Wednesday, April 3, 2013 by Cheryl Baldwin

A new report found that companies using business model innovation were more than twice as likely to find that their sustainability initiatives add business value. That is a tremendous argument for investing the time, energy, and creativity in developing new and custom approaches to address difficult challenges. 

The recently released Sustainability and Innovation Global Executive Study and Research Report from the MIT Sloan Management Review and The Boston Consulting Group determined that companies that create new business model solutions have more effective sustainability programs.  This includes changing elements such as the product/service offering, supply chain processes, organizational structure, cost and revenue model, and target segments. This proved to be the case for both Patagonia and Tiffany & Co., where their custom-made approach to supply chain constraints delivered results.   

Sourcing gold and precious stones for jewelry has come with the high cost of funding violence and rebel wars in Africa, significant environmental pollution, and human rights abuses.  When the jewelry industry sought to address these issues, it was unable to get answers or advance progress through the supply chain.  Tiffany & Co.  created a new approach based on direct sourcing.  The company established its own precious metal manufacturing facilities and sourced the metals primarily from the U.S.  Tiffany & Co. also created a wholly owned subsidiary to source and process diamonds.  This approach resulted in cost and quality improvements while also providing responsible sourcing assurance.  Tiffany & Co. currently sources 60% of its silver, gold, and platinum directly and has 98% traceability of these precious metals.   The company’s strict sourcing requirements and ability to verify compliance have earned it a position of leadership on responsible sourcing within the industry.

The outdoor apparel and gear company Patagonia has long integrated sustainable sourcing into its business.  However, the company recognized the limitations of its approach with wool as they did not address grazing practices, since organic certification does not include this.  To ensure that their wool supply supported responsible grazing practices, Patagonia began to connect more directly with farmers.  They established production requirements and implemented them with a group of farmers in Argentina (actually Patagonia) through a unique partnership with The Nature Conservancy and Ovis XXI.  While Patagonia does not buy directly from the famers, it requires its suppliers to source the sustainably produced wool.  Later this year, the wool will be in all of Patagonia’s merino “baselayer” products and at the same time restore 15 million acres of over-grazed Patagonian grasslands through responsible grazing practices.

The innovative supply chain solutions from Tiffany & Co. and Patagonia deliver results in part because common conventions were challenged and new support networks were developed.  So, when faced with a challenge to improve sustainability, it is worth getting creative and exploring new, custom-made solutions.