Procter & Gamble's sustainability measurement and supplier environmental scorecard

Procter & Gamble Sustainability Strategies

Proctor & Gamble Sustainability Strategies:

Measurement, Assessment and Reporting Systems

As the leading provider of consumer, commercial and institutional soap, cleansers, and packaged goods, Procter & Gamble (P&G) (NYSE:PG) has chosen to take a global leadership position in the areas of sustainability and environmental effectiveness. The cornerstone of the strategic initiatives is the development of a thorough methodology for assessing, analyzing, measuring, and reporting corporate-wide performance to sustainability goals and guidelines. P&G has isolated the greatest potential risks to their sustainability objectives as being in their globally-based supply chain (Warner, 2008). To gain greater insights into how they can alleviate the significant risk associated with suppliers, who if not well managed could jeopardize the entire series of strategic initiatives surrounding sustainability, P&G created the Supplier Environmental Sustainability Scorecard (P&G, 2010a). The methodology behind this scorecard form the basis of measurement, assessment and reporting systems within P&G today and have since been emulated by other suppliers as well, as their results are quantifiable (Richardson, 2005). Previous to the scorecard being defined, P&G often relied on a wide range of metrics, scorecards and analytics platforms that were never in sync with one another, often causing less-than-optimal levels of quality to be attained (P&G, 2010). There was also a significant level of siloed operations going on, as P&G operates across more than 130 counties and dominates the top-of-mind awareness levels in each national and global market those choose to compete in. While P&G is best known for its marketing prowess, its supply chain and quality management operations, and now its sustainability initiatives, have gained it significant traction in global markets (Joseph, 2010). According to the latest annual reports from P&G, the global soap and cleaning compound manufacturing industry is valued at $54.7B in 2011, growing at a relative flat 3.7% compound annual growth rate through 2012. P&G holds a commanding share in this industry globally, challenged by well-known brands including Colgate-Palmolive, Ecolab and S.C. Johnson, in addition to a few more dozen smaller competitors scattered across geographic regions. P&G competes across many sub-segments of the consumer and commercial cleaning markets, personal care, personal and commercial soap in addition to consumer packaged goods. Of their many lines of business however, P&G faces the toughest challenges in the areas of government regulation and continued government monitoring of environmental performance in the chemically-based production processes it has. Of the several agencies that routinely monitor and at times even fine P&G if they do not comply with government requirements, the Food and Drug Administration (FDA) is often the most rigorous and thorough in their assessments (Joseph, 2010). The costs of non-compliance for P&G can be in the tens of millions of dollars and can also significantly slow down a new product introduction process as well (Warner, 2008).

A lack of quality management is such a significant risk for the company that they have chosen to attack it as an opportunity to gain greater lean manufacturing and process workflows into their company. This more aggressive stance on quality management has helped to save the company literally millions of dollars in fines while also setting the foundation for greater performance gains through its green and sustainability-based initiatives globally (P&G, 2010). P&G has also appointed a Vice President of SustainAbility who has the primary role of ensuring all sustainability initiatives and programs are coordinated and work towards the strategic objectives the company has (Joseph, 2010). Not satisfied with the role being within a functional area, P&G has elevated this position to report directly to the CEO, creating a position that has oversight of nearly 75,000 suppliers globally. P&G has also given this person direct accountability for the performance of each product division and brand to the Supplier Environmental Sustainability Scorecards mentioned in this analysis. The integration of metrics, key performance indicators (KPIs) and the use of corporate-wide and by-division Supplier Environmental Sustainability Scorecards has helped P&G surpass even its own expectations and led to sustainability objectives being achieved (Warner, 2008). The remainder of this analysis includes an assessment of the progress P&G is making on their sustainable business objectives, an analysis of the measurement methods they are using and reporting including the Supplier Environmental Sustainability Scorecard, in addition to a series of recommendations and a conclusion.

Sustainability Objectives and Progress at P&G

Despite having begun its program after its global competitors, P&G has rapidly made progress on its sustainability initiatives globally. Of the many areas of the value chain P&G could have started at, their initial focus has been on supplier qualification and enablement to ensure quality levels stay consistent at in-bound inspection and inventory locations. P&G is one of the more transparent and open companies about how their sustainability initiatives are progressing. In October, 2011 for example the company created a sustainability report for that year, detailing out in detail how each initiative was progressing as of its publication date. You can find the report on the P&G website, which can be accessed from this link http://www.pg.com/en_US/sustainability/index.shtml . As is evident from an analysis of the report, P&G continues to be one of the most successful companies in translating the urgency of government compliance and audit success rates with the FDA, with their sustainability goals and continual focus on streamlining complex internal processes (Joseph, 2010). From this standpoint, P&G sees sustainability as a means to attain lean process improvement and a continual business process re-engineering (BPR) based level of improvements over time. All of these factors taken together are also contributing to higher levels of financial performance as well, as P&G is able to successfully incorporate the Triple Bottom Line concepts into their overall financial reporting and analysis (Keyes, Sykes, 2009).

As of the close of 2011, P&G has defined the two areas of sustainability and social responsibility as the dual areas of continual improvements through the use of the Supplier Environmental Sustainability Scorecard and its supporting methodology. Initial results from using this methodology have been impressive. First, P&G set the stretch goal of being able to power all manufacturing centers with 100% recyclable energy for all production and manufacturing location in conjunction with using reverse logistics for recycling all materials (P&G, 2010). Second, P&G set the objective of creating a more effective new product development and introduction (NPDI) process by concentrating on the development of their Sustainable Innovation Products initiative. This single initiative completely re-vamped their product development and innovation pipeline, delivering exceptional gains across all sustainability initiatives and programs. P&G reported at the close of their latest fiscal year that the Sustainable Innovation Products initiative generated nearly $40B in product sales with a solid pipeline leading to a 50B run rate in 2012. P&G stated that the strategies of reverse logistics including energy and packaging recycling, in addition to more stringent use of dashboards and metrics to evaluate suppliers, was delivering beyond initial estimates (P&G, 2010). On top of these accomplishments, P&G was also able to reduce waste per production unit by 16% which also led to a drastic reduction in the carbon footprint of the entire company as well (P&G, 2010). As part of the Corporate Social Responsibility (CSR) initiatives, P&G set the goal of recycling and reclaiming at least 2 billion gallons of water globally from their production and supply chain processes. As of the close of 2011, the company had attained the goal and surpassed, it delivering 2.9 billion liters of clear drinking water in 2011. The goal for 2012 is 4 billion gallons of drinking water.

P&G was able to attain this level of performance by concentrating on the use of lean process improvement and continual focus on how to make sustainability a core part of their value chains, encompassing the first supplier contact and qualifications to the definition of sustainable designs including product, process and service innovation. P&G also was able to successfully create a Governance, Risk and Compliance (GRC) framework that allowed the company to excel at sustainability while at the same time creating a platform that could be used for rapidly developing and launching new products that were sustainable in scope. The result of these efforts is the development of the P&G Strategic Framework for Value Delivery shown in Figure 1. The strategic benefit of this effort is the unification of product, process and sustainability initiatives into a framework which is highly effective in creating and launching profitable products that meet internal sustainability goals.

Figure 1: P&G Strategic Framework for Value Delivery

Based on an analysis on the following sources: (P&G Annual Reports; filings with the SEC; (Joseph, 2010) (Keyes, Sykes, 2009) (P&G, 2010) (Warner, 2008) and from the Gartner Report Achieving Competitive Advantage Through the Pursuit of Sustainable Business. (December, 2012) Stephen Stokes, Simon Mingay. Stamford, CT.

Conclusions and Recommendations

P&G has excelled with their Supplier Environmental Sustainability Scorecard by starting with a very straightforward series of key performance indicators (KPIs) and metrics aimed at measuring business flexibility and sustainability performance. As the initial pilot of this program included 400 of the top suppliers, P&G was able to quickly gain insights into how the metrics and data captured could assist in better managing supply chains and the Sustainable Product Initiative (Jacobs, Jordan, 2011). Where P&G was truly excelled however is in creating a methodology that can be quickly used by practitioners and those needing the data to do their jobs more effectively.

Recommendations for future development include measuring overall second- and third-degree effects of performance across distributed supply chains, evaluating the network effect of the models' decisions on total industry performance. This is achievable given the advanced in supply chain simulation software and sustainability initiatives in industries (Jacobs, Jordan, 2011). Second, the data sets need to be managed as industry assets and made available in aggregate, privacy-ensured mode so that other industries can benefit from this analysis. Possibly masking the data asset and allowing it to be used open source would be a powerful factor in driving greater adoption of the model. Third, P*&G needs to define a corporate evangelist for the Supplier Environmental Sustainability Scorecard and promote it into a global standard.