Green Supply Chain: Coca-Cola’s Water Management Four Best Practices

Coca-Cola’s recently published Water Stewardship Replenish Report soberly notes that two-thirds of the world’s population lives in severe water stress areas with one billion people lacking access to safe drinking water. Bea Perez, Coca-Cola’s Chief Sustainability Officer concludes, "Because responsible water management is at the heart of a sustainable future, overcoming today’s water challenges calls for extraordinary action."

Water supply is critical to every business but water for The Coca-Cola Company is the enabling supply chain resource for its approximately 3,000 different products sold in over 200 countries that generates $35 billion in annual revenues. R. Paul Herman CEO of HIP Investor, Inc notes in his analysis of The Coca-Cola Company’s strategic risks that Coca-Cola uses 2.36 liters of water per liter of soda with India at a 4:1 ratio.

The Coca-Cola Company’s water management strategic focus is upon these three key issues:

Water risks
Water systems in the U.S. and around the world are at risk from growing populations and climate change. A 2010 NRDC research study concluded that one-third of U.S. states face extreme or high risk of drought. Compounding the reduced availability of water is a U.S. water demand where the average American consumes 170 gallons of water each day compared to only 5 gallons per day for the average African family.

And our water infrastructure is old. The three states of South Dakota, Alaska and Pennsylvania still use wooden water mains. High consumer demand and an aging water infrastructure suggest the need for substantial community, business and individual capital investment in water supplies, management systems and efficiency.

However, water revenues are not high enough to offset the cost of capital for infrastructure repair. Water utility revenues are being constricted due to reduced sales -- drought sparks consumer conservation. In addition, American water consumers are conditioned to low prices for water from decades of receiving low monthly bills. For example, the average American household consumes about 127,400 gallons of water during a year. Homeowners in Washington, DC, pay about $350 for that amount of water. In comparison, buying that same amount of water from a vendor in Guatemala City would cost more than $1,700. The American consumer's expectation that water should be an inexpensive resource results in significant consumer resistance to utility proposals for higher water rates. The result is a high risk scenario of potential water supply shortage plus volatile price increases as water suppliers push through rate increases that are higher in size due to the delay in gaining consumer/regulatory acceptance.

Nexus of climate, energy, water and food
To Coca-Cola’s credit, they have accepted the science of climate change as a reality impacting their customers, suppliers and themselves. They also recognize the ties that bind agriculture and water where 70 percent of the world’s fresh water is used to grow food. Their business strategy incorporates the scientific conclusions that human emissions of greenhouse gases tied to the burning of fossil fuels are negatively impacting the world’s food and water supplies. They recognize that solutions to this complex situation requiring strategic vision and long term investment.

The new water economics
If water is the next oil, then the economics of water including its price and access to investment capital are core economic issues confronting businesses and communities. Like oil, water economics are now driven by a growing demand that supply can no longer fulfill. When demand exceeds supply the result is higher prices. This scenario also portends increased price volatility in reaction to our climate’s volatile swings between drought and flood. The new economics for water will require a shift from the current pricing system of no meter or a dumb-meter toward a pricing environment that reflects the demand-generated value (vs. supply cost) of water. This new pricing system should also take into account the timing of water demands where customers who demand water in critical supply time periods pay a price premium. And the pricing of water must generate cash flows in support of investments in more efficient water supply management and technologies that result in more efficient use of water.

In response to these strategic challenges Coca-Cola has established the following four sustainable action items:

REDUCE
Improve water-use ratio by 20 percent, thus improving water use efficiency, by 2012. The Coca-Cola Company as of 2011 has improved their water-use ratio by 16.3 percent.

RECYCLE
Recycle 100 percent of their manufacturing-plant’s water to a level that returns it to the environment at a level that supports aquatic life. Currently the company is at 96 percent with the expectation of reaching 100 percent by the end of 2012.

REPLENISH
By 2020 replenish watershed supplies to produce a volumetric benefit equivalent to the Coca-Cola Company’s global beverage production volume. Currently Coca-Cola is replenishing 35 percent of the water they use.

RISK MANAGEMENT
Coca-Cola is assessing the quality and quantity vulnerabilities of the water sources serving their bottling plants to protect against adversely affecting the water access ability of other water users from being adversely affected.

Four best practices
To learn more about Coca-Cola’s best practices for managing water within their supply chain I interviewed Jeff Seabright, Vice President Environment and Water Resources. He shared the following four best practices:

1. Start at “home”
Even though water prices have risen to levels where they cannot be ignored, it is often not an expense item where many businesses have focused. Yet, it is an area of “low hanging fruit” with action items that can produce immediate cost savings. Jeff suggests looking for drips. This is your money literally going down the drain. I also recommend faucet aerators. Put one on a test faucet. If you can’t tell a difference then put them on all faucets. They cost next to nothing and save big. Finally, as Pam Evans the Green Business Coordinator for Alameda County, California points out in this video “It’s the toilet” where most commercial businesses and people can save the most money and water. Check your toilet and make sure it has blue writing between the seat and tank that says 1.6 or 1/28 GPF. If not, you have a water hog that is costing you money.

2. Understand your water risks
Water risks are often a risk assessment gap for many businesses. The assumption is that water will always be available in full supply. This is changing as evidenced by droughts like those being increasingly experienced in Texas and the Southwest. Even Coca-Cola’s headquarter city of Atlanta faces water supply issues from growing consumer demands, recent droughts and water battles between the states of Georgia, Alabama and Florida. The challenge for companies that do want to assess their water risks is a lack of measurement tools. In recognition of this situation Coca-Cola has donated their extensive water risk geospatial information to the World Resource Institute’s Aqueduct database. This database enables companies, investors, governments and others to create water risk maps with a high level of detail and resolution.

3. Develop and evolve a strategic plan
How does water fit into your company’s SWOT (strengths, weaknesses, opportunities, threats) analysis? What would your company do if its supply of water was cut in half or the price increased by 100 percent? What is the threat if your competitor invested in a clean tech water technology and you did not? These types of questions must now be included in a company’s and its host community’s strategic plans. This link to San Diego’s strategic plan provides insights on key issues and where to begin.

4. Engage associates and others as partners Green teams are a proven path to insights on “what to do” and “how to do it” that can turn a mission statement into profit results. Seabright also points to your business partners and suppliers as resources for insights on how to protect and conserve water and save money.

Watch this interview with Jeff Seabright to learn more on best practices for addressing water’s increasing importance for all businesses:

http://www.youtube.com/watch?v=lmWUamIuDsg

Bill Roth is the founder of Earth 2017. His book, The Secret Green Sauce, profiles case studies on the best practices of businesses making money going green. As the Green Business Coach for the USHCC Green Builds Business program he is coaching hundreds of businesses in their design of projects that will make money and a difference.