US, China Push to Green Up Supply Chain

Seems like every sector of industry wants to prove it's working on saving the planet and positioning itself as a friend of "green" initiatives. Your supply chain partners are no different.

But will a $2.3 million partnership between the United States and China really change the way you do business?

The Institute for Sustainable Communities and its partners announced this week a commitment to boost Chinese factories' compliance with environment, health, and safety policies and achieve significant reductions in greenhouse gas emissions.

The public-private partnership adds to investments in the ISC's Environment, Health and Safety Academy, which officially launches this month in Guangdong. More than 24 corporations are already sending their supply chain managers to the EHS Academy in Guangzhou to help educate and trade best practices. Starbucks is the most recent corporation to sign on, joining such companies as General Electric Co. (NYSE: GE), Nike, Honda, Dell Inc. (Nasdaq: DELL), Timberland, and Wal-Mart.

To help China transition to a low-carbon economy, ISC and its partners will take steps to institutionalize greenhouse gas (GHG) measurement and reduction as a core responsibility of the emerging EHS profession.

But the initiative may not have the full desired effect, given the massive concentration of factories in the region. Cities like Dongguan in Guangdong province have more than 70,000 factories alone, for example. And the $2.3 million seems a really paltry sum of money, even if it's just to run a training program for the expected 2,000 managers a year.

"If it is to have any effect, the partner companies have to go beyond merely training their purchasing managers and suppliers," said David Wolf, an analyst with Wolf Group Asia, Beijing. "Those companies and others like them must prove to their supply chains that conformance with EHS and greenhouse gas emissions requirements are so important that the buyers and procurement managers are willing to pay a premium for it. Anything less will be read by the supply chain as mere lip service to environmental concerns, and they will behave accordingly," Wolfe said, in an email today.

Vernon Turner, a senior analyst with IDC research group agrees that the ISC really needs to make this more about building awareness and should seek multinational advocates to build better relationships.

"Unless you are the dominant player/customer in that supply chain (such as Wal-Mart, Nike, Starbucks), we have a long way to go for this announcement to impact the whole supply chain," Turner said. "What needs to happen is that sustainability practices need to be built into business processes just as Six Sigma and Lean Manufacturing... However that has taken almost 50 years, so we need to be patient."

Then there is the cultural divide, which provides some opportunities for supply chain managers. As Wolf sees it, there are two choices: align your values with those of your partner, or incentivize your partner to behave in conformance with your own.

"Companies in coming to China need to recognize that their partners will probably not share all of the same priorities and values," Wolf said. "That sounds trivial, but it is not, and it leads to more misunderstandings and busted partnerships than any other issue."

As for other methods of maintaining good supply chain relationships and keeping partners on the same page, it all boils down to some common sense fundamentals: spell out what you expect from your suppliers as specifically as you can, ensure your supplier understands what that means to his operations, be prepared to adjust what you pay accordingly, and inspect constantly. The more important the partner, the more often you should conduct checkups.

There can be no doubt that greening the supply chain in China, and particularly in the Pearl River Delta, where the program looks to be focusing, is a logical and commendable step. Educating managers, who are ultimately responsible for ensuring compliance, seems like the right place to start.

The challenge will come in the next phase when Chinese government agencies have to invest at the local level with the help of the trained advocates.

And as Turner points out, what is also interesting is that the Guangzhou province seems to be taking a leadership role here over its sister provinces.

"This is clearly internal competitiveness at its best!" he said.

— Michael Singer, Senior Editor, Internet Evolution. His focus includes executive issues... What's top of mind for CEOs, CIOs, and CTOs?