IE FOUNDATION ADVANCED SERIES ON PROBLEM DRIVEN-RESEARCHadvanced seriesFoundationthe driving force behindthe shift towards...
IEFOUNDATIONADVANCEDSERIESONPROBLEM-DRIVENRESEARCHSUSTAINABILITYadvanced seriesEDITORIAL BOARDMarco TrombettaVice-Dean of ...
foundationDear friends:One of IE Business School’s goals is to be an internationalcenter of excellence for research in all...
IEFOUNDATIONADVANCEDSERIESONPROBLEM-DRIVENRESEARCHSUSTAINABILITYadvanced seriescontents
0201020304050607CONSUMER GOODS & RETAIL 5Research teamGreetings IE FoundationGreetings Ernst & YoungExecutive summaryIntro...
Professor Carillo-Hermosilla is currently the tenured headof the Business Science Faculty at Alcala University (Ma-drid). ...
Professor del Río is a tenured researcher at the EnvironmentalEconomics Group of the CSIC’s Institute of Public Policy and...
foundationRafael PuyolVice-presidentIE FoundationMargarita VelásquezGeneral DirectorIE FoundationAmong its primary activit...
José Luis Ruíz ExpósitoPartner and Head of ConsumerGoods & RetailManuel FernándezBusiness Development Director,Consumer Go...
Executive summaryIEFOUNDATIONADVANCEDSERIESONPROBLEM-DRIVENRESEARCHSUSTAINABILITYadvanced seriesTHE RETAIL SECTOR:THE DRIV...
CONSUMER GOODS & RETAIL 11This report pivots around the thesis that the retail sectorcan use its strategic positioning to ...
IEFOUNDATIONADVANCEDSERIESONPROBLEM-DRIVENRESEARCHSUSTAINABILITYadvanced series1.Working betweensuppliers andconsumersIntr...
CONSUMER GOODS & RETAIL 13RetailProductionConsumptionFigure 1:the retail sector:the drivingforce behind the shift in produ...
Design is probably the phase that most significantly shapes a product’s environmentalimpact throughout its entire life cyc...
Beyond private label products and their packaging, the real challenge facing retailerslies with their ability to have an i...
Lists of banned substan-ces ensure that no hazardo-us chemical components are usedin the production of goods6. Retailers c...
Case study 1. H&M’s ‘black list’The initiativeH&M ensures that its substance restrictions are understood and applied throu...
IEFOUNDATIONADVANCEDSERIESONPROBLEM-DRIVENRESEARCHSUSTAINABILITYadvanced seriesUnquestionably, the life cycle analysis(LCA...
EKTORPCONSUMER GOODS & RETAIL 19BackgroundRetailer product designers, developers and technicians face the challenge of fac...
Carbon footprint analysis can be viewed as an extension of the above approach,albeit focused specifically on greenhousegas...
Case Study 3Walmart’s strategy for reducing supply chain GHG emissionsBackgroundWalmart estimates that over 90% of its GHG...
IEFOUNDATIONADVANCEDSERIESONPROBLEM-DRIVENRESEARCHSUSTAINABILITYadvanced seriesThe new relation-ship being forgedbetween t...
CONSUMER GOODS & RETAIL 23BackgroundOver the past two decades illycaffè has per-fected a system of direct relationships wi...
IEFOUNDATIONADVANCEDSERIESONPROBLEM-DRIVENRESEARCHSUSTAINABILITYadvanced seriesPackaging is a crucial part of the product ...
CONSUMER GOODS & RETAIL 25in Directive 94/62/EC specify that packaging weight andvolumes are to be limited to the strict m...
IEFOUNDATIONADVANCEDSERIESONPROBLEM-DRIVENRESEARCHSUSTAINABILITYadvanced seriesInvolvement ofproducers andconsumers3.1
CONSUMER GOODS & RETAIL 27Generally speaking, a certain level ofcollaboration among all the parties involvedis essential t...
IEFOUNDATIONADVANCEDSERIESONPROBLEM-DRIVENRESEARCHSUSTAINABILITYadvanced seriesCase Study 5.EROSKI: applicationof the EE7+...
CONSUMER GOODS & RETAIL 29BackgroundThe food industry operates in a highly competitive and increasingly global market and ...
IEFOUNDATIONADVANCEDSERIESONPROBLEM-DRIVENRESEARCHSUSTAINABILITYadvanced seriesDealt with again in Section 4, smart packin...
Benefits- 	IKEA’s EKTORP sofa is one of its best-selling but also oneof its most voluminous products. The retailer’s produ...
IEFOUNDATIONADVANCEDSERIESONPROBLEM-DRIVENRESEARCHSUSTAINABILITYadvanced series4.TransportationBy reaching out to others a...
CONSUMER GOODS & RETAIL 33The mid-term review of the 2001White paper“Europeantransport policy in 2010: time to decide”19 s...
Route optimization involves assessing product transportationpatternsandcombiningrouteswherepossible.Byre-evaluatingits rou...
CONSUMER GOODS  RETAIL 35BackgroundMercadona,Acotral,and Renfe-Freight have an agreement covering the transportation of no...
IEFOUNDATIONADVANCEDSERIESONPROBLEM-DRIVENRESEARCHSUSTAINABILITYadvanced seriesCurrent practices aimed at reducing supplyc...
CONSUMER GOODS  RETAIL 37Case Study 8How Lowe’s ensures efficient transportation of goodsThe initiativeLowe’s only hires c...
IEFOUNDATIONADVANCEDSERIESONPROBLEM-DRIVENRESEARCHSUSTAINABILITYadvanced seriesAlternative fuels, such as natural gas, bio...
CONSUMER GOODS  RETAIL 39Case Study 9UPS’s green fleetBackgroundUPS operates over 100,000 delivery and transport vehicles ...
IEFOUNDATIONADVANCEDSERIESONPROBLEM-DRIVENRESEARCHSUSTAINABILITYadvanced series5. ConsumptionIt is important to stress upf...
A recent Eurobarometer survey on Europeans’ attitudestowards the issue of sustainable consumption andproduction31revealed ...
IEFOUNDATIONADVANCEDSERIESONPROBLEM-DRIVENRESEARCHSUSTAINABILITYadvanced seriesCase Study 10Leroy Merlin: “Eco-options” pr...
CONSUMER GOODS  RETAIL 43labelingontheproduct,extensionofthescopeoftheEuropeaneco-label to new products and the use of pub...
IEFOUNDATIONADVANCEDSERIESONPROBLEM-DRIVENRESEARCHSUSTAINABILITYadvanced seriesOff-shelf placement of green products (in g...
CONSUMER GOODS  RETAIL 45Case Study 11Metro Group - Media Markt and Saturn:“energy-saving weeks”The initiativeIn 2007, Met...
IEFOUNDATIONADVANCEDSERIESONPROBLEM-DRIVENRESEARCHSUSTAINABILITYadvanced seriesInformationto fostersustainable useAlong wi...
CONSUMER GOODS  RETAIL 47Case Study 12. CA labelingBenefitsBy washing at 30°C instead of 40°C,energy savings of up to 40% ...
IEFOUNDATIONADVANCEDSERIESONPROBLEM-DRIVENRESEARCHSUSTAINABILITYadvanced seriesOnce a produce has been consumed and/or rea...
CONSUMER GOODS  RETAIL 49Case Study13. Reuse at Coop Italy.The initiativeIn 2006, Unicoop Firenze and Unicoop Tirreno (Coo...
IEFOUNDATIONADVANCEDSERIESONPROBLEM-DRIVENRESEARCHSUSTAINABILITYadvanced seriesIn the case of durable products,the materia...
CONSUMER GOODS  RETAIL 51Case Study 14. Best Buy promotes responsible end-of-life product management-	Buy Back Program: wh...
IEFOUNDATIONADVANCEDSERIESONPROBLEM-DRIVENRESEARCHSUSTAINABILITYadvanced series6. Opportunitiesand challengesThe thesis at...
CONSUMER GOODS  RETAIL 53Relations between retailers and suppliers based on trust and a jointsustainability effort will pa...
IEFOUNDATIONADVANCEDSERIESONPROBLEM-DRIVENRESEARCHSUSTAINABILITYadvanced seriesOne of the greatest obstacles to maximizing...
CONSUMER GOODS  RETAIL 55Consumer information can also be put to use to reduce the environmental ramifications of everyday...
Sustainability in Retail & CG
Sustainability in Retail & CG
Sustainability in Retail & CG
Sustainability in Retail & CG
Sustainability in Retail & CG
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This report pivots around the thesis that the retail sector can use its strategic positioning to have an effective influence on suppliers and consumers, making all phases of the product value chain more sustainable. An IE Foundation's project, under the direction of Alfonso Gadea, with the collaboration of Ernst & Young.

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Sustainability in Retail & CG

  1. 1. IE FOUNDATION ADVANCED SERIES ON PROBLEM DRIVEN-RESEARCHadvanced seriesFoundationthe driving force behindthe shift towards sustainableproduction and consumptionCONSUMER GOODS & RETAIL 1PROBLEMDRIVENRESEARCHfoundation2013 No. 01The retail sector:
  2. 2. IEFOUNDATIONADVANCEDSERIESONPROBLEM-DRIVENRESEARCHSUSTAINABILITYadvanced seriesEDITORIAL BOARDMarco TrombettaVice-Dean of Research IE Business SchoolManuel Fernández NuñezBusiness Development Director ConsumerProducts & Retail Ernst & YoungMargarita VelásquezGeneral Director IE FoundationFabrizio SalvadorSenior Academic Advisor IE FoundationAlfonso GadeaProject Director IE Foundation
  3. 3. foundationDear friends:One of IE Business School’s goals is to be an internationalcenter of excellence for research in all areas of manage-ment.We pursue this goal in close collaboration with theIE Foundation and the recently established IE University.I would like to present a new initiative of the IE Founda-tion and IE Business School. We hope it will provide aninnovative way to share the results of the joint work ofour scholars and partner organizations.The initiative,“IE Foundation Advanced Series on ProblemDriven Research”,aims to provide support to organizations facing the new economic struc-ture, featuring unique market rules. Recognizing the importance of retailing for assessingthe current situation and the social expectations,we have chosen the“Consumer Goods &Retail” series as our maiden work.The IE Business School seeks to create an environment where we can develop the best talent,while at the IE Foundation we seek to close the loop between the school and businesses byfostering sustainable relationships through the organization.We are confident that this initiative will meet the challenge and offer a new perspectiveon the issues.CONSUMER GOODS & RETAIL 3Marco TrombettaVice-dean of Research at IE Business SchoolVice-dean of Coordination and Research, IE UniversityGreetings
  4. 4. IEFOUNDATIONADVANCEDSERIESONPROBLEM-DRIVENRESEARCHSUSTAINABILITYadvanced seriescontents
  5. 5. 0201020304050607CONSUMER GOODS & RETAIL 5Research teamGreetings IE FoundationGreetings Ernst & YoungExecutive summaryIntroductionDesign and manufacturing2.1 Banned substances2.2 Life cycle and carbon footprint analysis2.3 Supply chain transparencyPackaging3.1 Involvement of producers and consumers3.2 Direct reduction of packaging at retail establishments3.3 Reduction of packaging for transportationTransportation4.1 Route optimization4.2 Efficient transportation4.3 Alternative fuelsConsumption5.1 Influencing consumer choice5.2 Information to foster sustainable use5.3 Minimization of waste, reutilization, and recyclingOpportunities and challengesReferences
  6. 6. Professor Carillo-Hermosilla is currently the tenured headof the Business Science Faculty at Alcala University (Ma-drid). Before that, he was the Director of Economic Envi-ronment of Business department at IE Business School, aFellow at the Jean Monnet Center for European Studies atIE University,aVisiting Fellow at Cambridge University andan Independent Expert assisting the European Commis-sion in the evaluation of proposals for FP7Theme 6 - Envi-ronment (including climate change).He has spent the lastfew years researching sustainable technological change,new management models, and the policies that provi-de an innovative response to tackling the environmentalchallenge.His achievements in this field are expounded innumerous papers and articles on environmental sustaina-bility and technological change that have been publishedin international scientific journals and books. In addition,he contributes regularly to the leading media publicationsand gives frequent talks on the economy,business,and theenvironment.Professor Carrillo-Hermosilla holds a PhD inEconomics from Alcala University (Madrid) and an MBA(with Honors) from IE Business School.IEFOUNDATIONADVANCEDSERIESONPROBLEM-DRIVENRESEARCHSUSTAINABILITYadvanced seriesJavier Carrillo-HermosillaAssociate fellow at IE Foundationand Professor at Alcala UniversityResearchteam
  7. 7. Professor del Río is a tenured researcher at the EnvironmentalEconomics Group of the CSIC’s Institute of Public Policy andGoods. He holds a PhD in Economic and Business Sciencesfrom Autonomous University of Madrid (2002).With 13 years’experience lecturing on environmental economics and eco-nometrics, Pablo has served as professor at the Universityof Castilla-La Mancha and vice-dean of foreign relations inthis university’s legal and social sciences faculty in Toledo.He is specialized in environmental economics, innovationeconomics,and energy economics,having been published onmore than 70 occasions in first-class international journals.Professor del Río has been participating in joint Europeanresearch initiatives for more than 15 years.CEO of Impetu Solutions, Prof. Könnölä is a well-regardedand renowned consultant specialized in strategic ma-nagement of innovation and sustainability. He has heldseveral research and policy advisory positions at the Ins-titute for Prospective Technological Studies at the Euro-pean Commission’s Joint Research Center, VTT TechnicalResearch Center of Finland, Helsinki University of Techno-logy, IE Business School, and Gaia Group Ltd. He is also anassociate professor of industrial and technology policy atICAI,PontificiaComillasUniversity.ProfessorKönnöläholdsaDoctorofScienceandLicentiateofScienceinTechnologyfrom Helsinki’s University of Technology (Aalto Universitysince 2010),as well as a Master’s degree in EnvironmentalEconomics, from Helsinki University. All of this has madehim an expert in technology forecasting and strategy, in-novationmanagement andpolicy,emerging technologies,manufacturing and industrial policy, environmental andenergy management and policy and decision-making su-pport systems. He is a frequent speaker at internationalconferences and symposiums and contributor to severalscientific publishers.CONSUMER GOODS & RETAIL 7Pablo del Río GonzálezAssociate fellow at IE Foundationand tenured scientist at CSIC).Totti KönnöläCEO of Impetu Solutions and Associate Professorat IE Business School (Operations Management)
  8. 8. foundationRafael PuyolVice-presidentIE FoundationMargarita VelásquezGeneral DirectorIE FoundationAmong its primary activities,IE Foundation supports the research and the knowledge sharing endeavors of IE BusinessSchool’s professors. Through its initiatives IE Foundation contributes to the positioning of IE Bvusiness School asa center of excellence for innovation, and for the creation of knowledge targeted at its productive environment.The IE Foundation aims to create strong ties and alliances with prestigious,public and private,institutions,particularlythose in the business domain that can help propel our researchers’ initiatives. As an institution that pursuesexcellence,research activities are driven by academic rigor and the utilitarian nature seeking to create knowledge.We aim to push innovation and competitiveness to provide answers to the challenges and needs of society.This publication is part of the IE Foundation’s collection on Consumer Goods and Retail,developed in collaborationwith Ernst & Young.We would like to extend our gratitude to them for their commitment and their vast experienceon this matter.The collection has been designed with the purpose of analyzing the key aspects of the industry through a practice-driven, up to date perspective on key aspects of the industry such as Sustainability, Information Security, Pricing,and Profit Protection. We are in the midst of a major change in the retail industry. The challenge many Spanishorganizations face,is being at the forefront of such change and benchmarking best practices in the global market.The IE Foundation looks forward to helping organizations in this process.We hope that this publication will be of interest to you, and we appreciate your support.IEFOUNDATIONADVANCEDSERIESONPROBLEM-DRIVENRESEARCHSUSTAINABILITYadvanced series
  9. 9. José Luis Ruíz ExpósitoPartner and Head of ConsumerGoods & RetailManuel FernándezBusiness Development Director,Consumer Goods & RetailConsumer Products and Retail companies are developing their business in a much morecomplex and volatile environment than they have in the past. In this environment,companies’ actions focus on transforming their business processes and protecting theiroperational margins.In its commitment to innovation and value creation,Ernst & Young has propelled researchprojects on the issues that will help companies deal with today’s industry challenges.Our research takes into account different actions regarding price dynamics from a branddifferentiation perspective.Secondly,we take on the negative economic effect of shrinkagewith an analytical approach,to identify its root causes and suggest corrective actions for itsmitigation (profit protection).We also seek ways to preserve the information security of anindustry that operates,with an increasing frequency,in mobile scenarios and technologies.Finally, we propose the adoption of a business commitment perspective, betting onsustainable initiatives from retailers that take into account manufacturers and consumers.These four areas are experiencing a large change in process. Ernst & Young and the IEFoundation are approaching these challenges from an innovative perspective with theintention of putting them into practice and creating value for the business environment.CONSUMER GOODS & RETAIL 9
  10. 10. Executive summaryIEFOUNDATIONADVANCEDSERIESONPROBLEM-DRIVENRESEARCHSUSTAINABILITYadvanced seriesTHE RETAIL SECTOR:THE DRIVING FORCE BEHIND THESHIFT TOWARDS SUSTAINABLE PRODUCTION ANDCONSUMPTIONDesign and manufacturing phaseChallenges and opportunitiesBurgeoning information demands by regulators, consumers, and investorsabout retailers’ products and how they are made means that product designwill increasingly factor in multiple environmental considerations as well astraditional utility, performance, and price-driven attributes.Relations between retailers and suppliers that are based on trust and a jointsustainability effort are paving the way for more open and unguarded exchangeof information between the two parties, as well as with governments, non-profit entities, and academic institutions.Transparency levels in consumer product supply chains are set to continue toincrease swiftly, injecting visibility into the working conditions, human rights,and environmental ramifications of product manufacture and distribution.What others are doing and what your company can doWhile numerous retailers use banned substance lists, some have gone furtherby engaging themselves in detailed analysis of the life cycles of their productsand services and collaborating closely with all stakeholders to boost supplychain transparency and shrink their overall environmental footprints.Packaging phaseChallenges and opportunitiesPared-back packaging can translate into significantcost savings and a better environmental record byusing fewer materials and streamlining logistics andtransportation operations.Beyond reducing private label product packagingand the amount of packaging used in retailestablishments, the real challenge lies withengaging other players in the value chain, mostimportantly suppliers and consumers.What others are doing and what yourcompany can doIt is by no means uncommon for retailers to actdirectly to reduce their own products’ packaging,redesigning containers, how products fit and stacktogether and how the waste is compacted orconcentrated. It is more complex, albeit possible,to lighten up this end of the supply chain whenit comes to third-party products and/or whenproducers and consumers need to be involved indesigning more efficient packaging solutions.
  11. 11. CONSUMER GOODS & RETAIL 11This report pivots around the thesis that the retail sectorcan use its strategic positioning to have a real and effectiveinfluence on suppliers and consumers,making all phases of theproduct value chain – design and manufacturing, packaging,transportation, and consumption – more sustainable. Thecloser the value chain gets to a closed-cycle, in which wasteis transformed into inputs for new products, the moresustainable it will become. The purpose of this study is alsoto provide a snapshot of the diverse nature of unfoldingsector practices, showcasing various retailers’ unique waysof proactively tackling the issue at each stage of the process.While these efforts do not always produce meaningful returnsin the short turn, by championing improvements in theirenvironment these retailers will unquestionably create valueand buy business sustainability medium and longer term,while setting themselves apart from their competitors andpositioning themselves to better handle the growing clamorfrom regulators,consumers,and investors for more informationand stronger environmental pledges.Transportation phaseChallenges and opportunitiesOne of the greatest obstacles to maximizingtransportation efficiency is the lack of commerciallyavailable, low carbon technology. However, natural gasand electric-powered trucks are already becoming popularand will become even more so as their prices fall.In the long term, achieving carbon neutral shipping willlikely be the goal of many retailers. Just as the automobileindustry is catering to the demand for more fuel-efficientvehicles, the trucking industry will continue to do thesame. By embracing smarter transportation, retailers canboth reduce unnecessary costs and shrink their carbonfootprint.What others are doing and what your company can doRetailers can help expand the availability of thesetechnologies by pilot testing low carbon transportationmethods and expanding their pilots whenever financiallyfeasible. In the meantime, however, retailers can optimizeshipping by using efficient packing and distribution processesand currently available transportation technologies. Manyretailers have already incorporated these approaches intotheir operations, which are rapidly becoming business asusual.Consumption phaseChallenges and opportunitiesConsumer bias towards more environmentally-friendly productssuggests that manufacturers and retailers that manage to adapt toemerging environmental challenges have much to gain. By stressingthe environmentally-friendly attributes of their products, retailers cangain a competitive edge, particularly if they manage to translate theseattributes into cost savings for the end consumer.And by stressing the cost savings accruing to consumers throughoutproduct life cycles, retailers stand to overcome the barrier implied by thehigher price of these products, ultimately benefitting their profitability.Designing more environmentally-friendly products may require supplierengagement.Retailers can also influence how their products are disposed of afterconsumption or at the end of their useful lives.What others are doing and what your company can doRetailers can shape consumer choice, nudging buyers towards moresustainable products directly, by modifying the products they sell andhow they promote them, or indirectly, by providing information orfinancial incentives.Consumer information can also be used to reduce the environmentalramifications of everyday product-use as product use tends to be oneof the phases with greater environmental consequences. Encouragingthe reutilization of containers can result in significant cost savings forretailers in respect of products for which waste is mainly packaging-derived.
  12. 12. IEFOUNDATIONADVANCEDSERIESONPROBLEM-DRIVENRESEARCHSUSTAINABILITYadvanced series1.Working betweensuppliers andconsumersIntroductionEnvironmental protection requires reducing the environmentalconsequencesofproductionandconsumptionthroughout apro-duct or service’s entire life cycle,from selection of raw materialsto its end-of-life disposal or reutilization,having been packaged,transported, used and consumed in the meantime. In fact, pro-ducts in the wide sense (tangible products, services, and packa-ging)accountforoverhalfofhouseholds’environmentalimpacts1.It isthereforevitaltorefocusproductionandconsumptionactivi-ties on more environmentally-friendly products.The retail sectorcan play a leading role to this end.As expounded throughout this report, the retail sector can beviewed as a‘hinge’sector,pivotal in reducing the environmentalimpacts of the production and consumption processes preciselybecause of its positioning at the intersecting point of theseprocesses(Chart 1).Thesectoristhereforestrategicallypositionedto influence suppliers (upstream) and consumers (downstream)throughout the product value chain.Moreover,as is well known,thesectorcanhaveasignificantenvironmentalimpactasaresultof its own warehouse operations and logistics (transportation)activities.The variety of direct environmental impacts (deriving fromeveryday operations) and indirect impacts (deriving from theproduction and consumption processes triggered, respectively,by their suppliers and consumers) suggests that the range ofmeasures available for reducing their overall environmentalimpact is theoretically broad. That being said, the fundamentalrole of the retail sector should, without a doubt, be to influenceother stakeholders (suppliers and consumers) rather than beinglimitedtoreducingthedirectenvironmentalimpactsoftheirstoreoperations.This is a considerable challenge for the sector to theextent thatitimpliespursuinginitiativesthatmayunderminethedelivery of profit targets in the short term; however, this reportshowcases several examples of how a proactive environmentalapproach also guarantees value creation and sustainableprofitabilityforretailersbyenablingthemtoset themselvesapartfrom theircompetitorsandposition themselves tobetterhandlethegrowingclamorfromregulators,consumers,andinvestorsformore information and stronger environmental pledges.
  13. 13. CONSUMER GOODS & RETAIL 13RetailProductionConsumptionFigure 1:the retail sector:the drivingforce behind the shift in production andconsumptionAs highlighted by the case studies analyzed in this report,although the sector’s ability to influence these other playersis undeniable, the strategies pursued need to factor incertain considerations. And although companies in generaland retailers in particular are increasingly committed tothe environment, there is significant disparity in how thesebusinesses are adopting sustainable practices and products.The purpose of this report is also to provide a snapshot ofthis diversity, showcasing various retailers’ unique ways ofproactively tackling the issue throughout every phase of theproduct-service value chain.The closer the value chain gets toa closed-cycle, in which waste is transformed into inputs fornew products, the more sustainable it will become (Chart 2).Figure 2:retail sector channels of influence over sustainability inthe product-service value chainInfluencing consumer choiceInformation to fostersustainable useMinimization of waste,reutilization and recyclingLists of banned substancesLife cycle and carbonfootprint analysisSupply chain transparencyRoute optimizationEfficient transportationAlternative fuelsInvolvement of producersand consumersReduction of packaging atretail establishmentsReduction of packagingfor transportationPACKAGINGDESIGN ANDMANUFACTURINGCONSUMPTIONTRANSPORTATION
  14. 14. Design is probably the phase that most significantly shapes a product’s environmentalimpact throughout its entire life cycle.While the actions taken by retailers to purchaseenvironmentally-friendly products and services for their own use2can reduce theircarbon footprints,the sector’s contribution can be considerably amplified if it alsochooses to try to reduce the environmental impact of the products stocked ontheirshelves.Morespecifically,retailerscanincludeenvironmentalcriteriawhenselecting which products to sell to their customers among those offered bythe various brand suppliers (choice-editing), even though their ability toinfluencehow theseproductsaredesignedmaybeslimcompared to theirinfluenceoverprivatelabelproduct design.Against thisbackdrop,severalretailers are introducing sustainability criteria toprivate label product design, in response forcustomer demands for attributes suchas organic or sustainable sources,high recycling content or energyefficiency. These initiatives havetended to focus on the eco-design of private label packagingand containers (Section 3)whereas examples of actiontaken to foster the eco-design ofthe products themselves are farfewer.DesigmanufaSupply chaintransparencyIEFOUNDATIONADVANCEDSERIESONPROBLEM-DRIVENRESEARCHSUSTAINABILITYadvanced series2. Design andmanufacturingA variety of guidelines specifically tackle the environmentalaspects of product design. The ISO 14006:2011 standard,for example, provides guidelines to assist organizations inestablishing,documenting,implementing,maintaining andcontinually improving their management of eco-design aspart of an environmental management system (EMS)3.Regulation
  15. 15. Beyond private label products and their packaging, the real challenge facing retailerslies with their ability to have an impact upstream, to the point of influencing producersat the earliest stages of product design. However, the lengthening, complexity andglobalization of today’s supplier chains is making it increasingly harder to trace andcontrol the environmental commitments of all of participants. Nevertheless, as isshown later on in this report, we can find examples of retailers that are fosteringgreater transparency and responsibility on the part of their suppliers.To this endthey are developing technology, processes and systems designed to promotecontinual supply chain improvement and innovation, particularly in relation toproduct design and manufacturing.While numerous retailers use banned substance lists(‘black lists’),some have gone further by engagingthemselves in detailed analysis of the life cyclesof their products and services and collaboratingclosely with all stakeholders to boost supplychain transparency and shrink their overallenvironmental footprints (Chart 3).gn andacturingLists ofbannedsubstancesLife cycle and carbonfootprint analysisCONSUMER GOODS & RETAIL 15Meanwhile, in 2005 the European Commission establishedthe European Platform on Life Cycle Assessment (LCA)4topromote LCA data consistency,quality control and availability;in 2010,it officially launched the International Reference LifeCycle Data System (ILCD), which, among other documents,includes a handbook with life cycle assessment methodologyrecommendations.The importance of life cycle thinking andthe corresponding analysis has since been further boosted bythe Action Plan for Sustainable Consumption and Production(SCP)5. In addition, the reference guide for life cycle analysishas been homogenized under the ISO 14040 standard series.CHART 3: RETAIL SECTOR CHANNELS OF INFLUENCEOVER THE DESIGN AND MANUFACTURING PHASE
  16. 16. Lists of banned substan-ces ensure that no hazardo-us chemical components are usedin the production of goods6. Retailers can alsomake use of what are known as ‘black lists’ toban the use of certain substances in their products(e.g.,hazardous chemicals).Several retailers (C&A,H&M, IKEA, Kesko, METRO and Tesco) implementwhat could be called selective eco-design, whe-re, for example, certain hazardous chemicals areblack-listed and cannot be included in products’components (Case Study 1).To cite a few examplesof this‘choice-editing’:Mercadona has banned theuse of PVC in containers and packaging;Kesko hasstopped selling bluefin tuna (an endangered spe-cies); Carrefour has reduced the sales of bluefintuna in its French stores, and has completely sto-pped it in its Italian and Spanish stores; Carrefourhas also stopped sales of non-certified tropicalwood and since 1996, all retailer and own-brandproducts are labeled as not containing GMOs.BannedsubstancesIEFOUNDATIONADVANCEDSERIESONPROBLEM-DRIVENRESEARCHSUSTAINABILITYadvanced series2.1
  17. 17. Case study 1. H&M’s ‘black list’The initiativeH&M ensures that its substance restrictions are understood and applied throughout its supply chain. H&Mhas established a list of more than 250 chemicals which its suppliers are forbidden to use, applying the moststringent criteria in force in any of its operating markets to all of the countries where its sells its clothing.Theretailer has also banned voluntarily certain chemical substances that are not banned by law (e.g.triclosan,PVC,Kat ionicsurfactants, while phthalates are not only prohibited for children but also for adults).BenefitsH&M published its first Chemical Restriction list in 1995. Since then, the company has achieved several miles-tones (such as the phasing out of PVC from all its products in 2002 and the banning of the use of Nonylphenolethoxylates in 2009),positioning the company as the pioneering apparel retailer in this field.H&M’s know-howand position in this area have ensured its regular presence at the main regulatory and business forums,givingit a say in how business practices unfold in the future (for example, it has been collaborating with the UN onthe development of a global practice for spreading information on chemicals in products since 2008 and,since2010,it has been participating in the Sustainable Apparel Coalition with the goal of developing a universal indexto measure the environmental and social performance of apparel products).Source: H&M’s website: http://about.hm.com/content/hm/AboutSection/sv/About/Sustainability/Commitments/Use-Resources-Responsibly/Chemicals/Zero-Discharge.htmlBackgroundH&M has been working to reduce the use and impact of hazardous chemicals using an approach based on thePrecautionary Principle since 1995.CONSUMER GOODS & RETAIL 17
  18. 18. IEFOUNDATIONADVANCEDSERIESONPROBLEM-DRIVENRESEARCHSUSTAINABILITYadvanced seriesUnquestionably, the life cycle analysis(LCA) concept transcends the scope ofthis section as it can be viewed as a toolthat transects every phase of the value chain.However, it is addressed in this section basedon the understanding that its overriding utility isto gather information for the continual improvement andre-design of products and services.LCA enables assessment of a product’s environmental impacts fromits design to use and disposal and identification of the key aspectsor‘hot spots’that imply the greatest scope for improvement. Someretailers are looking beyond specific product lines, integratingsustainability into all areas of their business activities. IKEA, forexample, has launched an environmental design initiative knownas the ‘e-wheel’ in order to understand and monitor the impact ofits products throughout their entire life cycles (Case Study 2). Somesupermarkets such as Carrefour use LCA results to identify ‘hotspots’ for a given product category and integrate environmentalconsiderations into product specifications.The eco-design of products such as textiles or wooden furnitureis slightly different from the eco-design of other products. Theirworldwide presence facilitates the transfer of knowledge fromone country to another or the organization of schemes, decreasinginvestment costs for the retail chains committing to participate.Even if these retailers have to deal with complex international supplychains, a systematic product eco-design policy is less difficult toimplement because of the reduced number of materials involved(textiles,wood) and the fact that product functionality is less diversethan for generalist retailers.Life cycle andcarbon footprintanalysis2.2
  19. 19. EKTORPCONSUMER GOODS & RETAIL 19BackgroundRetailer product designers, developers and technicians face the challenge of factoring in the product’s environmentalimpacts throughout its life cycle as well as safety and quality considerations.IKEA has developed tools for systematicallyincorporating these criteria into its new product design and development processes.BenefitsThe e-wheel and the eight rules give IKEA’s design anddevelopment team a useful guide for creating moreenvironmentally-friendlyproducts,suchas theEKTORPsofa which customers can now assemble at home.Theself-assembly option allows IKEA cut merchandisehandling time by 50%, emit 4,700 fewer tonnes ofgreenhouse gases,reduce required warehousing spaceby 370,000m2 and store display/storage space by half,while saving €8,300,000 a year in road transportationby needing 6,866 fewer trucks.Rule 1: Establishment of objectives and compliance with sustainabilityrequirements.Identification of sustainability objectives from the outset.Rule 2: Creation of more from less. Achievement of the same utility,quality and design using fewer raw materials.Rule 3: Use of environmentally-friendly materials. Use of renewable orrecyclable materials whenever possible.Rule 4: Optimization of efficient production. Contribution to supplychain sustainability.Rule 5: Smart packaging. Designer products can be packaged and dis-tributed efficiently.Rule 6: Creation of products with a long useful life. Helping customersto use products for longer without renouncing quality.Rule 7: Products that enable smart use. Helping customers to reducetheir energy and water usage and their waste generation.Rule 8: Design for recycling. Design products that facilitate customerrecycling.The initiativesIKEA uses the ‘e-wheel’ method to learnabout and assess the environmentalimpact of its products. This methodanalyzes various points of control: rawmaterials,manufacturing,product use andend of life. The company has specified theimplications of the e-wheel for its designersby articulating eight rules to be followedwhen designing new products or updatingexisting products:Case 2. LCA in product design at IKEA
  20. 20. Carbon footprint analysis can be viewed as an extension of the above approach,albeit focused specifically on greenhousegas (GHG) emissions.The use of fossil fuels in business operations and the rest of the value chain gives rise to emissions.The ability to quantify and reduce these emissions can lead to numerous benefits. Determining the carbon footprintof its supply chain is one of the more effective steps a retailer can take in developing its environmental sustainabilitystrategy. However, this is a complex process requiring an abundance of information and significant cross-departmentaland supplier/partner communication and coordination skills.The effort is usually profitable for all parties as it tends tohighlight numerous opportunities for making operations more efficient (Case Study 3).IEFOUNDATIONADVANCEDSERIESONPROBLEM-DRIVENRESEARCHSUSTAINABILITYadvanced series
  21. 21. Case Study 3Walmart’s strategy for reducing supply chain GHG emissionsBackgroundWalmart estimates that over 90% of its GHG emissions are ge-nerated indirectly,with the remainder attributable directly to itsown operations.The retailer is helping its suppliers reduce theirenergy use,costs and emissions through a partnership with theEnvironmental Defense Fund (EDF), ClearCarbon, the CarbonDisclosure Project and the Applied Sustainability Center (ASC)at the University of Arkansas.Source:- -“http://www.rila.org/sustainability/sustreport/sustainability-report-landing-page/”http://www.rila.org/sustainability/sustreport/sustainability-report-landing-page/pages/default.aspx-http://www.greenbiz.œm/biog/20u/06/06/how-walmart-using-its-sustainability-metrics-drive-productivity?utm_source=E-News+from+GreenBiz&utm_campaign=6d6a67bdb8-GreenBuzz-2012-06-07&utm_medium=email-“http://coepoeatp.walmaet.com/global-epsponsibility/pnvieonmpnt-sustainability/”http://corporate.walmart.com/global-responsibility/environment-sustainability/ global-responsibility-report-http://HYPERLINK “http://www.en”www.environmentalleader.com/2010/02/26/walmart-pledges-to-cut-supply- chain-emissions-20m-metric-tons-by-2015/-“http://www.pCfoeg/npws/walmaet-announcps-goal-pliminatp-20-million-mpteic-”http://www.edf.org/news/walmart-announces-goal-eliminate-20-million-metric-tons-greenhouse-gas-emissions-global-supply-The initiativeWalmart’s Supplier Energy Efficiency Project (SEEP) is aimed ateliminating emissions from the company’s supply chain,wherethe retailer oversees energy audits and retrofits at its suppliers’factories.Walmart’s program to reduce GHGs has three main compo-nents. Firstly, it has reviewed its main product categories byvolume with a view to identifying the areas of its global supplychain that have the greatest opportunity for reductions,pavingthe way for more efficient resource usage, coupled with thehighest possible impact.The actionable sustainability systemsdesigned can be transferred to different kinds of suppliers indifferent countries. Secondly,Walmart is looking for innovativeapproaches in other organizations,such as NGOs and consultan-cies.The sustainability network built byWalmart has brought itleadership,expert know-how and other resources that it wouldnot have been able to tap on its own. Lastly, and in parallel, thecompany is educating its procurement officers on its emission-cutting targets and strategies,so that they can,in turn,educatetheir suppliers.BenefitsIn February 2010,Walmart announced its goal of eliminating20 million metric tonnes of GHG emissions from its globalsupply chain by 2015.This target was the result of a joint re-search project with NGOs.The commitment was set at 150%of the company’s estimated global carbon footprint growthover the next five years,the ultimate target being to engageits suppliers and customers in a constructive dialogue aboutsustainability.Under the program,Walmart’s suppliers havereduced GHG emissions by 3,300 metric tonnes and saved$200,000 in energy costs.CONSUMER GOODS & RETAIL 21
  22. 22. IEFOUNDATIONADVANCEDSERIESONPROBLEM-DRIVENRESEARCHSUSTAINABILITYadvanced seriesThe new relation-ship being forgedbetween the re-tailer and its su-ppliers is marked byhigher levels of colla-boration and engagementin terms of supplier practices,including eco-efficiency and working conditions designedto foster ongoing improvement and risk mitigation forboth parties.Together, these stakeholders are evaluating,reporting on, verifying and tackling the social and envi-ronmental impacts of their supply chains.By way of exam-ple, Walmart’s Supplier Energy Efficiency Program (SEEP)encompasses energy audits and financing for suppliersinvesting to upgrade their facilities.Reporting on the impacts, objectives, and progress madein this field should be placed at the heart of any retailer’ssustainability strategy. Such a reporting effort informsstakeholders about retailers’ sustainability drives andallows public scrutiny. Metric-based public targets shedlight on long-term targets,demonstrating to stakeholdersthat acrediblecommitment hasbeenmade tosupplychainsustainability.Because supply chain action involves numerous partiesand various levels of control, collaboration is vital.Best Buy, Gap Inc., JC Penney, Safeway, Target, REI, VFCorporation, Walmart and many others have concludedthat participation in collaborative taskforces is essentialto developing comprehensive and consistent industryand product standards. These taskforces bring togethercompanies, governments, non-profit organizations andacademic institutions for the purpose of exchangingsupply chain sustainability know-how and resources7.In order to improve the quality and transparency of theinformation compiled, some companies have turned toaudit and certification firms that verify the data gathered(Case Study 4).Supply chaintransparency2.3
  23. 23. CONSUMER GOODS & RETAIL 23BackgroundOver the past two decades illycaffè has per-fected a system of direct relationships with itssuppliers,based on three main pillars:selectingthe best growers in coffee-producing countries;transferring to these growers, through thecompany’s Università del Caffè and the dailyfield work of specialized agronomists, com-prehensive knowledge to produce coffeemeeting illy’s high quality standards;and purchasing the best productiondirectly from growers,paying thema premium over the going marketprice to reward quality achieved,and incentivize ongoing impro-vement.The initiativesDNV, an international product andprocess certification company, in partmodeled its new certification standardon the illycaffè supply chain model. Thestandard developed by DNV is innovative be-cause it marks the passage from the certifica-tion of an organization’s supply chain to thecertification of an organization’s ability to crea-te value that benefits everyone involved. Theillycaffè model is innovative in assigning criticalroles to quality and value creation.During the year that the certification processlasted for illycaffè, DNV performed its auditsand the company made efforts to perfect itsinternal processes in order to meet the requi-sites. All of illycaffè’s functions were involved,from the board of directors to management andoperational personnel.Case Study 4.Illycaffè:development of acarbon footprintanalysis frameworkunder the umbrellaof its ResponsibleSupply ChainProcess initiativeBenefitsIn March 2011 illycaffè became the world’s first companyto receive a Det NorskeVeritas (DNV) Responsible SupplyChain Process certification, attesting to the company’slong-running sustainable approach to production and itsrelations with stakeholders throughout the productionchain,particularly with green coffee suppliers.The DNVResponsible Supply Chain Process standard is designedfor application to any kind of supply of raw materials.Source: Press release, March 2011.
  24. 24. IEFOUNDATIONADVANCEDSERIESONPROBLEM-DRIVENRESEARCHSUSTAINABILITYadvanced seriesPackaging is a crucial part of the product supply chainin logistics and sales terms but also in environmentalterms. Environmentally unfriendly packaging increasestransportation intensity,floor space usage (warehousing)and end waste per unit of value. At the same time,packaging is by its very nature the most visible aspectof a product: its environmental impacts are readilyunderstood by consumers,the media and environmentalactivists, which is why packaging is often the focus ofthese groups’ demands for greater sustainability. Asa result, packaging and its management present awonderful opportunity for adding environmental (andeconomic) value to a given product.The environmental impact of packaging wasteis particularly important to consumers. A 2009Eurobarometer survey showed that 30% of EU citizensconsider that minimizing waste and recycling wouldbe actions having the greatest impact on solvingenvironmental problems. Indeed, 3% of all wastegenerated in the EU in 2008 was packaging waste,generated by companies and consumers8.Optimization efforts at this point of the supply chainrequire assessment of existing packaging processesand designs, analysis of alternatives and introductionof the optimal solutions. Once again, this processcrucially requires the retailer to involve its producersand consumers9 in designing more efficient packagingsolutions. In parallel, retailers can take direct action,without having to extensively involve producers andconsumers,to reduce store packaging.A third alternative,dealt with in Section 4,relates to reducing transportationpackaging (Chart 4).3. PackagingIn the European Union, all packaging must meet theEssential Requirements stipulated in Annex II of EuropeanDirective 94/62/CE on packaging and packaging waste(the PPWD)10, as amended subsequently by Directives2004/12/EC, 2005/20/EC and Regulation No 219/2009and transposed into Spanish law by Law 11/1997 of April24,1997,on packaging and packaging waste,and enactingRoyal Decree 782/1998. The requirements laid downRegulation
  25. 25. CONSUMER GOODS & RETAIL 25in Directive 94/62/EC specify that packaging weight andvolumes are to be limited to the strict minimum required toensure the necessary level of safety,hygiene,and acceptancefor the packed product and for the consumer.This legislationfurther stipulates the minimization of noxious and otherhazardous substances and materials as constituents of thepackaging material or any of its components. Moreover,packaging must be designed,produced,and commercializedin such a way as to permit its reuse or recovery, includingrecycling.Companies are responsible for demonstrating thattheir product packaging complies with these requirements,to which end they may use the standards published by theEuropean Committee for Standardization in 2005 (CENStandards for Packaging and Environment11) or equivalentnational standards12.Chart 4:Retail sector channels ofinfluence over packagingPackagingReduction ofpackaging at retailestablishments sReduction ofpackaging fortransportationInvolvement ofproducers andconsumers
  26. 26. IEFOUNDATIONADVANCEDSERIESONPROBLEM-DRIVENRESEARCHSUSTAINABILITYadvanced seriesInvolvement ofproducers andconsumers3.1
  27. 27. CONSUMER GOODS & RETAIL 27Generally speaking, a certain level ofcollaboration among all the parties involvedis essential to achieving more efficientpackaging. Against this backdrop, thereare multiple voluntary initiatives aimedat channeling retailer-supplier-consumercollaboration,such as the Global Protocol onPackaging Sustainability13, the SustainablePackaging Coalition14, the Global PackagingProject15and the European Organization forPackaging and the Environment16.Producers also have a direct economicincentive to reduce packaging as lesspackaging means lower costs, mainly viasavings in materials and transportationcosts. However, although reduced volumesare a prerequisite for minimizing theenvironmental impact of packaging, it isimportant to remember that excessivepackaging elimination can lead toproduct spoiling or even loss, with adverseenvironmental consequences that may evenwipe out the desired gains. It is thereforenecessary to strike an optimal balance inenvironmental terms when reducing theamount of materials used for packagingpurposes17. Some retailers, such as Kesko,have developed guidelines for their suppliersfor eco-designing products in order tominimize the environmental impacts of theirpackaging.At the consumer end of the spectrum,environmental protection arguments canprove effective but should be accompaniedby adequate information. There arecases, however, that show that economicarguments can also be powerful in thisrespect. Puma, for example, has replacedits shoe boxes with bags that can be reusedby consumers, providing shoppers with atangible saving. Consumers therefore needto be engaged and educated to (i) play aleading role by choosing products with lesspackaging, to the extent possible; (ii) usepackaging appropriately; and (iii) to helpgather up used packaging for subsequentrecycling18.
  28. 28. IEFOUNDATIONADVANCEDSERIESONPROBLEM-DRIVENRESEARCHSUSTAINABILITYadvanced seriesCase Study 5.EROSKI: applicationof the EE7+end-to-endpackagingeco-designmethodologyIn parallel,retailers can take action,withouthaving to extensively involve producersand consumers, to directly reduce theenvironmental footprint of its ownpackaging by paring back store packaging.Indeed, significant opportunities exist inthe development of more efficient whitelabel packaging particularly in relation tofresh products, for instance by reducingthe weight of containers, by optimizingpackaging dimensions relative to netproduct weight and by choosing recyclablematerials (Case Study 5).3.2 Reduction ofpackaging at retailestablishments
  29. 29. CONSUMER GOODS & RETAIL 29BackgroundThe food industry operates in a highly competitive and increasingly global market and is being forced to seek new ways toreduce production costs while defending profit margins.At the same time,sustainability awareness and demands on the partof consumers, industry, and society in general are growing.Sources: HYPERLINK “http://www.eroski.es/es/conoce-eroski/memoria-eroski-2010/implicados-con-nuestro-entorno/veteranos-en-responsabilidad-social-corporativa/”http://www.eroski.es/es/conoce-eroski/memoria-eroski-2010/implicados-con-nuestro-entorno/veteranos-en-responsabilidad-social-corporativa/European Commission Retail Forum_packaging_issue_paper_p10http://www.eroski.es/es/conoce-eroski/sala-prensa/notas-de-prensa/eroski-reduce-el-impacto-ambiental-de-envases-y-embalajes-con-apoyo-de-una-aplicacion-informatica-MemoriaEROSKI 2011BenefitsEroski reduced carbon dioxide equivalent emissions by 950 tonnes andachieved significant cost savings by using fewer raw materials.Some examples:- EROSKI basic ground and decaf coffee:the box displaying this productwas modified; by going from a double piece of cardboard to a singlepiece, the retailer achieved savings of 35% in terms of raw materialsand of 290 grams of carbon dioxide equivalent per unit sold.- EROSKI puff pastry: the solid bleached board case was replaced bya flow pack wrapper, resulting in 56 fewer grams of carbon dioxideequivalent per unit.- EROSKI disposable gloves:the cardboard box was replaced by a plasticpackage, reducing the amount of raw material used by 87%, therebysaving 41.7 grams of carbon dioxide per unit.- EROSKI cleaning products: the original raw material was replaced bysustainable plastic,reducing its environmental impact - by 37.2 gramsof carbon dioxide equivalent per unit -,as a result of the lower weightof the new packaging as well as the more energy-efficient processingof the new plastic.- EROSKI home-style tomato sauce:the amount of glass used in the jarwas reduced,saving 35.8 grams of carbon dioxide equivalent per unit.The initiativeThe project for the enhanced design andcontrol of private label product packaging wasdesigned to tackle the dual challenge of reducingproduction costs while mitigating environmentalconsequencesbyreducingtheweightofpackaging,eliminating raw materials and replacing certainmaterialswithothers.To thisendEroskidevelopeda tailored software application, in cooperationwith AZTI - Tecnalia Technological Centre,to compare the effect of differentpackaging formats in terms of costs(materials, productive processes,transportation,end management)and overall environmental impactthroughout the entire productlife cycle, ultimately generatingsolutions. Eroski analyzed theenvironmental impact of thepackaging and containers foralmost 100 white label SKUs.
  30. 30. IEFOUNDATIONADVANCEDSERIESONPROBLEM-DRIVENRESEARCHSUSTAINABILITYadvanced seriesDealt with again in Section 4, smart packing methods improve transportationefficiency by maximizing product loads per dispatch. Certain retailers appearparticularlykeentostreamlinepackagingvolumes,astheresultingreductionin weight and dimensions often pays off in terms of material savings andlogistics efficiency. For example, REI redesigned its bike boxes, therebyreducing packaging by 68% and increasing the number of bikes perload by 10%.Safeway also re-evaluated their packing methods to havemore products per pallet and pallets per truck,reducing its 2010 carbonemissions by 9,667 tonnes.IKEA’s championing of its now well-knownflat packaging and other practical packaging solutions, such ideas tomake its products more stackable or making the packaging part of theproduct itself,are enabling the retailer to reduce the amount of space neededto ship its merchandise; this is translating into lower vehicle requirements andGHG emissions, and saving the company money (Case Study 6).Case Study 6.Packaging the leverfor reducing thegroup’s environmentalfootprint.BackgroundIn 2011,665 million customers from 26 countries passed through IKEA’s 287 stores,stocked with a portfolioof 9,500 household products made by 1,026 suppliers in 53 countries.IKEA is trying to cut its transportation-driven carbon emissions by 20% by 2016.Product design for flat packing is viewed as a powerful lever forreducing material quantities, transportation-related emissions and waste.Reduction ofpackaging fortransportation3.3
  31. 31. Benefits- IKEA’s EKTORP sofa is one of its best-selling but also oneof its most voluminous products. The retailer’s productengineers have managed to develop smart packing criteriadespite the sofa’s rounded arm rests. Today, this sofa isa flat-packed product that is self-assembled at home,requiring half the amount of space it used to need. Thebenefits of this initiative are outlined in Case Study 2.Thesavings have also been passed through to customer prices.- The KASSETT filing systems are now flat-packed. Thismeans that five times as many KASSETT products now fiton a pallet as did before. Transportation GHG emissionshave thereby been slashed by 75%.- By simply changing how its POEM cutlery is packaged,IKEAneeds 188kg less cardboard per year. Moreover, shopperscan see the product better which is why package damagehas fallen.- By changing how its KVARTAL curtain hanging systemsare packaged, IKEA has saved 2,279kg of cardboard peryear, boosting the number of units that fit on each palletto 7,840.- An IKEA employee discovered that ALÄNG lamp packagingcould be reduced by 30% by placing the various partsdifferently. The employee made the suggestion to IKEA’spackaging experts who in turn told the suppliers. Today24 ALÄNG lamps fit on each pallet (compared to 18previously).- In Switzerland IKEA co-workers bring old newspapers intothe stores so that shoppers can use them to wrap glassesand other fragile items instead of wrapping them in paper.Sources: IKEA Sustainability Report 2011. The IKEA Group approach to sustainability(2011). IKEA 2010 Sustainability Report for Spain and Portugal.CONSUMER GOODS & RETAIL 31The initiativesOrientating the entire IKEA value chain towards flat packingor stackable product solutions, to which end the peopleresponsible for product design and development have beenanointed to play a key role.Product Sustainability Scorecard:11 criteria that determine thesustainability profile of a product throughout its life cycle.IKEAaims to have 90% of its sales value come from products that areclassified as‘more sustainable’according its scorecard criteriaby 2015.At the start of 2011,200 design and range developmentco-workers received training on how to use the web-basedscorecard.As of 2011,products that account for 7% of IKEA salesvalue had been evaluated using these criteria and 2% had beenclassified as ‘more sustainable’. Regardless of the scorecardresult,IKEA first requires that a product is produced by suppliersthat meet the social and environmental requirements of itsIWAY supplier code of conduct.Cardboard pallets: designed to optimize loads, minimizeshipping requirements and reduce emissions. They arerecyclable and use very few raw materials. These innovativepallets fit better than wood pallets in modern trucks andcontainers.The recyclable cardboard pallets,which are just 5cmhigh, allow IKEA to fit more products per load. New furnitureitems are only added to the product portfolio if they can be flatpacked.For instance,IKEA using cardboard pallets till 2016 willtranslate into transportation savings of €16 million.Waste reduction via packaging volume and compositionanalysis. Processes for the conversion of waste into newresources (‘closing material loops’) with a focus on plasticpackaging materials. The targets for 2015: (i) zero waste tolandfill;and (ii) to enable and encourage all customers to reuseor recycle all IKEA products at end-of-life.Phasing out of expanded polystyrene (EPS) packaging. EPS iscommonly used as a shock absorber for fragile products. IKEAplans to phase its use out by 2015.EPS is oil-based and difficultto recycle in many markets.Instead IKEA will use fibrous shockabsorbers made from recycled paper and cardboard, folded ormolded to suit the product it surrounds (basically the samesolution commonly used for egg cartons).Product recovery: IKEA stores work consistently to repairgoods with damaged packaging‘as is’in their bargain corners.Having invested €800,000 in 10 stores in Spain,IKEA recoveredproducts with a sales value of €1.5 million.
  32. 32. IEFOUNDATIONADVANCEDSERIESONPROBLEM-DRIVENRESEARCHSUSTAINABILITYadvanced series4.TransportationBy reaching out to others and introducing operational improvements, retailersare making their fleets more efficient, thereby further reducing their carbonfootprints. In order to reduce their transport emissions, retailers are striving forefficiency in three ways (Chart 5):route optimization,technology innovation,andlow-carbon transportation methods.Chart 5: Retail sector channels of influence over transportationAlternativefuelsEfficienttransportationTraditionally retailers have approached this juncture of the supply chain as asource of cost-cutting opportunities; naturally, it is also an area for paring backenvironmental impacts. Distance, capacity, technology, and route optimizationcontribute simultaneously to financial benefits and the sector’s environmentalsustainability. This section focuses on the role of the retail sector in developingand/or encouraging solutions for the sustainable transportation of consumergoods.Routeoptimization
  33. 33. CONSUMER GOODS & RETAIL 33The mid-term review of the 2001White paper“Europeantransport policy in 2010: time to decide”19 stressesthe key role of freight transport logistics in ensuringsustainable and competitive mobility in Europe.In 2007the European Commission adopted an Action Plan thatrecommends a series of priority initiatives, such aselectronic information on freight, training and qualityindicators, simplification of processes, vehicle sizesand loading units, urban transport, and long-distancecorridors.Other standards have been passed with a view to makingdistribution processes more efficient, such as Directive92/106/EC on intermodal transportation, and Directive96/53/EC, which attempts to improve the efficientuse of available capacity and facilitate the use of theEuropean Modular System20.The Renewable Energy andFuel Quality Directives, officially adopted in 2009, marka milestone in the coherent promotion of fuels capableof reducing GHG emissions in the transport sector.Regulation
  34. 34. Route optimization involves assessing product transportationpatternsandcombiningrouteswherepossible.Byre-evaluatingits routes, optimizing truck load space and increasing fuelefficiency, CVS21eliminated 11,000 routes, saving 1.9 millionliters of fuel.Choosing the appropriate mode of transportationcan also significantly cut down on fuel consumption, costs,and carbon emissions. Air is the most expensive and carbon-intensive transportation method, followed by trucking,and then rail. However, other considerations like speed ofdelivery must also be taken in account when determining theappropriate method of transportation. Retailers are adoptingintermodal transport systems,i.e.,they are combining the useof road,rail,waterways,and air travel (Case Study 7).However,the full deployment of intermodal transport is being stymiedby a series of obstacles related to the lack of standardizationacross the various countries and operators.The so-called‘last-mile’continues to be the prerogative of roadtransport and, given its local dimension, transport operatorsneed to respect local legislation regulating access to cities.In Europe, urban traffic is responsible for around 40% ofGHG emissions and 70% of other noxious emissions fromroad transport22. This issue therefore constitutes an area ofparticular sensitivity for European legislators at all levels, sothat growing restrictions on freight transport in urban areascan be expected.Indeed,a recent European Commission study23reviews the various member states’practices and policies witha view to integrating and encouraging best practice in thisfield. The 2011 European Transport White Paper24establishesthe ambitious target of achieving “essentially CO2-free citylogistics in major urban centers by 2030” by promotinginitiatives such as: minimization of the number of deliveriesand distances; the use of low-emission urban trucks and vans;the use of intelligent transport systems; and the reduction ofnoise in freight transport in urban areas in order to facilitatenight shifts. The PIEK25project in the Netherlands is a goodexample of a best practice in the latter arena; this schemeallows deliveries at night time so long as peak noise limits arerespected.In practice,greater flexibility on delivery hours couldprove one of the more promising solutions to traffic congestionand operating efficiency in last-mile distribution.The other option is to focus on locally-sourced products. GHGemissons can be reduced by simply cutting the number of milestravelled.For example,Safeway26,which has begun stocking thefood produced by hundreds of local farmers all across the US onits supermarket shelves,views local sourcing as an opportunityfor reducing GHG emissions and supporting regional farminglivelihoods. Whole Foods Market provides small-scale low-interest loans to local food producers under its Local ProducerLoan Program. In exchange, the loan recipients undertaketo produce high-quality products that meet the company’sstringent sustainability standards.By means of this micro creditmodel, Whole Foods hopes to support local agriculture whilesupplying products with a lower environmental impact,thanksto the attendant reduction in transport needs.27Routeoptimization4.1IEFOUNDATIONADVANCEDSERIESONPROBLEM-DRIVENRESEARCHSUSTAINABILITYadvanced seriesSupplierwarehouse(Seville)ACOTRAL Train station TransportatRENF200,000tonnesand416trainjourneysperyear c c c
  35. 35. CONSUMER GOODS RETAIL 35BackgroundMercadona,Acotral,and Renfe-Freight have an agreement covering the transportation of non-fresh food and non-food goodsbetween Seville andTarragona/Valencia.Under the agreement,Renfe is responsible for delivering Mercadona’s goods on timeand carrier Acotral is responsible for logistics management and transport coordination.The agreement has given Mercadona’ssustainability strategy a boost. Acotral schedules the trucks to pick up the goods at either end at certain times, while Renfecommits to on-time deliveries.In this manner,Mercadona has engaged one of its logistics providers in improving its efficiencyand sustainability recordSolutionMercadona’s goods are transported by truck from suppliers in Seville to the train station where the trucks are unloaded and thetrain is loaded with the goods.Loading and unloading queues are common but Renfe gives priority to Mercadona’s operations.Once loaded, the train transports the goods to a train station in Tarragona/Valencia where the truck company (Acotral) picksup the goods once again and takes them to Mercadona’s distribution center.Renfe has developed a communications platform to track the goods transported in its trains and Mercadona has integratedRenfe’s system into its own communication system to ensure visibility through the entire supply chain.BenefitsTrain journeys take place twice a week, in two trains that Renfe has assigned exclusively to Mercadona. A total of 220,000tonnes of goods are transported per year. In this way, Mercadona manages to deliver its goods on time, at a lower cost andin a more sustainable manner.This solution has enabled Mercadona to eliminate 9,152 truck journeys and to reduce its GHGemissions by 12,000 tonnes.Source:The bestlog project (HYPERLINK“http://www.bestlog.org”www.bestlog.org) initiated by the European Commission. Project Secretariat: Berlin Institute of Technology.GUEROLA PÉREZ, Sonia: ITENE (acronym in Spanish for the Packaging,Transport, and Logistics Research Center).Case Study 7Mercadona: Renfe/Acotral intermodallogistics platform lDistributioncenter(Valencia)ACOTRALTrain stationtion viaFE 10,000 fewer truck journeys a yearc c c
  36. 36. IEFOUNDATIONADVANCEDSERIESONPROBLEM-DRIVENRESEARCHSUSTAINABILITYadvanced seriesCurrent practices aimed at reducing supplychain costs and ensuring availability at alltimes (i.e. low inventory, smaller and morefrequent deliveries, cross-docking, differentpallet heights) have an impact on truck fill,on the number of journeys and,ultimately,onemissions.Setting transportation efficiency goals,similarto store energy and landfill waste reductiongoals,can drive innovation and align companydepartments. Some retailers own their truc-king fleets, giving them substantial influenceover their road transport operations.Other re-tailers outsource this process, which implieslimited influence over transport operationsbeyond operator selection considerations.Retailers can move goods more efficiently byimplementing new technology and processes(Case Study 8). Speed limits and no-idling po-licies minimize unnecessary fuel consumption;both practices can be enforced by on-boardcomputers. By adopting these methods, Sta-ples28has boosted its fleet fuel economy by20% since 2007; this company is saving closeto 3.8 million liters of diesel fuel annually. Inaddition, a number of technological improve-ments can be integrated into trucking fleets.Lastly, as detailed in Section 3, smart packingmethods can make transportation more effi-cient by maximizing the amount of producteach shipping load can carry.Efficienttransportation4.2
  37. 37. CONSUMER GOODS RETAIL 37Case Study 8How Lowe’s ensures efficient transportation of goodsThe initiativeLowe’s only hires carriers that engage in the US EnvironmentalProtection Agency’s SmartWay Transport Partnership, a vo-luntary program that promotes more efficient transportationtechnologies and practices and certifies carriers with moresustainable operations.Lowe’s encourages the use of auxiliarypower units to reduce idling fuel consumption and trailer fai-rings to improve aerodynamics.Lowe’s is also an active member of the Coalition for ResponsibleTransportation (CRT) and is heavily involved in the CRT,Environ-mental Defense Fund and EPA SmartWay CleanTrucks Initiative,which provides a framework for reducing truck-related GHGemissions at ports.BenefitsSince 2005, the SmartWay program has reduced the highwaytravel of the company’s carriers by 560 million miles (901 mi-llion kilometers) and resulted in diesel fuel savings of morethan 100 million gallons (378 million liters).That is a carbon sa-ving of more than one million tonnes.The EPA honored Lowe’sefforts in 2011 with a SmartWay Champions award, the fourthconsecutive honor Lowe’s has received from its EPA partners.BackgroundLowe’s Home Improvement Warehouse is a US retailer that sells household products and construction materials. Lowe’s doesnot own a truck fleet and is therefore forced to collaborate with its carriers to develop more sustainable practices.Source: HYPERLINK“http://www.rila.org/sustainability/sustreport/sustainability-report-landing-page/”http://www.rila.org/sustainability/sustreport/sustainability-report-landing-page/pages/default.aspx
  38. 38. IEFOUNDATIONADVANCEDSERIESONPROBLEM-DRIVENRESEARCHSUSTAINABILITYadvanced seriesAlternative fuels, such as natural gas, biodiesel, andelectricity are less carbon intensive than traditio-nal fuels. In 2010, Staples tested and ordered 40 all-electric powered trucks29. As noted in Case Study 8,the EPA’s SmartWay Transport Partnership30helps re-tailers reduce their transport-related carbon footprint.The SmartWay program provides resources for transporta-tion companies to quantify fuel use and emissions, develop re-duction goals, and create strategic plans of action. The recentvolatility in fuel prices has given companies strong incentivesto transform transportation fleets. Looking forward, these dri-vers will continue to increase in importance as fuel prices riseand international consensus develops around carbon action.Alternativefuels4.3
  39. 39. CONSUMER GOODS RETAIL 39Case Study 9UPS’s green fleetBackgroundUPS operates over 100,000 delivery and transport vehicles as well as the world’s 10th largest airline.The search for enhancedfuel efficiency is part of the group’s core business..The initiativeUPS takes long-term business decisions regarding vehiclesemploying alternative fuels and advanced technology undera strategic approach that includes:- Continuing to expand the green fleet slowly and increasingthe knowledge gained from the rolling laboratory strategy.- Continuing to work with manufacturers of alternativefuel and advanced technology vehicles to let them knowthe company’s requirements and what UPS learns when itoperates their vehicles.- Participating in public-private projects aimed at achievingcritical mass for promising low-emission vehicles andinfrastructure, such as the Interstate Clean TransportationCorridor in the United States.BenefitsUPS expanded its green fleet by 35% in 2011 to 2,500 vehicles.Alternative fuel and advanced technology vehicles includepropane,compressed and liquefied natural gas,hybrid electric,hybrid hydraulic, and all-electric vehicles. UPS has placed anorder for 100 all-electric vehicles for delivery in 2012; thesevehicles will displace approximately 126,000 gallons of fuelannually. The company has also purchased 48 new liquefiednatural gas (LNG) trucks and 41 new hybrid hydraulic vehicles.The UPS green fleet logged 200 million miles between 2000and 2010 and is expected to log another 200 million by 2017.Two-thirds of these alternative fuel/advanced technologyvehicles operate in the United States; the rest are on theroads in Brazil, Canada, Chile, Germany, Hong Kong, Mexico,Netherlands, South Korea, Thailand, and the UK. UPS hasreduced its fuel consumption from 0.127 gallons per groundpackage in 2008 to 0.116 in 2012.Source: UPS Corporate Sustainability Report 2011
  40. 40. IEFOUNDATIONADVANCEDSERIESONPROBLEM-DRIVENRESEARCHSUSTAINABILITYadvanced series5. ConsumptionIt is important to stress upfront that sustainability does notjust meangettingconsumers tochoose theoddgreenproduct;the true challenge lies with fostering customer loyalty to themore environmentally-friendly products and getting them tochange how they use and dispose of their products.A product’s ecological footprint is not just the result of itsdesign, manufacturing, and transport, but is also shaped byhow it is used and disposed of at the end of its life. As is thecase at the other stages of the supply chain already analyzed,it is hard for retailers to influence what happens to theirproducts when shoppers walk out their doors. Nevertheless,there are innovative strategies emerging in the sector aimedat educating consumers and shaping their behavior duringproduct usage. In parallel, several reverse logistics initiativesattempt to recover the product after usage for the purpose ofreintroducing it into the value creation chain,thereby closinga traditionally open loop (Chart 6).CHART 6: RETAIL SECTOR CHANNELS OFINFLUENCE OVER CONSUMPTIONMinimizationof waste,reutilization,andrecyclingInfluencingconsumerchoiceInformationto fostersustainable useConsumption?
  41. 41. A recent Eurobarometer survey on Europeans’ attitudestowards the issue of sustainable consumption andproduction31revealed that eight out of every 10 EU citizensfelt that a product’s impact on the environment wasan important element when deciding which productsto buy. A large majority of respondents claimed to bekeen to buy more environmentally-friendly products.The survey also revealed that retailers are faced with aunique opportunity to reach a large number of people ona daily basis. However, prior Eurobarometer surveys hadalready highlighted a significant gap between consumerperception and consumer behavior. Fifty-five per centof EU citizens claimed to be fully aware or know aboutthe most significant impacts on the environment of theproducts they buy or use.This suggests that manufacturersand retailers that manage to respond to the newenvironmental challenges have much to gain. By stressingthe environmentally-friendly attributes of their products,retailers can gain a competitive edge, particularly if theymanage to translate these attributes into cost savings forthe end consumer32.Retailers can shape consumer choice, nudging buyerstowards more sustainable products directly, by modifyingthe products they sell and how they promote them, orindirectly, by providing information or financial incentives.In terms of direct influence, retailers can help consumersto choose green products by expanding their range of en-vironmentally-friendly products. Green products can evenbe produced directly by the retailer for their private labelranges,although this is less common.What is a widespreadpractice among retailers is the offering of green products,albeit often with limited availability33. Some retailers havei n t r o d u c e dspecific pro-duct ranges forenvironmentally-conscious consumers(Case Study 10). On the other hand, as detailed in Section2, retailers can also influence consumer choice by refusingto supply certain environmentally unfriendly products(choice-editing).Staying with the supply side of the equation but movingaway from the sustainability of specific products,matching supply to demand provides another opportunityfor fostering more sustainable consumption. Intensemanagement of this information by certain US supermarketchains,coupled with initiatives to simply reduce the varietyof products on supermarket shelves, is slashing some ofthe billions of dollars in food waste every year, along withthe attendant environmental ramifications34.In taking the indirect route, information can influenceconsumer choice by means of several mechanisms: theuse of official and retailer-specific eco-labels (see the boxon Regulations), placing green products prominently inappropriately advertised store sections (shelf placement iskey to this end), mixing green products with conventionalproducts (highlighting their more environmentally-friendly attributes), brochure/leaflet campaigns (greenproduct campaign, etc.), and information on the website,etc. It is probable that given the prevailing economic crisisthese campaigns will be more successful if in addition tohighlighting the environmental benefits, they also flagthe cost savings implied throughout the product’s entireuseful life (e.g. energy-efficient bulbs).CONSUMER GOODS RETAIL 41Influencingconsumerchoice?
  42. 42. IEFOUNDATIONADVANCEDSERIESONPROBLEM-DRIVENRESEARCHSUSTAINABILITYadvanced seriesCase Study 10Leroy Merlin: “Eco-options” programThe initiativeThe chain’s Eco-Options encompass almost 5,000environmentally-friendly product references grouped into fivecategories:- Water savings: products designed to reduce waterconsumption in homes and gardens.- Healthy Home:products that meet environmental protectionstandards and reduce the release of emissions that areharmful to health or toxic for the environment to theirminimum expression;products that facilitate waste recyclingand reutilization; and products that filter water/air.- Energy-efficiency: products designed to save energy andreduce carbon dioxide emissions.- Renewable energy: products that give off alternative energyfrom clean sources such as the sun and the wind and productsthat use renewable energy sources.- Sustainable forestry: wood and derivative products sourcedfrom forests that are managed sustainably. These productsare certified under two international standards (FSC andPEFC) that guarantee their legal origin, sustainable fellingand control throughout the entire chain,from transformationto retail distribution.Eco-labeling:There are various eco-labels to distinguish eco-friendlyproducts in the marketplace. Some of the more widely-usedlabels include: the EU eco-label, the FSC (Forest StewardshipCouncil), PEFC (Programme for the Endorsement of ForestCertification) and MSC (Marine Stewardship Council) labels,the fair trade label and the EU organic products label.In general terms, these labels can be classified as eitherobligatory or voluntary. The first category includes the EUEnergy Labeling Directive (Directive 2010/30/EU of May 19,2010), which seeks to raise consumer awareness of theirhousehold appliances’ energy performance by means of anenergy consumption label at the point of sale. The organicproduct eco-label is also worth mentioning here (CouncilRegulation (EC) N° 834/2007 of June 28, 2007). Among thevoluntary labeling schemes,those created by retailers such asCoop,Carrefour,Migros,Staples,MS,REWE Group andTescostand out. The International Standardization Organization(ISO)hasdevelopedstandardsforvoluntaryeco-labelschemes.Integrated product policy (IPP):With its integrated product policy,the European Commissionproposes a strategy to promote the development of a marketfor greener products.This strategy requires the engagementof all stakeholders in all areas of possible intervention andthroughout products’entirelifecycles:manufacturers,retailers,consumers, and NGOs. IPP focuses on those decision pointswhich strongly influence the life cycle environmental impactsof products and which offer potential for improvement,notably eco-design of products, informed consumer choiceand the polluter pays principle in product prices.Among othermeasures, IPP proposes differentiated taxation according tothe environmental performance of products,the provision ofunderstandable, relevant, and credible information throughRegulationBackgroundIn 2009 Leroy Merlin Spain launched its Eco-Options project to offer shoppers more environmentally-friendly household products.
  43. 43. CONSUMER GOODS RETAIL 43labelingontheproduct,extensionofthescopeoftheEuropeaneco-label to new products and the use of public procurementto foster the manufacture of more green products.Action Plan for Sustainable Consumption and Production:The European Commission proposes application of a seriesof measures designed to enhance products’ energy andenvironmental performance throughout their entire usefullives and to stimulate demand for and consumption of betterproducts, thereby creating a ‘virtuous circle’. The Action Plancombines the IPP instruments into a coherent package ofpolicies aimed at fostering better products and smarterconsumption patterns. It therefore constitutes a significantmilestone in implementing the IPP instruments at theCommunity level. Delivery of these targets can be facilitatedparticularly by measures to encourage the reduction of thecarbon footprint of the retail sector and its supply chain,promote the manufacture of more sustainable products andbetter inform consumers. The Commission plans to act bymaking resource usage more efficient (generating more valuewithfewerresources),championingenvironmentalinnovationand reinforcing industry’s environmental potential with itsreview of the European Eco-Management and Audit Scheme(EMAS),drawingupindustrialpoliciesthatfavorenvironmentalindustries and helping small and medium sized enterprises(SMEs) to tap business opportunities in the environmentaland energy fields.BenefitsIn 2010 Leroy Merlin sold more than 13 million units fromits Eco-Options range, which encompasses almost 5,000environmentally-friendly product references. This strategyis reinforcing the chain’s market positioning by giving it amore eco-friendly image.Source: Press release, March 2009.Source:-European Commission (2001). Green Paper of February 7, 2001, on integrated productpolicy (COM (2001) 68 final).-European Commission (2008). Communication from the Commission to the EuropeanParliament,the Council,the European Economic and Social Committee and the Committeeof the Regions, of June 25, 2008, on the Sustainable Consumption and Production andSustainable Industrial Policy Action Plan(COM(2008) 397 final).-European Commission (2009). Report from the Commission to the Council, the Euro-pean Parliament, the European Economic and Social Committee and the Committee ofthe regions on the State of Implementation of Integrated Product Policy. SEC(2009)1707,COM(2009)693 final.-European Commission (2012).Integrated product policy.Europa,Summaries of EU legisla-tion.http://europa.eu/legislation_summaries/consumers/consumer_safety/l28011_en.htm.
  44. 44. IEFOUNDATIONADVANCEDSERIESONPROBLEM-DRIVENRESEARCHSUSTAINABILITYadvanced seriesOff-shelf placement of green products (in green corners) isparticularly appealing to green consumers,while it is better to targetregular shoppers by mixing green items by product category,as theseshoppers might go for the more environmentally-friendly option if itis presented as an alternative when browsing for a given product35.The chance to talk with store staff can also be a useful source ofinformation36, although the evidence in the studies performed isinconclusivein thisrespect.It isalsoimportant tocreateopportunitiesfor testing new products (particularly food products) in-store.In addition to providing information, retailers can be proactive intrying to influence consumer decision-making by means of financialincentives in the form of price discounts or 2-for-1 or 3-for-2 offers orthe provision of information on matters that directly affect shoppers’wallets (green product cost-benefit analysis). For example, REWEGroup offers price reductions for green products during specificcampaigns i.e. during its ‘Save the Polar Bears’ campaign. AuchanFrance offers a 5% discount all year round on its white label greenproducts. Walmart highlights the financial benefits of buyingenergy-efficient light bulbs.Media-Saturn (Case Study 11) conducteda campaign in 2007 to inform consumers of the financial andenvironmental benefits of energy-efficient electric devices.
  45. 45. CONSUMER GOODS RETAIL 45Case Study 11Metro Group - Media Markt and Saturn:“energy-saving weeks”The initiativeIn 2007, Metro Group launched a large-scale consumerawareness campaign in conjunction with the GermanEnergy Agency for its specialist electronics chains,MediaMarkt, and Saturn. The kernel of the campaign was tomake consumers aware of the dual benefit of energy-efficient devices,i.e.,cost savings coupled with a reducedclimate impact. The Agency trained the staff at theGroup’s German stores so that they were equipped toinform their customers about how to use the Europeaneco-label to identify environmentally-friendly fridgesand washing machines.To overcome the price barrier,thestores ran‘energy-saving weeks’, offering store vouchersto shoppers purchasing the more efficient models. Forexample, customers that purchased an A+ rated fridgewere given a €100 store gift card.BenefitsData compiled by market researcher GfKGroupdemonstrated the campaign’s success: today 50% offridges sold in Germany carry the A+ or A++ eco-label.BackgroundGerman retailing giant Metro Group focuses its sustainability management on ensuring the company’s economicfuture in a responsible manner. This means building social and environmental demands into all of its activitiesthroughout the entire supply chain.Source:-European Commission (2010). Eurobarometer survey on Europeans’ attitudestowards the issue of SCP. Retail Forum Issue paper on marketing and effectivecommunication. Issue Paper No 3.-http://www.metrogroup.de/servlet/PB/menu/1183120_l2_ePRJ-METRODE-MAINPAGE/index.html
  46. 46. IEFOUNDATIONADVANCEDSERIESONPROBLEM-DRIVENRESEARCHSUSTAINABILITYadvanced seriesInformationto fostersustainable useAlong with production,product use is the phasethat produces the mostenvironmental impacts37.Someproducts have lower environmentalimpacts throughout their use while others requireconsumers to shift their usage habits.For example,compact washing soap requires the use of smallerquantities of soap per load and enables washingat lower temperatures, driving energy savings38.Retailers can give consumers information toenable them to reduce the environmental impactsof their everyday use of a given product. Theinformation provided can be general (informationhighlighting the benefits of more sustainableproduct consumption, such as information onways to save water or energy,as Coop does,amongother retailers), or product-specific. For example,HM,and CA (Case Study 12) provide informationabout how to wash their garments in the mostenvironmentally-friendly manner. Mercadonaincludes labels on its washing machine soaps thatprovide information on how to wash clothing inthe most sustainable manner39.This information can be provided on the website oron the product label.Hoever,shoppers often don’tread this information. Amore direct alternative isto provide the information ona sign placed beside the productprice display. Green products often costmore upfront but are less expensive throughoutthe overall product life cycle.Against this backdrop,retailers can try to overcome the price barrier byproviding adequate information on the long-runbenefits,for example by providing information onthe reduced electricity costs associated with greenelectric/electronic products throughout theirentire life cycles40. Note that use and choice aresupply chain phases that are linked by consumerinformation.Walmart has pursued an interesting initiativeby working with suppliers to try to increase thepercentage of clothing that can be washed coldin order to lower consumers’ electricity bills andenergy consumption.Walmart’s influence over itssuppliers (producers) is also evident in the case ofsustainable agriculture.Walmart’s goal is to sell $1billion worth of food produced using sustainablefarming practices,to which end it plans to providetraining to one million farmers.5.2
  47. 47. CONSUMER GOODS RETAIL 47Case Study 12. CA labelingBenefitsBy washing at 30°C instead of 40°C,energy savings of up to 40% arepossible.Moreover,if customers choose to dry clothes naturallyinstead of using dryers, electricity consumption dropsfurther. The measures taken help to reinforce theperception that sustainability lies at the heart ofCA’s business model.BackgroundCA believes that sustainability can only be achieved by following a strategy that goes beyond financialreports,engaging employees,customers,and all supply chain stakeholders in matters relating to environmentalconcerns, product safety criteria and working conditions.Source: HYPERLINK“http://www.c-and-a.com”www.c-and-a.comThe initiativeCA tries to raise customer awarenessabout ways to save energy. To thisend, the washing instructions sewninto the garments it sells includenot only the related instructions butalso environmentally-friendly advice,encouraging users to wash at lowertemperatures.
  48. 48. IEFOUNDATIONADVANCEDSERIESONPROBLEM-DRIVENRESEARCHSUSTAINABILITYadvanced seriesOnce a produce has been consumed and/or reached the end of its usefullife, retailers can influence how it is ultimately disposed of.Two classes of consumer products can be distinguished for this purpose:(i) disposable products (including perishables) or high-turnover productswhich consumers typically buy daily (food,health beauty,and cleaningproducts);and (ii) more durable products (textiles,electric products).It goeswithout saying that retailers’influence over consumers varies in each instance.For disposable products, the end-of-life waste relates to the packaging, i.e., not withthe product itself, which has been consumed. As outlined in Section 3, the packaging can be reusedor recycled.Under the 4Rs approach41,which establishes a waste management hierarchy,reuse is themost environmentally-friendly option. Coop’s Italian operations provide a practical example of howretailers can encourage the reuse option (Case Study 13).Minimizationof waste,reutilization,and recycling5.3
  49. 49. CONSUMER GOODS RETAIL 49Case Study13. Reuse at Coop Italy.The initiativeIn 2006, Unicoop Firenze and Unicoop Tirreno (Coopsubsidiaries) introduced an innovative detergentdistributionsystem:theyprovidedconsumerswith reusablebottles for refilling with various liquid detergent types bymeans of automatic dispensers. In 2008 this innovativerefilling system was extended to the stores in Parma,Mantova, and Piacenza.BenefitsThe use of this system allows the repeated use of a plasticbottle weighing approximately 60 grams, in turn drivingsavings of 1.5 KWh of electricity, 240 liters of water and 14grams of carbon dioxide. As a result, this new detergentrefilling system is generating significant savings in energyand water as well as carbon emissions. In parallel, it isalso likely that the refilling distribution system is drivingcustomer loyalty, providing an additional source of valuecreation for the entity.Source:BIO Intelligence Service (2009).Towards a Greener Retail Sector, European Commission: 233.Chkanikova, O. Mont, O.2011. Overview of sustainability initiatives in European food retail sector. IIIEE WORKING PAPER 2011:1BackgroundColored high-density polyethylenes (HDPE) are commonly used to make plastic detergent bottles. Coop Italy, a systemof Italian consumer cooperatives that make up the biggest retail chain in the country, has established an initiative forreducing waste and streamlining bottle usage.
  50. 50. IEFOUNDATIONADVANCEDSERIESONPROBLEM-DRIVENRESEARCHSUSTAINABILITYadvanced seriesIn the case of durable products,the material may have become impaired du-ring continued use and may also be eligible for reuse or recycling.Some retai-lers are developing infrastructure for recovering value from these products.For example, Target offers recycling stations for glass, plastics, aluminum,paper, plastic bottles, and some electronic waste; Staples provides pick-uppoints for used printer ink cartridges; Best Buy provides product buybackalternatives (Case Study 14). In 2010, Gap Inc. launched a jeans recyclingprogram called Recycle Your Blues, under which consumers were given theoption of recycling their jeans and getting a discount on a new pair. GapInc. collected 360,000 pairs of jeans under the program; the retailing giantused them to create fiber insulation for over 700 homes. Clearly initiativesof this nature help consumers to reduce their environmental impacts42.
  51. 51. CONSUMER GOODS RETAIL 51Case Study 14. Best Buy promotes responsible end-of-life product management- Buy Back Program: when consumers no longer want theproduct acquired under this program, they can exchangeit (provided it still works) for a gift token.- E-commerce Program under which consumers receive a gifttoken in exchange for used electronic products, musicalinstruments, video games, CDs and DVDs.- Free recycling options designed to help consumers get rid oftheir used electronic products,again regardless of whetherthey were originally purchased at a Best Buy establishment.Best Buy has agreements with companies that specializein responsible recycling. Best Buy currently offers the fo-llowing recycling programs in addition to its own in-storerecycling program:- Recycling kiosks where consumers can hand in used inkcartridges, rechargeable batteries, and old cords.- TV Appliances Haul-away service: Best Buy will pick upand take away a household appliance or television from acustomer’s home for free when they buy a product underthe Best Buy Home Delivery program.- TV Appliances Pick-up service:For $100,Best Buy will giveconsumers an appointment for picking up as many as twohousehold appliances or televisions for recycling.BackgroundElectronic products are one of the fastest-growing sources of waste on the planet. As a retailer of electronics goods, Best Buytries to make it easier for consumers to choose greener products, use energy to power their electronic devices and householdappliances more efficiently and provide appropriate end-of-life solutions for the products its sells.Source:-RILA Report, HYPERLINK“http://www.rila.org/sustainability/sustreport/sustainability- report-landing-page/Pages/defauft.aspx” http://www.rila.org/sustainability/sustreport/sustainability- report-landing-page/Pages/defauft.aspx-Best Buy website, HYPERLINK “http://www.bestbuy.com/site/Global-Promotions/”http://www.bestbuy.com/site/Global-Promotions/Recycling-Electronics/pcmcat149900050025.c?id=pcmcat149900050025; HYPERLINK “http://www.bestbuy.com/site/Global-Promotions/Recyde-FAQs/pcmcat”http://www.bestbuy.com/site/Global-Promotions/Recyde-FAQs/pcmcat 174700050009.c?id=pcmcat174700050009The initiativeBest Buy offers shoppers three recycling choices before andafter product purchase, regardless of whether the productwas bought at a Best Buy establishment:BenefitsBest Buy aims to recycle one billion pounds of consumer pro-ducts by the end of 2014. It endeavors to make sure that therecycling operators it works with adhere to the most stringentstandards so that the products traded in or brought to theirestablishments for recycling do not end up in landfills or abroadand that all hazardous waste is handled properly.
  52. 52. IEFOUNDATIONADVANCEDSERIESONPROBLEM-DRIVENRESEARCHSUSTAINABILITYadvanced series6. Opportunitiesand challengesThe thesis at the heart of this report is that the retail sector can be viewedas a‘hinge’sector,pivotal in reducing the environmental impacts of theproduction and consumption processes.The report has shown,puttingforward a series of arguments and showcasing a number of bestpractices,that the retail sector can use its strategic positioningto have a real and effective influence on suppliers andconsumers, making all phases of the product value chain– from design and manufacturing, through packagingand transportation to product choice, use, and disposal– more sustainable.Here are the main conclusions reached, synthesized inthe form of opportunities and challenges for the sector:In the design and manufacturing phase, as regulatoryand consumer pressure grows, product design is bound tograduallyincorporateamyriadofenvironmentalconsiderations,duly weighing energy, carbon, material, chemical, recyclability,water waste,and other needs against functionality,performance andprice considerations. ‘Green chemistry’43,‘cradle to cradle analysis’44,and‘design for the environment’45techniques will become increasinglycommonplace in the product design process for private and brand labelproducts alike.Transparencylevelsinconsumerproduct supplychainsareset tocontinueto increase swiftly,injecting visibility into the working conditions,humanrights and environmental impacts of product manufacture. A seriesof factors will accelerate this trend, notably among which growingdisclosure and commitment demands from regulators, consumers, andinvestors regarding products, how they are made and how they aredistributed.
  53. 53. CONSUMER GOODS RETAIL 53Relations between retailers and suppliers based on trust and a jointsustainability effort will pave the way for more open and unguardedexchange of information, particularly if the retailer is committed toworking with its suppliers for the long-run.Both parties will join forces ontaskforces with other companies,governments,non-profit organizationsand academic institutions for the purpose of exchanging know-how andresources.Similarly,both parties will set and share supply chain targetsin order to align their priorities and continue to track their progress.Ultimately,retailers and their suppliers will continually improve howthey make products in order to reduce the environmental and socialimpact of the whole process.Pared-back packaging volumes can translate into significant costsavings and a better environmental record by using fewer materials andstreamlining logistics and transport operations.The significant reductionsin energy consumption, GHG emissions and volumes of materials usedspell reduced environmental impacts. Although some of these measurescan be taken by the retailer without having to collaborate with otherplayers (e.g., reducing private label product packaging and containers),the real challenge lies with engaging other players in the value chainand, most importantly, engaging suppliers and consumers in the task ofreducing packaging materials.
  54. 54. IEFOUNDATIONADVANCEDSERIESONPROBLEM-DRIVENRESEARCHSUSTAINABILITYadvanced seriesOne of the greatest obstacles to maximizing transportation efficiency is the lack of commercially available,lowcarbon technology. However, natural gas and electric-powered trucks are already becoming popular and willbecome even more so as their prices fall. Retailers can help expand the availability of these technologies bypilot testing low carbon transportation methods and expanding their pilots whenever financially feasible. Inthe meantime, however, retailers can optimize shipping by using efficient packing and distribution processesand currently available transportation technologies.Many retailers have already incorporated these approachesinto their operations, which are rapidly becoming business as usual. In the long term, achieving carbon neutralshipping will likely be the goal of many retailers. Just as the automobile industry is catering to the demandfor more fuel-efficient vehicles, the trucking industry will continue to do the same. By embracing smartertransportation, retailers can both reduce unnecessary costs and shrink their carbon footprint.Lastly,mounting consumer preferences for more environmentally-friendly products suggest that manufacturersand retailers that manage to adapt to emerging environmental challenges have much to gain. By stressing theenvironmentally-friendly attributes of their products, retailers can gain a competitive edge, particularly if theymanage to translate these attributes into cost savings for the end consumer.Retailers can shape consumer choice,nudging buyers towards more sustainable products directly, by modifying the products they sell and how theypromote them, or indirectly, by providing information or financial incentives.
  55. 55. CONSUMER GOODS RETAIL 55Consumer information can also be put to use to reduce the environmental ramifications of everyday productuse considering that product use tends to be one of the phases with greater environmental consequences. Andby stressing the cost savings accruing to consumers throughout product life cycles, retailers stand to overcomethe barrier implied by the higher price of these products, ultimately benefitting retailers’ profitability. Makingproducts more environmentally-friendly to use may require supplier engagement.Lastly, retailers can also influence how their products are disposed of after consumption or at the end of theiruseful lives. Specifically, encouraging the reutilization of containers can result in significant cost savings forretailers in respect of products for which waste is mainly packaging-derived.Broadly speaking, although these efforts do not always produce meaningful returns in the short turn, bychampioning improvements in their environment these retailers will unquestionably create value and buybusiness sustainability medium and longer term, while setting themselves apart from their competitors andpositioning themselves to better handle the growing clamor from regulators,consumers,and investors for moreinformation and stronger environmental pledges.

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