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Taking a Resource-focused Approach to the Supply Chain

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What are some of the best reasons for looking at your supply chain through a sustainability lens? (hint: They may not be what you think)

Ask business leaders why their organizations are pursuing sustainability and you are likely to hear the same reasons over and over. It’s good for the environment. It’s good for our corporate image. It’s the responsible thing to do. These are important reasons, to be sure. But are they among the best reasons? 

Here’s the debate:

The usual reasons for pursuing sustainability are valid, but not sufficient.
The problem is many business leaders – deep in their hearts – don’t find the usual reasons truly compelling. Too many organizations invest in sustainability because they feel they have to, not because they want to.
The best reasons for pursuing sustainability are cost savings and value creation.
A resource-focused approach to running your supply chain can enhance your margins and help you win market share. How? If your suppliers are using too much energy, materials or water -- or producing too much carbon or waste -- then they are spending too much money. And the extra expense is being passed on to you. Help them become more efficient and then use the savings to increase your profit margins and market share.
Many organizations are already very efficient.
Over the years, organizations have invested a lot of time, money and effort into making their operations as efficient as possible. Additional improvement opportunities can be tough to find.
Resource efficiency is a new and untapped opportunity.
Efficiency initiatives tend to focus on systems and processes, rather than resources. A resource-focused approach – reducing energy, carbon, water, materials and waste – can offer an easy, low-risk way to achieve significant savings with rapid payback.
Sustainability is already being pursued in one form or another.
Many organizations have already taken focused steps to improve sustainability – for example, by switching their offices to energy-efficient light bulbs, or replacing their fleet of company cars with electric vehicles.
Sustainability needs to be integrated into the supply chain.
Typically, up to 60-70 percent of an organization’s cost-base is attributable to its supply chain. To really make a difference, resource efficiency needs to be integrated into your core business operations and pushed out to your supplier and customer supply chain.
Sustainability is about doing the “right” thing and giving customers what they want.
The usual reasons for pursuing sustainability hinge on the whims of the public. If people stop caring about sustainability, the incentive for an organization to pursue it tends to disappear.
Sustainability is more than a popularity contest.
Efficient use of resources throughout the supply chain can save organizations a lot of money. That’s a reason that never goes out of style.

Our Take

Sanjay Agarwal
Kyle Tanger

Sanjay Agarwal, U.S. Operations & Supply Chain Leader – Sustainability, Deloitte Consulting LLP
Kyle Tanger, Director - ClearCarbon by Deloitte, Deloitte Consulting LLP

When it comes to sustainability, the difference between leaders and everyone else is that leaders recognize the business value that sustainability can create. And they know how to capture it. Other organizations pursue sustainability simply because they are supposed to.

A resource-efficient supply chain can significantly reduce costs and create real value for your business. If your suppliers are using too much energy, materials or water – or producing too much carbon or waste – then they are spending too much money. And that extra expense is being passed on to you in the form of higher prices. Helping your suppliers become more efficient can ultimately reduce your costs. You can use that savings to boost profit margins, or lower your prices to win market share.

Focusing on resource-efficiency can have a direct and significant impact on the bottom line. But in order to capture the full benefits, organizations should concentrate on their supply chains. That’s where the real money is. Sustainability needs to be an integral part of your end-to-end operations – not an activity limited to internal improvements such as switching to more efficient light bulbs or upgrading to electric vehicles.

We believe sustainability and resource efficiency will eventually become table stakes for effective operations – in the same way that e-business evolved from a specialized niche to a standard operating capability that organizations must now possess in order to be competitive. Organizations that are only going through the motions of sustainability are leaving a lot of money on the table and not delivering full value to their shareholders.

Don’t pursue sustainability for its own sake; do it because it’s smart business.

A view from the Federal sector

Dave Fornari, Principal, Federal Energy Management & Sustainability, Deloitte Consulting LLP
The Federal government is in an unmatched position to promote a resource-focused approach to supply chains. And to benefit from it.

As the world’s largest customer, the U.S. government has the buying power to influence how its suppliers do business. Requiring vendors to make their supply chain operations more resource-efficient could not only save taxpayers a lot of money, it could trigger a complete transformation of supply chain practices in both the public and private sector. It could also reduce risk by minimizing the government’s dependence on scarce resources such as oil, gas and electricity – the supplies of which are highly volatile and easily disrupted, as the tsunami in Japan and recent turmoil in the Middle East have so clearly illustrated.

The Federal government also has the ability to promote resource-efficient supply chains from the other side of the table by creating and enforcing new laws and regulations that require it.

Resource efficiency is not a political issue; it’s just smart business. Whether someone is passionate about protecting the environment, or thinks the whole sustainability trend is an overblown fad, everyone wants the Federal government to cut costs and eliminate waste. Which is what resource-efficient supply chains are all about.

A view from the consumer products sector

Adam Mussomeli, U.S. Operations & Supply Chain Leader – Consumer Products, Deloitte Consulting LLP
A resource-efficient supply chain can strengthen a company’s overall brand image and help support a company’s marketing claim that its products are earth-friendly. This is particularly important in the consumer products business, which must keep pace with the needs and preferences of a buying public that is increasingly looking for products built on sustainable and health and wellness platforms.

The good news is that sustainability gives companies implicit permission to cut costs in ways that consumers might have previously objected to. For example, bottled water is now sold in containers that use much less energy to produce and are therefore much less costly to produce. In the past, the thinking was consumers might have rejected these thin-walled bottles as feeling flimsy or cheap. But in today’s market, the new packaging actually makes bottled water more appealing by reducing its environmental impact and helping people feel less guilty about consuming it.

Although the cost of commodity inputs such as oil and food are constantly bouncing around, the overall direction is clearly up. To get in front of this long-term price trend and maintain their competitiveness, companies must find ways to improve the resource-efficiency of their supply chains.

These days, more and more consumer products companies are collaborating with their suppliers to reduce the use of materials and energy and to cut back on costly waste and carbon emissions. Some companies are even sending their own experts in to help suppliers improve their resource efficiency and then sharing the savings that result. This is a win-win for everyone – not just for the company and its suppliers, but also for consumers and the planet at large.

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Library: Deloitte Debates
Services: Consulting
Overview: Enterprise Sustainability, Supply Chain Transformation

   

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