Investing in green supply chains

Milan Panchmatia Blog, Supply Chain 0 Comments

More and more leading businesses are investing in initiatives aimed at creating more sustainable supply chains. Whereas one might assume the practice would negatively impact revenue, the reality is that many companies have used these developments to drive significant cost and process benefits.

Re-designing supply chains to cut carbon emissions and generally creating more sustainable practices have already helped companies save millions of pounds. In addition to purely financial incentives, consumers are becoming increasingly aware of environmental issues and are likely to favour companies with green credentials.

Nielsen’s 2014 Global Survey on Corporate Social Responsibility, for example, found that 55% of consumers across 60 countries were willing to spend more on products and services from companies which are committed to environmentally sustainable practices. Year on year analysis also showed that sales for products with sustainability claims on the packaging had increased 2%, and 5% for products marketed as sustainable.

In this context, IKEA UK’s environment and sustainable development manager Charlie Browne, has some words of warning for any companies looking to pretend that they have green credentials: “Don’t ‘greenwash’ because you will be caught out.”

Cutting waste

Recently, Tesco became the first UK retailer to disclose the amount of food waste it generates and has begun working with suppliers to reduce it. The retail giant has put together a programme aimed at identifying where in its supply chain waste occurs for 25 of its most popular products.

These “food waste footprints” will enable the retailer to optimise its supply chain and buying process, as well as implement practices that will improve profit margins. Examples include working with suppliers to ensure fresher produce and improving packaging to increase storage times.

The UN’s Food and Agriculture Organisation (FAO), estimates that food waste costs producers £460m per year.

Billion dollar savings

Another company which has made a business case for green supply chains is Procter & Gamble. The American multinational consumer goods company has managed to halve its impact on the environment since 2002, by reducing CO2 emissions, improving waste disposal and minimising water usage. The impact on the company’s bottom line has also been significant and the initiative has delivered savings of close to $1bn to date.

Speaking on the project, Huw Waters Product Supply Director for Procter & Gamble UK and Ireland, explained that its success had made it easy to involve key partners. This increased collaboration with UK and European retailers in terms of developing sustainable supply chains has allowed P&G to set ambitious targets.

In 2007, for example, P&G worked with partners to redesign its supply networks and reduce the distance its trucks travel by 30%. This entailed moving distribution centres closer to customers and prioritising more carbon efficient forms of transport, such as rail and inland shipping, as well as reducing empty miles for trucks.

Greener margins

Businesses should not view the development of green supply chains as a negative directive, but rather as an opportunity. The benefits associated with sustainable supply chains go far beyond positive media coverage and improved public perception.

As evidenced above, some of the globe’s largest companies have already delivered significant savings, innovative practices, better supplier relationships and improved performances, through the “greening” of their supply lines.

When it comes to developing sustainable supply chains, companies should be asking themselves if they can afford not to get involved.

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