Sustainability: Don’t Tweak Your Supply Chain— Rethink It End to End

Firms often take a piecemeal approach to sustainability.
They demand that suppliers replace materials with greener ones, for instance, and they tweak their own operations with recycling, energy-efficient equipment, and the like.
Although these changes often seem worthwhile individually, they may in the grand scheme generate unintended consequences, such as higher financial, social, or environmental costs.
Companies should pursue broader structural change instead, as the shirt manufacturer Esquel (Hau Lee is on the board here), the steelmaker Posco, and others have done. This means identifying opportunities that span the supply chain, reinventing manufacturing processes, and even linking up with competitors to tackle challenges of scale. The result can be a greener supply chain that requires less capital, has much lower operating costs, and provides a competitive advantage.

Sometimes the critical players in your supply chain are several layers away. Starbucks faced this challenge and forged direct relationships with farmers. By 2010 it got 81% of its coffee beans from sustainable suppliers, up from 25% in 2005.

If you can’t achieve scale on your own, think about joining forces with rivals, as Hewlett-Packard, Electrolux, Sony, and Braun did when they formed the European Recycling Platform. ERP has cut manufacturers’ recycling and disposal costs by as much as 35% in countries where it operates.

Sustainability is no longer a secondary issue. It has become a competitive concern and should be handled accordingly. The core managers overseeing the supply chain, not a peripheral CSR group, must own and tackle it as aggressively as they do cost, quality, speed, and dependability. They must engage the entire supply chain as they seek breakthroughs and try to minimize risks. Companies that take such a holistic approach will steal a march on reactive competitors. They will be sustained.

The only way companies can recognize and navigate trade-offs or conflicts in their supply chains is to treat sustainability as integral to operations. They should consider it alongside issues such as inventory, cycle time, quality, and the costs of materials, production, and logistics.