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Good OM Reading: The Greening of the Chinese Supply Chain

February 17, 2012

Given how much of the world’s manufacturing takes place in China, and the damage it has wrought on that country’s environment, more and more multinationals are under pressure to clean their supply chains, writes MIT Sloan Management Review (Winter, 2012). For companies that ignore the problems, the costs can be considerable. Just last August, a group of 5 Chinese environmental NGOs focused attention on our beloved Apple for using suppliers with public pollution problems. The international headlines forced Apple to immediately tackle its–and its suppliers’– act.

This  excellent article says that even industry green leaders such as Nike and Adidas may never completely cleanse their supply chains . But rather than just monitoring Chinese suppliers compliance with health, safety, and environmental standards, top US firms are giving them tools and incentives to improve independently, helping use energy, water, and materials more efficiently. They are also reaching deeper into 2nd and 3rd tier suppliers, where the greatest damage occurs. Nike, for example, sends environmental engineers to 40 footwear suppliers to help them set targets to reduce waste and scrap, and improve efficiency. Instead of auditing, the Nike team spends 80% of its time driving new green initiatives.

The MIT Sloan piece points out that audits alone are very limiting, as factories have become adept at hiding problems from auditors. There is even an indigenous consulting industry designed just for that purpose. (Auditors are also commonly susceptible to bribery.) “Corruption is widespread,” says a former rep for Wal-Mart, which has 20,000 tier 1 suppliers in China alone!

The lengthy article includes a 12 point plan for companies to follow to deal with this major supply chain issue. It makes for valuable reading as you cover Chapter 11.

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