Supply Chain

Where Has Your Breakfast Been? Practically Anywhere

Wednesday, April 30, 2008 / KW

Check out this excellent article from the New York Times about the environmental costs of shipping foodstuffs around the globe. It's filled with remarkable facts like these:

Cod caught off Norway is shipped to China to be turned into filets, then shipped back to Norway for sale. Argentine lemons fill supermarket shelves on the Citrus Coast of Spain, as local lemons rot on the ground. Half of Europe's peas are grown and packaged in Kenya.

In the United States, FreshDirect proclaims kiwi season has expanded to "All year!" now that Italy has become the world's leading supplier of New Zealand's national fruit, taking over in the Southern Hemisphere's winter.

But perhaps the most revealing paragraph of the article is this one, which helps to explain why it (counter-intuitively) makes economic sense for food processing firms to move stuff from one continent to another:

Under a little-known international treaty called the Convention on International Civil Aviation, signed in Chicago in 1944 to help the fledgling airline industry, fuel for international travel and transport of goods, including food, is exempt from taxes, unlike trucks, cars and buses. There is also no tax on fuel used by ocean freighters.

Get that? Shipping foods around the world is not some market-tested, economically efficient business strategy developed in response to consumer demand. It's actually the perverse result of an indirect subsidy originally created for an entirely different purpose more than half a century ago.

Free-market fundamentalists often criticize environmentalists (and other non-fundamentalists) for wanting to interfere with the natural, unfettered workings of the economy, which are supposed to embody some quasi-mystical perfection. Their argument would carry more weight if those supposedly simon-pure markets hadn't already been endlessly tinkered with in order to tilt the playing field in favor of one business interest or another.

Most Companies See Environmental Management As An Ally In Tough Times

Tuesday, April 29, 2008 / KW

Courtesy of the World Business Council for Sustainable Development, here's an important story from The Financial Times about how the looming recession is affecting corporate attitudes toward sustainability. Facing tough economic times, are companies backtracking on their environmental commitments? It turns out that the answer, at least for now, is no — because in the last few years, companies have come to see that energy reduction, streamlined packaging, and trimming waste are all money-saving as well as eco-friendly programs.

It seems to me that the sustainability challenges for companies will be greater on the social, labor, and community fronts. For example, will corporations with supply chains that trail deep into the developing world maintain their stated commitments to humane labor policies when sales begin to slump? Stay tuned.

Globalization Meets Localization — Trends In Collision That Can Work For You

Tuesday, April 15, 2008 / KW

Andy Savitz and Melissa Tritter have penned this story in the current edition of Ethical Corporation, highlighting a shift that has sneaked up on many of us in business — the emergence of "localization" as a force that is beginning to rival globalization in importance. (Actually those crazy Brits at EC insist on spelling it "localisation" — go figure.)

The story explains the new trend, describes how companies like PepsiCo and Whole Foods are capitalizing on it, and offers some advice for business managers on what it all means. The elevator version of their take-away:

The key is to be both big and small at the same time — big in terms of resources, scale, and positive impact; small in terms of supporting local economies and the consumers who care about them. To the extent that a large company can do all this, the same forces that are currently fuelling the localisation movement will support them, making it easier to do business in a profitable, sustainable fashion.

Follow the link to read the whole thing — worth a look, in our not-so-humble opinion.

Sustainable Packaging: When the Wal-Mart Battleship Changes Course, the Waves Spread for Miles

Friday, October 05, 2007 / AS

In the aftermath of a conference on sustainable packaging, a group of us were presented with this question:

While Wal-Mart stil obviously lurks as a key driver of many sustainability goals, I'm wondering whether companies have progressed beyond Wal-Mart's directives. In other words, if Wal-Mart were to abandon its Scorecard tomorrow, would brand owners and packaging suppliers continue to move forward with their sustainability goals or would they jump off that bandwagon?

One of my fellow observers commented:

If Wal-Mart were to abandon its Scorecard tomorrow (which it won't), it would have little impact on the sustainability movement overall because manufacturers — large and small — are coming to realize that the principal driver of sustainability is economic.

I agree — with the following proviso. While there's a powerful economic logic behind less-wasteful, sustainable packaging, it is obviously the case that Wal-Mart's packaging edict has dramatically increased the interest in it and accelerated the progress being made on this front.

If Wal-Mart abandoned its initiative, or went in a different direction, it would have a huge impact on packaging simply due to its direct economic clout with its suppliers. When Wal-Mart sneezes, 60,000 suppliers catch cold.

Wal-Mart's packaging guidelines are like a private regulation, the issuance of which has something like the effect of law. It's one thing to acknowledge that pollution equals financial waste, but very few companies would move forward (at least to the degree they have) without the pressure exerted by regulation.

What's interesting to me about Wal-Mart's guidelines, and about the sustainable packaging movement in general, is that they require the active cooperation of the entire value chain, more so than most sustainability issues I have encountered. Wal-Mart is very far down the chain which, in addition to its size and clout, is why its action has the potential to be game-changing, not just for its direct suppliers, but for theirs and theirs and theirs.

Now if the Sustainable Packaging Coalition could figure out how to get Wal-Mart one step further down the chain — to consumers — that would truly change the game. The retailer has just announced that it reached its goal of selling 100 million low impact fluorescent bulbs, and ahead of schedule at that. Imagine if they could figure out how to get customers into the stores around recycling!

Business and Human Rights

Monday, August 27, 2007 / MT

One troubling question for today’s global managers is: How far out into the supply chain, and across what range of issues, do our responsibilities extend?

The answer: Further than you might think.

Nike was one of the first companies to realize, after repeated lashings by the media, that it did not hold the power to define its own responsibilities. Activists were turning public opinion against the company, and sooner or later Nike had to respond. That response was perhaps later rather than sooner, both for activists and for the company’s own reputation, but it happened in time for the company to survive – and even to turn the issue in its favor by striving for best-practices in this area.

But while the anti-Nike campaigns relied on boycotts and protests to push for corporate action beyond what was legally required, more recently human rights activists have found a legal basis for their demands. The Alien Tort Claims Act of 1789, originally intended as an anti-piracy measure (the old-fashioned kind of piracy, on the high seas), allows non-citizens to seek legal recourse in the US for violations of international law. Yes, that’s right: anyone, anywhere, can use the US court system to uphold the tenets of international law – tenets often based on norms and precedents, rather than deliberate legislation.

This Alien Tort Claims Act (ATCA) remained largely forgotten until the 1980s, but since then it has been used against Chevron, Chiquita, Coca-Cola, Exxon-Mobil, Firestone, Shell, Wal-Mart, and others.

Earlier this month, Drummond coal company won the first Alien Tort Claims case to reach a verdict; the company was ruled non-complicit in the killing of three union leaders of a Colombian mine. According to SocialFunds.com writer Bill Baue, however, the key take-away is not the verdict itself; it’s the fact that the case was taken seriously enough to reach a verdict. In other words, it was not dismissed, and the discovered facts rather than the legal basis gave Drummond its recent sigh of relief. Besides, there are appeals in progress.

And as Baue points out, tobacco legislation was defeated time and time again before it finally became a multi-billion-dollar liability for the corporations involved.

Chiquita is an interesting example, as some activists believe the company to be demonstrating best-practices in its transparency – openly admitting it paid “protection” money to different terrorist groups in Colombia. The company has since paid its fines and withdrawn from the country, but the pressure is not off. Less-friendly activists feel that the company’s actions are insufficient, and accuse it further of selling weapons to the terrorist groups involved. On the bright side, what Chiquita did was arguably to protect its workers; other companies stand accused of having their own workers killed.

One such company, Coca Cola, has been stubbornly (and foolishly) refusing to recognize the campaign against it. The company is the target of the “Killer Coke” campaign which was recently sweeping college campuses. Its alleged crime: failing to speak out when Colombian paramilitaries began killing its workers. A Coke spokeswoman says, "We were not complicit in what happened, so it wouldn't make sense for us to pay reparations. "But according to one of its accusers, Edgar Paez, Coke had another kind of complicity: "If the company had condemned the first death, there probably wouldn't have been any more." Managers take note: lawsuits and activist campaigns can be based on just on your company’s actions, but also on inaction.

An earlier example of high-profile corporate inaction is Shell Oil; a 1999 Harvard Business School case study examines whether the company should have acted to protect indigenous-rights leader and respected author Ken Saro-Wiwa, whose death sentence was eventually carried out despite international protest. Shell never took a stance on the issue, claiming it did not want to be involved in foreign politics — but at the same time, some argue that the Nigerian government suppressed activist campaigns in order to maintain a business environment attractive to Shell, and that failing to speak out made the company complicit.

In my own experience, managers dealing with supply-chain issues want to believe that they have all the answers, or can determine them pretty quickly. But these examples show otherwise. They show that:

Remember: don’t learn the hard way. Keep your antennae out, and be aware of any accusations against your company. Think broadly of how blame might be interpreted, and engage early with your accusers. Listen to them, and show yourself open to finding the right solution. Statements and settlements will be less costly, and their goodwill will go further, if you make them early and proactively.

And always remember, just because you think you’re taking care of your supply chain doesn’t mean other important stakeholders agree – and doesn’t mean the press and the public will agree. Keep trying to do the right thing as you interpret it, but also keep your ears open, and be ready to react quickly even to issues you think are bunk. Human rights issues are growing in visibility and in scope, and it would be a shame to tarnish your reputation over them.

NOTE: In this post we originally misspelled the name of the country of Colombia as "Columbia," like the university. Thanks to reader Shoshana Grossman-Crist for showing us the error of our ways.

Small Businesses, Too, Can Profit From Sustainability Strategies

Monday, August 27, 2007 / AS

When I'm asked, during a speech or an interview, to name some companies that are leading or lagging on sustainability, I invariably start talking about global corporations — companies like DuPont, General Electric, Unilever, Citibank, or PepsiCo who are racing to get to the top of the Dow Jones Sustainability Index, or companies like Exxon who appear either to not get it or to not care.

I often forget to mention small business, which is a serious mistake. Small business is the engine that drives economic growth, creates jobs, and provides many people with their initial view of how companies operate. Unless sustainability takes hold in businesses of three, twenty, or one hundred employees, it will not take hold at all.

If you help to run a small business, you need to be thinking about sustainability issues — and especially if one of the following five descriptions applies to you:

  1. You provide goods or services to a large business. More and more large companies are “greening their supply chains” by making environmental and/or social performance a condition of sale. Wal-Mart, for example, has just imposed packaging reduction requirements on its 60,000 suppliers, many of whom are small businesses. McDonald’s has a strict supplier code of conduct that encompasses everything from the treatment of animals to the use of pesticides to child labor. You should look at some of the codes and requirements now being applied by big companies to the small firms they do business with; similar requirements may be coming your way in the near future.
  2. You can benefit by being seen as part of your local economy. Many consumers are now making a conscious effort to “buy local” as a way of supporting the communities in which they reside. Locally-grown produce has long been considered fresher and of higher quality than food shipped in from parts unknown. Now concern over climate change is making people more aware of the environmental consequences of shipping food and bottled water long distances. Lots of people are shopping at local, independent stores rather than chain outlets because they feel there is more accountability. As a small business manager, you can look for ways to participate in — and benefit from — the buy-local movement.
  3. You see a way to increase your profits by helping to solve environmental or social problems. Many companies whose business mission is to help solve environmental or social problems are booming. In my home state of Massachusetts, the clean-tech sector, composed primarily of small businesses, is growing at a strong clip, from solar power to biotech. Small companies like Waltham, MA-based Recycline are making successful businesses out of helping consumers and society reduce waste.
  4. You see a way to reduce your costs by being more environmentally or socially conscious. Of course, small busineses, like large ones, can save money and help the planet by reducing waste and by saving water or energy, especially with the cost of fuel and waste disposal rising in many places. And because your business is relatively small and simple (compared to a global giant like GE), identifying and implementing opportunities to "green" your processes is likely to be easier for you than for a Fortune 500 company.
  5. You see a way to build your business by linking it to a social or environmental cause. Many consumers like to do business with companies that share their values and are putting their money where their mouth is by supporting causes they believe in. There are all kinds of examples, involving businesses both large and small — for example, The Dancing Deer Bakery in Boston's Roxbury district donates a percentage of profits to local environmental and social causes, especially to helping the homeless.

Small businesses have many built-in advantages in the pursuit of sustainability. There are far fewer internal barriers (read: bureaucracy) to creating triple bottom line initiatives and tracking their progress in a small organization, and spreading the word among managers and employees is also easier when workers are numbered in the teens rather than the thousands.

Finding the time and the resources to get going may be the biggest challenge, but if you start by identifying a solid business case — that is, a clear and compelling argument for the profit-boosting potential of an environmental or social project — the resources can usually be found.

As Energy Demand Grows, the Supply Chain Wobbles

Sunday, July 22, 2007 / KW

Today's New York Times highlights an intriguing business story with a major environmental component. The first three paragraphs of the lengthy Times piece convey the gist:

Oil refineries across the country have been plagued by a record number of fires, power failures, leaks, spills and breakdowns this year, causing dozens of them to shut down temporarily or trim production. The disruptions are helping to drive gasoline prices to highs not seen since last summer's records.

These mechanical breakdowns, which one analyst likened to an "invisible hurricane," have created a bottleneck in domestic energy supplies, helping to push up gasoline prices 50 cents this year to well above $3 a gallon. A third of the country's 150 refineries have reported disruptions to their operations since the beginning of the year, a record according to analysts.

There have been blazes at refineries in Louisiana, Texas, Indiana and California, some of them caused by lightning strikes. Plants have suffered power losses that disrupted operations; a midsize refinery in Kansas was flooded by torrential rains last month.

The article goes on to note that many of the breakdowns at U.S. refineries have been linked to the aftermath of Hurricane Katrina, which damaged some facilities, strained others through overuse, and encouraged oil companies to delay necessary maintenance as they ramped up production to take advantage of record-high prices.

I'm not a climate scientist, but it doesn't take any special expertise to sense a common thread among many of the problems mentioned by the Times. Hurricane Katrina ... unusual lightning strikes ... floods ... torrential rains ... aren't these just the kinds of weather anomalies that many climatologists have warned might be exacerbated by global warming?

If so, perhaps we are entering a period when the world's energy problems could begin to spiral out of control thanks to a new kind of vicious cycle: Reliance on fossil fuels promotes climate change; climate change helps produce more extreme weather conditions; extreme weather events damage oil production facilities, thereby lessening availability of fossil fuels. (And just to make the pot bubble a little faster, has anyone calculated how much more electricity people will be using to rev up their air conditioners if global warming raises average summer temperatures by a degree or two?)

Obviously, there's a limit to how far this cycle can continue without causing huge disruptions to our middle-class way of life. (As economist Herb Stein used to say, "Things that can't go on forever don't.") News like today's may mean that the day when all of us — business leaders, policy makers, and the general public — will be forced to alter our energy-consumption habits is a lot closer than we assume.

David Leonhardt on the Lessons of Thomas the Tank Engine

Wednesday, June 20, 2007 / KW

An excellent article in today's New York Times by David Leonhardt about the lessons to be learned from the currently unfolding story of dangerous kids' toys coming from China. (Among other experts, it happens to quote Adrian Slywotzky, a business strategy guru with whom I've worked on several books.) The key grafs discuss how HIT Entertainment, owner of the Thomas the Tank Engine franchise, and RC2, the company that makes Thomas toys for HIT, have mismanaged the crisis:

In effect, HIT has outsourced Thomas’s image, one of its most valuable assets, to RC2. And RC2 has offered a case study of how not to deal with a crisis, which is all the more amazing when you consider that the company also makes toys for giants like Disney, Nickelodeon and Sesame Street. . . .

Battening down the hatches might very well work if this were a scandal about sweatshop conditions. Fairly or not, Americans have a limited attention span when it comes to human rights problems on the other side of the world. But the prospect of lead paint in your child’s nervous system tends to focus the mind.

The fact that the executives at HIT and RC2 haven't grasped the difference shows how out of date the corporate script on outsourcing has become. In many businesses, outsourcing has simply grown too big to stay behind the curtain. What happens in Chinese factories determines how good — how reliable and how safe — many products are. So there is no way for executives to distance themselves from China without also distancing themselves from their own product.

Business people only need to look at the dismal approval ratings of the Bush administration to realize the severe limitations of a policy of "plausible deniability." Such a policy may have worked at one time — in politics and in business. No more. A corporation can no more disclaim responsibility for what happens up and down its supply chain than the White House can disclaim responsibility for the results of its Iraq policies.

Trimming Wasteful Packages — The Competitive Conundrum

Saturday, June 09, 2007 / KW

An interesting article from a New York Times series on business and "The Energy Challenge" about how some companies are rethinking their packaging practices to reduce waste, cut shipping costs, and improve recyclability. There is certainly plenty of room for consumer companies to do a better job of making their packaging eco-friendly. But one key issue that is sometimes overlooked is the competitive marketing aspects of packaging.

Suppose you are selling an item that will end up on the health care or cosmetics or housewares shelf in your local discount store. And suppose the product itself is quite small — for example, a tube of something that is two by five inches in size. It may seem like a no-brainer to re-design the tube using stronger, more rigid materials that enable you to get rid of the bulky cardboard box surrounding the tube. It's certainly a wise environmental move.

But what if none of the competing companies follows suit? The result could be that your product ends up looking a lot smaller, taking up less space on the store shelf, and therefore attracting less attention from customers. Unconsciously, customers may even think, "Package A looks bigger than Package B, yet they cost the same — so Package A must be a better bargain." And the fact that the fine print discloses that the tube in both cases contains the same 3 ounces of product may not register with busy, harried shoppers.

Thus, an individual company's well-intentioned move toward more sustainable packaging may end up hurting its own business — not a desirable outcome, to say the least.

(In a funny way, I've seen this phenomenon at work in the industry I happen to know best, book publishing. During my years as a publisher, I had a number of marketing and sales managers who told me, "Please don't publish any books that are just 150 pages long. They look skimpy and get lost on bookstore shelves, especially when they're displayed spine-out." The result is that publishers ask authors to expand manuscripts so as to get the books up to 250 pages or more and thereby make them more noticeable — and saleable. Which helps to explain why so many books read like "glorified magazine articles" that someone has padded with fluff: They are.)

These competitive pressures are why a crucial role is played by the Wal-Marts of the world, as discussed in the Times article. By creating and enforcing across-the-board packaging standards for their suppliers, the big retail chains can encourage companies to move toward more responsible packaging without fearing they will be losers in the shelf-space wars. It's a great example of how supply-chain interconnections are one key to reshaping the world of business along more sustainable lines.

 

Library

Best of the Blog

Green Web Hosting! This site hosted by DreamHost. Website design by Valerie H. Blassey.