The thing to know about Gary Hirshberg, the Chairman/President of Stonyfield Farm, is not that his organic yogurt company has grown from a local New Hampshire home-spun operation into a fast-growing $300 million a year enterprise; nor that the company is driven by an environmental mission to which the business model must conform. Rather, it is the factoid in his Wikipedia entry that says he scored the first touchdown in the history of inter-collegiate Ultimate Frisbee.

It is such exuberance that characterizes what at first glance seems an unlikely CEO (or, as his card reads, CE-Yo as in yogurt) heading an unlikely company. Both are committed to aggressively forging the way toward a carbon neutral supply chain strategy—one, most emphatically, which enhances profit rather than hampers it.

In previous years, World Trade has chosen mega-companies—Procter & Gamble, Ford, IBM, Texas Instruments—as our Manufacturer of the Year for Global Supply Chain Excellence. In initiating this award, our intention always has been to identify approaches to supply chain management that can serve as inspirations to others. Our prior winners have been leaders in putting the supply chain at the center of their enterprise.

At first glance, Stonyfield Farm hardly belongs in this league. It obviously operates on a much smaller, predominately domestic scale (although since being 80 percent bought by Group Danone in 2001, the product line is beginning to enter Europe on a small scale). Nor is its inbound supply chain, with the exception mostly of berries and sugar, international. “At the beginning,” recalls Steve Inamorati, VP/Supply Chain and Logistics, “we had to source everything ourselves because there weren’t a lot of organic sources. Ideally, now we’d like to be out of sourcing, but we still need to verify the ethics and organic practices of our vendors.”

So why did we choose Stonyfield? Because the company has demonstrated an unparalleled commitment to social responsibility since its inception and, in so doing, constitutes a strong case for the unanticipated financial benefits that accompany that commitment. As climate change becomes ever more destructive, business faces challenges. Managers are already being asked to respond, to adapt operating practices to new criteria, which help off-set the cost of social externalities—like pollution and environmental destruction—while still growing the enterprise. Stonyfield Farms affords a compelling example of how this can be done.

Gary Hirshberg never intended to be in the yogurt business.

In the mid-70s, at ultra-progressive Hampshire College in Amherst, Massachusetts where he scored that Frisbee touchdown, Hirshberg studied climate change. Afterwards he joined the New Alchemy Institute, an ecological research and education center on Cape Cod (“we built a solar-heated greenhouse that used no fossil fuels, herbicides, pesticides or chemical fertilizers that produced enough food to feed ten people three meals a day, 365 days a year”). Governmental support for such experimental ventures disappeared with the election of Ronald Reagan and Hirshberg found himself out of a job. He ended up at a non-profit in New Hampshire, the Rural Education Center.

Which, when he arrived, was deep in debt and about to go bankrupt.

A long story ensues, the essence of which is that Hirshberg’s business acumen enabled the Center to survive by focusing on selling yogurt made from the farm’s small herd of cows. “We started with vats of yogurt and a fuzzy notion of making money by persuading the world that our products could help clean up the planet,” he would later recall in his recently published book Stirring It Up: How to Make Money and Save the World.The company vision was consistent from the beginning, summarized in a mission statement that remains largely unchanged to this day: provide the highest quality organic products, educate consumers and producers about protecting the environment, and serve as a model of a socially responsible business that can also be profitable.

Cut to the present.

On the eve of spring, snow still lines the streets in Manchester, New Hampshire. The 19th century red brick factories lining the Merrimack River (mostly textile, including one from which Levi Strauss himself bought denim for his original stapled jeans), vestiges of America’s industrial revolution, have long-since been abandoned. But on the outskirts of town, in Londonderry, Stonyfield’s plant is humming.

Forty-odd trailers will pull up to the loading dock here today with each hauling away some 5,000 cases of product, a selection of the company’s nearly one hundred SKUs of yogurt and drinks. The shell of this factory was the industrial strip mall that was Stonyfield’s early home; they operated out of two bays, and Steven Inamorati remembers shuttling raw materials through the parking lot. Construction workers are at work, installing more capacity.

This new capacity, along with plans to manufacture this year in Utah, is a measure of how Stonyfield has been able to expand scale since the deal with Danone while still retaining most of its independence. “There are only two vetoes on us,” Hirshberg explains as we sit in his office. “The only one that comes up on a routine basis is Capital Expenditures (the other is acquisitions).” Does the oversight slow down his agility? “When we were negotiating our deal, this came up. They said, ‘okay, we have to veto all Cap Exs.’ I said, ‘no, no, no you can’t veto all Cap Exs because that will take me forever.’ (We were a $94 million dollar company at the time, somebody would come in with a purchase order, make a case and we’d get it done). We agreed on a number, anything over a million dollars. I said, ‘okay, a million dollars, no sweat!’ We rarely had anything that cost that much. Since then, I don’t think we’ve ever had anything under a million dollars.”

The challenges to devise innovative ways to keep the supply chain true to the company’s environmental mission have grown with the growth in volume.

“One of the things we said when we started out,” recalls Hirshberg, when asked to discuss this question of size, “was that ‘we’re only going to sell within a little area. We’ll assume that somebody else will be the New York area yogurt maker and somebody else will be Ohio’s.’ That was our vision. But we ran into this very complex concept that is like a brick wall that is called ‘scale.’ If you don’t have scale you can’t be economical. And with scale comes efficiency.”

“We had this classic moment when it became clear. We were selling to 7 stores in the local area. And, we got a call from the buyer at another chain that had 35 stores. He said to my partner ‘why are you selling your yogurt to my competitor and not to me?’ And Samuel said ‘well, I don’t have enough cows.’ And he said ‘well get some more damn cows!’ and slammed the phone down. We took that as very good business advice, so we scaled up.”

As scale grows, so has the complexity of optimizing production and distribution. Which would be the case for any company but, given the need to include carbon footprints in the optimization functions, logistics becomes doubly significant at Stonyfield.

“I’ve been doing this for 25 years,” says Hirshberg, “and I would venture that for the first 20 years the supply chain was certainly a minor consideration in terms of our planning because I’m quite sure it was a single-digit part of the P&L. I don’t think it ever got into double-digits even with our geographic spread. But as we hit $100 barrel oil, it’s a whole other world. The relevance of the supply chain is entirely different than it was even seven years ago, when oil was $30 a barrel. So, now the supply chain is central. It’s gone from a relatively minor functional consequence to being a central consideration.”

Stonyfield’s transition to supply chain centricity, Hirshberg’s comment to the contrary, didn’t occur overnight. Rather, it was submerged in other categories of analysis and their impact on the environment. “We were the first manufacturer to focus on the carbon footprint of our manufacturing back in the early ‘90s when everyone thought we were out of our minds,” smiles Hirshberg. “They didn’t know what we were talking about.” It was in this context that the company approached supply chain in the broadest form: “what’s coming in, what’s the footprint and of course cost, and how is it getting here and then how is it getting out of here? The factory is seen as part of an eco-system, an important part but only a part of the total picture.”

There was a time when Stonyfield’s environmental agenda was bound by the factory. “There we were in the early ‘90s, thinking if we were off-setting 100 percent of the footprint of our manufacturing we were making a big deal,” says Hirshberg. No more. “I could show you a pie chart that shows manufacturing is sort of a rounding error compared to the total economic and ecologic impact on what we bring in and how out it goes away.”

Today, the company measures the carbon footprint of the entire supply chain and it does so with a passion and precision unlike many others. The overall goal is for the company—in all its operations and sourcing—is to be 100 percent sustainable by the year 2015.

In terms of the transportation component, Stonyfield is doing this in conjunction with its logistics solution provider, Ryder System. Working in tandem, the two are staking out what will likely prove to be significant benchmarks in the evolution of sustainable supply chains—like measuring greenhouse emissions through the entire manufacturing-distribution cycle from the raw milk pick-up at the farm all way down-stream to the final customer distribution center.

The relationship began two years ago, when Stonyfield decided to get rid of paper invoices in the wake of its growth. “Lots of companies do their freight bill audit and payment off an electronic feed,” observes Ryan Boccelli, Stonyfield Director of Logistics. “What we were looking for was a partner who could do more than that; we wanted to use freight audit and payment as the foundation for driving changes in our supply chain.” They chose Ryder, in part because of the power of its system resources and engineers. And, in part to partner with a non-asset based carrier in order to be assured of non-biased advice if the relationship expanded into transportation, which it did.

“Once we started data gathering we could identify all our existing lanes and shipments,” says Boccelli.

Lots of factors impacted the logarithms: the need for temperature-controlled transport, a selling season that peaks in January and February, customer constraints (like delivery times, which could not be changed), and volume imbalances (heaviest in New England). “At Stonyfield,” explains Mark Swenson, the Ryder Vice President who handles the account, “we took our Six Sigma tools and concentrated on the supply chain. That allowed us to ask ‘who are the suppliers in this process, what are their inputs, what is the process (i.e. where are the hand-offs), where do each of the silos impact the next hand-off?” What was unique about Stonyfield was that outputs were being measured not only in terms of productivity but also greenhouse gases.

The resulting routing guide combines efficiency and reduced emissions (like all other systems at Stonyfield, transportation remains a work in progress with such things under consideration as collaborative bookings with other refrigerated users and pulling tandem trailers with one tractor to reduce carbon footprints). Part of the solution entails a fleet contracted through Ryder, which in addition to purely business advantages (it carries 25 percent of Stonyfield’s volume), enables the company to exercise control over factors like the use of biofuel and state-of-the-art environmentally friendly tractors. The size of this contract fleet is expected to grow in the future (“as we reduce carbon emissions”). Meanwhile the selection of outside carriers isn’t always awarded on the basis of lowest cost, when feasible allowances are made for environmental impact (“with a good EPA SmartWay provider, we might pay more”).

“The most significant change in our supply chain,” explains Ryan Boccelli, “is that we’ve added systems we never had before to let us measure things we weren’t able to before.” Ryder invested considerable effort in ‘tweaking’ the EPA SmartWay fleet performance model, customizing it to validate Stonyfield particulars and enabling precise readings of carbon emission per channel, vehicle and product. “You can’t improve what you’re not measuring. Now we’ve got clear reporting, employees are looking at the data, measuring carbon, working with customers, reporting that back into the business and reporting it out to the public.”

“Rather than just look at the P&L to each customer,” notes Steve Inamorati, “we also look at the input to greenhouse gases and the carbon footprint.”

One of the features of Stonyfield management since 2006 have been Mission Action Teams, cross-functional teams charged with developing specific goals and agendas to drive down company greenhouse gas emissions (“to make environmental efforts part of the company DNA,” says Hirshberg). “Our biggest wins,” says Transportation Team member Boccelli, “have been tracking greenhouse gases to the customer level and the elimination of LTL deliveries.”

As one listens to the Stonyfield story, the Big Question is ‘environmentalism at what cost?’ Conventional wisdom is that ‘managing for sustainability’ is contrary to the best fiscal interests of the enterprise, that it may be a noble sentiment but bad business. Gary Hirshberg, however, couldn’t disagree more. He describes different company initiatives undertaken for the sake of the environmental mission—a porous parking lot to allow rainwater to drip into the ground rather than spill off into sewers, solar energy collectors, and factory carbon offsets of 100 percent. “The mission has never cost us,” he insists. Granted, there’s an initial capital cost, but amortization typically occurs faster than predicted, followed by positive cash flows. “Take the waste water plant. Seventeen percent more capital costs; it’s going to generate $3.5 million of savings over ten years. That’s net.”

And the supply chain?

“Of most of the things we’ve looked at, things that are good for the environment are good for business,” says Steve Inamorati. “So when you start talking about being more profitable and making more money, most of those things we talk about for greenhouse gas footprint and carbon impact footprint are going to do exactly that—be good for business. Some are going to entail investment to do it, but there’s always pay-back.”

So how are decisions made at Stonyfield?

Stonyfield is adding western U.S. production capability this year. Figuring out where to site the facility is a live question when I visit: how to handle distribution out of a new production facility. The problem is that the equipment is suitable only for large batches, “too big for some our products in the West” Boccelli explains.

The original intention to make all of the West Coast Stonyfield product there is thus not viable. Boccelli sketches out the options that have been developed with their Ryder partners over a multi-month intensive analysis: “Do you bring back all the product to New Hampshire and then ship it in single customer deliveries going West? That makes no sense from a cost and carbon footprint perspective or as a business strategy. Do we put an inventory distribution center out there that inventories everything we’ll need for the West? You’re paying that additional storage and handling costs of all of the product that you’re still making in the East. Then there’s the option to cross-dock.”

At this point he pauses for effect: “Or do you go to the historical faux pas of two purchase orders so you’re shipping some product to each customer from the West and some from the East? Customers aren’t always open to this, it requires two deliveries and more management.” But from a greenhouse footprint perspective, this is the best alternative.

“The decisive factor is whether you can persuade your customers to go against what would be their natural inclination. If you went to your sales people and said ‘this is what we want to do’ (two purchase orders), their emphatic answer would be ‘absolutely not.’ But, this particular time I said, ‘I’m not going to take ‘no’ between the four walls, we really have to talk to the customer about it and let them know what we’re trying to do.’”

The result? “It’s been well received. Customers in the West are very well aware of what Stonyfield and our mission is. They’re open to it.” To sweeten the deal as a kind of quid pro quo, these West Coast customers could be rewarded with more frequent shipments with reduced lead-time. While perhaps not of historic magnitude, this distribution approach illustrates at the granular level just how environmentally driven decision-making translates into win-win business practice that’s good for Stonyfield, good for its customers, and good for Planet Earth.

And, if social responsibility isn’t a sufficient motivator for change, Hirshberg is quick to point out that the petro-economy that has been fueling industry is itself becoming unsustainable. “Oil is at $100 a barrel, where is it going to be in five years? That’s easy. Somewhere between $150 and $200. And then 100 percent of our lives will be changed.”  wt

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