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Sustainable Sourcing:
A New Approach to High Performance
in Supply Chain Management
by Craig Bush

Consulting Technolog...
Sustainability is about minimizing a       chain innovation to effect sustainable
 business’ negative impacts on people,  ...
Sustainable Sourcing: Why the Time is Now


The Power of Sustainable Sourcing

A Practical Approach to Sustainable Sourcing

As noted above (Sustainable Sourcing:    The natural extension of this   ...
" Few TCO approaches
  address carbon emissions
  costs; branding and
  image costs; the
  financial impact of
  dealing w...
Category                    Basic (0 years)                                                           Advanced (3-5 years)...
Key Challenges

" Clearly, the best way to win is for companies to fully understand
 the tradeoffs; align actions with ...
of changes on a particular product’s        price if we fail to acknowledge or meet         Sustainable Sourcing Case
High Performance Means Making
the Right Choices
Enough consumers and governments             Supply chain leadership, inno...
About Accenture                            About the Author

                               Accenture is a global managem...
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  1. 1. Sustainable Sourcing: A New Approach to High Performance in Supply Chain Management by Craig Bush Consulting Technology Outsourcing
  2. 2. 2
  3. 3. Sustainability is about minimizing a chain innovation to effect sustainable business’ negative impacts on people, product design and manufacturing— societies and the environment while developing environmentally conscious maintaining or enhancing value for products and processes. Supply chain customers, business partners and technologies and processes are also shareholders. In effect, it’s doing good the heart of sustainable physical and doing well at the same time. asset management—extending green operations through greater adherence Clearly, the sustainability mission can to power usage, water consumption, take a company in many different waste output, cooling requirements directions. However, Accenture sees and lighting/heating issues. And sustainability as an engine to drive finally, sustainable end of product high performance, and organizations life—supply chain initiatives relating committed to high performance to waste treatment, raw materials and nearly always recognize the integral environmentally sensitive disposal— connection between sustainability and also calls for supply chain mastery. the supply chain. For example, early adopters of sustainability principles may have already leveraged supply " The sustainability mission can take a company in many different directions. However, high performers nearly always recognize the integral connection between sustainability and the supply chain." Many companies that focused early But what aspects of supply chain and intently on sustainability also management are most worth made it the cornerstone of highly emphasizing? The simple answer is effective marketing campaigns aimed all of them: product design, planning/ at consumer and business markets. forecasting, manufacturing, order Much of this low-hanging marketing management, transportation, fruit has now been picked. Yet most distribution, service management companies still have enormous and reverse logistics. However, there potential to leverage sustainability is no supply chain space that is to do good (for people and the more lucrative or untapped than the environment) and do well (financially). application of sustainability principles to sourcing and procurement: the subject of this Accenture Point of View. " There is no supply chain space that is more lucrative or untapped than the application of sustainability principles to sourcing and procurement." 3
  4. 4. Sustainable Sourcing: Why the Time is Now Customers Competitors Suppliers Sustainable Sourcing Agendas Government and Non-government Organizations As noted in the graphic above, the potentially raises the carbon footprint responsibility are being introduced pressure to increase sustainable and there is also the risk of dealing constantly, and it is in every company’s sourcing capabilities is hitting (often inadvertently) with unethical best interests to understand how companies from all sides: far-shore vendors. A single supplier their operations will be affected acting in an anti-green, non- and to what extent customers, Customers not only are demanding sustainable fashion can seriously shareholders and business partners a greater variety of products; undermine its customers’ branding and will demand adherence. A few they are seeking more sustainable reputation-building efforts. One need examples include EMAS (the European (environmentally and socially friendly) only look at the recent furors caused Union’s Eco-Management and Audit products as well. As a result, companies when international retailers and Scheme); ISEAL, an international are building sustainability credentials manufacturers were found to be using non-profit organization that to keep customers who have developed suppliers whose employees worked in codifies best practices for designing new sensibilities and to attract a substandard conditions or received and implementing social and growing pool of new customers with unfairly low wages. environmental standards; and ISO similar leanings. Research confirms that 14001, which defines requirements a growing percentage of people will Government and non-governmental for the design, specification and pay a premium for products associated organizations also weigh in directly implementation of environmental with (or branded) “Fair Trade,” (e.g., through carbon emissions limits management systems. “Organic,” “Ethical,” “Recyclable,” and disposability laws, and indirectly “Recycled Ingredients,” “Locally via the media, and human rights and Produced,” and “Women- or Minority- advocacy groups). The former often Owned/Operated.” involve significant financial incentives (e.g., in the form of fines or contract Competitors are forcing the issue access) while the latter speak more by emphasizing sustainability-based directly to the value of brand and differentiation and customer loyalty. reputation (“corporate assurance”). Suppliers influence the equation In addition, new standards in numerous ways. Global sourcing for environmental and social 4
  5. 5. The Power of Sustainable Sourcing Environmental Social (People) (Planet) Human rights Climate change Education Energy use Labor standards Water Access to products and Biodiversity services Chemicals, toxins Health Air pollution Community impact Waste management Diversity Ozone depletion Oceans and fish stocks Economic (Profit) GDP " Companies can’t Return on investment Tax be leading edge Corruption Poverty alleviation in sustainability if Employment and wages Corporate ethic they aren’t leading edge in sourcing Figure 1: Sustainability affects all industries and governments, encompassing an integrated agenda of environmental, social and procurement." and economic issues (“planet, people and profit”). In recent years, sourcing and and the planet (Figure 1). Sustainable y Manage risk—achieving “corporate procurement has evolved from sourcing considers how products are assurance” by understanding and a relatively obscure back-office made, where and from whom they (and proactively managing brand and function to a widely recognized their components) come from, how reputation; anticipating regulatory source of cost savings, relationship they are transported, and how they shifts; culling irresponsible or building and competitive advantage. are ultimately disposed of. Companies incompliant vendors; and developing Accenture’s ongoing research to excelling at sustainable sourcing innovative approaches to capturing identify the characteristics of a strive to ensure that their products socially conscious consumers and high-performance business confirms and components meet or exceed meeting regulations. that a relationship exists between environmental and social expectations. procurement mastery and superior At the same time, they know their y Build intangible assets—enhancing financial performance. Indeed, the actions are helping to: brand and nurturing a reputation for research found that procurement social and environmental responsibility. masters achieve procurement savings y Grow revenue—introducing new or differentiated products and Organizations that excel in sustainable that are 30 percent higher than low services, and complying with the sourcing typically have a more performers. Yet, masters’ procurement environmentally driven shifts of key integrated business model. They organizations cost about half as much business partners. understand that most business to run. As a result, the emphasis functions play a role in increasing leading companies place on sourcing/ y Reduce costs—applying “need” shareholder value, so they’re careful procurement people, processes, or ”demand suppression” to reduce not to make cost-reduction their sole technologies and relationships have acquisition costs (e.g., sustainability- sourcing and procurement mission. risen. Sustainable sourcing embodies minded customers generally expect They know, in other words, that that new potential. less packaging); increasing resource companies can’t be leading edge in Think of sustainable sourcing as a efficiency; rationalizing assets and sustainability if they aren’t leading process of purchasing goods and suppliers; and cutting disposal costs edge in sourcing and procurement. services that takes into account the (e.g., by removing hazardous materials long-term impact on people, profits from the design). 5
  6. 6. A Practical Approach to Sustainable Sourcing As noted above (Sustainable Sourcing: The natural extension of this in sustainable sourcing excel at Why the Time Is Now), myriad forces commitment is a tighter and more ensuring early-stage input into have converged to make sustainable structured alignment between the design, development and production. sourcing a vital area of cost savings, sourcing function and the company’s They regularly influence the nature, revenue growth and competitive business objectives. Sustainability content and source of parts, materials differentiation. Now and well into the policies and practices rank high on and components. future, companies focused on high the strategic agendas of a great many performance must work to ensure companies. But as noted earlier, these New forms of supplier partnerships that their sourcing and procurement agendas focus most often on reducing also are needed to promote the operations address a more-complete energy consumption and carbon development of economically viable universe of financial, environmental emissions associated with production. products, and to help expedite the and social responsibility. culling and rationalizing of suppliers Policies that emphasize integration that a sustainable sourcing strategy So what must companies do to make of internal and external customers nearly always implies. this happen? What, in other words, are key. High performers in are the tenets of high performance in sustainable sourcing seek to expand An expanded view of costs is sustainable sourcing? market share by securing new equally essential. Most companies are sustainability-conscious customers, accustomed to structuring sourcing The first sustainable sourcing and by working with them to identify and procurement operations around cornerstone is a commitment to product and service enhancements lowest cost. If they’re particularly get, and stay, ahead of the curve. and opportunities. Tighter working progressive, they may even think in Companies opting to wait and relationships with internal customers terms of total cost of operation (TCO). see—taking a reactive approach to are part of this equation. Every Yet few TCO approaches address carbon-emission reduction, supplier company is familiar with the carbon emissions costs; branding rationalization, and social and functional silo analogy; but not and image costs; the financial enviro-friendly branding—could soon enough apply it to relationships among impact of dealing with socially or be forced to make elaborate and product development, manufacturing environmentally irresponsible suppliers; costly changes that fit neither their and sourcing/procurement. Leaders the environmental costs of packaging, operations nor their timetables. palletizing and display materials; or 6
  7. 7. " Few TCO approaches address carbon emissions costs; branding and image costs; the financial impact of dealing with socially or environmentally irresponsible suppliers; the environmental costs of packaging, palletizing and display materials; or the legal, moral and financial costs associated with disposal." the legal, moral and financial costs that are different from their decisions, and few will move forward associated with disposal. less-progressive peers. They will in precisely the same way. In some understand the politics and changing companies, for example, C-level New proficiencies in spend analysis environmental and social policies executives are well plugged in to are needed to implement and maintain of the countries and customers to sourcing and procurement; they are a sustainable sourcing program. whom they sell. Conversely, they confident that buyers have competent At most companies, unfortunately, will not only know their suppliers’ tracking and executing mechanisms spend visibility is limited to “spend products and capabilities, but also and are working in accordance by vendor” and “spend category,” the extent to which those suppliers, with strategic goals. However, the and these are not detailed enough products and capabilities comply with executives themselves might be only to create the insights required to local, regional and global regulations minimally attuned to the need for manage the new (TCO-related) cost and expectations. Chances are also new approaches to sustainability. buckets noted above. Leading-edge good that high performers will Alternatively, other companies may procurement technology—using spend use more-innovative and stringent have a communication disconnect analysis capabilities to acquire, update, audit and enforcement functions between corporate decision makers consolidate and share information—is within procurement—metrics for and operations people. In this case, often key to maximizing visibility understanding environmental and even the most forward-looking and therefore managing sustainable social performance, and tracking executive goals are not carried sourcing’s more-complex tradeoffs. In compliance levels. through to sourcing and procurement. addition, many of today’s procurement tools have “green rules” embedded in Figure 2 recasts the above capabilities them. These can further streamline as milestones: with various capabilities a company’s ability to quantify and (executive and operational) residing compare a product or component’s along a continuum from basic to lifetime environmental impact. advanced, and balanced against a stage-based timetable . Of course, Lastly, high performers in sustainable each company will develop its own sourcing will have the ability to set of capability and timetable perceive and mange risk in terms 7
  8. 8. Category Basic (0 years) Advanced (3-5 years) Executive Level Objectives Organizational Buy-in Sustainable Sustainable sourcing Sustainable sourcing Wide-ranging employee sourcing champion responsibilities built responsibilities buy-in to sustainable identified within into all procurement combined into cross- sourcing responsibilities procurement function roles functional teams function Executive Buy-in Procurement Program coordinator Senior management CEO and senior function leadership in place for buy-in to sustainable management buy-in with support in place sustainable sourcing sourcing principles high degree of support principles Rewards No internal Annual review Internal award events External supplier and rewards available process includes in place to recognize employee award events in sustainable best practices place procurement Governance and No governance Rudimentary Sustainable sourcing Robust sustainable Performance Tracking structure in governance structure policy in place procurement policy and place to support in place to support governance structure in sustainable sustainable sourcing place sourcing Operational Objectives Performance Monitoring Limited tracking of Information- Information-gathering Performance tracking performance gathering capabilities capabilities and risk- connected to corporate in place measurement in place objectives Training No training course Standard training Multiple training Multi-level/discipline structure in place courses available courses available, training available (individuals are self within procurement including “train the trained) function trainer” Performance Supplier Sustainable sourcing Supplier performance Innovative supplier- Measurement evaluations based criteria included measured/audited development initiatives in only on cost, within selection and communicated to place quality and delivery process suppliers measures Figure 2: Sustainable sourcing capabilities have multiple levels that can, and most often should, be implemented over time according to the needs of each organization. Sustainable Sourcing Case Study: State Government In July 2007, the governor of a large southern state directed his agencies to reduce greenhouse gas emissions by 40 percent by 2025. The agencies responded by first developing an “environmentally preferred products” list to increase the visibility and purchase of green products by state government. They also created a process to identify, evaluate and approve green product labels/standards and then solicit from the state’s vendors those products that meet the approved labels/standards. Mechanisms for data collection, report design and assumptions-tracking then were developed to ensure a consistent, metrics-driven sourcing process. 8
  9. 9. Key Challenges " Clearly, the best way to win is for companies to fully understand the tradeoffs; align actions with corporate objectives; communicate fully and openly with stakeholders; and (most important of all) develop enlightened, comprehensive approaches to defining and calculating total cost of ownership." The potentially off-putting side to may include transportation, materials of change is another challenge: On sustainability is that it could be more handling and storage; training (for the one hand, sustainable sourcing expensive in the short term—something new suppliers, products or services); is the foundation upon which most that shareholders never take kindly technology testing and approval; companies’ environmentally and to. Companies might find it necessary, supplier qualification; and supplier socially conscious programs should for example, to pay more to a supplier retooling costs (for new or customized be built. Therefore, a company’s core that guarantees to meet customers’ products). sourcing and procurement capabilities social or environmental requirements. are the prerequisites of a sustainable In addition, the cost of buying could y Lifecycle costs may include sourcing program, and must be firmly rise as more goods are sourced from maintenance and spares costs; established prior to a sustainability nearshore locations to ensure social warranty coverage and administration; initiative. On the other hand, many of compliance or reduce transportation- software and other upgrades; sustainable sourcing’s differentiating related carbon emissions. quality; ease of doing business with capabilities (supplier-, performance- the supplier; and the cost of asset and knowledge management; supply Clearly, the best way to win is for disposition at the end of a product’s or risk management; compliance companies to fully understand the service’s useful life. measurement) are true leading-edge tradeoffs; align actions with corporate practices and thus must be built objectives; communicate fully and As noted earlier, sustainability also requires a deep understanding of on a more advanced foundation. openly with stakeholders; and (most Understanding “what” and “when” is important of all) develop enlightened, carbon emissions costs; branding and image costs; the financial complicated. comprehensive approaches to defining and calculating total cost of ownership. impact of dealing with socially or A final challenge is accurately Total cost of ownership typically environmentally irresponsible suppliers; quantifying business impact: How, includes total acquisition costs the environmental costs of packaging, specifically, will the company benefit combined with lifecycle costs: palletizing and display materials; and from more environmentally, socially or the legal, moral and financial costs economically sound methods? To what y Total acquisition costs are composed associated with disposal. extent should suppliers assist in this mainly of purchase price—generally regard? And what is the likely effect 60 to 90 percent. Other cost elements Understanding level and sequence 9
  10. 10. of changes on a particular product’s price if we fail to acknowledge or meet Sustainable Sourcing Case complete lifecycle: from design and our sustainability commitments. The engineering to service and disposal? key mission is to balance tradeoffs Study: Major Utility among customers, financials and the A large Canadian utility determined Based on financial, social and sustainability agenda. environmental cost-benefit ratios, that sustainable sourcing was among each company can decide what type the most viable ways to advance its and level of sustainability progress commitment to environmental and should/could be made. Think of it as social responsibility, while enhancing an organization-wide, tradeoff-based its own economic well being. As “3D business case,” as illustrated a result, it worked to factor new in Figure 3. Varying a particular criteria into its supplier evaluation transportation source or mode for criteria, including sustainability of example, might produce a quantifiable logging practices, contaminated financial or service-related benefit. waste cutbacks, reductions in But is this a smart tradeoff when greenhouse gas emissions, use of balanced against several additional alternative clean fuels, and suppliers’ tons of carbon emissions? Or what commitments to social responsibility about justifying the supply-chain-wide and environmental policies. replacement of incandescent bulbs with (initially higher cost) compact fluorescent lights to reduce energy consumption (including cooling costs associated with bulb-generated heat)? To answer correctly, we need to fully understand the impact on our reputation, our balance sheet, our customer satisfaction and our share Financial Benefit + Financial Service Benefit Level Gain Client = Sustainability Improvement Value Creation Sustainability Improvement + Service Level Gain Figure 3: The 3D business case provides a framework for making the difficult trade-offs between financial, sustainable and customer-centric goals, as well as providing a mechanism for weighing the relative impacts of sustainable sourcing initiatives on a company’s bottom line. 10
  11. 11. High Performance Means Making the Right Choices Enough consumers and governments Supply chain leadership, innovation have signed onto the idea that and a commitment to enlightened corporations are largely obligated to sustainable sourcing will be needed to make it a priority. However, companies meet the above conditions. However, bent on high performance will go the rewards are not only great; even further—viewing sustainability they stand every chance of growing as an opportunity and thus working further as more companies accept to ensure that it 1) aligns with their the sustainability imperative. Still, business imperatives (such as growing those that lead will clearly outpace new business, optimizing assets those that follow, thus reaping the and protecting long-term interests); best opportunities to grow revenue, 2) creates value via emissions reduce costs, manage risk and build reduction, materials safety, waste intangible assets. In effect, high reduction, land sustainability, water- performers will work harder and use optimization, energy reduction smarter to seek out opportunities for and social improvements; and 3) is doing good and doing well. underpinned by rigorous strategic analysis, program management and performance measurement. Sustainable Sourcing Case Study: Telecommunications Company One of the world’s largest media companies recently committed itself to a series of sustainability initiatives. One program focused on the reuse and recycling of the digital set-top boxes (STBs) it supplies to customers. More than 1,000 tons per year have since been diverted from landfills. Recycling of STB containers was increased and all polystyrene inserts were replaced by recyclable cardboard. The company also set out to reduce the packaging content of its modems by two-thirds— resulting in 80 fewer truckloads of packaging per year. 11
  12. 12. About Accenture About the Author Accenture is a global management Craig Bush is a manager in the consulting, technology services Accenture Supply Chain Management and outsourcing company. service line. He works with clients Combining unparalleled experience, across consumer goods, financials comprehensive capabilities across services, telecommunications and all industries and business functions, retail to improve procurement and extensive research on the world’s operations through global sourcing, most successful companies, Accenture workforce optimization, business collaborates with clients to help them process outsourcing, technology become high-performance businesses enablement and sustainable sourcing. and governments. With 178,000 Based in London he can be reached at people in 49 countries, the company generated net revenues of US$19.70 billion for the fiscal year ended August 31, 2007. Its home page is Copyright © 2008 Accenture About Accenture Supply Chain Management All rights reserved. Accenture, its logo, and The Accenture Supply Chain We collaborate with clients to High Performance Delivered Management service line works implement innovative consulting are trademarks of Accenture. with clients across a broad range of and outsourcing solutions that align industries to develop and execute operating models to support business operational strategies that enable strategies, optimize global operations, profitable growth in new and existing enable profitable product launches, markets. Committed to helping clients and enhance the skills and capabilities achieve high performance through of the supply chain workforce. supply chain mastery, we combine For more information, visit global industry expertise and skills in supply chain strategy, sourcing and procurement, supply chain planning, manufacturing and design, fulfillment, and service management to help organizations transform their supply chain capabilities.