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Lecture 15

Sustainable Supply Chains

Alexa Kirkaldy

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Learning objectives

• To provide a framework for analysing sustainability in the supply chain

• To explore key action areas to improve supply chain sustainability

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Sustainability

“Sustainability is about minimizing a business’ negative impacts on people, societies and the environment while maintaining or enhancing value for customers, business partners and shareholders. In effect, it’s doing good and doing well at the same time.”

Source: Accenture

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Supply Chain Environmental footprint

Green Warehousing

Green Transportation

Construct Green Warehouses

Renewable & Efficient Energy Usage

Optimise Storage Space Optimise

Goods Movement & Handling

Reduce Inventory

Reverse Logistics

Reduce Fossil Fuel Consumption

Fleet Management

Reduce movements and optimise routes

Maximise utilisation

Appropriate mode selection

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Green•Pollution Prevention•Emission Control

Logistics• Reduce Cost• Fast Deliveries

The Wheel of Green Logistics

Adapted from Emmett & Sood (2010)

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How far did this T-shirt travel?

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The supply chain impact…

Rivoli: The travels of a T-shirt 2005

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22/35

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Why is business interested in sustainability?

• To satisfy customers

• To comply with regulations

• To save money

• For PR

• For moral reasons

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The Triple Bottom Line

Environment

Economics

Social

Christopher 2011

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Planet, People, Profit

Accenture 2008

How can supply chain help?

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The Triple Bottom Line - components

Environment

Economics

Social

Ethical trade

Transport

Pollution

JobsWaste

Health & safety

Carbon footprint

Renewable resources

SourcingCorporateSocialResponsibility

Reverse logistics

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Scope of CSR

CSR concerns will include:

• Avoiding the use of child labour or slavery in the production of goods

• Paying a fair price for goods• Respecting human rights and welfare• Respecting animal rights and welfare

– Cruelty– Use for testing

• Avoiding damage to the environment– Carbon footprint– Sustainability– Recycling

http://www.dpd.co.uk/content/product-services/video/total-zero.html

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Which has the lower carbon footprint?

Green beans flown in from Kenya

Green beans grown in the UK

http://www.theguardian.com/environment/2008/mar/23/food.ethicalliving

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Calculation of transport emissions

McKinnon Model

• Initially used air freight for deliveries – 4 to 6 day delivery to all customers globally

Target to reduce CO2 emissions and transport costs

Led to significant changes at every level within the supply chain

Utilised DEFRA (Department for Environment Food and Rural Affairs in the UK) figures to compare emissions for both modes

Air uses 610 grams of CO2 per ton of cargo shipped per kilometreSea uses 13 grams of CO2 per ton of cargo shipped per kilometre

Nortel tracked their results from 10/2008 to 04/2009 and reduced emissions from 8521 metric tons of CO2 to 2,091 metric tons.

Saved $1 million dollars in freight costs with air being five times more expensive than sea freight

WERC SHEET July/August 2011

Logistics – case study – Nortel Global Logistics

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WEEE (Waste from Electric and Electronic Equipment)

• WEEE - Since August 13, 2005, companies that sell electrical and electronic equipment bearing their trade name(s) in the EU have had to arrange and pay for the collection, treatment, recycling, recovery and disposal of their equipment

• Companies that do not comply with the Directive will be subject to penalties and/or prevention from selling EEE in the EU

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Implications to Cost of Goods Sold…

The cost of goods sold after WEEE Legislation is on average 5-6% higher,

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Forward and Reverse logistics are fundamentally different

Forecasting relatively straightforward

Forecasting more difficult

One to many distribution points

Many to one distribution points

Product quality uniform Product quality not uniform

Inventory management consistent

Inventory management not consistent

Product lifecycle manageable

Product lifecycle issues more complex

Deposition options clear (deliver to customer)

Deposition options not clear

Forward SCM Reverse SCM

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Reverse logistics options

Separate from Forward Supply Chain• Likely to increase fixed costs

Collaborate for mutual advantage• Realise synergies and economies of scale in

physical processes

Outsourcing • Service provider management• Effective Excess inventory / Liquidation / resale

optimisation • Leverage low cost labour markets for product

rework/refurb• Data management for improved Customer

Relationship management• Proactive feedback into Suppliers

Bu

sin

ess

Imp

act

Reduction in Fixed Costs

Develop bespoke in-house-

solution

Third Party Integrator

Integrate with

forward supply chain

Share logistics infrastructure

High

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hL

ow

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What is ethical trade?

• Ethical trade means that retailers, brands and their suppliers take responsibility for improving the working conditions of the people who make the products they sell. Most of these workers are employed by supplier companies around the world, many of them based in poor countries where laws designed to protect workers' rights are inadequate or not enforced.

• Companies with a commitment to ethical trade adopt a code of labour practice that they expect all their suppliers to work towards. Such codes address issues like wages, hours of work, health and safety and the right to join free trade unions.

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Ethical trade - Tesco

being increasing embraced by retailers in response to demands from their customers……

http://www.tescoplc.com/site/library/policiesandfactsheets/ethical-trading-at-tesco.htm

Tesco's 'Trading Fairly' programme is a core element of their promise to buy and sell our products responsibly:  "so our customers can know that everything they buy is produced under decent conditions, and everyone involved is treated fairly".

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Ethical trade challenges

‘GAP moves to recover from Indian child labor scandal ‘– NY Times

Undercover reporters exposed child

labour in three of India's garment

factories sub-contracted by Primark. -

BBC

It is very difficult to oversee working practices and conditions in remote suppliers

Child labour scandal hits Adidas:

Brutality, poor wages and 15-hour

days in the Asian sweatshops – Observer

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FAIRTRADE

‘Fairtrade is about better prices, decent working conditions and fair terms of trade for farmers and workers’

The FAIRTRADE Foundation works with retailers and suppliers to achieve positive outcomes for suppliers and customer and positive CSR

http://www.fairtrade.org.uk/

https://www.youtube.com/watch?t=93&v=i2em5C5pJtw

Sustainability at IKEA

25http://www.theguardian.com/sustainable-business/2015/apr/30/ikea-makes-75-of-its-home-furnishings-from-sustainable-cotton

Ikea makes 75% of its home furnishings from sustainable cotton

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Ikea uses a lot of cotton – around 0.7% of the world’s cotton supply.

Ikea sources 74% of the cotton it uses from sustainable sources. This will increase to 100% by the end of 2015.

Ikea is known for its affordability, Ikea sells sustainable cotton at the same price as conventional cotton.

In 2005 the company joined forces with the World Wide Fund for Nature (WWF) and other stakeholders to form the ‘Better cotton initiative’ (BCI).

Since then IKEA has invested €1.34m (£970,000) in sustainable cotton farming projects and helped around 110,000 cotton farmers adopt more

sustainable practices.

BCI sets social and environmental criteria for the production of more sustainable cotton; cutting farmers’ use of water and expensive pesticides by 50%

and their usage of chemical fertilisers by 30%.

Addresses other risks associated with conventional farming; low yields due to soil depletion, dropping water tables and a lack of technical know-how

can make cotton farming financially impossible for farmers, who then switch to other cash crops.

Within its supply chain Ikea tries to reduce the amount of cotton it buys by improving efficiency, blending it with other materials and replacing it with

alternatives, such as cellulose fibres.

Farmers supported by the Ikea initiative are free to sell their cotton to any buyers. This makes more sustainable cotton available on the global market,

ensuring a more stable supply and limiting price volatility.

Projects in India and Pakistan to reduce the amount of water it takes to produce cotton in water-scarce regions, with the aim of protecting water levels

in reservoirs and water tables. Farmers taking part in the project are using water management techniques that can be scaled up and adopted by large

numbers of farmers in both rain-fed and irrigated cotton growing areas.