How Amazon.com Can Turn the Page on Supply Chain Sustainability

With Amazon’s immense reach comes responsibility, as well as opportunity. Now the largest online retailer in the U.S., with over $60 billion in sales in 2012, this e-commerce giant connects buyers and suppliers from across the world.

In many ways, Amazon can be seen as a greener option than traditional storefront retailers because it does not need to operate physical locations. Also, Amazon’s transportation logistics and distribution center efficiencies may reduce the life-cycle energy use of consumer products.

If Amazon can embrace sustainable practices, it has the potential to improve the buying experience for customers and differentiate itself further from the competition.

Investors are even asking Amazon for more on sustainability. Calvert Asset Management Company filed another shareholder resolution in 2013 calling for Amazon’s board of directors to produce a report that details how the company is managing sustainability topics relevant to its operations. The resolution has gained considerable backing and Amazon says it will address the request.

At the heart of Amazon’s operations rests its supply chain, complicated by the volume of transactions and associated companies and individuals selling on its website. Managing and disclosing sustainability issues in Amazon’s supply chain will be a difficult task.

While that may require an organizational shift, Amazon can leverage the success it had with reinventing the customer experience. In 2002, Amazon introduced the Free Super Saver Shipping program, which offers free shipping on Amazon orders. Then, in 2005, Amazon added Amazon Prime, a two-day free shipping program that has further enhanced the consumer experience and changed the way consumers look at shipping.

By changing the location of distribution centers and rethinking logistics, Amazon was able to get products to customers fast, and free, and began to compete more with local brick and mortar shops. Amazon’s work with shipping changes required collaboration with suppliers, which makes its supply chain a prime area to initiate sustainable business practices.

Despite all its experience in supply chain efficiency, Amazon is one of the few remaining large Internet companies that’s silent on sustainability. Amazon does not publish a sustainability report and, unlike more than two-thirds of S&P 500 companies, does not disclose its greenhouse gas emissions to the Carbon Disclosure Project. Amazon is rated poorly on efforts to diminish its carbon footprint by the rating organization Climate Counts, and Amazon data centers ranked low in energy efficiency by Greenpeace.

Amazon was also accused of mistreatment of its warehouse employees. A Pennsylvania paper investigated a local Amazon warehouse and found that workers were forced to endure extreme heat nearing 100 degrees F. Since then, CEO Jeffrey Bezos has pledged to spend $52 million on air conditioning units in distribution centers to address the concern.

Amazon began to realize that managing social matters in its supply chain is a growing issue and nearly has doubled the number of audited suppliers between 2011 and 2012, from 159 to 315. A great start, but Amazon still lags far behind competitors.

Learning from peers
Many of Amazon’s competitors have improved their business practices by addressing sustainability in their supply chains. Apple, Amazon’s tablet competitor, began to report on sustainability metrics after stakeholder concern arose over its supply chain. “We’re going deeper into the supply chain than any other company we know of and we’re reporting at a level of detail that is unparalleled in our industry,” Apple’s 2012 sustainability report says. Since then, Apple’s largest supplier, Foxconn, has changed its business practices, and Apple is seeking more suppliers with sustainable labor policies.

Amazon is also competing in the local commerce industry with Best Buy, which worked with BSR’s Center for Sustainable Procurement to research how it could improve sustainability within stores. The BSR report, published in June, showed that changes in Best Buy’s in-store displays potentially could reduce costs and waste if the display units are redesigned for reuse.

As Walmart moves to a same-day delivery service, it will compete more heavily with Amazon for local customers. After embracing sustainable principles within its own operations, Walmart created a supplier sustainability index, rating suppliers on their operations. Walmart is well known for using its purchasing power to incent suppliers into becoming more sustainable. Amazon has a similar opportunity with its supply chain. The task may seem daunting, but Amazon is well-positioned in the market to encourage suppliers to become more transparent on social and environmental issues.

There is an even greater opportunity for Amazon in pursuing a sustainable supply chain: delighting customers. Amazon is well aware of customers’ interest in product sustainability and researched America’s green product purchasing trends in 2011. “Region by region, each in its own way, America is gradually getting greener,” Lakshmi Nidamarthi, manager of the Amazon Green Program, wrote about the study.

While Amazon is aware of the “green” tendencies of its customers, it has yet to address this preference. This is surprising for a company rated with the highest score for a retailer in the American Customer Satisfaction Index. Amazon now has the opportunity to draw on its commitment to customer satisfaction to provide customers with the sustainability information they desire.

Amazon has proven it can delve into its supply chain to improve the customer experience before. The e-commerce giant can use its experience in supplier network innovation and customer satisfaction to better manage sustainability topics. “We are internally driven to improve our services, adding benefits and features, before we have to. We lower prices and increase value for customers before we have to. We invent before we have to,” Bezos said in a letter to shareholders.

That has proven true in the past, but now Amazon has the chance to look externally at competitors as examples and address sustainability within its own supply chain. Amazon can capitalize on this opportunity to satisfy customers and shareholders by shifting its perspective. By incorporating supply chain sustainability strategies such as instituting a stronger supplier code of conduct, minimizing waste and energy, reevaluating labor and human rights policies, using more energy-efficient transportation and addressing the use of conflict minerals in shipping, Amazon can become a more sustainable company.

Article retrieved from GreenBiz.com
Chain image by Brian Smithson