The Value of the Sustainable Supply Chain


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Accenture explores the value of sustainability in the supply
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The Value of the Sustainable Supply Chain

  1. 1. The Value of the Sustainable Supply ChainWhat Do Consumers Think?Accenture explores the value of sustainability in the supplychain by looking at the issue through the eyes of consumersNick Blonkowski, Derek Jones, Sundip Naik and Saurabh Raman
  2. 2. Historically, manufacturers have viewed Recent research suggests that asustainability as primarily a brand good starting point for this strategicenhancer. But its impact extends far conversation is understanding whatbeyond brand image. Sustainability is a matters to the customer. To gain deepertangible benefit, and one that touches insight into consumer attitudes aboutvirtually every facet of a business’s sustainability and how sustainabilityoperations, from risk management affects their buying decisions, Accentureand cost reduction to new revenue recently surveyed 4,000 consumersgeneration (see Figure 1). Supply chain throughout the Americas, Europe, andexecutives must therefore be active Asia (see About the Survey). Let’s look atparticipants in the strategic conversation these attitudes and their implications forabout sustainability, so that they supply chain practices.can understand the importance oftheir decisions and practices to thisincreasingly consequential goal.1
  3. 3. Figure 1. Sustainability’s wide-ranging impacts. Innovate Revenues Brand • Creating new business models • Focusing on and showcasing innovation • Collaborating to develop new markets • Collaborating to increase transparency • Innovating to develop new products • Engaging employees and investors and servicesCertain/ Less Certain/Short-term Long-term Cost Reduction Risk Management • Improving energy efficiency • Protecting license to operate • Streamlining supply chain and logistics • Integrating sustainability triple bottom • Innovating with suppliers and customers line consideration with corporate risk management • Diversifying business model and operations Mitigate 2
  4. 4. About the SurveyIn a 2010 and 2011, Accenture conducted several surveys on sustainabilityamong C-suite executives in North America, the U.K., and China. Severalkey findings illustrate the many ways in which executives considersustainability valuable to the organization. Among them:• 93 percent viewed sustainability as being important to their company’s future success• 72 percent said that the benefits of their sustainability initiatives exceeded expectations• 72 percent cited sustainability as being important to maintaining brand, trust, and reputation• 96 percent believed that sustainability issues must be fully integrated with their strategy and operations (only one-third said that their companies were actually integrating them)• 58 percent of the CEOs cited consumers as the single most important group driving their sustainability policies 13
  5. 5. Increasingly, SustainabilityMatters to ConsumersExecutives are right to be concerned Figure 2. Sustainability matters to consumers.about the impact of their sustainabilitypractices on brand, trust, and reputation, To what extent do the environment or sustainability policies and actions of a companybecause a company’s environmental affect your perception of the company?policies matter to consumersthroughout the globe. Nearly two-thirds of the consumers we surveyed 15% 12%said their perception of a company is 22% 25%strongly influenced by the company’s 37%environmental and sustainability policies. 26%Only 10 percent of respondents claimed 29% 61%such policies have little or no influence(see Figure 2). 39%Geography affects 57% 44%attitudes 43% 45%More than 80 percent of Chinese and 29%Brazilian consumers say their perceptions Very strong Strongare strongly influenced by a company’s 5% 11% 5% 16% Moderatepolicies, versus around 40 percent of 4% 11% 3% Weak 8%consumers in the United States and the 6% 2% 4% NoneU.K. Although clearly, these percentages Overall US UK China Brazilcannot be extrapolated to representall developing economies, it is nooverstatement to note that the rapidindustrialization in such markets (withoutaccompanying regulatory protections)has raised environmental concernsamong their populations. Consideringthat China and Brazil are projected togrow more rapidly than the developedeconomies over the next two decades,the importance of sustainability to amultinational seeking growth in thesemarkets (and other emerging markets)becomes all the more elevated. 2 4
  6. 6. Asian and European companies leading the wayThe Carbon Disclosure Project (CDP), a not-for-profit that aims toreduce greenhouse gas emissions and promote sustainable water use bybusinesses and cities, recently released the findings of its fourth annualinformation request from its 50 global member corporations and theirsuppliers. The CDP Supply Chain Report 20123 (produced in collaborationwith Accenture) reveals not only that the disclosure practices andperformance scores of Asian-based and European-based companies arecomparable, but that they also exceed the scores of companies fromNorth America and the rest of the world. The report, which includesquestions about suppliers’ practices, shows that suppliers in Asia andEurope are more likely to have comprehensive climate-change strategiesin place—and better sustainability results—than their competitors in NorthAmerica and elsewhere. As Asian and European companies improve theirsustainability disclosure practices, these strategies could translate into acompetitive advantage as environmental factors become more importantto stakeholders.When it comes to the substance ofsustainability, what matters? Although At the more granular To think aboutclimate change tends to grab thesustainability headlines, consumers’ level, consumers tend • Have you observed any differences in regional sentimentconcerns run broader. We askedconsumers to rank their top three to “think local.” about environment issues acrossconcerns. Reducing air and water Priorities vary significantly across your different areas of operation?pollution were at the top of the list: 43 different geographies. Reducing the use How do your observationspercent of consumers ranked them among of traditional fuel sources is much more compare with the findings notedtheir top-three concerns, compared with important to consumers in China (a big in this paper?33 percent, who placed greenhouse gas importer of oil and the world’s largestreduction/global warming mitigation user of coal) than in Brazil (a major oil • Do you know what customersin their top three. Overall, greenhouse exporter). Reducing landfill waste is more think about sustainabilitygas reduction was ranked fourth-most important to respondents from the U.K.important to a company’s environmental practices in your industry? (a smaller, space-constrained country)policy, below the increasing use than the other three, much larger, • Do you think consumersof renewable energy (second most countries. And controlling pollution is a might appreciate the use ofimportant) and reducing the amount much greater concern in Brazil and Chinaof waste going to landfills (third) (See (heavy-industry economies) than in the locally sourced ingredientsFigure 3). U.K. (a primarily service-based economy). in your products?5
  7. 7. Figure 3. Consumers concerns about sustainability.Which of the following do you believe are most important to a company’s environmental or sustainability policy? 43% 43% Reducing pollution of air and water 32% 50% 47% 39% 36% Increasing use of renewable energy (solar, 33% wind, hydroelectric) 49% 40% 37% 40% Reducing waste going to landfills or increased 48% use of recycling 25% 37% 33% 23% Minimizing global warming by reducing 30% carbon/greenhouse gas emissions 42% 36% 32% 33% Using less energy from traditional sources 30% 43% 20% 27% 27% Reducing impact on land or animal habitat 26% 29% 28% 27% 17% Using less water or recycling water for activities 20% such as cleaning, manufacturing and irrigation 36% 36% 16% Overall 18% US Ethical treatment of animals 22% UK 10% China 13% Brazil 6
  8. 8. The Knowledge GapAnother important finding was the gap Companies have a significant hurdlebetween sentiment and awareness. to surmount: once they’ve formulatedAlthough consumers say sustainability an environmental policy or institutedmatters to them, they also revealed that a sustainability initiative, they need tothey aren’t fully informed. Less than half make sure consumers know about it. Newof the respondents claimed to be familiar technologies and consumer resourceswith the policies of the companies they will help close the knowledge gap. Alongbuy from the most. And 25 percent said with the explosion of smartphonesthey are familiar with very few or none of and apps, a new class of “green” appsthese companies’ policies. has emerged, allowing consumers to be green with less effort. As moreSo while consumers are strongly third-party apps enter the market,influenced by the sustainability policies sustainability information will becomeand actions of companies, they aren’t increasingly available and influentialalways equipped to make informed on consumers’ buying decisions.purchasing decisions. Here, too,significant geographical differencesemerged. Consumers in Brazil and Chinaconsider themselves better informedthan those in the U.S. and the U.K.Our analysis suggests this is due tothe fact that the populations of Braziland China are younger and thereforemore inclined to care about long-termsustainability. It may also be becausethey are more tech-savvy and moreopen to new ideas. Or, such awarenessmight matter more to people in rapidly-growing economies that are still moreheavily manufacturing-based.7
  9. 9. Where are consumers assessment of the “spin.” Consumers consider most of the information they get To think aboutgetting their regarding sustainability as either neutral or negative. No wonder: sustainability • Does your organization formally recognize sustainability as aninformation? has become such a buzzword that people are often skeptical of self-serving imperative? Is sustainabilityAccording to the survey, an overwhelming claims of environmental consciousness. incorporated into themajority of consumers (77 percent) hear As with corporate social responsibility, organization’s strategic goals?about the sustainability policies and many companies have jumped on theactions of companies through traditional bandwagon, without truly committing • Has your organization recognizedmedia outlets, such as newspapers, TV to the goal. the link between your supplyand radio news, and magazines. For less chain practices and sustainability?than half the number of consumers (35percent), company-controlled information Eye on the supply • Have you measured thechannels, such as advertising andproduct packaging, represented the key chain: Nestlé, palm environmental impacts of your supply chain practices—ofinformation source (See Figure 4.) Thatmeans that a company’s effort to express oil, and the power of transportation, packaging, or even the practices ofits “green” edge to consumers is not evenhalf as effective as traditional media. social media key suppliers?Clearly, companies could be doing more. In March 2011, Greenpeace took • Do you have sustainabilityAmong the other primary information aim at Nestlé for buying palm initiatives under way in anysources consumers rely on were oil, an ingredient used to make supply chain processes?environmental organizations (29 percent chocolate, from a supplier that wasof respondents) and consumers’ own engaging in illegal deforestationactive research (27 percent). Socialmedia served as the primary information practices. Greenpeace’s campaign,source for 26 percent of respondents. waged aggressively through socialThe impact and explosive growth of media (including YouTube), capturedsocial media suggest that this channel widespread consumer attention andwill become an increasingly powerful prompted Nestlé to take action. Bysource of consumer information andinfluence. Perhaps as important as the May, the company had suspendedchannels themselves is the general purchases from the supplier.Figure 4. Channels for learning about sustainability policies.How do you typically learn about environmental or sustainability policies and actions of companies? 77% 67%Media such as TV, newspaper, magazines, online 74%news etc. 78% 89% 35% 22%Company advertising or product marketing, including 28%packaging, displays, etc. 54% 36% 26% Overall 14% USSocial networking or mediatools (i.e., Facebook, 16% UKTwitter, YouTube) 42% China 34% Brazil 8
  10. 10. Sustainability and PriceConsumers base their buying decisionson sustainability—but only until it hits To think aboutthem in the wallet. Most consumers (56 • Is your company unique in itspercent) say they choose to buy products industry or product area for itsfrom companies that they believe operatemore sustainably than companies that sustainability practices, or aredon’t, if the price point is the same they common practice?or less than competitors’. A smallminority (15 percent) are even willing • Have you examined the pricingto pay more. For twice that number (29 of competitors who promote thepercent), price remains the deciding sustainability of their products?factor, regardless of the company’s How does it compare to yours?environmental or sustainability policies orpractices. Respondents showed significantgeographical variances. Following thecommon theme, consumers in China andBrazil are more likely to choose productsbased on sustainability, while U.S. andU.K. buyers are more influenced by price.It’s possible that the findings in the U.K.and the U.S. reflect temporary buyinghabits related to the downturn.But generally speaking, these findingsimply that for certain niche markets andsegments, sustainability can be a marginlever. Its greatest potential, however, is asa competitive differentiator and market-share lever, when price is constant.9
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  12. 12. Putting it in Perspective: What Steps ShouldCompanies Take?Clearly, there is much more to be learnedabout consumer attitudes towards Take your rightful Initiative (GRI) and the Carbon Disclosure Project (CDP). In addition, share morecompanies’ sustainability practices—andwhat shapes these attitudes. Still, our seat at the information internally to help augment the information flow to the outside.findings offer some important earlylessons for supply chain executives. sustainability Sustainability can influence consumer strategy table buying behavior, but only when consumers know it is being practiced.First, assess and CEOs believe their companies should So beyond the reporting requirements of regulators, consider the measures thatreduce your risks be integrating sustainability into the supply chain. As a supply chain executive, matter to consumers: how many gallons are you aware of this? Get aligned of fuel you saved, how many cars youDo you know what’s lurking in your with your company’s sustainability helped take off the road, how much post-supply chain? Are there substandard strategy. Many of your decisions may consumer waste you used in packaging.environmental practices being carried already be contributing to it, whether But beware of “greenwashing.” Consumersout—within a small division in a far-flung intentionally or not; some cost-driven don’t easily fall for superficial claims, andlocation, or elsewhere in the supply decisions, for instance, may also be environmental groups track greenwashingchain—that could do real harm to the environmentally friendly, such as using as much as they do the environmentalenvironment and to your company’s motion-sensor lighting in warehouses records of companies.reputation? The Carbon DisclosureProject’s Supply Chain Report 2012 or reducing packaging. If so, the supply chain and the brand itself should Monitor your brands and corporateindicates that 30 percent of member environmental image in channels beyondcompanies experienced a supply chain get credit. Scrutinize your function: is there anything noteworthy about your company’s control—from thedisruption due to weather-related events. mainstream media to environmentalIn the future climate scientists predict your current management—sourcing practices, ingredients, manufacturing organizations’ websites. Remember,that storms will become more frequent even seemingly local news can quicklyand more intense, leading to further risk process, packaging, distribution—that is sustainable and merits attention? circle the globe. Watch for the positiveto the supply chain. coverage, not merely the negative, since it may suggest potential new valueInvestigate the practices and record ofyour suppliers, and proactively seek to Calculate the propositions, product improvement ideas, or other benefits.encourage responsible environmentalpractices—or rethink relationships with sustainability Use the channels that you do control—suppliers whose environmental practicesare questionable. The media still hold the benefits of the advertising, website, packaging, public relations—to promote yourgreatest sway on consumer opinion. Andnowadays, news travels at viral speed. supply chain achievements. Embrace social media by working with your marketing andCompanies cannot expect to be insulated Calculate the sustainability benefits branding colleagues to ensure youfrom the policies and practices of their of supply chain practices and develop get mileage out of your efforts.suppliers or strategic partners. ways to get credit for them. This includes everything from specific actionsIn any case, when it comes to you take (e.g., efforts to reduce yoursustainability, companies as a whole are carbon footprint, partnering with morespending more time on defense than responsible suppliers) to deciding whaton offense. A company that has already to track and how and where you reportestablished a reputation for having and communicate performance. There aresustainable practices would likely weather numerous standards in use, some morea negative event more easily than one popular in certain parts of the world; twothat has not. common ones are the Global Reporting11
  13. 13. Putting Sustainability at the Heart ofStrategy: Unilever’s PlanCultivating consumer awareness and appealing to consumers’sustainability concerns isn’t a huge leap if sustainability is integrally tiedto your brand identity (think: the Body Shop, Seventh Generation, andBrazil’s Natura Cosmeticos). But even companies whose products aren’tinherently or explicitly green—those that either want to attract moreconsumers through good-citizen policies and practices, or who simplyrecognize the importance of sustainable practices as a defense—cansurely do more to win consumers’ goodwill.Consider Unilever, the multinational personal care products giant, whichhas embraced sustainability as a core strategy. In 2010, Unilever launchedits Sustainable Living Plan, designating three ambitious major goals(with 50 specific targets) to be achieved by 2020. The company aims toreduce the environmental footprint of its products by half, help morethan 1 billion people “take action to improve their health and well-being,”and procure 100 percent of its agricultural raw materials sustainably.As part of these broad goals, Unilever is striving to cut by half the wasterelated to disposing its products. Its waste reduction plan includesquantified targets (interim and final) for reducing packaging, producingreusable packaging, recycling, and cutting waste in the manufacturingprocess. The company also established goals for water conservation andgreenhouse gas reduction—by consumers (through product design) aswell as by its own manufacturing and transportation activities. For itssustainable sourcing goals, Unilever has established targets for everycategory of material, from soy and cocoa to paper and board. These goalsand the plan itself are the central message of the company’s website andFacebook page. 12
  14. 14. Monitor (and safeguard) your brandThird-party environmental rating services—can help companiesraise consumer awareness. Good Guide, for example, designedfor the iPhone and Android platforms, allows consumers toscan a product’s bar code and get information about howgreen the product is and how environmentally responsibleits manufacturer is. But such services also underscorethe importance of monitoring your brand to safeguardit. Companies need to be aware of the ratings and themethodologies used: good ones, so they can promote the useof such services within their target markets and quickly takeadvantage of any constructive criticisms; unfair ones, so theycan dispute them and seek correction.13
  15. 15. Think local Control your destiny To think aboutMany elements are factored into supply The supply chain offers significant • Does your company solicitchain design decisions, and ultimately opportunities for advancing sustainable customer feedback on youralign to overall company strategy. For practices and, in general, your company’sexample, when superior customer service sustainability policies. But it can also be a company’s environmentalis the goal, a company may operate with significant source of vulnerability. practices or impacts?more localized warehouses to speed Supply chain executives should recognize • Have you developed metrics todelivery of inventory to customers.Consumer sentiment toward sustainability their role in the company’s sustainability track sustainability initiatives?ought to be another consideration for strategy and proactively take steps to If so, where and how do yousupply chain design. That might well align supply chain management to it. Take report performance? Are yourequire tradeoffs between business stock of the potential risks entailed in measuring improvements?strategy and sustainability goals. your current practices. Conversely, tally the benefits of these existing practices, • Is there a process in placeAn emphasis on locally led procurement ensuring they’re being measured in terms through which the marketingimproves supplier outcomes, makes that resonate with consumers. Work withauditing easier, and, in certain your branding peers. Finally, recognize and customer-facing functionsjurisdictions, meets legislative the variations in consumer attitudes and work with the supply chainrequirements for local content. Reduced concerns from region to region, and take function to develop sustainabilityglobal sourcing, combined with a more these differences into account as you messaging? Monitor publiceffective local sourcing strategy, can design your global and regional supply response to your practices?help companies create tailored product chain strategies.offerings. Such differentiated offeringscan, in turn, give companies a competitive Although quantifying the value ofadvantage among certain buyer segments, sustainability practices is still in itssuch as governments, which often infancy, no one doubts the benefits - topromote local-level purchasing. all stakeholders.In addition, as we’ve seen, consumers’sustainability concerns vary from regionto region. So in China and Brazil, whereconsumers are more concerned aboutfossil fuel emissions than about landfillwaste, an inventory system designedfor delivery speed entails more mileage,and is thus less optimal. In making yourdecisions, consider the role sustainabilityplays in consumers’ buying decisionsthroughout all of your markets. In broader terms, consider that indeveloped economies, sustainabilitycan be a way to grab market share fromcompetitors. In the developing world,sustainability can help your companyattract new customers within a rapidlyexpanding consumer base. 14
  16. 16. About the Authors ReferencesNick Blonkowski is a Consultant in 1 The findings cited here were derived fromAccenture Operations Management A New Era of Sustainability: the UN GlobalConsulting practice. Nick has significant Compact-Accenture CEO Study 2010 andexperience throughout the supply Decision Maker Attitudes and Approacheschain from demand planning through Towards Sustainability in Business in 2011transportation in a variety of industries. He (an Accenture survey). Both are availablecurrently leads Accenture’s North American at Fulfillment offering. Based news_events/8.1/UNGC_Accenture_CEO_in Washington, DC, he can be reached at 2 Significantly, China’s latestDerek Jones is a Senior Manager in five-year plan calls for a shift toAccenture Operations Management manufacturing higher-value goods.Consulting practice. He has an extensive (Source: Marcus Blosch, Stephenbackground in distribution operations Stokes, “China’s Plan for Sustainableand inventory management for a Growth,” Gartner, 17 August 2011).variety of industries. He currently leadsOffering Development for the Integrated 3 CDP Supply Chain Report 2012—A NewPlanning and Fulfillment practice area. Era: Supplier Management in the Low-Based in Tampa, he can be reached at Carbon Economy. The report, written the Carbon Disclosure Project by Accenture, is available at Naik is an Executive in Accenture’sManagement Consulting practice. Hehas an extensive background in global About Accenturesupply chain transformational programs Accenture is a global managementfocusing on network design, fulfillment consulting, technology services andstrategy, distribution re-engineering and outsourcing company, with more thantransportation operations. He has worked in 244,000 people serving clients in moreConsumer Goods, Retail, Communications than 120 countries. Combining unparalleledand High Tech industries. Most recently experience, comprehensive capabilitieshe has led Accenture’s North American across all industries and business functions,thought leadership and offerings within and extensive research on the world’sthe Planning, Fulfillment and Sustainability most successful companies, Accentureareas. Based in Atlanta, he can be reached collaborates with clients to help themat become high-performance businesses and governments. The company generated netSaurabh Raman is a Consultant in revenues of US$25.5 billion for the fiscalAccenture’s Management Consulting year ended Aug. 31, 2011. Its home pagepractice. He has a wide-ranging is in supply chain operations,including warehouse management, private/dedicated fleet management and procure topay services. Saurabh’s primary experiencehas been in the Communications and HighTech and Consumer Goods industries.Based in Philadelphia, he can be reached © 2012 AccentureAll rights reserved.Accenture, its logo, andHigh Performance Deliveredare trademarks of Accenture. 12-0642_AM