Building sustainable value chains

This fictional scenario could soon sound familiar. Pierre Laroche is the CIO at OrioleCorp. A top client, CielBleu, just issued its new environmental sustainability specifications to his organization, reinforcing a trend set in motion by other clients. Meanwhile, OrioleCorp. is already working to achieve its ISO 14001 certification, reaching deep into the supply chain. How can he and his organization best contribute to OrioleCorp.'s efforts? In late 2005, McKinsey research on consumer priorities identified the environment as their number one concern, confirming the increasing demand for products and services developed through environmentally sustainable business processes. Business executives placed the environment as number three, behind offshoring and data security, though the gap is likely closing. Recognizing that enterprises can't do it all, the United Nations Environmental Program (UNEP) proposes not only that they apply the Life Cycle Management (LCM) approach to designing its products and services (described in last month's Telemanagement), but also that they go beyond facility boundaries to include key stakeholders. This would stretch deep into its supply chain. Many enterprises have already implemented environmental sustainability policies and practices and cascaded them into their supply chains. An excellent example is IKEA with its IWAY (‘The IKEA Way on Purchasing Home Furnishing Products') code of conduct on the environment and social responsibility. This defines specific expectations of IKEA and its suppliers, accompanied with measurable targets and criteria, as well as continuous improvement over time. So what does this value chain focus mean to the CIO and the ICT organization? Let's look at it in two ways. First, what role should they play in their enterprise's value creation process? Second, what ICT-specific supply chain management practices should be put in place? ICT contribution to the enterprise value creation process The starting point is the enterprise's environmental policy, stating its objectives, priorities, targets and actions over several years, as applied to its products, services and processes. This policy will on one hand reflect customer, industry and regulatory requirements, and on the other reach through into its supply chain to specify requirements to its supplier base. For organizations only starting on this journey, the LCM framework will provide the systems-level framework that sets it on the right course. While the ICT organization's criticality in the process will vary by industry, the Canadian Advanced Technology Alliance's comment that "increasing use of technology is accelerating the power and reach of value chains" hints at the possibilities. These extend through all of the enterprise's business processes, starting from the extraction of raw materials, to product/service design, operations and manufacturing, packaging and distribution, use and maintenance, and then eventually to the disposal of the products and services offered by the enterprise. Let's review some examples to better illustrate the possibilities. Dow Jones, Inc. created the Down Jones Sustainability Index (DJSI), an index fund ‘product' designed to track the performance of sustainability leaders. At the technology product level, Vodafone Group, Plc challenged its suppliers to improve the energy efficiency of new network equipment by 25% by March 2008 (relative to a 2005/6 baseline), and achieved it one year earlier than planned. At the operations level, Verizon Communications, Inc. (and many others in virtually all industries) replaced paper-based billing with electronic billing. Also at that level, United Parcel Service, Inc. (UPS) implemented advanced route planning systems to optimize shipments between air/rail/ground transport to minimize fuel use and emissions. Many more examples can be found. The central message is that none of those solutions could have been realized without a creative ICT organization proposing solutions based on an enabled ICT network architecture complemented by strong supply chain practices. ICT offering to its enterprise With the enterprise's environmental sustainability policy, priorities and targets in hand, the ICT organization can define its own more specific policy, priorities and targets. Thanks to the Global e-Sustainability Initiative (GeSI), a global partnership of ICT companies promoting green technologies, the enterprise can quickly move forward, leveraging the ICT industry's best practices in management of supply chains for sustainability, one of GeSI's top focuses. The ICT organization's suppliers will typically consist of companies whose products and services are harmonized through the enterprise network architecture. Design objectives will have been expanded to include environmental sustainability objectives, balanced with other established objectives around capacity, reliability, security, manageability and cost. Top environmental targets will be the network's carbon footprint, including all elements of the network, starting from devices, servers, data centres, network services and network operations centres, as well as e-waste disposal. Key contributors to the carbon footprint will include electrical consumption, transport and maintenance. The importance of establishing measurable targets cannot be understated. And these targets need to be tracked at the product and service element level, so that a common set of metrics can be worked together by all stakeholders, from the customer to the enterprise to the suppliers. Before entering into the supplier discussion framework, let's step back and get a sense of the realizations of some ICT industry leaders. At the macro systems level, we have fine examples of policies, priorities, targets and reporting as set by the Global Reporting Initiative (GRI). Fine examples include Verizon Communications, Inc., Hewlett-Packard Company (HP), Ericsson and British Telecommunications Group plc (BT), and can be found on their websites. For instance, Verizon reports on carbon dioxide emissions, waste to landfill and recycling, as well as reduced paper thanks to electronic billing. Others have plans in place to achieve industry standards, for example, Telus Corp. which intends to achieve full ISO 14001 certification by 2009. Product innovation for sustainability is a clear priority. A fresh example is Apple, Inc. with its MacBook Air that comes in a fully-recyclable aluminum enclosure, offers a mercury-free LCD display, and incorporates best-in-class energy efficiency techniques. HP, Ericsson and others run "Design for the Environment" programs. Many enterprise ICT organizations are working on specific initiatives. These include the introduction of unified communications, telepresence and teleworking for their workers; building new and upgrading existing data centres to LEED green building standards (this is the "leadership in energy and environmental design" green building rating system, which also acts as a certification program); and much more. Leveraging new software capabilities, architects and contractors, and all suppliers, current and future, can also bring tremendous value to the enterprise. A good ICT supply chain engagement framework, and the new criteria The criteria can be grouped at three levels: corporate, product/service and business processes. They will also reflect the time required by the suppliers to achieve the targets set by the enterprise. This will no doubt be an iterative process as both the enterprise and its suppliers gain maturity with regard to environmental sustainability. As stated earlier, measurability is essential in ensuring progress. The industry leaders cited earlier fully prove that. Tools that support measurability therefore become desirable. GeSI, working with the Electronics Industry Citizenship Coalition (EICC) has developed a web-based supply chain risk management tool to monitor supplier performance, assess risks, and enable continuous improvement in building sustainability into your ICT supply chain. It provides a common language for consistent supplier comparisons and effective communications between customers and their suppliers. This tool should be considered as an aid to any enterprise that wishes to move swiftly on its environmental sustainability agenda. In summary, it behooves the ICT organization to take a leadership role in their enterprise's value creation process, offering creative solutions based on an enabling network architecture completed by strong supply chain practices. It is early days for many enterprises and ICT organizations on this journey. The learning process is underway. But the sharing must continue "beyond the facility boundaries", in particular with suppliers. In the end, enterprises need to embark on this journey for their customers, for themselves, and for our sustainability. Pierre Laroche is pleased with the progress with his suppliers. The task was monumental, so his team prioritized for best impact and built a realistic three-year plan to tackle the top challenges. As they address the initial set of priorities, they'll prepare for the next. They're on their way. In parallel, Pierre's organization decided to take an extra leadership challenge, building a discussion group with key clients in the organization to explore further opportunities for sustainable development. They have also initiated a discussion group through their local ICT professional association to advance common interests and share lessons. Based in Montreal, Vivian Hudson is an ICT industry veteran and consultant focused on environmental sustainability.

Building sustainable value chains

News | April 21, 2008

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