The Horse Before the Cart
For Michigan State University, infusing sustainability into its supply chain meant first engaging providers before developing procurement policies and articulating outcomes.
By Kathryn Lindahl, Kimberly Kokenakes, and James Salo
Even when we know where we need to lead our institutions, we aren't always certain how to get there. Many colleges and universities have established plans and are actively measuring and managing their Scope 1 and Scope 2 greenhouse gas emissions—those directly associated with their campus operations and their purchased power. Fewer have tackled the Scope 3 impacts associated with business travel and commuting, and the array of goods and services purchased on a daily basis.
In the case of Michigan State University (MSU), we knew our purchasing spend, but the emissions-related impacts of our supply chain remained unknown territory. How would we begin to identify and quantify these impacts? And once we did, what control would we have to mitigate them?
For the past decade, MSU has pursued a full range of environmental stewardship initiatives across the university. In the process, we've steadily gained awareness of the importance of supply chain risks and opportunities, including the potential to lower regulatory exposure from purchased goods and services, and to protect against increasing and unpredictable commodity prices. We've also observed a growing number of leading companies and organizations beginning to actively manage their supply chain environmental performance as a key part of their business strategy. We were ready to do the same.
Yet, in confronting the questions regarding our Scope 3 emissions, we realized it wouldn't make sense to simply implement a sustainability-focused purchasing policy for MSU without a firm grasp of the emissions-related activities of our supplier partners. We were also concerned that our supplier community might feel threatened if we imposed new performance expectations that were created without their input. Our aim was to take a different path: to approach these broader questions from a data-informed perspective that would invite supplier buy-in and encourage them in their efforts to reduce their own emissions footprint, even as we helped them understand MSU's priorities and goals. To focus on outcomes before we fully understood the risks, barriers, and opportunities would be to put the proverbial cart before the horse.
First Things First
At the outset, our purpose was to develop a more complete picture of total emissions associated with MSU operations and to understand where we might have opportunities to reduce our supply chain footprint. To do so, we needed to engage suppliers directly, ideally in a collaborative learning experience for all. We realized we needed some outside expertise to start this process of Scope 3 assessment, so in March 2010 we brought in the environmental data research firm Trucost Inc. to help us measure the greenhouse gas emissions of our supply chain. Our analysis—a first of its kind for the higher education sector—focused on MSU's largest suppliers of goods and services by spend. The study also included the top 100 products by spend bought through the university's food services.
MSU is now in a much better position to identify big-picture carbon-intensive areas in its supply chain.
As a first step, we supplied the firm with a sampling of MSU's consolidated financial spend data, which included our top 100 suppliers representing approximately 50 percent of our procurement spend. The researchers then calculated emissions relative to those dollar amounts spent using data already collected. By extrapolation, the data revealed that likely emissions associated with MSU suppliers and products exceeded the equivalent of 121,000 metric tons of carbon. By comparison, total MSU emissions for calendar year 2009 were projected at 560,000 metric tons.
While MSU's direct emissions no doubt account for the lion's share of the university's carbon footprint, this baseline assessment confirmed that the emissions-related impacts from our supply chain were significant and clearly represented an area of risk for MSU. We were already working hard to reduce our direct emissions. If we simply allowed our indirect emissions to go unchecked, they would eventually increase in total share.
With our initial internal review concluded, we began the second phase of our project—contacting the selected cross section of suppliers we had included in our study. For each of them, we explained our project and our process for assessing the company's impacts, and requested their participation in an electronic survey to help us refine the data. We encouraged our suppliers to use the research firm's online platform to provide their own information on their emissions, energy and natural resource use, and operations and products.
The reporting system uses a standardized methodology that complies with the GHG Protocol, the leading accounting and reporting standard. (In addition to measures of greenhouse gases, the methodology also measures impacts related to water abstraction, air pollution, volatile organic compounds, heavy metals, and general waste. The research firm also conducts the environmental impact assessment for Newsweek's annual "Green Rankings" of the 500 largest U.S. and global companies.) As suppliers provided their comments and revisions, the firm's analysts validated the data, following up to resolve any discrepancies. Completion of this phase of the project provided a refined snapshot of MSU's supply chain emissions. (See sidebar, "Assessing MSU's Supply Chain.")
Each participating supplier that agreed to join us in these efforts received a free report of the final analysis of its environmental impacts. The reports, customized to each supplier, provided suppliers with recommended actions for pursuing operational efficiencies and improvements to further reduce greenhouse gas emissions. The reports also indicated how the supplier's environmental performance compared to its particular sector average in its market.
Likewise, for MSU, the reports helped identify "hot spots" of concern within various supplier sectors. For instance, with regard to manufacturing, the data revealed opportunities to work with our technology and scientific research suppliers, in particular, to reduce emissions.
Data-Informed New Directions
Providing the ready-made tool and a free initial assessment of performance was especially valuable to our smaller-volume suppliers. While many of MSU's larger suppliers already had their own environmental data collection and reporting processes in place, much of MSU's spend is with smaller and local suppliers that don't necessarily have the staffing or resources to monitor environmental performance on their own. The kind of benchmarking data provided by the research firm's reports was a good first step for our smaller-volume suppliers, encouraging them to consider ongoing measurement of their environmental performance as it relates to their business plans and practices.
We also must consider how to better engage the entire MSU community in the daily purchasing decisions we make.
Building a standardized reporting mechanism that captures consistent data across the supply chain held benefits for both MSU and our supplier community. Having everyone report on the same impacts using the same criteria established supplier trust in the process, since everyone knew they were being evaluated according to the same standards. Consistent data was also invaluable for helping MSU not only better understand its own baseline measures but also identify opportunities to collaborate with individual suppliers to improve outcomes.
Because the reports provide a sound snapshot of the environmental impacts associated with each supplier and sector, MSU is now in a much better position to identify big-picture carbon-intensive areas in its supply chain. These are areas where it may be desirable to lower the university's exposure by working with suppliers to take proactive measures to reduce emissions, or identify providers that may offer a comparable quality and competitive product bearing a lower environmental impact.
While the reporting opened new possibilities for us to engage our suppliers one-on-one, we recognized the value of conducting this conversation in a broader format. The idea emerged to host a workshop that would provide an opportunity for suppliers and members of the MSU community to sit across the table and share ideas, discuss industry trends, and discover ways to work together to reduce our environmental impacts.
A driving force behind the workshop was to bring together a diverse cross section of our suppliers that otherwise might not interact, along with procurement professionals, academia, and institutional administration, to identify best practices. In developing the workshop content, we were guided foremost by what we wanted to learn. In addition to tapping MSU talent, we invited industry representatives who could share their experience and expertise. (See sidebar, "Brainstorming Best Practices.")
A second underlying priority for the workshop was to learn more about each other. Because MSU relies on its providers to help the university succeed in its overall mission, we want these relationships to be sustainable for the long term. Understanding the key challenges our supplier community faces in tackling its environmental footprint would allow MSU to help its partners maximize their efforts—and by extension, our own—so that we could all work together around common goals and interests.
One "aha" moment from the workshop was the realization that reducing emissions was much higher on the radar screen for our suppliers than any of us had anticipated. We also learned about efforts already under way right on campus, as a number of departments were already working directly with suppliers to reduce impacts, waste, and cost. In one example, MSU's recycling center had established a closed-loop system with our office supplier to purchase the university's recycled paper. MSU then buys back from the supplier paper that contains a portion of our own recycled content. While this cycle had been in place for more than a year, many at MSU were unaware of the practice. The opportunity to exchange those kinds of stories firsthand is already prompting others to explore similar opportunities with regard to purchased goods.
Our conversations also led to identifying solutions to current inefficiencies, including simple suggestions for different ways to package or deliver goods and improved inventorying practices. Through face-to-face engagement we began to see how even small changes could have collective impact within MSU's supply chain.
In one example, in our central receiving and distribution area, we partnered with a national parcel carrier to streamline our processes and provide a single point of delivery for incoming ground parcel shipments. Now we can commingle parcel activity with university mail and warehouse deliveries to campus units, yielding a reduction of five trucks on our campus on a daily basis and a projected reduction of 62.2 metric tons of CO2 annually. We continue to seek similar opportunities with other providers.
In the same way that transparency of data from our initial reports helped to engage our supplier members in a broader conversation about MSU's environmental performance goals, the workshop further cemented commitments from our supplier community to work with us to attain those goals. Following the workshop, more than half a dozen suppliers expressed interest in working more closely with MSU to improve the way they bring supplies and materials to campus. In fact, our first workshop garnered so much excitement that many are already asking if they can attend the next one. Planning is currently under way to host another workshop in fall 2013.
Between now and then we want to expand the supplier base of those involved in reporting efforts even as we continue to track the progress we are making with the suppliers from our inaugural assessment. Using the research firm's methodology, we also plan a stronger focus on water use as part of our discussion about environmental impacts, so that we can begin to pinpoint opportunities to conserve this resource. We also want to drill deeper with our own supplier research. Like many higher education institutions, MSU purchases a number of goods through distribution, with a smaller volume purchased on a manufacturer-direct basis. In our upcoming supplier analysis we will be including the known major manufacturers who sell through distribution, along with the distributors they sell through.
We believe this deeper dive will provide us with a more complete picture of our Scope 3 environmental impact. The success of our initial supply chain analysis has convinced us that we need to look at the impacts of our supply chain in layers-in this case, assessing the impacts of our manufacturer suppliers as well as our distributor suppliers. By moving into this process one layer at a time, we are incrementally driving sophistication into this process and building the business case and practice for scrutinizing our indirect emissions.
As we go forward, we also must consider how to better engage the entire MSU community in the daily purchasing decisions we make within our largely decentralized environment. Because of the steps we have taken to make supply chain impacts and supplier data more transparent, we believe we are in a better position to influence the behavior of our internal stakeholders as well. We now also feel confident about developing a well-informed sustainable purchasing policy and articulating with greater clarity the outcomes we want to achieve with it. By first taking a thorough look at what we spend, how we acquire goods, and the associated impacts of those decisions, we are now also able to frame this conversation in terms of the "total cost of ownership" of MSU procurement activity.
Even as we begin to develop a formal sustainable procurement policy, we have revised MSU's purchasing manual to include a section on sustainable procurement that poses key questions about recycled content, take-back programs, energy use, and water use. Our aim is for this to become an institutionwide template for evaluating procurement practices and informing our collective purchasing decisions as an institution. While we still have much work to be done, we are making progress.
As lead stewards of their institutions, chief business officers are responsible for the oversight of the campus financial, physical, human, and environmental assets. By virtue of this oversight, they have also in essence become "risk officers" for their institutions. At MSU, we've grown accustomed to discussing our sustainability efforts in terms of risk and exposure. Convinced that greenhouse gas emissions will in some manner become increasingly regulated in the future, and that some sort of mandatory reporting will require inclusion of Scope 3 emissions, we are determined to do all we can to mitigate these risks and potential associated costs.
While emissions related to an institution's supply chain may represent a smaller portion of the total, they still pose a potentially significant risk. And while indirect sources of campus emissions are harder to manage than emissions related to direct campus operations, leaders can lay the necessary groundwork by first understanding the impacts associated with their institution's current spend, and then partnering with suppliers to develop strategies to reduce emissions and mitigate risk.
MSU's supply chain project has not only brought to light our opportunity to make real and lasting strides in reducing the university's Scope 3 emissions. We now also realize that the higher education sector is well-positioned to lead the nation in the area of sustainable procurement. Many of the corporate champions involved in greening their supply chains are focused primarily on benchmarking. What they often lack is a strong focus on education and partnership with their supplier communities.
In this regard, MSU is breaking new ground through its novel approach of engaging its supplier community in a logical sequence of baseline data-collection and collaborative conversation. By considering the perspective of our suppliers and then actively working with them to identify opportunities to reduce emissions, improve efficiencies, and cut costs on both sides of the ledger, we have aligned our sustainable procurement strategy in a sure-footed direction so that we can move forward in concert.
KATHRYN LINDAHL is assistant vice president for finance and operations for Michigan State University, East Lansing; KIMBERLY KOKENAKES is MSU director of university services; and JAMES SALO is senior vice president, strategy and research, Trucost Inc.