Elements of a Sustainable Supply Chain

As Douglas Kent of Avnet Inc. (NYSE: AVT) recently told a Webinar audience, sustainability has a floating definition. In the context of manufacturing and environmental responsibility, sustainability can best be explained as a holistic approach to product development. From design through end of life, a sustainable product spares the environment, as well as the manufacturer's bottom line.

But sustainability has to permeate an entire business. Corporations can reduce their carbon footprint through internal practices, and they can manage their relationships in an environmentally friendly manner.

"You can't approach sustainability piecemeal," Ken Stanvick, a principal for the consulting firm Design Chain Associates, told us. "Everything links together -- a product's lifecycle, its carbon footprint, its conflict minerals status, and Energy Star ratings -- they all fall under sustainability."

Research indicates sustainability will be a major driver of change in the supply chain in the next three to five years. A UPS/IDG survey (PDF) of electronics companies doing business in Asia found that, along with cost, sustainability is a leading factor in change:

Similar trends are exhibited across individual countries in the region, except Japan, where there is a greater emphasis on risk awareness and mitigation in the wake of the recent earthquake and tsunami that so devastated the country.
When we asked more pointed questions about the primary driver of considering sustainability within the context of supply chain decision making, Asian high-tech respondents indicated that it was first about improving the corporate image (24% of respondents) and then about their customers mandating it (19% of respondents).

A manufacturer will have a different definition of "sustainability" than, say an accounting firm, but issues such as energy consumption are common to all businesses. "Take a company such as PwC," Stanvick said "Their metrics are different than building physical products, but opting not to travel -- choosing to videoconference as opposed to jumping on a plane -- can generate savings" in terms of both energy and cash.

Another issue all businesses face is profitability. Sustainability has to provide a measurable value to shareholders or at the very least not hurt the bottom line.

In the electronics industry, sustainability has to be adopted across the supply chain to have an effect. The process begins with the OEM, Stanvick said; products have to be designed with their lifecycle in mind.

Companies should ask themselves: Are we designing a product for the dump or for refurbishment and recycling? Are the materials and components recyclable? Where do the components come from? Are they shipped across the sea or available down the street? There is also a social aspect to these choices. Sourcing and manufacturing close to the end market can fuel onshoring or reshoring activity.

Using RoHS-compliant components alone does not make a product sustainable, he said. Although components themselves may not contain lead or hazardous substances, the rest of the product has to be reusable or recyclable to qualify as sustainable.

According to Stanvick, DCA also recommends that companies take a close look at their purchasing practices.

What am I purchasing? How long is my supply chain? Is it a FedEx model [which centralizes all incoming and outgoing shipment], or am I putting a lot of loops in it? And am I maximizing my purchasing power? Many companies don't link their approved vendor list across the company, so how many times are you buying the same component across your company?"

Sales plays a role, as well. It should understand the customer's needs and challenges. Different sets of customers have different needs regarding sustainability. A laundry detergent shouldn't contain certain substances, but an electronic product has a different set of requirements. Manufacturers must consider whether a product can be repaired or refurbished and what customers do when they are done with the end product.

Finally, repair and recycling should close the loop. What materials are used in a product, and can they be reclaimed and recycled? "If you build value into a product, there will be value at the end of the product," Stanvick said. "If a product can be broken down to its elements and those can be resold, that provides a clear value."

Still, companies have to be selective about where they focus in regards to sustainability. "Don't try to boil the ocean," he said. "Companies are under pressure to turn a profit. Aim first for the low-hanging fruit" of energy savings and lifecycle management, "and you can offset the costs of investing in sustainability."