In January 2011, Munich Re, one of the leading global reinsurers, said: "The high number of weather-related natural catastrophes and record temperatures both globally and in different regions of the world provide further indications of advancing climate change."
According to the reinsurer, 2010 has experienced the second-highest number of natural catastrophes since 1980, with total economic costs of US$130bn. It seems that it is now definitely the time to move from green awareness to green action.
In 2008, BearingPoint delivered its first green supply chain survey (in collaboration with ESCP-EAP and Supply Chain magazine). The research found that environmental actions undertaken by European firms were mostly driven by the need to comply with environmental regulations.
In this 2010 monitor we explore companies’ green supply chain practices in Europe in order to identify the significant improvements in the most representative industries.
The results show that executive management is increasingly interested in developing products with a low environmental impact.
"The two main reasons for launching green actions are to improve brand image and gain executive sponsorship"
European companies now see that green supply chain can create value for their activities in the long term. However, they need to move on from the classic customer-supplier relationship model and to think about new internal and external collaborative forms.
Classic supply chain strategies focus on cost, time-efficient movement and coordination of goods and services from upstream suppliers to downstream consumers. For sustainable leaders, these strategies are not enough. They expect to extend their strategy by involving suppliers in emerging economies, but also their suppliers’ suppliers and in tiers beyond that.
In this survey, for which we interviewed more than 600 professionals worldwide, we outline ideas that can be implemented in every organisation, regardless of the maturity of its green supply chain.
The 2008 survey found that the environmental regulations adopted in Europe (Registration, Evaluation and Authorisation of Chemicals (REACH), Waste Electrical and Electronic Equipment Directive (WEEE), Restriction of the Use of Certain Hazardous Substances in Electrical and Electronic Equipment (RoHS), European Union Emissions Trading Scheme (EU ETS)) had created a profound sense of urgency. Companies had trouble defining their green priorities and how to handle the necessary actions.
In 2010, we found companies’ priorities had changed (see figures 1 and 2). The emergence of Sustainable Development departments in companies, and the greater emphasis placed on environmental issues by executive management, has enabled a better understanding of regulation mechanisms and their consequences.
The two main reasons for launching green actions are to improve brand image and gain executive sponsorship. The support of companies’ managing committees significantly facilitates and often guarantees the funding and implementation of ‘green projects’.
Companies’ increased motivation to improve practices shows that they are becoming more mature about green issues. Two thirds of companies have intensified their green actions over the past three years.
Successful implementation of green practices requires careful management of the risks they can present. For instance, in Retail, the environmental impact of the large players’ suppliers accounts for 95% of companies’ total impact. They therefore ought to manage their exposure to specific risks. Risks can be linked to brand image (for example, atmospheric discharges due to bitumen sand extraction, deforestation for palm oil tree plantations), compliance issues with European laws (such as REACH or RoHS) or customers’ health and potential penalties.
NEW DIRECTIONS FOR THE GREEN SUPPLY CHAIN
More than one third of the companies interviewed declare that they are ready to start up environmental actions in spite of their low present profitability, provided they create value in the medium term.
Companies now see a convergence of economic and environmental interests for their supply chain. Most (70%) believe green supply chain is a true economic lever and a source of easily measurable profits (56%). For 47% of the companies, the return on investment is reached before three years.
Companies that chose to implement a green supply chain invest and commit to it for the long haul: for instance, 70% of companies who already measure their carbon footprint evaluate it at least yearly.
Green actions also seem able to weather the storm created by the recent economic crisis. Two thirds (66%) of companies declare that the crisis did not have a braking effect on planned and ongoing environmental initiatives: in fact, they accelerated most of them.
In order to assess environmental actions in the supply chain, companies must introduce green key indicators and metrics. Key performance indicators (KPIs), such as the share of recycled packaging material, or the share of trucks better than Euro-class 4, come into consideration. The measure of performance is essential to gain the trust of executive committees and to meet regulations. More than half of European companies have adopted this approach in their corporate relationships. Scandinavian companies led the way, as 77% of them already use ‘green criteria’.
Eco-design: a ‘must’ for the development of activities
“80% of the environmental impact of a product is determined during its design,” according to the German Environment Agency.
At BearingPoint, we believe this percentage is under-evaluated. Anticipating the environmental footprint of a product from the very start of its development (the eco-design approach) is becoming more and more important.
Although few of the interviewed companies claim to have taken the path of eco-design, the results are very encouraging for those that did, as the main objectives they had when beginning are generally reached: compliance with laws, improving brand image, meeting the final customer’s requirements or optimising recycling capability.
Procurement: the ‘green requirements’ in sustainable procurement
Beyond the requirements that Procurement departments have traditionally been promoting over the years, such as respecting work conditions and non-discrimination, there are new issues about reinforcing environmental requirements to suppliers. According to the survey, two thirds of companies adopted, or plan to adopt, a ‘green’ policy for their purchases. This approach enables better compliance with existing norms (such as REACH), improved brand image and better ranking by non-financial rating organisations.
Companies also encourage suppliers who consume fewer raw materials, control emissions and pollution levels, and who track their materials accurately. Companies also tend to select products made out of a large proportion of recycled and recyclable materials, and which are stamped by reliable eco-labels.
Logistics: classic optimisation approaches, source of ‘green’ quick wins
In the past, classic optimisation was driven by costs and lead time. Nowadays, a third dimension appears: the environmental impact. There are various ways to optimise processes and technical improvements: every company can launch ways to reduce its environmental impact.
Lean manufacturing at the time of green supply chain
In the 1980s, cost cutting focused on reducing all kinds of waste and through the use of the minimum resources: the expected result was operational efficiency. Nowadays, cutting costs and maximising efficiency remain unchanged, but are now promoted inside the company as an environmental necessity as well as financially important.
Carbon footprint: Measurement as a prerequisite for the optimisation
Defining a baseline by measuring an initial carbon footprint is the prerequisite for setting up realistic reduction goals. Four fifths (80%) of the companies who measured their carbon footprint identified immediate improvement initiatives, such as reducing resources consumption and getting rid of waste.
Beyond action, communication
Communicating the environmental improvements made for the ‘last mile’ makes good sense for a logistics contractor.
"...it is possible to address both business objectives and environmental needs with sustainable development"
Showing that your company cares about the environment, through the products you use, or through your choice of components, suppliers, packaging, distribution network, and so on, has become an asset… and will most certainly be a survival need tomorrow!
GREEN SUPPLY CHAIN STRATEGY AND MODELS
The European Union has stated that a number of unsustainable trends require urgent action. For instance, significant additional efforts are needed to curb and adapt to climate change, to decrease high-energy consumption in the transport sector and to reverse the current loss of biodiversity and natural resources.
From sustainable development to the green supply chain
We define sustainable development as: “the development that meets the needs of the present without compromising the ability of future generations to meet their own needs”.
Sustainable development policy has a bearing — either direct or indirect — on the supply chain and a company’s environmental impact. Consequently, supply chain has a key role to play in terms of protecting and preserving the environment.
What is green supply chain?
Green supply chain is about minimising the environmental impact of a product throughout its lifecycle.
As early as the design phase, environment impact will be determined by the functional integration of all the components to the product lifecycle:
Green supply chain covers all the phases of a product’s lifecycle, from the design, the extraction of raw materials and production and distribution phases, to the use of products by consumers and their disposal at the end of the product’s lifecycle (reconditioning, reuse, recycling). BearingPoint has coined the term ‘second life logistics’ to characterise these concepts.
About two thirds of the sample consider green supply chain as a strategic priority now or in the short term. The same proportion has intensified their green supply chain offering over the past three years.
Scandinavia countries are the undisputed leaders in green supply chain initiatives. In fact, 90% of the Scandinavian companies surveyed consider it as a strategic priority, as opposed to just 57% of French companies and 59% of GSA (Germany, Switzerland and Austria) companies.
Companies are now convinced it is possible to address both business objectives and environmental needs with sustainable development. It has therefore become more integrated into business thinking and decision processes.
This chart (below) shows our own representation of a green supply chain model. Many facts trigger initiatives at the company. Triggers can be external, such as brand image or customer demand, or internal, such as cost reduction and employee motivation. Once these triggers have an impact inside the company, they will soon be on the corporate agenda. C-levels need to validate the business case for green initiatives and ensure that objectives are fully aligned with a company’s strategy.
When C-levels have validated that a green initiative can be launched, there are two main categories of action: optimisation and redesign.
Practically, the motivations for implementing green actions are about mastering risks and having the best external and internal brand image.
Increased media exposure and stakeholder attention force companies to get into the habit of managing risks in a more holistic way. This means a company will see its products ‘from cradle to grave’, from their manufacturing to end of warranty. With this new challenge, risk management has to be deeply ingrained in the governance of any strategic department of the company.
External brand image is driven by the final consumer, opinion leaders and shareholders. Companies’ motivations are also driven by increased scrutiny from various organisations which provide ratings or opinion. For example:
The C-level influence
C-level influence is a key element to push green initiatives forward. Sustainability is a hot topic in terms of entrepreneurship and long-term thinking and acting. A good example is a German household manufacturer which we talked to: since 1990, all its managers have green KPIs in their score card.
To ensure that all governance aspects are fully addressed, either the C-level asks the Governance department to work tightly with the Sustainable Development department, or they ask for a ‘green watch unit’ inside these new departments.
For the 2008 study, Sustainable Development departments were 7% of the respondents, whereas in 2010, they represent 42%. They are now increasingly responsible for coordinating green initiatives in companies.
The 2010 study enhances a maturity matrix that we designed in 2008. This matrix has five criteria:
Optimisation vs. redesign
Optimisation and redesign can be done beside the green supply chain. To better understand this, let us consider a company that intends to change its obsolete heating system. A type of optimisation can be to change the company’s actual boiler to a brand new boiler with latest technology.
Redesign can be to change the boiler system to geothermal installation. In the best case, we can produce extra energy, sell it on, and as a consequence, modify the company’s position in terms of its energy dependency. Optimisation and redesign should be considered regarding three axes: benefits, efforts to take action and resilience of action.
There is no right or wrong decision in launching an optimisation rather than a redesign initiative. It is more a matter of urgency, regulation or strategic orientation. For a new range of products, for instance, a trade-off has to be made between starting from an existing point or designing from scratch.
Reducing a two-level environmental footprint
Actions on segments aim to reduce two different environmental footprints: supply chain operations and product usage. Supply chain segments and footprint impacts are tightly linked in most cases. Here are the main objectives of each segment.
The European Commission has provided a regulatory framework with which companies must comply. The framework is complex because it has evolved rapidly over the last few years in response to emerging problems and growing attention from end consumers and opinion leaders.
For European companies that operate worldwide, a major issue is to deal with these regulations as well as carrying out business with other companies and suppliers that don’t have to comply with the same regulations. In the worst cases, some emerging countries have very few regulations regarding environmental issues.
In the beginning, the European Union Emissions Trading Scheme (EU ETS) greatly influenced supply chains. Nowadays, regulation like Restriction of Hazardous Substances (RoHS), Waste Electrical and Electronic Equipment (WEEE) and Registration, Evaluation, Authorisation and Restriction of Chemicals (REACH) also influence the supply chain. Others, like the upcoming standard for measuring transport emissions CEN/TC 320/WG 10 ‘Energy consumption and GHG emissions in relation to transport services’ will do the same. Examples of supply chain-relevant regulations for the waste framework are given below.
European Union Emissions Trading Scheme (EU ETS)
The European Union Emissions Trading Scheme (EU ETS), also known as the European Union Emissions Trading System, is the largest multinational emissions trading scheme in the world. It is a major pillar of EU climate policy.
Restriction of hazardous substances: the ROHS directive
This European directive is aimed at manufacturers of electronics and computer equipment. Equipment which does not meet the standard can’t be sold within the EU. However, as the directive applies throughout Europe, it indirectly affects every major IT group in the world. There are exceptions to these directives, which are bound by certain thresholds or periods of time. There are equivalents to the ROHS directive in some states of the US and in Japan.
"Regulations can actually be a key factor of success for companies that have invested seriously in eco-design processes"
Waste recycling: the WEEE and ELV directives
In Europe, the WEEE directive requires electrical and electronic equipment waste to be collected and recovered, giving priority to reusing and recycling materials and products. This directive therefore requires manufacturers to set up recovery and recycling channels for their products or components.
The ELV (End of Life Vehicles) directive defines the conditions that each European country must set up in order to achieve reuse, valuation and recycling objectives. Vehicle owners or manufacturers, depending on the country, must now discard end-of-life vehicles to a certified operator. Car manufacturers have also to make efforts in design in order to facilitate recycling and reduce hazardous materials in new models.
The REACH directive is expected to have a considerable impact on all market sectors, as it requires users of chemical substances (manufacturers, distributors, and so on) to precisely identify them and provide proof of their non-toxicity in a given product usage.
In the context of the survey, we found that the maturity of Scandinavian companies in eco-design practices make them very comfortable with constraining regulations such as REACH than other European countries (for instance, only 14% think REACH is a constraint). Around 40% of the other countries surveyed consider that REACH is a constraint for their activity. Activities related to chemistry (Chemicals & Pharmaceuticals) segments and metal construction segments (Metallurgy, Automotive and Aeronautics/Defence) are by far the most concerned by REACH:
The progress made by manufacturers in complying with these regulations (and others) are regularly scrutinised by governments and NGOs.
Regulations can actually be a key factor of success for companies that have seriously invested in eco-design processes. They can use what they have developed or learnt from regulations to:
“80% of the environmental impact of a product are determined during the design phase.” German Environment Agency
When a company’s product development team puts pencil to paper, it makes a decision about a product’s environmental impact. That initial research and design phase is the first and best time to start a product down the path of reduced environmental impact.
Consumers want green-made products and environmentally-sustainable products during its lifetime. Replacing steel parts of a car with recyclable plastic parts can be a clever option during the design phase if it significantly reduces the weight of the car, and therefore the fuel consumption. Indeed, the environmental impact linked to the use of a product can be far greater than any impact linked to its manufacturing or sourcing.
Eco-design aims to minimise the environmental impact throughout the lifecycle: from raw materials’ sourcing to the product's end of life. As a consequence, eco-design drives all the initiatives on each step and is fed by key learning and technological innovations.
One third (36%) of the companies surveyed claim to have implemented an eco-design programme over the last three years. Scandinavia, France, Belgium, the Netherlands and Luxemburg (Benelux) are more receptive to eco-design than the GSA zone (Germany, Switzerland and Austria), the United Kingdom (UK) and Ireland (IE). Sectors traditionally active in R&D and innovation, for instance, IT and telecommunication companies, are one step ahead.
To reach this objective, the R&D way of thinking is changing. Firstly, and mainly by focusing on raw materials and components, R&D is now an opinion leader for various kinds of green initiatives from cradle to grave.
The main decisions to launch eco-design programmes remain aligned to answers gathered in 2008: compliance issues and communication matters have forced companies to go down the eco-design path.
In 77% of cases, eco-design is a strong marketing argument for customers. Environmentally-conscious design has now become a commercial argument for some categories of product and has improved the company’s brand image. The best example is in the car industry, where any technological initiative aiming at reducing fuel consumption and pollutants emissions has become the central message of the advertising for a new model.
In addition, the dramatic increase of energy and material prices has contributed to the increase of eco-design as a key factor of competitiveness for companies. Companies anticipate material prices and recycling actions in order to reduce their dependency to materials with unstable prices and improve their competitiveness. This can only be realised via a deep integration with purchasing strategy to source the right vendors and the right components.
Detail by geographical zone outlines differences in decision criteria for green design. If brand image is the first reason in Scandinavia, France and Benelux, it appears that compliance is the main reason in the GSA zone for implementing an eco-design program. This might be explained by the fact that the economic weight of chemistry and metallurgy segments is significant in that zone. Therefore, this area is more concerned by regulations such as REACH.
Cost savings and brand image improvements remain the main motivations in implementing an eco-design programme. While Retail and Pharmaceutical industries seek cost savings, the Building Industry, Transport and Defence look for improved brand image first. Automotive and Household Goods industries are looking for both cost savings and improved brand image.
"Eco-design targets recycling: 70% of companies that have adopted an eco- design approach believe they have made their products easier to recycle"
Many actions can be launched at the design phase with various effects among the product lifecycle. Eco-design is part of a continuous, cyclical improvement approach. Nevertheless, the survey shows that regardless of a sector’s level of, eco-design activity, most companies carry out many eco-design actions anyway.
Substitution and choice of materials
"A predictable increase [in] raw material prices and sourcing issues with key components has made companies realise that developing products with higher modularity and a reduced consumption of raw materials is a wise option"
The first action in an eco-design approach is to use fewer polluting materials. Working on sustainable raw materials for new products also brings competitive advantages. For instance, a French retailer believes that finding the one supplier capable of producing an organic, 100% biodegradable painting is sure to give it a competitive advantage for sales.
Avoiding hazardous substances in products helps reduce processing costs, and using recycled materials generally leads cost savings. Increased use of recycled cardboards or polyethylene (PET) can still have supplementary costs, but enables companies to anticipate future regulations and improve their image. Happily, costs of new and recycled raw materials are progressively converging.
Those practices should also be viewed from a long-term perspective as a way of preparing the company to a world of scarcity. Organising alternative supply channels for key materials is now a strategic issue for companies depending on rare resources.
In parallel, manufacturers must buy in to the green-design concept and commit to working within the manufacturing constraints on green-designed products. End consumers create demand for green products. Many consumers must be educated about environmental attributes through product labelling and marketing, while others have let companies know they will only spend money on products that have been designed with the environment in mind.
Initial conclusions: the future of green design
Eco-design is a tremendous enabler. It may drive product development, focus consumer attention and improve brand image.
Companies have to go through different stages for a successful eco-design initiative:
"Eco-design is a tremendous enabler"
Most of the companies have a green purchasing leader and most of them have an executive at VP level leading the programme. Therefore, there is an increasing awareness of the importance of sustainable sourcing. Almost two thirds of the companies surveyed are driving their actions under a green policy, although the results vary from region to region. Four fifths (80%) of the Nordics and German companies, against 55% of French and UK enterprises, have launched a sustainable sourcing initiative.
Regulation remains the main motivation for the Purchasing department. Companies start to chase the current regulations and then anticipate new regulations to prevent deterioration in brand image, claims and over costs.
The second step is to strengthen the management of environmental risks. Training on certification and eco-labels allows the purchasing team to be much more efficient when binding a contract. Dealing with certified suppliers and labelled products is also a key factor in minimising risks.
Regarding products, the most wanted labels are:
Mature sourcing organisations are motivated to add value in business initiatives and to ensure competitiveness. When there is good collaboration between companies and suppliers, it is much easier to see the innovation and ensure the continuity of supply for critical resources.
The companies surveyed focus their actions on suppliers by refining contracts, promoting new charters and conducting audits on the suppliers’ sites. Few actions are conducted to optimise internal procurement activities.
When companies were asked whether or not they have a sustainable sourcing initiative, 76% admitted to having ‘no’ or a ‘poor’ method to measure the success of their green initiative. In fact, 68% never reported externally to stakeholders and 56% never reported to institutional leadership about their sustainable sourcing.
Surprisingly, reporting implementation is in third place. We believe that this is because initiatives are more visible when it comes to sustainability. C-levels trust their purchasing people, but they also want them to provide solid figures, so they can feel comfortable when these figures are shown externally to regulators or stakeholders.
Review sourcing strategy
Companies have reviewed their sourcing strategy based on a green risk analysis per commodity. The aim is to assess risks and put in place action plans to minimise them.
In the meantime, the trade off between local versus offshore sourcing is changing. It does not matter whether it is written on green policy or not; companies want to maintain a significant volume of spend with local suppliers.
"In 2010, 34% of the companies surveyed moved from global sourcing to near or local shoring sourcing … no doubt green concern was part of the decision process"
Adapt supplier panel
Supplier score cards now include green criteria. The Sourcing department has identified green services and qualified product providers, and selects new providers based on these criteria.
Companies have developed a code of conduct that includes green ‘rules’, which make things much clearer on what they look for in a supplier. Leading companies have made it clear that is the way they do business, and expect their suppliers, to do business.
Another main improvement path is to educate your supply base. Most large companies have a dedicated corporate social responsibility (CSR) or sustainability professional in place. However, small- to medium-sized businesses rarely have the luxury to dedicate a full-time staff member to learning about how to operate more sustainably. By sponsoring online training programmes you can spell out exactly what you are looking for in a supplier. This helps to raise the bar for the entire industry, because leading companies are spreading best practices.
Perform supplier audit
"The survey found that half (51%) of the companies surveyed did not renew contracts in 2009 with suppliers who did not respect their green charter"
To ensure reliability of the supplier base, audits are performed to assess contract compliance and check certification. However, some companies complain of a lack of standards to assess and control suppliers in ecological fields.
Some prefer to ask for a third party to conduct audits because of their proven methodology (Veritas, for example), while others want to internally structure themselves so they can perform audit on their own.
However, we have learned from the interviews that home made audits are not viewed with confidence, and that there is a need for standard assessment and independent audits of third parties.
One example to illustrate the trend at leading companies is Walmart. In 2009, Walmart decided to create a global eco-rating for suppliers and products. They asked suppliers to answer 15 key questions to populate the database. The company then helped create a consortium of universities to collaborate with suppliers, retailers, NGOs and government to develop a global database of information on the lifecycle of products. Walmart has provided the initial funding for the Sustainability Index Consortium, and invited all retailers and suppliers to contribute.
“It is not our goal to create or own this index,” Walmart stated. “We want to spur the development of a common database that will allow the consortium to collect and analyse the knowledge of the global supply chain. We think this shared database will generate opportunities to be more innovative and to improve the sustainability of products and processes.”
Adapt material and service requirements with green criteria and involve suppliers
Purchasing departments add the appropriate environmental criteria in the requirements list. Depending on the criticism, the buyers adapt or balance between cost, quality, lead time and green criteria.
Among the companies surveyed, 65% have introduced environmental clauses in suppliers’ contracts, and 51% of them have elaborated a green charter.
Too often, we have seen language in RFPs that asks for the most energy-efficient product at the same or lower price than a traditional alternative. Now when issuing RFPs, many companies deliberately ask potential suppliers to provide them with the most environmentally sound product, with the highest quality, at the lowest price.
"Implementing clauses in contracts is not enough: they must be associated to the relevant claim process and applied when required"
The green sourcing process is more effective when suppliers are directly involved at the early stage. Suppliers’ involvement in green sourcing initiatives is often built around joint new product developments. It also enables both parties to improve their environmental performance.
Finally, a key point is to reward good behaviour. Keep tabs on your suppliers, either by encouraging them to respond to the Carbon Disclosure Project (CDP) or through other audit mechanisms. Companies will see which suppliers have made a commitment to operating more sustainably.
Initial conclusions: the future of sustainable purchasing
We have already promoted the collaborative approach and will continue to do so. When suppliers don't measure up in terms of their commitment to sustainability, rather than threatening to walk away from them, companies should invest the time to be clear about how they want to do business and work with them to help them meet companies’ expectations.
Develop and communicate a code of conduct, train suppliers, and reward the best performers with more of your business while helping laggards to improve. That's how industry leaders can use their size and influence so that everyone benefits.
The purchasing function evolves from regulation application to risk management and can bring further value thanks to green projects. The improvement of the environmental rating (67%) and the brand image (60%) are the most important benefits according to the companies surveyed.
Green initiatives are another opportunity to strengthen links with other functions. Marketing, R&D and Manufacturing share common green objectives and the sourcing function has a key role as a main contact point with suppliers.
Manufacturing has evolved considerably throughout the last century. It is interesting to see how key transitions have been handled by companies within the sector. Today, we are moving from mass customisation and personalisation to sustainable productions.
The main motivation of green manufacturing is to comply with new environmental regulations on harmful emissions, consumption of toxic products and production of waste. This is very important, as companies that do not respect the law face potential fines and customers’ anger.
There are two elements to consider in green manufacturing: the environmental impact of both its production and when the final product is in use. For example, for a car manufacturer, 20% of the impact of a typical car came from manufacturing, while 80% is due to the use of the car in itself. On the other hand, building industries will impact on the environment at 90% during the construction phase.
The foundations for green manufacturing are based on three main elements:
A — Materials, B — Energies and C — Technology.
Apart from complying with regulation, we foresee the following motivations for improvement under the green manufacturing triangle ABC.
Reducing and improving energy consumption
Companies have many ways to reduce their operating costs and any form of waste. For instance, they can use numerous lean manufacturing and related tools (such as 5S, Kaizen, Single-Minute Exchange of Die (SMED), 6 Sigma, and so on). Indirectly, they can also look at minimising over-production, changing transport times and methods, reducing stocks, rework or scrap.
Over-production and rework/scrap result in the over-consumption of materials and energy, not to mention the large volume of waste and associated emissions. For example, Boeing is buying the highest grades of carbon fibres available, which can cost up to US$50/lb as virgin materials. The majority of these volumes end up in scrap. The buy-to-fly ratio for materials is less than 33%, meaning that two thirds end up as production waste.
Improve material efficiency
Improving efficiency can be done at various levels: factory, machine and process.
At factory level, the strategy will be to ‘load balance’ over line and system or over plants, and to optimise resources and consumables.
At machine level, actions will focus on embedding the minimum energy, materials and resources while ensuring high performance levels, finding alternative energy sources for operation and improving energy storage/recovery capability.
At process level, the manufacturing team will take care of minimum energy machining, raise machines to high speeds and optimise the tool path for high productivity.
New manufacturing equipment is generally faster, saves materials and energy, and is greener: both carbon footprint and costs are impacted. One quarter (24%) of the companies surveyed say they have made sustainable investments by directly modifying their means of production.
New technologies enable new manufacturing techniques. For example, rather than being forged, camshafts can be formed of hollow rings friction-welded together and shaped by hydro-forming. This results in a reduction of part weight of 50% (and manufacturing cost of 15%).
New profits from waste and emission trading
Waste and emissions were seen as an inevitable cost of doing business, but nowadays, companies consider waste management as a new business opportunity. Actually, the scraps and waste of one firm can become the valuable raw material input of another.
There is a new way to ‘mine’ waste streams that extract valuable components from dumpsters and landfills and put them back into the market. Electronics scraps, for example, contain significantly more copper and precious metal per ton than the ore from which these metals are typically mined. In term of energy saving, the results of recycling waste versus using new raw materials are amazing: 92% for aluminium, 90% for copper, 87% for plastic, 56% for iron and steel and 68% for paper.
On top of that, waste treatment can produce energy. Both from burning it and from capturing the methane released when garbage rots, it also reduces greenhouse gases, since methane has 56 times the global warming potential of carbon.
“Each year, waste management produces enough energy from waste to power about a million homes.” European Office Data
The companies surveyed report that they have recently developed projects of setting up closed-loop recycling and more advanced projects to set-up, for instance, their own water treatment plant or even biomass plants.
Re-shoring your facilities
There is now a trend for more and more companies to bring back their offshore operations into their local context. This ‘re-shoring’ phenomena has several drivers:
Also, consumers are now looking for products with fewer ‘miles’. The trend started with fruits and vegetables, when customers rejected food grown on the other side of the world to favour close-produced produce which had had less impact on the environment in transportation terms. This trend is now extending to manufactured goods.
Initial conclusions: the future of green manufacturing
First, companies change processes to reduce energy and raw materials consumption. Then, they optimise their existing infrastructure and equipment. Lastly, they integrate the production infrastructures into the local environment (this is particularly common in Nordic countries). Energy, green manufacturing and related issues are big opportunities for manufacturing industries. They can create:
"For logistics matters, classic optimisation methods and tools are the source of the first ‘green’ benefits"
In the past, increases in costs drove the need for logistics optimisation. Optimisation will become more complex and dynamic, as not only transport occurs on demand, but also the logistics infrastructure like distribution centres will be switched on and off according to demand.
Nowadays, new technologies can go a step further regarding new transport opportunities. Clean vehicles like electric cars propose new transportation means that open various opportunities for companies, either financially or for communication and brand image.
The main issues are currently at the transport nodes of the logistics network: creating and building intelligent hubs which are both efficient and which predict future changes in transportation needs is going to be the challenge for the next few years. Links between ships and trucks are well known and used, but the ones between rail and road or even from rail to ship are far from being used and efficient enough: evolutions are expected in these areas.
The transport of goods increased by 30% between 1995 and 2005. Nowadays, road traffic is responsible for 19% (note 1) of all greenhouse gases in Europe, of which 5% is due to the transportation of goods. The interviews with major truck manufacturers and logistics providers found that the long distance truck is assumed to run with diesel and minor with a hybrid engine. For urban distribution, trucks are assumed to be powered by hybrid or batteries.
At the moment, it seems that the increasing use of road transportation for goods will be largely responsible for the high carbon emissions of companies. For example, Germany will fail to reach its carbon reduction goals for traffic until 2020.
Fuel and energy costs are also rising. For example, from 2000 to the end of 2010, diesel fuel prices in Germany increased by 70%. In 2010, around 27% (note 2) of all costs in running a truck long distance are assigned to fuel costs, which are now almost on the same level as the labour costs. There are also regulations to consider. Road fees are now responsible on long distance journeys for around 7% of all costs running a truck.
E-commerce is still growing. The transported goods structure will change further as e-commerce pushes products, in small quantities, that will generally be sent in via express delivery. In addition, peaks will occur more often; flexibility will become a critical factor. The network will move from being static to dynamic.
Optimisation of the transportation and logistics network
Redesigning the transportation and logistics network is the most historic, popular and intuitive activity area for green action. Overhauling the organisation of logistics rationalises transport and, ultimately, reduces greenhouse gas emissions by optimising both vehicle load factors and road mileage. Networks have to become more flexible.
Various models can achieve an improved logistics network. They have to take into account the clients’ location, changes in requirements, regulations and restrictions and changes in transport priorities.
Setting up a collaborative approach: pooling
Collaborating with other logistic partners and sharing logistics resources are the other main measures taken by more than 37% of the companies surveyed in order to reduce their environmental footprint. Pooling improves trucks’ fill rate. For instance, it makes sense for companies that produce heavy products to collaborate with companies that make light products, and combine both in the same trucks.
We can expect a significant increase of collaboration activities driven by green motivations.
Use less polluting transport modes
Swapping to less polluting modes of transport is a logical way to reduce transport-related emissions. It’s no surprise that 37% of the companies we surveyed proceed this way to improve their environmental impact. Currently 95% of transport energy comes from fossil fuels.
Quite recently, new energy resources have been used in transport. Technology maturity and government incentives are now sufficient for electric and hybrid cars to be competitive, and their quick development is forecasted.
Although combined transport has long been used in long-haul transport, some companies can now see the benefits it can offer over shorter distances, particularly in urban areas, in order to overcome congestion and traffic restrictions. For instance, a French retailer that we interviewed uses transport by sea, inland waters, train and green trucks to get its products from suppliers to the stores.
Focus on rail use
"Rail network isn’t seen as being flexible or developed enough, requiring heavy logistics readjustments for companies"
Train is less polluting, especially for longer distances and greater weights. However, the share of rail is low in product transportation: it represents less than 5% of transportation types for 72% of the companies surveyed. Only 14% of them plan to increase rail use over the forthcoming years.
Initiatives are being launched to maximise rail potential. An interview with the European railway actor Deutsche Bahn enlightened us about the current situation of railway and expectations for the future. They expect an increased demand for green rail travel, as new customers will favour green products and accept that they’ll need to spend more to get them.
DB is making efforts to have more ecological rail services. It plans to reduce CO2 emissions by 20% by 2020. It hope to do this be increasing efficiency and using a change of energy mix with 30% of renewable energy. As oil prices are very volatile and supplies are predicted to fall in the long run, transporting goods by rail is a more competitive solution for companies. French railways operator, SNCF, for example, wants to increase their focus on cargo transportation.
We learned that retailer and consumer industries are particularly keen to intensify their rail usage. For example, one retailer would like to link their regional distribution centres with their central distribution centres.
‘Last mile’ logistics
‘Last mile’ logistics is the name used to designate the last transport means used to convey the product to final customers.
It is the most visible part of a company’s logistics system to customers. For example, delivering a product with an old, oil-leaking, black-smoking truck may not be the best advertisement for your company!
Electrical vehicles, on the other hand, can get along with ordinary traffic, deliver without generating traffic jams because they are smaller than traditional trucks, limit noise pollution and reduce the cost of the last mile. The remaining challenge is to reload their batteries. This is easily possible, as trucks are not delivering 24 hours a day.
These trends affect the way warehousing and hubs are designed. Increasingly, distribution or dispatching hubs are being built outside cities. They enable companies to swap from long-range transportation means to last mile logistics. The hubs can also be used as energy reloading centres for electrical vehicles.
The future of green logistics
The main noticeable effects of the green actions already undertaken are a reduction in fuel consumption and an improvement in trucks’ fill rate. Fuel consumption can be reduced by up to 15% by aerodynamic improvements like teardrop design and spoilers. Another 3% could be achieved by using low-resistance tyres. On average, 5% can be achieved by driver trainings. The use of telematics means adds another reduction of 10% (note 3). Another approach might the deceleration of logistics. In the past, this could have been slow steaming of goods using shipping transport.
Two thirds (66%) of the companies surveyed had started to optimise their logistics network. However, reorganising the whole logistics network is a complex task. It’s important to find the right balance and mix between economic vs. ecological optimisation.
We recommend a technological watch within companies to monitor the logistics situation and suggest ideas for improvement which make both business and environmental sense. It can be conducted either by existing teams or by a dedicated entity that would send new ideas to the appropriate departments in the company.
Second life logistics and operations
Second life logistics and operation management is about how a company takes care of its products after delivery to customers. Activities include collection, sorting, processing, reconditioning and recycling.
The degree of complexity and the associated difficulties can deter companies who were considering second life management. Companies regard the whole reverse logistics chain as complex, because various intermediaries are likely to be involved at each stage. The complexity of these processes depends on the type of products involved:
The decision to establish a second life logistics and operations management structure depends, among other things, on the nature of the products, the market sector and the associated regulations. As a result of the European WEEE directive, for example, the electronics/IT sector is one of the market sectors most heavily involved in reverse logistics.
The possibility of recovering these products in order to reuse them or use the materials may settle a revenue growth opportunity. The European ELV directive had a similar effect on the automotive industry, which must now organise a recycling and business development network.
Structure second life logistics and operations with organisational logic
Companies need to structure their reverse chain with organisational logic. This includes the level of control, network design, outsourcing and primary locations of repair functions.
Efficient managing in-house and vendor activities ask for dedicated resources. Because forward logistics always get priority over reverse logistics, companies should have a dedicated reverse logistics entity in place.
Outsourcing is a primary feature of the structure of a second life chain. We observe that the main reasons for outsourcing of reverse logistics activities are: focusing primarily on the core business, or relying on the technology and specialisation of third parties to manage risk and control along the reverse chain.
The evolution from complete functional independence within each company in the second life chain to a truly integrated reverse chain is still not the focus point. Whatever the action performed in the reverse chain, it must be initiated during the eco-design phases in two steps:
For these models, companies have to promote and reward the effort that needs to be made by the consumer. For instance, they can give a financial incentive to customers that bring back their old packaging. Such a system already exists in Germany, where regulation means customers can recover some money if they bring back their empty bottles to a collection point in-store.
Strengthen control and minimise risks
A first critical factor in making flows manageable and profitable is efficient gate keeping. Screening products at the entry point of the reverse pipeline can significantly reduce return rates, improve the customer experience and greatly reduce the number of credit notes.
Developing end-to-end process solutions and programmes is necessary to integrate reverse logistics with general business practices. It is essential to incorporate all related business and financial connections to reverse logistics in order to compare business practices.
Harmonise and standardise guidelines and policies allow to reduce risk and align processes. Companies focus on standardising and harmonising warranty conditions, service levels and take-back policies and guidelines. Measuring and managing the true performance of reverse logistics is very hard. Two types of indicators should be implemented: for an internal business perspective (non-fault found rate and average return cycle time) and for customer perspective (the average customer cycle time).
Manage reverse flows differently from forward flows
Reverse logistics is the process of planning, implementing, and controlling the flow of finished goods from the point of consumption to the point of origin for the purpose of recapturing value or proper disposal.
Out of the companies that have set up second life management processes, 57% are part of an organisation in charge of collecting and recycling disposed products and 46% of them have set up a reverse logistics structure.
In firms where products are expensive or there is a high return rate, much more effort has been spent in improving return processes. The auto parts industry is a good example.
"The main obstacle for producers to set up recycling actions is mobilising the final consumer, and the cost to manage it. Does it have to be supported by the producer, the distributor or the consumers?"
The survey found that overall, one third (32%) of companies collect more than 25% of their products for recycling/ disposal.
Initial conclusions: the future of green second life
Changing expectations, and the consumer demand for easily-recycled products, are forcing companies to establish new procedures and, in particular, new networks, to accommodate these priorities.
"Second life is tightly linked to eco-design…it is a new growth opportunity"
Second life is tightly linked to eco-design. A perfect eco-design would plan from a product’s birth how it is going to be dismantled, recycled, and through which channels.
Second life management is a new growth opportunity. Nevertheless, the complexity of the management and the lack of visibility slows down the initiatives. Actually, the difficulty to predict the exact number and the schedule of returns makes any ROI calculation complex.
In order to reduce costs and risks, companies are organising themselves through joint ventures with partners and competitors to set up collection and recycling networks. This kind of strategy enables the sharing of costs linked to a new external constraint like a regulation such as WEEE or ELV.
For example, ELV implementation has led some European car manufacturers to set up their own dismantling and recycling companies in partnership with utilities.
"Three fifths (60%) of companies have not yet assessed their carbon footprint — but 37% intend to catch up within the next three years, so that in 2012 more than 70% will have a carbon footprint"
The Greenhouse Gas Protocol (GHG Protocol) is the most widely-used international accounting tool for government and business leaders to understand, quantify, and manage greenhouse gas emissions in order to tackle climate change.
The GHG Protocol consists of two modules:
Carbon footprint represents much more than just a tool to measure CO2 emissions of supply chain operations. It stresses the actions to be launched to control environmental impact and optimise operational costs. Four fifths (80%) of the companies who calculated their carbon footprint found concrete improvements, notably to reduce resources consumption and reduce waste. We also asked the companies why they wanted to calculate a carbon footprint:
Reducing gas emissions is the main objective. But companies seek other benefits: anticipation of upcoming regulations, reduction of product environmental impact and brand image improvement.
A carbon footprint helps the companies to identify areas for improvement, so that they concentrate their efforts on the most attractive areas. A carbon footprint assessment is used as a tool to follow progresses and install a green policy in the long run.
Any company that wishes to establish a comprehensive climate strategy and measure progress must have relevant and reliable information reflecting the carbon usage throughout its business operations and supply chain.
Scope, areas and activities covered by assessments
More than 50% of companies have set up a carbon footprint covering all sites and all activities, which is quite impressive. On the other hand, only 4% have calculated a product’s carbon footprint (PCF).
WHAT WAS THE SCOPE OF THE ASSESSMENT? (SOURCE BEARINGPOINT, GREEN SUPPLY CHAIN MONITOR, 2010-2011)
Here are the fields covered by the assessment made:
"Scandinavian companies are leaders for the measure of carbon footprint, and English ones are the most motivated to catch up. Only 27% of companies in Germany, Switzerland and Austria have measured their carbon footprint, and are not very willing to do it in the near future"
In our study we noticed strong differences between countries.
COMPANIES DOING A CARBON FOOTPRINT...
... AMONG THEM, THOSE DOING IT AT LEAST ONCE A YEAR
... AMONG THEM, THOSE DOING IT AT LEAST ONCE A YEAR
Refusing to engage with carbon assessment is a surprising trend in GSA countries, since they consider themselves as mature in term of green supply chain.
The overview by sector shows that Aeronautics and Defence are very conscientious about carbon calculation in terms of the number of companies that perform it and also in their assiduity in the long term.
"Product carbon footprint (PCF) to be used as unique selling proposition (USP)"
We have learned that most of the companies are sceptical about PCF, but some did express a strong interest to use the PCF as a USP. For example, a German household manufacturer is going to use the PCF to prove the advantage of paper against permanent filters.
Reduced energy bill and lower packaging/recycling costs are the key areas where benefits occur:
Initial conclusions: carbon accounting follows carbon footprint
Accurate environmental information is becoming more and more important for external communication.
Carbon accounting is a mandatory start point to build new tools to reduce emissions. It helps to acknowledge where the most polluting spots are, and what fields must be favoured in the fight against pollution.
The companies surveyed plan to, firstly, invest in green technologies and take advantage of regulations to minimise their environmental footprint. Secondly, they expect to assess their environmental footprint, in house and at supplier side, and regularly revise their supply chain network.
The remaining actions are to launch an eco-design programme, rationalise the supplier portfolio on green criteria and settle their carbon accounting. Furthermore, companies intend to enhance their green activities beyond logistics. This includes approaches like green concepts for employees to come to work and carrying out carbon neutral or green business trips. Others now try to influence how often or how much the consumer using the products, as in some areas over 90% of energy is consumed while the product is in use.
The main challenge will be to turn environmental constraints into competitive advantages.
Collaboration, sharing and openness as new vectors of competitiveness
In the past, operations had to deal with globalisation and a growing complexity of the supply chain while meeting the cost optimisation requirements of shareholders. Today, a new challenge arises: succeeding in implementing a green supply chain which has new values:
CONCRETE PATHS TO ACTION
"Leaders in green supply chain don’t succeed in sustainable initiatives by chance….they knew early on how to address the various issues of GSR and find answers for them"
Here is a concrete checklist of what can be performed by companies willing to move green initiatives forward or to manage transition in their green actions plan.
Beyond the carbon footprint
Calculating the carbon footprint of your supply chain is the starting point. Two elements have to be kept in mind: emissions reductions potential and efforts to obtain them.
Leading companies go further by evaluating a wider footprint, which takes into account all greenhouse gases: CO, CO2, NO, NO2, SO2 and so on, and their total industrial toxic waste. This anticipates the upcoming laws and makes shrewd economic and image sense.
Evaluate the maturity of your supply chain
The maturity of your green supply chain enables you to compare yourself to your competitors, and can be a starting point to a strategic change.
Ratings and sustainability reports might be a good starting point for a first self-assessment. Evaluate how the described activities could be applied in your company.
Get the most out of the collaboration with suppliers
An eco-design approach could help you modify your supplier portfolio and the way you collaborate with them. Look for the good ideas in your upstream market to put them into use in your own company.
As an alternative, ‘coach and assess’ your key suppliers with an environmental score card. Any reduction in raw material consumption potentially means cheaper purchase prices. It also enables better-managed risks. ‘Win-win’ strategies do exist in supply chain!
Become a leading green player in your industry
Norms, regulations and intervention levels of countries in Europe about supply chain are not harmonised yet. Participating and being active in the influential groups of your sector could help you anticipate future environmental standards for your activity. Isn’t this the mark of leaders?
Federate green forces in your company
Leaders in green supply chain don’t succeed in sustainable initiatives by chance. They knew really early on how to organise themselves to address the various issues of green supply chain and find suitable answers for each of them.
An internal structure dedicated to capitalise on initiatives and structure actions is essential.
"Will you be the leader [in GSC] in your industry?"
Drive second life logistics and operations
After the optimisation of your upstream and downstream supply chain, prepare to pilot the second life of your products. A company that masters the recycling chain of its products can get two major benefits out of it: various feedbacks on the product, and new development opportunities. Some companies even have a share in the repairing of their products, or in the secondhand market. While the automotive industry already integrated such practices long time ago, new sectors such as the consumer goods market are now taking over. Will you be the opinion leader in your industry?
We would like to thank the Advisory Board for their willingness to support this initiative, in particular: