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Sustainable approach benefits business

(chinadaily.com.cn)
Updated: 2008-07-09 09:36

For example, existing and planned legislation penalises high energy consumption and rewards emissions reductions. Such legislation is typified by the EU directive for 0 that will include CO2 in aviation and shipping as a cost.

The potential savings are clear from a recent assignment carried out by Arthur D. Little for an Italian multi-utility company. We estimated that replacing 50 Watt public lighting lamps with new-type 250 Watt lamps could result in an annual saving of 100 million euros ($156.84 million) and avoidance of about 6,500 tons of CO2 emissions, worth at current market prices, about 160,000 euros per year.

A wider perspective on procurement is also needed to recognise where higher capital outlay can be offset against higher performance and lower costs and risks of operation or use.

For example, retailer Wal-Mart saved $26 million in annual fuel cost from installing auxiliary power units to the truck fleet; enabling drivers to control cab temperature during mandatory ten-hour road breaks without idling their truck engines all night, wasting fuel.

Choices for companies

In this changing business landscape, companies have three strategic choices in relation to sustainable procurement.

They can adopt a reactive strategy, only moving in a more sustainable direction when forced to do so by regulation or loss of business. Companies that adopt this strategy constantly maintain a high risk of losing competitive advantage, incurring fines and other penalties, and losing customers and staff.

An alternative strategy is to keep up with regulation, and with your company's peers, in terms of sustainable procurement. This strategy allows revenue protection, but fails to encourage new revenue generation.

The third possibility is a strategy of anticipation, through systematic evaluation of the company's procurement options, followed by implementation of measures designed to maximize the business benefits delivered through procurement.

How can I recognize a 'sustainable' supplier?

In Arthur D. Little's experience, one of the most challenging aspects of moving a company towards more sustainable procurement is identifying appropriate suppliers of the products and services required by the company.

In seeking these suppliers out, companies often turn for help to environmental consultancies. While well equipped to assess environmental attributes and issues in a given supplier or supplier community, such consultancies do not normally contain the business operations expertise required to also assess how well a supplier meets the supply chain needs of their client. Conversely, business consultancies tend to have in-depth understanding of supply chain issues, but lack the expertise to tailor a potential supplier’s sustainability credentials to their client's business.

Genuinely sustainable procurement achieves coherence between sustainability and business issues. Decision making for sustainable procurement embraces all the different types of cost that surround different options.

For example, deciding to terminate a contract with a long-term supplier because it is not cooperating or meeting sustainability criteria can be a difficult decision, because the switching costs may be significant, or because switching will involve loss of technical know-how.

Alternatively, an existing or new supplier may have the capability to deliver a more sustainable version of a required product or service, but have delayed launching it because of low profit forecasts and/or uncertain market potential. In this case, costs for the procuring company may include both switching costs and incentives to accelerate the launch.

In a third possible scenario, a supplier may have the potential to supply a more sustainable product but need an investment injection to complete the development and/or add production capacity to achieve industrialization of the product. Here a route forward could involve a joint investment arrangement by the supplier and procuring company.

We find companies benefit significantly from working with advisors who have the capability and experience in both sustainability and procurement to help them identify the most appropriate suppliers and strategies for their business needs.

This combination enables us to provide a tailored analysis of business requirements and strategic imperatives, using international financial, environmental and social performance certification where it exists, and applying ADL technical competence where it doesn't.

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