New Paths to Business Value - GEMI

1 STRATEGIC SOURCING ENVIRONMENT, HEALTH AND SAFETYNew Paths to Business ValueNew Paths to Business ValueAbout the Global EnvironmentalManagement InitiativeThe Global Environmental ManagementInitiative (GEMI) is a non-profitorganization of leading companies dedicatedto fostering environmental, health, and safetyexcellence worldwide. Through thecollaborative efforts of its members, GEMI also promotes a worldwide Business ethic forenvironmental, health and safetymanagement and sustainable developmentthrough example and guidance included in this document isbased on the professional judgment of theindividual collaborators listed in theacknowledgements. The ideas in thedocument are those of the individualcollaborators and not necessarily theirorganizations. Neither GEMI nor itsconsultants are responsible for anyconsequences that may result from theapplication of the guidance contained inthis document has been produced by theGlobal Environmental ManagementInitiative (GEMI) and is solely the propertyof the organization.

2 This document may notbe reproduced without the express writtenpermission of GEMI, except for use bymember companies or for strictlyeducational Environmental ManagementInitiativeGEMI s member companies:Abbott LaboratoriesAnheuser-Busch Companies, Steel CorporationBristol-Myers Squibb CompanyThe Burlington Northern & Santa Fe Railway Coca-Cola CompanyConAgra FoodsThe Dow Chemical CompanyDuke EnergyThe DuPont CompanyEastman Kodak CompanyEli Lilly and CompanyEnronGeorgia-Pacific CorporationThe Goodyear Tire & Rubber CompanyHalliburton CompanyIntel CorporationJohnson Controls, & JohnsonKoch Industries, Martin CorporationLouisiana-Pacific Corporation3 MMattel, & Company, , CorporationOccidental Petroleum CorporationOlin CorporationPfizer Petroleum CompanyPitney Bowes Procter & Gamble CompanySouthern CompanyTemple-Inland, Instruments IncorporatedNew Paths to Business ValueSTRATEGIC SOURCING ENVIRONMENT, HEALTH AND SAFETYP refaceMARCH, 2001 DEARPROCUREMENTPROFESSIONALS.

3 The members of the Global Environmental management Initiative (GEMI) are proud to introduce this newguidance document,New Paths to Business Value : Strategic Sourcing - Environment, Health and Safety. Over thelast ten years GEMI has developed a series of documents, reports and tools that help Business achieveenvironmental, health and safety (EHS) excellence. This is the first document to systematically explore theimportance of EHS issues to procurement work products reflect the collective ideas and efforts of its 37 member companies representing 17business sectors. For this study, EHS professionals of GEMI member companies worked with their procurementcolleagues to better understand how EHS performance affects the Business Value of strategic sourcing. Weconcluded that by working together we can improve both EHS and financial performance in our that integrate EHS concerns in their strategic sourcing can create Business Value by: Reducing downtime, product life cycle cost and time to market; Minimizing risks and liabilities; Enhancing reputation and market share; and Reducing overall costs due to EHS recognize that EHS issues may not have historically ended up on your desk.

4 But today, most goods andservices you procure have an impact on the environment and/or the health and safety of your employees,customers or surrounding communities. These impacts can affect the total cost of goods and services, thequality of your products, your ability to conduct Business and the reputation of your company. Greaterawareness of these impacts can increase the Business Value of your procurement hope you will find this document stimulating and useful. Through the creation and expansion ofpartnerships between EHS and Procurement professionals we have an extraordinary opportunity to improveour EHS performance while also maximizing Value for our companies. We welcome your comments on thisguidance document and thank you in advance for taking the time to review what we believe is a unique businessapproach to Strategic ,John Harris, Ashland, Moore, Texas Instruments Robert Sherman, Halliburton CompanyChairs of the GEMI s Service Provider Work GroupAcknowledgements This guidance document was developed ina collaborative process by the GlobalEnvironmental management Initiative s(GEMI) Service Providers Work Group.

5 JohnHarris (Ashland Inc.), Bob Sherman(Halliburton Company) and Dale Moore(Texas Instruments) directed the project. Thedocument was written by David Cross andJim Dray of ThermoRetec, with contributionsfrom Helen Crowley, Sarah Friedman, KristinLarson and Melissa Spear. GEMI staffcontributing to this document included SteveHellem, Mary Beth Parker and Providers Work Group membersand other contributing GEMI membersinclude:Catie Blackler, Eastman Kodak CompanyMark Chatelain, Johnson Controls, Eller, The Procter & Gamble CompanyPaul Halberstadt, ConAgra FoodsJohn Harland, Intel Hunter, Bristol-Myers Squibb CompanyCarolyn Kennedy, Georgia-PowerJohn M. Kindervater, Eli Lilly and CompanyMike Loch, Motorola, Mackey, The Coca-Cola CompanyKent Malone, Halliburton CompanyRobert Renner, 3 MDawn Rittenhouse, The DuPont CompanyEd Schmidt, Ashland Share, Anheuser-Busch CompaniesCorey Snyder, The Procter & Gamble CompanyBrian Vonfeldt, Texas InstrumentsOrlean Thompson, Eastman Kodak CompanyDenise Tuck, Halliburton CompanyCarl Wirdak, Occidental Petroleum Corporation3 CONTENTSEXECUTIVESUMMARY ANDUSERGUIDE.

6 5 Topic One:ISEHS ANIMPORTANTSOURCEOFBUSINESSVALUEINMYSUPP LYCHAIN?.. 7 What trends are forcing the procurement function to pay more attention to EHS performance criteria? .. 8 What types of Business Value can be obtained from integrating EHS criteria into procurement practices? .. 11 How does this potential Business Value vary across industries and suppliers? .. 13 How do a company s strategic objectives influence the potential Value of better EHS performance in the supply chain?.. 15 Topic Two:HOWCANI FINDUNTAPPEDVALUE INMYSUPPLYCHAIN?.. 19 What EHS issues are important to my company, and how important are they? .. 19A four-step search for Value opportunities related to EHS performance.. 20 How do I measure the costs and benefits of an EHS improvement? .. 25 Topic Three:HOWCANPROCUREMENTADDBUSINESSVALUE? .. 29 What different roles can procurement play? .. 29 What are the Value options in supplier management ?

7 31 How can EHS criteria be implemented? .. 35 Which suppliers are important? .. 36 Topic Four:HOWCANI ASSESS ANDIMPROVESUPPLIEREHS PERFORMANCE?.. 39 Assessing suppliers EHS performance .. 39 Summary of available procurement tools .. 39 Selecting metrics to assess supplier EHS performance.. 42 How much should you focus on management systems? .. 44 How to verify performance on selected metrics .. 45 Critical risks and critical suppliers .. 46 Wise use of surveys .. 48 Target a survey effort .. 49 Collaborating for continuous improvement.. 51 International challenges .. 51 Using e-commerce .. 52 Topic Five:HOWCANI IMPROVEEHS PERFORMANCETHROUGHSUBCONTRACTING?.. 53 Outsourcing chemical management services .. 54 Outsourcing waste management services .. 57 Outsourcing energy management services .. 57 AppendicesAppendix 1: How Business Value depends upon you .. 59 Appendix 2: Recommended resources.

8 61 Appendix 3: Glossary of EHS terms .. 6245 SUMMARY ANDUSERGUIDEThis guidance document coversfive topics related to businessvalue, and the ways strategicsourcing can enhance it byimproving the environment, healthand safety (EHS) performance ofproducts and also includes case studiesdetailing how different companies from a wide range of businesssectors manage this integration and derive Business Value from document: Illustrates how Business Value can be enhanced by adeptmanagement of EHS issues in the supply chain; Encourages a selective approach that is appropriate for eachunique company and for different types of suppliers andsupplier relationships; Provides practical resource for procurement staff, helpingthem understand and pursue Business Value opportunitiesthat might otherwise be missed; Encourages dialogue and effective collaboration betweenprocurement and EHS departments.

9 And Steers companies toward practices that add Business document was shaped by four premises that emerged froma year of discussions among GEMI members and theirprocurement ) Supply chain management of EHS issues will be increasingly important for many ) The potential Business Value - and the appropriate level andtype of procurement effort - varies widely depending uponthe industry, the company, its customers, and the level ofsupplier relationship. One size does not fit ) Procurement departments can easily integrate EHS criteriainto their existing tools and procedures. Procurementprofessionals are experts at evaluating suppliers andcalculating costs. They already estimate total Value takinginto account both quantitative and qualitative factors. EHSprofessionals can help them effectively manage EHS issuesand their Business implications, and can help providecorporate support for moving in this ) Companies should be careful not to impose unnecessaryrequirements upon their SafetyPerformanceBusinessValue Denotes major coverage Denotes minor coverageAdding supplier knowledge to product and process design decisionsIdentifying new Value optionsIntegrating supply chain criteria and planning across multiple departmentsDeveloping optimum specifications for inputsSelecting products, services, and suppliers with the best total Value (quality and price)

10 Optimizing delivery schedules and in-coming logisticsAssessing and improving supplier processesAssessing and strengthening supplier managementFacilitating communication with collaborating suppliers6 Topics and case studies have been chosen to helpyou identify and pursue selected Business valueopportunities, with selected suppliers, usingappropriate procurement tools. While the topics arecomplementary, each topic section has beencomposed as a stand-alone resource. Some materialis therefore duplicated across two or more Topic One does provide an introduction, theremaining topics are not written to be read in anyparticular Topic is organized to answer a question. Topic One:Is EHS an important source ofbusiness Value in my supply chain? Topic Two:How do I find untapped businessvalue in my supply chain? Topic Three: How can I use EHS criteria to addbusiness Value ? Topic Four: How can I assess and improvesupplier EHS performance?