Inaugural speech "Green Supply Chain Management, Marketing Tool or Revolution?"

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Inaugural speech "Green Supply Chain Management, Marketing Tool or Revolution?"

  1. 1. Green Supply Chain Management, Marketing Tool or Revolution? Françoise van den Broek Published on the occasion of the inaugural speech related to the lectureship Logistics & Sustainability
  2. 2. Green Supply Chain Management, Marketing Tool or Revolution? Françoise van den Broek Published on the occasion of the inaugural speech related to the lectureship Logistics & Sustainability F.N. van den Broek-Serlé, MSc, CEMS MIM, MTL Breda | Zoetermeer, the Netherlands, January 2010 This report has been financed by NEA Transport research and training Ltd. and NHTV Breda University of Applied Sciences, Academy for Urban Development, Logistics & Mobility Quoting of figures and/or text is permitted only when the source is clearly mentioned.
  3. 3. Contents 1| Introduction Whatever magazine you open nowadays, you cannot miss the articles on sustain- 3 1 | Introduction ability, be it editorials in popular magazines or professional journals. Today’s economic, social and regulatory dynamics are putting real pressures on 5 2 | The evolution of supply chain management and trends companies to be both lean and green in their product sourcing, logistics, distribution influencing future concepts and operational practices. 2.1 Introduction 2.2 The ‘dark side’ of globalisation If you think your business is too small or too service-based to benefit from going 2.3 Cost, service level and sustainability green, or you’re waiting for the hype about green and sustainability to die down, 2.4 Sustainability changes shape over time then you’re missing an opportunity to chart an upward course for your company. 2.5 Sustainability will become one of the prime drivers of the supply chain agenda The green movement has been transformed from a cause to save our environment 2.6 Green issues increasingly important but not yet core part of corporate strategy into a fully-fledged, vetted economy. 11 3 | Why consider going ‘green’? Environmental responsibility has moved from a trend to a business imperative, 3.1 Introduction it helps companies to achieve their business goals. Over the past few years sustain- 3.2 Regulations ability has steadily been moving from the periphery to the heart of business. 3.2.1 Dutch government Companies are adopting sustainability practices for a host of reasons depending 3.2.2 European Union on the industries and geographies in which they operate. 3.2.3 China’s regulations push market developments 3.2.4 Abu Dhabi and Dubai are taking the energy lead Three dimensions of sustainability 3.3 Implementing green efforts at an early stage 3.4 Hurdles in the process of going green Environmental 3.5 Level of awareness is rising sustainability 3.6 Revenue opportunities: new product development and green marketing Eco-system integrity or should we call it ‘green washing’? Carrying capacity 3.7 Does ‘going green’ generate turnover? Biodiversity 3.8 Rewards of going green are both tangible and intangible 3.9 Five stages towards sustainability Social sustainability 23 4 | How companies deal with sustainability within the supply chain Cultural identity 4.1 Introduction Empowerment 4.2 Isolated approaches still dominate Accessibility 4.3 ‘Greening’ gains importance in all sectors Stability 4.4 Dutch companies accepting the green challenge Equity 4.4.1 Manufacturers 4.4.2 Transport and logistics Economic HUMAN WELL BEING sustainability 31 5 | Impact of sustainability on the logistics programs at the Crowth NHTV Academy for Urban Development, Logistics & Mobility Development 5.1 Introduction Productivity 5.2 How will the lectureship contribute to the logistics programs Source: IUCN 2006 Trickle-down of NHTV Academy for Urban Development, Logistics & Mobility? 33 6 | Conclusions 36 References 3
  4. 4. But what exactly is sustainability? How does it effect the business and supply chain design? Can a company aim to achieve competitive advantages through the 2| The evolution of supply chain management and trends implementation of sustainable business practice and if yes, how? Why should you be part of it too? Just a few questions popping up, that are challenging to address on influencing future concepts behalf of the lectureship Logistics & Sustainability at NHTV, Breda University of Applied Sciences, Academy for Urban Transport, Logistics and Mobility financed by NEA Transport research and training Ltd. in the Netherlands. For many people, sustainability is about reducing carbon footprint, complemented 2.1 Introduction by minimizing waste and conserving water through innovation, communication and Rapid changes in the business environment, including increased internationalisation best practices. The term, as it relates to business, means: conducting business to and global competition, but also social and environmental trends, such as climate meet human needs without rapidly depleting resources, degrading the environment, change, population growth and aging, wealth accumulation and distribution, or compromising nature conservation efforts. In this publication the terms nutrition, health and education, affect companies’ supply chains in various ways, ‘sustainable’ and ‘green’ will be used interchangeably. resulting in new and evolving requirements on supply chain design. Prominent features of leading green supply chains include an emphasis on life cycle Definition of Green Supply Chain Management (GrSCM) costing, asset efficiency, and waste reduction and service innovation and recycling. Integrating environmental thinking into supply chain management, including product Executed effectively, GrSCM stimulates product and service innovation, improves design, material sourcing and selection, manufacturing processes, delivery of the asset utilization, and deepens customer relationships and service levels through a final product to the consumers, and end-of-life management of the product after its shared focus on reducing waste and cost. useful life. Source: Srivastava, 2007 Some examples to show the impact on supply chains 1: > Wal-Mart, which in 2005 launched a sweeping business sustainability strategy, GrSCM improves operations by employing an environmental solution: recently set the goal of a 5% reduction in packaging by 2013. The retail giant expects > improves agility – GrSCM helps to mitigate risk and speeds up innovations; the cut in packaging will save 667,000 metric tons of carbon dioxide from entering > increases adaptability – green supply chain analysis often leads to innovative the atmosphere. Moreover, the company anticipates $3.4 billion in direct savings and processes and continuous improvements; roughly $11 billion in savings across the supply chain; > promotes alignment – GrSCM involves negotiating policies with suppliers and > Nestlé employs an ongoing, company-wide sustainability program that has customers, which results in better alignment of business processes and principles. generated significant environmental and financial benefits. The company has applied the strategy to its use of product packaging by initiating an integrated approach that Core focus of the lectureship will be on the necessity of ‘green’ and on green favours source reduction, re-use, recycling, and energy recovery. In particular, the operations (network design and reverse logistics, transportation, green manu- company’s packaging material savings between 1991 and 2006 led to $510 million in facturing and re-manufacturing and waste management). savings, worldwide, according to Nestlé’s corporate website; > Heineken committed to reduce fuel and electricity use through its “Aware of The purpose of this publication is to answer the question “How can sustainability Energy” program. The company said in its 2006 sustainability report that it aimed to be integrated in the supply chain and throughout the company as it will entail new reduce fuel and electricity costs by 15% between 2002 and 2010. At the time of the strategies and a transformation of organisational structure, culture and behaviour Diamond report, Heineken had achieved savings of 6%—even after the acquisition of (not to say a green revolution) to thrive, not just survive, in a complex and fast- new breweries. changing landscape?”. The next chapter will elaborate on the evolution of supply chain management and trends influencing future concepts. Chapter three will answer 2.2 The ‘dark side’ of globalisation the question why ‘going green’ is important. The fourth chapter will elaborate on Due to globalisation, supply chains have grown more lengthy and complex. how companies deal with sustainability within the supply chain. Chapter five will It has become harder for companies to maintain the same oversight and control that show the impact the lectureship will have on the logistics programs of NHTV‘s they traditionally had. A side effect of globalisation has been for some companies Academy for Urban Development, Logistics & Mobility and chapter six will draw that operations were shifted to locations with weaker environmental protection. some major conclusions. In some cases, this has resulted in costly product recalls of contaminated goods, damage to workers’ health and pollution of public drinking water. Companies need 1 Diamond Management & Technology Consultants, Insight “The case for a ‘green’ supply chain: Turning mandate into opportunity”, 2008 4 5
  5. 5. to be aware of this, partly because of the risk of damaging their reputation, but also 2.4 Sustainability changes shape over time because local standards are likely to rise sharply in the coming years. The concept of sustainability is not new, but has changed shape over the past forty years. According to the International Institute for Sustainable Development, 2.3 Cost, service level and sustainability the term first originated in 1962 with “the gradual merging of the environmental Traditional supply chain strategies balance cost efficiency and service level (on-shelf movement and the post-World War II international development community 2.” availability). Consumers, rising energy and other commodity costs and legislation have pushed companies to re-design their supply chain networks in order to mitigate Unlike the environmental movement a generation ago, sustainability today carries a negative environmental impacts. Sustainability is a third lever that addresses cost, strong connotation of win-win benefits, efficiency, high performance, long-term service levels and environmental and social impact. thinking and ‘getting it’. Despite the current recession, leading corporations across all industry sectors will increasingly make supply chain sustainability an integral Economy element of their strategy, from product development to manufacturing and the Growth supply chain to marketing and communications. Efficiency Employment 2.5 Sustainability will become one of the prime drivers Competitiveness of the supply chain agenda Choice Several trends will influence the design of the future supply chain: External forces: Society > economic trends, like new markets (emerging countries Brazil, Russia, India, Safety China and Africa) and changes in the balance between global and local sourcing; Health > ecological trends: sustainability and scarcity of natural resources 3; SUSTAINABLE Access > demographic trends: urbanisation, greying and labour scarcity; SUppLy Equity > new technologies and information management; CHAIN > regulatory trends. Environment Industry trends: Climate change > consumer behaviour; Air quality > supply chain redesign; Noise > need for transparency of information flows. Land use Biodiversity The following supply chain solution areas have been defined in Capgemini’s Waste “The future supply chain 2016” in order to deal with existing trends and those Source: www.greenlogistics.org anticipated for the coming decade: > in-store logistics: includes in-store visibility, shelf-ready products, New factors are becoming increasingly critical, such as availability of natural shopper interaction; resources, traffic congestion in urban areas, energy consumption, CO2 emissions and > collaborative physical logistics: shared transport, shared warehouse, the permanent rise of transport costs. Companies must develop new relationships shared infrastructure; with their suppliers to influence them effectively. Suppliers can gain first-mover > reverse logistics: product recycling, packaging recycling, returnable assets; advantage in some cases by making the shift to more sustainable production and > demand fluctuation management: joint planning, execution and monitoring; influencing their customers. > identification and labelling; > efficient assets: alternative forms of energy, efficient/aerodynamic vehicles, Some companies, such as The Body Shop are founded on sustainable principles, and switching modes, green buildings; sustainability is already built into major functions, including the supply chain. Other > Joint Scorecard and Business Plan. companies are innovating products and services, such as low-temperature washing powders, higher concentrations and thus smaller packaging materials, that utilize For these reasons environmental compatibility, increased flexibility and robustness their current infrastructure and require minimal additional investment. Also logistics are emerging as important targets of today’s and tomorrow’s supply chains. service providers are moving green, in order to gain competitive advantages. For instance, the growing population of young people in many developing nations 2 Accenture, “Sustainability and its impact on the corporate agenda”, 2009 3 NEA Transport research and training, “New energy for the traffic and transport sector?”, 2010 6 7
  6. 6. presents new labour and consumer markets; conversely, the shrinking population of Prof. Dr. ir. A.J.M. Vermunt revealed in his thesis named “Wegen naar logistieke young people in many developed nations is causing some markets to dwindle. dienstverlening” a relationship between factors evolving over time, based on These demand adapted supply chain models and additional key performance research earlier executed by Ted Kumpe. At first, companies could distinguish indicators (KPIs). themselves by being efficient, through demanding a competitive price. As more companies started to become efficient, quality also became more important, leading to the fact that also reliability became an important aspect. The next point became Current Supply Chain KpIs Sustainability KpIs customer service in order to stand out on competition, not only price, but also Availability to consumer CO2 emissions reliability and responsiveness to customer’s demands are leading. The means a (out-of-stock) company has in order to distinguish itself from the competition evolve over time. Cost reduction Traffic congestion It is assumed that in the near future, when sustainability becomes more and more Financial KPIs: important, environmental thinking and acting upon it, will be the most important > Return on Investment (ROI) aspects to be market leader. To an increasing degree, consumers are willing to wait > Inventory turns Energy and other natural resources consumption longer and even pay more for a more sustainable product or service. Traceability Reusable packaging Fill rate Co-modal transport Environmental thinking 2.6 Green issues increasingly important but not yet core part Innovation Innovation of corporate strategy **Responsiveness Responsiveness Responsiveness According to an Eyefortransport survey published in November 2007, green issues *Reliability Reliability Reliability Reliability have already started to play an important role in companies’ overall business Aspect Price Price Price Price Price strategy. 67% of executives questioned in Europe believed that green issues are Factor Efficiency Quality Customer service Creativity Sustainability important to their company’s strategy, a significant proportion of executives in the United States, 59%, and Asia, 57%, viewed green as an integral part of their long-term strategy. * Reliability: time, place, quantity, quality ** Responsiveness: lead time, flexibility and contact frequency The outcomes of the “2008 Third-party logistics survey” regarding (1) ROI (Return on Investment), (2) green as a factor in selecting 3PLs (third-party Logistics service Providers), and (3) changing transportation modes, reveal mixed opinions: Around one-half benefits from green initiatives while the other half are either unsure or even pessimistic. Clearly, there is widespread uncertainty about how to move forward with green supply chain initiatives. Doing nothing is not an option. Green initiatives should clear three hurdles: they must be acceptable financially, environmentally, and socially 4. Despite its growing prominence, sustainability is not yet a widespread core part of most companies’ strategies today. And it is not a prime driver of the supply chain agendas, as will be shown in more detail in the next chapter. According to GTM Research, sustainability lies in the middle of the pack of supply chain priorities today, behind cost cutting. Also within the Netherlands, the focus is strongly on reducing the carbon footprint and not self-evident in an integral approach on greening the total supply chain. In a way, this is understandable as a starting point, as it is estimated that today up to 75% of a company’s carbon footprint results from transportation and logistics 5. 4 Capgemini, Georgia Institute of Technology, Oracle and DHL, “13th Third Party Logistics Study”, 2008 5 Eyefortransport, 2007 8 9
  7. 7. 3| Why consider going ‘green’? 3.1 Introduction Consumers say they increasingly prefer to purchase products that are free of toxins, produced with a minimum of pollution, and with a minimal environmental impact. But in many cases a significant gulf exists between consumers’ green claims and their actual purchasing power, mainly driven by the price difference of ‘green’ products. Companies that successfully adopt a ‘green’ policy can generate profits, provide positive social impact, and reduce environmental impact. Growing pressure from non-governmental organisations (NGOs) and activists. Greenpeace for instance publishes a digital ‘Guide to Greener electronics’. The guide ranks the 18 top manufacturers of personal computers, mobile phones, TVs and games consoles according to their policies on toxic chemicals, recycling and climate change. The media notices companies that show their green stripes. Positive publicity for going green is not reserved for large companies. Companies taking voluntary steps to become greener will gain visibility, earn credibility, and develop a reputation for leadership. Employee loyalty and retention are less tangible, but equally important benefits to going green. A sincere sustainability strategy will help your company attract top talent. Last but not least, many supply chains have already been affected by physical and economic impacts of the changing climate and growing demand from Asia. These include global shortages of water, grain, timber, and metals. Improving all forms of resource efficiency lessens exposure to these risks. 3.2 Regulations National and global regulation on sustainability can create a positive platform for change by reducing business uncertainty and creating new market opportunities. Proactively partnering with policy-makers, stakeholders and industry rivals in shaping regulation and policy solutions that benefit business and society will increasingly be a feature of smart strategy. 3.2.1 Dutch government The challenge to the Dutch government is to shape environmental policy in such a way that it is possible to combine economic growth with decreasing the environmental burden, as these are also expressed in the objective formulated in Lisbon for economic development in Europe (‘Clean, clever competitive’). 11
  8. 8. The Dutch government wants to make the Netherlands one of the cleanest and most of other Directives, like the EU Energy Performance of Buildings Directive will just as efficient energy countries in Europe. By the year 2020, the Netherlands aims to well influence sustainable business thinking throughout the supply chain. reduce greenhouse gas emissions by 30% compared to 1990 levels, increase the proportion of renewable energy to 20% and improve energy savings by 2% percent 3.2.3 China’s regulations push market developments each year. This applies not just to road traffic, but also to inland navigation, maritime The Chinese electric bike market has expanded more rapidly than any other mode in shipping and aviation. To achieve these targets, the program ‘Clean and Efficient: the last five to seven years, from nearly 40,000 produced in 1998 to over 10 million in New energy for climate policy’ (‘Werkprogramma Schoon en Zuining’) was introdu- 2005. ced in September 2007. This program refers, for instance, to measures for traffic and transport which encompass stimulating efficient vehicles (greening the tax system), E-bikes, though they floundered twice in the 80s and early 90s, experienced efficient driving habits, stimulating more efficient transport modalities, and cleaner extraordinary growth in the late 90s to the present due to a combination of fuels for both the business sector and the private sector 6. economic, technical, and political factors, summarized below: 1 E-bike technology, specifically motors and batteries, improved significantly A further aim is to be the logistics hub of Europe with the seaports of Rotterdam and during the late 1990s. Simple technology, a vast supplier base, and weak Amsterdam as well as Amsterdam Schiphol Airport as junctions in the global network intellectual property protection made it easier for e-bike makers to enter the (more details on their current programs in the next chapter). Therefore, the Dutch industry, increasing competition and driving prices down; government has an integrated approach to the transport and logistics network. 2 Due to improving economic conditions nationally, incomes of urban households and the share spent on transportation both rose considerably; 3.2.2 European Union 3 As e-bike prices decreased, gasoline prices rose and electricity prices in rural areas The EU has also implemented several measures to make transport greener and dropped, making e-bikes more competitive economically with alternatives like more sustainable. To intensify its efforts, the European Commission presented gasoline-powered scooters; two different initiatives. The first focuses on making the polluter pay through 4 National and local government policy motivated by energy and air quality issues internalising the external costs of transport. This means that individual modes of created favourable conditions for e-bike growth; transport must pay for ‘hidden’ costs generated by their contribution to air 5 National e-bike standards with loop-holes and flexible guidelines created a rich pollution, noise, climate change, congestion and accidents in road transport. opportunity for manufacturers to create e-bikes that appealed to more users, The second initiative includes a package of regulatory instruments combined with namely, scooter-style electric bikes. infrastructure and technological measures. The history of e-bikes provides an important lesson on the powerful impact of Co-modality (the optimised use of all modes of transport) is another item high on the regulatory policy, given the evolution of technology to a market acceptable product. European Commission’s agenda. Choosing the mode that is most efficient in both In several cities, like the surroundings of Guilin and Yangshuo, the Li River Delta with economic and in sustainability terms can create a high level of mobility and at the its mountains, only e-bikes are permitted. While technological progress was required same time protect the environment. With the Marco Polo II program, the EU aims to to meet the customer demands for economics and performance, the regulatory shift a substantial part of the expected increase in road freight traffic to more environment provided strong impetus for the market to grow and for further sustainable forms of transport, such as shipping or rail, or to a combination of modes investment in technology evolution. Without this, the e-bike market would not have of transport in which road travel is as short as possible. emerged. According to an EEA Report the occupancy rate of different transport modes can, in In September 2009 the Dutch Minister Eurlings of Transport, Public Works and Water many cases, be a significant factor in the resulting relative emissions of greenhouse Management paid a working visit to China and participated in a round table confe- gases compared to the specific efficiency of modes. In addition to technological rence ‘Sustainable development of ports and waterways’. China is not only investing improvements, policies to ensure better capacity utilisation within each mode may heavily in infrastructure, transport and logistics but at the same time has a strong result in substantial additional reductions of emissions of CO2 7. drive to tackle the safety and environmental problems it is facing. The Yangtze River, the logistical backbone of Shanghai, will be developed as a ‘green waterway’, Furthermore, the members of the European Union (EU), have committed themselves meaning far reaching actions in respect to emissions, pollution and dumping of waste also to develop, implement and enforce legislation that makes producers responsible materials. Furthermore, Mr. Yang Zan, Deputy DG, Water Transport Bureau, Ministry for the collection, treatment, recycling and environmentally safe disposal of all of Transport announced during the working visit round table that in the future, electrical and electronic equipment (WEEE/2002/96/EC, 2002). The implementation Chinese ports will only allow for electrical transport and handling equipment. 6 www.vrom.nl 7 European Environment Agency, Report No 1, “Climate for a transport change”, 2008 12 13
  9. 9. 3.2.4 Abu Dhabi and Dubai are taking the energy lead In addition to own efforts, companies increasingly expect partners such as suppliers It sounds like the start of a fairytale: In the heart of Abu Dhabi work has started on and logistic service providers (LSPs) to get engaged in finding and implementing the most ambitious sustainable development in the world today. Masdar City, is to environmentally compatible solutions. become the world’s first carbon-neutral, zero-waste city, designed to be a pedes- trian-friendly environment. Its aim is to become the silicon valley for clean, green 3.4 Hurdles in the process of going green and alternative energy. Masdar City will be built on six and a half square kilometres Current and future goals of companies regarding environmentally compatible and will grow eventually to house 1,500 businesses, 40,000 residents and 50,000 logistics are 11: commuters, home of the Masdar Institute of Science and Technology (MIST) and the > reduction/avoidance of transport; International Renewable Energy Agency (IRENA). A city where current and future > increased capacity utilisation in transportation; technologies will be funded, researched developed, tested and implemented. > increased employment of mass transportation, if suitable; Masdar is a wholly owned subsidiary of the Mubadala Development Company, > recycling/reusable packaging; the Abu Dhabi government’s investment vehicle 8. A Dutch company, 2getthere, > reduction of the use of resources (water and energy); will provide fossil-free vehicles for the first phase of the city 9. > compliance with ISO’s environmental standards. In Dubai, a similar initiative has been launched. Sheikh Mohammed bin Rashid Al Despite the diversity of the mentioned goals it becomes clear that most of them Maktoum, Vice President and Prime Minister of the UAE and Ruler of Dubai has represent isolated single solutions. In many companies, the path towards green announced that Dubai is looking at energy conservation and solar and wind schemes supply chains has not yet been determined. Among other things, this is caused by to help meet its electricity needs. The sheikh said that around 14% of peak electricity the non-existence of diverse external and internal basic conditions. To companies it needs could be saved by 2015 through a demand management program. ENPARK, the seems to be unclear what the precise legal requirements and standards will be. Energy and Environment Park is a model sustainable community and a Free Zone Furthermore, in many cases tools and methods for the creation of green supply chains spanning over 8 million square feet of office, research centre, residential, educatio- seem to be only partially known, are not mature enough or are just not available. nal and leisure facilities located in Dubai, United Arab Emirates. ENPARK is a special destination for clean energy and environmental technology companies to operate Only 12% of companies rated green issues among their top three supply chain and a fully-integrated knowledge community that includes programs, services, priorities according to a survey executed by Ernst & Young 12. According to a study 13 partnerships and amenities to support the success of environment companies and by the Business Performance Management (BPM) Forum and E2open the global their employees. ENPARK’s ambition is to offer a world class sustainable lifestyle and business community have been slow to address issues when it comes to sustainable build a sustainable culture 10. supply chain management, despite the enthusiasm regarding sustainability expressed by these organisations. Operations, logistics and supply chain executives 3.3 Implementing green efforts at an early stage lack the understanding of how to go green and remain green across complex, global, A recent study conducted by the Center of Innovation for Transport and Logistics at multi-tiered supply and distribution networks. Some of the major findings of this the Berlin Institute of Technology “Global Logistics 2015+”, showed that the study are 14: majority of the respondents expect that the absence of ecologically sustainable > nearly two-thirds have marginal or no visibility across all tiers and levels logistics will lead to financially tangible disadvantages. However, in most companies, of their value chain; efforts for implementing green logistics are still at an early stage. The majority has > 78% of companies rate the level of synergy and accountability in their global not yet assessed the environmental compatibility of their logistics (and even less of trading network as suboptimal; their supply chain) nor have they established concrete future targets or comprehen- > 42% of companies surveyed have yet to even consider carbon footprint or sive actions in this matter, which is often caused by an absence of instruments, greenhouse gas emissions across their entire extended supply chain. methods or standards. Among various means towards environmentally compatible 76% of respondents say their customers have not requested information on logistics, the largest growth will be encountered by the measuring and monitoring of carbon and emissions containment, but two-thirds expect customers to demand environmental impacts of logistics (e.g. for monetary costs and damage to human this in the next year; health or natural environment and CO2-emissions). Further strategies that will > Only 20% of respondents utilized the advantages provided by a centralized eHub. display strong growth are environmentally friendly sourcing, transportation and packaging. Despite the growing importance of environmentally compatible logistics, only limited funds are available for its financing in most companies, so the study showed. 11 Center of Innovation for Transport and Logistics at the Berlin Institute of Technology “Global Logistics 2015+”, 2009 8 www.masdarcity.ae 12 Ernst & Young, “Green for go. Supply chain sustainability”, 2008 9 www.hollandtrade.com 13 The study is titled “Acceleration of ECO-Operation: Achieving Success & Sustainability in the Supply Chain” 10 www.enpark.ae 14 www.greeneconomypost.com 14 15
  10. 10. 3.5 Level of awareness is rising There is no easy way to quantify the cost of going green. According to a paper On the other hand, 85% of respondents in the BPM and E2open survey say they are written by the Rotterdam School of Management 18 only a limited number of actively involved in new programs that drive operational efficiency, corporate social initiatives for environmentally-friendly production have proved to be profitable. responsibility (CSR) and cost-savings across supply and demand chains. Therefore, Literature and practice suggests that substantial improvement in the environment is let’s not over dramatise. The level of awareness is rising and there is an appreciation only possible with substantial investments that brings no or negative financial of the opportunities it offers within the supply chain. Coupled, however, with returns (Walley and Whitehead, 1994). The adoption of cleaner solutions is generally concerns over the cost and complexity of addressing it. bounded by an increase in costs. Companies should look at the cost of sustainability initiatives as an investment and should look for good trade-offs between environ- Many transportation companies and LSPs are able to enumerate day-to-day costs mental impact and costs. The Return on Investment (ROI) of going green can be more such as road charges, waste charges, waiting time of trucks in traffic hold-ups and sales, increased market share, enhanced visibility, happier employees, and a better fuel consumption. Although sustainability is not the main driver for this, they are brand. And, according to Anna Clark, President of EarthPeople, “cleaner air, a very well used to optimising the efficiency of their transports, by, for example, healthier climate, and a better future for your kids are not bad benefits either”. improving the capacity utilisation and avoiding empty runs. 63% of the respondents in the E&Y Green for Go survey see sustainability as an The most popular measures are those which typically require a relatively low opportunity for revenue growth. According to a recent survey performed by investment and lead to a reduction in costs 15. They included working with targets for Deloitte 19, ‘cost savings’ and ‘competitive advantage’ were identified as the top the loading degree and to create a more efficient transport of goods and to stimulate two business drivers for GrSCM, reinforcing the view that supply chain efficiency and behaviour that will lead to higher fuel-efficiency and a lower environmental impact. innovation, consistent with sustainability goals, should be the primary aims of green The implementation of, in particular, the first measure is however frustrated by supply chain initiatives. Yet a surprisingly high number of participants acknowledged regulations limiting the hours for deliveries. Due to these regulations, it has become that GrSCM measures to date are not expected to generate positive ROI for at least extremely difficult to really take logistical efficiency to a new level. After all, if the three years (30%) – if at all (22%). time-frame for deliveries is limited, more trucks will need to be deployed at the same time in order to make the same amount of deliveries within that time-frame. Furthermore, companies increasingly expect LSPs to enhance the greenness of existing services and to outline and offer further methods of resolution in their 3.6 Revenue opportunities: new product development and green customer’s logistics. It is expected that in many cases LSPs will have to provide the marketing or should we call it ‘green washing’? service costs neutrally and finance higher efforts through internal savings, for Four of the top five expected benefits generated by green activities are external instance, generated by higher energy efficiency. market-oriented benefits. The top two benefits that rate either most important or important are enhanced public relations (50 out 57 mentions) and enhanced brand Although final customers are the main driver for a company going green, passing on image (49 out of 57 mentions). The third is reduced energy costs (49 out of 57 additional costs to customers is not considered a viable option for the financing, mentions) followed by increased consumer loyalty and revenues (44 and 45 mentions, since they would not be willing to assume these extra expenses. The shippers, who respectively) 16. maintain a very strong negotiating position, as being the ones who have the power in many supply chains, are mainly interested in pricing at the level of procurement. Some ‘pessimists’ are of the opinion that companies gain ISO accreditations for Due to the very small margins the transportation sector has to operate with and the marketing purposes, just to tick a box on a supplier questionnaire or to include in a fact that sustainable business in practice is not rewarded by shippers, any attempt to tender. present sustainability-related efforts as a competitive advantage, seems to be perceived as futile and possibly even as a waste of investment. 3.7 Does ‘going green’ generate turnover? Difficulties are not only seen in the lack of comprehensive strategies, but also in A first step towards integrating sustainability better in the transport and logistics assessing related financial impacts. Many companies are not yet able to quantify the sector would be for companies to start monitoring and reporting on key environmen- costs that could be avoided or would arise due to a switch to a green supply chain tal and social performance indicators. This is necessary in order to gain insight into approach, nor are they able to determine how additional costs could be funded. the current environmental and social impact and to make improvements without If companies do have a budget, only limited funds seem to be available and the funding large initial investments 20, where possible. is mostly tied to single solutions/projects, instead of serving long-term strategies . 17 15 PricewaterhouseCoopers, Transportation & Logistics, “Moving green. Sustainability – insight into the Transportation 18 Quariguasi Frota Neto, J., J. Bloemhof, J. van Nunen, E. Van Heck, “Designing and evaluating sustainable logistics networks”, and Logistics sector”, 2009 International Journal of Production Economics, 2008 16 Florida International University, College of Business Administration, Ryder Center for Supply Chain Management, 19 Deloitte, “Green means go. Green supply chain management: opportunity today, imperative tomorrow”, 2008 “The state of Green Supply Chain Management. Survey Results”, 2008 20 Based on NEA’s own research and PricewaterhouseCoopers, Transportation & Logistics, “Moving green. 17 Center of Innovation for Transport and Logistics at the Berlin Institute of Technology “Global Logistics 2015+”, 2009 Sustainability – insight into the Transportation and Logistics sector”, 2009 16 17
  11. 11. 3.8 Rewards of going green are both tangible and intangible In spite of the payoffs that some big businesses have received from going green, Companies that adopt a pro-environment policy will see numerous positive results, many companies still view a sustainability commitment through the lens of both tangible and intangible. Early adopters of environmental strategies and green compliance. When companies progress beyond compliance and extend their supply chain initiatives: sustainability actions strategically, they become more nimble, and better equipped > mitigate business risks, by differentiating themselves from competitors, to meet the rapidly changing demands of the marketplace. transforming their companies into industry leaders, building credibility with stakeholders and attracting investors; > reduce operating costs; not started / problem eco- > motivate better performing suppliers, become preferred vendors in green supply defensive solving compliant efficient sustainable chains and attract consumers in the rapidly-growing green marketplace; > 15% > 20% > 40% < 15% > 10% > preserve business continuity, by attracting (the interest of) top job candidates, enhancing employee satisfaction and enhancing market access and degrees of business strategy freedom; Looking at the analysis by industry, the Florida International University College of > create significant competitive advantage by creating brand distinction Business Administration revealed that the Manufacturing & Retail sector is more and recognition; advanced than the Transportation & Logistics sector when it comes to ‘green’ > earn publicity with the local, regional or even national media. activities. 85’% of the companies in the Transportation & Logistics sector are either in the early stage or do not have a green strategy yet, while about 60% of the 3.9 Five stages towards sustainability companies in the Manufacturing & Retail sector are already past the early stage. Supply chain executives understand the benefits of better managing collaboration This data suggests, along with other research findings, that Transportation & and sustainability in the value chain — now they just have to make it happen. Logistics service companies are generally getting ‘pulled into’ green activities by Companies today can be classified in one of five stages of green supply chain their customers, namely Manufacturers & Retailers. maturity. Those stages are 21 / 22: Not started and/or defensive companies are either wholly ignoring sustainability There is no one-size-fits-all approach to sustainability, but here is a good plan by not taking action to address it or, at best, are taking action solely to the low- of action: hanging fruit of sustainability by disclosing their exposure to environmental > Investigate where your company can conserve resources and compose a and social risks to their suite of stakeholders. strategic sourcing and supplier engagement; problem solving companies are going one step further - these companies have been > Engage your employees as champions of the effort; gathering information, do not have a corporate sustainability statement or report, > Implement conservation measures throughout operations and facilities, but have initiatives in progress. improve efficiency of site operations and balance the economies of stock levels, Compliant companies are adhering to current and emerging regulation to ensure that service and order quantities; they avoid regulatory fines and the related damage to their reputation that such > Optimise network and transportation and provide integrated service fines could cause. management, returns, reverse logistics and parts management; Eco-efficient companies are coordinating their sustainability efforts, across their > Communicate your green efforts to stakeholders; functions, units and locations, at the enterprise level. They are wholly transparent > Seek ways to integrate an overall strategic approach to sustainability in all areas to the market - even if it means shedding light on the areas in which they need to of your company; improve. These companies see sustainability as an opportunity for growth; > Support industry and community sustainability initiatives. to capture this growth, these companies are reframing existing products and introducing new products to appeal to the sustainability conscious consumer. Sustainable companies have gone one step further – they have redesigned their corporate vision to be based on sustainability and are actively re-engineering their processes and supply chains to eliminate energy, water and waste inefficiencies while adhering to the strictest ethical and moral standards possible. 21 Accenture, “Compatible aims: sustainability and high performance”, 2009 22 Deloitte, “Green means go. Green supply chain management: opportunity today, imperative tomorrow”, 2008 18 19
  12. 12. Diamond Management & Technology Consultants developed a useful framework 23 that provides a structured approach that includes several of the necessary dimensions to plan and implement a successful green supply chain agenda. Green Supply Chain Framework ENVIRoNMENTAL Succesful Green CoMpLIANCE Supply Chain Implementation SUSTAINABLE SUppLy CHAIN EFFICIENCIES Business Partner Colloboration Measurement Operational Capabilities Metrics and Dimensions of Alignment Green Supply Chain Business VISIBLE LEADERSHIp organisational Foundation for Green BUSINESS CASE Supply Chain pRoGRAM GoVERNANCE Source: Diamond Management & Technology Consultants In this framework the key to extracting business value lies in establishing a long-term green supply chain strategy that is aligned with corporate strategy and approached top-down – with strong sponsorship. It also requires a strong business case for the green supply chain that highlights a prioritised list of targeted opportunities and a phased adoption roadmap. Finally, the initiatives need to be integrated with other companywide projects to ensure that one does not compromise another. In order to effectively implement a Green Supply Chain, the strategy should be embedded in the company’s Supply Chain and Operations organisation, as well as part of Marketing and Sales. Corporate Communications should be linked with sustainability initiatives to ensure that the impact of the initiative is being communi- cated to customers, shareholders, and the general public. 23 Diamond Management & Technology Consultants, “The case for a ‘green’ supply chain: Turning mandate into opportunity”, 2008 20
  13. 13. 4| How companies deal with sustainability within the supply chain 4.1 Introduction Facing sustainability issues is not easy. Timberland for instance was surprised to discover that its major carbon impact occurred before the company even got involved in the making of shoes. It was the manufacture of the raw materials, not the manu- facture and transportation of the final product, that caused the greatest impact 24. 4.2 Isolated approaches still dominate As has been pointed out in the previous chapter, companies who are involved in implementing sustainable strategies mostly have isolated approaches in separate parts of companies or their process-chains. The most common strategies are: > monitoring and accounting of green impacts. The intention here is to calculate the own carbon footprint and to start with environmental reporting; > sustainable transportation. Companies increasingly want to utilise co-modal transports and expect renewable energy to play a much more important role in the future; > green packaging. Ranging from applying reusable boxes and containers to recycling of packaging materials and the usage of environmentally compatible packaging materials (e.g. made of biodegradable materials and the adoption of reusable packaging); > sustainable sourcing. Companies seek to audit their suppliers greenness or purchase goods that are certified ‘green’; > involvement and cooperation with LSPs. Companies are assessing LSPs’ sustainable achievements during tenders and form partnerships to jointly develop green solutions. Transport Intelligence stated in 2008 that 90% of outsourcing decision-makers have indicated that ‘environmental stewardship’ will influence the outsourcing choices they will make when contracts come up for tender during 2009. And that is not all. Also sustainability of the built environment is quickly becoming an active consideration in traditional cost-benefit analysis. National and internatio- nal certification programs and award programs are setting standards, following in the wake of a rapid increase in the public’s awareness of sustainable development. The implementation of the EU Energy Performance of Buildings Directive and, in particular, the introduction of energy performance certificates (EPCs), is providing an EU-wide benchmark. The extent to which companies are prepared to push forward with ‘green’ agendas varies across sectors and markets. Progress can depend on wider environmental awareness. A case in point is the retail sector, where consumer 24 Accenture, “Achieving high performance: the sustainability imperative”, 2008 23
  14. 14. demand for ethical products over recent years has fed into the wider social respons- In April 2009 together with their forwarder, Mars launched the ’Green Order ibility efforts of retailers themselves 25. Initiative’. This makes Mars the first European food company calculating carbon dioxide emission on order placement level and also to display this on waybills. 4.3 ‘Greening’ gains importance in all sectors Green Order is to be fully integrated in the normal logistics process, collaboration Greening the industry gains in importance in all sectors. In high-tech, electronics, with logistic and commercial contacts being an important condition for success. fast moving consumer goods (FMCG), followed by automotive original equipment Now each supplier has a better insight into its order pattern and the impact on the manufacturer (OEM), sustainable solutions hold the greatest importance 26. environment. This way Mars makes suppliers more aware and it enables Mars to This applies to the own implementation and expectations of supply chain partners. optimize their transport. Mars strives for Green Order to be a generally accepted Retail, although surprising, follows this ranking at some distance. Along with FMCG standard within the business 29. it will display the highest future growth in these issues. The majority of companies in these sectors consider sustainable concepts as a competitive advantage. In these Logistics Service providers industries there even seems to be a humble willingness to pay for sustainable supply In October 2009, UpS became the first small package carrier to offer its customers chain concepts. the ability to offset the carbon dioxide emissions generated by the transport of their packages within the United States 30. Automotive Just recently, William Clay Ford Jr. (great-grandson of Henry Ford) and executive DB Schenker wants to become the leading green logistics provider – and by 2020 chairman of Ford Motor Company stated in an interview 27 that Ford will be winning discharge 20% less CO2 than in 2006. through sustainability. Profits will rise, as it delivers vehicles that are better for the environment, made in plants that are increasingly energy efficient and, consequent- Since the first ‘Climate Counts shipping scorecard’, released in late 2007, the biggest ly, less costly to operate. And Ford Motor Company is not the only car manufacturer improvements in the sector have come from FedEx and DHL. FedEx nearly doubled its going green. The Toyota Prius is a fully hybrid electric mid-sized car developed and score to reach the second place among major shippers after coming in last in 2007. manufactured by the Toyota Motor Corporation. It first went on sale in Japan in 1997, Along with other improvements, both FedEx and DHL did a better job of measuring making it the first mass-produced hybrid vehicle. It was subsequently introduced their global warming pollution in 2008. The two companies also strengthened their worldwide in 2001. Also other car manufacturers are implementing green strategies. goals to reduce greenhouse gas emissions, improved their reporting on the achieve- Renault for instance, is coming up with new concepts (ECO2 WAY) and TV commer- ment of real reductions, and increased the climate accountability of their manage- cials to show its commitment towards the environment. Volkswagen states to be ment. In addition, both DHL and FedEx have taken positive and increasingly vocal dependent upon the services of nature in many respects. With “forward-thinking positions on public policy and legislation that would address global climate change 31. management of opportunities for and risks to biodiversity, Europe’s number-one car manufacturer wants to provide an active contribution to sustainable development, DHL has committed itself to minimizing the environmental impact and has a and it wants to set a benchmark for other companies”. Volkswagen actively supports comprehensive environmental management program in place to do so. In 2008, the the spatial groupings of traffic routes designed to permit free movement for animals. ambitious ‘GoGreen’ climate protection program was launched. The goal is to reduce Volkswagen pushes for the development of efficient technologies and innovative CO2 emissions for every letter and parcel sent, every ton of cargo transported and vehicle concepts (BlueMotion and EcoFuel) and initiates projects for the develop- for every square meter of warehouse space used by 30% by 2020 (compared to the ment of economical and at the same time environment-friendly driving 28. 2007 baseline) 32. Mars, Incorporated 4.4 Dutch companies accepting the green challenge Throughout the entire supply chain Mars acts upon possibilities to contribute to a good working and living environment, starting with the purchasing of raw materials 4.4.1 Manufacturers and ending in a responsible consumption of the products. Together with their suppliers and customers they aim to make a difference in production and logistics DESSo too. In signing a partnership agreement with the Hamburg-based Environmental Protection Encouragement Agency (EPEA), DESSo has become the first carpet Mars is proud to be the first global chocolate company to commit to fundamentally manufacturer in EMEA to adopt the Cradle to Cradle design. It marks DESSO’s radical changing the way sustainable cocoa farming practices are advanced by aiming to decision to move beyond ‘mere’ sustainability in producing its carpets and artificial certify its entire cocoa supply as being produced in a sustainable manner, by 2020. grass, making a fundamental, sweeping advance in its already impressive environ- 25 Cushman & Wakefield, “Green buildings – a behavioural change”, 2008 29 www.mars.com 26 Center of Innovation for Transport and Logistics at the Berlin Institute of Technology “Global Logistics 2015+”, 2009 30 www.carbonneutralups.com 27 McKinseyQuarterly, Automotive, Strategy & Analysis, “Building a sutainable Ford Motor Company: An interview with Bill Ford”, 2010 31 environment.about.com, “Environmental issues. Shipping companies improve climate performance in 2008”, 2009 28 www.volkswagenag.com 32 www.dp-dhl.com 24 25
  15. 15. mental credentials. DESSO has been working on the Eco effectiveness and Eco integrated business-sustainability plan. Business managers should directly efficiency. Their current energy efficiency index is 73%. Today, waste recycling from participate in their design and implementation. their factories exceeds 90%, and all packaging is 100% recyclable. At the production facility at DESSO in The Netherlands alone, they have reduced energy consumption 4.4.2 Transport and logistics (per m2 of product produced) by 23% since 1998, resulting in a 23% reduction in It seems that a lot of logistics companies are lagging behind compared to front CO2 emissions 33. runners in the sector (among others TNT, Air France/KLM, Port of Rotterdam, Amsterdam Airport Schiphol). But still, there are many inspiring examples and Definiton of Cradle to cradle 34 these are not only developed by global players: Cradle to Cradle means that non replaceable natural resources can be used again and > The Van Gansewinkel Group sees waste as the foundation for new raw again in the same way. It is a bit different from recycling that is applied more often materials and energy. Van Gansewinkel’s role and responsibility is to complete since it is also taken into account that natural resources should be used again at the the circle. In recent years, Van Gansewinkel has transformed itself from a end of the lifetime of the product as the same substance (waste equals food). traditional waste collector to a sustainable (and award winning) raw materials Cradle to Cradle is about eco-effectiveness and ‘doing the right things’. and energy company; > Boekhout Transport won one of the Lean and Green Awards. Together with the Dutch Van Houtum’s tissue paper first with C2C certification Climate Neutral Group, Boekhout have calculated the CO2 emissions from their The Dutch company Van Houtum papier is the world’s first recipient of Cradle to fleet and expressed it in terms of CO2 emissions per pallet/km transported. Cradle (C2C) certification which it has won for its toilet paper product, Satino The entire emissions generated by Boekhout distribution will be offset, by Nature. Van Houtem received the designation from the American MBDC agency. ClimateNeutral Group, with investments in tree planting and energy projects. It guarantees that the production process for Satino Nature is entirely environmen- For International Full Truck Loads they are offering carbon-neutral transport as an tally friendly. Van Houtum aims to operate in a CO2-neutral manner in its production option for their clients; of sustainable toilet paper and paper towels, to replace grey gas with green gas, > Rotra Forwarding b.v. introduced the Mercedes-Benz Econic NGT (Natural Gas and to use packaging materials that do not release biologically unfriendly substances Technology) distribution truck and is the first company within Europe to use a into the environment. Van Houtem’s products are distributed throughout Europe, truck on ethanol developed by Scania; North America and the Caribbean 35. > Ten Dutch transporters decided to report on their CO2 emission in their annual report: Den Hartogh Logistics, Jan de Rijk, Van den Bosch, H&S Groep, Mosa the world’s first Cradle to Cradle ceramic tile factory HZ Transport, Bas Logistics, Vos Logistics, Gé Simons, Rutges en Albert Keijzer; Holland’s Royal Mosa is the world’s first ceramic tile factory to receive the Cradle to > EVo (Dutch shipping counsel) proposes a 10 step plan to reduce CO2 to Cradle certificate. An intensive research and development program, lasting two the government. years, preceded the certificate. Together with the EPEA Institute Royal Mosa scanned its entire manufacturing process, raw materials, suppliers and products. Nowadays, shippers are hiring their own intermodal transport managers in order to Materials that were not sustainable were replaced by materials that are. Mosa develop sustainable transport. Companies are getting more and more sensitive with adapted their production methods where possible to make high quality tiles which regard to sustainability as a sales argument to purchase intermodal transport like are recyclable. Now Mosa tiles contain 10% to 40% recycled material. Tile waste rail and barge transport. Van den Bosch Transporten have opted to adopt a proactive from within the factory was already recycled in a closed cycle, but other tile waste approach with respect to restricting the emission effects as much as possible. often ends up in landfill. Therefore the company has started a pilot project in the In applying intermodal transport, in which the company puts a strong believe, Netherlands to separate and collect tile waste from construction sites and use it for Van den Bosch Transporten intends to restrict its emissions of harmful substances. new tiles. The result of this program is that most Mosa tiles are being classified as The company in its own words, “we want to be a front runner with respect to ‘to be used in the technical Cradle to Cradle-cycle, but safe for the biological cycle’. corporate sustainability and not await market developments. Intermodal transport The company also launched pilot projects to collect tile waste as raw material to be has grown considerably over the past couple of years, even partially at the expense used for new tiles 36. of road transport”. In order to convince the customer of the positive impact on emissions of rail To maximize their effectiveness for the global company, greening the supply chain transport, compared to road transport, Van den Bosch Transporten developed a initiatives should not exist separate from the mainstream activities of the business. monitor with which the CO2 emission can be calculated. Based on the most up-to- Rather, they should be fully integrated with and reflect the core value proposition of date calculation tools, the emissions of a rail transport are compared to those of the the business strategy. They should yield measurable results that are part of an same transport by road. It turns out that rail transport has much lower CO2 emissions 33 www.desso.com 34 McDonough, W. and Braungart, M, “Cradle to Cradle: Remaking the Way We Make Things”, 2002 35 www.hollandtrade.com 36 www.mosa.nl 26 27

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