State of Green Business: Supply chain transparency ramps up

This article is part of a series of excerpts from the 2015 State of Green Business report.

Corporate supply chains, long opaque, even to the companies themselves, are becoming clearer. One reason: the rise in traceability and transparency technologies, along with the management practices that make them work.

Traceability, said a guide published last year by the U.N. Global Compact and sustainability advisory firm BSR, means: The ability to identify and trace the history, distribution, location and application of products, parts and materials, to ensure the reliability of sustainability claims, in the areas of human rights, labor (including health and safety), the environment and anti-corruption.

The field isn’t exactly new. Companies have been tracking agricultural commodities and forest products for years, for example. But new technologies such as sensors, data analytics and the so-called Internet of Things are enabling companies to more easily and affordably account for the environmental and social impacts of their materials and products — all the way upstream to farms, forests, mines and individual factories.

The growth of third-party verification is another factor, along with a small army of professionals available to verify the provenance of products and raw materials. Increasingly, global organizations such as Big Four auditors and assurance firms such as DNV GL are growing global practices around supply-chain transparency and traceability. For companies, there’s no longer an excuse for not knowing.

Increasingly, companies do know, and they’re sharing that information with anyone who cares. Example: If you inspect a can of Ocean Naturals tuna, the house brand from Tri Marine Group, you’ll find numeric or QR codes emblazoned on every package. Enter that information on the company’s Web site, and you get detailed information about what sort of fish contributed the meat, plus where and when it was “responsibly caught.” That data is collected from every boat in the company’s fishing fleet.

Tri Marine is able to pull this off because its business model is vertically integrated: it has tight control over the source of its tuna, as well as how it is processed. And earlier this year, it allied with the Marine Stewardship Council (MSC) to add even more weight to its data.

Most supply chains are more complicated, with commodities or raw materials changing hands multiple times, or commingled with those from other sources, often originating at hundreds or even thousands of locations around the world.

Consider McDonald’s quest to start buying verified sustainable beef for its hamburgers by 2016. That pledge has forced it to engage far more closely with stakeholders across the industry — including more than 400,000 ranchers, plus feedlots, supermarkets and restaurants, not to mention environmental groups and the company’s own senior management.

The process started more than five years ago, when McDonald’s teamed with the World Wildlife Fund to research solutions for everything from animal welfare to land management practices by beef producers, especially in places such as Brazil where cattle ranch development has been linked to deforestation.

McDonald’s journey reached a significant milestone in November when the industry approved a set of principles for sustainable beef standards.

Cameron Bruett, president of the Global Roundtable for Sustainable Beef and chief sustainability officer for beef processor JBS USA, told GreenBiz: “It necessarily was a negotiation, a lengthy discussion, and sometimes a difficult discussion depending upon the issue that was being addressed. … I think we arrived at a product that probably doesn’t meet 100 percent of any member’s needs, but certainly represents a negotiated, transparent outcome that everyone agrees is an outstanding vehicle by which to move forward.”

McDonald’s and others may learn from companies that already have succeeded in gaining visibility into supply chains. For example, more than 20,000 seafood products are certified under the MSC certification program, which is at the center of Whole Foods’ rigorous aquaculture initiative. About 10 percent of global forests have been covered by the Forest Stewardship Council (a program that KimberlyClark has used to great effect) and 8 percent of the world’s cotton supply is certified under the Better Cotton Initiative. Other global programs exist for biofuel, cocoa, leather, minerals and diamonds, palm oil and sugar.

These things don’t happen overnight. Policies adopted by apparel maker Patagonia to document its evolution to 100 percent traceable down took more than six years to develop. The process involves a physical inspection of every supplier, from farm to factory, by a third-party expert. That’s a far cry from typical supply-chain practices, which rely on affidavits signed by suppliers attesting to adherence with sustainability practices, but which aren’t usually independently verified.

Companies such as Patagonia and McDonald’s are finding strength in numbers — that by joining forces they can leverage their collective clout while gaining the economies of scale that come from standardized practices and reporting. One great recent example of progress is the 2014 pledge by four of the world’s biggest palm oil producers — Asian Agri, Cargill, Golden Agri Resources and Wilmar International — to drive sustainable procurement policies that shun deforestation deep into the Indonesian supply chain.

Elsewhere, many food and beverage companies — including CocaCola, General Mills and Mondelez — are partnering with their growers and other agricultural partners to push for sustainable business practices.

Coke, for example, published sustainable agricultural guiding principles that include requirements for soil management, water management and biodiversity. General Mills piloted an innovative program with vanilla farmers in Madagascar that supply its Haagen-Dazs ice cream division.

Mondelez is making perhaps the biggest statement of the three with its Coffee Made Happy initiative, which could make 1 million small coffee growers “successful entrepreneurs” by 2020. It isn’t just training farmers, it is measuring results.

“As the second largest coffee company in the world, we can have real impact on the ground — inspire, train and build capacity to improve coffee farmers’ livelihoods and attract new generations to small-scale farming,” said Roland Weening, president of coffee at Mondeléz International.

It also ensures that more stakeholders deep within the supply chain associate sustainable resource management with improved economic opportunity — and that traceability and accountability can be smart business choices.