In an analysis completed last June by the Governance & Accountability Institute, seventy two percent (72%) of the companies included in The S&P 500 Index® were found to have published a sustainability or corporate responsibility report. In 2011, just under 20% of S&P 500 companies engaged in sustainability reporting.
I wondered, based on the increasing commitment to sustainability by the biggest companies, if this was filtering down and affecting the way these companies procure third party logistics (3PL) services. I talked to Ashton Shaw, a Sustainability Engineer at Menlo Worldwide. It’s his job to look at requests for information that come into Menlo, and if they have sustainability requirements, provide answers on how Menlo could support the client with their sustainability efforts.
He told me, that for most prospective customers, specific sustainability requirements are more a “nice to have, then a need to have.” Operations personnel are still driving the 3PL selection process and things like the ability to quantify greenhouse gases from logistics operations and report on them is just not on their radar screen. If Menlo is selected, and once Menlo and the customer have gotten “through all the startup hecticness,” Menlo makes an attempt to make them aware of their carbon footprint from warehousing and transportation services and discuss opportunities for reporting and improvement opportunities.
But according to Ashton, until Procurement, Operations and Environmental teams are collaboratively working towards the same sustainability goals, he does not expect to see RFIs that contain much in the way of sustainability requirements. And from his perspective, that is a shame, not just because it is the right thing to do, but because he feels that Menlo is in a strong position to influence change that results in improved financial and environmental performance.
I also emailed my contacts at other large 3PLs. They told me the same thing. They are not seeing much action in terms of sustainability requirements.
And then later that week, I talked to Linda Li, the VP of Worldwide Operations at the Li Tong Group (LTG). LTG provides reverse logistics and remanufacturing services for leading hi-tech firms. LTG is a private company with over $300 million in revenues that has grown rapidly over the last three years.
In their case, over 80 percent of their customers are asking for sustainability reporting surrounding landfill reduction driven by their services. LTG refers to these as “mass balance reports.” The company keeps track of every device by unit or weight through serial number captured, and generates a report that explains what percentage of the material was reused. The report contains the names of all the components in the bill of material. Further, they track what they sell to the next link in the supply chain. These mass balance reports “account for every kilogram” and the reporting can be done at the national level or rolled up into a global report.
LTG has 21 reverse logistics and remanufacturing centers around the world. Their secret sauce is that they have hired engineers from the industry. This is not a simple demanufacture, harvest and scrap operation. They take some of the valuable rare earth materials and high end plastics composites, and components that are still good, understand their customer’s specs for components needed in their newest generation of products, and then remanufacture hi tech components. They sell these components back to either their reverse logistics customer or the industry as a whole. These components carry a warranty from LTG.
This is also an industry where reverse logistics is made more complex because of the need to insure that computer data cannot be reused. LTG thus is required to provide data sanitization/erasure, degaussing, and even physical destruction of computer memory.
Another complication in this industry is the plethora of differing regulations related to recycling around the world. Although, Linda reports that their clients’ requirements are often tougher than any nations’ regulatory requirements.
Interestingly, although LTG provides reverse logistics services, they are not a 3PL. They make their money from the sale of the recycled components, not logistics services. And in fact, they profit share with the hi-tech companies that have worked with them to provide the recyclable materials they need. In short, their business" natural_id="channel_1">business" type="channel" active="true" key="business" natural_id="channel_1">business model is premised on providing their hi-tech customers with a good ROI for collaborating with them, sustainability benefits are not what is driving these deals. Although Linda does report that it is not uncommon to have environmental managers embedded into the procurement process, so the sustainability team does often have a seat at the table.
Linda summed our discussion up by saying, “sustainability does not have to be just an obligation; it can also be good for the bottom line.”
