We’ve come a long way since San Francisco’s City Council banned plastic bags 13 months ago. At the time, the move seen as more of a late night TV punch line than a serious attempt to promote environmental sustainability. But in the wake of more legislated bans (as China, Ireland, Uganda and a host of cities across the globe have done) and demands by consumers that the brands they buy move to green their products, you can see why companies are exploring their packaging to see where improvements can be made.

Just to get our head around the scale of the numbers involved here, let’s take China’s recent ban on plastic bags. Whether you think it’s a case of pre-Olympic greenwashing or not, it’s hard to deny that a move which saves an estimated 37 million barrels of crude oil per year is a step in the right direction. To put that in perspective, the US imports about that much crude from OPEC nations every week. So when we extrapolate the numbers in anticipation of more cities and countries following China’s lead, you can see we’re not talking about an insignificant drop in the consumption barrel.

So should your company consider shifting to more sustainable bags and packaging? Here are a few benefits to consider:

• It’s an “easy win” - Many companies are interested in making sustainability a long term goal, but struggle to identify where to start. Unlike your product line, which involves a host of suppliers and manufacturers that are heavily integrated in the daily operations of your organization, your packaging supplies are pretty straight forward. In most cases, spend is attractive enough to entice new suppliers’ interest in gaining your business. So pulling the trigger on new packaging is a very attainable, short term opportunity.
• Suppliers want to collaborate with you - Many packaging manufacturers are being pressed to identify innovative solutions for their customers. Take advantage of their knowledge and creativity, and allow them to share best practices in “green” with you. You can benefit from their experience!
• Bags = Moving Billboards - We’ve known for a long time that branded bags a great way to market a company. Therefore, it’s a no brainer that easily identifiable “green” bags can help promote your brand AND your commitment to green efforts.
• Customer demands - Judging by the sheer volume of “green” product ads on TV these days, customers are either demanding more environmental awareness from companies OR Madison Avenue is very out of touch. Consumers appear to be rewarding companies that adopt sustainability and punishing those that don’t. Dragging your feet can damage the brand loyalty your company has worked hard to create and maintain.
• Legislation - If consumer demand doesn’t sway you, will a global patchwork of bag bans? If not, how will your various locations cope with the local mandates? It’s better to be seen as a leader, out in front of this issue, rather than playing catch up later.
• You’ve got options - There are a host of vendors offering a very wide range of packaging choices - from 100% post consumer recycled bags to plastic bags made of recycled materials. And if you’re flexible on things like color, the cost for making the switch can be reduced significantly.

Ellen Terchila is a Senior Consultant on Ariba’s Spend Management Services team. Ellen specializes in strategic sourcing in the retail sector.

About a month ago I had dinner with the head of supply chain for one of the world’s most recognized food service brands. We weren’t even through the salad course when he lit into me about previous Supply Excellence posts encouraging buyers to consider alternative fuels, materials, and lighting methods.

“Next time you’re at one of those fancy cocktail parties and folks go on about the benefits of alternative fuels, tell them they’ll pay for it at the dinner table.” He went on to tell the story of how one of his tomato suppliers threatened to plow over its fields and plant corn for ethanol unless he conceded to price increases.

He was right to be angry. But his anger was somewhat misplaced. Ethanol is only one (and, considering limited production and distribution infrastructure, the smallest) of culprits for rising food prices. Rising global food demand, quality scares, and crop hoarding have been at the root of sprouting food prices.

In fact, economist Elizabeth Baatz (editor of the closely watched ICE-Alert) warns that input costs for grains and margin pressures for food processors could send food staples — from rice to tortillas — up more than 20%. In fact, rising rice, corn, soybean, and other crop costs prompted Baatz and her Thinking Cap Solutions team to rank nine food manufacturing sectors on the Top 20 inflation watch list out of the more than 371 U.S. manufacturing industries they track.

According to Thinking Cap’s analysis, food buyers can expect the biggest price boosts in dog and cat food, flour-based mixes and doughs, and rice milling. (Recent reports from The Wall Street Journal last week suggest that the rice crisis may be even worse. Prices for the grain have more than doubled since the beginning of the year, climbing to a record $760 per metric ton. The boost is pegged to increased demand from Africa, crop hoarding in Asia, and a pest outbreak in Vietnam.)

(Click to table to enlarge.)

Ironically, my dinner companion is offsetting some of these increases through sophisticated contract hedging. Yet, other businesses (and consumers) that lack the volume or frequency for food buys will certainly pay more at the checkout. “Consumer staples companies generally do well in an economic downturn and in periods of increased inflation, since they often can pass higher costs on to consumers,” said fund manager Steve Neimeth of AIG SunAmerica Asset Management in a recent BusinessWeek article.

The most important part of the spat between British Airways and Virgin Atlantic over biofuels is not whether BA is stuck in the “old economy” and can’t adapt (as tempting as that might be given the headlines about opening day at Heathrow Terminal 5) or whether Richard Branson is the ultimate public relations wizard.

The real key is that the perfect solution to airline pollution doesn’t exist yet, almost by definition. The reason that going green is both difficult and full of opportunity is because the solutions aren’t easy and aren’t yet available. Instead, it will require substantial experimentation and multiple false starts in order to find the right answers.

I once read that in the early 1910s, there were literally hundreds of car companies in the United States. These companies tried multiple platforms, manufacturing techniques and marketing approaches. And we all remember the number of supposed “killer apps” from the dot.com era of the late 90’s (think: sock puppets). As industries mature, part of the natural order of things is that many ideas will be tried and few will be successful. You need the “failed many” in order to find the “successful few.”

For all we know, the use of biofuels in airline fuel may be a total non-starter. However, the companies that are long-term leaders are precisely those that are willing to try new approaches without certain return, recognizing that many of their seeds won’t take root. You can’t grow anything without first planting the seed and taking your chances.

Kris Colby, a Director of Ariba’s Spend Management Services group, recently authored a white paper on the subject of minimizing risk - An Ounce of Prevention: Steps Your Organization Can Take Now to Reduce the Risk of a Product Safety Incident.

With the outcome of what some are calling “the most important U.S. Presidential race ever” still uncertain, many business executives are fretting over the economic, tax, and trade policies of the eventual President No. 44.

Yet, savvy procurement and supply management professionals aren’t waiting for the election outcome. They know that, regardless of who wins the White House, they must devise strategies and tactics to overcome the prevailing issues of the day: global economic malaise, new pressures (and opportunities) of globalization, risk management, and sustainability.

This is the premise behind the upcoming Spend Management Town Hall at Michigan State University (MSU) next Monday night. The first in a series of debates among industry thought leaders and top procurement, supply chain, and finance executives, the MSU Town Hall will showcase how leading companies are applying spend management techniques and approaches to address the leading business and socio-economic issues of the day. Featured panelists at this inaugural debate include:

• Mark Brown, Senior Vice President of Global Strategic Sourcing at Whirlpool
• Alistair Hirst, Vice President of Global Procurement at The Kellogg Company
• Professor Joe Sandor, Hoagland-Metzler Endowed Professor of Supply Management and Supply Chain Management at Michigan State University

I have the enviable honor of moderating this illustrious panel. And, unlike Tim Russert, I plan on pulling no punches. I will get right to the most pressing supply management questions:

• How has the declining U.S. dollar impacted your sourcing and supplier strategies?
• How have rising labor, commodities, and shipping costs caused you to rethink your China sourcing strategy?
• How are you assessing quality, performance, and supply risk in your global supply chain?
• Is the push for environmentally responsible supply a long-term business strategy, or just a passing fad?
• What can procurement do to hold down healthcare and other complex services costs?
• …and more.

I am pleased to extend a special invitation for Supply Excellence readers to attend what I’m certain will shape up as a lively debate. You can register or get more information on the Spend Management Town Hall here.

Can’t attend? Use the comments section of this post to submit a question you’d like me to pose to the panel. I will be sure to report back on the answers and approaches these leading supply management organizations are taking to overcome the challenges of today’s global economy.

Last week, Industry Week highlighted the fact that 2/3rds of North American organizations have limited knowledge of the operational impacts of REACH (Registration, Evaluation and Authorization of CHemicals). REACH is European Union legislation that aims to put more responsibility on industry to manage the health and environmental risks of industrial chemicals.

I can’t comment on my personal readiness for REACH. But I do know that the 1st decade of the 21st century may be remembered for a tightening regulatory environment that has increased the complexity of doing business for multi-national organizations, creating plenty of SG&A jobs, as well as opportunities for consultants, auditors and quite frankly, spend management software and service providers. Whether you believe these regulations to be altruistic or onerous, one can’t deny that keeping abreast of and compliant with the rules of play in the global economy is a major challenge.

In 2002, the United States responded to the Enron and Worldcom corporate governance scandals by enacting Sarbanes Oxley, which essentially requires companies to demonstrate that they have control over their expenditures, and holds certain corporate officers criminally liable for the accuracy of financial statements. “SOX” quickly spawned numerous copycats including Canada, Japan, France, Italy and others in just about every corner of the globe.

Accompanying SOX was the rise of electronic invoicing, which triggered mixed reactions, ranging from extensive new regulations to complete silence to complex requirements for continued physical storage of paper invoices. In the EU for example, companies must comply with a matrix of not only EU guidelines, but also country-by-country rules that frustrate procurement and finance departments.

A cynical person might suggest that even the current wave of “green” activity, including REACH, is not actually triggered by shared recognition of an impending environmental problem, but by an uneasy convergence of increased demand for “green” products to drive revenue growth, increased cost of waste due to competition for energy and raw materials, and the desire to avoid the expected cost of future regulation. And I should also mention recent food and product safety incidents, which have some calling for the government to protect us from poor sourcing decisions and lax supplier performance management.

The tightening regulatory environment looks like it will continue. Last week’s collapse of Bear Stearns and the Federal Reserve’s intervention seem to have some investment banks even clamoring for increased regulation. Both Democratic presidential candidates seem to be vaguely promising some sort of increased trade regulation (although I’m personally not sure how to reconcile both candidates’ promise to improve the stature of the US in the world while threatening to reduce trade). The bottom line is … spend management, finance and legal organizations, as well as their armies of advisers and consultants will have their hands full determining the impact of integrating their requirements into an increasingly complex global operational environment.

Last week, Supply Excellence contributor Kris Colby reported from the Sourcing Interests Group’s regional conference that sustainable supply strategies are not just a passing fad. After rubbing elbows with sourcing and supply management executives from some of the world’s largest manufacturing and retail companies, Kris came away with this conclusion: “world class sourcing organizations are devoting significant attention to plotting a strategy that balances both the economic needs of the company and the green demands of their leadership, employees, shareholders and customers.”

Yet, while companies may have come around to the idea that environmentally responsible supply strategies can be good for both the environment and good for business, many still struggle with how to get started down the path to sustainability. Aberdeen Group’s latest CPO Agenda study offers some valuable guidance on this issue. (Download a complimentary copy of this report here.)

In the report, Aberdeen profiles how one mid-market materials manufacturer launched and grew its sustainable procurement program. Like many companies, the mid-market manufacturer began its sustainability program with a focus on internal operations, recycling items like paper, ink, toner cartridges, and waste oil. The company used this experience to develop a methodology for calculating the impact and return of sustainable initiatives to total costs.

Aberdeen says the manufacturer now includes a “standard set of questions for suppliers in the RFI/RFP stage” — especially for its core spending categories like metals, paints, chemicals, and energy.

The company’s global supply chain director gives the following advice for other companies considering hopping the green supply bandwagon:

1. Attach every dollar sign to every initiative to let people know about the savings involved.
2. Remember to calculate and communicate the lower procurement costs as well as the avoided disposal costs.
3. Communicate with suppliers to get insights into where opportunities exist to cut costs.
4. Track savings for your firm and for your suppliers.
5. Deeply analyze the entire product lifecycle and associate supply chain.

Sage advice for starting a sustainability program at companies of any size.

Last week, I had the opportunity to present at the Sourcing Interest Group’s (SIG) meeting on Green/Sustainability in Sourcing in Seattle. Talking with the other speakers and attendees, I was once again struck by just how seriously companies are taking this issue. This is not a feel good effort by people in Prius’s (or is the plural Priui?) and Birkenstocks. Instead, world class sourcing organizations are devoting significant attention to plotting a strategy that balances both the economic needs of the company and the green demands of their leadership, employees, shareholders and customers. This is further complicated by the increasing length of the typical supply chain and outside influences.

The key topics addressed included:

• Legal and regulatory environment. Multiple outside influences are pushing companies to get moving, including institutional shareholders, regulatory bodies (especially in Europe) and customer groups. Expectations are that some sort of Cap & Trade system will be implemented in the US within the next few years, most likely similar to the structure of the European ETS (Emission Trading Scheme).
• The Green Landscape. Companies are bundling environmental efforts with product safety, supply chain risk, etc. into a coherent approach under a single corporate ownership.
• Near-term opportunities. There’s a broad recognition that we can’t boil the ocean (forgive the global warming pun) and efforts need to be focused where they’ll have the most impact. Approaches have been developed that leverage the established methods of building a sourcing pipeline by adding environmental and supply chain impact criteria to the assessment. The end result is an opportunity map that highlights categories where there is both green and economic value, so that sourcing groups can best allocate scarce resources.

Overall, I was left with the impression that this is a trend that’s not going away and is in fact likely to accelerate over the coming years. Companies need to have this on their radar so that they’re not surprised when it becomes mandatory.

Kris Colby, a Director of Ariba’s Spend Management Services group, recently authored a white paper on the subject of minimizing risk – An Ounce of Prevention: Steps Your Organization Can Take Now to Reduce the Risk of a Product Safety Incident.

Toys “R” Us and Wal-Mart announced last week that they’ll be tightening their safety requirements for toy suppliers. Both retailers will institute mandatory third party testing to safeguard against lead paint and Babies “R” Us will cut their phthalate threshold by 85%. Great moves from PR and supply chain risk perspectives. But is it enough to truly protect the companies and their customers?

This is a great example that much work remains in the supply risk management field even after the volume of headline grabbing recalls in the press has declined. In order to create the safest and strongest supply chains, retailers and consumer goods companies are ratcheting up their efforts. They had to - consumers were demanding it (and regulators weren’t far behind).

As you know, we feel strongly that increased testing is only part of the solution. In addition, companies need to accelerate efforts to:

• Set the right expectations with current and potential vendors
• Hold them accountable when mistakes are made
• And most importantly, get better visibility into what’s going on inside of their supply chains

These critical steps are certainly not new… or quick and easy. But with the speed that information travels in today’s consumer climate and ever-longer supply chains, managing risks is a business and brand protection imperative.

Kris Colby, a Director of Ariba’s Spend Management Services group, recently authored a white paper on the subject – An Ounce of Prevention: Steps Your Organization Can Take Now to Reduce the Risk of a Product Safety Incident.

In his ongoing quest to unite the blogging community, Sourcing Innovation blogmaster Michael Lamourex recently called for supply and spend management blogs to pen a post on socially and environmentally responsible business practices. My response: it’s nice of you to finally hop aboard the sustainability bandwagon.

Michael, SpendMatters Jason Busch, and others chastised me this time last year when I proclaimed 2007 as The Year of Sustainable Supply Practices. They ridiculed my comments that sustainable sourcing and supplier management approaches that were good for the environment were even better for the business. Now, with the economy hinging on stagflation, commodity prices soaring, and the ice caps melting, I’m finally glad to see that these naysayers have finally come round to the reality that environmentally and socially responsible business and supply practices translate into cost savings, competitive advantage, and, ultimately, profits.

Best of all, sustainability doesn’t need to be complicated. Simple steps in the following areas to deliver quick returns to your organization:

• Recycling and Reuse Programs: Wal-Mart and others have saved vast amounts of money merely by shrinking and reducing packaging and reusing crates and pallets. This not only reduces waste but it also cuts shipping bills dramatically. Others like, Hewlett-Packard have used recycling programs to successfully offset rising material costs. And Kellogg’s recycles 80% of its waste, including converting food waste into animal feed.
• Energy conservation: Adobe Systems is saving millions of dollars each year by retrofitting its existing buildings with energy efficient incandescent lights and power-control systems. Sun Microsystems has taken aim at power-sucking IT equipment. “IT on average spends 25% of their budget on power,” said Ken Leinweber, Strategic Sourcing Manager, Procurement and Operations Strategy at Sun. “Innovating products and solutions that use less power is critical to the environment [and our operating budget].”
• Responsible operations and employees: Tech giants like Microsoft, Google, and Salesforce.com incentivize employees to engage in environmentally and socially responsible practices. For example, Microsoft has launched incentive programs to encourage employees to buy energy efficient vehicles, created ‘green buildings’ and is using solar power systems to power offices. By the company’s estimates, 11,000 of its workers commute to its Redmond, Washington headquarters via some ‘green’ method, such as mass transit, bike, or car pool. Like Microsoft, Salesforce.com encourages employees to support local charities and social causes by giving each employee paid time off for volunteer work.

Many companies are now using internal conservation efforts as an example to encourage suppliers to embrace sustainability. Wal-Mart Airbus, HP, and others have begun measuring the socially and environmentally responsible practices
The message to supply managers was best summed up in a BusinessWeek issue last year: Imagine a world in which eco-friendly and socially responsible practices actually help a company’s bottom line. It’s closer than you think.

Oil may have crested at the $100 per barrel mark recently (and is still holding high on production constraints), but buyers should keep a close eye on the rising cost of alternative fuels.

Global markets quaked last week as soybeans sprouted to near-record prices of $11.50 per bushel, the cost of corn reached an 11-year high, and wheat prices mounted a rally. The U.S. Department of Agriculture last week created havoc when it reported that:

• World soybean harvest will fall 6.5% this year
• U.S. corn inventories will be down 20%
• U.S. wheat farmers cut back on production, even as the price of grain doubled.

The culprit? A mix of rising global food needs, coupled with demand for new biofuel alternatives to oil and gasoline.

No doubt the tightening of crop markets has been influenced by the new energy bill President George Bush signed into law before the holiday recess. The new rules call for production of 36 billion gallons of renewable fuel by 2022, including doubling the current ethanol production capacity to 15 billion gallons. The law also includes incentive for biodiesel from soybeans and cellulosic fuels from switchgrass, wood chips, and other agricultural byproducts. (As noted in previous posts, cellulosic fuels hold the greatest opportunity to generate alternative fuels with minimal impact on global food supplies. However, this new power-generation method is less mature than other biofuel generation approaches.)

New rules for cleaner fuel and rising global food demand has sent shockwaves around the world and across industries ranging from farming to clothing, where buyers worry that farmers will be wooed to trade in their cotton fields for more prosperous grain production. In the U.S. food prices have already jumped 5.3%, on average, this year. And that’s nothing compared to increases in developing nations.

Upshot: Don’t just expect to pay more on your grocery bill. At least for the near term, the biofuel rage will drive prices up (and supplies down) for a wide range of products.