Category: Supp 5

Good OM Reading: The Unlikely Story of Wal-Mart’s Green Revolution

It was clear that Wal-Mart was taking a leadership stand in sustainability when we wrote the Supplement 5 case study Environmental Sustainability at Wal-Mart 2 years ago. However,  an excellent  book called Force of Nature: The Unlikely Story of Wal-Mart’s Green Revolution, by Edward Humes (Harper Business, 265 pages), has just been published that will bring the case alive to your students. If you are to read one book on the company that is leading this unlikely second industrial revolution, this would be it.

That’s because Wal-Mart, long the target of environmentalists who hate its big-box footprint,  and others who feel it has destroyed small town businesses by the 1,000’s, has created nothing less than a green revolution. And as we see in Force of Nature, it is spreading this unprecedented makeover worldwide.  But the real story behind the changes at one of the world’s least earth-friendly companies is when river-guide turned consultant, Jib Ellison, enters CEO Lee Scott’s office.

Ellison singlehandedly persuades Scott that sustainability isn’t just for tree huggers–that it really meant eliminating waste and saving money. Hitting Wal-Mart at just the right moment, when it was plagued by bad PR and a slew of lawsuits, Ellison  convinced the firm’s execs that building sustainability into the business would create a powerful competitive edge. Wal-Mart did not embark, as the author says, on this course out of a sense of doing-good, but started with the attitude that it would give a PR boost…and also be profitable. It also was meant to appeal to a new generation of female shoppers who would leave for Target if Wal-Mart did not embrace sustainability.

Just a few of the recent changes: reducing packaging sizes (saving $3.4 billion a year while reducing trash), installing electric generators in refrigerated trucks (so they don’t have to idle overnight), donating 127 million pounds of food (that would otherwise be destroyed) to food banks, cutting printouts at stores (and saving 350 million pieces of paper and $20 million), making organic, earth-friendly, and natural products widely available, and forcing 100,000 manufacturers who supply products Wal-Mart sells to become more sustainable!

Good OM Reading: The Sustainability Embracers

Here at the  POMS meeting in Reno we see 14 paper sessions just on the hot topic of sustainability. But today’s blog is also influenced by some new material by MIT on sustainability. Earlier this week, I sat in on a live webcast on the subject and then the next day received a copy of the MIT Sloan Management Review research report called “Sustainability: The ‘Embracers” Seize Advantage” (Winter,2011). The webcast featured Peter Grof, SAP’s Chief Sustainability Officer, who was also quoted in the report.

This 27 page study compares two broad categories of companies–those that have embraced sustainability and those that have not (called cautious adopters). Who are the embracers and what practices do they share? As businesses increasingly turn to sustainability for competitive advantage, here are MIT’s 7 conclusions:

1. Embracers tend to be bold, see the importance of being an early mover, and are ready to act even before they have all the answers.

2. They balance their aims with narrowly defined projects in, say, supply chain management, which allow them to produce early, positive bottom-line results.

3. They drive sustainability not only from top down, but also involve  employees (who are often much more aware of sustainability challenges and solutions than management).

4. They do not treat sustainability as a separate function, but have a culture in which sustainability is applied to all business processes.

5. They establish baselines and set up assessment methods that can be identified and can measure progress.

6. They value intangibles as meaningful competitive benefits of their strategy.

7. They do not overstate motives or set unrealistic expectations, and they communicate their non-successes as well as their successes. For example, when Nike started producing labor supply chain reports 6 years ago, they announced that they had encountered noncompliance in numerous standards.

This report makes for interesting reading by providing a snapshot of how the future of the management of sustainability will look.

OM in the News: Nike’s Sustainability Push

Stung in the 1990’s by a public campaign against its Asian labor practices, Nike has been working hard in recent years to make itself a sustainability leader. Its goal (according to www.nikebiz.com/responsibility) is to embrace a “future where creation of products isn’t tied to scarce natural resources like water and oil; where manufacturing is lean, green, equitable and empowered; and where everyone, everywhere has access to sport.”

And indeed, here are just a few of Nike’s accomplishments:

1. Introducing sustainability practices into product design (eg., eliminating toxics and waste when possible).

2. Pushing lean manufacturing concepts onto contract manufacturers to create a greener supply chain and to reduce the CO2 footprint.

3. Using recycled materials throughout (eg, the DartVII running shoe is mostly from recyclables).

4. Taking defective returns, counterfeits, and used consumer shoes and turning them into material for resurfacing playing fields (called Nike Grand).

Now Information Age (April 11, 2011) reports that the company is recruiting to hire a Code for a Better World Fellow ( I have idea what this title means)– a person to help lead the effort to bring sustainability to every aspect of the company.

But the firm still does have its detractors. The daily Lean blog called Evolving Excellence, writes:  “According to your own data, 94% of your shoes are made in Vietnam, China and Indonesia.  At last check these countries rank 90th, 84th and 82nd out of 141 on the list of the greenest and most livable countries – compared to numbers like 23rd in the USA, 25th in the UK, and 8th in Australia – the places you sell your shoes.  You ship the shoes about 7,000 miles from where you make them to where you sell them… a pretty deep carbon footprint.  If you want to be sure “manufacturing is lean, green, equitable and empowered,” you might want to quit ducking the environmental regulations in the developed nations where you sell your shoes by having them made in some of the worst polluting places on earth.”

Discussion questions:

1. How important is Nike’s “green” drive?

2. On what grounds can its position be criticized?

OM in the News: Sustainability in the Global Clothing Supply Chain

Some day in the not too distant future, the clothes and shoes you buy will not only have a label sewn in with the brand name/size/fabric content, but with a sustainability score as well.  Yesterday’s New York Times (Mar. 1, 2011) reports that the Sustainable Apparel Coalition is developing a comprehensive database of the environmental impact of every manufacturer, component, and process in apparel and shoe production. The coalition includes such names as Wal-Mart, JC Penney, Hanes, Patagonia, and Timberland.

Americans spent  $340 billion last year on clothes and shoes, which is about a quarter of the global market. Amazingly, virtually all of it purchased here—99% of footwear and 98% of clothes–came from other countries. And the various parts of any one garment often come from a diverse multinational chain of fabric mills, dye operations, and assembly plants.

This obscure nature of the global supply chain has long been a concern to environmental groups. Greenpeace, for example, using Google Maps, revealed that  a blue jean factory in  Xintang, China, was washing blue chemicals downriver from its textile mill. But  the company whose name appears on the designer label– and surely the end customer–are often unaware of the environmental connection. “The apparel supply chain is long and quite complicated”, states a University of Delaware prof.

The coalition’s tool is a database of scores assigned to all players in the garment life cycle–cotton growers, fabric makers, dyers, mill owners, and distributors–based on measures such as water use, energy efficiency, waste, chemical use, greenhouse gases, and labor practices. “The government has standards for miles per gallon on a car, but we have no real standards for clothing”, adds the CEO of Timberland.

Discussion questions:

1. Are students interested in such a “green score”?

2. What changes will such a database bring about?

3. Why are the biggest retailers signing on?

OM in the News: Recycling is a Necessity at Hitachi

Neodymium. You say you never heard of it?  If you worked at Japanese firms Hitachi, Mitsubishi, Panasonic, or Sharp, your companies would be spending a lot of time trying to find this product, called a “rare earth”. Rare earths are light-weight, malleable  metals that are essential to hybrid cars, cell phones, and hard disk drives. (Toyota Prius batteries use neodymium to power the car).  Hundreds of  other Japanese manufacturers also depend on them. And they had all counted on China, which produces 97% of the world’s supply of neodymium, dysprosium, didymium, and other rare earths, as the supplier.

But the latest issue of Businessweek (Jan.11,2011) describes how China has cut its exports of rare earths by over 3/4, driving up prices more than four-fold this past year. (Neodymium is now at $40/lb.) China wants to free up supplies for its own manufacturers, as well as reign in a very toxic industry.

So what is Hitachi doing ? The firm, which makes everything from nuclear power plants to home appliances to the Prius batteries, uses 600 tons of rare earths per year. The answer is recycling (Supp.5). Hitachi’s new facility in Matsudo City carefully saws open A/C compressors to retrieve rare earth magnets inside. It takes 2 workers 8 minutes to get to the prize inside each used air conditioner—4 wafer thin magnets containing 30 grams of rare earth metal. A separate conveyor belt feeds used disk drives into a massive machine, which pops out rare earth metal ready for harvesting. Other Japanese companies are following Hitachi’s lead in mining discarded products such as washing machines. The bottom line: China’s decision has prompted a whole new recycling industry.

Discussion questions:

1. Why did China cut its supply? What were its motives?

2. How might recycling of rare earths impact the world and its economy?

3. Why are rare earths so important and what other sources are going to be available?

Video Tip: Green Manufacturing and Sustainability at Frito-Lay

As a Math/Physics undergrad in the late 60s, I somehow took an elective course called FORTRAN. This turned out to be quite a break, as McDonnell Douglas hired me to design jets based on this one, well-timed class. At a time when very few people knew much about computers, this was a great edge.

I think today’s “great edge” is Sustainability.  Hundreds of college are offering courses in the subject now, but it is still in its infancy, with a huge demand building in the coming years for knowledgable grads. Johns Hopkins U. has just started the nation’s 1st B.S. in Sustainability.

With this background, I encourage you to show our newest video, “Green Manufacturing and Sustainability at Frito-Lay”, when you cover Supplement 5, Sustainability. Frito-Lay is a leader in solar, “going green”, moving off the power grid, and conservation/recycling resources. Its Sun Chips, for example,  are produced under full solar power. The firm has received the LEED (Leadership in Energy and Environmental Design) award and has “zero environmental impact” as a long- term goal. Will this help sell potato chips? Can only multi-billion dollar firms step up like Frito-Lay is doing?

Jay and I are especially proud of this video as it won the prestigious Silver Addy as best educational film in 2010. We hope you and your students enjoy the film and the case study in Supp.5.