon neutral — unless you include their suppliers … Unless you look at the entire supply chain, it’s a misleading calculation. The supply chain is what counts.
Wood: In your research for this book, what did you learn about how companies are engaging in sustainability efforts?
Sheffi: Advanced companies do material assessments, determining what’s important to them. For Coca-Cola or [Anheuser-Busch] InBev, it’s how much water they use per liter or per glass of their product. For other companies, such as chemical companies, it would be the use of energy and the use of hazardous material. For clothing manufacturers, it will be how much dirty water comes from washing and dying clothes and then what is put into the ground water.
For other companies, it would not be environmental, but social: the use of unsanctioned overtime, slave labor or child labor. It depends on the company. … So companies should focus on where they are doing the biggest offences.
Wood: In your book, you reveal that every company seemingly wants to be a part of sustainability, but in the actual execution, they aren’t positively influencing the environment as much as they proclaim. What is really happening with most corporate sustainability efforts?
Sheffi: By and large, companies are touting their [sustainability] achievements, but, at the end of the day … they don’t move the needle. In some sense, though, they are right to do it. In fact, I sometimes tell boards and companies that they should … not fake it, but do things that they have to do anyway and sell it as environmental achievements.
The reason for this is, when you do an interview or questionnaire, and you ask most consumers if they are willing to pay for a more sustainable product, 90 percent will say, “Yes” — at least if they’re in the east and west of the United States or in Europe.
Wood: Is that philosophy working for most businesses?
Sheffi: Well, when you look at what people buy or actually spend money on, maybe up to 12 or 13 percent will actually pay, and only a little more, for sustainable products. Also, when sustainable products don’t have the same performance as unsustainable products, people will not buy them. They’re not going to sacrifice performance or convenience. … Unless people are willing to do it, you cannot expect companies to do it. Companies will do what the customers want them to do.
Wood: Why should a company develop a sustainability effort?
Sheffi: First of all, many sustainability actions actually reduce cost or improve service, so they should be done anyway. A basic example is cutting energy use — whether you change light bulbs, reduce the speed of a truck or install alternative energy. Whatever you do, if it cuts cost, then you should do it.
The other reason to do something, even if you don’t have the opportunity for eco-efficiency, is eco-risk mitigation. You don’t want to be the company that is being attacked by Greenpeace, [non-governmental organizations], the media and all kinds of consumer groups that start boycotting your company, because this reduces the sale and hits the stock price. You want to make sure that you do some minimum, and, whatever you do, you put it in big brochures and glossy press releases.
The last reason to do it is hedging. There are some signs that younger consumers are more attuned to environmental concerns, and, as they grow older and get more income, they may be using their buying power to buy more sustainable products. It’s not clear it will happen, but it’s a possibly. In this case, you want to hedge. You want to develop. You want to understand the green market or the environmentally sustainable market.
An example is Clorox, which started Green Works. It’s an experiment; it’s a family of products developed sustainably. But it’s nothing. It’s a $40 million line in an $80 billion company, so it doesn’t move the needle. But it helps them understand the green consumer. It helps them understand the chemistry of the product, identify suppliers and understand the technology. So, if the market changes, they are ready.
Wood: Speaking about what could happen with technology, where do you see sustainability going in the future?
Sheffi: There are several technologies that can impact sustainability — 3D printing, for example. With 3D printing, you have, first of all, a lot less waste because you print from the ground up, rather than take a piece of metal, take stuff out of it and throw it out. Second, you have a lot less transportation because you directly move raw materials to the 3D printer, which is close to the consumption location. You don’t have many tiers of supply chains, stuff going back and forth, and lots of processes in putting it together. 3D printing can change how supply chains work and end up with several environmentally good impacts.
Having IOT, internet of things, can help us know where products are; use a lot less inventory; and, in the end, a lot less waste. Huge amounts of food in the agricultural sector is being wasted every day. By knowing where everything is at all times, and matching demand and supply a lot better, we can have less waste. Also, in general, industrial process are getting better and are using less energy, so, over time, we are getting there.