Green Supply Chain Management in Asia-Pacific

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GIA Industry White Paper

Green Supply Chain Management in Asia-Pacific

August 2009 Global Intelligence Alliance ©2009. All rights reserved. Contact: Kelvin Inn [email protected] Kim Khoo [email protected] Web: www.globalintelligence.com Tel: Singapore (65) 6423 1681 Hong Kong (852) 2107 4299

Green Supply Chain Management in Asia-Pacific | Aug 2009 www.globalintelligence.com

Executive Summary To green or not to green? Asia-Pacific’s stance on green practices Not included here Green supply chain management tools Not included here Asia-Pacific green SCM case studies Not included here

This GIA Industry White Paper provides an overview of green supply chain management practices in the Asia-Pacific region. The report is provided as is, free of charge and without any warranty or guarantee. Global Intelligence Alliance rejects responsibility for errors or omissions, or for any loss or consequential loss arising as a result of decisions taken based on its contents. ©2009 Global Intelligence Alliance. All rights reserved. This report is copyright, however individual pages or portions thereof may be copied referencing “Global Intelligence Alliance” as the source. Global Intelligence Alliance (GIA) is a strategic market intelligence and advisory group. GIA was formed in 1995 when a team of market intelligence specialists, management consultants, industry analysts and technology experts came together to build a powerful suite of customized solutions ranging from outsourced market monitoring services and software, to strategic analysis and advisory.

Today, we are the preferred partner for organizations seeking to understand, compete and grow in international markets. Our industry expertise and coverage of over 100 countries enables our customers to make better informed decisions worldwide. For further information please see the About Global Intelligence Alliance section at the end of this report, contact the author or visit www.globalintelligence.com

Contents

This contains excerpts from GIA’s “Green Supply Chain Management in Asia-Pacific” White Paper. For the free white paper, please visit www.globalintelligence.com or email [email protected].


Abbreviations and acronyms 3Rs Reduce, Reuse and Recycle – waste

management strategies, in order of importance

CDM Clean Development Mechanism

CPG Consumer Packaged Goods CSR Corporate Social Responsibility

EPA Environmental Protection Administration, Executive Yuan, Taiwan

ESG Environmental, Social & corporate Governance – issues in responsible investing

EU European Union

GG Guitang Group (China) GSC Green Supply Chain

GSCM Green Supply Chain Management ICT Information and Communications

Technology

ISO14000 Standards for an Environmental Management System (EMS) set by the “International Organization for Standardization” (ISO)

LCC Low Cost Country

MOE Ministry of the Environment, Japan

MNC Multi-National Corporation

NDRC National Development and Reform Commission , China

NEA National Environment Agency, Singapore

PRI Principles for Responsible Investing

REACH Registration, Evaluation, Authorisation and Restriction of Chemical substances (European Community directive 2002/95/EC)

RoHS Restriction on Hazardous Substances (European Community directive 2002/95/EC)

SCM Supply Chain Management

SPB Seshasayee Paper & Board (India)

VC Venture Capital

WEEE Waste Electrical and Electronic Equipment (European Community directive 2002/96/EC)

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Executive summary


Asia’s Rationale For Going Green

Green SCM adoption set to rise, affecting most industries in the Asia-Pacific region

Executive summary

MULTIPLE STAKEHOLDERS

(retailers, customers, consumers,

government) are driving new focus on sustainability and corporate

governance in the market place.

MARKET FORCES (scarce resources, bottom line improvement need) are driving firms’ new focus

on “green-ing” their supply chains -

manufacturing, sourcing & logistics.

Firms in Asia, as the major sources of raw materials, components and finished products worldwide, are

being pressured by MAJOR DOWNSTREAM

CUSTOMERS (e.g. Walmart) to go “green”.

STRICTER EUROPEAN ENVIRONMENTAL REGULATIONS (RoHS, WEEE, REACH) have

influenced Asian governments to pass similar laws that focus on process & pollution prevention and product

regulation; these force change within companies competing in the global supply chain, and also affect their relationships

with other organizations.

IMPACT on UPSTREAM suppliers:

•  Chemicals, Paints, Additives, Oils

•  Materials - Cement, Concrete, Ceramics, Glass, Iron & Steel, Paper, Minerals & non-ferrous Metals, Textiles

IMPACT on DOWNSTREAM users:

•  Cosmetics

•  Electronics

IMPACT on consumer durable & nondurable goods such as:

1. Food & Beverages

2. Consumer electronics

3. Apparel

•  IMPACT on all industries

•  “Green” supply chain management offers an expanded way to think about cost reduction and profit improvement.


Case studies yield some green supply chain best practices to reduce costs and increase revenues

Executive summary

Asian examples of “green” best practices •  The Chinese sugar refinery and Indian paper firm case studies brilliantly apply the green “3Rs” principle of “Reduce, Reuse

and Recycle”; with both firms diversified into related industries - sugar, paper, alcohol and cement – and utilising waste products of the other industries as raw materials or for power generation.

•  Case studies also highlight the importance of building effective incentives with external parties (suppliers, competitors, customers and government) to improve the robustness of the supply chain system on all levels: local, national and international.

•  The Japanese IT multinational case study illustrates the benefits of centralization, sharing infrastructure and route optimization in a local context, that can result in relatively large efficiency improvements and cost reductions.

Reduce, Reuse & Recycle waste products

Raw materials

for another product

Energy generation for plant

Establish supporting network of external parties motivated to ensure sustainability

of green supply chain

Suppliers Customers

Government Competitors

1.  Logistical centralization for economies of scale.

2.  Share logistical overhead with partners for cost reduction.

3.  Optimize transportation routes to further reduce costs.

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To green or not to green?


Green supply chain adoption driven by management, organizational learning, market pressures and government regulations

To green or not to green

Now

Future

Dri

vers

In

hibi

tors

International customer pressure

and competitive advantage for

suppliers, e.g. 2nd-tier local supplier

could be chosen over MNC’s home supplier

Now

Future

Insufficient management commitment

and supply chain partner

support

Insufficient green SCM

knowledge by many SC

professionals

Inconsistent government regulations across Asian

countries increases compliance complexity, except where strictest

standards adopted

Fears of high upfront costs

and long payback

period

Scarce resources &

unstable prices mean competitive advantages from better

resource use & efficiency

Government introduction of stricter

domestic and international

regulations, e.g. RoHS, WEEE and environmental

guidelines such as ISO14001

Consumers are environmentally-

conscious and apply institutional pressure,

e.g. Principles of Responsible Investment

(RPI) framework & Environmental, Social &

corporate Governance (ESG) criteria

Company/management Market Government

Company/management Government

Source: Global Intelligence Alliance research & analysis



Green supply chain has tangible cost & efficiency advantages as well as intangible & emotional benefits

Green Supply Chain Management (GSCM)

Benefits

Suppliers and Manufacturers •  Reduced input costs (raw materials,

utilities, logistics) and overall production costs

•  Reduced waste disposal costs. •  Better operational efficiency and

resource usage leading to possible competitive advantages.

• New revenue opportunities

Customers •  Lower lifecycle cost of ownership for

customers

Environment •  Lower environmental load for local

environment and ecosystem

Society •  Less consumption of finite global

resources

Tangible

All Supply Chain Players •  Improved motivation, pride

and moral about “doing good” for society among stakeholders throughout supply chain (e.g.. employees, shareholders, management, partners)

•  Improved corporate image and branding for suppliers and manufacturers

•  Improved customer “feel-good” factor and quality of life

Emotional

Suppliers and Manufacturers • Greater ease of manufacturing (e.g.

less waste) and improved quality (more consistent)

Customer • Higher levels of convenience and

satisfaction (e.g. detergent that cleans in cold water)

Environment • Overcome cynicism over

environmental concerns

Society • Greater care and attention to

environmental issues in non-work context

Intangible

Source: Global Intelligence Alliance research & analysis



Source: Carbon Disclosure Project

Carbon Disclosure Project (CDP4) - 2006 Carbon Disclosure Project (CDP5) - 2007 Carbon Disclosure Project (CDP6) - 2008

90

80

70

60

50

40

30

20

10

0

Per

cen

t R

esp

on

din

g (

%)

More companies in every economic sector are taking the first step towards managing carbon emissions

Carb

on D

iscl

osur

e Pr

ojec

t re

spon

se r

ate



Greener supply chains being enabled by current VC investment in green technologies for future use

• According to Greentech Media, VC investment in green energy technologies in US, EU, Israel and Australia exceeded US$2.8 billion in Q3 2008, continuing the growth momentum from previous quarters (1Q 2008=US$998 million, 2Q 2008=US$1.3 billion).

• VC investment and interest in green energy technologies is expected to continue.

•  Every niche in green technology is being explored, especially solar energy.

•  Strong investment is expected to lead to commercialization and wider adoption of technology within a short time period.

Source: Greentech Media, 2008

Venture capital investment in green energy technologies by industry, Q3 2008


Downstream product “specifiers” have major roles to play in driving greener supply chains


Components manufacturer

Raw materials provider

Industrial equipment manufacturer

Transportation &

logistics services

Major influencer for greener supply chains

76 % of procurement survey source from China

50 % of procurement survey source from

India

‘Other Asia’ (49%): Thailand, Taiwan, Korea, Singapore, Malaysia, Vietnam, Burma and the

Philippines

•  Eyeforprocurement conducted a ‘Sourcing in Low Cost Countries Survey’ in March and April 2008. •  Sourcing practices of 200 procurement professionals, senior executives from manufacturers, retailers and 3PLs operating in various verticals in

North America, Europe, Asia and Africa were surveyed. •  59% of respondents were based in North America, 23% in Europe and 13% were from Asia and Africa.

Source: Global Intelligence Alliance analyses with survey data from eyeforprocurement, 2008.

Product ‘Specifiers’

Pharmaceuticals

CPG Automotive & Transportation

Other Industrial

ICT


As a key source for components, equipment & raw materials, Asia’s role in green supply chains is crucial


•  Asia, especially China and India, continues to be the top region for low cost sourcing.

•  Components and raw materials sourcing from Asia shows strong growth, becoming prime targets for green SCM efforts.

•  Green SCM requires high levels of cooperation with suppliers, implying better management of supply chains at supplier companies.

•  Walmart started greening its supply chain in 2005

•  First, it reorganised its internal supply chain.

•  Second, it put pressure on 1000s of its Chinese suppliers in 2008 to “green” their supply chains also, e.g. reducing packaging used and improving product energy efficiency.

•  Regulations such as RoHS/WEEE and REACH are especially relevant for pollution control of all components and raw materials.

! ‘Other Asia’ includes Thailand, Taiwan, Korea, Singapore, Malaysia, Vietnam, Burma and the Philippines

Low-cost source country (% respondents)

Products / services sourced in low cost countries (% respondents)

Sources: (1) eyeforprocurement survey, 2008; (2) news articles


Survey of APAC countries indicates consumers are prepared to pay a higher price for going green


Source: TNS

How much more would consumers be willing to pay for green products?

• According to a TNS survey of 17 countries and 13,000+ respondents, consumers are willing to pay the higher price required to go green.

•  In Japan, consumers were the most enthusiastic with 70% accepting a 5% price premium.

•  In Singapore 38% would pay 10% more, in Australia this was 33%, followed by 26% in Japan.

• Consumers most likely to think green for food, with the majority believing it is 'right' or 'fair' for retailers to adopt choice editing, or the practice by which they remove unsustainable products from the shelves, leaving only environmentally-friendly options.

Willingness to pay more for eco-friendly products

Thailand 94%

Malaysia 82%

Korea 81%

Singapore 70%

Consumers willing to shoulder part of the cost for going green

Hong Kong 55%

Australia 54%

Japan 50%

Source: TNS

% consumers accepting a 5% price premium Japan 70%

Australia 57% Singapore 55% Thailand 49%

South Korea 41% Malaysia 40%

Hong Kong 35%


These slides are excerpts from the GIA White Paper: “Green Supply Chain Management in Asia-Pacific”.

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Outlook for green supply chain in Asia Pacific | Aug 2009 www.globalintelligence.com www.globalintelligence.com

About GIA


Global Intelligence Alliance (GIA) was formed in 1995 when a team of market intelligence specialists, management consultants, industry analysts and technology experts came together to build a powerful suite of customized solutions ranging from outsourced market monitoring services and software, to strategic analysis and advisory.

Today, we are the preferred partner for organizations seeking to understand, compete and grow in international markets. Our industry expertise and coverage of over 100 countries enables our customers to make better informed decisions worldwide.

GIA is a strategic market Intelligence and advisory group

Green Supply Chain Management in Asia-Pacific | Aug 2009 www.globalintelligence.com - page 18

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