Sustainable Supply Chain – A New Way of Building China’s Green Economy

Apple is accused of environmental damages in China

By Qiong Xie

Haibing Ma, China Program manager at the Worldwatch Institute, was interviewed by Voice of America on August 31st to discuss whether Apple, one of the most successful American IT companies, should be responsible for environmental pollution from its Chinese supply chain. Mr. Ma commented that even though Apple has completely outsourced its production to many factories in developing countries such as China, it still bears the responsibility to carefully choose its first and second tier suppliers to make sure all Apple components are manufactured in an environmentally friendly way.

Apple’s supply chain problem is only the latest example of an emerging environmental issue: the sustainability of globalized supply chains. The concept of sustainability has emerged as a popular word in the political, environmental and business fields, partially due to the report Our Common Future, which was presented during the World Commission on Environment and Development (WCED) in 1987. According to this report, sustainability is defined as “using resources to meet the need of the present without compromising the ability of the future generations to meet their own needs.” For the manufacturing sector, sustainability is more about using operational management, such as product design, process technology, and an environmental management system, to reduce negative environmental impacts to the greatest extent possible. In the era of globalization, supply chain management has become an indispensable part of operational management for companies with globalized business operations like Apple.

More and more companies have established partnerships with their suppliers to make business more sustainable. For instance, Walmart has collaborated with Sustainability Consortium to create a “Sustainability Index” that reveals each product’s lifecycle information, including raw material, water use, and solid waste management. The “Sustainability Index” includes supplier sustainability assessments to enhance the transparency of the company’s supply chain as well. Walmart also cultivates within its senior managers and supply chain managers an understanding of sustainability and of how to implement it within their business. IT companies, such as Hewlett-Packard (HP), have also established and advanced their sustainability initiatives in response to people’s increasing demand for green technology.

As multinational corporations (MNCs) are adopting new business practices such as outsourcing their production all over the world, they are finding it challenging to identify authentic environmentally responsible suppliers. MNCs are therefore seeking help from environmental consultants, energy auditors, and environmental NGOs. Since China has become a world-leading manufacturing force in recent decades, these sustainability service companies have been hired by MNCs to provide their expertise to China-based suppliers. Efficiency Exchange (EEx), for instance, is a Washington D.C. based consulting company that has rich on-the-ground experience working with Chinese factories to improve their energy efficiency and reduce their environmental impact.

Many of China’s factories are facing energy efficiency challenges in particular, which has drawn concern from MNCs. According to Ms. Taryn Sullivan, President of the EEx, a lack of knowledge about available tools for factories to manage and audit energy efficiency is the greatest barrier to implementing efficiency programs in China. In order to find out what tools can best help its clients, the EEx research team conducted field research during the summer of 2011 by interviewing a range of factories, NGOs, and governmental officials in various Chinese cities such as Beijing, Nanjing, and Shanghai.

As the Chinese government has set up its national target of 16 percent energy intensity reduction  by 2015, it has also specified the province-by-province targets based on each province’s energy, industrial and economic indicators. Many manufacturing companies are clustered in the Guangdong province, which makes the province one of the largest energy consumers in China. The good news is that improving energy efficiency has become a standard requirement by local governments in the Guangdong province. However, as Ms. Taryn Sullivan mentioned in a phone interview with me, a significant portion of Chinese manufacturing factories lack the know-how to tackle efficiency issues. So EEx, along with other energy auditing and consulting companies, hopes to help Chinese local governments and factories by enhancing their capacity to improve energy efficiency. Efforts being conducted include nourishing appropriate sustainability intellect among management teams and factory employees and seeking available financing mechanisms to fund small and medium-sized companies’ energy efficiency programs.

Many international companies, like GE, are managing their supply chain sustainability issues with education & collaboration

The Chinese government has realized the urgent need for and benefit from improving energy efficiency, especially from its industrial sector, which accounts for more than 70 percent of the country’s total energy consumption. Since 2006, the central government has been implementing the Top 1000 Enterprises Program, with a goal to achieve energy savings of up to 100 million tons of coal equivalent (Mtce) by the end of 2010. The 1000 largest industrial enterprises in China, which are covered in this program, account for half of the country’s industrial energy consumption and a third of the country’s total energy use. With strong financial support from the government, the Top 1000 Enterprises Program finally achieved energy saving as much as 150 Mtce by the end of 2010.

It has to be noted that enterprises included in the Top 1000 program are mainly large state-owned companies. Privately-owned small and medium-sized companies, on the other hand, are facing tremendous challenges in implementing their own energy efficiency programs in terms of both financial and technical support. This is where we think sustainable supply chain management can play an important role to help improve Chinese manufacturing companies’ energy efficiency, which will ultimately contribute to global greenhouse gas mitigation efforts as well. Since China is still largely endorsing an export-oriented growth pattern – about 35 percent of its annual total energy consumption is used for manufacturing exported products – there is great potential for MNCs to push their Chinese suppliers to adopt more aggressive energy efficiency programs.

 

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