Sense and sustainability

Sustainable supply chain practices make good business sense, says Kevin F. Smith, a man with a record of achievement in that area. Until his retirement in 2008, Smith was the senior vice president and corporate sustainability officer for the pharmacy healthcare provider CVS Caremark Corporation, where he developed and implemented a program of environmental sustainability for the entire company. During his tenure, the company grew from 3,800 stores generating US $18 billion in revenue to nearly 7,000 stores generating more than US $90 billion in revenue.

Prior to becoming corporate sustainability officer, Smith was senior vice president of supply chain and logistics for CVS/pharmacy, the retail arm of CVS Caremark. In that position, he helped to create a highly responsive, end-to-end fulfillment process for pharmaceutical products. After retiring he started his own firm, Sustainable Supply Chain Consulting.

Smith is active in a number of professional organizations, including CSCMP, where he serves on the board of directors. In a recent interview with Editor James Cooke he discussed the social, operational, and financial value of sustainable supply chains.

Many people talk about "green supply chains." What is your definition of that term?
I tend to use the term "sustainable supply chain" rather than the more idealistic "green." A sustainable supply chain is one that does its best to mitigate or eliminate negative effects on the environment while adding value to the overall enterprise through the efficient use of assets and resources. An example might be the adoption of methods for optimizing equipment utilization. The more material you are able to get into your shipping trailers, the fewer trucks you need to dispatch. Fewer trucks translate into less road congestion, fewer delays, lower diesel emissions, and a reduced carbon footprint. At the same time, the enterprise reaps the benefits of more efficiency, less fuel expense, and better asset utilization.

At CVS, you developed and implemented a program for environmental sustainability. What did that program entail?
Like most large companies, CVS Caremark already had a lot of environmentally sustainable processes in place as a result of good management over the years. However, in many cases we were simply not measuring or documenting the benefits. So first, we began by documenting all of the sustainable programs already in force. For instance, there was a tremendous amount of recycling and waste reduction in place in both the distribution centers and the stores. Lighting redesign projects were in progress that would allow distribution centers to operate more effective lighting with much less power consumed.

After identifying what we already had in place, it became a matter of prioritizing areas of opportunity that would allow CVS Caremark to become a better environmental steward and reduce operating costs at the same time. There were many areas of opportunity, ranging from increased recycling, to LED (light-emitting diode) lighting, to reusable bags, all the way up to engineering buildings to be LEED (Leadership in Energy and Environmental Design)-certified. The most amazing part of the process was that everyone wanted to be involved, and most people contributed great ideas and suggestions as to how we could improve our sustainability while attaining better returns for our stockholders.

How can a company justify the costs of a sustainable supply chain given the financial pressures to hold down expenses and boost profits?
This is the greatest and most restrictive myth about becoming "green" or sustainable. The fact is that most of the opportunities available to supply chains today are actually neutral or positive for the bottom line. Improving fuel efficiency and trailer utilization is environmentally sound and improves profits. High-efficiency lighting reduces the amount of kilowatt hours expended in facilities, resulting in reduced fossil-fuel consumption and producing a relatively quick return on investment. There are a hundred things that companies can do that are both right for the environment and provide positive returns before they have to start doing things that are "green for green's sake."

The hand we have been dealt is based on fossil fuels, specifically gasoline and diesel. However, we owe it to ourselves and our companies to look for innovative and environmentally friendly alternatives. Right now, there are a number of companies—UPS and FedEx prominently among them—experimenting with electric, natural gas, and hydrogen-powered vehicles. These are alternatives to petroleum-dependent combustion engines and probably represent a good next step in the process. They certainly generate lower carbon emissions than existing equipment.

But let's be both realistic and pragmatic. Some of the alternatives are simply stopgaps. Most current electric cars and trucks still must be recharged using electricity generated by coal- or oil-burning plants. Electricity is clean, but the process of producing it is not. Although it burns cleaner, natural gas is a scarce resource and a natural byproduct of oil.

Our best bet seems to be hydrogen, but it appears that we are a long way from developing an abundant and readily available supply and delivery system for commercial use. We should continue to pursue these types of alternative fuels, but at the same time continue to become more efficient and responsible with existing assets.

Do you expect U.S. companies will continue to reduce their carbon footprints if Congress does not enact cap-and-trade legislation?
It remains to be seen whether "cap and trade" becomes a useful or beneficial reality. If the end game is to reduce carbon emissions, then we need to question whether creating a market to trade carbon is good for the environment or simply a new area for arbitrage. We should encourage companies to be environmentally responsible, but we should also tread lightly when we begin to make the process too complicated.

I do expect U.S. companies to generate programs that reduce carbon emissions. I just hope they do it for the right reasons and not as part of a moneymaking scheme or a regulatory dodge.

How can a company make its warehouse greener?
As I mentioned before, there are loads of opportunities in the warehouse and distribution center operations. Efforts to improve lighting efficiency, reduce water usage, increase recycling, and reduce waste that ends up in landfills are easy targets that help the environment and add value to the bottom line.

The easiest approach is to simply ask the people in the operation what could be done to improve the sustainability of the operation. I guarantee that they will generate a year's worth of environmentally friendly, money-saving ideas.

After that, there are opportunities to retrofit buildings to achieve LEED certification and to add wind turbines or solar concentrators or photovoltaic arrays. After all, a hundred thousand to a million square feet of roof space provides an interesting opportunity for solar collectors.

Is it possible to reduce packaging yet still ensure damagefree delivery?
This is literally the "million-dollar question." The real answer here is common sense. So many products today are overpackaged, both for shipping and for retail display purposes. It requires courage on the part of companies to challenge their current packaging configurations, especially if product is arriving in good condition.

Some experimentation is needed to make improvements. This also requires customer involvement and input. Much of the packaging reduction may be inside the shipping container, and in many cases it may represent productivity and wastereduction opportunities for the customer. This is especially true in retail distribution operations where inner packs are broken down for shipment to stores.

Some products are so fragile that they require extraordinary protection. [Choosing packaging that leads to damage and returned goods] is counter to good, sustainable practices. We need to pick our packaging fights carefully and work across the supply chain to optimize the materials and the protective qualities of the container.

If a company wants to start with just one sustainable supply chain initiative that has an immediate payback, what should that be?
It depends on what the company has already achieved. So, the first step is to assess where the company is in terms of sustainable practices. For most companies, shipping methods, load optimization, and routing efficiency are easy targets. These tend to be high-cost assets and fuel-dependent processes. So any improvement is both ecologically sound and adds value to the bottom line. Beyond that, energy use is a good place to start. Replace obsolete lighting sources with high-efficiency lighting. Add technology to turn off lights when not in use. These are little things that have quick returns and help the environment.

Above all, use common sense. When in doubt, think back to what your mother told you and "do the right thing."