Greening the supply chain

The Hilton’s DoubleTree Hotel in downtown Portland provides everything you’d expect from an international hospitality chain. The furnishings are smart, the staff attentive and views of the Cascade Mountain Range a refreshing escape from the city

Yet what distinguishes the DoubleTree from its peers is actually concealed. Over recent years, DoubleTree Hotel Portland has become a standard-bearer for eco-efficiency. An aggressive environmental programme has seen its energy consumption drop by almost a third (32%) since 2006, while its waste-to-landfill rates have fallen to 37% (from a previous high of 92%).

Changes in the hotel’s immediate operations partly explain these reductions. Since 1999, for example, the Oregon hotel has been investing $25,000 per year to subsidise public transport costs for its staff. By persuading employees to commute by train or bus, the hotel has saved on the consumption of 82,500 gallons of fuel and has therefore reduced its indirect carbon emissions.

Yet much of the hard graft takes place back in the hotel’s supply chain. For instance, DoubleTree purchases 900,000 kWh of renewable power every year, effectively offsetting the carbon emissions of a quarter of its electricity use. As for its restaurants, two-thirds of its food products are sourced from within a 500-mile radius. In fact, its Alaskan salmon comes from local communities just 30 miles away.

AN AGGRESSIVE ENVIRONMENTAL PROGRAMME AT HILTON’S DOUBLETREE HOTEL IN PORTLAND HAS SEEN ITS ENERGY CONSUMPTION DROP BY ALMOST A THIRD (32%) SINCE 2006

What drives green supply chains?

Orwin Dillon is one of the farmers involved in The Travel Foundation's Adopt A Farmer programme in Tobago, supplying local produce to hotels.

Increasingly global hotel chains are following DoubleTree’s lead. But what’s driving the move to “green” the hospitality industry’s supply chain?

At a very basic level, the answer comes down to common sense. The vast bulk of the hospitality industry’s environmental and social impacts occur in its supply chain. This is true for many other sectors, too. Tackling these backward linkages is therefore both logical and pressing for any large buyer that is serious about meeting its environmental and social commitments. Engaging suppliers must therefore be seen as an intrinsic part of a hotel’s wider sustainability efforts.

The motivations for such efforts differ from company to company, although customers appear high on the list of drivers for most hospitality groups. Sustainable procurement is integral to building a company’s green credentials, which are increasingly seen as a means of gaining market differentiation and competitive advantage.
“A lot of businesses are interested in marketing themselves as green,” confirms John Dyson, food and technical affairs adviser at the British Hospitality Association (BHA).

Consumer pressure has certainly galvanised the environmental performance of other industries, notably high-street clothes brands and food retailers. Yet, while the growth in boutique eco-hotels suggests a growing clientele for such services, environmental standards remain more a case of “push than pull”, according to Dyson.

Claire Hornsby, head of corporate responsibility at UK hospitality group Whitbread, concedes that customers actively inquiring about the company’s environmental policies represent only a “small proportion”. That doesn’t mean consumer pressure should not be taken seriously, however. As she explains: “There’s an inherent expectation of customers that we’re doing this for them. Our role is therefore to work responsibly so that the customer doesn’t have to think about it.”

The same is true for investors. With the exception of socially responsible investment funds, most institutional investors have taken a back seat on sustainability issues so far. That’s not to say they are not interested, however. The volume of funds tracking indices such as the FTSE4Good and the Dow Jones Sustainability Indices is proof of a burgeoning awareness.

Compliance and risk management are often cited as additional drivers for improving companies’ direct and indirect environmental and social performance. This is certainly true for regulated, high-impact industries, such as mining, oil and gas, and infrastructure. As a service-orientated industry with limited regulatory oversight, however, hotels face comparatively low supply-related compliance or risk issues.

However, what hoteliers do have very much in common with other sectors is the desire to obtain operational efficiencies. Greener products can have a demonstrable effect on the bottom line. Any reduction in resource consumption translates directly into improvements on a company’s balance sheet.

The Fairmont Chicago, for example, claims to have achieved “significant” financial savings since procuring a food waste decomposition system from BioHitech America. The system saves around 216 tonnes of food waste from landfill every year, reducing costs related to traditional trash hauling.

Scaled up across an international corporation, the financial impacts of such measures can become highly significant. Spanish-based hotel group NH Hoteles achieved savings of €10m over four years after introducing a green procurement initiative in 2008. The cost-saving innovations introduced by its suppliers include water-saving devices in taps, LED low-energy consumption bulbs and energy-producing elevators.

Not all are won on the cost argument. Some of the more high-tech environmental solutions require substantial up-front capital investment, says John Hunter, president of Ontario-based Hunter Amenities, a founding member of the hospitality supplier consortium Strategic Amenity Alliance (SAA) Worldwide. “Some of the new initiatives that they [hotels] are going to have to undertake are going to be capital intensive, which makes them harder to justify and harder to implement,” he adds.

When it comes to Return on Investment figures of five to 10 years, as Hunter maintains, arguments aside from cost efficiencies are needed. That’s where corporate aspiration comes in. Companies such as Walmart, Marks and Spencer, Unilever and Sainsbury’s—just some of those that have recently laid out ambitious sustainability targets for their suppliers—have all expressed a desire to adopt positions of leadership in sustainability.

The benefits of such leadership extend beyond immediate efficiency gains to wider competitive advantage, strong corporate reputation, better employee retention and greater internal innovation, among other advantages.

Similarly, suppliers are set to benefit. Environmentally conscious providers have the opportunity to become “leaders and pioneers in the industry”, argues Marta Martín, vice-president for corporate responsibility at NH Hoteles.

Longer-term buyer relationship and new markets should emerge as a result, says Martín. As a major supplier to the hospitality industry, John Hunter agrees wholeheartedly: “Strategically, it’s great for us because our client base is looking for green products.”

To meet that demand, Hunter Amenities is now using post-consumer resin in its amenity bottles. It’s also putting bio-additives into its bottles to ensure they decompose speedily in the event of not being recycled. It is money well spent. “Almost every RFP [request for proposal] now comes back with a request for the company’s sustainability record and what sort of initiatives we can offer,” Hunter reiterates.

Good supply chain practice

Over the past decade or more, companies have developed a myriad of techniques to try to create sustainable supply chains. Everything from codes of conduct and factory audits to monitoring programmes and multi-stakeholder dialogues have been employed.

The starting point for most buyers is simple: communication. Suppliers need to know their customers’ basic aspirations with regard to sustainability. With this goal in mind, InterContinental Hotels Group (IHG) has produced a Vendor Code of Conduct. It’s one of an emerging crop of international hospitality groups to do so.

The Code covers a range of issues relating to responsible business requirements, which IHG “encourages vendors to exceed”. While the Code requests suppliers to monitor, record and benchmark environmental performance on a regular basis, the mechanisms for enforcing these types of requests are notoriously difficult.

Manufacturers with extensive outsourcing operations in developing countries have taken the lead in trying to enforce such requirements. Apparel companies such as The Gap, Nike and Adidas have poured huge resources into social auditing processes since the mid-1990s, for instance.

Independent social auditing firms have also emerged to take on this burden for firms in recent years. Increasingly, companies are looking to share audit data as a means of reducing cost and avoiding audit fatigue.

The non-profit organisation Sedex (Supplier Ethical Data Exchange) is an example of information sharing of this kind. However, while incidences of egregious abuses have certainly fallen as a result of supply chain auditing, it remains a costly exercise and by no means a guarantee against non-compliance.

Another approach has been to break down the supply chain into isolated commodity or product groupings. This is the strategy adopted by product certification systems, including the Rainforest Alliance and the Forest Stewardship Council. However, the premium attached to such products has prevented their mass adoption.

One of the highest performing certification standards is Fairtrade in the UK. But even for its most successful products, such as coffee and bananas, its certified products have only 20% market share.

IT IS ABOUT WORKING WITH OUR SUPPLIERS TO RAISE AWARENESS, DEEPEN UNDERSTANDING OF THE ISSUES AND PROVIDE THE RIGHT INCENTIVES
CLAIRE HORSBY, HEAD OF CORPORATE RESPONSIBILITY, WHITBREAD GROUP

An increasingly popular strategy in recent years has been for companies to develop a preferred supplier list along environmental lines. Fairmont Hotels and Resorts reflects emerging practice in the hospitality industry in purchasing “environmentally preferable products where possible”.

Yet not all hotels have the capacity to evaluate suppliers’ green credentials. To get around this dilemma, one hotel group operating in China is using a validated supplier list developed by the local subsidiary of a multinational engineering company. An alternative is to turn to supplier consortia with a strong environmental reputation, such as the Canada-based Strategic Amenity Alliance, Avendra in North America or Spain’s Coperama. Third-party validated databases of responsible suppliers represent another valuable resource.

Given the long-term relationship that companies tend to develop with key suppliers, the general preference across the private sector is to engage proactively with existing suppliers. US retailer Walmart mainstreamed this trend when, in 2009, it began requiring all its suppliers to track and reduce their primary environmental impacts. To this end, Walmart commits to help its suppliers to do this, working with the likes of the Environmental Defense Fund, ClearCarbon and the Applied Sustainability Centre at the University of Arkansas.

Consumer goods giant Procter and Gamble (P&G) is pursuing a similar strategy. Starting in May 2010, it asked its largest suppliers to fill in an Environmental Sustainability Scorecard. Over 380 did so. The move was designed to gradually align P&G’s sustainability matrix with those of its suppliers, as well as generate ideas for sustainable products and services. Produced in a questionnaire format, the Scorecard resulted in collective energy savings of 4.2% in the first year.

P&G recently revised the Scorecard, which focuses primarily on energy and water use, waste disposal and GHG emissions. It includes an automatic scoring function that shows if the supplier has improved over the previous year. Suppliers’ ratings help determine the amount of business they receive in the future. Top performers are also publicly recognised. In the case of Walmart and P&G, any capital costs for improved environmental performance are taken on by the suppliers themselves. The carrot for doing so is operational savings and repeat business.

In the hospitality sector, Whitbread is one of those leading the way in supplier engagement. The owner of Premier Inn, the largest hotel brand in the UK, Whitbread began a joint initiative with its main bed supplier, Hypnos, back in 2010 to reduce the carbon content of its products.

“We worked together with our supplier, Hypnos, and the Carbon Trust to establish the carbon profile of the bed and discovered that over half of the carbon footprint was attributable to the cotton,” says Claire Hornsby, head of corporate responsibility at the Whitbread Group. The hotel group is now working on a number of measures with Hypnos to reduce these carbon emissions.

The Premier Inn owner has gone one step further, teaming up with the Carbon Trust to map its supply chain. The results will demonstrate the most carbon intensive areas of its supply chain, providing Whitbread with a priority list with which to commence its reduction efforts.

The company says it will adopt a partnership approach with suppliers, looking for continuous improvement rather than blackballing poor performers. “We would not take an approach of telling suppliers to do it or loose our business,” explains Hornsby. “It is about working with our suppliers to raise awareness, deepen understanding of the issues and provide the right incentives to work towards improvement.”

NH Hoteles has a very similar take. In 2008, it established the innovative Sustainable Club Programme. The Club represents over 40 of the hotel group’s largest suppliers. In each case, the company sits down with the supplier and hammers out an action plan aimed at making their product offering more environmentally friendly.

One of the ideas to emerge from the initiative derived from Portuguese cork flooring manufacturer Amorim Revestimentos. The firm now recycles around two million corks from wine bottles consumed by NH Hoteles’ guests and re-uses them as flooring for the hotel group.

Perhaps the best example of joined-up thinking comes from commercial cleaning specialist Diversey and global textile specialist Standard Textile. Last year, the two firms launched Proteus, an eco-efficient washing system that relies on less chemical content and 20 per cent less water than average wash cycles. They probably wouldn’t have got together without the involvement of NH Hoteles.

The Club provides a social media platform, hosts a website and puts on an annual meeting in an attempt to share best practice and generate new ideas among the hotel group’s core suppliers. “The most challenging part of this is trying to identify projects that are attractive for both sides,” says NH Hoteles’ Marta Martín. “If you try and impose your own ideas, it’s not going to work.”

In January this year, for example, Asian hotel group Peninsula withdrew shark fin dishes from its menus. The move affects the group's nine hotels, including those in China and Hong Kong, which is the centre of the global shark fin market. The step was widely welcomed by environmental organisations, which argue that only a total ban on the Asian food delicacy will protect the world’s shark populations.

“It’s not about the shark fin as much as the mindset. It’s about saying ‘no’ to customers who have money but no environmental concerns,” a senior executive with an international hotel chain tells Green Hotelier. Peninsula’s attempt to influence consumer habits is noteworthy as it represents the independent decision of an Asian firm rather than the mandate of a Western multinational. Others are now following suit. In mid-January, for example, Shangri-La announced it would be phasing out shark fin, bluefin tuna and Chilean sea bass in its 72 hotels and resorts over the coming year.

Challenges to greening the supply chain

Greening the supply chain in any industry is no easy task. Supply chains are complex, lower-tier suppliers are often hard to influence, monitoring mechanisms can be open to abuse, measurement indices can be difficult to define, certification systems are not always trusted, and so on.

The widespread franchise system within the global hospitality industry adds an extra layer of complexity and makes vertical implementation of policies very challenging. “It’s necessary to engage each and every franchisee and hotel owner individually,” says a veteran procurement executive from a large European hotel group.

These challenges become all the more apparent when supply chains extend into emerging markets. Asia provides a telling case in point. The International Business Leaders Forum (IBLF), a London-based non-profit organisation, recently undertook a study into the efforts of leading multinational corporations to engage their Asian suppliers on sustainability issues. The findings make tough reading, admits Peter Brew, IBLF’s former director and now senior adviser for its Asia-Pacific initiatives. “The whole landscape for supply chain management in Asia has changed quite fundamentally in recent years,” he says.

The IBLF’s report, Sustainable Supply Chains in Asia, co-produced by communications firm Edelman, identifies the growth of Asia’s domestic markets as a major game-changer. Increased demand from local players means foreign buyers no longer have the power to obligate suppliers to meet their environmental expectations. “The growth of Asian brands that do not yet fully embrace sustainability issues in their purchasing practices is taking pressure off local suppliers to meet environmental, social and governance standards,” the report clarifies.

Other challenges exist, too. Lack of cohesion among compliance codes has led to suppliers receiving “mixed signals”, for example. Supplier engagement efforts have often been ineffective too, usually due to limited direct contact between senior executives on both sides.

SENIOR MANAGEMENT OF BUYING COMPANIES NEED TO BE MORE INVOLVED IN SUSTAINABLE QUESTIONS
PETER BREW, IBLF’S DIRECTOR, ASIA PACIFIC

The problems don’t always lie on the supply side. Quite the opposite, in fact. “The major buying companies have as many internal problems in managing sustainability as external problems,” observes Brew. The IBLF report finds widespread evidence of inter-departmental conflicts. All too often, the legal, financial, operational and sustainability divisions in buying companies are pursuing conflicting agendas. It is not surprising, therefore, when the implementation of supply chain policies lacks cohesion.

Ineffective communications represent another major hurdle. Again, this is apparent within multinational companies, occurring most regularly across functions, hierarchical levels and different geographies. Disconnects between corporate headquarters and on-the-ground supply chain practitioners can also be commonplace. These disconnects are accentuated in relations between international buyers and local suppliers, with the latter often failing to understand the content or purposes of buyers' sustainability-related requests.

What the IBLF report reveals about the situation in Asia is reflective of similar challenges in Africa, South America and other emerging markets, too.

Opportunities to green the supply chain

While progress has been made to green the global supply chain, clearly much remains to be done. This is as true for the hospitality industry as any other.

A first step is to ensure that buying companies have their strategies straight. That requires established end goals, measurable targets, internal cooperation and effective communication. “It’s imperative to have clear KPIs [Key Performance Indicators] and a clear business model for sustainability,” says Pedro Martínez, a procurement expert formerly of NH Hoteles and now with L’Oréal.

More important still is individual leadership. “Senior management of buying companies need to be “more involved in sustainability questions”, argues Brew. He concedes that such involvement is “not always easy”.

Establishing a convincing internal business case for sustainable procurement marks another imperative. That’s not enough, however. Any internal business case needs then to be adapted so that it resonates with the business context and corporate culture of local suppliers. “What works in Europe and the US doesn’t necessarily work in China”, warns a senior executive in the hospitality sector who wishes to remain anonymous for business reasons. “There has to be a business case, not just a pro-environment concept.” Brew is more direct: “They [buyers] need to go to the supplier... and explain what’s in it for them.”

The traditional “master-servant” approach to buyer-supplier relations will only ever get buyers so far. Fully greening the supply chain requires a genuine partnership. Such a perspective sees buyer and supplier working together towards jointly agreed and mutually beneficial goals.

Those companies with successful supplier engagement practices understand this. Take the Hilton DoubleTree in Portland. Where relevant, the hotel asks suppliers to deliver their products in environmentally safe packaging and then to collect that packaging after use. For those that agree, the hotel offers to purchase a minimum of 75% of its requirement for the product. That way, both sides win. As does the environment.

Oliver Balch is a freelance journalist specialising in corporate sustainability issues. He writes regularly for The Guardian, as well as for Ethical Corporation and other specialist trade publications

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