Cleaning Up For Savings

Increasingly those involved with supply chain are taking measures to reduce the environmental impact of operations and to influence, where possible, the activities of suppliers. Motivation for undertaking such programs for those sourcing offshore may be environmental regulations to be met in those countries. There may be encouragement from employees to institute more environmentally friendly practices. There are many and increasing examples of companies of every size taking the initiative in such supply chain activities and reaping benefits beyond the more obvious ones of good public relations— though that is a positive gain.

One such organization, with a core company objective it calls Global Citizenship, is Hewlett-Packard Corp. (HP-www.hp.com).

“We have been committed to reducing the environmental impact of our product as well as that of our customers and our partners and suppliers for many years, going all the way back to the 1950’s,” claims Judy Glazer, PhD, Director of Strategic Process Development-Supply Chain for the company. “We started doing electronics recycling all the way back in the 1980’s. We formalized our design for environment efforts in the early 1990’s.”

Dr. Glazer explains that motivation for HP’s efforts comes from many stakeholders who share in bringing products and services to market. The manufacturer has customers with specific requirements they expect HP to meet or that the company uses to differentiate itself from customers’ other suppliers. There are governments who regulate many aspects of the environmental performance of electronic products and their manufacture.

“We have other types of stakeholders watching a big multi-national company like ours to set expectations for what they see as responsible corporate behavior,” she says. “Finally we have employees who care very much about this topic and often are the source of the best ideas and innovations to achieve the goal of making our products as environmentally responsible as they can be throughout our product lifecycle.”

Being multi-national, HP has about 600 suppliers all over the world that serve it with products, materials, manufacturing and distribution. The company brings its social and environmental responsibility standards to its suppliers through the design of its product, general specifications for the environment that focuses on things like product materials, labeling and the like, and its supply chain code of conduct that sets expectations in terms of how suppliers operate their factories, their labor practices, health, safety, environmental and ethics packages.

HP has rolled out its code of conduct to its suppliers over the last four years or so and that has largely focused on its existing supply base, indicates Dr. Glazer. The code of conduct is implemented through a multi-step process. Initially HP asks the supplier to sign a specific agreement indicating they understand and will meet the code of conduct. Next the company works with them to conduct a self-assessment to identify any gaps, to be followed by taking corrective measures.

Where warranted HP will go to the supplier’s facility and conduct an on-site audit. It uses the audit as an opportunity to help the supplier understand requirements and to develop the capability to meet those requirements. There is also a more detailed gap analysis that looks at how practices meet the requirements of HP’s code of conduct. The company then works with the supplier on meeting the requirements through a corrective action plan developed if they fall short of the code of conduct in some respects. Suppliers range from the very visible—like Intel and Microsoft—to very small companies in developing economies.

HP conducts periodic on-site audits based on its assessment of the priority of auditing that particular supplier’s site. “We have many suppliers around the world,” says Dr. Glazer, “and we audit sites based on where they are located and the risk factors associated with that— whether the processes are chemically or labor intensive; whether there have been any specific concerns or allegations expressed about that supplier’s ability; and the type of program the supplier has and the brand behind it.”

In the electronics industry, Dr. Glazer notes that progress has been achieved and is being achieved through industry collaboration on social and environmental responsibility. One example is the electronic industry code of conduct (EICC, www.eicc.info). In 2002, HP was the first company to formally launch a supplier code of conduct. Then several other companies followed suit.

In 2004, HP played a major role in the creation of the electronic industry code of conduct that brought eight companies together. It is now approaching 40 companies that have come together on a single set of standards for their suppliers. They are presently beginning work on implementation steps designed to make it easier and more efficient for both members of the code of conduct group and their suppliers to meet those standards.

Dr. Glazer points to accomplishments where doing the right thing from an environmental perspective has had very clear cost savings. “For some of our notebook computers that we airfreight from China to Europe, we’ve switched from wood to recyclable plastic pallets,” she says. “The pallets are much lighter than the wood and because they are air freighted, it is significantly cheaper for us to ship notebook computers that way. The pallets themselves are also smaller, which allows us to ship more units in the same cargo volume. The pallets are either re-sold or re-used or recycled and the material is shipped back for re-use in Asia.”

HP recently reached a goal to recycle a billion pounds of electronic hardware. The company has now set a new goal to reach two billion pounds for re-use and recycling by 2010. As part of achieving that goal it offers a variety of services including leasing of product where it reverts back to HP when the customer is done using it. At that point it can be redirected for re-use or recycling as appropriate.

The company also offers asset recovery services where it takes product out of an existing installation—either because of the sale of new product or as a service to the customer. As part of that, HP assures that equipment is handled properly and disposed of in an environmentally sound manner.

Dr. Glazer feels that smaller companies have the opportunity to align themselves with the standards that larger companies have set. “For example,” she notes, “the EICC is open to any company wishing to join. Similarly HP and many other companies publish their environmental specifications for their products and smaller companies can ask their suppliers for similar things with a high expectation of getting it. I also think smaller companies have the opportunity to innovate because they are less constrained by the availability of a new technology or approaching very high volume.”

Organizationally Dr. Glaser sits in HP’s supply chain group and reports to a senior vice president for supply chain. She feels it has been helpful to the company to have someone focused on environmental concerns in place, whether it’s a full- or part- time person.

Looking at larger opportunities for supply chain savings while being environmentally friendly, HP has focused quite a bit over the last several years on the interaction between design, packaging and logistics. “This has turned out to be an area where environmental and cost benefits align very well,” claims Dr. Glazer. “That focus has brought us many benefits. The plastic pallets are one example. We have a number of others where by re-designing the product and packaging, we’ve been able to load more units on a pallet, thus reducing the environmental impact of our product. At the same time we reduced our shipping cost. It’s provided us the opportunity to change transport modes. We’ve found it to be very effective for us both from an environmental and a cost perspective.”

In terms of voluntary means for companies to do something environmentally about their supply chains and business, the US Environmental Protection Agency created the SmartWay Transport Partnership, launched in February 2004 with 52 companies committed to its program. In early September of this year, the ranks have grown to 617, according to Mitchell Greenberg, the program manager. “We built the program with 14 Charter Partners, people like FedEx, UPS, Schneider, Roadway, Yellow, CSX and Swift for carriers and some shippers like Home Depot, IKEA, Nike, Interface and Canon USA among others,” he recalls. “That group helped us carve out the details that meant the program would be good for the companies and good for the environment.”

SmartWay helps by suggesting strategies to help reduce fuel consumption and emissions, along with other benefits. The aim is to have program partners take environmental leadership and to strongly encourage others to join in the effort.

Among other tools it offers for measuring progress is its Freight Logistics Environmental and Energy Tracking Performance Model (FLEET) that calculates for carriers and private fleets the tons of CO2, NOx and Particulate Matter being emitted; determines the effectiveness of strategies being used in the fleet to reduce consumption and emissions; and estimates cost savings and payback periods for selected strategies. For shippers, FLEET allows them to measure their environmental footprint and to track the percentage of freight shipped with SmartWay Transport Carrier Partners.

“We’re trying to do all of the homework and analysis for companies,” explains Greenberg, “because their business is moving goods. Our business is understanding environmental impacts. If we can do that for them, and for those companies that do it right, we give them the SmartWay tag, then companies can work with other SmartWay companies and have greater assurance that homework has been done for them.”

The program encourages intermodal shipping to help reduce fuel consumption and emissions by moving freight by combined modes. It suggests the use of electric forklifts to reduce environmental impact and improve ambient air quality. Shippers can improve the scheduling of pickups and deliveries in order to reduce excess idling while improving on-time efficiency of freight operations.

The reduction of truck idling has been the strategy most commonly requested from SmartWay. “It’s something both shippers and carriers can help minimize,” according to Greenberg. “Carriers obviously can reduce their idling time but a shipper can help by taking action at loading docks—keeping them open longer and creating more efficient queuing systems, for example.”

Second most popular strategy has been replacing traditional dual tires with a single, wider tire. These tires have less rolling resistance and are lighter. So, in addition to being more fuel-efficient they are also able to carry more weight.

To Greenberg, shippers are the foundation of SmartWay. While that may seem counter-intuitive, he feels that shippers are the ones that can drive this entire program. “The whole point of SmartWay is to create a demand for cleaner, more sustainable transportation,” he explains. “In moving goods across the globe, shippers now have a means of understanding the environmental impact of those operations. They have had the ability to understand the emissions associated with their facilities, production plants or retail stores, but haven’t been able to understand the impact their transportation systems have. SmartWay gives them the tools to be able to better quantify the emissions associated with moving parts to a manufacturing facility and then moving products from that facility to their stores.”

Since shippers don’t directly control the truck emissions of their carriers, SmartWay hopes to have them be able to question and motivate their trucking partners to work together for a cleaner environment.

Beside its web site, www.epa.gov/smartway, SmartWay has a help desk phone number, (734)-214-4767.

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