The Business Case for Lifecycle Analysis and Building a Green Supply Chain

For many corporations and large institutions operating in today’s difficult business climate, lifecycle analysis — recognizing a product’s environmental impact from raw materials to disposal, and planning accordingly — is no longer simply a way to dress up corporate reports. It has been successfully integrated into a profitable approach to doing business. And as society increasingly puts a price on pollution (through the cap and trade emissions trading, such as has been adopted in Europe and is under consideration in the U.S.), companies have found that using the lifecycle approach cuts waste out of the system, reduces costs and helps prepare for a tougher regulatory climate.


 


Lifecycle analysis, judiciously applied, can help a company recognize lost opportunities for increasing profitability. Can manufacturing byproducts be reused, recycled or resold? Can waste be taken out of the system? Can water use be reduced and air pollution controlled, thus eliminating cleanup costs and possible regulatory exposure?


 


Closely aligned to lifecycle analysis is the emerging concept of green supply chain management, which in some cases requires suppliers to meet stringent codes of conduct and materials disclosure. Companies that ignore the environmental impact of their supply chain (counting only direct effects) may be failing to account for more than 75% of the greenhouse gas emissions produced in manufacturing processes, say researchers at Carnegie Mellon University. A Timberland assessment of the climate impact of its leather boots, for example, found that 80% could be attributed to its suppliers (and especially to cows, which produce the powerful global warming gas methane).


 


Lifecycle analysis and greening the supply chain are separate processes, but taken together they can support an effective environmental makeover. Both types of green reform were under discussion last year at an Initiative for Global Leadership (IGEL) at a Penn/Wharton conference in Philadelphia titled Integrative Thinking about Lifecycle Analysis: Promises and Limitations.


 


“Some 40% of jobs are in supply chain companies,” says Patrick Penfield, a professor of supply chain management at Syracuse University’s Whitman School of Management. “So we have to start there in identifying processes that produce no waste and ways of making products that can be recycled at the end of their life. The assumption used to be simply buying from the supplier with the lowest cost, but we now know that was wrong.”


 


Stanley L. Laskowski, a lecturer for the University of Pennsylvania’s master of environmental studies program, teaches lifecycle analysis and greening the supply chain in his management classes. “More and more companies are realizing considerable savings from convincing all their suppliers to be greener, and lifecycle analysis is one way to do that,” he says.


 


William W. Braham, a Penn professor of architecture, noted that the university architect’s office has started thinking long-term by calculating total 30-year “cost of ownership” analysis of the school’s new buildings. Going further, he said the university is also trying to reduce energy use beyond the building itself, including everything from lab appliances (which are not necessarily “Energy Star” certified) to student use of handheld devices. “Part of the challenge in a large and complex institution without centralized purchasing is finding ways to reach all the way down the supply chain. It doesn’t necessarily mean doing with less, but, as an example, figuring out a way to regulate tens of thousands of computers to go on a power-down schedule when not in use.”


 


Many companies already see lifecycle analysis as “the right thing to do” and potentially a sound business decision. But the motivation to make lifecycle investments often comes from a committed CEO who recognizes “an ethical responsibility to manage that issue because it will affect future generations, including his or her own grandchildren,” said Eric W. Orts, a professor of legal studies and business ethics at Wharton, and director of IGEL.


 


Lifecycle analysis isn’t applicable to every manufacturing process. And, even when its ultimate application would unquestionably save money, the useful lessons can be thwarted by practical realities. That’s because, in many cases, investing in green has higher initial costs.


 


Lifecycle Analysis: A Brief History


 


Lifecycle analysis is not new, but its widespread application in business is relatively recent. Its roots go back 40 years to early energy audits and other attempts to quantify resource costs and their environmental consequences.


 


According to the U.S. Environmental Protection Agency (EPA), one of the first lifecycle analyses was presented at the World Energy Conference in 1963, and it looked at the energy burden of chemicals and chemical intermediates. The 1972 publication of the book Limits to Growth spurred lifecycle analysis by advancing the concept that raw materials and energy resources were finite and threatened.


 


Jim Fava, managing director of Five Winds International, a Philadelphia-based sustainability solutions consulting company with operations in the U.S., Germany, Sweden and Canada, describes lifecycle analysis as a logical progression from the nascent ecology movement of the 1960s and the Superfund cleanups of the 1980s to the preventive approach pioneered in the 1990s.


 


“For 40 years, we’ve been moving away from producing chemicals that are highly persistent in the environment to alternatives that break down quickly,” Fava said. “And that set the stage in the 1990s to realize that the direction we had to take was not only dealing with hazardous waste and making chemicals greener, but understanding the impacts on energy and water use — and analyzing products over their entire lifecycle.” Fava describes reductions in packaging waste (the Green Dot program is now mandated in the European Union) as the kind of initiative that grew out of lifecycle analysis.


 


The EPA used lifecycle analysis in the 1970s to take a closer look at hazardous waste management issues. The agency’s Resource and Environmental Profile Analysis (REPA) also helped when, in 1990, the Council for Solid Waste Solutions evaluated the energy consumption and environmental performance of paper versus plastic grocery bags (and later disposable versus cloth diapers). But according to Mary Ann Curran, a lifecycle expert in the systems analysis branch of the EPA, the agency has no plans to regulate lifecycle work or require companies to conduct product analyses.


 


Pushing Improvements through the Supply Chain: Benefits and Challenges


 


For some companies, lifecycle and supply-chain analysis has led to deep changes in how they do business. The world’s largest retailer is one company leading the way, especially in its work with suppliers.


 


Laskowski says that Walmart is a “great example” of a company using lifecycle analysis to force change down its supply chain — in its case mostly in China. For huge companies like Walmart, the supply chain — consisting of every company, individual and resource involved in a product’s lifecycle — can be quite long. Walmart has 66,000 suppliers in 70 countries and nearly 100,000 stock-keeping units (SKUs). “Greening” that complex chain may take many forms. For example, suppliers can set up recycling systems, reduce waste production, limit energy and resource use, switch to environmentally preferable materials and cut back on emissions.


 


Walmart, which works closely with the Environmental Defense Fund (EDF) on sustainability issues, pays $12 billion a year to its Chinese suppliers, almost 10% of China’s exports to the U.S. So, Chinese companies listened closely when, in late 2008, Walmart summoned a thousand of its suppliers to a meeting in Beijing. Walmart told them they must have 95% of their production in factories with high environmental and social-practice ratings by 2012. Matt Kistler, who heads up global sustainability at Walmart, points out that the company’s environmental footprint is expressed primarily through its supply chain — and that the company has an opportunity to build what he calls “a world-class, better quality, better value supply chain.”


 


Walmart’s supply-chain work in China will not be without challenges. U.S. imports from China have grown from $80 billion to $273 billion in 10 years but, in the last few years, a series of scandals involving tainted goods (including lead in children’s toys) has raised questions about the safety of those imports. Tougher environmental rules for suppliers will need to mesh with U.S. regulations that, for example, now require third-party certification of low lead levels in imported products.


 


According to Andrew Hutson, who is project manager for corporate partnerships at EDF and is based near the company’s headquarters in Bentonville, Ark., “Walmart understands there are deep problems with suppliers not meeting existing Chinese environmental regulations. China has big product safety issues, and the company is trying to get a better handle on its supply chain to handle this problem.”


 


For some companies working closely with suppliers, the challenge is how far to go. Few companies could top the commitment of furniture maker Herman Miller, which for its environmentally friendly Mirra chair, built a materials database based on a survey of suppliers who were asked to identify every single ingredient in the components they provided. As Daniel C. Esty and Andrew S. Winston describe in their book Green to Gold, the company declined to do business with suppliers who refused to comply. The database ultimately identified 800 materials, and assigned each a color code from green (good) to red (problematic).


 


Herman Miller can now say with confidence exactly what went into making its Mirra chairs. And that knowledge has helped the company achieve remarkable results — both for the environment and for its business. Today, Herman Miller has 400 people working directly or indirectly on environmental initiatives, and says in its 2009 environmental report that in the 15 years since setting green goals it has reduced hazardous waste by 95.4% and landfill waste by 88%. Its customers obviously approve: More than half its annual sales come from products using “design for the environment” principles, the company said.


 


“Thinking green” also helped the company save nearly $4.6 million by moving into newly designed LEED Gold-certified buildings, the company noted in 2007.


 


Meeting Climate Goals


 


Because of regulation and ethical commitment, Sweden’s Volvo has focused its lifecycle analysis work on reducing greenhouse gas emissions. It has invested in wind power, built a biofuel plant to produce electricity and heat, and opened the first carbon-neutral auto plant in Belgium in 2007. Carbon-dioxide emissions were reduced by 14,000 tons annually. “We gain knowledge of a product’s environmental impact over its entire life by conducting Lifecycle Analysis,” Volvo said in its 2008 Sustainability Report.


 


According to Volvo CEO Leif Johansson in that report, “What can be good for the company in purely commercial terms can be good for the environment, and what is good for the environment is also good for our own and our customers’ competitiveness.” By the end of 2008, 96% of the workforce at Volvo Group production plants had met ISO 14001 global environmental management system standards.


 


Today, Volvo faces new challenges with its likely acquisition by the Chinese automaker Geely Automobile. Will the relatively new carmaker (launched in 1986, initially to make refrigerators) change Volvo’s long-established corporate culture? “From what we can see, Geely has no plans to change anything,” said Volvo spokesman Dan Johnston. “I can’t imagine they would take one of our core values and not follow it.”


 


Xerox, the world’s largest distributor of cut-sheet paper, is committed to reducing company-wide greenhouse emissions 25% from 2002 levels by 2012. Catherine Reeves, Xerox’s manager of environmental management operations, said the company “applies lifecycle analysis to families of low- and high-volume products, such as multi-functional devices. It helps prioritize design efforts and channel resources.”


 


The company’s climate commitment requires a re-examination of all its business practices. In the late 1990s, Xerox developed new and stronger standards for its paper suppliers and entered into a partnership with The Nature Conservancy to develop science-based tools and practices to advance sustainable forestry. That means sourcing fiber harvested using guidelines from groups like the Forestry Stewardship Council, and whitening paper with elemental chlorine-free bleaching.


 


Xerox’s products are expected to offer environmental savings to end users. According to the company, its solid ink printers, which use crayon-like non-toxic ink sticks rather than conventional toner cartridges, reduce printer-related waste by 90% (when compared to a typical color laser printer). The printers also come with a free download of GreenPrint software designed to dramatically reduce wasted pages.


“Every one of our innovations ended up either saving us money or creating new markets and new revenue,” says Xerox chairman Anne Mulcahy and CEO Ursula Burns in a 2009 letter to shareholders. “We found, in other words, that we don’t have to choose between the environment and profit. We can do both.”


Xerox’s work shows that supply chain efforts can sometimes flow uphill. As part of a collaboration begun in 2004, Xerox performed a paper audit for Dow Chemical, one of its largest industrial clients, and found that Dow had 16,000 printers producing 480 million pages per year. Xerox and Dow worked to get the company down to 5,500 printers — reducing printing costs an estimated $20 million to $30 million over five years, and dramatically reducing environmental impact. Xerox also launched a Sustainability Calculator which, when applied to a single sector of Northrop Grumman’s operations, saved 27% in energy costs, 26% in climate emissions and 33% in solid waste.


 


The Value of Water


 


Lifecycle analysis is vital for helping protect an increasingly scarce resource: clean water. Indeed, more than a billion people have no reliable access to safe drinking water. Piet Klop, a senior fellow at the World Resources Institute, said at the IGEL conference that water has been traditionally undervalued and under-priced, with the result that major water shortages could characterize the 21st century.

Industry, a major water user, needs to lead in conservation. At Dow Chemical, lifecycle analysis has helped cut water use per pound of product by 35%. Anne Wallin, director of Dow’s lifecycle assessment expert group, says the company is working with local governments in the Netherlands to reuse wastewater. Every gallon is used three times, according to Wallin, and that also reduces energy use for water purification by 65% (the equivalent of cutting 5,000 tons of carbon dioxide annually).


 


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