Intel – Sustainability Inside

In follow-up to the last post in our sustainable sourcing blog series, this week we turn our focus from shoes to semiconductors.  

Like the footwear industry, electronics manufacturers source product materials from many developing nations and manage size-able supply chains. They also share a similar amount of time in the media spotlight for sustainably suspect procurement practices. One need only jump back over recent 2012 headlines on the Apple and Foxconn debacle for proof.

However, one of the many manufacturers developing components for Apple’s products is setting a new standard for sustainable sourcing in the electronics industry – and that company is Intel.

Intel appears to be aggressively active in their efforts to reduce waste, measure their suppliers, and become more environmentally-friendly. Here are four examples that help illustrate Intel’s approach to sustainable sourcing:

Clean Energy Procurement

Intel has demonstrated a significant commitment to renewable energy and holds the #1 spot on the EPAs list of “National Top 50” organizations using green power sources. The EPA has awarded Intel with this honor as a result of the following:

• Solar Power Use. The company has installed solar electric power systems at more than nine facilities and generates almost 4M kilowatt hours per year of clean solar energy.
• Renewable Energy Certificates. Intel purchases nearly 3B kilowatt hours per year of Renewable Energy Certificates (or RECs) generated from the production of wind, solar, geothermal, low-impact hydro, and biomass sources. Though a bit complicated to understand, RECs are purchased to certify the production of 1 MWh of renewable energy. Organizations such as Intel purchase RECs to contribute a source of revenue and subsidies to renewable energy producers, who use the money to fund their operations. Clean energy suppliers track the production of each REC to measure the impact of renewable energy as the electrons generated by clean sources and fossil fuels are indistinguishable. For more information on RECs, 3Degrees (a broker of environmental commodities such as RECs) had the most comprehensible description we could find.

Conflict –Free Minerals

Intel has taken a number of measures to address concerns that several metals (cobalt, gold, tantalum, tin, and tungsten) mined from the Democratic Republic of Congo (DRC) for use in the electronics supply chain are tied to human rights offenses in that country. Though it is not the biggest user of these materials in its industry, the company has been behind several initiatives to map the electronics supply chain and take actions to verify that its microprocessors are “conflict-free,” which has proven to be a difficult task given the largesse of their supply chain. These initiatives include:

• The completion of over 40 on-site reviews of smelters in several countries
• A review of the extractives and mineral trade operations in the DRC by Intel staff
• Partnering with organizations such as the EICC (Electronic Industry Citizenship Coalition) to verify and identify six smelters that are compliant with a Conflict-Free Smelter assessment program protocol that Intel helped develop

Intel hopes to reliably certify the first conflict-free microprocessor by the end of 2012. A recent video on these efforts can be found by clicking here.

Reduction of Product Packaging Waste

Packaging and logistics teams at Intel have been redesigning the composition, form, and size of product packaging to minimize waste and drive down costs. Hundreds of tons of waste have been eliminated, primarily by reducing the use of corrugated paper and wood in shipping. These efforts have had the effect of decreasing transportation costs and the carbon emissions that go along with moving bulkier packages. Intel teams have worked successfully with subcontractors on these waste reduction programs.

Audit and Assessment Efforts

Intel serves on the board of the Electronics Industry Citizen Coalition (EICC) and has been behind the development of supplier measurement and evaluation efforts such as self-assessment questionnaires, corrective actions, and validated audit processes. The Supply Chain Management Review Committee (MRC) at Intel is responsible for the assessment of suppliers.

A risk-based approach is utilized to evaluate nearly 800 of Intel’s suppliers on a range of areas including labor, environment, health and safety. Intel publicizes the overall results of these assessments in their annual Corporate Social Responsibility Report which has been published since 2001. Beyond these assessments, Intel also relies on third-party audits conducted by organizations such as the EICC. In fact, Intel discovered issues with Foxconn through these audit efforts back in 2010 and has worked with the company since then to close audit findings – well before Apple has been forced to react this year.

So, in conclusion, what are the key take-aways from Intel’s sustainable sourcing efforts?

• It pays to be proactive in shaping the discussion. Join and help establish collaborative organizations (such as EICC for the electronics industry) that are dedicated to moving the whole industry forward on sustainable sourcing programs. Working with industry peers aids in the transferring of best practices; creates opportunities to work collectively with shared suppliers; and provides an avenue for mitigating potential issues (such as conflict mineral use).  
• Culture and incentives play a role in promoting sustainable sourcing practices. Like any organizational change effort, culture plays a significant role in establishing sustainable sourcing programs. Create a culture that rewards sustainable innovation (excuse us for the buzzword) through a system of awards, pay incentives, improvement programs, and leadership involvement.
• Sustainable sourcing requires partnering with suppliers. Pushing into sustainable sourcing frequently involves moving into uncharted territory and working with suppliers that may require training, capital, and other resources.  Intel approaches this issue through its significant investment in RECs that support the entire renewable energy industry; the real interest in the political climate in the DRC; and the active involvement in industry assessment efforts. By working to expand the overall market capabilities to produce sustainable materials and resources – organizations can help bring about technological innovation, reduced supply costs, and efficiencies that benefit sustainable procurement efforts.

Spotlight on Sustainable Sourcing

As summer returns to New England, Calyptus is devoting the month of June to focusing on a frequent topic of discussion in the procurement community – sustainable sourcing. Given the range of definitions of this term and the equally diverse ways that companies are addressing the issue – we are exploring the trials, successes, and tribulations that companies are experiencing in this area through individual case studies.

We start our series with the footwear and apparel industry – a sector that tends to receive a lot of negative press in the realm of environmental-friendliness and fair labor practices.

Once perennially chastised for allegations of lax oversight of their global suppliers, Nike appears to have put a lot of effort into their sustainable sourcing practices.

Nike has received a lot of attention lately for its Sourcing and Manufacturing Sustainability Program, which essentially gives equal weight to sustainability measures compared to the traditional aspects of quality, delivery, and cost used in supplier evaluation. The company is implementing a Sourcing and Manufacturing Sustainability Index (SMSI) designed to measure suppliers in the following areas:

• Health and Safety
• Labor and Human Resource Management
• Lean Commitment
• Energy Use and Carbon Output
• Environmental Sustainability

If suppliers are found to be noncompliant according to the SMSI system, they will need to fund third-party audits until they are brought to a minimum standard of conduct (what Nike calls “Bronze” level performance).

Though the brand team and marcom folks definitely have a heavy hand in this effort judging by the content and design of the Nike Responsibility site (the word “sustainability” is mentioned over 30 times on a single page), there appears to be a solid backbone to this initiative based on the following:

• Measurement. A team of 70 Nike employees and a set of third-party auditors evaluate individual factories every 12 to 18 months. Factories receive a score based on evaluation metrics and are held accountable for their performance. The company has also set a variety of specific goals and targets to be met by the year 2020.
• FLA Membership.  Nike is a voluntary member of the Fair Labor Association, which means that they are accountable for monitoring 100% of their supply chain to ensure that FLAs strict labor standards are met. FLA also conducts random assessments of Nike factories, the results of which are made public on the FLA website.
• Alignment. The company has collected data from hundreds of contract factories producing for the Nike brand and affiliates; bringing all factories into alignment with a single Code of Conduct.
• Training. Training programs have been rolled out to 76 Asia-Pacific factories and over 400 factory leaders on Human Resources Management, environmental sustainability and energy issues.
• Transparency. You have to hand it to Nike for publishing such a wealth of detailed information to the public about their sustainable sourcing efforts, including an interactive map that displays the names, locations, and statistics on hundreds of factories worldwide.

So what does the Nike example tell us about the state of sustainable sourcing today?

1. Many companies are still trying to get measurement down. Taking a look at the stats published on the Nike Responsibility website and the noncompliance elements highlighted in FLA reports, there is still a lot of work to be done in simply collecting data and tracking the efforts of suppliers, especially with supply chains that number in the thousands. In 2009, Nike lacked data on nearly 500 of their suppliers to sufficiently evaluate them.
2. Sustainable sourcing efforts can have a positive effect on the brand. Nike has jumped up nearly 10 spots since 2001 on Interbrand’s Ranking of Top 100 Brands. Interbrand measures companies based on financial performance, brand role and brand strength and incorporates primary research with consumers into their methodology. Interbrand cites environmental responsibility and other sustainability factors as key components in the favorable ranking of several top brands on the list.
3. Sustainable sourcing and fair labor practices are catching on in the footwear industry. In the case of this industry in particular, the trend in sustainable sourcing is contagious. PUMA, Adidas, Asics, and New Balance are also all members of the FLA and also highlight their social responsibility and sustainability efforts quite prominently. At the very least, these brands all seem to recognize the importance of the issue to consumers and appear to be taking steps towards a sourcing approach that is less wasteful and more equitable.