18603832 sustainable supply chain aug 09

8/9/2019 18603832 Sustainable Supply Chain Aug 09

1/18

1

Supply Chain: The critical enabler for meeting

corporate sustainability objectives

International Congress on Sustainability Science and EngineeringAugust 11th, 2009

For Questions Contact:

[email protected]


2/18

2

Objectives

Why is sustainability important?

Sustainability is a global challenge

Not just about green

Opportunities and risk

Whats the role of Supply Chain in meeting Corporate Sustainability Goals?

Critical enabler

An approach and tool to develop a Supply Chain Sustainability Strategy

Business case driven Build on gaps and prioritization

Integrated approach


3/18

3

One planet

Today

Five planets

Future, 20xx

Today we are faced with a fundamental challenge improving thestandard of living for billions of people, with limited resources

20%

80%

Resources

20%

80%

# People

7 bn.100

(indexed)

98%

Resources# People

7 bn. + X 500

Developing countriesstrive to increasestandard of living

Current systemsreach their limits inour lifetime

Sharply rising pricesindicate fiercecompetition of

resources

Strains on businessoperating models

90%

10%

Source: A.T. Kearney, External Research


4/18

4

TechnologyDemographics

In a fast changing global environment the winners will be thosecompanies to manage to a triple bottom line

EconomicDevelopment

+

SocialWellbeing

+

EnvironmentalProtection

Sustainability=

Globalization Consumption Patterns

Government Regulations

Change of labor laws Increase of green

policies Ex: Carbon Tax; San

Francisco bans plasticbags

Green consumers Social awareness Ex: European demand

for Fair Trade productsgrowing over 40% peryear

New markets Labor migration Ex: 500 MM new

consumers out of povertyfrom 2000 to 2015, mainlyin emerging economies

Multi-countryestablishment of a firmsvalue chain

Ex: Growing quality andsafety concerns from LowCost countries

Renewable energy Ex: Solar, Wind and

other types of energyare becomingincreasingly availablebut not yet cost effective

Drivers of Change Drivers of Change

Triple-Bottom-Line

Source: Brundtland Commission definition of sustainability

The GoalLong-term competitive advantage from aligningeconomic, social and environmental goals

Natural Resources & Climate

Change Global warming Increased demand for oil

and natural gas Ex: Pricing in of CO2

cost in energy prices
http://www.dfg.ca.gov/climatechange/images/ClimateChange.jpghttp://images.google.de/imgres?imgurl=http://www.cfxworks-enterprise.com/images/regulation1.jpg&imgrefurl=http://www.cfxworks-enterprise.com/index.cfm?fuseaction=cCryptography.regulatoryRequirements&h=236&w=250&sz=39&hl=de&start=77&um=1&usg=__nO9Yrs_CY4MeqKpNLyyiK9CLm8U=&tbnid=hsv4KkCjov6dvM:&tbnh=105&tbnw=111&prev=/images?q=regulation&start=63&ndsp=21&um=1&hl=de&rlz=1T4GGIH_deDE265DE265&sa=Nhttp://www.lenzing.com/images/lenzing_kk/Technik_Zahnrad_BA_rdax_300x300.jpghttp://www.oukosher.org/images/elements/homepage_consumer_1.jpghttp://images.google.de/imgres?imgurl=http://www.bradford.gov.uk/NR/rdonlyres/672639C8-F512-4F7E-B861-2259F45009AA/0/EP.jpg&imgrefurl=http://www.bradford.gov.uk/the_environment/environmental_protection/&h=300&w=300&sz=33&hl=de&start=16&um=1&usg=__rJEvisTlSmgHXwQ5heVf9e0jB6k=&tbnid=PjaDlEmvTaa4qM:&tbnh=116&tbnw=116&prev=/images?q=Environmental++Protection&um=1&hl=de&rlz=1T4GGIH_deDE265DE265http://www.cityforum-profrankfurt.de/cms/upload/FrankfurtHochVierPDFs/PQ-Ansicht_2_Bouwfonds_MAB_Development.JPGhttp://images.google.com/imgres?imgurl=http://www.gsd.harvard.edu/Templates/images/people/people_index_pict.jpg&imgrefurl=http://www.gsd.harvard.edu/people/&h=333&w=484&sz=56&hl=en&start=6&sig2=18hRkYHcFzFGV1k3uAH5Wg&um=1&tbnid=SvhTC5hbJfGnWM:&tbnh=89&tbnw=129&ei=Tp9ERv6IKJLW0gTpnKTbDA&prev=/images?q=People+Picture&svnum=10&um=1&hl=en&rls=GGLJ,GGLJ:2006-48,GGLJ:en


5/18

5

Sustainability fundamentally represents both risks and opportunities

Sustainability can be a

Revenue

Costs

Risk Opportunity

Source: A.T. Kearney, External Research

New Products(e.g., Specialty Chemicals, CellulosicEthanol)

New Markets(e.g., Renewable energy)

Price Premium(e.g., green, Carbon neutral,renewable)

Carbon Tax

Exploding Commodity Costs

Sustainability Administration Localization of Supply Chains

True pricing of resources (e.g.water)

Product competitiveness reduced(e.g. biodegradability, lower cost ofownership)

Lost potential (e.g. biodiversity loss)

Safety Disaster(e.g., toys, toothpaste)

Lost business(e.g., unable to quantify lifecycleGHG emissions)

"Revenue Threat"

"Cost Peril"

"Growth Platform"

"Efficiency Booster"

Energy/Water Efficiency(e.g., closed loop systems)

Product Specification Optimization(e.g., design, material usage, yield)

Value Chain Optimization(e.g., manufacturing/network design,service levels)

"Revenue Threat" "Growth Platform"

"Cost Peril" "Efficiency Booster"

Particularly when adopting a Life Cycle view, Supply Chains become critical in addressing risks and capitalizing on

opportunities


6/18

6

Corporate Sustainability Strategy in Place?

Source: EIU and A.T. Kearney Study Doing good Business and Sustainability Challenge 2008, A.T. Kearney analysis

10.0%

33.3%

3.3%

53.3%

Dont know

No, and we have no immediateplans to develop one

No, but we aredeveloping one

Yes, we have a strategy in place

Many companies have recognized Sustainability as a paradigm shiftand have developed Corporate Sustainability Strategies

Stand alone Corporate Sustainability Strategy or extended Corporate Social Responsibility


7/18

7

As evidenced by the nature of priority objectives, supply chains are acritical enabler

Supply Chain Enabled Objectives

Improving the environmental footprint of existing products/services(e.g., use of recycled materials, reducing packaging and waste

Developing new products that help reduce or prevent

social or environmental problemsCommunicating your organizations performance on

sustainability to investors and stakeholders

Improving energy efficiency across global operations

Working with governments to promote sustainabledevelopment in the countries you operate in

Improving the local environment around operating facilities

Acting to enhance the impact of the organization on thecommunities around operations

Reducing greenhouse gas emissionsand/or waste/pollutants

Implementing stronger controls over supplierson human rights standards

Implementing stronger controls over supplierson environmental standards

Leading to High Priority Objectives Next 5 Years

Source: EIU and A.T. Kearney Study Doing good Business and Sustainability Challenge 2008, A.T. Kearney analysis


8/188

However, many lack a robust supply chain sustainability strategy andthe processes to be able to deliver on sustainability commitments

Have inPlace

Dont Have in

Place

Organizational Procedures(% of Respondents)

8%

22%

25%

30%

20%

92%

78%

75%

70%

80%

Public Awards /Recognition for Staff

Sustainability Training

Sustainability CriteriaIntegrated into E-sourcing

Tools

Written Guidelines andPolicies

Supply ManagementSustainability Strategy

Source: A.T. Kearney Sustainability and Supply Management Survey

Track

Metric

Do not Track

Metric

15%

18%

25%

28%

40%

43%

43%

50%

85%

82%

75%

72%

60%

57%

57%

50%

0% 25% 50% 75% 100%

Energy Usage

GHG Emissions

Use of Sustainable Sources

Supplier Wages

Impact of Material Waste

Material Toxicity

Usage of Recycled Materials

Supplier Labor Practices

Less Traditional Metrics

Usage of Supplier Sustainability Metrics(% of Companies)

Many firms lack a comprehensive and robust way to track their own and suppliers sustainability

performance


9/189A.T. Kearney 7/09.2007/44948

In order to meet future goals, supply chains will have to collaboratewith non-traditional partners to resolve sustainability issues

Consu

mer

Consu

mer

Corporate Functions (HR, IT, Legal ...)

MarketingProductDesign

& R&D

Procure-ment

InboundLogistics

Manu-facturing

OutboundLogistics

CustomerService

Operations

Com-mercial

&

Sales

Planning

= Traditional Supply Chain ParticipantsSupply Chain Functional Participants

Post-Consumer

Operations

Impact of SupplyChain Decisions

on Brand Image

Child Labor

Fair Trade

Community QOL

Bio-Diversity

Resource Abuse

Nth Tier Supplier

Carbon Footprint

Energy Usage

Toxic Materials

ManufacturingEfficiency

Energy

Toxic Waste

Fair Labor

Carbon Footprint

SF utilization

ManufacturingWaste (OAE)

Community QOL

Energy Usage

CO2 Emissions

Toxic Waste

MaterialRecycling

Extended Participants for Sustainable Supply Chain Designs

S

ustainabilityIssues

Energy Usage

CO2 Emissions

TransactionEfficiency

Paper Usage

Travel relatedCO2 Emissions

Illustration of IssuesLinked Along Value Chain


10/1810

Results

KeyAct

ivities

Achieving real progress requires a strategy, we use a three stepprocess to integrate sustainability into the supply chain strategy

Assess supply chain functions againstsustainability best practices

Procurement

Production & distribution

Sales & support services

Recycling and product re-use Competitor analysis

Identify and prioritize challenges andopportunities based on assessmentresults

Understand future forces impacting thecompany (e.g., geo-political,environment, etc.)

Understand supplychain sustainability

issues and gaps

Develop business caseand action plans

Understand revenue impact (growth,threats)

Conduct sustainability accounting andquantify cost risks

Determine cost efficiency opportunities

Model and quantify company valuechallenge

List levers and measures

Develop actions to close gaps toidentified challenges

Update/develop supplychain sustainability

strategy

Translation of findings for sustainabilitygap and profit-potential of sustainabilitymeasures into sustainability strategy

Alignment with overall businessstrategy

Definition of targets and financial,environmental, social metrics

Governance/organizational implications

Implementation plan

1 2 3

Sustainability gaps Company value potential of

sustainability measures

Supply chain sustainability

strategy

4

4

3

2

2

1

3

2

4

2

4 3 1 3 4

4 2 1 2 2

4 3 1 2 2

Source: A.T. Kearney

Todays Workshop Focus

In the following pages I will illustrate a tool to accomplish to support you in doing Step 1


11/1811

We developed a methodology to assist our clients to assess theirsustainability practices in the supply chain

Stages of excellence insustainability management

Illustrative

Summary of results in avalue chain sustainability map

Differentiated assessment of excellence ofcompanies along the value chain dimensionsfrom sales to procurement and allsustainability dimensions economic, social,environmental

Four Stages of Excellence in sustainabilitymanagement

Focus on a companys development pathplus exemplary function with differentiationand growth through sustainability

Set exampleSet exampleGet involvedGet involved Get activeGet active Act as modelAct as model

Standard Engagement Outstanding

Development towards growth and differentiation with sustainability

Sustainabilityon usual terms

Sustainability isproactively targeted

Sustainability asa differentiator

versus competitionand to achieve the

targeted growth

Stages of Excellence model to assess sustainability

1

2

4

Sustainability asparticular company

target in all businessunits

3

Focus

Optimize

Differentiate

Encourage

Accept

Assessment methodology overview

Source: A.T. Kearney

Triple bottom line1)

- minimum -

= Act as model>64--85% = S et ex amp le > 85-100%= Get active>39 -64%= Get involved25-39%

SustainabilityDimension

Value Chain Dimension

Sustainability

Integration

75 %

66 %

66 % 58 %

25 %

82 % 50 % 95 %

66 % 41 % 58 %

81 % 43 % 25 %

ProcurementProduction &Distribution

Sales &SupportServices

41 %

Economic

Social

Environmental


12/1812

Stages of Excellence AssessmentSupply Chain Sustainability

Dimension/

Criteria

Level 1

Get involved

Level 2

Get active

Level 3

Set example

Level 4

Act as model

Evaluation [1 to 4]

& Rationale

Objectives Strategic sourcingprimarily focused oneconomic targets

Environmental and socialtargets not explicitsourcing focus

Preliminary ideas tointegrate sustainabilitytargets in sourcing

Different sustainabilitytargets at individuallocations

Compliance with regulatorystandards at each location

Single sourcing strategiesexceed externalsustainability standards

Low sourcing volume thatcomplies with allsustainability criteria

Internally optimizedsourcing methodologieswhich take into accountsustainability criteria

Sustainable spend andsupplier portfolio

Suppliers comply with socialand environmentalstandards developed by thecompany which exceedregulatory requirements

World-wide leadingsustainability program forsourcing, locally and centrallyimplemented

Awards for excellent suppliersustainability

Good balance of social,economic, ecologicalsourcing target achieved

Sourcing contributes tosustainable development at

supplier sites

Strategy Sourcing strategies stilllack integration of aconcrete sustainabilityconcept

A few sustainabilityinitiatives at individuallocations

Sourcing strategy isdocumented andformalized

Regionally differentsustainability strategies;standards established andinternally refined/ adjusted

Sustainability strategy insourcing includes holistic,internally oriented businesscase (costs, sales,reputation)

Global sourcing andsustainability strategy, localand regional alignmentfeasible

External differentiation in themarket via outstandingsourcing practices

Sustainability strategy ofsourcing includes risk,compliance management andinnovation

Governance& Execution

Preliminary ideas andsuggestions forsustainability sourcingtopics

Initial suggestions for theimplementation ofsustainability sourcingtopics

No reporting ofprocurementperformance with respectto sustainability

Local sourcing initiativeson-site to improvesustainability

Local general sustainabilitystandards in sourcing arecomplied with at respectivelocations

Some standards regardingsustainability defined butnot regularly updated ortransparent to employees

Strategic partnership onsustainability with suppliers,leading to higher customersatisfaction

Procuring a significantvolume of sustainableproducts, incl. certificationof suppliers together withstable/improved costs

Systematic reporting ofsustainability metrics ofprocurement internally

Centrally coordinatedimplementation with top-downbenchmarking based onglobal, standardprocesses/structures and de-central sustainabilityimplementation

Open cooperation withpartners in implementation

Public and consistentreporting of sustainability ofprocurement used todifferentiate in market

SustainabilityIntegration

Procure-ment


13/1813

Dimension /Criteria

Level 1Get involved

Level 2Get active

Level 3Set example

Level 4Act as model

Evaluation [1 to 4]& Rationale

Economicsuccess

Focus on minimizinglanded cost

Supplier portfoliooptimized based on shortto mid-term economicand quality criteria

Optimize landed costagainst flexibility ofsupply

Supplier portfoliooptimized based onstrategic partnershipsand collaboration

Minimize total cost ofownership across life-cycle (incl. return,recycling, waste disposal)

Strategic partnerships withsuppliers to increaseresources efficiency andlower costs

Successfully differentiateand generate extramargin by marketingsustainableprocurement footprint

Strategic partnershipswith suppliers onsustainability increasecustomer value

Contributionto EconomicDevelopment

No consideration ofcommunity andeconomic developmenteffects in procurementdecisions

Some awareness ofimpact of procurementdecision on localcommunities

Impact of procurementdecision on localcommunities activelytaken into account forpurchase decision

Systematic support ofsuppliers that reducepoverty, hunger in localcommunities (e.g. fairtrade)

Code ofConduct &

Compliance

Code of conduct forprocurement accordingto local legislation

No internal audits oncompliance ofprocurement to anti-corruption governance

No objection againstquestionable localbusiness practices

Existence of businessethics policy and internalmonitoring forprocurement & trade

Rules on anti-corruptionand business ethics inprocurement and trade

Regular audits to enforceanti-corruptiongovernance

"No tolerance" culture toanti-corruption,governance - severeconsequences enforced

Internal and externalenforcement of businessethics policy

Perceived as industryleaders in procurementconduct and example forpublic and youth

High standards asdifferentiator in themarketplace

Cooperation with sup-pliers against corruption(e.g. joint audits)

Public communication ofanti-corruption businesspractices

Stages of Excellence AssessmentSupply Chain SustainabilityEconomic

Procure-ment


14/1814

Dimension /

Criteria

Level 1

Get involved

Level 2

Get active

Level 3

Set example

Level 4

Act as model

Evaluation [1 to 4]

& Rationale

Health &Safety

No tracking of suppliershealth and safetymeasures

Tracking of suppliersEHS standards; de-selection in case of non-compliance with locallegal standards

Supplier de-selection incase of non-compliancewith highest internationalstandards

Joint supplier programs forleading HSE standards

EHS of supplier andproducts differentiating inthe marketplace

SocialStandards &Benefits

No transparency ofsuppliers employmentpractices (e.g. childlabor)

Tracking of suppliersemployment practices;de-selection in case ofnon-compliance withlocal standards


Branding based on supportof social development insupplier countries

Education &Training

No tracking of supplierseducation & trainingpractices

Tracking of supplierseducation and trainingpractices

Supplier de-selection incase of non-compliancewith internationaleducation & trainingstandards

Supplier with leading edgeeducation & trainingcontributing to communitydevelopment as source forbranding

Diversity &Work-LifeBalance

No transparency ofsuppliers adherence todiversity standards

No transparency ofsuppliers adherence tolife balance principles

Tracking of suppliersadherence to diversitystandards; de-selectionin case of non-compliance with localstandards

Transparency on lifebalance practices andfamily friendliness ofsuppliers


Supplier de-selection incase of unfavorablepractices for life balanceand family friendliness

Branding anddifferentiation based onsupport of diversityadherence of suppliers

Suppliers with leading lifebalance programs used fordifferentiation andpartnering

Society No transparency on

suppliers contribution tosociety

Tracking of supplierscontribution to societyand programs

Supplier de-selection incase of unfavorablepractices in society

Society contribution ofsuppliers as differentiator,used in branding

Stages of Excellence AssessmentSupply Chain SustainabilitySocial

Procure-ment


15/1815

Dimension /Criteria Level 1Get involved Level 2Get active Level 3Set example Level 4Act as model Evaluation [1 to 4]& Rationale

Climateprotection

No transparency ofcarbon footprint forpurchasedgoods/services

No collaboration withsuppliers on reductionof carbon footprint

Tracking of carbonfootprint in case of non-compliance with localstandards

Corporate CO2 emissioncontrolling and reductiontargets in procurement

Some projects to improvefootprint of combinedsupply chain; work withsuppliers to identify and

execute

Tracking of carbonfootprint in case of non-compliance with highestinternational standards

Minimization of purchasedgoods/services carbonfootprint

Information on carbonfootprint of combinedsupply chain regularlyshared between supplier

and company

Branding based on climate/environment goods/services

Supplier proximity (shortsupply chain) asdifferentiator

Common supply chainoptimized from carbonfootprint standpoint (e.g.load optimization)

Joint programs withsuppliers to reduce GHGand other emissions

Resourceprotection

No transparency ofraw material sourcesand renew ability

No transparency ofwaste managementfor purchasedgoods/services

Tracking of resource andwaste management andsupplier de-selection incase of non-compliancewith local standards

Tracking of raw materialorigin and supplier de-selection if non-compliancewith local legislation

Tracking of suppliersresource and wastemanagement; supplier de-selection, if non-compliance with highestinternational standards

Usage of recycledmaterials and materialfrom renewable sources

Minimized resource usageby supplier

Establishment ofrenewable raw materialsources with suppliers

Fully closed loop recyclemanagement

Joint resourcemanagement with supplierfor differentiation in

marketplace (focused oninnovation)

Naturalresourceprotection

No transparency ofcontaminated materialcontent for purchasedgoods/services

No tracking ofsuppliers toxicemission record

Tracking of carboncontaminated materialcontent and emissionstandards and supplier de-selection in case of non-compliance with localstandards

Tracking of contaminatedmaterial content de-selection in case of non-compliance with highestinter-national standards

Supplier leading edge interms of reduction of toxicemissions

Joint programs withsuppliers on environmentalprotection

Stages of Excellence AssessmentSupply Chain SustainabilityEnvironmental

Procure-ment


16/1816

Once all the scores have been compiled, a sustainability map is createdto help identify gaps and opportunities

Results of assessment(1) and possible implications

Most important results:

In social sustainability aspects, client acts as model in

many areas; in economic categories, it is setting anexample

In the area of environment, communication excelswhereas there is still need for action regardingstrategy definition as well as in single value chainstages

Implementation of sustainability in strategy is stillimperfect although operationally, sustainabilityinitiatives are being implemented

Implementation of sustainability in businessstrategy can improve by adding targets andstructure to operations

Explicit wording and implementation ofsustainability targets in strategies of thepurchase, production and distribution units arerequired

Improved communication of outstandingsocial results

Environmental aspects in core businessairport operations are of special publicinterest and could be strengthened

Legal requirements and competitive issueslimit ability to achieve high social andenvironmental scores in purchasing. Clientmust decide how far to use its role as example,e.g. by taking advantage of legal latitudes aswell as by influencing political processes, toachieve a better anchoring of sustainabilitycriteria in public procurement law

To improve the triple bottom line, thecompany must overcome its weak strategiccomponent

Full AssessmentExample

Note: (1) Sustainability map of full sustainability assessment, not just supply chainSource: A.T. Kearney


17/1817

Companies implementing best practices in supply managementexperience benefits in multiple fronts

RiskManagement

Ability to assess impact of future forces (e.g. climate change, regulation, geo-politicalinstability) prepares companies to manage risk over availability of commodities andservices in the future

Greater visibility over vendors sustainability practices allows companies to betteraddress consumers concerns regarding control over their supply chains (e.g. recenthealth and safety concerns arising from China-procured products)

Revenue

Suppliers can be a source of green innovation, helping differentiate products andservices (e.g. biodegradable packaging, etc.)

A green supply chain may influence consumers buying decisions (e.g. product basedcarbon footprint)

Cost Efficiency

Increased efficiency in use of resources (e.g. waste recycling, efficient use ofpackaging materials, efficient use of energy sources) results in a decrease in supplychain costs

Control over vendors green practices and implementation of joint processimprovement initiatives (particularly in the realm of energy use) leads to reductions inpurchasing spend

Illustrative


18/18

Brief summary of key challenges and best practices for key supplychain areas

Area Key Challenges Best Practices

General

Integrating sustainability objectives into organization

Forgoing short-term benefits for long-term view of

sustainability

Consistently and accurately tracking supplier and

company adherence to sustainability

programs/initiatives

Sustainability is not used for house-keeping but is integrated into

the core business and value chain of the company

Customers and suppliers are actively targeted and integrated into

sustainability efforts

Sustainability is actively used to differentiate and grow in the

marketplace e.g., eco product strategy by high tech conglomerate

Procurement

Meeting cost targets despite consideration ofsustainability initiatives in supply base and internal

sustainability requirements Assessing local vs. remote sourcing due to cost and

environmental concerns (e.g., CO2)

Gathering the right data and KPIs to identify

opportunities

Strategically manage sustainability of all tier suppliers along thevalue chain: monitor, select, manage and audit supplier by

sustainability Analyze sustainability KPIs e.g., energy/CO2 to identify new

efficiency and cost saving potentials

Differentiate business through supplier sustainability (e.g., eco

textile business)

Production &Distribution

Managing balance between new innovative and more

efficient technology vs. maintaining competitive cost

position

Short supply chain decentralized approach vs.

centralized approach

Sustainability objectives for production & distribution, KPIs and

targets derived from overall sustainability strategy and broken

down on all functions/locations

Reduce environmental footprint & energy consumption, use

renewable energy, introduce carbon-neutral sites or transportation

lanes, (e.g., Volvo production site, solar-powered warehouses ) Specific focus on health & safety as well as social standards in

production sites particularly in emerging markets; dedicated

employee trainings (e.g., chemical client)

Sales andServiceSupport

Generating sales value from sustainability initiatives

Communicate sustainability topics to consumers

Developing cost-effective sustainable practices for

SG&A, including green/carbon neutral buildings, green

IT, etc.

Sustainability strategy broken down on SG&A components

Special sustainability service offerings for customers (e.g. eco-

efficiency analysis of products sold)

Trainings for all S&GA employees on sustainability

Sales reps actively use sustainability to differentiate in the

marketplace and with clients

18603832 sustainable supply chain aug 09

Documents