The Green Supply Chain: Forcing Corporations to Take Stock

Jari Tavi, Chief Technology Officer, Basware -- Supply Chain Management Review, 6/16/2008 11:33:00 AM

The green movement has taken hold in organizations across the globe. Companies recognize that green initiatives not only support corporate values but also play a critical role in how an organization is perceived by its customers, employees, partners and the community at large.

Over the past few years, companies have been exploring ways to reduce, reuse and recycle, ranging from costly initiatives such as constructing LEED (Leadership in Energy & Environmental Design) certified buildings to establishing energy-efficient data centers and supporting environmental practices in the workplace. An emerging area in corporate environmentalism is the green supply chain. Companies on the leading edge of this trend are interested in selecting suppliers not only based on the traditional criteria of price, quality and reliability, but also based on how well they comply with corporate social responsibility initiatives and environmental issues. 

Recognizing that the partners they choose can be a reflection of themselves, companies have been assessing their suppliers to ensure that they follow fair labor practices, employ ethical behaviors, and use safe materials. Now, companies are also considering their suppliers’ environmental practices. Similar to the way companies require suppliers to demonstrate compliance with Sarbanes-Oxley (SOX) regulations, they may soon require that their suppliers comply with environmental practices and other areas of social responsibility.

Industry analyst firm, Gartner, Inc. noted the business imperative of green initiatives: “‘Going green’ is no longer just a phrase. Future suppliers will need to be certified green just to remain on shortlists for enterprise consideration. The green movement will pick up steam in 2008 and change the way businesses approach environmental conservation. By 2011, suppliers to global enterprises will need to prove their green credentials via an audited process to retain preferred supplier status.”[1]

How can companies begin to implement a green supply chain? To drive change throughout their organizations, companies should consider the financial supply chain holistically, and look for ways to implement efficiencies and green values throughout their Purchase-to-Pay operations. At the same time that they are considering the big picture, they should begin implementing process improvements incrementally, to gain immediate benefits. 

Following are some best practices from world-class organizations in establishing green supply chains:

• Get buy-in throughout the enterprise. As with any change you want to implement within your organization, it’s critical to have buy-in from corporate management as well as business units throughout the organization. Create cross-functional teams to address the green supply chain issue, and establish an action plan and guidelines for instituting changes throughout your organization. Involve users in helping to design a green supply chain.
• Determine which criteria are important in vendor selection. In the cross-functional teams you have established, identify which values-based criteria your organization considers key, such as, green values, corporate social responsibility, etc. Decide the metrics you will use to measure your suppliers against these values.
• Find efficiencies so purchasing professionals can focus on strategic issues. Purchasing professionals will be the gatekeepers to ensure that your organization is following its procurement goals. Look for ways to streamline processes and use automation to handle transactional operations, so purchasing professionals can focus on strategic issues. Their time will be better and more strategically spent in areas such as evaluating and monitoring vendors and rewarding top vendors. 
• Serve as a role model for the supplier community. Make sure your organization is living the same green values that you are expecting from your suppliers. One easy and effective way to achieve that is to cut down on paper usage in your organization. Invoices represent the largest number of legally required documents within companies; a typical invoice usually has two to 10 times more supporting paper documents than the invoice itself – documents such as goods received, contracts, etc. By automating invoice processing, organizations can drastically reduce paper usage as well as benefit from increased efficiencies.
• Make sure you can support the policies you establish. Before you automate Purchase-to-Pay operations, establish sound procurement and payment processes. These processes should be flexible, easily adaptable and easy to use. Then you can implement a rules-based eProcurement system to incorporate your procurement criteria – e.g., green standards – into the purchasing process. Look for technology solutions with a high degree of automation to increase ease of use and free up the time that purchasing staff needs to spend on transactions. Also, an automated solution should be agile enough so you can change the business rules along with your changing business requirements and priorities.
• Encourage broad user adoption. The success of the green supply chain heavily depends on user adoption. Too often organizations are faced with the challenges of maverick direct buying, with employees purchasing off-catalog. Because of this, many companies don’t know the extent of their liabilities and financial exposure. They are not only missing out on volume discounts but they also have little control over or visibility into their purchases and payments. When implementing technology, it is critical to focus on the end-user experience. Automated eProcurement systems should be extremely easy to use to encourage usage on every desktop and de facto enforcement of your green policies. The litmus test is that the system should be easier and faster to use than simply picking up the phone to place an order, because if it isn’t, employees will find ways to go around the system. Automated systems should also be flexible, enabling users to make catalog and non-catalog purchases, such as yellow pages, free text that allows them to type items they want to find, and purchase plans that enable users to combine any purchasing method to reach project and budget goals.

While it makes sense to begin establishing a green supply chain now, don’t try to implement it all at once. Instead of engaging a long and costly re-engineering project, focus on making small, measurable improvements that will begin to deliver results and give you insight into further improvements you can make. 

By implementing a green supply chain and supporting it with sound, automated processes, you will benefit from greater control and visibility into the Purchase-to-Pay operations. Purchasing and accounts payable professionals will have more time to focus on spend management and cash flow and provide key financial information to business units. These corporate benefits, combined with the positive impact on the environment and on your corporate reputation, offer a strong value proposition. The green supply chain not only raises the stakes in corporate responsibility, but it is also a winning business strategy for companies in the 21^st Century.

[1] Gartner, Inc. “Gartner’s Top Predictions for IT Organizations and Users, 2008 and Beyond: Going Green and Self Healing,” by Daryl C. Plummer, Charles Smulders, Leslie Fiering, Yefim V. Natis, Simon Mingay, Mark Driver, Jackie Fenn, Laura McLellan, Debbie Wilson, January 8, 2008.

Jari Tavi is chief technology officer of Basware Corp., a provider of software solutions that automate the Purchase-to-Pay process for enterprises around the world. You can reach him at jari.tavi@basware.com or call 203-487-7905 for more information.

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