The Value of the Sustainable Supply Chain What Do Consumers Think?Accenture explores the value of sustainability in the supply chain by looking at the issue through the eyes of consumersNick Blonkowski, Derek Jones, Sundip Naik and Saurabh Raman

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Historically, manufacturers have viewed sustainability as primarily a brand enhancer. But its impact extends far beyond brand image. Sustainability is a tangible benefit, and one that touches virtually every facet of a business’s operations, from risk management and cost reduction to new revenue generation (see Figure 1). Supply chain executives must therefore be active participants in the strategic conversation about sustainability, so that they can understand the importance of their decisions and practices to this increasingly consequential goal.

Recent research suggests that a good starting point for this strategic conversation is understanding what matters to the customer. To gain deeper insight into consumer attitudes about sustainability and how sustainability affects their buying decisions, Accenture recently surveyed 4,000 consumers throughout the Americas, Europe, and Asia (see About the Survey). Let’s look at these attitudes and their implications for supply chain practices.

Figure 1. Sustainability’s wide-ranging impacts.

Revenues• Creating new business models• Collaborating to develop new markets• Innovating to develop new products and services

Cost Reduction• Improving energy efficiency• Streamlining supply chain and logistics• Innovating with suppliers and customers

Brand• Focusing on and showcasing innovation• Collaborating to increase transparency• Engaging employees and investors

Risk Management• Protecting license to operate• Integrating sustainability triple bottom line consideration with corporate risk management• Diversifying business model and operations

Less Certain/Long-term

Mitigate

Innovate

Certain/Short-term

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About the Survey In a 2010 and 2011, Accenture conducted several surveys on sustainability among C-suite executives in North America, the U.K., and China. Several key findings illustrate the many ways in which executives consider sustainability valuable to the organization. Among them:

•93percentviewedsustainabilityasbeingimportanttotheircompany’sfuture success

•72percentsaidthatthebenefitsoftheirsustainabilityinitiativesexceeded expectations

•72percentcitedsustainabilityasbeingimportanttomaintainingbrand,trust, and reputation

•96percentbelievedthatsustainabilityissuesmustbefullyintegratedwith their strategy and operations (only one-third said that their companies were actually integrating them)

•58percentoftheCEOscitedconsumersasthesinglemostimportant group driving their sustainability policies 1

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Executives are right to be concerned about the impact of their sustainability practices on brand, trust, and reputation, because a company’s environmental policies matter to consumers throughout the globe. Nearly two-thirds of the consumers we surveyed said their perception of a company is strongly influenced by the company’s environmental and sustainability policies. Only10percentofrespondentsclaimedsuch policies have little or no influence (see Figure 2).

Geography affects attitudesMorethan80percentofChineseandBrazilian consumers say their perceptions are strongly influenced by a company’s policies, versus around 40 percent of consumers in the United States and the U.K. Although clearly, these percentages cannot be extrapolated to represent all developing economies, it is no overstatement to note that the rapid industrialization in such markets (without accompanying regulatory protections) has raised environmental concerns among their populations. Considering that China and Brazil are projected to grow more rapidly than the developed economies over the next two decades, the importance of sustainability to a multinational seeking growth in these markets (and other emerging markets) becomes all the more elevated. 2

Increasingly, Sustainability Matters to Consumers

Figure 2. Sustainability matters to consumers.

US UK China BrazilOverall

To what extent do the environment or sustainability policies and actions of a company affect your perception of the company?

Very strongStrongModerateWeakNone6%

4%

29%

39%

22%

11%

5%

43%

26%

15%

8%

5%

45%

29%

12%

25%

57%

16%

2% 4%3%

11%

44%

37%

61%

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The Carbon Disclosure Project (CDP), a not-for-profit that aims to reduce greenhouse gas emissions and promote sustainable water use by businesses and cities, recently released the findings of its fourth annual informationrequestfromits50globalmembercorporationsandtheirsuppliers. The CDP Supply Chain Report 20123 (produced in collaboration with Accenture) reveals not only that the disclosure practices and performance scores of Asian-based and European-based companies are comparable, but that they also exceed the scores of companies from North America and the rest of the world. The report, which includes questions about suppliers’ practices, shows that suppliers in Asia and Europe are more likely to have comprehensive climate-change strategies in place—and better sustainability results—than their competitors in North America and elsewhere. As Asian and European companies improve their sustainability disclosure practices, these strategies could translate into a competitive advantage as environmental factors become more important to stakeholders.

When it comes to the substance of sustainability, what matters? Although climate change tends to grab the sustainability headlines, consumers’ concerns run broader. We asked consumers to rank their top three concerns. Reducing air and water pollution were at the top of the list: 43 percent of consumers ranked them among their top-three concerns, compared with 33 percent, who placed greenhouse gas reduction/global warming mitigation intheirtopthree.Overall,greenhousegas reduction was ranked fourth-most important to a company’s environmental policy, below the increasing use of renewable energy (second most important) and reducing the amount of waste going to landfills (third) (See Figure 3).

At the more granular level, consumers tend to “think local.” Priorities vary significantly across different geographies. Reducing the use of traditional fuel sources is much more important to consumers in China (a big importer of oil and the world’s largest user of coal) than in Brazil (a major oil exporter). Reducing landfill waste is more important to respondents from the U.K. (a smaller, space-constrained country) than the other three, much larger, countries. And controlling pollution is a much greater concern in Brazil and China (heavy-industry economies) than in the U.K. (a primarily service-based economy).

To think about•Haveyouobservedany

differences in regional sentiment about environment issues across your different areas of operation? How do your observations compare with the findings noted in this paper?

•Doyouknowwhatcustomersthink about sustainability practices in your industry?

•Doyouthinkconsumersmight appreciate the use of locally sourced ingredients in your products?

Asian and European companies leading the way

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Figure 3. Consumers concerns about sustainability.

Reducing pollution of air and water

43%43%

32%50%

47%

Increasing use of renewable energy (solar, wind, hydroelectric)

39%36%

33%49%

40%

Reducing waste going to landfills or increased use of recycling

37%40%

48%25%

37%

Ethical treatment of animals

13%10%

22%18%

16%

Using less water or recycling water for activities such as cleaning, manufacturing and irrigation

36%36%

20%17%

27%

Reducing impact on land or animal habitat

28%29%

26%27%27%

Using less energy from traditional sources

32%33%

30%43%

20%

Minimizing global warming by reducing carbon/greenhouse gas emissions

36%42%

30%23%

33%

OverallUSUKChinaBrazil

Which of the following do you believe are most important to a company’s environmental or sustainability policy?

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Another important finding was the gap between sentiment and awareness. Although consumers say sustainability matters to them, they also revealed that they aren’t fully informed. Less than half of the respondents claimed to be familiar with the policies of the companies they buyfromthemost.And25percentsaidthey are familiar with very few or none of these companies’ policies.

So while consumers are strongly influenced by the sustainability policies and actions of companies, they aren’t always equipped to make informed purchasing decisions. Here, too, significant geographical differences emerged. Consumers in Brazil and China consider themselves better informed than those in the U.S. and the U.K. Ouranalysissuggeststhisisduetothe fact that the populations of Brazil and China are younger and therefore more inclined to care about long-term sustainability. It may also be because they are more tech-savvy and more opentonewideas.Or,suchawarenessmight matter more to people in rapidly-growing economies that are still more heavily manufacturing-based.

Companies have a significant hurdle to surmount: once they’ve formulated an environmental policy or instituted a sustainability initiative, they need to make sure consumers know about it. New technologies and consumer resources will help close the knowledge gap. Along with the explosion of smartphones and apps, a new class of “green” apps has emerged, allowing consumers to be green with less effort. As more third-party apps enter the market, sustainability information will become increasingly available and influential on consumers’ buying decisions.

The Knowledge Gap

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Figure 4. Channels for learning about sustainability policies.

Media such as TV, newspaper, magazines, onlinenews etc.

77%67%

74%78%

89%

Company advertising or product marketing, includingpackaging, displays, etc.

35%22%

28%54%

36%

Social networking or mediatools (i.e., Facebook,Twitter, YouTube)

26%14%

16%42%

34%

How do you typically learn about environmental or sustainability policies and actions of companies?

OverallUSUKChinaBrazil

Where are consumers getting their information? According to the survey, an overwhelming majorityofconsumers(77percent)hearabout the sustainability policies and actions of companies through traditional media outlets, such as newspapers, TV and radio news, and magazines. For less thanhalfthenumberofconsumers(35percent), company-controlled information channels, such as advertising and product packaging, represented the key information source (See Figure 4.) That means that a company’s effort to express its “green” edge to consumers is not even half as effective as traditional media. Clearly, companies could be doing more.

Among the other primary information sources consumers rely on were environmentalorganizations(29percentof respondents) and consumers’ own activeresearch(27percent).Socialmedia served as the primary information sourcefor26percentofrespondents.The impact and explosive growth of social media suggest that this channel will become an increasingly powerful source of consumer information and influence. Perhaps as important as the channels themselves is the general

assessment of the “spin.” Consumers consider most of the information they get regarding sustainability as either neutral or negative. No wonder: sustainability has become such a buzzword that people are often skeptical of self-serving claims of environmental consciousness. As with corporate social responsibility, many companies have jumped on the bandwagon, without truly committing to the goal.

Eye on the supply chain: Nestlé, palm oil, and the power of social media In March 2011, Greenpeace took aim at Nestlé for buying palm oil, an ingredient used to make chocolate, from a supplier that was engaging in illegal deforestation practices. Greenpeace’s campaign, waged aggressively through social media (including YouTube), captured widespread consumer attention and prompted Nestlé to take action. By May, the company had suspended purchases from the supplier.

To think about •Doesyourorganizationformally

recognize sustainability as an imperative? Is sustainability incorporated into the organization’s strategic goals?

•Hasyourorganizationrecognizedthe link between your supply chain practices and sustainability?

•Haveyoumeasuredtheenvironmental impacts of your supply chain practices—of transportation, packaging, or even the practices of key suppliers?

•Doyouhavesustainabilityinitiatives under way in any supply chain processes?

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Consumers base their buying decisions on sustainability—but only until it hits theminthewallet.Mostconsumers(56percent) say they choose to buy products from companies that they believe operate more sustainably than companies that don’t, if the price point is the same or less than competitors’. A small minority(15percent)areevenwillingtopaymore.Fortwicethatnumber(29percent), price remains the deciding factor, regardless of the company’s environmental or sustainability policies or practices. Respondents showed significant geographical variances. Following the common theme, consumers in China and Brazil are more likely to choose products based on sustainability, while U.S. and U.K. buyers are more influenced by price. It’s possible that the findings in the U.K. and the U.S. reflect temporary buying habits related to the downturn.

But generally speaking, these findings imply that for certain niche markets and segments, sustainability can be a margin lever. Its greatest potential, however, is as a competitive differentiator and market-share lever, when price is constant.

To think about •Isyourcompanyuniqueinits

industry or product area for its sustainability practices, or are they common practice?

•Haveyouexaminedthepricingof competitors who promote the sustainability of their products? How does it compare to yours?

Sustainability and Price

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Clearly, there is much more to be learned about consumer attitudes towards companies’ sustainability practices—and what shapes these attitudes. Still, our findings offer some important early lessons for supply chain executives.

First, assess and reduce your risksDo you know what’s lurking in your supply chain? Are there substandard environmental practices being carried out—within a small division in a far-flung location, or elsewhere in the supply chain—that could do real harm to the environment and to your company’s reputation? The Carbon Disclosure Project’s Supply Chain Report 2012 indicates that 30 percent of member companies experienced a supply chain disruption due to weather-related events. In the future climate scientists predict that storms will become more frequent and more intense, leading to further risk to the supply chain.

Investigate the practices and record of your suppliers, and proactively seek to encourage responsible environmental practices—or rethink relationships with suppliers whose environmental practices are questionable. The media still hold the greatest sway on consumer opinion. And nowadays, news travels at viral speed. Companies cannot expect to be insulated from the policies and practices of their suppliers or strategic partners.

In any case, when it comes to sustainability, companies as a whole are spending more time on defense than on offense. A company that has already established a reputation for having sustainable practices would likely weather a negative event more easily than one that has not.

Take your rightful seat at the sustainability strategy tableCEOsbelievetheircompaniesshouldbe integrating sustainability into the supply chain. As a supply chain executive, are you aware of this? Get aligned with your company’s sustainability strategy. Many of your decisions may already be contributing to it, whether intentionally or not; some cost-driven decisions, for instance, may also be environmentally friendly, such as using motion-sensor lighting in warehouses or reducing packaging. If so, the supply chain and the brand itself should get credit. Scrutinize your function: is there anything noteworthy about your current management—sourcing practices, ingredients, manufacturing process, packaging, distribution—that is sustainable and merits attention?

Calculate the sustainability benefits of the supply chainCalculate the sustainability benefits of supply chain practices and develop ways to get credit for them. This includes everything from specific actions you take (e.g., efforts to reduce your carbon footprint, partnering with more responsible suppliers) to deciding what to track and how and where you report and communicate performance. There are numerous standards in use, some more popular in certain parts of the world; two common ones are the Global Reporting

Initiative (GRI) and the Carbon Disclosure Project (CDP). In addition, share more information internally to help augment the information flow to the outside.

Sustainability can influence consumer buying behavior, but only when consumers know it is being practiced. So beyond the reporting requirements of regulators, consider the measures that matter to consumers: how many gallons of fuel you saved, how many cars you helped take off the road, how much post-consumer waste you used in packaging. But beware of “greenwashing.” Consumers don’t easily fall for superficial claims, and environmental groups track greenwashing as much as they do the environmental records of companies.

Monitor your brands and corporate environmental image in channels beyond your company’s control—from the mainstream media to environmental organizations’ websites. Remember, even seemingly local news can quickly circle the globe. Watch for the positive coverage, not merely the negative, since it may suggest potential new value propositions, product improvement ideas, or other benefits.

Use the channels that you do control—advertising, website, packaging, public relations—to promote your achievements. Embrace social media by working with your marketing and branding colleagues to ensure you get mileage out of your efforts.

Putting it in Perspective: What Steps Should Companies Take?

Putting Sustainability at the Heart of Strategy: Unilever’s Plan Cultivating consumer awareness and appealing to consumers’ sustainability concerns isn’t a huge leap if sustainability is integrally tied to your brand identity (think: the Body Shop, Seventh Generation, and Brazil’s Natura Cosmeticos). But even companies whose products aren’t inherently or explicitly green—those that either want to attract more consumers through good-citizen policies and practices, or who simply recognize the importance of sustainable practices as a defense—can surely do more to win consumers’ goodwill.

Consider Unilever, the multinational personal care products giant, which has embraced sustainability as a core strategy. In 2010, Unilever launched its Sustainable Living Plan, designating three ambitious major goals (with50specifictargets)tobeachievedby2020.Thecompanyaimstoreduce the environmental footprint of its products by half, help more than 1 billion people “take action to improve their health and well-being,” and procure 100 percent of its agricultural raw materials sustainably.

As part of these broad goals, Unilever is striving to cut by half the waste related to disposing its products. Its waste reduction plan includes quantified targets (interim and final) for reducing packaging, producing reusable packaging, recycling, and cutting waste in the manufacturing process. The company also established goals for water conservation and greenhouse gas reduction—by consumers (through product design) as well as by its own manufacturing and transportation activities. For its sustainable sourcing goals, Unilever has established targets for every category of material, from soy and cocoa to paper and board. These goals and the plan itself are the central message of the company’s website and Facebook page.

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Monitor (and safeguard) your brand Third-party environmental rating services—can help companies raise consumer awareness. Good Guide, for example, designed for the iPhone and Android platforms, allows consumers to scan a product’s bar code and get information about how green the product is and how environmentally responsible its manufacturer is. But such services also underscore the importance of monitoring your brand to safeguard it. Companies need to be aware of the ratings and the methodologies used: good ones, so they can promote the use of such services within their target markets and quickly take advantage of any constructive criticisms; unfair ones, so they can dispute them and seek correction.

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Think localMany elements are factored into supply chain design decisions, and ultimately align to overall company strategy. For example, when superior customer service is the goal, a company may operate with more localized warehouses to speed delivery of inventory to customers. Consumer sentiment toward sustainability ought to be another consideration for supply chain design. That might well require tradeoffs between business strategy and sustainability goals.

An emphasis on locally led procurement improves supplier outcomes, makes auditing easier, and, in certain jurisdictions, meets legislative requirements for local content. Reduced global sourcing, combined with a more effective local sourcing strategy, can help companies create tailored product offerings. Such differentiated offerings can, in turn, give companies a competitive advantage among certain buyer segments, such as governments, which often promote local-level purchasing.

In addition, as we’ve seen, consumers’ sustainability concerns vary from region to region. So in China and Brazil, where consumers are more concerned about fossil fuel emissions than about landfill waste, an inventory system designed for delivery speed entails more mileage, and is thus less optimal. In making your decisions, consider the role sustainability plays in consumers’ buying decisions throughout all of your markets.

In broader terms, consider that in developed economies, sustainability can be a way to grab market share from competitors. In the developing world, sustainability can help your company attract new customers within a rapidly expanding consumer base.

Control your destinyThe supply chain offers significant opportunities for advancing sustainable practices and, in general, your company’s sustainability policies. But it can also be a significant source of vulnerability.

Supply chain executives should recognize their role in the company’s sustainability strategy and proactively take steps to align supply chain management to it. Take stock of the potential risks entailed in your current practices. Conversely, tally the benefits of these existing practices, ensuring they’re being measured in terms that resonate with consumers. Work with your branding peers. Finally, recognize the variations in consumer attitudes and concerns from region to region, and take these differences into account as you design your global and regional supply chain strategies.

Although quantifying the value of sustainability practices is still in its infancy, no one doubts the benefits - to all stakeholders.

To think about •Doesyourcompanysolicit

customer feedback on your company’s environmental practices or impacts?

•Haveyoudevelopedmetricstotrack sustainability initiatives? If so, where and how do you report performance? Are you measuring improvements?

•Isthereaprocessinplacethrough which the marketing and customer-facing functions work with the supply chain function to develop sustainability messaging? Monitor public response to your practices?

About the AuthorsNick Blonkowski is a Consultant in AccentureOperationsManagementConsulting practice. Nick has significant experience throughout the supply chain from demand planning through transportation in a variety of industries. He currently leads Accenture’s North American Sustainable Fulfillment offering. Based in Washington, DC, he can be reached at n.w.blonkowski@accenture.com.

Derek Jones is a Senior Manager in AccentureOperationsManagementConsulting practice. He has an extensive background in distribution operations and inventory management for a variety of industries. He currently leads OfferingDevelopmentfortheIntegratedPlanning and Fulfillment practice area. Based in Tampa, he can be reached at Derek.m.jones@accenture.com.

Sundip Naik is an Executive in Accenture’s Management Consulting practice. He has an extensive background in global supply chain transformational programs focusing on network design, fulfillment strategy, distribution re-engineering and transportation operations. He has worked in Consumer Goods, Retail, Communications and High Tech industries. Most recently he has led Accenture’s North American thought leadership and offerings within the Planning, Fulfillment and Sustainability areas. Based in Atlanta, he can be reached at sundip.s.naik@accenture.com.

Saurabh Raman is a Consultant in Accenture’s Management Consulting practice. He has a wide-ranging background in supply chain operations, including warehouse management, private/dedicated fleet management and procure to pay services. Saurabh’s primary experience has been in the Communications and High Tech and Consumer Goods industries. Based in Philadelphia, he can be reached at Saurabh.raman@accenture.com.

References1 The findings cited here were derived from A New Era of Sustainability: the UN Global Compact-AccentureCEOStudy2010andDecision Maker Attitudes and Approaches Towards Sustainability in Business in 2011 (an Accenture survey). Both are available at http://www.unglobalcompact.org/docs/news_events/8.1/UNGC_Accenture_CEO_Study_2010.pdf.

2 Significantly, China’s latest five-year plan calls for a shift to manufacturing higher-value goods. (Source: Marcus Blosch, Stephen Stokes, “China’s Plan for Sustainable Growth,”Gartner,17August2011).

3 CDP Supply Chain Report 2012—A New Era: Supplier Management in the Low-Carbon Economy. The report, written for the Carbon Disclosure Project by Accenture, is available at www.cdproject.net.

About AccentureAccenture is a global management consulting, technology services and outsourcing company, with more than 244,000 people serving clients in more than 120 countries. Combining unparalleled experience, comprehensive capabilities across all industries and business functions, and extensive research on the world’s most successful companies, Accenture collaborates with clients to help them become high-performance businesses and governments. The company generated net revenuesofUS$25.5billionforthefiscalyear ended Aug. 31, 2011. Its home page is www.accenture.com.

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