Tuesday, May 11, 2010

Rumsfeldian Insight

Or, what we don't know about our supply chain can hurt us.

In our discussion in the last posting we were trolling in the tumultuous waters of carbon offsets trying to find a way to balance a need, for some, to do something about their carbon footprint while at the same time not getting completely ripped off by some eco-scam.

There is never enough information. There are things that we know. There are things we don't know.

Wait ... rather than trying to explain the vagaries of information myself, let me refer to a master - former Defense Secretary Donald Rumsfeld. You may recall his statement about what we know and don't know. He was roundly lampooned for the comment but, if you look at it, he defined very nicely the world we live in (and, have to deal with).

Here is what he said (from a Department of Defense news briefing on February 12, 2002):

“As we know, there are known knowns.
These are things we know we know.

We also know there are known unknowns.
That is to say - we know there are some things we do not know.

But there are also unknown unknowns … the ones we
don't know we don't know.”

I refer to this in my class as "the poetry of Donald Rumsfeld"! But, in fairness, he hit the nail on the head.

It's the third category that is the most troublesome when it comes to working towards greening manufacturing.

A recent comment from a reader referred to our discussion on "sustainability angst" as related to the tremendous variety of supply chains. The comment was substantially "[T]he question then becomes one of not are people willing to achieve this program of "Green" Manufacturing principles but, how [to] employ these strategies? [I]n order to have ... true Green principles we must understand a couple of things ... about the products that are being manufactured and each Supply Chain is always supremely different. So, how do we mitigate the variances from Supply Chain to Supply Chain?"

Let me start to address this concern. I am sure the question will not be completely  answered as much of it falls into Rummy's third category. And we will continue this discussion in future postings I am sure.

Many of these variance are understood but not quantified (meaning we can't put a real number on their significance or potential impact.) Other variances (and worse, missing links or information or sources) fits squarely in Rumsfeld's third category.

Let me give an example (and some of you may be familiar with this one) of how the third category can spring to the fore in unfortunate ways. This was first brought to my attention by Dani Tsuda, a consultant with WSP Environmental, who lectures to my class from time to time on regulatory issues and product design.

Just before Christmas, 2001, (in October to be exact) Sony was stunned to learn that nearly 1.3 million of its PlayStation 1 game machines had been stopped at the point of import in the Netherlands by Dutch customs agents due to higher than allowed levels of cadmium in the cables. This was widely reported in the press. The cadmium level was on the order of 20x the maximum allowed for consumer products. The cadmium had been used as a stabilizer or coloring agent in plastic coating on the cables by someone in Sony's supply chain.

The seizure of the PlayStations, the recall, replacement of parts, and other costs, ultimately cost Sony in excess of 160 million Euros (Impact on Sales: EUR 110M and on operating profit: EUR 52M). And, if you track the Euro, that's way more than 160 million dollars.

The incident also lead impetus to the development of reduction of hazardous substances (ROHS) regulations in the EU.

Remember, this hazardous material was not in a core component of the play station electronics that was key to the performance - like a video processor or memory. This was the plastic on the cable to connect the console to your TV or other display. It could have been the electrical cord on your Forman Grill for all that matters - it had too much cadmium in it. Who knew they used cadmium to stabilize colors in plastics?!

And who knew the Dutch would be checking? Apparently the regulation was specific to  the Netherlands but was going to be incorporated in the EU regulations to come out a bit later. What if they had imported these games through another country? Might have been a different story. But, chance should not play a role in green supply chain management.

Not surprisingly, Sony "went ballistic." Today, Sony has one of the most restricted vendor/supplier material programs in the world. They have established a very structured "Green Partner Program" which employs a "Green Partner Environmental Quality Approval Program" which includes standard practices and requirements, audit procedures, new parts approval with comprehensive listing of materials (specially those with any restricted concentrations), and a change control methodology. An illustration of the program is shown below (from the Green Partner link above).

The idea is to insure "'clean' raw material - 'clean' process - 'clean' product." In other words - no surprises.

Now, I will be first to admit that Sony is a huge corporation with extensive leverage in the market with its suppliers and tremendous resources to put towards managing its supply chain. But, it still got caught in this one. So, size may help with the solution but it won't necessarily help when "you don't know what you don't know."

Let me follow Sony developments after this disaster a bit more.

Recently Sony came out with its "Green Management 2015" announcement and program. From the report, Sony states:

"Sony has continuously provided people with a vast array of products, services and
entertainment. Such corporate activities are only possible if the global environment, which sustains all life on earth, is healthy. We must address such environmental issues as climate change, resource exhaustion and the need for effective management of chemical substances both as risks to business continuity and as business opportunities.

"Taking these sentiments into account, we have set forth the Sony Group Environmental Vision, the goal of which is a 'zero environmental footprint,' that is, reduction of the environmental footprint of our corporate activities and of every Sony product throughout its life cycle to zero, and we continue to pursue a wide range of related initiatives. We will strive to achieve this by 2050."

Their first steps in this goal are set out in the Green Management 2015 document and refer to early term goals.

Let me reiterate the key point here - reduction of every Sony product's environmental impact throughout its life cycle to zero.

Wow! Can they do that? It will be interesting to watch. They are serious, smart and confronting the challenge head on.

Another statement in the report is a bold admission by any company let alone one the size of Sony. "At present, every Sony product negatively affects the environment to some degree throughout its life cycle or at different stages thereof."

To be successful they will need to reduce the variability of their manufacturing, distribution, and supply chain operations to minimize Rumsfeld's third category. And come up with ways to measure their product's impacts across the lifecycle

I wish them success. Who's next?

(More to come on smaller company efforts in the future.)