Research Report

Sumeet Singh Master of International Business 2009-11 Department of Commerce Delhi School of Economics University of Delhi

SUSTAINABLE SUPPLY CHAINS

1

RESEARCH REPORT

PAPER NO: 547

SUSTAINABLE SUPPLY CHAINS

Under the aegis of Professor Kavita Sharma

Master of International Business- 2009-11 Department of Commerce Delhi School of Economics

University of Delhi

2

Acknowledgement

A study like this is never the outcome of the efforts of a single person. I would like to thank all those who helped me throughout this project by mentoring me, guiding me and showing me in the right direction.

First and most importantly, I would like to thank Dr. Kavita Sharma for mentoring me. She has been a guiding force in this project.

Also, I would like to thank Mr. Vivek Saraswat, Head- Execution at Louis Dreyfus Commodities for helping me understanding the finer details of a supply chain.

I would like to thank Mr. Shantanu Gangal, Associate Consultant at Boston Consulting Group for pointing me to the BCG reports which were immensely helpful in providing me the data that shaped up this report.

Sumeet Singh Master of International Business- 2009-11 Department of Commerce Delhi School of Economics University of Delhi

3

Undertaking

This is to certify that the project titled “Sustainable Supply Chains”

which is submitted by me in partial fulfilment of the requirement for

the award of “Master of International Business” from Department

of Commerce, Delhi School of Economics, University of Delhi, Delhi

comprises only my original work and has not been submitted in part

or full for any other degree or diploma of any university.

Sumeet Singh Master of International Business- 2009-11 Department of Commerce Delhi School of Economics University of Delhi

4

Certificate

This is to certify that the Research Project titled “Sustainable Supply

Chains” is an academic work done by “Sumeet Singh” submitted in

the partial fulfilment of the requirement for the award of “Master of

International Business” from “Department of Commerce, Delhi

School of Economics, University of Delhi, Delhi” under my guidance

& direction. To the best of my knowledge and belief the data &

information presented by him/her in the project has not been

submitted elsewhere in part of full.

Dr. Kavita Sharma

Department of Commerce

Delhi School of Economics

University of Delhi

5

Abstract

In the past few years, India Inc. has increasingly expanded its global footprint. The value of actual Indian investment abroad stands at a towering $ 1500 million.

As more and more organizations across the globe jump upon the green bandwagon, Indian companies should leave no stone unturned to be left behind

This report explores a very prominent operational aspect of an organization’s day to day operations leaving the largest carbon footprint at times, The Supply Chain.

A green Supply Chain or a sustainable supply Chain is a wonderful operational aspect to start from. In this report, you will find an empirical case of how the world is building sustainable supply chains and India Inc. needs to make an early move towards the same.

6

CONTENTS

1. Executive Summary 2. Research Methodology 3. Supply Chain and SCM

a. What is a supply chain? b. Supply Chain Management

4. Sustainable development a. Sustainable Development & Business b. Sustainable Development in the Indian Context

5. Why go Green? 6. Sustainable Supply Chains

a. Present Day Trends 7. Developing a Sustainable Supply Chain

a. Green transportation i. Clean vehicle Technologies ii. De-Speeding the Supply chain

iii. Enabling low carbon Production- Through changes in agricultural Sourcing

iv. Optimised Networks v. Energy Efficient Buildings vi. Packing design Initiatives vii. Enabling Low Carbon Production- Through changes in manufacturing

sourcing viii. Training and Communication Programmes

ix. Modal Switches x. Nearshoring xi. Reducing Congestion

xii. What carries Loads? – Pallets xiii. Carbon Minimiser technology

b. Reverse Logistics i. Alternate methods of managing Waste in the Supply Chain

c. Zero Waste Supply Chain 8. Case Analysis

a. Wal-Mart b. Australian Concrete Industry c. Analysis

9. Conclusion 10. References

7

Executive Summary

This is the information age that we live in. We are witnessing a new India today, an India which is home to powerful business houses, a robust economy and the youngest workforce. Global inter-linkages are the order of the day. More and more Indian companies are expanding abroad. A lot of them are acquiring companies abroad, a feat never thought of earlier. This is the era of the Indian Multinational.

There is something that this cross border business activity gives rise to. The movement of organizations, people, technology, raw materials, finished products, expertise and a lot more across a chain of organizations across geographies, The Network known as The Supply Chain.

The Indian multinational is collaborating with many global organizations which form this network of supply chain moving organizations, people, and technology, products (Raw materials or finished goods).

There is also an increasing move towards a phenomenon called Sustainable Development. The entire world is now committal towards the environment. Lately, the international community has realized that in the past few decades of development in the western nations and the third world, there has been a lot of irreversible damage to the environment. The results of this damage have now begun to show in the form of non-regular climates, increased global temperatures, melting of glaciers and so on.

Hence, the global community, business and political has come up and committed itself to the cause. This has brought forth the concept of sustainable development which primarily means developing in such a way that the environment is not harmed and yet development is not stymied.

Linking the two rising phenomena, we can clearly observe that the rising India Inc. needs to match the steps with the international community as it further progresses. Every day we hear stories about joint synergies in the form of joint ventures, mergers and acquisitions of Indian companies with organizations abroad, these ventures cannot survive unless the Indian organizations take a step forward and improve or introduce their commitment to the environment.

8

Research Methodology

This report is an empirical study. It is an analysis of practices prevailing in the global Business arena pertaining to supply chain and prompting Indian companies to adopt practices suiting them.

According to the nature of the project chosen, the type of research that will be carried out would primarily be a descriptive research, having a qualitative approach.

The paper is essentially a secondary research. Secondary data was acquired from various sources duly referenced in the last section of this report. The available data and information was analysed and hence the report prepared.

A very interesting aspect is the use of consulting reports. Usually, a research like this depends a lot on information and data available on the internet. The Major search engines like Google, Bing, Metacrawler etc throw up almost the same result but none of them link to studies conducted by consulting firms.

All major consulting firms like BCG, Bain, McKinsey & Co. And also our very own Infosys Consulting and TCS publish reports of their findings freely on the internet. These reports are often very relevant and they are only read only. It means that contents from those reports cannot be copied straightaway. So these reports make a good source of data that is reliable and avoids plagiarism.

Some parts pertaining to the understanding of the Supply Chain and its nuances were part of the primary research which I did with Mr. Vivek Saraswat, Head-Execution at Louis Dreyfus Commodities.

9

SUPPLY CHAIN MANAGEMENT

What is a supply Chain?

The Supply chain is a network of companies which work together and implement cross functional relationships and act as key customers and suppliers in this network. It is a Business model and function that no organization can do away with.

There are a lot of interpretations and definitions doing the rounds for a supply chain. There is even a management function lurking around called supply chain management. According to some theories, supply chain is just a new name for logistics, for some, it pertains to just external logistics. For a lot of others, it is the function of purchasing, distributing or moving products in finished, intermediate or raw form across a network and yet for others it is a combination of all of these.

A supply chain is a system of organizations, people, technology, activities, information and resources involved in moving a product or service from supplier to customer. Supply chain activities transform natural resources, raw materials and components into a finished product that is delivered to the end customer. In sophisticated supply chain systems, used products may re-enter the supply chain at any point where residual value is recyclable.

In reality, we have to understand that a supply chain and its management are Business functions which inherently involve a lot of cross functioning. It is better to view the supply chain as a vast network. A network, where a supplier can be a customer or a supplier of another supplier, a customer can be supplier to someone else and many more overlapping roles.

Hence, from a stakeholder viewpoint, a supply chain is all about a network of organizations and individuals which aim towards integration of key user processes with movement of information, products and value for all the stakeholders.

Supply Chain and its Management

Supply chain management (SCM) is the management of a network of interconnected businesses involved in the ultimate provision of product and service packages required by end customers. Supply chain management spans all movement and storage of raw materials, work-in-process inventory, and finished goods from point of origin to point of consumption.

CSCMP’s Definition of Supply Chain Management Supply chain management encompasses the planning and management of all activities involved in sourcing and procurement, conversion, and all logistics management activities. Importantly, it also includes coordination and collaboration with channel partners, which can be suppliers, intermediaries, third party service providers, and customers. In essence, supply chain management integrates supply and demand management within and across companies.

10

In today’s environment, there is the added pressure to be more socially and environmentally responsible and there are risks which need to be mitigated and managed. Then, there is the complexity created by ever increasing customer requirements and expectations, globalization, the pressure on cost, and the availability and access to resources. On top of this, management is expected to improve profitability, increase revenue growth and capture and protect larger market share. In order to succeed, management must recognize that the ultimate success of an organization depends on the ability to integrate the company’s network of business relationships in a mutually beneficial way.

The management of this network of relationships is supply chain management. Successful supply chain management requires cross-functional integration within the firm and across the network of firms that comprise the supply chain. It is focused the improvements in performance that result from better management of key relationships.

By understanding the supply chain management processes and how they should be implemented, management will better understand the value of more integrated supply chains and how this integration will lead to increased shareholder value and a sustainable competitive advantage.

Supply chain management is a cross-function approach including managing the movement of raw materials into an organization, certain aspects of the internal processing of materials into finished goods, and the movement of finished goods out of the organization and toward the end-consumer. As organizations strive to focus on core competencies and becoming more flexible, they reduce their ownership of raw materials sources and distribution channels. These functions are increasingly being outsourced to other entities that can perform the activities better or more cost effectively. The effect is to increase the number of organizations involved in satisfying customer demand, while reducing management control of daily logistics operations. Less control and more supply chain partners led to the creation of supply chain management concepts. The purpose of supply chain management is to improve trust and collaboration among supply chain partners, thus improving inventory visibility and the velocity of inventory movement.

Organizations increasingly find that they must rely on effective supply chains, or networks, to compete in the global market and networked economy. In Peter Drucker's new management paradigms, this concept of business relationships extends beyond traditional enterprise boundaries and seeks to organize entire business processes throughout a value chain of multiple companies. Hence, organizations today not only need to effectively manage their own logistics and inventory systems but also align them to smoothly work in tandem with other organizations which are a part of its logistics and inventory network.

During the past decades, globalization, outsourcing and information technology have enabled many organizations, such as Dell and Hewlett Packard, to successfully operate solid collaborative supply networks in which each specialized business partner focuses on only a few key strategic activities. This inter-organizational supply network can be acknowledged as a new form of organization. However, with the complicated interactions among the players, the network structure fits neither "market" nor "hierarchy" categories. It is not clear what kind of performance impacts different supply network structures could have on firms, and little is known about the coordination conditions and trade-offs that may exist among

11

the players. From a systems perspective, a complex network structure can be decomposed into individual component firms. Traditionally, companies in a supply network concentrate on the inputs and outputs of the processes, with little concern for the internal management working of other individual players.

In the 21st century, changes in the business environment have contributed to the development of supply chain networks. First, as an outcome of globalization and the proliferation of multinational companies, joint ventures, strategic alliances and business partnerships, significant success factors were identified, complementing the earlier "Just-In-Time", "Lean Manufacturing" and "Agile Manufacturing" practices. Second, technological changes, particularly the dramatic fall in information communication costs, which are a significant component of transaction costs, have led to changes in coordination among the members of the supply chain network.

Many researchers have recognized these kinds of supply network structures as a new organization form, using terms such as "Keiretsu", "Extended Enterprise", "Virtual Corporation", "Global Production Network", and "Next Generation Manufacturing System". In general, such a structure can be defined as "a group of semi-independent organizations, each with their capabilities, which collaborate in ever-changing constellations to serve one or more markets in order to achieve some business goal specific to that collaboration".

But, in the globalized and Information based economy that we live in today, a very important observation is the nature, size and competence of different organizations that conduct Business together. A very large organization could be conducting business (Sourcing raw material, using distribution networks etc) with a small or medium enterprise in a different nation less developed than that of the larger organization. In such a scenario come up the real challenges of supply chain management wherein in one part of the world supply chain management is embedded in to the company’s philosophy and the systems in place have a significant level of sophistication, whereas the other side of the deal does not even have supply chain management as an important focus. It is hence challenging for both the organizations to co-ordinate with each other and their respective logistics networks to function smoothly as cohesive Business units.

12

SUSTAINABLE DEVELOPMENT

According the UNITED NATIONS report of the world commission on environment and development, sustainable development implies “meeting the needs of the present without compromising the ability of future generations to meet their own needs.”

It contains within it two key concepts:

The concept of needs, in particular the essential needs of the world's poor, to which overriding priority should be given; and

The idea of limitations imposed by the state of technology and social organization on the environment's ability to meet present and future needs."

Another way to define sustainable development is in what it specifically seeks to achieve. To illustrate, it is helpful to examine three sets of goals that use different time-horizons: the short-term (2015) goals of the Millennium Declaration of the United Nations; the two-generation goals (2050) of the Sustainability Transition of the Board on Sustainable Development; and the long-term (beyond 2050) goals of the Great Transition of the Global Scenario Group.

The sustainable development debate is based on the assumption that societies need to manage three types of capital (economic, social, and natural), which may be non-substitutable and whose consumption might be irreversible, that natural capital can not necessarily be substituted by economic capital. While it is possible that we can find ways to replace some natural resources, it is much more unlikely that they will ever be able to replace eco-system services, such as the protection provided by the ozone layer, or the climate stabilizing function of the Amazonian forest. In fact natural capital, social capital and economic capital are often complementarities. A further obstacle to substitutability lies also in the multi-functionality of many natural resources. Forests, for example, not only provide the raw material for paper (which can be substituted quite easily), but they also maintain biodiversity, regulate water flow, and absorb CO2.

Another problem of natural and social capital deterioration lies in their partial irreversibility. The loss in biodiversity, for example, is often definite. The same can be true for cultural diversity. For example with globalisation advancing quickly the number of indigenous languages is dropping at alarming rates. Moreover, the depletion of natural and social capital may have non-linear consequences. Consumption of natural and social capital may have no observable impact until a certain threshold is reached. A lake can, for example, absorb nutrients for a long time while actually increasing its productivity. However, once a certain level of algae is reached lack of oxygen causes the lake’s ecosystem to break down suddenly.

13

Sustainable Development and Business

The most broadly accepted criterion for corporate sustainability constitutes a firm’s efficient use of natural capital. This eco-efficiency is usually calculated as the economic value added by a firm in relation to its aggregated ecological impact. This idea has been popularised by the World Business Council for Sustainable Development (WBCSD) under the following definition: "Eco-efficiency is achieved by the delivery of competitively priced goods and services that satisfy human needs and bring quality of life, while progressively reducing ecological impacts and resource intensity throughout the life-cycle to a level at least in line with the earth’s carrying capacity."

Similar to the eco-efficiency concept but so far less explored is the second criterion for corporate sustainability. Socio-efficiency describes the relation between a firm's value added and its social impact. Whereas, it can be assumed that most corporate impacts on the environment are negative (apart from rare exceptions such as the planting of trees) this is not true for social impacts. These can be either positive (e.g. corporate giving, creation of employment) or negative (e.g. work accidents, mobbing of employees, human rights abuses). Depending on the type of impact socio-efficiency thus either tries to minimize negative social impacts (i.e. accidents per value added) or maximise positive social impacts (i.e. donations per value added) in relation to the value added.

Both eco-efficiency and socio-efficiency are concerned primarily with increasing economic sustainability. In this process they instrumentalize both natural and social capital aiming to benefit from win-win situations. However, as Dyllick and Hockerts point out the business case alone will not be sufficient to realise sustainable development. They point towards eco-effectiveness, socio-effectiveness, sufficiency, and eco-equity as four criteria that need to be met if sustainable development is to be reached.

Societal perceptions of the role of business have shifted markedly in the last two decades. While the core function of business remains innovation, technology development, capital investment and the implementation of sound management capability for wealth creation, business is increasingly being looked upon as a bringer of solutions to global problems.

In the 21st century, many stakeholders agree that:

the fundamental purpose of business is to provide continually improving goods and services for increasing numbers of people at prices that they can afford;

leading global companies will be those that provide goods and services and reach new customers in ways that address the world's major challenges ; and

If action to address such issues is to be substantial and sustainable, it must also be profitable …

14

Sustainable Development in the Indian Context

In 1972, the then Prime Minister of India, Mrs. Indira Gandhi emphasized, at the UN Conference on Human Environment at Stockholm, that the removal of poverty is an integral part of the goal of an environmental strategy for the world. The concepts of interrelatedness, of a shared planet, of global citizenship, and of ‘spaceship earth’ cannot be restricted to environmental issues alone. They apply equally to the shared and inter-linked responsibilities of environmental protection and human development.

The Ministry of Commerce and Industry, in its discussion paper on the growth strategy for manufacturing, has set a target to increase the sector’s contribution to the GDP to 25 percent, from the current level of about 16 percent. While this growth is necessary, the country’s environmental concerns need to be mitigated — the manufacturing sector must use energy and resources efficiently, and minimize generation of waste. It is estimated that even if every factory, power plant, car and aeroplane is shut down, the average global temperature would still increase by 0.6°C in this century. ‘Green Manufacturing’ or sustainable industrial activity is now the need of the hour and no more an empty slogan.

Green manufacturing involves transformation of industrial operations in three ways: (1) using Green energy, (2) developing and selling Green products and (3) employing Green processes in business operations. A recent global survey by BCG reveals that as many as 92 percent of the companies surveyed are engaged in Green initiatives. Manufacturing companies that adopt Green practices benefit not only through long–term cost savings, but equally importantly, from brand enhancement with customers, better regulatory traction, greater ability to attract talent and higher investor interest. However, these benefits require a long term commitment and making tradeoffs against short term objectives, as the economics of Green manufacturing is still evolving and not well understood as yet

Among the many companies, Tata Group has emerged as a leader in sustainable development followed by Reliance and Infosys, according to 'Sustainable Development Index'-an assessment of business performance in India.

Trade regimes, specifically WTO, are sometimes in conflict with sustainable development priorities. Imperatives of trade, and the concerns related to environment, equity and social justice however need to be dealt with independently. Environmental and social clauses which are implicitly or explicitly part of international agreements must not be used selectively to erect trade barriers against developing countries. Developing countries will suffer a major trade disadvantage if the efforts to put in place globally acceptable Process and Production Methods (PPMs) are successful. Instead, existing disparities between the trade regimes and multilateral environmental agreements, such as those between Trade Related Intellectual Property Rights (TRIPS) regime and the Convention on Biological Diversity (CBD), still have to be thoroughly addressed.

The demand for greening of business practices has reached a tipping point. Each day we come across a new development, a corporate commitment, a technological breakthrough, a

15

new partnership addressing environmental challenges, or a new finding from various agencies, labs or research groups about the progress being made. Amid the multitude developments there is progress, but it’s not always obvious or straightforward.

Organizations are getting cleaner and more efficient, but only incrementally. Many of the gains are offset by the ever-growing economy. The greenhouse gas (GHG) emissions per dollar of economic activity may be dropping but the growing economy means that these emissions are largely unchanged. Moreover, there does exists a huge gap in the controls and measures which have been built in developed economies against those in developing economies.

16

WHY GO GREEN?

All this talk about sustainable development, cleaner energy, cleaner operations and lowering one’s carbon footprint feels worthless without a Business justification. The question, “Why does a business need to do all this?” still stands. The following section attempts to answer this very question.

There is a strong consensus that sustainability is having and will continue to have a material impact on how companies think and act.

According to a BCG report on sustainability, there are myriad definitions of sustainability according to a lot of companies but all of them view it as the next inflection point in business.

After the last downturn in the global markets, the commitment to sustainability has not faltered. This goes a long way in showing that organizations believe in sustainable development for the long run not as a small time PR activity to bolster their brand and image.

The same BCG report on sustainability showed that even after the economic downturn. About 60 % of the companies from different sectors have increased or maintained their commitment to sustainability. What is surprising is that increase in commitment towards sustainability in areas like automobiles, agriculture, conglomerates, mining, industrial goods and manufacturing has been the most significant.

All these sectors are physical side of the business rather than services and hence rely heavily on supply chains to accomplish day to day operations based activities. Therefore, this report clearly depicts that supply chains have the highest level of commitment from the industry to aim towards sustainable development.

Consumers too like green companies. The 2010 Image Power Green Brands Survey is communications conglomerate WPP’s fifth annual global survey on consumer perceptions of green brands and corporate environmental behaviour.

Across all geographies, over 60 percent of consumers said that they prefer to purchase from environmentally responsible companies. The market is still developing, particularly in developing countries. However, costs are still a major obstacle to consumers’ ability to purchase green products in developing nations, and play a large part in decision making everywhere.

In the US, energy efficiency is perceived as the biggest environmental problem. But economic concerns are also an obstacle in the US; 79% of respondents view the economy as the biggest issue the country is facing today. Individuals reported that they were also slightly less likely to spend money on green products then they were in 2009.

17

Source: Boston Consulting Group: The Business of Sustainability

Source: Boston Consulting Group: The Business of Sustainability

Although all the companies have differing reasons to go green. But all of them nevertheless believe in the idea of proactively addressing sustainability issues.

18

SUSTAINABLE SUPPLY CHAINS

In the globalized and networked economy that we live in, supply chain is becoming an embedded and integrated aspect of business. Also, companies across the globe are aiming towards a greener profile and reputation. For some it may be due to stricter regulations and ratifications by respective governments, for yet others it is voluntary and for many others it is the need of the hour as consumers become more aware and conscious.

Supply chains are one of the most important aspects of a business involving physical goods or commodities and since such organizations are increasingly part of the consumer and industrial sphere both, it becomes imperative upon them to green-ify this operational aspect.

As the public becomes more aware of environmental issues and global warming, consumers will be asking more questions about the products they are purchasing. Companies will have to expect questions about how green their manufacturing processes and supply chain are, their carbon footprint and how they recycle.

Some companies have seen that this not a bad thing and indeed have been able to convert the public’s interest in all things green into increased profits. A number of companies have shown that there is a proof of the link between improved environmental performance and financial gains. Companies have looked to their supply chain and seen areas where improvements in the way they operate can produce profits.

General Motors reduced disposal costs by $12 million by establishing a reusable container program with their suppliers. Perhaps General Motors may have been less interested in green issues if they were making record profits, but in an attempt to reduce costs in their supply chain, GM found that the cost reductions they identified complemented the company’s commitment to the environment.

Present Day Trends

2010 has been truly remarkable in a number of key areas of green supply chain management from a number of perspectives, including: policy and governance, operations and optimization, guidance and standardization and metrics. The green pieces of the supply chain and sustainability puzzle appear to be nicely falling into place.

Big Industry Movers and Government Green up the Supply Chain- over the past few years, observers and practitioners read nearly weekly announcements of yet another major manufacturer or retailer setting the bar for greener supply chain management. With a much greater focus on monitoring, measurement and verification, Wal-Mart, IBM, Proctor and Gamble, Kaiser Permanente, Puma, Ford, Intel, Pepsi, Kimberly-Clark, Unilever, Johnson & Johnson, Herman Miller among many others made a big splash by announcing serious efforts to engage, collaborate and track supplier/vendor sustainability efforts. Central to each of these organizations is how vendors impact the large companies’ carbon footprint, in addition to other major value chain concerns such as material and water resource use, and waste management. More and more companies are jumping on the green train and the recognition is flowing wide and deep.

19

Supply Chain Meets Corporate Social Responsibility- Adding to many companies existing concerns over environmental protection, large products manufacturers such as Nestle, Corporate Express, Danisco, Starbucks, Unilever and the apparel industry stepped up in a big way to address human rights, fair labor and sustainable development in areas in which they operate throughout the world. Each of these companies and others like WalMart have embraced the “whole systems” approach that I’ve previously written about in this space and that underscore transparency and collaboration the “value” in the supply chain. Each company recognizes that to be a truly sustainable organization, it must reach deep beyond its four walls to its suppliers and customers.

Emerging Sustainability Standards Embrace Supply Chain Management- This year, the international Organization for Standardization (ISO) unveiled its ISO 26000 Corporate Social Responsibility guidance document. In addition, two prominent organizations, UL Environment and Green Seal unveiled and vetted two sustainability focused product (GS-C1) and organization (ULE 880) standards, both of which may markedly affect supply chain behaviours in the future. Central to all these standards and guidelines is how important supply networks are in supporting the entire product ‘value chain”, not only from an environmental perspective, but from a social and community focused perspective.

Logistics Turning to Greener Solutions- numerous studies and surveys conducted by peer organizations this year underscored how sustainability among carriers and shippers was central in the minds of most logistics CEO’s. Whether it was by land, air or sea, shipping and logistics embraced sustainability as a key element of business planning and strategy in 2010. I also had the pleasure of visiting briefly with FedEx’s Vice President, Environmental Affairs & Sustainability this fall and learned of the myriad of operational innovations and sustainability focused metrics that the company is tracking throughout its operations and maintenance activities. And UPS even mentioned its efforts to manage its carbon footprint in its catchy new brand campaign “I Love Logistics”. Finally logistics companies are partnering with manufacturing to support reverse logistics efforts designed to manage end of life or post consumer uses of products or resources.

Lean Manufacturing Meets Green Supply Chain- as manufacturing continues its slow rebound from the Great Recession, companies are recommitting themselves to implementing less wasteful production as a way to leverage cost and enhance savings. Parallel efforts are in play also to incorporate more environmentally sustainable work practices and processes. Enhancing this effort to lean the product value chain is recognition of upstream suppliers and vendors work practices and possible impacts they may have on manufacturing outputs. Lean efforts have been demonstrated to yield substantial environmental benefits (pollution prevention, waste reduction and reuse opportunities) as well as leverage compliance issues. More and more, companies are exploring the overlaps and synergies between quality-based lean and environmentally based ‘green’ initiatives.

Supply Chain and Climate Action- Rounding out the year, the climate summit in Cancun (COP16) produced modest results (given the low expectations all around, what was accomplished looked huge by comparison to Copenhagen). Activities at COP16, especially by the private sector were geared toward identifying key linkages between supply chain sustainability and climate change. Perhaps the biggest news to emerge from the two-week conference was an effort by apparel manufacturers to enhance supply chain social

20

responsibility and an internet database that will list the energy efficiency of most ocean-going vessels, in a scheme designed to reduce shipping emissions by nearly 25%. As I noted, this effort is important not only because it recognizes shipping and transport as a backbone” of commerce (as other industry sponsored programs have recognized already), but because of the value of transparency in enhancing supply chain efficiencies.

21

DEVELOPING A SUSTAINABLE SUPPLY CHAIN

Green Transportation

The Transportation sector accounts for approximately 61 % of global oil consumption. At the same time it produces approximately 23 % of carbon di-oxide emissions.

With an ever-growing boom in commercialism around the world, especially in recent years, the transportation of more and more goods around the world is an inevitable by-product, which has its own negative impact on the environment.

The logistics and Transport Sector has a carbon footprint of around 2,800 mega tonnes CO2e. Road freight is a major element of this footprint. Minerals and food transportation are the largest contributors by product category

Source: World Economic Forum Report- Supply Chain Decarbonisation

Here we can see that Road freight has the largest share in degrading the environment via CO2 emissions.

However, while it would be foolish to think that we could reverse this process, there are still ways that companies who are involved in transporting these goods could play their part to help reduce their impact.

22

Clean Vehicle Technologies

The first to implement technique is use of cleaner vehicles. Since, vehicular pollution while transporting through any means causes the most amount of damage to the environment.

With the advent of technology, there has been a spurt in advanced vehicular technologies which are far more fuel efficient and load efficient. They burn fuels more efficiently or use alternate cleaner propulsion systems like bio fuels, electric energy or a mix of technologies.

Whilst as of today adoption rates for technologies are low but they are becoming increasingly available and more so better and more efficient vehicles even running fossil fuels are better off than old rickety transportation systems burning fuels in-efficiently.

The majority of action under this head comes from Road and Rail transport. According to OECD data, currently the emissions from road and rail alone in context of transportation is around 1680 Mt tonnes(Road) and 147 Mt tonnes(Rail) and an effective implementation of a clean vehicle model will bring about a significant 6.80%(Road) and 12%(Rail) savings in these emissions and also an additional saving of 2.70% by using bio-fuels.

Despeeding the Supply chain

The high speed of response needed in many supply chain activities means that consumer demand is met effectively, but at a price of increased CO2e emissions. Speed in the supply chain is driven by factors such as leadtimes, deadlines and booking windows. This increases emissions – for example through switches to less efficient modes of transport, increases in the number of expedited orders, and increased vehicle and trip speeds. It is thought that easing lead-times and delivery stipulations could lead to emissions abatements through „despeeding‟.

The single biggest opportunity within this context is to reduce the speed at which ships travel. As a result of the squared relationship between speed and emissions reducing road vehicle speeds is also a highly effective way to reduce carbon emissions while having only a small impact on operations

Making reductions in emissions through load fill improvement is more difficult – the magnitude of any abatement is smaller, partly because emissions rise slightly with the associated increase in vehicle weight. It nevertheless has a potential of reducing around 175 Mt. Tonnes of emissions.

Enabling Low Carbon Production:

- Through changes in agricultural sourcing

A number of studies have shown that significant benefits can come from switching production to more carbon efficient sources. Raw materials represent a large part of the lifecycle carbon footprint of virtually all manufactured products.These studies have focused

23

primarily on agriculture – for example, Cranfield University examined the impact of different sourcing locations for roses, while Lincoln University made a similar study for lamb. Key contributors to emissions density are the intensity of agricultural systems and the efficiency of production, driving potential to reduce emissions through changed sourcing location

The ability to switch sourcing locations in agriculture is perceived to be considerably higher than for other primary production. Analysis of past studies showed that, in individual situations, the savings in agriculture can be significant – averaged across all studies, the typical potential abatement was 61% of As-Is emissions Conversely, a relatively low portion of primary production is traded globally, probably around 40% Overall, it was estimated that only approximately 10% of agricultural production could be shifted.

Optimised Networks

In network logistics, optimising the network’s nodal points, hierarchy and inter-related transport flows can bring significant reductions in both cost and carbon. Research has shown that many networks remain at least partially inefficient as a result of both inertia to change and lack of durability in supply chain strategy decisions. Typical studies show that in as-Is networks, restructuring the network gave both an 11% cost reduction and a 10% CO2e emission abatement

Significant abatement through transport network efficiency is still achievable, for example:

- 24% of goods vehicle kms in the EU are running empty - When carrying a load, vehicles are typically only 57% loaded as a percentage of

maximum gross weight - In 3rd world countries, vehicles are mostly overloaded which decreases efficiency in

terms of engine performance and fuel consumption aggravating the problems.

Overall the total abatement potential across the sector globally could be 124 mega-tonnes of CO2e per year. Of this, around 30% may be due to the potential to improve economic transaction sizes in freight movements

Energy Efficient Buildings

Energy efficient improvements can be found from:

Improved specification of new buildings Making incremental improvements to old facilities

Significant cost and carbon savings can be made in three principal ways:

Through behavioural change Implementing more efficient point technologies, such

as new lighting or cooling systems Integrating systems together more effectively, to allow them to collaborate better,

and prevent solutions working against each other

24

Local energy sourcing can also be a consideration for energy efficient buildings, with the inclusion of energy green sources such as an on-site wind turbine or solar panels

Across several studies, green building technologies typically deliver savings in the region of 10% to 15% of energy consumption. Additional savings are achievable with the inclusion of integrated building management systems – which in their own right have delivered further, similar magnitude savings. The potential savings from retro-fits are larger than from up scaling the technologies used in new builds

Packaging Design Initiatives

Sustainable packaging initiatives can make a substantial contribution to carbon abatement across the supply chain. Packaging initiatives can consider either transit or consumer packaging and should assess the carbon impact of packaging through the entire supply chain. Techniques such as packaging elimination, light-weighting and the selection of alternative materials are already used by leading firms – in this analysis, we have assessed the potential for further deployment of these techniques

There are a variety of estimates available on the weight of consumer packaging, which is typically put at around 5% of the total weight of consumer goods shipments. The carbon abatement of eliminating packaging is significant in the production phase of the lifecycle – at up to 125 megatonnes of CO2e per year Savings in distribution are considerably smaller, in the region of 3 mega-tonnes per year

Enabling Low Carbon Production

- Through changes in manufacturing sourcing

In lifecycle assessments, the contribution of manufacturing can be around 25% of total emissions, with energy consumption in the manufacturing phases playing a significant role .Reductions in manufacturing emissions are envisaged to come from two different sources in this analysis:

Achieving economies of scale in production Switching to lower carbon energy sources

The carbon intensity of manufacturing changes significantly across geographies the carbon intensity of power generation also changes significantly with geographies: emissions intensity in China is around 175% that of the EU average carbon intensity. Reviewing a series of factory merger studies, the average cost saving through efficiency was around 11% – which we assessed as being broadly indicative of a CO2e emission reduction .Around 70% of total manufactures are traded internationally, creating theoretical potential for these volumes to be switched alternatives sources. We anticipate that difficulties in achieving

25

change could come from the inertia effects of asset life, contractors‟ obligations and government policies.

Training and Communication Programmes

Increasing attention is being focussed on the behavioural aspects of managing climate change, both for demand side (consumer) activity and supply side (supplier) actions In the logistics and transport sector, attention to date has largely focussed on the fuel savings achievable through driver training programs, helped in part by the significance of fuel in the transport cost base, and legislative activities such as the introduction in the EU of mandatory driver training. There is a wider potential for emissions abatement from training and communication programmes.

Looking across a number of studies, we found that driver training programmes achieve an average of 9% fuel economy improvement, with smaller savings coming from behavioural building efficiency programmes. The larger footprint of road emissions relative to buildings means that 95% of the total calculated abatement potential comes from road freight. Many articles refer to the tail-off of savings in the period after training and communication activities, which is where reinforcing technologies probably have an important role to play.

Modal Switches

Significant differences exist in CO2e emissions between different freight transport modes when expressed in terms of emissions per tonne-km shipped. UK Defra data suggests that shipping emissions are in the region of 1% to 2% of those of airfreight per tonne-km, when comparing long haul air to ocean freight container vessels. Where absolute emissions from the less efficient modes are significant, switching small volumes of freight in percentage terms to another mode may have a significant impact on emissions.

Overall, the largest abatement potential comes from switching long haul road transportation to rail or waterways. There is an additional benefit from switching out of air freight, although the savings may be harder to achieve and are of a much smaller scale The key criteria may therefore be to improve the competitiveness of the modal alternatives to road freight – for example by adding rail spurs, or decongesting long haul rail flows.

Nearshoring

The era of cheap transport and wage arbitrage potential resulted in a large swing to low cost country sourcing. With rising volatility in fuel prices – plus other effects such as the growing need for flexibility in supply chains – nearshoring may be both a cost-efficient and carbon- friendly choice in manufacturing location decisions. Discussions across the literature have focused on switches to Mexico for the US and Canadian market, and to Eastern Europe for high tech manufacturing for the European market.

26

While significant reductions in tonne-km volumes are seen with nearshoring, the impact on emissions remains small. This is due to the relative carbon inefficiency of road and rail transportation when compared to ocean freight. The average flow length could fall from over 5,000 km to around 700 km but with an emissions reduction of only approximately 5 mega-tonnes CO2e. Considering the effect of switching air freight – and assuming that 25% of volumes may be able to switch their sourcing locations – there may be significant saving in the specific relocation of manufacturing facilities which require fast or expedited orders. This nearshoring of airfreight opportunity creates savings of around 20 megatonnes of CO2e.

Reducing Congestion

Transport congestion across all modes has grown in most economies, as a result of traffic volume growth outstripping the supply of new infrastructure. The cost and carbon impact is significant in road transport:

6% is added to the EU road transport fuel bill by traffic congestion (Eurostat) In the USA, the 1.5% of fuel purchases which are burnt in traffic jams equates to

2.4m gallons of fuel per year (US Bureau of transportation statistics) Bottlenecks also cause congestion in other modes, including air and rail:

35% of European flights arrive more than fifteen minutes late due to congestion Up to 20% of freight trains in the USA are delayed arriving at their destination

It is easier to quantify the carbon impacts of congestion in road transport than other modes due to greater data availability. Illustratively, a 6% fuel bill due to congestion would equate to the global emissions of 90 to 100 mega-tonnes of CO2e per year. The savings achieved through demand management schemes are variable – however they may be up to 20 to 25% with congestion charging. The total abatement potential from reducing congestion could be in the region of 25 Mt of CO2e per year.

What carries the load? - Pallets

One of the seemingly small ways they could do this is by addressing both the type of pallets or crates they use, and the way they use them. Traditionally, companies have transported goods using timber pallets. Timber pallets have been very cheap and easy to produce the world over, which is what has led to their dominance.

However, ‘cheap and easy’ for the companies has come at a cost to the environment.

Firstly, timber pallets are naturally fragile and regularly need replacing. This leads to two problems: There is a demand to build more and more pallets to replace the losses, and, the wood left over from the damaged pallets has very little use for recycling, so often ends up getting burnt.

27

Secondly, timber pallets are relatively heavy themselves, so when multiplied on large shipments of goods, they can considerably add to the fuel needed to transport those goods.

It is partly for these environmental reasons that developments were made into alternate materials to create pallets. The obvious choice was plastic, and it has a number of environmental advantages over its timber counterparts.

Firstly, plastic pallets are much harder wearing and longer lasting. This means that they do not need to be produced in as big numbers compared to timber pallets.

Secondly, plastic pallets, once damaged, can easily be recycled to create the new pallets, rather than having to be disposed of in less environmentally-friendly ways.

Thirdly, plastic pallets are generally lighter than timber pallets, and so their combined weight when transporting large numbers of goods means that less fuel is required.

So, despite the belief in the sustainability of natural materials like timber, the use of plastic in the pallet industry could prove to be a smarter move, but there is another area that companies can help decrease their environmental impact even more. That is for companies to use a pallet pooling service, rather than running their own fleet of pallets.

Traditionally companies have bought and owned their own pallet fleets, which leads to its own environmental problems; this model of ownership means that more and more pallets need to be produced so each company can have their own fleet. It can also often lead to an over production of pallets as a company may not need to use its full fleet throughout the year.

This problem has led to the development of pallet pooling companies. These services rent out pallets on a long or short-term basis to companies involved with transporting goods. This leads to a much more efficient use of a finite number of pallets, compared to each company expanding their own stocks.

Carbon Minimizer technology – for trucks

The Carbon Minimizer enables users to further reduce the carbon and fuel content of their planned schedules, so cutting both carbon footprint and operating costs.

The software estimates and reports the total CO2 and fuel content of all the routes and schedules, taking account of distances, speeds, weight and truck fuel efficiency. The Carbon Minimizer is then used as a final optimization step to adjust the schedules – changing call sequences and swapping calls between routes – to further reduce the total CO2 and fuel figures.

The software takes account of slower urban journeys incurring more fuel/CO2 per mile than faster highway journeys. Similarly, heavily loaded trucks use more fuel/CO2 per mile than empty ones. The Carbon Minimizer takes these factors into account to generate carbon-friendly schedules.

28

Reverse Logistics

While a large majority of research regarding sustainable development through the use of effective transport and logistics systems has focused on the delivery of the product to the market place, little has been undertaken to assess the impact on sustainability of unsold or returned goods.

The OECD (2003) acknowledges that “Reverse logistics need to be developed. The imminent needs in many countries to reduce, reuse and recycle waste will only become feasible with a transport system which carries used and returned goods for reuse and recycling (reversed logistics) in a cost-effective manner.” The management of return flows is becoming increasingly important for a growing number of businesses. Governmental policy and legislation, such as the WEEE Directive and environmental regulations restricting the disposal of potentially hazardous product and packaging materials, have forced manufacturers to take responsibility for the take-back of used goods from customer markets. Customer awareness is also creating opportunities for “green branding” and new markets for returned goods. Moreover, return flows can reduce production costs by replacing raw materials.

Each year in excess of £5.75 billion worth of goods are returned to retail stores in the UK. The logistics cost for handling these goods is estimated to be in excess of £500 million a year. Most companies do not know the true cost to the business of reverse logistics.

A typical urban retailer has a number of particular issues to address regarding reverse logistics, some of which differ from those of manufacturers or distributors. They have to be able to deal with obsolete, damaged or unsold stock, and to have facilities in place to manage products returned by customers for a variety of reasons, as well as for the proper disposition of packaging and other waste products. The increase in waste products has led to awareness of the need for new ways to deal with waste, resulting particularly in increased attention to recycling. Recycling usually implies that used products are returned to their original producers. Even where excellent waste collection systems exist, the need for recycling used goods requires specialised collection and transport of these goods; it is generally not possible to use the same vehicle to transport both foodstuffs and products to be recycled.

Environmental impacts of logistical activities are most severe when population densities are highest; i.e. in cities. Urban freight transport deals largely with the distribution of goods at the end of the supply chain, so deliveries are likely to be frequent, but limited to carrying small loads. Possibilities for the extension of the traffic infrastructure within cities are limited and unsustainable.

29

Alternative methods of managing waste or returns

Companies which specifically target different types of waste or returns generated in the retail and business environment have recently been formed. Details of some of these are given below.

Dove Recycling

Dove Recycling (www.doverecycling.co.uk), formed in July 2005 and based in Hampshire, aims to help businesses reduce their waste through a tailored collection system. Typically, businesses are charged a collection fee for which they receive weekly or fortnightly collections, depending on their needs. The waste is transported to their premises where it is bulked into containers and then disposed of at a local recycling site. While this system was being trialled, an electric powered vehicle, supplied by Hampshire County Council as part of the EC-funded MIRACLES project, was used to transport the collected cardboard and paper recyclate. While this vehicle is still available to the scheme, traditional vans are also used.

FareShare

FareShare (www.fareshare.org) is a national organisation that works with over 100 food businesses, wholesalers and retailers (e.g. Greggs, John Lewis, Waitrose, Somerfield) to reduce the amount of food waste sent to landfill by redistributing surplus fresh food to day centres and night shelters for homeless people.

The scheme, started in June 2002, consists of 8 independent franchisees around the country (London, Brighton & Hove, Dundee, Edinburgh & Lothians, West Yorkshire (Kirklees), Manchester, Southampton and South Yorkshire (Barnsley)), with further expansion currently planned. According to the FareShare website, 2000 tonnes of food was saved from being wasted during 2005. This food was then redistributed, along with other food-related support services, to a community food network of 300 organisations. This food contributed to over 3.3 million meals to 12,000 disadvantaged people each day in 34 cities and towns across the UK. The claim is made that the businesses involved reduced CO2 emissions by 13,000 tonnes.

However, it is likely that these savings will be offset somewhat by the vehicle kilometres travelled in the distribution process.

Auction Assist

Aiming to help people or businesses who may want to sell goods or stock on the internet, but do not have the technical abilities, Auction Assist (www.auctionassist.co.uk) offers an auctioning service on eBay. Items are 51 taken to a local Auction Assist centre, either by the prospective seller, or via arranged collection by ParcelForce. From the auction centre the

30

items are sold to the highest bidder on the internet site, and sent to the buyer from there. Any proceeds are sent to the original owner. It is unclear how this method of disposal would affect the number of kilometres travelled, since journeys to the auction centres would not normally have been made. However, items sold through eBay still need to be sent to the purchaser via traditional methods. Research would need to be undertaken to determine its effect on the transport system.

RASCAL

RASCAL is described as the most comprehensive in store newspaper and magazines returns processing system in the world (http://www.rascal-solutions.com ). A PDA is used to store product information including the title of the magazine, on and off sale dates and the stores supplying the wholesaler. Titles that are due for return are scanned and the PDA provides information on the wholesaler that the goods should be returned to. Such information is transmitted to the RASCAL database website, and on receipt of returned products the wholesaler is required to transmit a credit from its system. The system which is used by a range of high street retailers including Tesco, Sainsburys and One-stop provides them with an effective tool to track all returned stock.

The following schemes are not necessarily applicable to the retail sector, but some of the ideas and methodologies behind the schemes could be transferable to urban retail returns management in the future.

Waste Interchange Ltd

The Waste Interchange (www.wasteinterchange.co.uk) is an online tool that links recycling companies to those businesses that have materials that they wish to dispose of. Businesses can list materials they have available which can subsequently be viewed by registered recycling companies. Updates are sent to recyclers as new materials are registered online and they can also list what materials they require.

Furniture Re-use Network (FRN)

The Furniture Re-use Network (http://www.frn.org.uk/) is the national coordinating body for around 400 furniture and appliance re-use and recycling organisations, which exist across the UK. The objectives of the network are to offer support and training to these organisations, and to reduce poverty by helping needy households access furniture, white goods and other household items at affordable prices. During the financial year 2005-06, the network helped around 500,000 low income households, re-used 1.9 million items, which diverted around 65,000 tonnes of waste from landfill (FRN, 2007).

This growing sector is now able to reprocess electrical items in line with Waste Electrical & Electronic Equipment (WEEE) regulations and is developing partnerships with local authorities to collect bulky waste.

31

Fonebak

It is estimated that around 15 million mobile phones are replaced each year in the UK. The main channels for disposing of mobiles are the shops that sell them, and there are a number of schemes which offer a 52 mobile phone recycling service, many set up recently to help businesses and consumers comply to WEEE legislation. One such organisation, established in 2000, is Fonebak (www.fonebak.com), with over 1000 clients representing every network operator in the UK and many major networks, retailers (e.g. Currys Virgin, Dixonsand PC World), manufacturers and charities across Europe. With around 10,000 phone collection points across Europe, they have collected over 3.5 million phones since 2002. They also offer a reverse logistics service, which manages the collection of mobile phones and accessories from over 2000 outlets throughout the UK.

Computer Aid International

Re-using a computer is around 20 times more effective at saving lifecycle energy use than recycling (Young, 2007). Computer Aid International (www.computeraid.org) is a charitable organisation which aims to provide high quality, professionally refurbished computers for re-use in education, health and not for-profit organisations in developing countries. The organisation has shipped over 90,000 PCs, mostly distributed to schools and colleges with the active support of host governments of around 100 countries. However, there are around 3 million PCs decommissioned in the UK every year.

Redpack

The use of pick up and drop off points is familiar to many field service engineers in the US and mainland Europe, however this practice is less prevalent in the UK, partly due to poor execution by service providers. A US parts logistics provider, RedPack Network Inc (www.redpackit.co.uk), has recently acquired the assets of Collectpoint, which formerly offered a consolidation-based delivery and returns network. One aspect of the current system is that service parts can be returned to the appropriate depot via a local Redpack location, with the aim of consolidating returns and reducing the total vehicle kilometres associated with the management of these returned parts, with the advantage of liberating engineers’ time for jobs rather than travelling. While this is a B2B (business-to-business) network specific to the service engineer industry, there are parallels with retail returns, and it might be possible for a cross-retailer returns consolidation scheme to use the same network and technologies.

Zero Waste Supply Chain

Ideally, a zero-waste supply chain that completely reuses, recycles, or composts all materials. However, the term can also be used to refer to corporate take-back programs, where companies that produce a good are also responsible for its disposal.

32

Zero waste is a unifying concept for a range of measures aimed at eliminating waste and allowing us to challenge old ways of thinking. Aiming for zero waste will mean viewing waste as a potential resource with value to be realised, rather than as a problem to be dealt with.

Zero waste is a whole system approach that aims to eliminate rather than ‘manage’ waste. As well as encouraging waste diversion from landfill and incineration, it is a guiding design philosophy for eliminating waste at source and at all points down the supply chain. It shifts from the current one-way linear resource use and disposal culture to a ‘closed-loop’ circular system modelled on Nature’s successful strategies

Targeting the whole system means striving for:

zero waste of resources: energy, materials, human;

zero emissions: air, soil, water;

zero waste in activities: administration, production;

zero waste in product life: transportation, use, end of life; and

zero use of toxics: processes and products

33

CASE: WAL-MART – Sustainable Development

A Case Study of Wal-Mart’s “Green” Supply Chain Management Adam Heying & Whitney Sanzero, May 4, 2009

Introduction

Wal-Mart has undergone many growth stages since Sam Walton first decided to be the best retailer in the world. His initial strategy was to target low-income families in rural areas by offering significantly lower costs. When David Glass took over in 1988, Walton’s mission was truly realized through the use of technology in distribution and supply chain logistics, which allowed Wal-Mart the opportunity to cut costs and lower prices for end users. Lee Scott took the reins in 2000 to steer Wal-Mart toward sustainability. Scott’s business model to strengthen supply chain management processes by “going green” was a strategic decision that positively impacted Wal-Mart’s growth, distribution techniques, and corporate identity. His knowledge of distribution systems and push for sustainability has transformed the company into an ecofriendly powerhouse that continues to cut costs and remain at the frontier of distribution systems technology.

Background

Wal-Mart leadership has done well to put the right people in the right seats on the bus to drive the company forward. Founder and original Wal-Mart CEO Sam Walton strategically chose his successor David Glass to lead the company in 1988. Art Turock claims that “the mostimpactful decision Sam Walton made during his reign was to select and develop successors equipped to lead Wal-Mart to the next level of complexity” (Turock, 2004). From 1988 to 1999, CEO David Glass transformed the company from just a retailer into a retail distributor, using technology to develop Walton’s original goal while staying in line with his core values. While Sam Walton built his strategy on low prices to the masses, CEO David Glass enhanced his growth strategy through the use of technology.

Sophisticated technology boosted supply operations such that Wal-Mart’s efficient retail stores became the manifestation of a fast and flawless distribution business. When Glass succeeded Walton, he believed that “technology would ultimately drive this business to be the size that it is” which was the fundamental difference that set his approach apart from that of Walton’s (Turock, 2004). The late 80s and 90s began a technology boom, with the computer industry making rapid advancements. Glass identified this as a strategic opportunity to enhance business and distribution at an early stage in development. Emphasizing visibility through the sharing of information with suppliers, Glass reframed the company strategy in terms of how to be the low-cost operator and low-cost leader by focusing on logistics and distribution. A more advanced distribution system would move product faster and more efficiently, allowing Wal-Mart to maximize use of their suppliers as well as internal distribution lines. Glass used cutting edge technology to create a logistical competitive advantage in “an industry with high volume, inelastic pricing, fragmented market share, and inefficient distribution” (Turock, 2004). Because of David Glass’ work,

34

Wal-Mart’s supply chain and distribution system is now regarded as the most efficient and remains their primary competitive advantage in the retail industry.

Going Green

Requirements

Lee Scott took control of Wal-Mart in 2000 with a newly adopted strategy of making logistical processes more economically friendly. “Green” logistics, at its core, means implementing a system that can independently monitor overseas suppliers to make sure they meet social and environmental standards. Though the push for becoming environmentally friendly is important, a global company like Wal-Mart must consider the transformation’s effect on the bottom line. Lee Scott saw the two goals as intertwined: “being a good steward of the environment and being profitable are not mutually exclusive. They are one and the same” (MSNBC, 2005). Scott provided an example by calculating that improving fuel mileage efficiency in the trucking fleet by one mile per gallon would save more than $52 million per year. The move toward sustainability also integrated Corporate Social Responsibility (CSR) into Wal-Mart’s business model. Ideally, this CSR policy would function as a built-in self-regulating mechanism where Wal-Mart could monitor and ensure their adherence to laws, ethical standards, and international norms. This CSR policy would be a way for the company to embrace responsibility for the impact of their activities on the environment, consumers, employees, communities, stakeholders and all other members of the public sphere.

The Next Level

Wal-Mart has attempted green initiatives before, but Scott’s plan is different and has the potential for success based on many reasons. In the past, Wal-Mart dealt with environmental issues defensively rather than cooperatively, proactively, and as opportunities for profit. In 1989, in response to letters from customers about environmental concerns, the company launched a campaign to convince its suppliers to provide environmentally safe products in recyclable or biodegradable packaging. However, this large-scale effort was met with some skepticism from commentators who believed that it was intended to generate benefits for Wal-Mart at the expense of its suppliers. Nevertheless, the company did earn some goodwill among environmentalists as the first major retailer to speak out in favor of the environment. When vendors claimed they had made environmental improvements to products, Wal-Mart began promoting the products with green-colored shelf tags. It should be noted that although Wal-Mart promoted these products, the company did not actually measure or monitor the improvements. Regardless, the company sold as many as 300 products with green tags at one point. By the early 1990s, the green tag program disappeared altogether, and environmental issues slipped off of the Wal-Mart’s list of strategic priorities.

The new sustainability strategy needs to be deeply embedded in Wal-Mart’s operations and supply chain management to meet the ambitious goals set in 2005. In the words of Lee Scott, “We recognized early on that we had to look at the entire value chain. If we had

35

focused on just our own operations, we would have limited ourselves to 10 percent of our effect on the environment and eliminated 90 percent of the opportunity that’s out there” (Plamback, 2007). Wal-Mart’s leadership must therefore evaluate the entire value chain as a means of implementing sustainability through distribution systems. Creating metrics for analysis is paramount to Wal-Mart’s ability to monitor corporate operations and global suppliers to be able to support their real efforts for improvement with substantial data.

Ambitious Goals

In late 2005, Wal-Mart President and CEO Lee Scott gave his first presentation broadcast to over 1.5 million employees in over 6,000 stores and each of its suppliers. He laid out a detailed summary regarding Wal-Mart’s new sustainability initiative to make a positive impact and greatly reduce the impact of Wal-Mart on the environment in order to become the “most competitive and innovative company in the world” (Plambeck, 2007). In his speech, Lee Scott laid out three very ambitious goals in which he vowed Wal-Mart would:

1. Be supplied 100 percent by renewable energy in the very near future

2. Create zero waste

3. Sell products that sustain Wal-Mart’s resources and the environment

Clearly, Wal-Mart is trying to differentiate itself in an area where it was once considered a laggard. Even some of the harshest Wal-Mart critics have started to agree that the company has begun to make good on its promises. Obviously, these goals can seem overly ambitious to most, but they should not seem inconceivable considering Wal-Mart’s past success with seemingly unreachable goals.

The three goals were just an introduction to Mr. Scott’s speech. He also discussed the following goals:

1. Increase fuel efficiency in Wal-Mart’s truck fleet by 25 percent over three years and doubling it within 10 years

2. Reduce greenhouse gases by 20 percent in 7 years

3. Reduce energy use at stores by 30 percent in 7 years

4. Cut solid waste from U.S. stores and Sam’s Clubs by 25 percent in three years.

5. Buying diesel-electric and refrigerated trucks with a power unit that could keep cargo cold without the engine running, saving nearly $75 million in fuel costs and eliminating an estimated 400,000 tons of CO2 pollution in one year alone

6. Making a five-year verbal commitment to buy only organically grown cotton from farmers, and to buy alternate crops those farmers need to grow between cotton harvests. Last year, the company became the world's largest buyer of organic cotton

36

7. Promising by 2011 to only carry seafood certified wild by the Marine Stewardship Council, a group dedicated to preventing the depletion of ocean life from overfishing.

8. Buying (and selling) 12 weeks' worth of Restrictions on Hazardous Substances (RoHS)- compliant computers from Toshiba

Although this may seem like a very large list for a company to accomplish, each of these are attainable and place Wal-Mart in a great competitive position for the future.

Sustainable Value Networks

While Wal-Mart is building value added networks of government agencies, nonprofits, employees and suppliers to “green” its supply chains, the company is using a network approach to lower overall carbon and environmental footprint in order to increase profitability while increasing margins. For years Wal-Mart has been narrowly focused on operations and supply chains, growth, and profits. Recently, Wal-Mart reached out to external stakeholders to try and develop areas of maximum environmental impact and identify key networks which would help achieve these goals. In return for participating in these value-added networks, participants would receive information about as well as a say in Wal-Mart’s operations. Tyler Elm, Wal-Mart’s senior director of corporate strategy, and Andrew Ruben, Wal-Mart’s vice president of corporate strategy and business sustainability, directed Wal-Mart’s network leaders to, “derive economic benefits from improved environmental and social outcomes” (Elm, 2007). “It’s not philanthropy,” he adds. According to a Stanford Social Innovation Review, “By the end of the sustainability strategy’s first year, the network teams had generated savings that were roughly equal to the profits generated by several Wal-Mart Supercenters” (Denend, 2008). Below is a list of Wal-Mart’s sustainable value networks and how the company plans to accomplish each of the main three goals:

37

At the center of the business sustainability strategy pursued by Wal-Mart is a shift from generating additional value through price-based interactions, relationships with nonprofits, suppliers, and other stakeholders. Through the above networks, Wal-Mart is gaining a system perspective which helps retailers find ways to address environmental issues. In exchange for these suppliers addressing the issues, nonprofit network members gain huge leaps towards their overall missions because of the scale of the operations at Wal-Mart. Suppliers also enjoy not only the stability that more intimate relationships with Wal-Mart brings, but also the guidance and support from Wal-Mart’s nonprofit partners.

The Wal-Mart sustainability strategy no doubt looks to be off to a promising start; they must not become complacent and must press-on carefully in order to make these networks sustainable and able to expand without interruption. The first thing they need to do is manage these partnerships carefully in order to keep costs down. They also need to be able to manage the balance between offering “green” and conventional “non-green” products in its stores. Finally, because of the very high number of nonprofits in the network, Wal-Mart must manage the loss of these partnerships. Individual groups may be unable to get credit for a large reduction on environmental impact. Over time, these groups’ inability to be able to demonstrate their impact may cause some problems with their fundraising because donors will demand more and more data on their performance. These problems could eventually cause the non profit groups to withdrawal from the networks.

Counter-Arguments to Wal-Mart Going Green

While some stakeholders and management become increasingly confident about the new sustainability initiatives, history dictates that there is reason to worry. Many critics argue that Wal-Mart’s green initiative is simply unsustainable. As with many companies attempting to make their business strategy more “green”, upfront costs become unavoidable and are simply not worth the investment. Wal-Mart will need to spend in upwards of $500 million per year in order to achieve the goals mentioned earlier in the study. The promise of potential savings down the road does not resonate with consumers, or smaller Wal-Mart suppliers, the same way it does with big corporations. However, it is important to note that Lee Scott stated in 2007, “Tangible profits generated by Wal-Mart's sustainability strategy in the first year of implementation were roughly equivalent to the profits from several Wal-Mart SuperCenters.” Intangible benefits, such as public goodwill and improved assurance of supply, are worth much more to the retailer than the profits generated the first year of implementation.

As Wal-Mart attempts to scale up networks and improve upon “green” initiatives, the company faces three possible obstacles:

1. Increased Costs

2. A Sub-Optimal Product Assortment

3. Criticism of Factory Labor Conditions.

38

Wal-Mart must take these challenges seriously because public reputation is on the line as it makes more and more promises to the public. With increased dependence on a limited number of selected suppliers, Wal-Mart also may face rising prices from the narrow supply base, especially in times of limited resources. Also, with fewer suppliers Wal-Mart may miss opportunities to create innovative products that customers may want but are not necessarily environmentally friendly. Wal-Mart must continue to innovate while managing incremental “green” changes to their supply chain management. Each of the nonprofit partners will continue to push Wal-Mart in choosing product assortment lines.

Conclusion

According to the 2009 Wal-Mart Sustainability Report, Lee Scott was quoted as saying, “The facet is sustainability at Wal-Mart isn’t a stand-alone issue that’s separate from or unrelated to our business. It’s not an abstract or philanthropic program. We don’t even see it as corporate social responsibility. Sustainability is built into our business. It’s completely aligned with our model, our mission and our culture.” In this case study we have outlined the requirements needed to become a sustainable business, the reason why this initiative is different than others previously attempted by Wal-Mart, goals presented by management, the new value networks, and risks Wal-Mart needs to address. They have already taken major steps including a “green” website where they give tips on how customers can go green and what they can do to reduce their environmental impact. Wal-Mart critics argue that the steady dose of these initiatives is an effort to deflect attention from its work-place policies and its financial performance. They need to continue to invest in its environmental policies as well as address the issues facing their workforce in order to prove these initiatives are not just a public relations stunt. However, if Wal-Mart proves that it is serious about reducing environmental impact and devoted to investing in green initiatives, critics will have to unclench their fists for a round of applause. At least for a moment.

39

CASE: AUSTRALIAN CEMENT AND CONCRETE SUPPLY CHAIN

Sustainability in Supply Chains Using systems thinking to work towards sustainability in corporations and their supply chains Alice Woodhead*, Janelle Thomas** and Jeremy Mah** March 2009

With the accelerating pace of globalisation and increasing emphasis on sustainability, it was inevitable that those in the construction sector increased their focus on reducing carbon in buildings. Global trends indicate that Australian government legislation and market pressure will eventually require developers to build zero-carbon buildings.

Cement accounts for 5% of the world’s CO2. Cement, when combined with aggregates, water, chemicals and energy makes concrete. Concrete provides excellent thermal mass, has durability, can last for over 100 years and can be recycled. Therefore effective building design can contribute significantly to a building’s energy efficiency and longevity, which means a building’s lifetime carbon footprint can be reduced. Given the complexity of this problem, the foundation companies, Bovis Lend Lease, Stockland and Landcom, recognised the need to collaborate. Over 20 companies from the concrete supply chain became involved.

Background

Three companies – Bovis Lend Lease, Stockland and Landcom – were invited to participate in the Sustainability in Supply Chains program. Bovis Lend Lease is an Australian-based global project management and construction company; Stockland is one of Australia’s largest diversified property groups. Both companies provide a range of expertise, including construction management, project and program management, design management, design engineering, procurement and facilities management. Landcom is a state-owned corporation and a development arm of the New South Wales Government. Landcom’s primary focus is planning and developing residential and commercial properties in NSW. All three companies identified the carbon impact of the use of concrete in construction as an intractable, messy problem that no one organisation by itself could address. It was agreed that collaboration was needed and independent facilitation would be important to bring stakeholders together.

The sustainable concrete supply chain project required time, insight and input from a wide range of industry players, including developers, engineers and architects, builders, cement and concrete manufacturers and associations, power stations, industry standards organisations and the financial sector. The team conducted extensive interviews and systemic analysis of the concrete supply chain – first identifying the key stakeholders, then the changes required and the barriers. We explored why more sustainable practices were

40

not happening and who had the power and influence. A sense of powerlessness and inertia existed, mainly due to the complexity and interconnectedness of the concrete production process. So we invited a group of industry stakeholders to come together in March 2008. The intention was to establish mutual understanding of the barriers and incentives towards a more sustainable construction sector. The participants included some of the nation’s top concrete and cement companies, joined by leaders from several of the industry’s raw material suppliers, associations and government agencies. For a day they worked their way through the issues in the concrete supply chain and, in the end, they agreed on ways each sector could contribute to the sustainability of the supply chain.

Critical Systems Analysis

Between June 2007 and August 2008 exploratory meetings were held with the construction companies and associated concrete supply chain agencies. The objective was to develop understanding of the diversity of perspectives in the supply chain along with the:

• Impact of policies, including un-intended consequences

• role that each stakeholder can play in implementing change

• potential levers and barriers for change.

Initial enquiry found that the construction companies wanted facilitated discussion that built on their knowledge of the barriers and opportunities for increasing the use of sustainable concrete in the construction sector. They also wanted to understand how sustainable was sustainable concrete, and under what conditions. For example, what were the options for reducing embodied energy and increasing energy efficiency?

Sustainable concrete is a messy problem because there are many drivers, complex influences and perverse policy outcomes due to:

• a complex range of contractual relationships

• a complicated product with numerous inputs, uses and specifications

• many vested interests, entrenched positions and lobby groups

• a wide range of opportunities and barriers to influence decision making processes

• perceptions of high risk in relation to certain applications of sustainable concrete

• a culture of long hours and tight deadlines.

Supply chain issues are particularly complex due to the many stakeholders involved. To influence the system requires an understanding of the social, institutional and policy processes, as well as the production and operational systems. An adaptation of the OECD’s Pressure State Response model (see Chapter 3) was provided as a framework for the

41

dialogue and analysis. Putting the ‘system at the table’ (a supply chain or inter-disciplinary group) is a powerful and effective approach to breaking down barriers and building common knowledge.

Members of the concrete supply chain gathered for a one-day focus group in Sydney on 19 March 2008. The objective of the session was to build a broader understanding of the range of perspectives and to jointly develop plans and initiatives for a more sustainable concrete supply chain. The participants were seated at tables of 7–8 people each with representatives from sectors of the concrete supply chain. Groups alternated between small and whole-of-forum discussion. ‘Thought starter’ talks identified key issues in the sector and helped to start discussion around the following areas:

• Understanding the production of sustainable concrete.

• Exploring project management, procurement and sustainability drivers.

• Understanding the current standards, incentives and regulations.

42

Pressure: Why sustainable concrete is important

From the developer and construction companies’ perspective, reducing the levels of embodied energy (the energy used in production) in the production of concrete and the use of concrete in buildings, and increasing the information about concrete purchasing options are the key drivers for change. The inability of the companies’ sustainability managers to influence decision making in the concrete supply chain was a key driver for this project.

Issues putting pressure on the sector to increase its focus on sustainable concrete are:

• increasing demands by clients and tenants for ‘green’ buildings

• limited specification of sustainable concrete by architects and engineers (specifiers)

• project Directors lack the incentives or knowledge to critique concrete procurement specifications

• limited information on how to specify sustainable concrete and to support the range of sustainability issues

• lack of sustainable concrete products to provide specifiers with options.

The sum result was low awareness of opportunities, optimum applications and benefits of sustainable concrete.

With the prospect of an emissions trading scheme, stakeholders expressed the view that the sector will have to change its production practices and develop knowledge and practices about how to be more sustainable. The foundation participants held a vision of responsible business practice that could cut GHG emissions in excess of that required by the new ETS.

Current state of the concrete supply chain

A systemic enquiry of the concrete supply chain systems, links and boundaries is shown in Figure 6. This diagram was developed after initial discussion with the key participants. It was used during meetings to discuss the roles of the supply chain stakeholders, to help them explore from their perspective at their point in the system their risks, uncertainty, influence and control. The diagrams and other learning materials were adapted as new knowledge emerged. There are numerous interactions and a range of relationships among customers, developers, construction companies, specifiers and builders in this supply chain, which the diagram sought to generalise into a working model. Hence it was referred to as a ‘generic sustainable concrete model of stakeholders and processes’. For example, architects and/or engineers and project directors can be in-house or outsourced, and this can vary from project to project, or between different arms of a given corporation.

The stakeholders

The key stakeholders in this supply chain are clients and tenants, developers, construction companies, concrete and cement suppliers and contractors, raw material suppliers, builders, associations and building standards corporations. The context is the use of concrete in the construction of the built environment. Participants described the cultural context as very market-oriented and pressured. The key elements are productivity and competitiveness.

43

Project managers received financial incentives for projects delivered on time and on budget. The boundaries of the system analysis for this project extended from the developers through to building construction (represented by the grey background in the diagram below). Key sub-systems included: transport and logistics;supplementary cementitious materials (SCMs); concrete and cement production; building policies and standards agencies; specifiers; and environmental and social systems.

The focus group discussion provided insights into the perspectives and issues in the concrete supply chain. While not a key group in the concrete supply chain, the financial sector and building tenants provide leadership within the construction sector. Financial institutions are facing increasing demands to ensure that their funds have sustainable investments and the practices used in construction support their investment principles. These institutions can provide leverage for change in corporations; e.g. through dialogue with CEOs about corporate performance against world’s best ‘sustainable’ practices. Concrete and cement suppliers are a key group. The exact specification for the use of concrete in buildings is highly contextual, i.e. concrete specifications are dependent on the particular building and site location. Factors that influence the use of concrete include design and engineering specifications: e.g. strength and setting time; location (distance from concrete silos and resources); timing/scheduling and availability of materials and logistics; and structural function of the building element.

44

Materials and resources

There are large quantities of supplementary cementitious materials (SCMs) available that are presently under-utilised in some regions of Australia, such as New South Wales.

SCMs are currently viewed as a commoditised waste product rather than a specialist product. Considerable potential exists to increase the use of SCMs in concrete and in new building products. Other important factors in the availability and sustainable use of SCMs in concrete and building products include:

• availability of water and materials

• uneven distribution of SCMs in Australia, the associated transport distance, economic and carbon costs

• existing contractual arrangements that restrict the capacity of SCM suppliers

(e.g. power stations that produce fly ash) to develop the market to its full potential. The concrete suppliers have infrastructure constraints on their capacity to utilise SCMs in concrete mixes. Their current capacity is highly location dependent – mainly driven by the number of silos on site. Increasing silo infrastructure would enable the concrete sector to provide a greater range of concrete blends. High silo infrastructure costs, space and council planning requirements are major restrictions to this development. Performance specifications of built structures are also an important factor in the use of concrete. Some participants expressed concern about the emphasis on SCMs as the principal vehicle to create a more sustainable concrete product. Over-reliance on rating systems to provide incentives to use SCMs, without considering the context for their use, does not necessarily achieve more sustainable outcomes.

For example, specified concrete mixes that ‘prescribe’ SCMs as part of a percentage of replacement materials may produce unintended outcomes. Longer curing times of SCMs can affect concrete pour cycles, which in turn may result in subcontractors charging builders extra. To compensate, additional cement may be used to reduce curing times, which is counter-productive.

Other alternatives exist to reduce carbon footprints, such as design optimisation to reduce the amount of concrete required and the use of post-tensioned slabs. Developers and construction companies have specific criteria for the supply of some other building products (such as certified timber products) to ensure their ‘sustainable’ credentials. However, which supplier provides the concrete for a particular project is largely determined by proximity(the weight and curing time of concrete makes logistics and transport important). This means the companies are unable to manage this supply chain in the conventional manner – they can’t work with a preferred supplier to an agreed standard. They have been unable to implement consistent sustainable concrete product standards across the range of suppliers. Whole-of-supply-chain thinking introduces systems considerations. Design optimisation needs a ‘cradle to grave’ view that includes

45

GHG emitted from mining and production processes through to end-of-life disposal or reuse. Improvements to the operational energy efficiency of a building that draws on non-renewable energy sources by itself won’t reduce the volume of GHG in the atmosphere.

Challenges

Specifications for concrete need to support sustainable outcomes through the more effective use of SCMs in a) building design optimisation; b) performance specifications for the % of SCMs in different applications; and c) improved time and logistics management to reduce waste. Key challenges are:

• How to increase the specification of SCMs to reduce the embodied GHGs in the built environment. There is currently limited specification of SCMs by engineers. Pressure from developers and construction companies for the fast laying of concrete does not support the use of SCMs as they take longer to cure.

• How to balance sustainability tradeoffs – reducing GHG from embodied energy vs energy efficiency during the operational life of a building. For example, concrete provides insulation benefits that are closely aligned with concrete mass and effective building design: i.e. concrete can significantly improve energy efficiency by reducing the need for air conditioning and heating. For this reason, attempts to reduce the use of concrete could adversely impact on the energy efficiency, durability and longevity during the operational life of the building.

• How inefficient practices such as a lack of quality control, overordering of product, and rigid timing/scheduling of deliveries can lead to considerable concrete and energy waste.

For example, currently twice the number of trucks are used to meet morning deadlines than would otherwise be required if deliveries could be spread evenly throughout the day.

Note: participants indicated that attempts by the concrete industry to manage logistics and scheduling with clients have achieved limited success so far.

Policy tools and measurement

Depending on the position of the organisation in the supply chain, there are different drivers, tradeoffs and barriers. People also have a range of incentives and constraints to achieving outcomes. These contextual issues need to be taken into account when considering the policy tools for sustainable concrete. The Green Star rating system is a building standard for commercial ‘green buildings’. There is limited incentive for their increased use of SCMs due to the small allocation of points. It was argued that a higher point allocation would help to address this issue. However, a key question is whether SCM rating criteria create better sustainability outcomes. The limitations to the current rating system were discussed. For example, the rating system does not accommodate embodied energy or energy efficiency design considerations for concrete. The Green Building Council is planning to review the rating criteria and will consider how to ensure that point allocations

46

do not create unintended impacts on the sustainable performance of the building. Addressing the issues raised above may take up to three years.

The Life Cycle Analysis (LCA) of a product within the supply chain is needed to fully understand the embodied GHG and other resources used to produce the product. Currently, LCA tools are fairly simplistic. LCA tools are not currently recommended state practice, nor are they consistent between states. An LCA can be information intensive and costly to conduct, and is limited to a defined product in a point in time, so allowance needs to be made for parameters that change. There are numerous mixes of cement and concrete and a large variety of input materials available. It’s also uncertain whether the results of an LCA will align with the incentives of a future ETS. In assessing the impact and longevity of a building, an LCA needs to inform not just the decision of what to build, but how to build.

This would include a focus on optimal design upfront:

a) to extend the life of a building; and

b) to provide decision support on whether to refurbish or rebuild an existing structure.

CO2 from products is undervalued and the ETS will help to solve this issue by placing a price on carbon. Over time, carbon pricing will become an integral part of incentives, regulations and other market and legislative instruments. The Australian Government Department of the Environment, Water, Heritage and the Arts (DEWHA ) has started dialogue with the Building Products Innovation Council (BPI C) to develop a nationally consistent approach to carbon accounting in the built form. The scope of the ETS in measuring carbon performance may include design, material, utility and construction/ operations considerations. A carbon accounting methodology will need to determine where in the supply chain the transaction costs reside for existing and new products (e.g. the trade of ‘packets of emissions’). Considerations include: the equitable distribution of benefits from carbon savings; who would bear the costs of an ETS; and at what point would a carbon price translate into change. Participants expressed a need for communication/education to enable decision-makers in the supply chain to interpret these signals and respond with product and design choices that reduce carbon. Irrespective of a national carbon accounting scheme, participant construction companies expressed the need to proactively reduce CO2 emissions as a moral imperative.

The way forward, the response

Corporations within the construction sector need to demonstrate leadership in order to build momentum for change. The culture of ‘fast turn around’ in this sector limits the ability of staff to engage in sustainable initiatives. Senior management can provide support by allocating time and resources, incentives and performance KPI for their staff to drive sustainability outcomes.

Participants indicated that there is a need for stronger collaboration throughout the concrete supply chain and consistent messages, policies and incentives for stakeholders. To build the capacity of people and organisations to better understand the issues, and effectively work towards a sustainable concrete supply chain, the recommendations were:

47

• Develop a range of communication and education material on the use of sustainable concrete products and processes for a broad range of stakeholders across the supply chain, such as project managers, specifiers, suppliers, etc.

• Improve decision-making support tools such as LCA, design, product and performance optimisation tools to enable more informed decision-making at all levels of the supply chain.

• Develop incentives, standards and best practice performance specifications that provide assurance of the sustainable credentials of products, a consistent message, and market drivers that do not lead to unintended/unsustainable outcomes.

• Develop contracts and procurement policies that encourage the use of sustainable concrete and support green building criteria.

• Encourage leadership and cultures within corporations that support sustainability practices in the concrete supply chain.

There are extensive knowledge gaps within and across the supply chain about sustainability in the supply of concrete. This lack of knowledge and awareness often drives behaviour and practice that produce unsustainable outcomes.

Questions raised included:

• What is the impact of different concrete mixes?

• What are the links to other issues within the supply chain such as water, waste and logistics?

• What does a ‘green building’ actually mean?

More industry-wide and stakeholder-specific information is needed to help support decision making (e.g. case studies about the trade-offs between embodied energy and energy efficiency). This type of information will enable stakeholders to make more informed decisions about the options for sustainable design andthe use of construction materials, and how to most effectively achieve sustainable outcomes.

Reflections on the project

The ‘walk the supply chain’ approach at the focus group and during meetings, using diagrams and critical system analysis learning tools, broadened participants’ knowledge and understanding of other parts of the supply chain. Below are comments recorded by the participants on review forms after the focus group:

• ‘Positive development of our understanding of other areas of the supply chain – get feedback from downstream members on their view of your sections.’

• ‘Write up results and circulate, hold another meeting, ongoing collaboration.’

48

• ‘Very informative and insightful. It helped me to understand the key factors and drivers into sustainable concrete.’

• ‘Good to meet the participants and hear their concerns.’

• ‘… challenge to convey complexity of issues across influencers – specifiers.’

• ‘Increased awareness and collaboration between various sectors *are+ important.’

Sustainable concrete is a complex issue and a messy problem. When working with so many stakeholders from different disciplines and sections of the supply chain, there are major challenges. A collective response to make sense of complex issues that have persistent, systemic barriers to change can generate simple communication material. Fact sheets, when written in a credible style with relevant, useful information, can help build shared knowledge and can become a tool for leveraging change. One outcome from this project is the development of a Sustainable Concrete Fact Sheet. The Concrete Institute of Australia (CIA ) is taking a leading role and is working with its members and participants from the construction project. Participants indicated that ongoing discussion in the form of a follow-up focus group or small working group to review the findings and explore next steps would be helpful. An extensive set of recommendations for future research and policy development was formulated during the focus groups and interviews. These recommendations provided incentive for the CIA to develop its own research and development forum and the fact sheet.

49

Analysis

In the first case, we see Wal-Mart making a move towards a responsible green organization and it sets out by developing a sustainable supply chain.

Wal-Mart is a world renowned retail giant with effective supply chain management as one of their core competencies and ideologies. The ambitious project by Wal-Mart of creating a sustainable network of supply chain solutions including every stakeholder from suppliers to distributers to transporters and also Wal-Mart’s own fleet is a welcome step towards sustainable development.

The core understanding here remains that an organization might have an army of moves up its sleeve to reduce the carbon footprint it leaves theoretically, but what matters at the end of the day is integration with stakeholders. Wal-Mart implemented moves like increasing fuel efficiency of trucks, reduce emissions of greenhouse gases by a set target along with reduced energy consumption etc. But what catapulted Wal-Mart towards effective sustainable development along with profits was the integration with stakeholders. It included stakeholders at every level.

It helped its suppliers achieve sustainability by collaborating with them in making the supply chain effective. It provided them with information and logistical support at every step necessary. It partnered with various advocacy groups to lobby for policy changes that would help itself and suppliers in a positive way.

Another factor responsible for Wal-Mart’s success in developing a sustainable supply chain was the inclusive approach for green strategies. Sustainable development at Wal-Mart was not a PR gimmick or a CSR & Philanthropy initiative. It was a paradigm shift in the way they work and conduct Business and then extending this to all their stakeholders.

Critics argue that these steps by Wal-Mart too face the problems that never allowed solar power, alternate fuels or any other such green move to take off, High upfront costs and difficulty in integration with stakeholders across the globe. But Wal-Mart proved them wrong by reporting profits sustainably.

Wal-Mart and many more such organizations with an international commitment towards the environment are flocking to India. This is a great opportunity for Indian businesses to partner with them and have a global outlook on things. We will soon see a lot of Indian companies becoming suppliers to Wal-Mart. With their strict systems in place to ensure supplier compliance towards green supply chain, Indian Cos. Need to buck up and soon.

Eventually every nation will be emphasizing on sustainable development by ratifying protocols or imposing legally binding targets to meet. A first mover advantage in an operational aspect will go a long way for Indian companies to compete at a global stage.

50

On the other hand, in the second case we see the sheer amount of co-ordination required to implement a policy decision in tandem with the industry relating to sustainable development.

The second case talks about Australian concrete industry. Cement being responsible for 5% of world’s CO2 emissions, it is important to manufacture sustainable concrete and even more imperative to develop a green supply chain to use that concrete or cement.

In Australia, the government along with think tanks and industry leaders wanted to initiate policy changes in the cement and concrete industry towards sustainable development. The sheer number of stakeholders including Developers, Engineers, Architects, Builders, Cement and Concrete manufacturers, Power stations, Industry standards organization and even financial organizations made the task extremely complex.

It is this very complexity that will arise with a multi fold increase in magnitude in the Indian scenario if something of this sort is even attempted.

But the challenge is surviving in the most hostile conditions and yet bringing in changes to the organizations and national policies so that India can compete on a global platform.

51

Conclusion

Indian Businesses are going global at breakneck speeds. They are competing at a global stage and are also becoming stakeholders in the international business arena on their own or by partnering with other businesses and governments. It is hence imperative upon us that we set the record straight right at the outset and have a clear focus of not only the short term but the long term strategies and benefits to devise our ideologies and approaches to conduct Business.

The Increasing focus on sustainable development is eventually going to trickle down to India and Indian Businesses. Hence, it is better that we are prepared in advance for it and take a pro-active stand rather than a reactive one.

With functions across geographies, supply chains are an important place to start going green. This report outlined a slew of measures which are being installed in place by companies internationally.

A lot of these measures are not feasible in India; a lot of them might not see the light of the day due to bureaucratic hurdles or policy loopholes. Yet, a lot of them are very likely to be accommodated in the Indian Business Diaspora as it is or with some modifications. That is how India has reached this stage on the global arena. We have always re-engineered the solutions to problems to suit our needs.

In conclusion, this is a call to Indian Businesses. There is a growing requirement for Sustainable development. Indian companies are doing Businesses with companies having tremendous commitment towards this cause. It is about time we increase our commitment towards the same as soon as possible because eventually we will have to. Supply Chains as depicted in this report is a good place to start.

52

References

1. Sustainable Supply Chains and streamlining stakeholders. http://streamlinesupplychain.wordpress.com/2008/03/23/green-supply-chain-in-india/

2. http://business.outlookindia.com/article.aspx?102268

3. http://www.paryavaran.com/profiles/blog/show?id=2341979%3ABlogPost%3A15964&commentId=2341979%3AComment%3A16000&xg_source=activity

4. http://www.greencollareconomy.com/

5. Harland, C.M. (1996) Supply Chain Management, Purchasing and Supply Management, Logistics, Vertical Integration, Materials Management and Supply Chain Dynamics.

Slack, N (ed.) Blackwell Encyclopaedic Dictionary of Operations Management. UK: Blackwell.

6. http://www.un.org/documents/ga/res/42/ares42-187.htm

7. http://envfor.nic.in/divisions/ic/wssd/doc4/consul_book_persp.pdf

8. http://findarticles.com/p/news-articles/times-of-india-the/mi_8012/is_20081124/tata-group-emerges-leader-sustainable/ai_n39516044/

9. http://sustainablebusinessforum.com/davemeyer01/48809/solving-sustainable-sourcing-green-supply-chain-management-puzzle-2010-rewind

10. http://www.triplepundit.com/2010/06/2010-green-brands-survey-what-do-green-consumers-want/

53

11.Stanford University Graduate School of Business case study titled, “Wal-Mart’s Sustainability Strategy” (GSB No. OIT-71) and associated teaching notes by Erica Plambeck and Lyn Denend.

12.The Boston Consulting Group, “The Business of Sustainability –

Imperatives, Advantages and Actions” September 2009

13.The Boston Consulting Group, “ Special Report- Creating the Optimal Supply Chain”, The Boston Consulting Group and Knowledge @ Wharton, 2009

14.World Economic Forum, “Supply Chain De-Carbonization”, 2009

15.Wal-Mart 2009 Sustainability Report

http://walmartstores.com/Sustainability/7951.aspx

16.Sustainability in Supply Chains Using systems thinking to work towards sustainability in corporations and their supply chains Alice Woodhead*, Janelle Thomas** and Jeremy Mah** March 2009 *Link Strategy Pty Ltd **Australian Research Institute in Education for Sustainability (ARIES) The Australian Research Institute in Education for Sustainability under commission from the The Australian Government Department of the Environment, Water, Heritage and the Arts

17. A Case Study of Wal-Mart’s “Green” Supply Chain Management Adam Heying & Whitney Sanzero, May 4,2009

18.www.greenlogistics.org

Developing innovative and more sustainable approaches to reverse logistics for the collection, recycling and disposal of waste products from urban centres