A.T. Kearney 82/7478 1 Sustainability is Free Dr. Dale S. Rogers Center for Logistics Management...
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Transcript of A.T. Kearney 82/7478 1 Sustainability is Free Dr. Dale S. Rogers Center for Logistics Management...
A.T. Kearney 82/7478 1
Sustainability is FreeSustainability is Free
Dr. Dale S. RogersCenter for Logistics Management
University of Nevada
Petroleo Missao TecnicaHouston, Texas
June 11, 2008
Dr. Dale S. RogersCenter for Logistics Management
University of Nevada
Petroleo Missao TecnicaHouston, Texas
June 11, 2008
3
Sustainable Supply Chain Management DefinedSustainable Supply Chain Management Defined Sustainable supply chain management (SSCM) is the strategic,
transparent integration and achievement of an organization’s social, environmental, and economic goals in the systemic coordination of key interorganizational business processes for improving the long-term economic performance of the individual company and its supply chains.
Source: Carter and Rogers, 2008
Sustainable supply chain management (SSCM) is the strategic, transparent integration and achievement of an organization’s social, environmental, and economic goals in the systemic coordination of key interorganizational business processes for improving the long-term economic performance of the individual company and its supply chains.
Source: Carter and Rogers, 2008
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The Sustainable Supply ChainThe Sustainable Supply Chain
NaturalEnvironment
Society
EconomicPerformance
Sustainability
Good?
Best
Better Better
Strategy•Sustainability as part of an integrated strategyLong-term view
Risk Management•Contingency Planning•Supply Disruptions•Outbound Supply Chains•Headline Risk
Transparency•Stakeholder Management•Financial Reporting (SOX)•RFP/RFQ Process•Supplier Operations•Leadtimes to Customers
OrganizationalCulture•Deeply Ingrained•Organizational Citizenship•Values and Ethics
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Fortune 100Fortune 100
Sustainability is clearly becoming more important to the most successful companies.
Sustainability is clearly becoming more important to the most successful companies.
Sustainable Element Number of Fortune 100
Sustainability Report 31
CSR Report 38
Sustainability/CSR/Environmental elements included on website
93
Chicago Climate Exchange members
9
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On the road in ChinaOn the road in China
There are 6 million cars in China. That number is growing about 10% per year.
However, every day there are 174 million people on the road in China traveling in buses, cars, and trains. That number of people traveling is similar to the number of travelers in the United States during the Thanksgiving holiday. The Thanksgiving holiday is the busiest travel time of the year in the United States.
Source: Michelle Caruso-Cabrera, Squawk Box, February 28, 2006
There are 6 million cars in China. That number is growing about 10% per year.
However, every day there are 174 million people on the road in China traveling in buses, cars, and trains. That number of people traveling is similar to the number of travelers in the United States during the Thanksgiving holiday. The Thanksgiving holiday is the busiest travel time of the year in the United States.
Source: Michelle Caruso-Cabrera, Squawk Box, February 28, 2006
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Sustainability, n – a business model that creates value consistent with the long term preservation and enhancement of environmental, social, and financial capital.
Sustainability: A common platform
Source: Ian Olson, Global Manager, Supply Chain Sustainability, Ford Motor Company
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Sustainability: A common platformSustainability: A common platform
“Sustainability is not a value projection, it is not CSR, and it is not an aspiration. It is a real market pressure. And responding to that pressure means success and good management in the 21st century.”
-Prof. Andy Hoffman, University of Michigan
The pressure can also be an opportunity
A company that gets ahead of the pressure should not have to respond because it will be a “natural” part of their business model.
Driven by Crisis or Driven by VisionSource: Ian Olson, Global Manager, Supply Chain Sustainability, Ford Motor Company
“Sustainability is not a value projection, it is not CSR, and it is not an aspiration. It is a real market pressure. And responding to that pressure means success and good management in the 21st century.”
-Prof. Andy Hoffman, University of Michigan
The pressure can also be an opportunity
A company that gets ahead of the pressure should not have to respond because it will be a “natural” part of their business model.
Driven by Crisis or Driven by VisionSource: Ian Olson, Global Manager, Supply Chain Sustainability, Ford Motor Company
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What have we learned?What have we learned?
Are corporations more responsible?•Certainly, progress has been made with governance, ethics, voluntary codes and standards
Are corporations more sustainable?•More work to be done
— Massive Economic Growth— Increased Resource Demand— Population Growth
The Sustainability agenda is moving fast…
Are corporations more responsible?•Certainly, progress has been made with governance, ethics, voluntary codes and standards
Are corporations more sustainable?•More work to be done
— Massive Economic Growth— Increased Resource Demand— Population Growth
The Sustainability agenda is moving fast…
Source: Ian Olson, Global Manager, Supply Chain Sustainability, Ford Motor Company
10
What does this mean?What does this mean?
In the past 10 years:•Proliferation of voluntary standards, codes and practices
•Lots of experimentation by companies•More industries are involved
Voluntary period is coming to an end•Competition among the voluntary practices to see what becomes the “de facto” practice, standard or regulation
•Still room for innovation, choice and influence
In the past 10 years:•Proliferation of voluntary standards, codes and practices
•Lots of experimentation by companies•More industries are involved
Voluntary period is coming to an end•Competition among the voluntary practices to see what becomes the “de facto” practice, standard or regulation
•Still room for innovation, choice and influenceSource: Ian Olson, Global Manager, Supply Chain Sustainability, Ford Motor Company
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Key areas of focus for FordKey areas of focus for Ford
Securing and Preserving the “License to Operate”•Aggressive growth plans need to keep communities,
environment, employees and financial focus•New Market Opportunities
— New consumers, new locations•Wal-Mart Example
— Perceived image (real or not), share price, push back
Access to capital markets•Mainstream analyst consideration (Duetsche Bank, Goldman
Sachs, Merrill Lynch, etc.)•Share price influence and effect•Proactively managing “Headline Risk”
Securing and Preserving the “License to Operate”•Aggressive growth plans need to keep communities,
environment, employees and financial focus•New Market Opportunities
— New consumers, new locations•Wal-Mart Example
— Perceived image (real or not), share price, push back
Access to capital markets•Mainstream analyst consideration (Duetsche Bank, Goldman
Sachs, Merrill Lynch, etc.)•Share price influence and effect•Proactively managing “Headline Risk”
Source: Ian Olson, Global Manager, Supply Chain Sustainability, Ford Motor Company
12
Key areas of focus for CompanyKey areas of focus for Company
Management Commitment•Key to be part of the business model•Remain relevant in good times and bad times•Long-term journey•Awareness, Recognition, Implementation, Culture
Business Integration•Central strategy coordination•Business unit ownership•Performance Reviews/Objectives•Goals, Metrics, Performance, Reporting (Scorecard)
… to become a seamless part of the business
Management Commitment•Key to be part of the business model•Remain relevant in good times and bad times•Long-term journey•Awareness, Recognition, Implementation, Culture
Business Integration•Central strategy coordination•Business unit ownership•Performance Reviews/Objectives•Goals, Metrics, Performance, Reporting (Scorecard)
… to become a seamless part of the business
Source: Ian Olson, Global Manager, Supply Chain Sustainability, Ford Motor Company
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The Goal: Sustainability LeadershipThe Goal: Sustainability Leadership
Firm
Business Partners• Private Brands
• Licensing
• Construction
• Working Conditions
• “Beyond Monitoring”
Customers• Awareness, Market Creation
• Branding
Policy • Industry Efforts
•Transparency
• Carbon Trading
Community• Social Impact
• Environmental Impact
Business • “License to Operate”
• Access to Capital Markets
Unique influence, “touch points” are endless…focus on critical few is key
Source: Ian Olson, Global Manager, Supply Chain Sustainability, Ford Motor Company
15
Nike Product Life CycleNike Product Life Cycle
Source: http://www.nike.com/nikebiz/nikebiz.jhtml?page=27&cat=lifecycle#
17
LongevityLongevity The average life expectancy of a multinational
corporation-Fortune 500 or its equivalent-is between 40 and 50 years.
One sixth (85/500) of the original 1955 Fortune 500 firms are still part of the 2005 Fortune 500.
One-third of the companies listed in the 1970 Fortune 500, for instance, had vanished by 1983-acquired, merged, or broken to pieces.
The average life expectancy of a multinational corporation-Fortune 500 or its equivalent-is between 40 and 50 years.
One sixth (85/500) of the original 1955 Fortune 500 firms are still part of the 2005 Fortune 500.
One-third of the companies listed in the 1970 Fortune 500, for instance, had vanished by 1983-acquired, merged, or broken to pieces.
18
Built to LastBuilt to Last Visionary companies did certain things very differently
More about the internal than the external
Had little to do with technology or number-crunching.
”Cultlike cultures"
Adhere to an ideology that went beyond the simple pursuit of profits
Rely on homegrown management
Focus on creating a lasting organization "clock building" vs. opposed to "time telling”
Have the ability to see things not as either-or propositions (the "genius of the 'and,’” as opposed to the "tyranny of the 'or' ").
"A visionary company doesn't simply balance between preserving a tightly held core ideology and stimulating vigorous change and movement; it does both to the extreme.”
Source: Collins & Porass, Built to Last, 1994
Visionary companies did certain things very differently
More about the internal than the external
Had little to do with technology or number-crunching.
”Cultlike cultures"
Adhere to an ideology that went beyond the simple pursuit of profits
Rely on homegrown management
Focus on creating a lasting organization "clock building" vs. opposed to "time telling”
Have the ability to see things not as either-or propositions (the "genius of the 'and,’” as opposed to the "tyranny of the 'or' ").
"A visionary company doesn't simply balance between preserving a tightly held core ideology and stimulating vigorous change and movement; it does both to the extreme.”
Source: Collins & Porass, Built to Last, 1994
20
Headline RiskHeadline Risk
Product sourcing Healthcare Wages Community involvement Diversity Products Zero Waste Transparency Environment
Product sourcing Healthcare Wages Community involvement Diversity Products Zero Waste Transparency Environment
21
Long Term vs. Short TermLong Term vs. Short Term
If a company believes that their suppliers are going to be supplying them for a long period of time, it makes a lot of sense to treat those suppliers as if they were partners.
Good for companies to consider each other's objectives and motives in putting together a supply-chain that will last for a long time.
In the 1990s American companies tried to move away from only adversary all purchasing. Instead the idea was to optimize the profitability and long-term viability of the entire supply-chain.
Today companies are often only thinking about their short term viability. •quarterly profits •cannot be a sustainable company if you're not making it in the
short-term. •firms need a solid supply base that is willing and able to
continually produce raw materials, and components
Instead, a purchasing manager or other manager is often a hero yesterday tightening down the profits of their suppliers. At some point in the process, the supplier can really not continue to cut costs without damaging their product offerings or the company as a whole.
If a company believes that their suppliers are going to be supplying them for a long period of time, it makes a lot of sense to treat those suppliers as if they were partners.
Good for companies to consider each other's objectives and motives in putting together a supply-chain that will last for a long time.
In the 1990s American companies tried to move away from only adversary all purchasing. Instead the idea was to optimize the profitability and long-term viability of the entire supply-chain.
Today companies are often only thinking about their short term viability. •quarterly profits •cannot be a sustainable company if you're not making it in the
short-term. •firms need a solid supply base that is willing and able to
continually produce raw materials, and components
Instead, a purchasing manager or other manager is often a hero yesterday tightening down the profits of their suppliers. At some point in the process, the supplier can really not continue to cut costs without damaging their product offerings or the company as a whole.
23
Moving towards SustainabilityMoving towards Sustainability
The key to sustainability is collaboration.
It is at the point of collaboration that companies become learning organizations.
The key to broader transformation is to draw on the expertise of others.
We need to develop new business models.
The key to sustainability is collaboration.
It is at the point of collaboration that companies become learning organizations.
The key to broader transformation is to draw on the expertise of others.
We need to develop new business models.
25
Drivers of Business ResilienceDrivers of Business Resilience
Foresight
Disruption
Prevention
ResourceEfficiency
Strategic
Alliances
Security
Diversity
Agility
Safety
Adaptability
Source: Yossi Sheffi, (2005) The Resilient Enterprise
26
Another Reason…Another Reason… How many more places can you find cost reduction?
Typically, many firms have tightened up their operational efficiency. Another place to find cost savings is through moving towards sustainability.
How many more places can you find cost reduction?
Typically, many firms have tightened up their operational efficiency. Another place to find cost savings is through moving towards sustainability.
27
Impact of Supply ManagementImpact of Supply Management
“I can do more to improve sustainability with one purchase order than 1,000 protestors can do with all their efforts.”
Source: Fortune 500 Purchasing Manager
“I can do more to improve sustainability with one purchase order than 1,000 protestors can do with all their efforts.”
Source: Fortune 500 Purchasing Manager
29
LEEDLEED Since LEED was established in 1998, there have been
approximately 400 buildings that have been certified by LEED.
Currently 6000 buildings are registered and are to be certified by LEED in the near future. (Zimmerman & Kibert, 2007)
A 2006 study shows that the average cost of a green building falls within the same range as the costs for non-green buildings.
Most green building projects are considered additive by the project managers. This does inhibit some because they are deterred by the thought of adding costs.
In addition, many of these projects thrive when green building procedures are engrained into the actions of the company. In this study, it was noted that both non-LEED and LEED certified buildings show similar statistics when considering the range of costs associated with their construction. Both have high cost potential and low cost potential. (Morris & Matthiessen, 2007)
Since LEED was established in 1998, there have been approximately 400 buildings that have been certified by LEED.
Currently 6000 buildings are registered and are to be certified by LEED in the near future. (Zimmerman & Kibert, 2007)
A 2006 study shows that the average cost of a green building falls within the same range as the costs for non-green buildings.
Most green building projects are considered additive by the project managers. This does inhibit some because they are deterred by the thought of adding costs.
In addition, many of these projects thrive when green building procedures are engrained into the actions of the company. In this study, it was noted that both non-LEED and LEED certified buildings show similar statistics when considering the range of costs associated with their construction. Both have high cost potential and low cost potential. (Morris & Matthiessen, 2007)
30
LEEDLEED
LEED certification has four levels: (U.S. Green Buildings Council, 2006)•LEED Certified projects achieve 40% or more of the core credits
•LEED Silver projects achieve over 50% of the core credits
•LEED Gold projects complete over 60% of the core credits
•LEED Platinum projects complete over 80% of the core credits
LEED certification has four levels: (U.S. Green Buildings Council, 2006)•LEED Certified projects achieve 40% or more of the core credits
•LEED Silver projects achieve over 50% of the core credits
•LEED Gold projects complete over 60% of the core credits
•LEED Platinum projects complete over 80% of the core credits
31
Green BuildingsGreen Buildings
Green construction only 5% more than traditional construction.
Forty percent of greenhouse gas emissions are from buildings.
Source: Inside Supply Management, October 2007, p. 9.
Green construction only 5% more than traditional construction.
Forty percent of greenhouse gas emissions are from buildings.
Source: Inside Supply Management, October 2007, p. 9.
39
Wal-Mart’s Environmental GoalsWal-Mart’s Environmental Goals
To be supplied by 100 percent renewable energy
To create zero waste
To sell products that sustain our resources and environment
Source: Lee Scott, CEO of Wal-Mart, Speech to Associates, Twenty First Century Leadership, October 24, 2005
To be supplied by 100 percent renewable energy
To create zero waste
To sell products that sustain our resources and environment
Source: Lee Scott, CEO of Wal-Mart, Speech to Associates, Twenty First Century Leadership, October 24, 2005
43
BiodieselBiodiesel
Produced from readily available sources
1992 legislation has already introduced B20 as a major fuel in the trucking industry
Produced from readily available sources
1992 legislation has already introduced B20 as a major fuel in the trucking industry
44
EthanolEthanol
Brazilian sugarcane based ethanol program
E10 and E85 are the two most widely used blends
Fuel Flexible Vehicles
In 2006 ethanol will only provide 3.2 percent of the United States’ vehicular fuel need.
Brazilian sugarcane based ethanol program
E10 and E85 are the two most widely used blends
Fuel Flexible Vehicles
In 2006 ethanol will only provide 3.2 percent of the United States’ vehicular fuel need.
45
Hydrogen Fuel Cells/ HybridsHydrogen Fuel Cells/ Hybrids
Hydrogen fuel cells and hybrids are environmentally friendly alternatives
Hydrogen fuel cells and hybrids rely on resources that are finite
Hydrogen fuel cells and hybrids are environmentally friendly alternatives
Hydrogen fuel cells and hybrids rely on resources that are finite
46
Criteria for Measuring Viability of Fuel TypesCriteria for Measuring Viability of Fuel Types
Source: Rogers, Kelly, Rogers and Carter, (2007), Alternative Fuels: Are They Achievable, ILJRA
47
Fuel Type ViabilityFuel Type Viability
Source: Rogers, Kelly, Rogers and Carter, (2007), Alternative Fuels: Are They Achievable, ILJRA
48
Economic ConclusionsEconomic Conclusions
Biodiesel is still more expensive than standard petroleum based diesel
Tax breaks and incentives will create a nationwide ethanol infrastructure by 2020
Hydrogen fuel cells will be limited by cost and availability.
Hybrid cars will become more cost effective and widespread
Biodiesel is still more expensive than standard petroleum based diesel
Tax breaks and incentives will create a nationwide ethanol infrastructure by 2020
Hydrogen fuel cells will be limited by cost and availability.
Hybrid cars will become more cost effective and widespread
50
Alternative Fuel Sources
AvailabilityNational Average Cost (February 1 2006) Per Gallon
Cost Efficiency Product Viability
Biodiesel
Plentiful sources provides potential for wide scale production
B20- $2.64 B100- $3.23
Cost effective in energy balance; economically stable outlook for large scale production
Near future; Wide scale production projection by 2015
Ethanol
Production possibilities are exceeded by production need
E85- $1.98 Energy potential is cost effective; Infrastructure inhibits the effectiveness on an economical level
Large scale production is outwardly unattainable with current regulations on imports of ethanol feedstocks
Hydrogen Fuel Cells
Hydrogen is available, but not for general public use. Fuel Cell Vehicles are still in experimental phases; none are ready for production currently
N/A Fuel cells tend to have high expenses; the need for platinum in the chemical process to separate hydrogen is financially impractical
The world's platinum is one fourth of the amount needed to equip every car on earth, thus unrealistic with current progress in this field
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U.S. and Global OutlookU.S. and Global Outlook
The global demand for petroleum based fuels will pass the supply in this generation
Learn from Brazilian successes and failures
The global demand for petroleum based fuels will pass the supply in this generation
Learn from Brazilian successes and failures
52
Petroleum enters and leaves the US supply chain at many locationsPetroleum enters and leaves the US supply chain at many locations
Source: Energy Information Agency, 2002
US Petroleum Oil Flow — Supply Chain Energy Balance — 2002(Million Barrels per Day)
58
Green ComputingGreen Computing
EPA found that in 2006, corporate datacenters accounted for 1.5% of US electricity consumption.
EPA found that in 2006, corporate datacenters accounted for 1.5% of US electricity consumption.
Year Percent Cost
2000 0.75%
2006 1.50%
2011 2.50% $31B
Source: Jeffrey Burt, Rackspace embraces environmental responsibilities, eWeek, October 15, 2007, p. 15
48% of IT budgets is being spent on energy
Most of the power used for power & cooling
1 megawatt datacenter takes 177 million worth about $17 million over 10-year life (10 cents per kwh)
Humans created 161 of data in 2006. Green computing is not an option long-run.
48% of IT budgets is being spent on energy
Most of the power used for power & cooling
1 megawatt datacenter takes 177 million worth about $17 million over 10-year life (10 cents per kwh)
Humans created 161 of data in 2006. Green computing is not an option long-run.
60
Measure Effectiveness of Recycling ProgramMeasure Effectiveness of Recycling Program
Dell has proposed a simple measure •assume a seven year product lifetime, •and measure the percentage of the total weight you recycle each year compared to the total weight of what you sold seven years earlier.
Dell has proposed a simple measure •assume a seven year product lifetime, •and measure the percentage of the total weight you recycle each year compared to the total weight of what you sold seven years earlier.