Robert Byrne of Terra Technology on Green Initiatives

"Green" is perhaps the buzz word of the year, and though incorrectly touted by some, the majority of consumer goods companies are serious about sustainability, dedicating resources and setting goals to their initiatives. For perspective on what the industry is doing, CGT spoke with Robert Byrne, president and CEO of Terra Technology, who last year spoke at the United Nations Conference on how demand-driven planning can reduce waste and slow climate change.


Why is it important for consumer products companies to adopt green initiatives?

Byrne: There are three main reasons: reduction of environmental impact, meeting consumer preferences and reducing costs. Some of the environmental impacts are summarized below:

In the United States, manufacturing is the single largest source of energy-related carbon dioxide emissions in the industrial sector, accounting for about 84 percent of energy-related carbon dioxide emissions and 24 percent of the total production of carbon dioxide. U.S. manufacturing consumed 90 percent of the energy in the industrial sector in 2002. With $1.9 trillion dollars of business inventory in the United States, there is plenty of opportunity to reduce production and associated costs and impacts.

Motor carriers represent 48 percent of total logistics costs in 2006 and consumed 95 billion liters of diesel fuel that year, creating more than 250 million metric tons of carbon dioxide. According to the Environmental Protection Agency (EPA), transportation in the United States accounts for approximately 33 percent of total greenhouse gas emissions from fossil fuel consumption. Reducing unnecessary transportation of goods has an immediate impact on greenhouse emissions and, with ever-increasing fuel prices, an immediate impact on corporate profits. 


Are there benefits to "green" projects other than being a good corporate citizen?

Byrne: Patrick Penfield, assistant professor of supply chain management at Syracuse University, once said, "One of the major reasons why companies are interested in the green supply chain and sustainability is that they realize [carbon and energy waste] is an expense; if you really look underneath it, it's about cost savings. It's not about saving the environment."

This quote may sound somewhat cynical, but it is quite important to know that it is true. Only through higher efficiency and lower costs can we maintain our standard of living while reducing our environmental impact. Plus, public companies have a fiduciary responsibility to their shareholders, and spending significant sums on unprofitable projects is not a recipe for success.  The Procter & Gamble Company's goal is to improve its products with "no trade-offs" for the consumer -- so that means product performance that is at least equal to current products but more environmentally friendly.


What is the first step a consumer goods manufacturer should take to begin a green initiative?

Byrne: There are many types of environmental impacts and even more potential initiatives to address them. Reduce, reuse, recycle, in descending order of importance, has been the guideline for decades now, as reducing use up front is far better than recycling spent materials. Reduction not only avoids raw material consumption but also lessens the carbon footprint in many ways, from no energy spent on production to no energy spent on transportation. Recycling may actually increase the carbon footprint for many materials.

A good example is the ongoing trend to concentrate liquid laundry detergent. By making it twice as effective, weight, volume, transportation, etc., are reduced by 50 percent without impairing any of the consumer benefits or experience. The cost of goods sold will also drop, although not as much.

Of course, not every product can be shrunk without impairing usability, so look for other ways to reduce your inventory investment. Improving the performance of a manufacturer's supply chain can be the quickest and most effective starting point for a successful sustainability program. By avoiding production and transportation of unnecessary goods a manufacturer completely eliminates the associated resource and energy consumption.


When will green initiatives be viewed as a normal part of doing business rather than a separate category of projects?

Byrne: This should happen as soon as possible. Virtually all projects have some kind of green impact, from repainting your headquarters to new product design to inventory management, so all projects should be evaluated against both return and environmental and other non-economic impacts. Publicly traded companies answer to shareholders and must justify the expense of all green initiatives because these programs impact corporate profits. Manufacturers must also coordinate green initiatives throughout the entire organization to ensure that new programs actually have an overall positive impact on the environment. What is the point of reducing your packaging if the benefits are offset by increasing inventory to improve customer service? What you gain in reduced packaging you lose in wasted fuel and increased carbon emissions.

Too many green projects are started because the cost is felt to be low enough to justify the investment, but inadequate exploration of alternatives has been done, and many projects that are not primarily "green" offer environmental benefits that exceed green projects and also real ROI. For example, AMR Research says that consumer products companies who are better at demand forecasting have 24 percent less raw material inventory; 22 percent less finished goods inventory; 21 percent shorter cash-to-cash cycle times; 32 percent shorter days sales outstanding; 22 percent better plant utilization; and 9 percent lower costs representing approximately 5 percent of revenue. Simply by being better at demand forecasting, these companies decrease different types of inventory by more than 20 percent, improve plant utilization by 22 percent and decrease costs 9 percent. Producing fewer inventories, increasing plant efficiency, decreasing costs and shorter cash-to-cash cycle times all create a positive return on green.