Sustainable Strategies
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Transcript of Sustainable Strategies
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Sustainable Strategies
IGD’s Hot Topic report to help plan your approach towards a sustainable supply chain
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About this Report
• Why should you look at sustainability now?– What does sustainability include, industry initiatives & the priorities
• Carbon & Energy Management– Performance measures, KPIs, industry initiatives, best practice examples, supply
chain implications
• Packaging & Waste Management– The waste hierarchy, closing the packaging loop, KPIs, industry initiatives,
examples, supply chain implications
• Distribution Optimisation– KPIs, industry initiatives, best practice examples, improvement initiatives, supply
chain implications
• Sourcing & Supplier Engagement– KPIs, industry initiatives, best practice examples, supply chain implications
• Preparing your plan to meet future needs
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IGD’s Research on Sustainable Strategies
• Online poll of senior retailer and supplier executives – 134 companies in 24 countries including 15 European countries
• Survey of senior supply chain professionals – 66 companies in 10 European countries including the UK
• Over 20 in-depth interviews with senior retailer and supplier executives and industry experts in Europe and the US
• Detailed analysis of CSR reports of the top 20 retailers from IGD’s Global Retail Index
• Analysis of the outputs from ECR UK & ECR Europe workgroups in the areas of sustainable distribution & packaging
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Why should you look at sustainability now?
• Concerns over environmental degradation, resource exploitation and general business durability
• There are a number of supplementary reasons why sustainability has become more important. These are:
Commercial/pragmatic considerations
• Cost reduction
• Alignment with evolving consumer requirements
• Potential for increased shareholder value
• Protecting and developing the brand
• Safeguarding future business
Ethical/ idealistic considerations
• Political activism
• Economic/ ethnic/ religious favouritism
• Employee relations
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Sustainability is rising up the commercial agenda
“There is a real change in terms of sustainability not being solely a corporate function but now filtering through the commercial and marketing
functions. This is a new way of doing business”.
“At first our buyers thought sustainability was a fad. However, measuring carbon footprints is built into the bonus system of all our senior managers
so they had little choice but to participate”.
“Consumers increasingly expect leading brands to do their share towards environmental and social issues”.
Senior Executives, Multinational Suppliers
Source: IGD International Sustainability Survey, May 2008
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Sustainability is an opportunity to differentiate
6.1
6.4
6.8
7.0
7.2
7.2
7.3
7.8
5 6 7 8
Shopper demand for ethical products
Legislative compliance
Beliefs of management team
Innovation in products & processes
Potential cost savings
Opportunity to differentiate
Need for better customer engagement
Building a positive corporate image
Average RatingScale: 1 = least important, 10 = most importantSource: IGD International Sustainability Survey, May 2008
What are the influences that have shaped your company’s strategy on sustainability?
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What does sustainability include?
ENERGY WASTE DISTRIBUTION WATER SOCIAL
•Energy efficiency
•Refrigeration
•Renewable energy
•Food & material
waste
•Packaging
optimisation &
innovation
•Recycling
•Road transport
optimisation
•Warehousing
•Alternative modes of
transport to road
•Water sourcing
•Water usage
•Embedded water
•Sustainable &
ethical sourcing
•Health & nutrition
•Community
Source: www.igd.com/sustainability
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Sustainability: a long-term journey
Source: IGD Research, 2008
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Industry initiatives & priorities
Source: IGD International Sustainability Survey, May 2008
1. Energy reduction
2. Waste reduction
3. Packaging reduction
4. Transport optimisation
5. Carbon measurement
6. Water management
7. Sustainable sourcing
8. Ethical sourcing
9. Eco-design of products
1. Energy reduction
2. Packaging reduction
3. Carbon measurement
4. Waste reduction
5. Transport optimisation
6. Sustainable sourcing
7. Water management
8. Ethical sourcing
9. Eco-design of products
NEXT 2-3 YEARSNOW
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Carbon & Energy Management are fundamental
• Retailers are investing in new technologies across the supply chain and collaborating with manufacturers' to drive change
• The most advanced retailers in this area have made environmental initiatives central to their corporate strategy
• The focus of these retailers is to:
– Limit the environmental impact of their own businesses
– Engage with suppliers to drive change across the wider supply chain, and
– Build this into their communication strategy to gain a competitive advantage
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Carbon & Energy – what is being measured?
• Leading retailers in the UK & Europe are focusing on limiting their own energy consumption & carbon emissions
• Typical measures include
– Energy consumption per case sold/ per sqm
– Electricity usage in facilities
– Greenhouse gas emissions from refrigerants’ loss
– Meeting energy standards for buildings
– Share of energy from renewable sources
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Global retailers – Carbon & Energy KPIs
Retailer Key Performance Indicators
• Establish a Greenhouse Gas (GHG) Network to study and actively reduce its carbon footprint
• Be supplied 100% by renewable energy• Make new stores 25-30% more efficient by 2009 & existing stores 20% more efficient by
2012 • Reduce water consumption
• Carbon emission in tonnes, and per shipping unit (kg)• Energy consumption per sqm• Refrigerant consumption/ sales area (kg/1,000 sqm)• Water consumption in thousand cubic metres and per sqm
• Reduce carbon emissions from existing stores and distribution centres worldwide by at least 50% by 2020
• Reduce energy consumption per square foot by 10% by 2010 as part of a long-term commitment to reduce energy use by 50%
• Reduce its water consumption per square metre by at least 2% compared with 2006 • Work with SCI (Sustainable Consumption Institute) to investigate biofuels
• Extend the collection of key environmental figures to all Metro companies by 2010• Raise energy efficiency in its business operations• Develop guidelines for the application of coolants • Reduce fresh water consumed per square metre
Source: IGD Research, 2008
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Carbon & Energy – Industry Initiatives
Carbon offsetting High efficiency refrigeration equipmentMinimising wastewater discharge
Geothermal systems
Reduced air conditioningMotion activated light sensors
Cold/ hot air retrieval systemsAlternative refrigerantsReducing refrigerants leakageCarbon measurement of stores & warehousesRainwater harvesting
Carbon measurement of products (on a test basis)
Low energy lighting Adding doors to fridges and freezersLow water use appliances and housekeeping
Solar panels Wind turbines
Ease of implementationLowHigh
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What are other leading retailers’ key focus areas?
• Making ongoing improvements in energy efficiency
• Increasing the use of renewable sources of energy
• Reducing the emissions and energy consumption per case sold year-on-year
• Setting carbon targets for stores and other operations
• Reducing the consumption of water and the contamination of waste waters
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Eco-design & carbon labelling – Industry Initiatives
Sustainable criteria in PL tendersCarbon labelling (on a test basis)Selling environmentally friendly products such as products made from alternative fibres
Selling environmentally friendly products such as home composting solutions
Energy-saving products e.g. light-bulbsConsumer education – e.g. leaflets, website
Concentrated productsDetergent and household product modificationDesign changes for electrical products
Ease of implementationLowHigh
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Eco-design: what are other leading retailers’ focus areas?
• Promoting products that are good for the environment
• Minimising air transport while helping trade with developing economies
• Increasing the range of energy-efficient product ranges sold
• Helping customers choose energy efficient products
• Supporting the development of a methodology to measure embedded carbon within products and piloting carbon labels
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Best Practice – Carbon & Energy
Source: IGD Research, Company websites, 2008
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Supply Chain Implications
• The food supply chain will be expected to lead the way in reducing greenhouse gas emissions
• Increasingly, savings from energy efficiency & use of alternate sources of energy will gain strategic importance
• There will be greater focus and need for carbon measurement of the entire supply chain
• The supply chain will need to move from ‘quick wins’ to reduce energy consumption to looking at more structural changes to their operations
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Packaging & Waste – what are industry priorities?
• Packaging reduction continues to be a key initiative, with a trend towards
– Reduction in volume & weight of packaging
– Increased sourcing of sustainable materials
– Further use of recycled material
• Retailers are engaging with suppliers to reduce waste generated at source by:
– Managing the waste hierarchy
– Closing the packaging loop
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Global Retailers – Packaging & Waste KPIs
Retailer Key Performance Indicators
• Reduce overall packaging by 5% by 2013 & become packaging neutral by 2025• Replace PVC (polyvinyl chloride) in own label packaging• Zero waste in all Wal-Mart and Sam's Club stores by 2025• Reduce solid waste from U.S. stores and Sam’s Clubs by 25% by October 2008
• Reduce packaging by 10% by 2013• Increase recyclable content in packaging by 75%• Waste recycled in tonnes and per sales area (kg/sqm.)
• Reduce the weight of packaging on branded and Tesco own-label products by 25% by 2010
• Divert 75% of waste from landfill, as part of a long-term commitment to divert 80% between 2006/07 and 2008/09
• Where recycling units are present, double customer recycling by 2008 relative to 2006 levels
• Reduce carrier bags given out by 50% by February 2009 vs. May 2006
• Minimise the packaging of own brand products• Maintain the current levels of waste generation and recycling of 93% for German
operations• Reduce waste produced by other locations beyond Germany by at least 5%• Increase recycling levels in countries outside Germany from 64% to at least 67%
Source: IGD Research, 2008
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What are other leading retailers’ focus areas?
• Increasing the amount of packaging made from sustainable materials and its recycled /recyclability
• Reducing food waste and recycling, composting or using the waste as input for anaerobic digestion
• Extending the scope of packaging reduction agreements with suppliers
• Controlling cost of waste management
• Setting specific operational standards for measuring waste
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Packaging & Waste – Industry Initiatives
Food waste sent for compostingUsing packaging scorecards with suppliers
Issuing packaging guidelines to suppliers
Local community partnership e.g. schoolsUsing recycled print material
Reusable secondary packagingClosed loop recycling schemes(test basis)
Using new types of sustainable or recycled materials (test basis)Compostable or degradable packaging (test basis)
Recyclability information on PL packagingCarrier bag recycling or chargingRecycling points at storeBack-office store recycling schemes
Reduced volume packaging e.g. concentrated/ refillable
Ease of implementationLowHigh
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The Waste Hierarchy
Source: IGD Research, 2008
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Closing the Packaging LoopPackaging Cycles
Home
Retail
Extraction Manufacture Filling
Distribution
Inci
nera
tion
or L
andf
ill
Com
post
Return /
Reuse
Recycle
Tertiary Primary Secondary
Source: IGD Research, 2008
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Examples of RRP: Reducing Primary and Overall Packaging
Sou
rce:
IGD
Res
earc
h, C
ompa
ny w
ebsi
tes,
200
8
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2007Count: 48 cartons Pack: 6 across X 8 deepPallet Configuration: 8 cases/layer;
80 cases/pallet
2008Count: 35 cartons Pack: 5 across X 7 deepPallet Configuration: 9 cases/layer;
90 cases/pallet
New shipper case: more efficient & environmentally friendly USA / Macaroni & Cheese
Benefits Easy open / Less labor Eliminate overhang
Printed case Reduced case count
Reduces corrugate by 20%
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Germany / Central Europe Jacobs Coffee SRP tray facilitates in-store handling with minimal outer packaging waste
Corrugate tray – No hood – No wrap
Source: IGD Research, Company websites, 2008
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Supply Chain Implications
• Regulation will focus on the issue of food-waste and portion size; retailers will continue to engage with suppliers to reduce waste
• Simplification (and the integration) of primary, secondary and tertiary packaging will lead to a shift in warehousing and transport strategies
• Closed loop packaging will gain traction and will become important in the movement of ‘consumables’
• With the increasing use of recycled plastic, standardisation of acceptable materials is likely
• Development of alternative types of packaging, packaging materials and systems will create new opportunities and challenges
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Distribution – what are industry priorities?
• Transport & warehousing are visible parts of the food supply chain and key to supporting and delivering against the CSR agenda
• Major industry initiatives in this area include:
– Improving space utilisation and fuel usage
– Optimising road transport, including vehicle design, engine type, fuel type
– Building and retro-fitting warehouse facilities to improve sustainability
– Developing alternate non-road transport modes (rail, canals)
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Global Retailers – Transport & Distribution KPIs
Retailer Key Performance Indicators
• Make distribution fleet 25% more efficient in three years• Make distribution fleet 100% more efficient in 10 years compared to current
levels
• Implementation of central distribution in a country
• Reduce the amount of CO2 produced in the distribution network per case delivered by 8% by 2008 and by 50% between 2006 – 2012
• Restrict air transport to less than 1% of their products• Improve efficiency in the distribution network through more efficient transport
methods
• Change the entire truck fleet to vehicles that comply with Euro 5 Standard by late 2009
Source: IGD Research, 2008
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What are other leading retailers focusing on?
• Increasing the use of bio-diesel in own fleet operations
• Introducing a ‘green’ travel policy to reduce carbon emission caused by travel
• Replacing fleet with vehicles that meet Euro 4 & Euro 5 emissions standards
• Using battery operated vehicles for online shopping deliveries
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Transport – Industry Initiatives
Out of hours deliveries*Transport collaboration*
Logistics system redesign*
Modern engine design*Trailer designLarger vehicles*
Alternative fuels -natural gasAlternative fuels - Bio-fuelsAlternative fuels - ElectricityHybrid/ parallel hybrid(all often on a test basis)
Vehicle telematics*Driver trainingVehicle maintainanceVehicle utilisation
Modal shift/ inter modality (test)
Ease of implementationLowHigh
Le
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* Areas explored as part of IGD Research
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Best Practice - Sustainable Transport
Source: IGD Research, Company websites, 2008
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Technical improvements lead the way
Logistics system redesign
Vehicle telematics
Modern engine design
Transport collaboration
Out of hours deliveries
Larger vehicles 56%
69%
71%
71%
74%
76%
0 20 40 60 80
% mentioning already in use, under development or planned for the future
Source: IGD Research, 2008
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Warehousing – Industry Initiatives
Rainwater harvesting*Low water use appliances*
Timber from sustainable sourcesGreen roofsRecycled building materials Reclaimed building materialsRecycled floor coveringsOn site energy generation (wind, solar)*Geothermal heating and cooling*
Sun shading and insulationAir tightness & use of inner and outer doors
Energy efficient lighting*Housekeeping practices to save energyOn site recycling*
Ease of implementationLowHigh
Le
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* Key initiatives identified by ECR UK workgroup
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High adoption of quick-wins in warehousing
Energy efficient lighting
On-site recycling
Low water use appliances
Rain-water collection
On-site energy generation
Green building materials
Geo-thermal heating/cooling
87%
13%
28%
48%
48%
60%
83%
0 20 40 60 80 100
% mentioning already in use, under development or planned for the future
Source: IGD Research, 2008
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Best Practice – Sustainable Warehousing
Source: IGD Research, Company websites, 2008
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Supply Chain Implications
• Technology and innovation will continue to lead
• Best practice will move from quick wins to site-builds– Geo-thermal heating/ cooling, use of green building materials will soon become
more widespread
• Transport collaboration will gain momentum, for both inbound and outbound deliveries
• The use of shared warehouse facilities will increase
• The use of sustainability scorecards will feature as part of the selection criteria of logistics providers
• Standard 3PL contracts will incentivise providers to reduce road miles.
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Sourcing & Supplier Engagement
• Three main trends in this area:
– Encouraging suppliers and associates on compliance to mitigate risk
– Engaging with suppliers on improving performance metrics including sustainability led criteria
– Developing new ranges to meet consumer (ethical shopping) needs
• As retailers make sustainability a core competence, suppliers will need to assess their end-to-end operations on these criteria
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Global Retailers – Sourcing & Supplier Engagement KPIs
Retailer Key Performance Indicators
• Promote more sustainable practices in the food and agricultural industries• Make a broad range of familiar products more sustainable accessible to everyone• Source all wild-caught fresh and frozen fish for the North American and the UK
market from fisheries that meet the Marine Stewardship Council’s (MSC) standards
• Number of organic or ecological own-brand products listed • Number of Quality Line (supporting sustainable agricultural practices) products and
contracts • Percentage of controlled food products purchased from local suppliers• Number of fair-trade products listed
• To audit and register all organics growers in countries prioritised for the first of the three year Nature’s Choice programme and to ensure all comply with standards by the end of 2009/10. Nature’s Choice is Tesco’s integrated farm management scheme.
• Continue to source seafood responsibly.
• Extend the ‘Online Service-Food Safety’ (OSFS) system for fruit, vegetables, meat and fish by 2008
• Implement the IFS (International Food Standard) as the auditing standard for private label suppliers and the EurepGap for fruit and vegetable suppliers by 2008
• Develop a strategy to promote sustained fishery by 2008
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Sourcing & Supplier Engagement – Industry Initiatives
Standards applied on fresh produceStandards applied on meatScorecards for retail buyers Sustainability audits
Pesticide reduction initiatives
Organic food certification
MSC or other fish certificationFairtrade certificationLaunching ethical private label rangesFocus on national or local foods
Ethical codes of practice
Ease of implementationLowHigh
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What are other leading retailers focusing on?
• Support local businesses including small and medium-sized enterprises
• Support suppliers who are ethical and responsible
• Increasing sourcing from certified organisations and sustainable sources
• Improving standards of animal welfare
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Best Practice – Sourcing & Supplier Engagement
Source: IGD Research, Company websites, 2008
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Supply chain implications
• Increasing focus on local and regional products will challenge supply chains built to moving bulk groceries through a standard, national supply chain
• Rising costs of transport could undermine the benefits of centralised production
• The security and continuity of supply of internationally sourced products could further shift sourcing strategies
• The use of sustainability criteria-led scorecards in procurement decisions could affect supply chain strategy
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How should you plan your approach?
• Energy, packaging & waste, sourcing and transport are priority areas for retailers
• The most advanced retailers have clear KPIs and have made sustainability central to their strategy
• To build a sustainable supply chain internal efficiencies will need to be addressed first before working externally
• The quick-wins will need to be balanced with the longer-term solutions across the wider supply chain
• Common solutions and partnerships will be essential, and industry working groups will be key to finding good solutions
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For Further Information
• Visit www.supplychainanalysis.igd.com to understand the major issues affecting the FMCG supply chain with our Hot Topics
– Each Hot Topic is an in-depth guide designed to help you understand the background behind the issues, identify their benefits, see news and case studies from leading retailers and manufacturers, and recognise future business opportunities