This is the second year I have attended Stanford University’s conference on Responsible Supply Chains.  This year focused on the theme of collaboration in the supply chain, and  consisted of speakers and panels of top industry executives from Levi-Strauss, Nike, Johnson Controls, Business for Social Responsibility, Dow Chemical, Bon Appetit, and many others.  The conference’s growth in attendance and complexity of topics covered were representative of the continuing significance many companies are placing upon sustainability in the supply chain. Despite some of the presentations having more of an advertising slant, most of the presenters did a good job of highlighting lessons learned and best practices.  In addition, I thought the size and format of the conference helped foster candid and challenging audience questions which generally earned insightful responses from the speakers.   Here are the highlights and conversation topics of the conference which I thought were most noteworthy:

• The conference–presenters, panel speakers, and attendees were much more international this year than last year.  In addition, it seemed several large corporations who were looking to international emerging markets for growth were taking sustainability very seriously in the development of their business models in these markets.

• To try to implement sustainability initiatives in the supply chain from a boardroom that is an ocean or continent away from production is not realistic.To identify problems and develop practical solutions, one has to get on the ground and visit the factory, visit the field, talk to personnel and partners involved, and get your hands dirty.  Determine the unit of analysis that will be essential to spurring widespread adoption and change, and understand it deeply.  Everyone must agree on the objectives, and someone must take the reins and push action.

• CXO leadership and support is critical.  Presenters unanimously cited that support from the top echelons of management was essential to being able to push change and achieve sustainability objectives in the organization and supply chain.

• It is clearly not just about reputation management anymore.  Many feel regulatory risks are on the horizon and its best to begin addressing high profile issues now. Furthermore, at a more fundamental level, a few executives cited the inevitable increase in scarcity of resources and the rise in input costs as a growing, long-term risk to their competitiveness.  Whether the company relied heavily on cotton, oil, plastics, chemicals, food, etc., the cost and scarcity of future resources were prime motivations to address sustainability in the supply chain and make the long term business case in light of short-term financial pressures.  Sustainability in the supply chain will be a competitive driver of the next decade and will eventually become a price of market entry.

• The challenges of reliably monitoring, or “policing”, the supply chain, have caused companies to adopt approaches centered on capacity building.  Supplier managers are engaged and asked to monitor themselves and demonstrate not only their effectiveness, but their continual improvement as well.  Because of the investment required to build the capacity of a given supplier, advancing these programs is more challenging in industries where switching suppliers is common.

• The food industry is an excellent example of just how fast an industry can change and sustainability can become a major consumer concern.  In the last decade, the market progressed from consumers not caring where their food came from, to explosive growth in demand and supply of organics, locally sourced and fair trade food categories, adoption by major grocery retailers, and TV shows and documentaries stirring consumer awareness.  Apparel is another industry that is experiencing rapid change.  Executives cannot take these issues lightly with respect to how quickly they can alter the competitive landscape.

• One presenter felt that to truly move a company towards sustainability, metrics and incentives in this area must be embedded into company management systems.  Also, some companies, which are taking sustainability very seriously, are reorganizing their structures to allow for greater innovation and information sharing in these areas.

Supply chain information coming from all angles?  Information is power and these third party service and software providers are emerging to offer companies greater information about who their suppliers are and the location of their goods within them.

Three firms founded in the last 8 years are working to crack open global supply chains further to bring greater transparency.  One data mines customs records.  One issues credit reports on Chinese manufacturers.  One traces products through the chain of custody at the batch level.  When I prognosticate the statement of a supply chain executive in the near future:

I know the identities of all of the factories and suppliers
involved in the production of every product I make, from final assembly
and packaging to the materials suppliers 4 tiers deep. 

I
know what customers they are all working with.  I know their capacity
and exportation quantities at any given time.  I know their financial
health.

…these companies are working to make it possible.

• Panjiva. Founded in 2006.  USA.  Panjiva data mines information on manufacturers using a variety of sources, including the US Dept. of Homeland Security (Customs), General Administration of Customs of the Peoples' Republic of China, fifty-five ISO 9001 auditing firms, forty-six ISO 14001 auditing firms, and several others, to offer companies reports containing information on which products a given supplier has shipped, which customers a supplier has shipped to, the quantity a supplier is shipping, and the frequency with which they ship.  The reports are designed to offer companies new methods of tracking the health and activity of their contract manufacturer base. 

• Sinosure.  Founded in 2001.  China.  As described by Jason Busch at SpendMatters: "Sinosure, was set up in 2001 as the monopoly provider for export
  insurance (essentially receivables insurance) for Chinese suppliers.
  Run by the Chinese government, Sinosure conducts supplier financial
  assessments of suppliers as part of the receivables insurance
  underwriting process. They base this assessment on government data
  sources as well as standard credit rating approaches (e.g., on-time
  payment for phone bills)"  In his posts on the topic here and here, Jason raises questions with good reason about the accuracy of information upon which Sinosure bases its credit ratings.  Josh Green, founder of Panjiva, which recently announced a partnership offering with Sinosure, responded that Sinosure simply presents another source of information to cross-check supplier information they already have, and that the agency itself bases its own insurance policies on the credit information they develop. 

• Historic Futures.  Founded in 2003.  UK.  Historic Futures has developed a trusted third party product traceability
  system, known as MyString, to allow consumers, retailers and brands to
  trace product through multiple companies in the supply chain back to
  source.  Historic Futures software and services allow companies much greater efficiency in the management and reporting of COO for raw materials used in their products, collection and analysis of KPIs throughout all tiers of the supply chain, such as "product miles", water use and energy consumed, and visualization/management of compliance and certification status beyond the first tier of the supply base.  Walmart's LoveEarth jewelry line, launched in summer of 2008, is one of their biggest and most notable projects.  Consumers can now go to Walmart's LoveEarth website, enter a batch number for a jewelry piece they purchased, and track the companies in the chain of custody from mine to retail.  

The reservoir of information in global supply chains is beginning to be tapped for greater internal management, as well as social responsibility, and marketing initiatives.  This is likely only the beginning. 

I know the identities of all of the factories and suppliers involved in the production of every product I make, from final assembly and packaging to the materials suppliers 4 tiers deep. 

I know what customers they are all working with.  I know their capacity and exportation quantities at any given time.  I know their financial health.

My customers know who all of these suppliers are as well.  They know the working conditions at the factories, worker wage levels, safety compliance, environmental practices, and what the bathrooms looked like…last week.

In fact, one avid customer who loves our products, took a trip to visit one of our supplier's factories, created a video documentary about their trip, and posted it on several social networking and company/product fan websites.  The video was well done, and 83,344 people viewed it in the first 4 months it was online.  We project it will be viewed by 1 million consumers within 2 years, and estimate a resulting increase in annual sales of $2.7 million for the product they featured.

My 7 year old daughter viewed the video and is now doing a class Twitter project with the daughter of the production manager at the factory.

Is this the future?  By when, 2015?  2020?

When supply chains began to extend globally over the last several decades, barriers to visibility up and down the supply chain were erected that had not previously existed or did not exist at the level of complexity found today.  Communications took place by plane, phone, fax, wire, catalog, trade show, etc. 

The advent of supply chain software technologies brought about a much greater system for supply chain management and was the first step to breaking down the walls of geographical distance and the opacity of suppliers' operations.  Out of Web 2.0, emerged internet portals such as Alibaba, Global Sources, and others that allowed buyers and suppliers all over the world to make contact without leaving their office chairs.  Today, we're seeing the emergence of another layer of supply chain information, from within companies, from 3rd parties, and possibly…eventually, consumers of the goods produced by the supply chain?

More to come…

While the prevalence of "green" and "sustainability" has been rather constant, or shown slow, steady growth from 1995 to 2005, numerous consumer research sources show that consumer attitudes and preferences for sustainable and green elements in their shopping experiences and lifestyles has grown dramatically in the last few years (download Greentailing in Tough Times: How are Consumers Reacting and Retailers Responding?.  A few general observations that I have found particularly interesting:

• The definitions and standards of "green" and "sustainability" are still under debate and refinement.  It's clear that there are many shades of green which can be analyzed in many areas of a product's lifecycle.  For example, how does one measure the "greenness" of a completely recyclable product that is manufactured in a fashion that has a large, negative impact on the environment?  Conversely, what of the circumstance in which a non-recyclable product with harmful materials is manufactured in a very low-impact environment?  Include the footprint that is created when factors such as packaging, shipping, disposal vs. reuse vs. recycling, energy consumption of the product itself, retail environment requirements, and many more–and it's easy to see that there are numerous areas in which a product may or may not be green and/or sustainable.
• Green generally refers to elements of eco-friendliness.  Ethically sourced and Fair Trade generally refer to the social impacts of the conditions in which the goods are made.  Both might be said to fall under the general umbrella of sustainability.
• Because the topics of green and sustainability have gained so much momentum in the last few years, many companies who jumped into marketing green without much follow through, were quickly labeled as "greenwashers".  Thus, 3rd party certification and authenticity through honesty and transparency seem to be gaining greater currency with consumers who demand that companies' claims of sustainability are real.  
• Consumers are generally not willing to pay a price premium higher than
  10% or so for green products.  To continue towards mainstream growth,
  green cannot cost more…green.

Where do supply chains fit into all of this?  The general concept of the supply chain consists of how products are produced and moved from producer to end user.  From the consumer's perspective, this process is essentially invisible.  This may be a reason in which this area has received less focus than others, such as energy consumption of the product, packaging, recyclability. 

However, global supply chains have been a major force for economic expansion and development, as well as widening environmental and social impacts.  When companies in the United States extend supply chains to lower cost, developing countries, prices in stores drop and a whole segment of the U.S. population that would not have been able to afford a certain standard of living are able to accumulate material wealth. In China, the manufacturing base expands to support the demand, and people leave the countryside to earn wages higher than those made in the countryside.  When consumers in the United States slow down their consumption of products, areas in China developed to support previous consumption levels are again dramatically impacted.  In the area of Dongguan, a large manufacturing region in Southern China, it is estimated that up to 1/2 of the population, or approximately 6 million people, have left in the last year.  Imagine half the population of Los Angeles leaving the city in a year's time.  The positives and negatives of all of this is extremely complex and could be approached from myriad perspectives.  But one thing is clear, supply chains are having a substantial impact on the world.

Some companies like Patagonia, Timberland, and a few others are publishing the carbon dioxide footprint of their product lifecycles.  Patagonia is taking some impressive steps forward with their Footprint Chronicles and the publishing of their factory list.  Patagonia is not only making their supply chain more transparent, they are doing so in a refreshingly authentic fashion by sharing both the positive and negative impacts that their products and processes have.   Will other retailers and manufacturers follow suit?  Will consumers demand more information and transparency with respect to supply chains?

Much more to come on this topic, such as Walmart and transparency, manufacturers in China, the social compliance auditing system, and more.