Marco Ugarte, PhD, CPIM, CSCP | November/December 2012 | 22 | 6
How companies balance the three dimensions of sustainability
Consumer goods are a huge part of our everyday lives. They join us on our morning runs, helping keep track of performance and burned calories; they let us read classic novels in electronic format before going to bed; they jump-start our days with fresh, hot coffee for the ride to work. Over time, we have developed tastes and preferences for certain products that gradually populate our homes, offices, and the spaces in between.
Food, beverages, electronics, toys, clothes, and personal-care products have been evaluated against long-standing imperatives such as quality, cost, and performance. In the process, several multibillion-dollar brands have established themselves at a global scale to the point that it proves challenging to separate a brand name from a generic product description (Kleenex or Pampers, for example) in the minds of customers.
Beyond the utilitarian aspect of consumer goods and the functionality they provide during their prescribed useful life, consumers are not necessarily aware of or interested in the environmental and social implications associated with producing and bringing goods to the shelves of their favorite retailers. Conversely, global organizations and members of their supporting supply chains have gradually reexamined their roles as corporate citizens while trying to innovate in processes and products that can reduce environmental impact.
Sustainability as a strategic imperative
An increasing number of organizations around the world issue yearly accounts in the form of corporate social responsibility; sustainable development; and, most recently, sustainability reports. They all reflect their strategic priorities and consider their particular industry sector and desired level of reporting. For instance, the Sustainability Reporting Guidelines version 3.1, created by the Global Reporting Initiative in 2011, consider the following standard disclosures: strategy and profile, management approach, and performance indicators.
An undertaking of this magnitude has required in many cases the emergence of new roles and teams within organizations. Specific duties once marginally assigned to the environment, health, and safety or human resources functions now require the full support of sustainability leaders, managers, directors, and even C-level executives. Of course, the level of institutional commitment varies among organizations and potentially describes their overarching drivers and motivations behind pursuing sustainability.
Companies guided by general regulation compliance tend to focus their attention on reducing the risk of sanctions for failing to meet minimum standards in their respective fields. In contrast, organizations adopting co-regulatory and voluntary practices concurrently developed through multi-stakeholder processes including nongovernmental organizations, industry partners, and academic institutions can yield a number of proactive approaches. Other drivers consider direct and indirect peer pressure either from the same industry sector or as a result of the adoption of an incoming best practice originated in a different field.
The three dimensions of sustainability
Although significantly visible, annual sustainability reports are not isolated outcomes from the institutional commitment to sustainability by a company and its corresponding organizational structure. The building blocks supporting an organization’s sustainability performance are usually rooted in company-wide programs established several years ago, but currently examined under different lenses.
Overarching initiatives such as total quality management are expanding scope into total quality environmental management platforms. This evolution harnesses the platform of processes outlined by the corresponding ISO 9000 Quality Standards series and integrates the supplemental approach from the ISO 14000 Environmental Management Standards series. Consequently, in 2010, the International Organization for Standardization unveiled the ISO 26000 standard to address social responsibility. This chronological evolution of processes and standards illustrates the economic, environmental, and social dimensions of sustainability.
Although the historical origin and evolution of sustainability can be traced back to early works in forestry from the 18th century, the closest contemporary definition has been attributed to the United Nations World Commission on Environment and Development. Its work from 1987 defined sustainable development as meeting the needs of the present generation without compromising the ability of future generations to meet their own needs. Later, in 2009, the nonprofit group Forum from the Future defined the same concept as a dynamic process that enables all people to realize their potential and to improve their quality of life in ways that simultaneously protect and enhance the Earth’s life support systems.
From a supply chain and operations management standpoint, the approach that most clearly resonates with sustainable development is the triple bottom line. Here, the ultimate success of an organization can and should be measured not just by the traditional financial bottom line, but also by its environmental and social performances. Consequently, the sustainability of a supply chain must encompass economic, environmental, and social objectives and the corresponding key performance indicators.
The plane described in Figure 1 denotes the interaction between strategic approaches and drivers from an organization and the three dimensions of sustainability. In addition, it outlines current and potential organizational roles in order to develop and implement processes across the supply chain. The volumes projected below the plane represent the corresponding planning horizon and supporting resources required to undertake sustainability initiatives at different levels.
Familiar products, new dimensions
Consider a number of familiar products that can be found at your retailer of choice—say, a bottle of beer, a personal computer, and concentrated laundry detergent. The consumer goods organizations behind these well-established products are proactive in how they conduct process innovations to place their products as leaders in sustainability.
Leading beer manufacturers in the United States have achieved zero landfill waste at several facilities across the country. Similarly, top-performing organizations have reduced significantly overall energy consumption per barrel produced and lowered the water-to-beer ratio industry standard of 5:1 gallons by 20 percent.
From a social standpoint, beer manufacturers have been extremely active in addressing implications beyond manufacturing operations. Several campaigns focused on responsible alcohol consumption, prevention of underage access, and designated-driver initiatives. At the same time, suppliers and their corresponding resource-intensive agricultural processes create challenges to conducting in-depth water footprint analyses for upstream stages of the supply chain.
Meanwhile, personal computers meeting voluntary Energy Star standards contribute to improving energy efficiency while reducing greenhouse gas (GHG) emissions in a cost-effective manner. Launched in 1992, the Energy Star program was developed jointly by the US Environmental Protection Agency and the US Department of Energy. In 2011, Energy Star-qualified products prevented 210 million metric tons of GHG emissions (equivalent to the annual emissions of 41 million vehicles) while reducing utility bills by $23 billion.
For consumer electronics, potential challenges in the social arena can be identified at the global level. Upstream in the supply chain, it is necessary to evaluate the labor conditions of overseas suppliers that support the highest retail customer service levels. Downstream implications must consider the benefit of technology transfer practices from one region to another. One example of social-minded behavior in this industry is adopting older technology from institutions of higher learning to support public libraries and community infrastructure.
Manufacturers also have improved concentrated liquid laundry detergents significantly. One recent development is the capacity to better perform in cold water. Almost 90 percent of the energy used by a washing machine is from heating the water. Converting to cold-water washing can eliminate 1,600 pounds of carbon dioxide emissions a year per household. In developing countries, powder-based laundry detergents represent a significant market share. The manufacturing and household technology available in these areas must be acknowledged to introduce new-generation products in a timely manner and to fully realize the sustainability benefits of new products and methods of performing regular activities.
Figure 2 summarizes the opportunities and best practices in those consumer goods industries. It illustrates where current innovations are taking place via the appropriate icons in the supply chain stage, as well as representing trajectories upstream and downstream in the supply chain.
Supply chain and operations management challenges continue to expand, particularly as more organizations cope with processes that once were considered externalities. Scoping and measuring will require the development of new key performance indicators, as well as increasing collaboration among supply chain partners. Proactive organizations will harness this great opportunity to contribute to and shape the way we understand end-to-end supply chain sustainability.
Marco Ugarte, PhD, CPIM, CSCP is sustainability manager, energy and water stewardship, at MillerCoors. He may be contacted at firstname.lastname@example.org.
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