Smarter Supply Chains for a Sustainable Future are overly comfortable with arti culati ng the...

Report based on proceedings at the IBM Summit at Start

Smarter Supply Chainsfor a Sustainable Future

“When one tugs at a single thing in nature, he fi nds it attached to the rest of the world.

John Muir, author and naturalist, founder of The Sierra Club

Smarter Supply Chains for a Sustainable Future

ContentsExecutive summary .................................................................................................................................................... ..3

Smarter Supply Chains for a Sustainable Future .......................................................................................................... ..3

Outline of the day’s agenda ....................................................................................................................................................3

What is sustainability? ................................................................................................................................................ ..5

Common themes from the Summit ............................................................................................................................. ..7

Collaborati on is key to progress ..............................................................................................................................................7

Complexity requires systems thinking ....................................................................................................................................7

Data and metrics are the basis for fi nding soluti ons ..............................................................................................................7

Soluti ons require atypical personal and corporate behaviour ................................................................................................7

Summary of proceedings ........................................................................................................................................... ..9

The consti tuents of a sustainable supply chain ......................................................................................................................9

There is colossal waste in many supply chains .......................................................................................................................9

Some steps are being taken, but we are not doing enough ...................................................................................................9

We need a holisti c view to deal eff ecti vely with ineffi ciencies and waste ............................................................................10

Some policies and regulati on are getti ng in the way ............................................................................................................11

The main challenge will be changing behaviours part 1 – consumers ..................................................................................11

Early educati on, awareness and new business models are important ................................................................................11

Retailers are in a positi on to make a diff erence ....................................................................................................................12

Changing behaviours part 2 – improving collaborati on across businesses ...........................................................................12

Commercial sensiti viti es are a major barrier ........................................................................................................................12

Creati ng ‘safe havens’ for shared sensiti ve informati on .......................................................................................................12

Ask not what you can share, ask what you can’t ..................................................................................................................13

For eff ecti ve collaborati on, relati onships matt er ..................................................................................................................13

Much of a product’s carbon footprint lies in the supply chain .............................................................................................13

Most carbon emissions stati sti cs for the UK exclude imports ..............................................................................................14

Hitti ng government targets for carbon emission reducti ons will be harder than you think .................................................14

Traceability across whole supply chains must (and can) be achieved ..................................................................................14

Standards are already in place ..............................................................................................................................................15

We don’t know about best examples of work going on – needs drawing together .............................................................15

Problems are similar across business sectors .......................................................................................................................15

We must tell people about successes to create a positi ve feedback loop ............................................................................16

We need a TSM movement to parallel the TQM movement of the 1970s ...........................................................................16

If the price of oil escalates, all bets are off ...........................................................................................................................16

Outcomes: developing the themes .............................................................................................................................20

Harnessing the momentum of the Summit ..........................................................................................................................20

The IBM Summit at Start ............................................................................................................................................21

About The Bathwick Group ........................................................................................................................................22


Executive summary

Only the most hardened climate deniers and sustainability scepti cs sti ll argue that we can conti nue to live, to expand, and to consume the way we do indefi nitely. We are heading for deep trouble, and possibly for disaster, driven by our historic disregard for the scarcity of resources and the collateral damage our acti viti es create, and on which our progress to date has depended. The evidence is increasingly stark, the consensus at practi cal dominance and the range of issues broadening across all social, natural and economic systems. The problems are both massive and systemic; our response must be worthy of that challenge.

More than 120 business and government leaders and commentators att ended the Smarter Supply Chains day (day 6) at the Summit. They concluded we need to act faster, and work together across industry and country boundaries; they left determined to make change happen. Their debates and comments are noted in this report, but these points were key:

A customer buying a product sees only the packaging and the store environment – the fact that the product may be causing economic, social or ethical distress somewhere in the world is invisible. In the past, retail organisati ons have focussed on supplying customer needs to the exclusion of all other considerati ons – ethical, social, product design and even supply chain costs. It’s clear today however that the product and its supply chain are part of the same off er/service; a customer is buying a ‘package’ and we need to provide more visibility and transparency on the wider issues relati ng to that product or service.

Given that a product’s real cost (including impacts such as carbon footprint) is 60% or more in the supply chain, we must achieve bett er quality data and metrics, by leveraging the technology already in place, and provide clarity so that customers can make bett er choices. Their choices will drive new strategies and new ways of sourcing and designing products.

This is sti ll a new dialogue – neither suppliers nor customers are overly comfortable with arti culati ng the issues. This is not all about environmental or social concerns however – there are big wins to be had for business, including supply chain cost reducti on, bett er supplier relati onships, and more innovati ve products.

Achieving these benefi ts requires cross-organisati onal cooperati on and collaborati on to amplify individual endeavours. We need diff erent ways of working and diff erent organisati onal structures, with cross-organisati onal teams and groups organised around beliefs and values. There was a willingness to share and parti cipate at the Summit, and a desire for more informati on and insight.

We all need to keep an open mind and experiment, see what works and what doesn’t and constantly innovate. The way forward is not clear, it demands new skills, new ways of thinking and communicati ng, and new ways of engaging.

Sustainability must have a strategic perspecti ve; it will shape the future of the business and should become the ‘unconscious’ way of working for everyone. M&S exemplify the strategic approach. Without a strategic approach, we will lack the impetus for self-sustaining progress that is strong enough to impact the whole supply chain.


Outline of the day’s agenda

KEYNOTES: Sara Eppel, Head of sustainable products and consumers, DEFRA

DEBATES: How to help consumers make sustainable product decisions

Sustainability through collaborati on vs competi ti on

Sustainable supply chains as a source of competi ti ve advantage

How do we reduce the impact of the products we supply?

Taking an industry approach to collaborati on – the applicati on of best practi ces


What is sustainability?

Sustainability: most people think it’s a good idea, some people are passionate about it, some are truly ambivalent or even hosti le to the noti on, but everybody has a diff erent defi niti on. It is therefore important that we establish a defi niti on to use as a baseline for this report. Sustainability, simply put, is the capacity to endure1.

At a global level: we live on a planet that is a complex inter-dependent set of eco-systems, and increasingly, socio-technical systems; sustainable behaviour is therefore that which ensures the environmental balance is maintained, allowing human civilisati on to conti nue to survive.

At a regional/nati onal level: we must maintain the economic structure of our society – markets, businesses, profi ts, infrastructure and jobs; societal stability in turn ensures the long-term demand for, and the sustainable growth of, products and services. Along with progressive social policies on equality and well-being, sustainable markets, businesses and societi es aim to create long-term opportunity for all.

These three elements – economic, social, and environmental (also referred to as profi t, people, and planet) – form the basis for the Triple-Bott om Line (TBL, fi gure 1), a simple descripti on of the elements involved. The problem is that for many – parti cularly those of us charged with delivering hard, short-term results – the social and environmental appear to detract from the economic; they are seen as blockers.

It is this central dichotomy that is oft en cited as the reason for sustainability being a hard sell in business. But it shouldn’t be; organisati ons and those leading them want to survive and prosper as much as they ever did. The only issue is to illustrate both the urgency of taking acti on and the importance of all three factors in ensuring their organisati onal and individual survival.

We fi nd ourselves at a unique point in our history. Unlike previous generati ons, we know that we are causing irreparable damage to the planet and that, regardless of arguments about the causes, signifi cant changes in how we live must be achieved.

1 The Bathwick Group’s defi niti on, which separates the capacity to endure (surviving) from sustainable development (thriving), which is growth that has at most a neutral social and environmental impact.

We must discover how to deal with the biggest impacts humans make on this planet, including:

Populati on growth. Populati on growth is at the core of the sustainability challenge. There were 1.75 billion people on the planet in 1910; today there are 7 billion, and by 2050, the UN esti mates that the global populati on will peak at around 9 billion.

Resource depleti on. The development of the ‘Western’ lifestyle over the past 60 years has greatly exacerbated the populati on problem – a lifestyle based on quanti ty rather than quality, and on consumpti on as a validati on of our nati onal and individual success. Powered by cheap energy and mechanisati on, it’s been easy and we could aff ord it. But we have taken litt le noti ce of the ‘collateral damage’, and as a result we are using up the planet’s resources and damaging ecosystems at an alarming rate.

Unaccountable growth and consumpti on. The hidden costs (or ‘externaliti es’) of some of our acti viti es are now recognised – not least the esti mates of the cost of climate change brought about by GHG emissions from fossil fuel use over the past century. Lord Stern’s esti mate of 2% of GDP (£28bn annually in the UK alone) to counter climate change is dwarfed by esti mates of the economic damage in prospect (for example the fi gure of $20tn annually by 2100 by the German Insti tute for Economic Research (DIW)).

ECONOMICSustainable Economy Balanced investment Better risk management Short term & long term

Do more with less (£) Outcomes that matter Accountability for spend

SOCIALCohesiveness of Cities Citizen centric health, education and social services Better distribution of services, jobs, housing Transport infrastructure

Work and society Roles of business and government Skills, behaviours, careers

ENVIRONMENTALManage consumption of energy, water, food, raw materials

Minimise wastage of scarce resources

One representati on of the triple bott om line Figure 1.


Data and metrics are the basis for fi nding solutions

We generate enormous quanti ti es of data within our organisati ons, much of which languishes in silos, unused for lack of capacity, the right tools or skills to process and analyse its meaning. The amount of data, and the number of sources from which it comes, is spiralling upwards every day; we can’t hope to understand either the scale of the challenge we face or the best routes to a soluti on unless we learn what we know, and how to gain valuable insights from it.

Peter Drucker famously said “If it can’t be measured, it can’t be managed”. In a sustainability context, if you don’t have informati on on the impact of your operati ons and your acti vity, you won’t be able manage that impact down. Worse, you can’t enumerate and report success.

Solutions require atypical personal and corporate behaviour

Of all the challenges we face in becoming more sustainable, individual and organisati onal behaviour will perhaps be the hardest to address. Personal and corporate insecuriti es, consumpti on-oriented lifestyles, unhelpful corporate cultures, a focus on the short term, and a lack of awareness (or unwillingness to understand) inhibit our ability to eff ect change. They make us believe that what we do individually makes litt le diff erence, and help us to hide behind competi ti ve sensiti viti es to justi fy inacti on. Will it be more carrot or a bigger sti ck that will produce the changes we need? Probably both, and applied without fear or favour, according to delegates at the Summit.

Scotti sh philosopher David Hume wrote “All plans of government, which suppose great reformati on in the manners of mankind, are plainly imaginary”. In other words, good luck with changing human behaviour. In the 250 years since that was writt en, have we learned enough, and are we opti misti c enough, to prove him wrong?

Common themes from the Summit

Collaboration is key to progress

There are few challenges within organisati ons that can be solved by an individual employee or a single department, and few challenges in sustainability that can be addressed by a single organisati on operati ng in isolati on. ‘We need to collaborate more’ was a key conclusion of every day of the Summit at Start; collaborati on is the key to unlocking creati vity, fi nding new ways of approaching familiar problems, and generati ng widely-accepted soluti ons. We know however that few organisati ons collaborate well, internally or externally. Over the past fi ve years we’ve analysed how and why this is so. Individual and corporate insecuriti es, unhelpful reward systems and competi ti ve sensiti viti es are among the issues that combine to inhibit openness and sharing of data and ideas.

Collaborati on is about changing the way individuals think and organisati ons respond, fi nding more eff ecti ve business process alignment, and encouraging trust and positi ve behaviours. Achieving such change is at the heart of fi nding the effi ciencies, technologies, and market models that will defi ne a more sustainable future.

Complexity requires systems thinking

The complexiti es of organisati ons and markets are a barrier to understanding and change. The developed world today is a network of inter-dependent socio-technical systems, in which changes of any type have systemic impacts that are hard to foresee in the normal scope of an individual’s role. Few people ever experience more than a small part of the picture, and the decisions they take will only be appropriate within the context of their understanding.

Creati ng predicti ve frameworks and more holisti c decision support models requires systems thinking – the process of understanding how things infl uence one another within the whole – which is an unusual set of skills. Few organisati ons employ such skills, except perhaps in strategy or technical design roles, but in an increasingly connected world systems thinking is becoming important. We would do well to recognise, nurture and value the appropriate skills, as second- and third-level impacts are increasingly coming to defi ne the eff ecti veness, and therefore the success, of most organisati ons.


Summary of proceedings

The constituents of a sustainable supply chain

Supply chains are complex, highly interconnected, and multi dimensional, and while many organisati ons have produced good results in some parts of their operati ons, addressing the overall challenge remains a diffi cult prospect. What consti tutes a sustainable supply chain?

Raw materials from sustainable sources

Re-use and recycling of product waste and packaging

Renewable energy sources to power the manufacture and delivery of goods

Consumers making consti tuti on educated choices about the products they buy, the way they use and dispose of them

Companies working together to ensure every asset is fully uti lised with duplicati on of eff ort and data eliminated, and

New and interesti ng and exciti ng products brought to market in a sustainable way

While we may know and understand these elements, there are relati vely few examples of best practi ce and creati ng a sustainable supply chain remains a distant goal.

“More effi cient, less wasteful supply chains are not just good for the environment, they make good business sense.

Chris Evans, VP, Retail Industry Executi ve, IBM UK

This is a real problem, because the level of waste that occurs in supply chains in every industry is a real drag on profi tability and arti fi cially infl ates product prices.

There is colossal waste in many supply chains

Despite work on improved management and effi ciency over the years, there is sti ll an amazing amount of waste in supply chains. The global consumer products and retail industries lose an esti mated £75 billion every year through supply chain waste 2; in the grocery sector, fully 40% of food is lost between harvest and processing, and in the UK we waste an additi onal 30% of that food in the home through over-purchasing and failure to consume before the sell-by date expires. To put that into real numbers, a report by the UK’s Waste & Resources Acti on Programme (WRAP) in March of this year found that the food and drink supply chain generates more than 11 million tonnes of food waste each year, and an additi onal fi ve million tonnes of packaging waste. The esti mated cost to the UK economy is GBP£17 billion, with GBP£5 billion of that total att ributed to the supply chain.

Some steps are being taken, but we are not doing enough

From a consumer perspecti ve, the £12 billion per year of food and drink that could have been eaten that consumers throw away is equivalent to £480 for the each household. Preventi ng waste could save 20mt of CO₂ eq, which is the equivalent of taking one in four cars off the road.

“Companies that don’t operate sustainable supply chains are probably no bett er than thieves – they’re taking something from society.

Dr. Trevor Davis, Global Subject Matt er Expert, IBM

Stati sti cs such as these may explain why steps have already been taken in the grocery sector to limit wastage through collaborati ve eff orts such as the Courtauld commitment.

2 Source: Analysis from IBM’s Insti tute of Business value, The Bathwick Group, and others


The Courtauld Commitment aims to improve

the resource effi ciency and reduce the environmental

impact of the grocery retail sector. It supports the aims of

the UK Climate Change Act 2008 (to reduce greenhouse

gas emissions by 34% by 2020 and 80% by 2050). WRAP

(Waste & Resources Acti on Programme) is responsible for

the agreement and works with leading retailers, brand

owners, manufacturers and suppliers. Since launching

phase 1 in 2005, 1.2 million tonnes of food and packaging

waste have been prevented through the programme.

Phase 2 was announced in March 2010, now targeti ng

reducti ons in secondary and terti ary packaging, in

additi on to supply chain waste to primary packaging and

household food and drink waste. The aim is to encourage

the sustainable use of resources over the enti re lifecycle

of grocery products sold in the UK.

Organisati ons commit to develop individual and collecti ve

‘sector’ strategy plans to achieve the following targets:

To reduce the weight, and increase recycling rates and

recycled content of all grocery packaging, as appropriate,

to reduce the carbon impact of grocery packaging by

10%.

To reduce UK household food and drink wastes by 4%.

To reduce traditi onal grocery product and packaging

waste in the grocery supply chain by 5%. This includes

both solid and liquid wastes.

Despite the waste and the potenti al for the businesses involved to cut losses, only around a third of supply contracts today include sustainability clauses. Many delegates expressed their frustrati on both at the lack of progress made towards more sustainable behaviour in recent years and at the diffi culti es involved with coordinati ng acti on across supply chains that can contain thousands of organisati ons.

We need a holistic view to deal effectively with ineffi ciencies and waste

Dealing with ineffi ciencies, waste and reporti ng from the supply chain requires us to implement soluti ons that encompass the whole lifecycle. There are too many individual soluti ons today – many delegates questi oned

why there isn’t more collaborati on already happening. Joining forces with others could create a wider and deeper range of research and generate more acti on than any one organisati on can on its own. Data sharing initi ati ves like GS1 are part of the soluti on, in which data can provide both insight into ineffi ciencies and a platf orm for collaborati on.

The GS1 Data Crunch project

GS1, a supply chain standards organisati on, executed a

project with IBM in 2009, that compared the product data

held by suppliers with the data stored on grocery retailers’

systems. The results were staggering, uncovering

inconsistencies in what should have been identi cal

informati on in over 80% of cases.

Bad data has a severe cost impact on the industry:

The cost of manual workarounds to source missing

data and correct errors

Administrati ve shrinkage costs in areas such as

ordering and invoicing

Lost consumer sales through shelf stock- outs

The report calculated that the industry could save at least

£1billion over the next fi ve years addressing these

problems.

Looking forward, consumers are demanding bett er

product informati on and labelling for nutriti on, health

and lifestyle. Planned legislati on is also demanding that

the industry provides further informati on related to

packaging and the environment. The industry predicts a

400% increase in the amount of data retailers need to

hold about products – manual workarounds and

pragmati c fi xes employed currently by retailers are no

longer sustainable.

The conclusion of the Data Crunch Project was that

retailers and their suppliers should consider adopti ng

Global Data Synchronisati on (GDS) techniques already in

use in the USA, Australia and mainland Europe. Similar

techniques could deliver benefi ts in the UK, but would

require major retail groups to move away from tacti cal

soluti ons and embrace a new industry standard for

managing product data where one single, accurate,

master source is used by all parti es.


Some policies and regulation are getting in the way

It could be argued that a good starti ng point for addressing waste would be to tackle the unintended consequences of policies and regulati on. For example, the constructi on industry is the single largest waste producer in the UK. Fully 30% of that waste is packaging, but vehicles arrive on building sites to deliver materials and leave empty rather than carrying away potenti ally recyclable material (much of which is then burned). Constructi on companies would like to hall away the waste, but are prevented from doing so because they would have to procure a waste licence every one of their vehicles, which is prohibiti ve both logisti cally and economically.

Similarly, on sites where new housing is being built, constructi on companies are obliged to erect their own generators and mini-grid for powering equipment, site offi ces, etc. because the law does not allow them to att ach to the Nati onal Grid (cheaper, no local pollutants, and usually close by any new building site in the UK) unti l the buildings are completed and certi fi ed.

The main challenge will be changing behaviours part 1 – consumers

While retailers and other businesses can and should be addressing supply chain ineffi ciencies, consumers should also be playing their part. Viewing consumpti on as an affi rmati on of status leads to profl igate behaviour and over-consumpti on; creati ng waste through lack of thinking is inexcusable in the modern world. Changing consumer behaviour is not a simple task however; societal dimensions are in play. A range of both incenti ve and compulsion opti ons are required, and we must consider potenti al ti pping points and new business models, such as reverti ng to an ‘old fashioned’ approach of mending things or taking things back to retailers for service instead of simply consuming and throwing away.

There were a range of views on how to change behaviours, from the mainly ‘carrot’ end of the spectrum advocati ng incenti ves as the key to change, to the mainly ‘sti ck’ view that consumers would not change unless forced to, either by higher prices or legislati on. Some delegates took the view that if we want people to change behaviour we have to make it easier and att racti ve; others expressed views at the other end of the spectrum.

“Culture is what people do in the absence of instructi on.

Richard Wilding, Professor of Supply Chain Risk Management, Cranfi eld School of Management

Whichever balance is chosen, the starti ng point is to provide clarity on the choices available and the implicati ons of those choices, which would require a greater degree of informati on availability and openness than is currently in evidence and the educati on of consumers in how to use that informati on to make more informed choices.

Early education, awareness and new business models are important

Providing people with the ability to make bett er choices would suggest that we should be working to educate consumers to the greatest degree possible. Educati on creates awareness, and awareness creates change. The easiest place to start is with young people; not only because schools actually are educati onal faciliti es, but because educati on is simpler and more eff ecti ve before poor learned behaviours become ingrained. Changing expectati ons from buy-use-dispose consumpti on to one of repair-reuse-recycle is core to changing how people think about resource usage and sustainable living.

Educati on is also about informati on provision however, which should extend through to product labelling and in-store promoti ons. The lack of standards for product informati on in regard to sustainability should not provide us with an excuse for inacti on.

New business models may hold the potenti al for existi ng retailers to grow their businesses into new areas, while increasing the sustainability of their overall off erings. Sharing rarely-used products is a commonly-quoted idea, but the few trials that have been completed show us that to work, such schemes must take into account people’s discomfort both with sharing more ‘personal’ products, and in having to negoti ate with strangers.

Defra ran a pilot programme on a housing estate and found that social and communicati on barriers were diffi cult to overcome; while sharing power tools and lawnmowers was seen as a positi ve move, sharing washing machines was unpopular.


Retailers are in a position to make a difference

Retailers are of course the gateway to consumers; they have enormous power to infl uence people’s consumpti on choices. There are areas where consumers will want to make their own decisions, so educati on on the right choices is important; in other cases, retailers could and perhaps should make the choice for them. Customers could be infl uenced if retailers only sold products above a certain sustainable standard – if those standards could be defi ned – and deleted product lines known to be unsustainable. ‘Choice editi ng’ has already been used in some cases – B&Q for example stopped selling pati o heaters some ti me ago, without any apparent impact on other sales.

In contrast to the potenti al for retailers to encourage more sustainable consumer behaviour, several delegates at the Summit pointed out that many of today’s promoti ons, especially in the retail sector, actually encourage greater consumpti on – ‘Buy One Get One Free’ in parti cular. Historically, retailers have focused on selling larger quanti ti es of product (oft en at the expense of higher quality), and indeed consumers have gladly played along. We must fi nd other ways of growing revenues (and potenti ally profi t margins) – perhaps through exploiti ng lines of business such as the rental or maintenance models we menti oned above.

Encouragingly, when delegates were asked for responses by voti ng, 72% believed that consumer-facing organisati ons were, despite a weak economy, in a positi on to help the public make sustainable choices.

Changing behaviours part 2 – improving collaboration across businesses

The need to change behaviours is not limited to consumers of course. Creati ng more sustainable supply chains requires a groundswell of manufacturers and retailers working in concert, against agreed targets. The basis of collaborati on, and parti cularly in the case of supply chains, is the sharing of informati on. From basic data to informati on about operati ng processes, objecti ves and strategies, we need to share to understand where ineffi ciencies exist, and how we can act to fi nd soluti ons.

Commercial sensitivities are a major barrier

The greatest barrier to informati on sharing and collaborati on remains the fact that commercial organisati ons have a long history of carefully protecti ng their informati on – very oft en without any intenti on or eff ort to diff erenti ate between truly sensiti ve data and that which could be easily shared without endangering commercial objecti ves.

One delegate described how the seafood cluster of companies in Grimsby held a summit earlier in the year, at which they discussed marketi ng plans, vision, and strategies to try to identi fy synergies. Did this only happen because the sector is under great pressure? Or could this experience be applied to many other sectors without generati ng any adverse consequences for parti cipants?

“Technology businesses are used to simultaneous competi ti on and collaborati on. There is a maturity in how relati onships are managed. Retailers for example do not have the same maturity in relati on to their competi ti on.

Summit delegate

Creating ‘safe havens’ for shared sensitive information

One answer to the problem is to create independent ‘safe havens’ that allow data to be exchanged. There are already many opportuniti es for sharing informati on – such as the example of GS1 above, or Sedex, the Supplier Ethical Data Exchange, below. In fact, there are oft en too many initi ati ves, each needing a degree of work from organisati ons to provide and maintain the informati on they contribute, and creati ng the potenti al for multi ple standards.

“Creati ng independent safe havens for data is one way to address competi ti ve sensiti viti es.

Jim Spitt le, Chairman, GS1


“It is criti cal to establish long-term supply relati onships to encourage investment in the right behaviour.

Martyn Seal, PepsiCo

It’s also important to consider the micro and well as the macro. Commercial pressures don’t just apply to decision-making executi ves – they aff ect everyone in a company, and parti cularly those involved at the interfaces between organisati ons. The procurement functi on in many organisati ons prizes low cost and aggressive negoti ati on above progress towards longer-term goals. Atti tudes that do not allow for give and take in supply relati onships are unlikely to survive long enough or generate the trust required to cooperate on achieving sustainability goals.

“The commercial pressures we put on individuals in supplier-customer relati onships rarely take long-term aims into account.

Summit delegate

Much of a product’s carbon footprint lies in the supply chain

In additi on to the issue of visible waste is that of invisible impacts, such as the carbon footprint of a product. Up to 80% of a product’s carbon footprint lies in the supply chain. All organisati ons in that supply chain share the responsibility to fi nd soluti ons to reduce that impact, and will have to work together if the challenges are to be addressed.

“60% of the carbon footprint of a packet of crisps is in the supply chain, before it gets to us.


There are too few examples of good informati on sharing today, so while remaining mindful of the possibility of proliferati ng standards, we should not let such concerns get in the way of defi ning agreed approaches to the presentati on of useful and acti onable informati on to consumers and other organisati ons within our supply chains.

Sedex, the Supplier Ethical Data Exchange, is a

not-for-profi t organisati on based in London, UK, open

for membership to any company (anywhere in the world)

that is committ ed to conti nuous improvement of the

ethical performance of their supply chains. Sedex started

2001 when a group of UK retailers and their fi rst ti er

suppliers recognised a need to collaborate and drive

convergence in social audit standards and ethical

self-assessment. Members parti cipate in working

groups and networking, using the organisati on’s services

to establish best practi ce and as a collaborati ve platf orm.

Member numbers passed 28,000 during 2010.

Ask not what you can share, ask what you can’t

One strategy for making progress on collaborati on is to ask what data shouldn’t be shared, rather than starti ng from the assumpti on that everything is sensiti ve. The reality of the latt er assumpti on is that few employees will invest the ti me in achieving internal agreement to release a set of data, and few would want to take the risk if the eff ort ran into problems. If you start from the premise that most data is not competi ti vely sensiti ve, it is easier to encourage a culture of sharing – both within and outside the organisati on.

For effective collaboration, relationships matter

It is diffi cult to over-esti mate the importance of trust in any collaborati on. Relati onships at every level of an acti vity determine whether collaborati on will be successful or not. In the supply chain, creati ng long-term contracts and relati onships can form the basis for working towards joint goals. Without such collaborati on, many sustainability eff orts will not succeed.


The issue of embedded emissions throughout the supply chain has made it hard in many cases for companies and regulators to determine the true environmental impact of a product.

Most carbon emissions statistics for the UK exclude imports

Embedded emissions are important parti cularly in those countries that import heavily, such as the UK, but most reported carbon emission stati sti cs do not include embedded emissions – and the numbers involved are staggering.

A study by scienti sts at the Carnegie Insti tuti on for Science3 showed that 253m tonnes of CO2 are released annually in the manufacture of products bound for UK, which if included in our emissions totals would increase the country’s carbon footprint by 46%! Only the US and Japan have a higher total emissions import fi gure. Professor Dieter Helm from the University of Oxford, in a paper published in 20074, noted: “If carbon outsourcing is factored back in, the UK’s impressive emissions cuts over the past two decades don’t look so impressive anymore. Rather than falling by over 15% since 1990, they actually rose by around 19%. And even this is fl att ering, since the UK closed most of its coal industry in the 1990s for reasons unrelated to climate change.”

“75% of a UK resident’s individual carbon impact comes from the products and services they buy and use.

Sara Eppel, Head, Sustainable Products and Consumers, Defra

As Professor Helm points out, it is consumpti on and not producti on that matt ers when apporti oning responsibility for carbon emissions, or any other impact of a product or service, making it clearer sti ll that our import-based consuming lifestyle is a major obstacle to reducing true emissions.

3 ‘Consumpti on-based accounti ng of CO2 emissions’ (2010), Steven J. Davis and Ken Caldeira

4 Helm, D. R., Smale, R. and Phillips, J. (2007), ‘Too Good to be True? The UK’s Climate Change Record’

Hitting government targets for carbon emission reductions will be harder than you think

Even without taking embedded emissions properly into account, meeti ng existi ng targets for emissions reducti on is going to prove even harder than the raw numbers would suggest. Reducti on targets are based on 1990 levels, regardless of (economic or populati on) growth since that year.

“Something that came out of our future scenario planning process was that we need to be almost carbon-free today; taking growth into account, an 80% reducti on by 2050 is equivalent to a 95% reducti on today.


As other independent sources have suggested, reducti ons in the future, adjusted to take account of growth, are equivalent to a proporti onately higher cut on today’s fi gures. Finding that scale of reducti ons across many supply chains will be impossible without virtually carbon-free transportati on and swingeing cuts in emissions from manufacturing and/or processing.

Traceability across whole supply chains must (and can) be achieved

Meeti ng targets requires the ability to report real numbers. Not just emissions of course, but all manner of elements of acti vity, whether from reporti ng, regulatory or standards viewpoints. Traceability – the ability to understand and report on the source(s) of a product and its route to market – is fundamental to environmental reporti ng and auditi ng.

As well as the challenges already noted (such as informati on availability), there are many other potenti al obstacles, such as the sheer scale of an operati on – how can clothing retailers engage with all stakeholders to get the informati on back that they need? Marks & Spencer for example deals ulti mately with 30,000 diff erent cott on farmers. How can the end supplier of products to the customer help all elements of the supply chain to achieve


the required goals? A common dataset and platf orm would make many such tasks simpler, perhaps available as a web service, so that even very small suppliers could contribute easily through technology as simple as a browser.

There are instances where traceability has been achieved however, such as tracking food from farm to plate, showing that similar ambiti ons in longer or more complex scenarios are achievable.

Standards are already in place

Contrary to the thinking of many delegates at the Summit, some standards for assessing and reporti ng aspects of sustainability already exist. For example, a Briti sh Standard already exists for assessing the life cycle greenhouse gas emissions of goods and services: PAS 2050 (Publically Available Specifi cati on 2050). The standard sets out 5 basic steps to determine a product carbon footprint:

Process map1.

Detail all the materials, acti viti es and processes that contribute to each stage of the chosen product’s life cycle.

Check boundaries and prioriti sati on2.

Defi ne which emissions will be included and excluded – for example: you may wish to focus data collecti on on the main sources of greenhouse gas emissions.

Collecti ng data3.

Collect data based on actual meter readings and records - only use esti mates if absolutely necessary. Select appropriate emissions conversions factors (for example, kgCO2/litre of fuel).

Calculate footprint4.

Calculate the greenhouse gas emissions (kg CO2e per product unit) from each source.

Check uncertainty5.

Provide an assessment of the margin of error for your calculati on. This can be a stati sti cal analysis or a simple assessment of data quality.

There are problems with PAS2050 however; it is a complicated methodology and requires a signifi cant investment to complete properly, and product category rules need to be defi ned. It is possible for a smaller company to run through the tool and get a rough carbon footprint for a product, but despite several organisati ons adopti ng it, there is not enough data today to make simple calculati ons possible for companies unable or unwilling to make the full investment required.

We don’t know about best examples of work going on – needs drawing together

Providing standards to assist companies to plan their eff orts to be more sustainable is important, but not the only way to help eff orts move forward. Several delegates pointed to the unavailability of a shared repository for examples of best practi ce as a major gap in the market. Despite there being some outstanding individual examples of successes achieved and effi ciencies gained, it was clear that the experiences gained are not widely known. One clear output of the day was a suggesti on to create a shared repository for such achievements, both as a source of informati on for organisati ons with similar challenges, and as a place of inspirati on.

Again though, some organisati ons might view the experience they have gained as competi ti vely sensiti ve, but we would urge them to consider whether there is more to be gained – in both co-working with partners and suppliers, and in the opportunity to establish thought leadership – from sharing their successes more widely.

Problems are similar across business sectors

There were suggesti ons that examples of best practi ce are really only applicable to very similar companies in the same sector. As in many other cases we have analysed in the past however (such as data warehousing requirements), there are surprisingly few diff erences between industry sectors in many of the sustainability challenges they face, which should allow more eff ecti ve sharing of experience and best practi ces.


“We need to recogniti on that problems are fundamentally prett y similar across industry sectors. We should look cross-sector for scale and sharing best practi ces.

Wayne Balta, IBM

Similariti es across multi ple sectors could combine with a library of best practi ce to provide the opportunity to scale eff orts and create real change.

We must tell people about successes to create a positive feedback loop

As well as the opportunity to share best practi ce between companies, Marks & Spencer showed how providing informati on back to consumers on how successful sustainability projects are being creates a positi ve feedback loop which will generate more success. The example cited was the in-store provision of informati on about the amount of money raised for Oxfam from the take-back scheme for clothing. Such communicati on acts both as a spur to acti on for a customer, and a strong brand boost for M&S.

The government was cited as an example of not doing well in this regard; very few public campaigns are followed up with an assessment and communicati on of their success.

We need a TSM movement to parallel the TQM movement of the 1970s

One intriguing suggesti on from Dr Trevor Davis of IBM involved creati ng a ‘Total Sustainability Management’ movement to parallel the ‘Total Quality Management’ (TQM) surge in the 1970s. TQM became integral to businesses as the value of adopti ng TQM practi ces was demonstrated.

“TQM movement started as cost-avoidance. Not only was quality a good thing to have, but lack of quality was a bad thing. Quality is inti mately related to fi nancial performance; so are most aspects of sustainability.

Dr. Trevor Davis

TQM placed signifi cant emphasis on measurement as the basis for understanding both how improvements could be achieved and for measuring success, and it is important again now as we have already noted.

“A lot of emphasis on measuring things and benchmarking was key to getti ng quality on the agenda.

Dr. Trevor Davis

Also important is the concept of the ‘management system’. There is an equivalent in sustainability (ISO14000) but it hasn’t become as popular or embedded in the same way as ISO9000 has in the fi eld of quality – too many organisati ons sti ll see sustainability as a bolt-on – something that is done in additi on to normal operati on – rather than a core part of that operati on. TQM became embedded in organisati onal culture; it is vital that sustainable thinking become embedded throughout organisati ons unti l it becomes a part of business as usual.

If the price of oil escalates, all bets are off

One of the key elements behind the success of global supply chains is cheap energy, primarily oil. The price of oil has been rising steadily over the past 10 years; rising demand, parti cularly from China, heralds the permanent end of cheap oil – the past two years only reached a plateau because of the global recession, but even so, spot prices have reached beyond even the peak prices of 1980.


What if oil prices conti nue to rise? How will global supply chains be aff ected? How many products will become economically unsustainable? Many organisati ons are already planning for more local sourcing of products and sub-components to miti gate the risk.

The questi ons raised during the Summit and outlined in this paper are being addressed in the ongoing work planned or supported by IBM, some of which is noted below.

Three-year rolling average price of crude oil; Figure 2. source: www.infl ati ondata.com

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Pric

e pe

r ba

rrel

of c

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3-year rolling average crude oil prices/bbl (in a on adjusted)


Outcomes: developing the themes

Harnessing the momentum of the Summit

RETAIL AND CPG FORUM

IBM will host an ‘Enabling a Sustainable Supply Chain’ forum in the New Year to conti nue the discussion of key issues. The event is designed to build on the momentum and shared learning created during Start and will specifi cally seek to build a vibrant and collaborati ve community of business leaders who, collecti vely, can have a positi ve impact on the delivery of sustainability strategies within their own organisati ons.

THE START INNOVATION JAM

The IBM Summit at Start, to quote Charles Hendry, the Minister of State for Energy & Climate Change, was “one of the most signifi cant events of its kind that has ever taken place in this country”. The Summit brought together key stakeholders from many communiti es, and created a momentum amongst att endees to do something to make a diff erence. The journey towards a sustainable economy will be a long one, and the Summit was always intended to be the start of a process rather than a single, albeit impressive, event. As a conti nuati on of that process, IBM has announced that it will be hosti ng a ‘Start Innovati on Jam’ in April of 2011.

An Innovati on Jam is an online text-based discussion forum for conducti ng a large-scale brainstorming event. Diverse groups of individuals are connected via a web browser to discuss and develop acti onable ideas for business-criti cal or urgent societal issues. The key word is ‘acti onable’. The purpose of this Jam is to take what was learned from the Summit, and turn it into a bank of acti onable ideas. This is about how – the Summit identi fi ed a number of urgent needs to which we need to fi nd soluti ons: we need to encourage collaborati on between diff ering consti tuencies, but how do we make it happen? How do we start to change individual and corporate behaviours? How do we engage with younger people and how do we act NOW to make a diff erence? The Jam aims to answer these questi ons and in doing so kick off hundreds of projects that will generate real soluti ons and provide inspirati on for a thousand more.

The Jam will be facilitated by IBM in conjuncti on with the Start organisati on and many of the other Start partners. They will be inviti ng everyone who att ended the 2010 Summit, their partners and clients, and many others who wish to join them on the journey.


The IBM Summit at Start

Start is an initi ati ve established by HRH The Prince of Wales, that aims to create a vision of a more sustainable future, and seeks to promote sustainability through simple, positi ve and aspirati onal messages.

IBM is one of the founding partners, and is the exclusive partner for Business to Business engagement. In September 2010 IBM led a Business Summit – nine invitati on-only days that covered key topics on the sustainability agenda for business. Its starti ng point was simple: “ask not what you can do for sustainability – ask what sustainability can do for you”.

Business engagement in the broad sustainability agenda is crucial if we are to make progress. Business led the industrial revoluti on, it led the digital revoluti on and all the signs are that it will drive the sustainability revoluti on too. Each day of the summit saw senior business leaders, public sector offi cials, NGOs, academics and commentators come together in London’s Lancaster House to make a diff erence to how sustainability is perceived and positi oned in the

UK. Over 1,000 of the UK’s most infl uenti al people joined forces with some of IBM’s global experts to create a new consti tuency around economic, social and environmental sustainability.

Charles Hendry, the UK Minister of State for Energy and Climate Change said that the IBM Summit at Start was “one of the most signifi cant events of its kind that has ever taken place in this country”; this document, writt en by The Bathwick Group, reports the output from the summit, with a specifi c focus on Day 6, ‘Smarter Supply Chains for a Sustainable Future’.

About The Bathwick Group

The Bathwick Group is a research-based consulti ng company that helps clients address their most pressing needs in strategic planning and go-to-market executi on.

Sustainability & the future economy:

Defi ning the future – risks and opportuniti es; strategic modelling and benchmarking, future-proofi ng to miti gate strategic risks, and identi fi cati on of new market opportuniti es

The future of business & organisati onal performance:

Focused on collaborati on and disrupti ve platf orms; solving client challenges rapidly by combining external experts and IP protecti on mechanisms to expedite soluti ons to important challenges

The applicati on and future of informati on technologies:

Focused on infrastructure (futures and cloud computi ng) and interacti on (including social media) in business. Future-proofi ng strategy and eff ecti veness audits for enterprise IT leaders, cloud assessments, data audits, and benchmarking

IT industry futures:

Marketi ng strategy, customer analysis and deep research, sales accelerati on and business partner enablement soluti ons

www.bathwickgroup.com

Document number: BG-EV-W-00073UK-EN-01

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