Low Carbon, High Growth: The 21st Century Sustainable Supply

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Low Carbon, High Growth: The 21st Century Sustainable Supply
Low-carbon, high-growth
The 21st century supply chain model
Low-carbon, high-growth
The 21st century supply chain model
2
Authors:
Preeti Gandhi, Tata Consultancy Services
Dipak Kripalani, Tata Consultancy Services
Odd-Even Bustnes, Xyntéo
Dr Åsgeir Helland, Xyntéo
4
FOREWORD
The old way of doing business has got us far. Since the Industrial Revolution, economy after
economy has been lifted into modernity, propelled by relentless advances in technology
and the repeated reinvention of how we create value. Yet the enormous wealth generated
over the course of the last few centuries remains out of reach for too many. And though our
ability to innovate has repeatedly defied the limits of what we thought possible, we have still
not severed the link between economic and commercial success, on the one hand, and the
degradation of our natural environment, on the other.
It’s time for a new model – one which can deliver robust economic growth without destroying
the biosphere on which this growth fundamentally depends. We must grow without putting
carbon into the atmosphere, overhauling the way we move around and organise our cities,
how we power ourselves, how we produce and consume. This calls for a revolution of the
prevailing business model and all its aspects – from design and procurement right through to
the delivery of the value proposition to the customer.
There is a strong business case for embracing this paradigm shift. The transition to ultraefficiency will open up substantial cost reductions. Shifting customer preferences are
strengthening demand for low-carbon goods and services. Regulation is increasingly
rewarding carbon-efficient business models. Embedding environmental protection, ultraefficiency and clean energy into business strategies is now essential for minimising risk.
As in the Industrial Revolution, it will be technology that provides the catalyst for this next
economic revolution. In many cases, the most powerful spur will be information technology.
With this in mind, Tata Consultancy Services and Xyntéo have collaborated to produce a series
of white papers, which set out cost-effective information management solutions to equip
businesses to overcome challenges to low-carbon growth.
This white paper – “Low-carbon, high-growth: the 21st century supply chain model” – makes
the case for overhauling today’s supply chains. The crux of this change will be to build
closed-loop supply chains enabling cradle-to-cradle material flows. Tools to make sense of
and manage a more open flow of information among multiple supply chain actors – not just
direct partners – will be key to success. The result will be more resilient, more agile, more
competitive supply chains that, in tune with the changing production-consumption patterns
now underway, will support high rates of growth with reduced emissions of carbon.
Removing carbon from business models depends on collaboration among value chain
partners; this point forms a red thread throughout the series of white papers. This reflects the
foundational principle of the Global Leadership & Technology Exchange, within the framework
of which this important work has taken place.
N. Chandrasekaran
CEO and Managing Director,
Tata Consultancy Services
Osvald Bjelland
Chairman and CEO,
Xyntéo
Acknowledgments
TCS and Xyntéo would like to thank those who generously gave their time to be interviewed
for this white paper: Salla Ahonen, Director, Environmental Policy, Nokia; Peter Hogsted*, CEO
International, Kingfisher plc; Nils Lie, Vice President SCM & Network, Wallenius Wilhelmsen
Logistics AS; Antoine Namand, Head of Vehicle Logistics Division, Cat Vehicle Logistics; Tommy
Paulsson, Managing Director, Bring SCM AB; Bo-Inge Stensson, Senior Vice President, Group
Demand Chain, SKF; Søren Stig Nielsen, Senior Director, Sustainability, Maersk Line; Markus
Terho, Director, Sustainability, Market, Nokia; and Jean-Eudes Tesson, President, Groupe
Tesson. Their comments added enormous value to the papers by injecting them with up-todate industry insights. The participation of these individuals – and their respective companies
– is a strong signal of their collective and collaborative leadership.
We also thank the authors from TCS, Dipak Kripalani and Preeti Gandhi, and from Xyntéo,
Dr Åsgeir Helland and Odd-Even Bustnes. We also thank supporting authors from TCS, Dr
Syama Sunkara and Lakshminarasimhan Srinivasan, and from Xyntéo, Dr Gunther Krell and
Cristian Leordeanu. For all design and editorial, our appreciation goes to the TCS Corporate
Marketing Team and Xyntéo’s Veronica Lie and Laura Bradon Mohn.
Key advisors whom we also thank are, from the TCS side, Amit Bhowmik, Saurabh Jhawar,
Prashanth Kaivar, Anil Kumar, Jayaram N., Edward Robbins, Dr Pardip Sandhu and Suresh Babu
Sugumaran; and from the Xyntéo side, Lars Anisdahl, Thomas Bergmark, Roxana Brebenel,
Stephen Cadden, Peter Carlin, Stephan Carlquist, Rune Frøyland, Dr Kevin Gordon, Phil
Harrison, Lloyd Hicks and Rayson Ho.
Finally, we would like to acknowledge the Global Leadership & Technology Exchange,
for providing a targeted and relevant forum for collaboration around low-carbon growth
solutions.
*
Please note that Peter Hogsted’s insights are based on his industry perspectives, and are not necessarily identical to
those of Kingfisher plc
Contents
Executive Summary������������������������������������������������������������������������������������������������������������������������������������������������������������������������������������������������� 2
Opportunity Highlights����������������������������������������������������������������������������������������������������������������������������������������������������������������������������������������� 4
Introduction��������������������������������������������������������������������������������������������������������������������������������������������������������������������������������������������������������������� 5
1
A New Business Paradigm��������������������������������������������������������������������������������������������������������������������������������������������������������������������������� 6
2 The Existing Supply Chain Model Leads to High-Carbon Growth����������������������������������������������������������������������������������������������10
2.1 Early supply chain models����������������������������������������������������������������������������������������������������������������������������������������������������������������10
2.2 The existing supply chain model – strengths���������������������������������������������������������������������������������������������������������������������������10
2.3 The existing supply chain model – limitations�������������������������������������������������������������������������������������������������������������������������12
2.3.1 Restricted scope���������������������������������������������������������������������������������������������������������������������������������������������������������������������12
2.3.2 Slow business response������������������������������������������������������������������������������������������������������������������������������������������������������13
2.3.3 Constrained information management������������������������������������������������������������������������������������������������������������������������14
3
The 21st Century Supply Chain Model Delivers Low-Carbon Growth��������������������������������������������������������������������������������������16
4 Growth Opportunities Enabled by the 21st Century Supply Chain Model�����������������������������������������������������������������������������20
4.1 Enabling product sustainability�����������������������������������������������������������������������������������������������������������������������������������������������������23
4.1.1Driving product sustainability through supplier sustainability information management�����������������������23
4.1.2 Driving product sustainability by using life-cycle information����������������������������������������������������������������������������25
4.2 Eliminating product waste���������������������������������������������������������������������������������������������������������������������������������������������������������������29
4.3 Driving low-carbon logistics������������������������������������������������������������������������������������������������������������������������������������������������������������33
4.4 Maximising the reverse supply chain�������������������������������������������������������������������������������������������������������������������������������������������37
5 Outlook�������������������������������������������������������������������������������������������������������������������������������������������������������������������������������������������������������������42
Glossary���������������������������������������������������������������������������������������������������������������������������������������������������������������������������������������������������������������������44
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Executive Summary
By upgrading supply chains to deliver growth as well as carbon reductions, businesses
can capture value in an emerging competitive landscape characterised by changing
consumer preferences and tightening resource constraints.
The changing supply chain context
Today’s competitive business model is driven by cost-efficiency, growth, economies of scale
and the disaggregation of consumption and production. The corresponding supply chain
model optimises costs against service-levels. It features little emphasis on total sustainability,
and is therefore carbon-inefficient and resource-intensive.
This model has delivered high growth to be sure. But, now, a new business paradigm
is changing the landscape, creating new sources of pressure and opening up fresh
opportunities. Resource constraints are tightening, and regulation is increasingly favouring
carbon-efficient businesses. Consumption and production points are moving closer together.
Customer preferences are shifting towards lower-carbon goods and services; many are
becoming less interested in owning products and more interested in the value of the service
that the product ultimately offers.
These paradigm shifts suggest that we are facing an unprecedented opportunity to align
business, society and the environment around sustainability. To meet these 21st century
requirements, the supply chain needs to adapt to deliver on total sustainability (financial,
social and ecological). Rising to this challenge will mean moving away from the linear
approach to supply chain management and building closed-loop systems. This will position
businesses to make progress in four key opportunity areas: product sustainability, product
waste, low-carbon logistics and reverse chain maximisation.
Four key opportunity areas
„„ Enabling product sustainability
Recalibrate design, engineering, manufacture, supply, use and recycling to improve product
sustainability. Key enablers include collaboration to share life-cycle information among
various actors in the supply chain.
„„ Eliminating product waste
Remove product waste from along the supply chain by ensuring products fulfil their intended
use. Key enablers include direct communication, real-time monitoring and information
exchange along the supply chain. These enablers help improve demand forecasting as
well as inventory and asset management for product waste reduction, which could in
turn improve customer service levels.
„„ Driving low-carbon logistics
Use transportation and warehousing capacity to move goods with maximum efficiency.
Improved information exchange among actors in the supply chain can enhance capacity
utilisation, inter-modality, route planning and transportation asset efficiency. Moreover,
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integration of carbon information at a strategic level can optimise network efficiency
while reducing carbon emissions, both during initial design and network re-design.
„„ Maximising reverse supply chain
Re-capture materials in used products or extend product lifespans. This requires extending
the forward supply chain with a reverse chain, in turn lengthening product lifespans and
securing the resource base. This strategy is proving an effective means to create business
value while reducing carbon. Enacting it requires high levels of collaboration and
integration as well as transparent information exchange between the manufacturers and
the actors in both the forward and the reverse chains.
For some product categories, the largest sustainability gain will come through the adoption
of a service-based business model. Several companies are already improving profitability by
pursuing this route. To be successful the model needs to be rooted in a deep understanding
of the value proposition for the customer and the precise nature of the sale – that is, a service
from a product, rather than ownership of the product itself.
Benefits of employing the 21st century supply chain model
The 21st century supply chain model will deliver high-growth, low-carbon performance. It
does not constitute a wholesale replacement of the existing supply chain model; it builds
upon it, continuing to deliver on agility and growth while radically improving sustainability
performance.
Some highly competitive companies are already working towards the 21st century supply chain
model. Businesses from diverse industries are lowering carbon emissions while delivering high
growth by pursuing one or more of the four opportunity areas identified in this paper. Xerox
saved $400 million in 2009 (85% of net income) by designing for and using remanufactured
parts in its production lines, eliminating 42% of carbon from equipment production. Since
its inception, Caterpillar’s remanufacturing business grew twice as fast as its main business,
reaching 5% of Caterpillar’s total revenue and avoiding 77,000 tonnes of CO2e in 2010 (the
equivalent of 60,000 new cars in Portugal that same year). Zara’s profit margin has been best-inclass in its industry, remaining stable at around 12% over the past five years, while having some
of the lowest product waste rates in the industry – avoiding 188,000 tonnes of CO2e in 2009, the
equivalent of 150,000 new cars in Portugal in 2010.
Cradle-to-cradle material flows, enabled by closed-loop supply chains, are central in the
evolution of supply chains towards the 21st century model. The result for businesses that
embrace this new model will be more resilient, agile and competitive supply chains that will
support high rates of growth and lower carbon emissions.
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Opportunity Highlights
The business paradigm is changing, and supply chains will have to evolve to meet the
challenge of new opportunities and risks. By transitioning to a 21st century supply chain
model featuring closed loop systems, multilateral connectivity and information sharing,
companies will be positioning themselves to satisfy emerging customer demands and
achieve high growth in a carbon- and resource-constrained environment. By moving towards
this model, businesses are already capturing value in four key areas:
„„ Developing more sustainable products
Supply chains will increasingly require the exchange of life-cycle information among
various actors. Two of the biggest players of the office furniture market, Herman Miller
and Knoll, have understood this, engaging their suppliers in systematic efforts to make
furniture with a lower environmental impact. Herman Miller and Knoll have improved
market shares and net incomes in the years following concerted efforts to improve
product sustainability.
„„ Reducing product waste in the supply chain
By localising its supply chain, compressing lead times and deploying an intelligent
feedback system from store to designers, Zara was able to reduce product waste
substantially, avoiding about 188,000 tonnes of carbon emissions compared with the
industrial average in 2009. The profit margin of Zara has been stable at around 12% for
the past five years and the reduced product waste secured about €500 million in EBIT
margin in 2009.
„„ Driving low-carbon logistics
New ways of exchanging information and coordinating the movement of goods will
provide low-carbon logistics solutions. An example of a new initiative is Shiply, an online
exchange platform addressing unused capacity by matching people needing to move
goods, on the one hand, with transport companies with available space, on the other. The
shipper can save up to 75% compared to standard rates. Since starting business in 2008,
Shiply has saved about 9,000 tonnes of carbon emissions.
„„ Closing the loop by reusing, remanufacturing and recycling
New planning tools can help fully integrate the reverse chain in the forward supply chain,
thus truly closing the resource loops. Companies which have integrated remanufacturing
into their offering or business models are making a profit. Caterpillar gets 5% of their
revenue from its remanufacturing business, while Xerox saved $400 million in material
and production costs by using remanufactured components in its production line.
The consumer base is changing: more consumers are re-evaluating the functional value of
their consumption choices and, in some product categories, moving away from ownership.
This is opening up new ways of running businesses, including the emergence of servicebased business models to support both environmental and financial performance. For
example, the Xerox printing service business line made 25% out of the total company revenue
in 2009.
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Pioneering companies have already started the transition to the 21st century supply chain
model. By focusing on connectivity, collaboration and information management, they are
moving towards a low-carbon, high growth supply chain model.
Low-carbon, high-growth
The 21st century supply chain model
Introduction
This white paper forms part of a TCS-Xyntéo series which aims to map out practical ways key
industries and business models can contribute to profits and lower carbon emissions. In so
doing we hope to support better business performance while contributing to cost-effective
solutions to the pre-eminent challenge of our era: the creation of a low-carbon economy.
This paper argues that the business paradigm is changing, creating new risks and
opportunities for supply chains. Transitioning to a 21st century supply chain model, based
on closed-loop systems, multilateral connectivity and information sharing, will help equip
businesses to meet changing customer demands and achieve high-growth performance
in a carbon- and resource-constrained competitive landscape. The paper, which combines
the results of joint research and analysis with interviews with senior industry executives, is
structured as follows:
Chapter 1 gives an overview of the changing business paradigm. It describes how supply chains
and businesses geared for high-volume throughput are facing new challenges. Tightening
environmental regulation, growing resource constraints and changing consumption patterns all
suggest a turning point in the way supply chains are designed and run.
Chapter 2 assesses the evolution of the existing supply chain model and analyses how it has
led to deficient sustainability performance, including high levels of carbon emissions.
Chapter 3 introduces the 21st century supply chain model, which delivers high-growth,
low-carbon performance. The section describes how this model 1) enables connectivity and
collaboration among various players in the supply chain; 2) allows new types of information
(whether industry-specific or sustainability-related) to be collated, analysed and acted upon;
and 3) empowers businesses to develop new capabilities in effective, innovative supply chain
management.
Chapter 4 outlines the four main opportunity areas in pursuing supply chain sustainability:
product sustainability, product waste, low-carbon logistics and reverse chain maximisation.
The opportunity areas are complemented by case studies of companies that have reduced
carbon while increasing profitability by pursuing elements of the 21st century supply chain
model.
Chapter 5, the final chapter, demonstrates how the new supply chain model reduces supply
chain and business risks while delivering on sustainability. It also highlights the gradual
shift within some product categories towards a service-based business model. It concludes
that the leaders of the future will gain competitive advantage by capturing, processing and
sharing information in a way that enables new types of collaboration across low-carbon, highgrowth supply chains.
5
Chapter 1
A New Business Paradigm
A transition to low-carbon
growth is already happening
at the global level. We see
this as part of a larger trend
of shifting production and
consumption patterns,
moving from global to
regional. As a result, within
regions, we are seeing a
transition to higher volumes
over longer distances,
enabling significant modeswitching to lower-carbon
options, from truck
to rail and from rail to ship
and barge. We now operate
two Atlantic-sized vessels, and
our flexibility and service level
is, due to thoughtful multiport logistics, actually at least
as good.
Antoine Namand,
Head of Vehicle Logistics Division,
CAT
Prevailing approaches to supply chain management have enabled business
competitiveness by delivering high-volume throughputs and growth.
This has heightened operational efficiency by keeping inventory and
transaction times and costs low; enhancing direct supplier and customer
communication; and increasing the focus on customers. But for all these
strengths the approach has neglected environmental externalities;
sustainability performance, such as carbon-efficiency, has not received
priority. This chapter elaborates how the business paradigm of today is
changing and how it will shape supply chain management in the future.
Businesses need to contend with an evolving context. Steep population growth will aggravate
competition over resources: the world’s population is due to explode from 7 billion today to
9 billion by 2050.1 The rapidly growing ranks of the middle class in emerging nations now
include almost 2 billion people, who are keen to spend their money on products and services.2
And as global consumer demand increases in emerging markets, demand for products
with lower transaction costs is likely to increase. Resource constraints are tightening and
regulation is increasingly favouring carbon-efficient businesses. Consumers are increasingly
expecting businesses to deliver on sustainability as well as on quality and cost. A 2007 global
study found that 21% of consumers were willing to pay more for ethically produced and
environmentally-friendly products.3 A likely growth in service-based products relative to
goods represents one way in which these emerging consumer demands can be met.
The supply chain has traditionally been viewed as a linear process viewed from the vantage
point of a single company, starting with the supplier and ending with the point of sale.
What happens to the product materials after use has not been a core business concern. The
limitations of this perspective have important implications for the supply chain’s ability to
compete in the emerging business paradigm.
1.
1
6
To keep up with increasing consumer demand for products while coping with
resource constraints, the supply chain cannot continue to waste resources that could
have brought consumer value. Every year in the US, the embedded energy
contained in aluminium beverage cans that are not recycled is worth approximately
$750 million; associated CO2e emissions equal 4 million tonnes, or close to 0.1% of the
country’s total emissions.4
United Nations. (2009, March 11). Press Release. World Population to Exceed 9 Billion by 2050: Developing Countries
to Add 2.3 Billion Inhabitants with 1.1 Billion Aged Over 60 and 1.2 Billion of Working Age. Retrieved March 28,
2011, from http://www.un.org/esa/population/publications/wpp2008/pressrelease.pdf. All cited websites were last
accessed on 3rd March 2011 (unless otherwise specified)
2
David Court and Laxman Narashimhan, “Capturing the world’s emerging middle class” - McKinsey Quarterly website
July 2010, https://www.mckinseyquarterly.com/Capturing_the_worlds_emerging_middle_class_2639#1.
3
S. Bonini, G. Hintz, and L. Mendonca, “Addressing consumer concerns about climate change” - McKinsey Quarterly website
March 2008, https://www.mckinseyquarterly.com/Addressing_consumer_concerns_about_climate_change_2115.
4 Assumption: 41.1 billion cans in the US were not recycled in 2009. This equals about 500,000 metric tonnes. One
kg of recycled aluminum saves 14 kWh and totals about 7.5 terawatt-hours of energy. 1 kWh = 0.1 USD. http://
www.aluminum.org/Content/NavigationMenu/NewsStatistics/StatisticsReports/UsedBeverageCanRecyclingRate/
UBC_Recycling_Rate_2009.pdf All cited websites were last accessed on 3rd March 2011 (unless otherwise specified).
2.
3.
The linear view of the supply chain also means that companies’ external relations rarely
go beyond the organisations with which they have direct dealings. This misses important
opportunities. For example, about one third of the European truck fleet is, at all times,
running empty.5 Enabling cooperation among a wider range of supply chain players
could put more of this capacity into play.
The current supply chain model is not geared to deliver the transparency that the new
business paradigm demands. Recent events illustrate the risk to businesses which do not
take steps to heighten visibility throughout their whole supply chain:
„„ In 2010, Toyota had to foot a $2 billion bill for the recall of defective parts; improved
systems to trace products along the supply chain would have made the identification
of the defect easier and more cost-efficient.6
„„ Mattel recalled 10 million toys in September 2010, just three years after even larger-
scale recalls of lead-contaminated and tiny magnets in toys.7,8
„„ Apple’s brand value dropped after making the headlines in February 2011 following
We are seeing shifts in
sourcing: the south/south
trades are growing and
regionalisation is happening.
We are also seeing larger
companies diversifying their
sourcing, going direct and
looking at producing closer
to the point of consumption.
Some are even talking about
closed loops.
Søren Stig Nielsen,
Senior Director, Sustainability,
Maersk Line
the discovery that subsuppliers in China were using toxins which jeopardised the
environment as well as the health and safety of workers.9
To stay competitive against these pressures, businesses need to upgrade their supply chains.
In 2008, 2.6 billion tonnes of waste was generated in the EU-27 countries, equalling 5,300
kg per inhabitant.10 More than half of the waste generated was from businesses. Growing
political and societal awareness of these impacts is increasing pressure on businesses.
Supply chains need therefore to dramatically reduce raw material requirements and move
towards zero-waste processing cycles in which resources are completely recycled or reused.
The supply chain needs a new shape: it needs to be moulded into a closed loop enabling the
flow of goods from the point of consumption back to the point of origin in order to maximise
the capture of value. The core competitive advantage of the future will lie in an ultra-lean
supply chain boasting minimal resource and carbon intensities, enabled by a high level of
connectivity and information exchange. Reducing the environmental burden of supply chain
operations is not only a question of “corporate social responsibility”; it is becoming a matter of
strategic risk management.
The changing business world needs supply chains that can cope with the pressures,
expectations and realities of the 21st century. Although the current supply chain has its
advantages, it needs to change to remain competitive.
5
“Empty running - Road freight - Maps and Graphs”, Excel file, European Environment Agency website, http://www.
eea.europa.eu/data-and-maps/figures/average-load-factor-utilization
6
F. Thomas, “Data driven: How technology is reviving GM, Ford and Chrysler”, news article, Fortune Tech, April 5th,
2010, http://tech.fortune.cnn.com/2010/04/05/data-driven-how-technology-is-reviving-gm-ford-and-chrylser/
7 H. Chernikoff, “Mattel’s Fisher-Price to recall 10 million products”, news article, Reuters, September 30th 2010, http://
www.reuters.com/article/2010/09/30/us-fisherpricerecall-idUSTRE68T2ZB20100930
8 “Mattel issues new massive China toy recall – Business - Consumer news - msnbc.com”, August 14th 2007, http://
www.msnbc.msn.com/id/20254745/ns/business-consumer_news/.
9 D. Barboza, “An Apple supplier’s murky record in China”, New York Times, The Global Edition, February 23rd 2011, p.17
10 European Commission, eurostat. (2010). Waste statistics - Statistics explained. Retrieved March 28, 2011, from http://
epp.eurostat.ec.europa.eu/statistics_explained/index.php/Waste_statistics
Why should we care about
making supply chains more
sustainable? Fundamentally,
it has to do with what the
customer wants and acting
in a responsible way in
the markets we operate –
ultimately, taking out risk
and creating value. The
customer wants it – at no
price premium. Because
competition in the future will
be between supply chains,
not companies, trusted and
collaborative networks will
increase in importance.
Unless supply chains can
enable sustainability, they
will be outcompeted on this
dimension alone, and run a
higher-risk strategy.
Bo-Inge Stensson,
Senior Vice President,
Group Demand
Chain, SKF
7
Key Messages:
„„ The current supply chain model’s weak sustainability performance is not only
exposing businesses to risk; it is also missing opportunities
„„ The business environment will change dramatically as population growth picks up,
resource competition intensifies, carbon regulation tightens and the sustainability
expectations of consumers grow
„„ To thrive in this future, businesses need ultra-lean supply chains fit for the 21st
century, featuring minimal resource and carbon intensities
8
9
Chapter 2
The Existing Supply
Chain Model Leads to
High-Carbon Growth
A supply chain structures and coordinates how a company works with its
partners to move goods from suppliers to customers. Along the supply
chain, there is a flow of not only materials and products, but also information
and financial transactions. Multiple actors are typically involved in driving
the process forward, starting with raw materials extraction, then moving
through various stages of production and on to the delivery of the final
product to the consumer.
This chapter begins by describing early supply chain models and considers their
evolution into the prevailing model of the day. This is followed by a discussion of the main
characteristics of the existing supply chain model – its strengths as well as its limitations.
2.1 Early supply chain models
A review of supply chains indicates that after the second world war supply chain models
focused on increasing internal efficiencies – for example, maximising the utilisation of
machinery or reducing the number of workers required to produce a given measure of
output. One stage of manufacturing “pushed” its outputs to a storage location, from which
later production stages could then draw. These early models were therefore characterised
by high levels of raw materials and semi-finished or finished products in the system. Since
communication between supply chain players was limited, the early models were very
resource-intensive and slow to react to changes in customer demand.
Eventually, a quest for efficiencies prompted companies to look beyond their own operations
for improvements. Toyota, for example, pioneered an early, low-tech form of just-in-time
production to tighten the coordination of its production demand with its suppliers’ schedules.
The system – called “kanban” (the Japanese word for signboard) – used coloured cards to
signal the need to replenish materials.11 This “pull” principle helped Toyota drive “muda”
(waste) out of their production system, leading to faster turnarounds in production and lower
inventory levels.
2.2 The existing supply chain model – strengths
In the 1980s, the supply chain evolved into the model that is prevalent today. Following
Toyota’s lead, companies saw that in order to improve agility and reduce the costs of moving
goods from suppliers to customers, they needed to overhaul their way of interacting in
supply chains. Today’s supply chains are consequently much better at collecting and sharing
information across different points.
The existing supply chain, as illustrated in figure 1, is a linear sequence of processes, starting
at raw materials extraction or in the supply network and ending at the manufacturer’s
customer, for example a distributor or retailer. The illustration shows that materials, products
and services flow downstream from supplier to customer, with information being bilaterally
exchanged both between the manufacturer and its suppliers and between the manufacturer
and its customer. A number of tools help companies keep track of supply chain activities.
10
11 T. Ohno, “Toyota Production System: Beyond Large-Scale Production”, (Productivity Press), 1988, pp.17-44
Figure 1: The existing supply chain model
Manufacturer
Supplier
network
Distributor
(retailer)
Product flow
Information flow
The principal company (ie, the manufacturer), uses its internal enterprise resource planning
(ERP) system to integrate information (such as orders, order forecasts and shipment
information) from its direct suppliers and customers. An advanced shipment notification
(ASN) notifies the consignee that certain goods are en route and provides information about
the shipment’s contents. This information is usually transferred via electronic data interchange
(EDI) interfaces, directly updating the consignee’s ERP. The consignee can then use this
information to update records of available inventory and to speed up unloading, checking
and storage processes at the receiving gate.
Making use of tools like ERP and ASN has given today’s supply chain model important
benefits, enabling high-volume growth:
„„ improved information exchange with direct suppliers or customers
„„ better service levels to customers, via better knowledge of the materials available from
suppliers or in transit but not yet in company inventory
„„ reduced inventory levels and transaction time and costs
„„ procurement benefits from working with suppliers and partners around the world
There are other advantages of the existing supply chain model. These include:
„„ Agility and cost-efficiency
The existing supply chain model uses far less inventory in process than earlier models, as
it enables a high level of integration between companies and their direct suppliers and
customers; this has helped speed up and even automate transactions. Electronic data
exchange eliminating the need for manual data capture supports operations, increases
volume throughput and lowers the cost per transaction. It also allows the company to
11
keep much tighter stock control and therefore lower inventory levels. This cuts down on
transaction times and costs and enables big volumes to flow through the supply chain.
We have now started to
work differently with our
customers. The 2008 crisis
taught us to collaborate a lot
more, and moved us from
hard-edged negotiations
singularly focused on price,
to what makes most sense
from a systems view. We see
very good reasons for why
carbon should enter this
conversation. We are actually
very well prepared for it.
Antoine Namand,
Head of Vehicle
Logistics Division, CAT
„„ Good data access
In the existing supply chain model, a series of company processes – from sales forecasting
and order tracking to revenue tracking and purchase order allocation – benefit from
increased access to real-time data from customers and suppliers. This has helped create
a single view of the “true” business environment, making decisions quicker and more
accurate. The same setup has enabled companies to control access to information and
protect their commercial interests.
2.3 The existing supply chain model – limitations
The existing supply chain model has equipped companies to grow, cut costs, improve
operational excellence and enhance customer service levels. However, the model has
limitations which have negative implications on sustainability. There are three main limitations:
„„ Restricted scope
„„ Slow business response
„„ Constrained information management
2.3.1 Restricted scope
The scope of the existing supply chain is limited by its linear design, making it difficult for
businesses to look beyond their immediate supply chain partners to find opportunities to
increase efficiency or service levels.
Organisational “blinders”
The existing supply chain is a linear set of processes that starts at the point when supplied
materials or components are sourced by a company and ends at the point where a product
is handed over to a customer. Companies find it difficult to deal with processes outside
this scope. For example, after-sales customer service and product maintenance tend to be
perceived as a burden rather than the opportunities they really are.
Viewing after-sales services as a chance for continued customer engagement requires
companies to extend their view of the supply chain; they need to remove their organisational
“blinders”. Companies who have done so are reaping the rewards. Caterpillar, for example,
has expanded its supply chain focus to include their customers, the aftermarket network and
remanufacturing partners. In so doing the company has not only improved its sustainability
performance; it has also created new market opportunities.
Closing the loop
12
The restricted scope of the existing model means that companies lose sight of the products,
components or packaging materials flowing through the supply chain. This is a problem for
those manufacturers which, under European legislation, have extended producer responsibility
(EPR) for products and packaging material they put on the market. It also restricts manufacturers
in moving their products, components and packaging materials from the point of consumption
back to the point of origin, in order to recapture value from used goods.
The current supply chain model is set up in a way that most process waste emerging from the
supply chain, as well as the products themselves, is not recaptured. This is illustrated in figure 2.
Figure 2: The physical flows of the existing supply chain
Recycling
Extracted
materials
Remanufacturing
Supplier
network
Repair &
reuse
Manufacturer
Distributor
Product
use
Waste/
landfill
Closed-loop processes are also needed to provide feedback to all actors in the supply chain
about how their respective roles can be improved to raise overall sustainability levels. For
example, optimising product design requires that component designers receive detailed,
regular feedback from downstream actors. The consumer, too, is increasingly demanding
sustainability information, most notably information about products’ carbon footprints. The
existing supply chain model is not well-equipped to generate and share this kind of intelligence.
2.3.2 Slow business response
While the existing supply chain model can move high-volume goods fast, it is ill-equipped to
deal with fast-moving changes in the market landscape. It also does not lend itself to efficient
logistics. A rigid information exchange structure increases the costs of changing the supply chain
constellation and opening up to new collaborations to improve operational or carbon efficiency.
Market dynamics
The existing supply chain model helps companies deal with fluctuations in demand. However,
it is not flexible enough to cope with major changes to the operating framework itself. As the
current supply chain model is tuned into one specific configuration, switching to new supplymarkets or demand, or even changing distribution channels, is difficult. This rigidity makes
setting up new trade relations too expensive and time-consuming. For example, upon the
arrival of online shopping, retailers and manufacturers both struggled to adapt their supply
chains to sell via both traditional and e-channels.
Network design
The company has had to make
very fundamental decisions
about how we will operate
and go to market in the
future: ship design for lower
speeds,18,000 containers
per ship, collaborating with
ports and suppliers– all
providing economies of scale
and forcing innovation. The
company is now engaged:
from senior leadership to our
captains who are incentivised
around energy efficiency and
carbon reductions. Leadership
is coming from all levels of the
company now.
Søren Stig Nielsen,
Senior Director, Sustainability,
Maersk Line
Maximising network performance and minimising resource consumption are contingent
upon the efficiency of the logistics network. Yet efficiency takes effort: designing and setting
up a supply chain network, and linking and testing the required IT systems, consume time and
resources. Moreover, by the time the set-up is complete, the business environment may have
13
moved on, making the re-design obsolete. A more flexible approach to network design and to
systems integration is required.
Implementation cost
Though rigid, the structure is well equipped to cut operational cost of transactions between
a company and its current supplier and customer base. However, whenever new supply chain
constellations or collaborations are needed, implementing the new operational processes
becomes time-consuming and expensive. These “sunk costs” constitute a significant barrier
to the flexibility needed to optimise supply chain partnerships; and they hinder the network
from adapting to changing supply chain requirements. Suboptimal configurations waste
resources and lower customer service levels.
2.3.3 Constrained information management
The existing supply chain model’s reliance on concrete (and therefore historical) data
compromises its ability to plan for different scenarios in the future. Furthermore, by
centralising ownership of supply chain information with one company, today’s model holds
back open information exchange around sustainability factors.
Dealing with uncertainty
The existing supply chain works with hard numbers. It is assumed that data have a high
degree of accuracy and are commercially relevant. This works well for data from transactions
that have occurred in the past, such as orders, inventory at hand or lead-times. However, it
poses a problem for forward-looking data; data featuring uncertainty (eg, data dependent on
future capacity in terms of resources, people and time); or changing parameters caused by the
unforeseen, such as an extreme weather event. Supply chain decisions need to be “smart” and
able to contend with more than the mere calculation of hard numbers.
Risk and gain sharing is
needed to align incentives
for carbon reductions in the
supply chain. This can be
enabled by focusing on endresults and adopting a longerterm perspective. Today, too
often, contract terms and
tenders work as a wonderful
tool for mediocrity.
Tommy Paulsson,
Managing Director,
Bring SCM AB
14
Centralised ownership of information
In the existing supply chain model, suppliers and customers both send information, but
only the principal company has full access. This lack of transparency around the use of the
information makes other actors ambivalent about sending it.
Supply chain participants are thus incentivised to provide as little information as possible,
not least on sustainability, despite the fact that information sharing would strengthen their
ability to comply with future legislative restrictions on carbon emissions. Clearly information
exchange would help all parties to cut costs and energy consumption, but the lack of control
over the use of the information is seen to endanger primary commercial interests.
Exerting pressure on suppliers and vertically integrating companies are two ways to enforce
information exchange between supply chain actors. However, this enforcement is costly and
limits organisational flexibility. There are also challenges in horizontal markets, where a spirit
of collaboration, not enforcement, is the key to information sharing.
The evolution of the supply chain into today’s model has generated important benefits in
terms of cost-efficiencies with lower inventory levels, lower transaction times and costs, good
communication with direct suppliers, global procurement benefits and improved customer
focus. But changes in the economic environment mean that the supply chain needs to
evolve again: the limitations of the current model – its restricted scope, its slow response to
market dynamics, its effect on information management along the supply chain – make it illequipped to thrive in the emerging competitive landscape.
A new supply chain model is needed, one which enables companies to compete in the 21st
century. Unlike the current, linear supply chain, the future model will draw on a closed-loop
system, connect companies to both direct and indirect supply chain partners, and promote
the transparent exchange of information without jeopardising commercial interests. New
opportunities will accordingly open up in product sustainability, the reduction of product
waste, sustainable logistics and reverse chain maximisation as well as in the discovery of new
business models.
Key Messages:
„„ Today’s supply chain model is narrowly focused on transactions between a
company and its direct suppliers and customers
„„ While the current model benefits customers through low supply chain costs
and high service levels, these supply chains are slow to respond to changing
market dynamics
„„ Information exchange is often constrained by the current model, limiting
collaboration and further efficiency gains
„„ Companies singularly focused on optimising their own transactions miss
business opportunities along the full product cycle
15
Chapter 3
The 21st Century Supply
Chain Model Delivers
Low-Carbon Growth
Supply chains must shift
from a traditional focus on
making and delivering, to a
model which incorporates
customer needs and considers
the global challenges we
are facing. The end-2end perspective (design,
responsible sourcing,
waste free manufacturing,
logistics and recycling
management), along with
integration and collaboration
between partners that share
information and knowledge,
is key. This will create a
sustainable supply chain that
gives the right information
and enables the right
decisions in a faster way with
visibility, transparency and
connectivity. Large companies
must show and offer
leadership when it comes
to operational and business
excellence and show the way
for smaller suppliers.
Bo-Inge Stensson,
Senior Vice President,
Group Demand Chain,
SKF
16
The changing expectations, pressures and realities of the business
environment requires a new supply chain, capable of delivering growth
while minimising carbon emissions. While building on the strengths of the
existing model in terms of its capability to handle high volumes with low
inventory transaction costs, the distinguishing feature of the 21st century
supply chain is its shape – a “closed loop” rather than a straight line.
Envisioning all actors as part of a cycle will overcome some of the current model’s limitations
and enable the systematic pursuit of cost and environmental efficiencies throughout the
product cycle; more collaborative and flexible information exchange among partners; and
quicker response times to changing market dynamics.
Developing closed-loop supply chains will demand innovative collaboration among supply
chain constituents, taking into account the forward product and reverse resource flows. The
key actors in the collaborative 21st century supply chain model are:
„„
„„
„„
„„
„„
„„
suppliers
manufacturers
logistics service providers
distribution partners
consumers
repair, remanufacturing and recycling partners
Dealing with 21st century business realities means that these actors need to start working
with a closed loop model (see material flows in figure 3). Diverting the physical flow from
the landfill back into the product chain requires collaboration from all supply chain partners,
drawing on smart and integrated information exchange between direct and indirect partners
across the supply chain.
Figure 3: The closed resource loop of the 21st century supply chain model
Remanufacturing
Recycling
Extracted
materials
Supplier
network
Repair &
reuse
Manufacturer
Distributor
Product
use
Waste/
landfill
The closed loop system will be supported by changing the way information is collected,
handled, processed and shared. Most importantly the new supply chain model will enable:
Future supply chain managers
must optimise the entire
supply chain. This means
that they need access to
all information – physical,
financial and administrative,
in full visibility – to drive
win-win-win outcomes for
all actors. To get the package
right, we need to build
real connectivity into the
system between companies;
integrate sub-systems and
enable choices between many
partners in the supply chain
network. Integration tools will
be key and new capabilities
will then follow.
„„ Going from bilateral to multilateral connectivity. Currently, connectivity is mostly bilateral,
Tommy Paulsson,
Managing Director,
Bring SCM AB
restricted between a company and its direct suppliers and customers. To improve
efficiencies and respond to simultaneous changes in many areas of the supply chain,
communication needs to become two-way and connectivity to become multilateral,
encompassing all the key players in the supply chain (both direct and non-direct actors).
„„ Integrating new types of information on, for example, sustainability performance or real-time
indicators (eg, logistic fill rate). This will optimise the entire supply chain by generating
intelligence about, for example, total supply chain cost, low-carbon logistics performance
and product waste reductions.
„„ New capabilities to arise as a result of enhanced connectivity and integration of sustainability
and actor information. As this information can be made accessible to a larger set of
stakeholders, real-time decision making, reverse chain integration and design for
product sustainability can become reality. One such capability could be migrating from a
product- to service-based model. Enabling a service-based business model would require
significant restructuring in the supply chain.
Driving Supply Chain Transparency and Collaboration
The 21st century supply chain model needs to be supported by an “information and
collaboration hub” – a smart, integrated information exchange to deliver transparency and
visibility across the supply chain. All supply chain actors would be able to access the hub in
this new supply chain model as illustrated in figure 4.
Retailers of the future are
likely to be doing a whole lot
less selling and more leasing.
Volumes, but not profits, will
decrease. Because quality
will go up and raw materials
use down, the leasing model
directly enables retailers’
margin per-unit per-product
lifetime to go up much more.
Decreased volumes will also
lead to dematerialisation,
even in the face of growth.
The implications for supply
chains will be profound.
Peter Hogsted,
CEO International, Kingfisher
plc
17
Figure 4: The information and collaboration (I-Collab) hub of the 21st century supply
chain model
Collaborative information
sharing for the new supply
chain model is a must. For
example, by thoughtfully
sharing deeply confidential
design information, five years
later we have seen gains of
8-10% in our asset’s loading
factors. Today we furnish endto-end carbon information to
help customers optimise for
cost, lead-time and carbon.
What is key here is that this
may also be transformational
to capacity smoothing, but
will require transparency and
more connectivity between
companies.
Antoine Namand,
Head of Vehicle Logistics
Division, CAT
Logistic
Service
Providers
Supplier
network
Manufacturer
Logistic
Service
Providers
SRM
Logistic
Service
Providers
PLM
I-Collab
Hub
Repair/
remanufacture/
recycle
TMS
ERP
CRM
Distributor
(retailer)
Logistic
Service
Providers
Product flow
Consumer
Logistic
Service
Providers
Information flow
We have started a drive to
improve our efficiency by
30% and make low-carbon
a competitive advantage.
For this, I believe we need
trustworthy information of
very good quality, and it will
also be important to find a
good way to communicate
this information.
Jean-Eudes Tesson,
President, Groupe Tesson
The information and collaboration hub enables connectivity among the various actors in
the supply chain. The principal company or an external third party could serve as the natural
focal point or ‘hub’, ensuring all supply chain actors are able to provide and extract relevant
information. Multilateral connectivity will enable visibility and access to data across all the
players in the supply chain, underpinning new collaborations.
Information systems, such as the ones shown in the middle cycle of figure 4 – Enterprise
Resource Planning (ERP), Transport Management System (TMS), Product Life-Cycle
Management (PLM), Customer Relationship Management (CRM), Supplier Relationship
Management (SRM) and others – could process information captured in the supply chain.
The inner circle of figure 4 illustrates a smarter hub that could enable new capabilities through
tools such as real-time monitoring and decision making, capability-to-promise, collaborative
designs and development, reverse chain planning and online exchanges (logistics, energy,
materials, waste management, etc).
18
mKRISHI12 – Supply chain connectivity and capability through a mobility platform
for farmers
mKRISHI (‘krishi’ means ‘farmer’ in Hindi) is a mobile phone-based agricultural advice
service through which farmers can receive personalised information from experts to
enable efficiencies across their entire agricultural value chain. All constituents in the chain
– suppliers, farmers and farm produce buyers – can benefit from this tool:
„„ Suppliers (companies supplying seeds, fertilisers, crop protection agents) benefit
from understanding consumption demand and can redesign their supply chain and
inventory management systems accordingly.
„„ Farmers are able to send queries and images through their mobile phones and
receive a personal response with advice or relevant information to enhance the
sustainability and quality of their crops. The experts can remotely advise the farmers
on the type and amount of seeds to use, local weather, fertiliser requirements based
on soil conditions, pest control and current market prices.
„„ Farm produce buyers benefit from constant location-based visibility of the amount,
quality and potential selling price of a particular crop. The buyer can then, for
example, combine this information with a digital location map to ensure the efficient
collection of output, saving fuel. It also gives overseas buyers importing agricultural
products full traceability, as they can have access to the entire history of pesticide
and fertiliser use before making a purchasing decision.
„„ In the fisheries industry, large buyers can direct small fishermen to catchment areas
where more fish is expected, based on information regarding marine currents, sea
temperatures and previous catchment profiles.
The mKRISHI platform makes the entire agricultural value chain more carbon efficient
through enhanced product sustainability; more efficient logistics and storage; and
reduced waste.
12
Qualified, third-party verified
information sharing is where
the new supply chain model
needs to go for transparency
and improved decisionmaking. Visibility between
companies and handover
points in the value chain is
crucial in order to remove
waste and determine impact,
for example upstream
traceability of demand and
materials. Many companies
have significant ‘carbon blind
spots’ across their supply
chains and products. Yet we
see consumers increasingly
expecting more accurate
information about the
products they buy. Our work
with NGOs, Google and
Microsoft will enable supply
chain stakeholders to build
on our performance data
and support systems-based
solutions.
Søren Stig Nielsen,
Senior Director, Sustainability,
Maersk Line
Key Messages:
„„ The 21st century supply chain model will not replace but will build upon the existing
supply chain model
„„ Connectivity among supply chain actors is necessary to enable collaboration and
information exchange in the supply chain
„„ In the 21st century model, supply chain participants will be linked through an
information and collaboration hub
„„ Innovative IT systems will provide smart decision support and new capabilities while
ensuring the full supply chain cycle delivers on agility and sustainability
12 ‘mKrishi’ is TCS’s Mobile Agro Advisory System, being implemented in collaboration with organisations such as Tata
Teleservices, M.S. Swaminathan Foundation, Tata Chemicals & Rallis, National Centre of Grapes, Cotton Research
Centre and (National Commodities and Derivatives Exchange Limited) NCDEX. Link: http://www.tcs.com/resources/
brochures/Pages/TCS_mKrishi-Mobile_Agro_Advisory_System.aspx
19
Chapter 4
Growth Opportunities
Enabled By the 21st Century
Supply Chain Model
This chapter identifies four key opportunity areas – ways in which businesses
can achieve low-carbon, high-growth performance by adopting the 21st
century supply chain model.
These opportunity areas are:
„„ Enabling product sustainability – Recalibrate design, engineering, manufacture, supply,
use and recycling to improve product sustainability.
„„ Eliminating product waste – Remove product waste along the supply chain by ensuring
products fulfil their intended use.
„„ Driving low-carbon logistics – Use transportation and warehousing capacity to move
goods with maximum efficiency.
„„ Maximising the reverse supply chain – Re-capture materials in used products or extend
product lifespans.
These four opportunity areas are presented in figure 5 below.
Figure 5: The four opportunity areas for low-carbon growth within the 21st century
supply chain model
Remanufacturing
Recycling
Extracted
materials
Supplier
network
Repair &
reuse
Manufacturer
Distributor
Product
use
Waste/
landfill
LO
LOGISTICS
REVERSE CHAIN
PRODUCT SUSTAINABILITY
PRODUCT WASTE
As shown in the case study overleaf, Xerox has made headway in several opportunity areas
and is reaping environmental and financial benefits. Like Xerox, organisations in diverse
sectors can undertake initiatives in their supply chain to drive efficiencies. Each of these
opportunity areas is presented in more detail in the remainder of this chapter.
20
Xerox — Successful pursuit of new supply chain model
Xerox is a leader in the global document market, offering a wide portfolio of products and
services. The company had a total revenue of $21.6 billion in 2010.13 Besides traditional
sale of equipment (eg, printers, multifunctional devices and production publishing
systems), Xerox delivers value to its customers through innovative service models such as
managed print services.14 Annual revenues from this service reached $3.8 billion in 200915
(25% of the company’s 2009 revenues).
Over the years, Xerox has implemented a wide range of measures to improve the
sustainability of its products and services, while maintaining its leadership position in
the market. Some initiatives drive product sustainability and enable reverse chains, both
key opportunity areas for the emerging 21st century supply chain model. Xerox’s reverse
chain activities alone delivered between 30% and 85% of recent-year net incomes. For
example, the $400 million annual cost savings derived from remanufacturing activities,
would in 2009 represent nearly 85% of the company’s net income. This also reduced
carbon emissions from equipment production by 42%.
Product sustainability
„„ Improved design for remanufacture . In 1997 Xerox had one product series that was 80%
remanufacturable16; today, all of its products are designed for remanufacture.17 The first
product designed for remanufacture reduced the number of parts from 2000 to 250.18
„„ Improved material and energy efficiency of products. A new solid ink technology enabled
cartridge-free ink supplies for a new product series, reducing related waste by 90%. Across
the life cycle, the new product uses 9% less energy and produces 10% less greenhouse
gases than a comparable laser device.19 Another example is a multifunctional printer that
was designed to use 30% less energy compared to two years earlier.20
„„ Improved monitoring of equipment performance. By designing in condition monitoring
modules and using specialised software, Xerox channel partners can effectively monitor
equipment performance and manage and optimise the printing equipment fleet.21 By
131415161718192021
13 “Xerox Financial Model”, Excel file, Xerox Corporation, p.6
http://news.xerox.com/pr/xerox/document/Xerox-Q4-2010-Financial-Model-2011Jan26.pdf
14 Annual Report, Xerox Corporation, 2009, pp.18-19,
http://www.xerox.com/annual-report-2009/pdfs/2009_Annual_Report.pdf
15 “New Report Positions Xerox No. 1 in Managed Print Services”, Press release, Xerox Corporation, September 30th
2010, retrieved from http://news.xerox.com/pr/xerox/IDC-report-positions-xerox-leader-in-managed-print-services.
aspx
16 Environment, Health and Safety Progress Report, Xerox Corporation, 1999, p.9,
http://www.corporateregister.com/a10723/xc99-ehs-usa.pdf
17 C. McDermott, “Design: the key concepts”, (Routledge), 2007, p.75
18 W. Kerr, “Remanufacturing and eco-efficiency: A case study of photocopier remanufacturing at Fuji Xerox”,
International Institute for Industrial Environmental Economics, 1999, p.33,
http://www.iiiee.lu.se/Publication.nsf/$webAll/D85208A74BA1860DC1256C370033624C/$FILE/comm2000_5.pdf
19 Life Cycle Assessment of a Solid Ink Multifunction Printer Compared with a Color Laser Multifunction Printer, Xerox
Corporation, 2010, p2., http://www.office.xerox.com/latest/Q92WP-05UA.PDF
20 Global Citizenship Report, Xerox Corporation, 2007, p.36, http://www.xerox.com/downloads/usa/en/x/Xerox_
Global_Citizenship_Report_2007.pdf
21 Web research on Xerox Corporation website, http://www.xerox.com
21
using the remote diagnosis functionality, 2,400 service trips were avoided in the US in
2010, saving approximately 25 tonnes of CO2e per year while also improving machine
uptime.22
Reducing waste to landfill through reverse chain
„„ Remanufactured parts represent 1-2% of materials used in new product
manufacturing and about 50% in remanufactured products.23
„„ Machines with remanufactured parts are subject to the same quality checks and
have the same warranty as completely new equipment.24
„„ Overall, remanufacturing reduces carbon emissions from equipment production by
42%25 and the company realises cost savings of about $400 million annually.26 Such a
saving would in 2009 represent close to 85% of the company’s net income.
„„ During the asset recovery process, electronic service logs are used to analyse the
state of products and components, and optimise the routing of equipment for reuse,
remanufacturing or recycling.27 The parts reuse programme avoided approximately
22,000 tonnes of CO2e potential emissions in 2009.28
„„ Xerox also offers free-of-charge return transportation for used cartridges. The client
receives a pre-paid postage label with every new cartridge or can print one online
before scheduling a pick-up. 2.2 million cartridges were returned during 2009,29 saving
2,900 tonnes of materials from reaching landfill and approximately 5,700 tonnes of
CO2e emissions.30
Moreover, the company claims that through its managed print services clients can
achieve cost savings of up to 30%31 and CO2e emission reductions of 20% per document
life cycle32.
2223242526272829303132
22
22 Environment, Health and Safety Progres Report, Xerox Corporation, 2010, p.8,
http://www.xerox.com/corporate-citizenship-2010/Environment_Health_Safety_Report_2010.pdf
23 B.K. Fishbein, L.S. McGarry and P.S. Dillon, “Leasing: A Step Toward Producer”, (Inform), 2000, p.27
24 B.K. Fishbein, L.S. McGarry and P.S. Dillon, “Leasing: A Step Toward Producer”, (Inform), 2000, p.27
25 Calculated based on product life-cycle assessment of the remanufacturable product Document Centre 265. See
footnote 18, pp.57-58.
26 P.M. Senge et al., “The Necessary Revolution: How individuals and organizations are working together to create a
sustainable world.”, (Doubleday), 2008, p.213
27 B.K. Fishbein, L.S. McGarry and P.S. Dillon, “Leasing: A Step Toward Producer”, (Inform), 2000, pp.26-27
28 Estimated considering a carbon intensity saving of 4.6 kg CO2 per kg of recovered materials, based on 2006 Xerox
data regarding parts reused and corresponding CO2 emission reduction. See footnote 20, p.43.
29 Environment, Health and Safety Progress Report, Xerox Corporation, 2010, p.11
30 Estimated considering a carbon intensity saving potential of 2.58 kg CO2 per remanufactured cartridge, based on
savings per cartridge refill published in Toner Refills at Cartridge World – Comparative Carbon Footprints, Best Foot
Forward, 2008, p.4, http://www.remanufacturing.org.uk/pdf/story/1p380.pdf?-session=RemanSession:42F9486207a
4f14E7CRhY3B8DF88
31 Cost savings based on Gartner analysis (2009) (cited in Managed Print Services, Xerox Corporation, 2010, p.1)
32 The Optimum Office, Xerox Corporation, 2009, p.6, http://www.xerox.com/downloads/usa/en/xgs/casestudies/
xgs_whitepaper_Optimum_Office_US.pdf
4.1 enabling Product Sustainability
From a supply chain perspective, product sustainability is about coordinating the supply
chain actors in order to minimise the environmental impact of a product across all the
stages of its life cycle – from design, sourcing of raw materials, manufacturing and supplier
selection through to transportation, use and end-of-life. For a manufacturer, emission
hotspots could reside in the upstream phase of raw materials extraction and processing, in
its own manufacturing operations or in the product use phase or disposal. Product lifecycle information as well as collaboration with suppliers is critical for achieving product
sustainability.
Value chain partners are also increasingly demanding environmental information. In a
recent survey of 200 manufacturing companies, 77% said that they were required by their
customers to report on the environmental impact of their operations and products. For these
respondents information sharing was a significant challenge: 87% of them reported that their
data was handled at least in part through hard copies.33
This suggests that organisations need improved systems to help them engage with their
supply chain partners on sustainability. Two pathways to these better systems could be:
„„ Establish a supplier sustainability information management process
„„ Establish detailed product life-cycle information
4.1.1 D
riving product sustainability through supplier sustainability
information management
For many product categories most of the life cycle emissions can be allocated to the
production network of suppliers. On average 75% of an industry sector’s carbon footprint
is attributed to the supplier network.34 For example, in food products, on average 83% of
the CO2 emissions reside in production and 11% in transportation, while final delivery from
producer to retail on average contributes only 4%.35
In order to improve product sustainability, companies need to have a way to manage the
sustainability performance of its suppliers. A company that works with its suppliers along
these lines is Herman Miller (see case study). Herman Miller both encourages and helps its
suppliers to minimise their environmental impact but also demands them to help Herman
Miller reduce the overall impact of sold products.
A methodology for developing a system to obtain supplier sustainability information and
to conduct high quality life-cycle assessments (LCAs) is presented in figure 6. This five-step
methodology can also be used to evaluate, benchmark and undertake specific initiatives to
reduce the sustainability impact of specific products.
33 ERP for Green Supply Chain: How ERP with Green Supply Chain tools can help manufacturers satisfy green supply
chain requirements of customers, IFS, 2010, pp.4-13
34 Y.A. Huang, C.L. Weber, and H.S. Matthews, “Categorization of Scope 3 Emissions for Streamlined Enterprise Carbon
Footprinting”, Environmental Science & Technology 43, no. 22, November 15th 2009, pp.8509-851
35 C.L. Weber and H.S. Matthews, “Food-Miles and the Relative Climate Impacts of Food Choices in the United States”,
Environmental Science & Technology 42, no. 10, May 1st 2008, pp.3508-3513
23
Figure 6: Illustration of five steps to setting up a supplier sustainability information
management (SSIM) system
1
2
Communication
A.
B.
Pilot Supplier
Selection
Supplier
Universe
C.
Pilot
Universe
3 3
44
Pilot Supplier
Engagement
Supplier
Sustainability
Information
Management
LCA
D.
Scaling Up
5
Step 1: Communicate sustainability vision
Once the organisation takes a strategic decision to incorporate a supplier sustainability
information management platform into the business, it must communicate its supplier
sustainability vision to its vendors, along with a proposed approach and indicative timelines.
This should help build alignment among key actors.
Step 2: Select pilot suppliers
Major companies typically work with a multitude of products and thousands of suppliers.
Making use of different sampling methodologies the organisation can select a pilot group
of suppliers (based upon, for example, share of spend and material compositions). Using
available information, the organisation could conduct generic LCAs for sample products
provided by the supplier group. This could be used to evaluate some of the high-impact
product categories and identify carbon hotspots.
Step 3: Engage pilot suppliers
Equipped with generic life-cycle information on high-impact product categories, the
organisation would need to work closely with the pilot suppliers to identify the parameters
for data collection and reporting on product LCAs. The company, together with its suppliers,
needs then to create a system for measuring progress against these parameters and for
auditing through third-party validation.
Step 4: Develop a supplier sustainability information management system
The organisation can then develop a supplier sustainability information management system
to exchange and capture the information from the LCAs conducted in the pilot phase. The
24
architecture of the system needs to leverage the benefits of LCAs, making it easier to develop
LCAs for the next set of products. As these systems and processes to manage product-level LCAs
develop, an effective balancing of accuracy against effort is needed. A small degree of accuracy
could be sacrificed in the interest of avoiding significant costs.
Step 5: Scale the system to the entire supplier universe
The supplier sustainability information management system can then be scaled up to cover
additional suppliers and products. It can be refined over time to accommodate the diversity of
products and suppliers.
4.1.2 Driving product sustainability by using life-cycle information
Leading companies use information about the environmental impacts of their products to
drive not only sustainability but also lower costs. Economic benefits can be tied to those
companies that systematically work with product functionality as well as with environmental
and economic improvements on as many life-cycle stages of the product as possible.36
For example, Xerox has rethought product functionality and systematically worked to cut
life-cycle emissions. The company claims that through its managed print services clients
can achieve cost savings of up to 30%37 and CO2e emission reduction of 20% per document
life-cycle.38 By rethinking the way a product is built and packaged as well as its material
composition, Herman Miller and Knoll managed to improve product sustainability and see
increases in their net margins (see case study). We also note that both their market shares
have grown since 2004-2005.
To create necessary life-cycle information and drive product sustainability an organisation could:
„„ Assess its product portfolio and choose product categories that have the highest
transaction, sales or revenue volume
„„ Conduct generic LCA studies among these product categories, to identify the products
that typically have the highest sustainability impact across their life cycles
„„ Conduct detailed LCAs by leveraging information from their internal product
management system and supplier management system
„„ Focus on the hot spots in the product life cycle and drive coordinated initiatives in order
to improve sustainability performance of the product including:
–– design the product with low-impact materials
–– design for manufacturing processes that are low waste and low energy
–– reduce sustainability impacts from supplier operations
–– redesign distribution and logistics systems to drive towards lower carbon emissions
–– design the product use phase for low energy use, high quality and long lifespan
–– design for easy dismantling, remanufacture and recycling
36 S. Plouffe et al., “Economic benefits tied to ecodesign”, Journal of Cleaner Production 19, no.6-7, April 2011, pp.573-579
37 Cost savings based on Gartner analysis (2009) (cited in Managed Print Services, Xerox Corporation, 2010, p.1)
38 The Optimum Office, Xerox Corporation, 2009, p.6
25
Two fundamental changes in
design should occur. First, we
need to pre-define the raw
materials that all designers
have available. Second,
designers must ensure that
all products are constructed
and assembled for easy
disassembly. With these two
fundamental changes, we can
close the loops. I have every
bit of confidence that design
and innovation will sort out
how to maintain and grow
standards of living within
these new and required
parameters.
Peter Hogsted,
CEO International, Kingfisher
plc
26
For some product categories, the largest impact on product sustainability would be achieved
through the introduction of a service-based business model. As the service-provider would
be responsible for the products at their end-of-life phase, the model would create incentives
for the design of products that are durable, repairable, transportable, upgradable and easy to
disassemble. The range of possible value to be captured would effectively be extended; the
residual value of the product would stay within the system. In a service-based business model,
total life-cycle cost would become much more important for the service-provider than the
upfront purchasing price alone. Xerox is one company that has applied this model with success.
In 2009, it captured $3.8 billion from its service line – representing 25% of its total revenue.
Product life-cycle information may also have strategic economic as well as environmental
benefits. For example, the ability to track the material composition of the products
throughout the supply chain gives a company control over hazardous substances in their
supply chain, enables remanufacturing or recycling activities and establishes product specific
environmental footprints. Having access to such information also enables companies to
strategically assess other risks in the supply chain, such as vulnerability to resource scarcities,
regulation or consumer expectations.
Life-cycle information is increasingly being applied and shared across supply chains and
even across various industries. For example, Nike has made its in-house eco-design tools
public to inspire collaboration in the industry. By doing so, they hope to set new industry
standards such as in the use of recycled materials in product design. If the apparel industry
would replace one third of polyester garments with recycled polyester, the demand for
recycled polyester would be greater than the annual production of plastic bottles (Nike
alone uses recycled polyester equalling 82 million plastic bottles).39 Should such product
design initiatives become industrial standards the dynamics within supplier networks
would change significantly as the reverse chain would become a more tightly integrated
part of the supply chain.
One example of new collaborative capabilities representative for the 21st century supply
chain model is the GreenXchange platform. This online platform enables companies to
share intellectual property for green product design, packaging and manufacturing, which
is an easy way to make companies able to control which rights they reserve and which they
share.40 Driving towards product sustainability will depend on the collaboration and life-cycle
information sharing recognised in the 21st century supply chain model.
Our supplier management
system tracks in detail the
material composition of our
products, from the coating
to the smallest microchip,
throughout our supply
chain, while protecting the
identity of our suppliers. While
spurred by environmental
drivers, additional benefits
have accrued. For example,
in terms of risk management,
we can now foresee and
act upon changes in raw
material supply, new science
on material toxicology
or upcoming regulatory
requirements.
Salla Ahonen,
Director, Environmental Policy,
Nokia
39 “Nike Furthers its Commitment to Open Innovation and Sustainability by Releasing Environmental Apparel Design
Tool to Industry”, November 30th 2010, https://www.nikemedia.com/en/category/global/feature_archive/2010/11/
nike_furthers_its_commitment_open_innovation_and_sustainabil.
40 The GreenXchange website, http://www.greenxchange.cc/.
27
Leaders in office furniture place product sustainability at the heart of their business
– Herman Miller and Knoll41
Herman Miller and Knoll are two of the office furniture market’s biggest players. By
working with their suppliers to rethink the way a product is built and packaged as well
as the materials used, the companies managed to improve product sustainability while
simultaneously seeing increases in their net margins.42,43 Herman Miller captured a 40.8%
compounded annual growth rate on net income between 2003 and 2007 compared to
13.6% between 1997 and 2001. A similar story can be told in the case of Knoll, which
went on to register an annual growth rate on net income of 14.5% in the years after the
start of the initiatives (compared to a rate of 7.4% between 1997 and 2001).44
Producing more environmentally friendly products
The two companies have made efforts to make furniture that has a lower environmental
impact, using safer, easier to recycle and more natural materials and increasing the
amount of renewable energy used in manufacturing. They have developed easily
compostable products or materials, used sustainable sources for raw materials
(eg, sustainable wood), and switched to non-toxic colourants or product coatings.
„„ Herman Miller has developed a corn-based fabric line that, after being composted,
can be used as nutrients for crops. The company uses a cradle-to-cradle design
protocol to improve material safety, component disassembly and recyclability (eg,
steel parts include up to 90% recycled material). It has conducted LCAs for product
lines accounting for 76% of revenues. Herman Miller both encourages and helps its
suppliers to minimise their environmental impact but also demands that they help
Herman Miller to reduce the overall impact of sold products (eg, through packaging).
„„ Knoll has made changes to its manufacturing techniques such as replacing a heavily
acid-based pre-treatment process, which generated high amounts of toxic waste
and had to be treated off-site, with a clean technology that does not generate waste.
Knoll’s Terratex fibres are based on 100% recycled materials. Knoll’s Open LCA tool is
available to other manufacturers.
Both companies have implemented environmental metrics (on energy, gas use, CO2e
emissions, waste and water, etc.), have set long term sustainability goals and are investing
in new technologies for reaching them. They also use LCA as a strategic tool to develop
more sustainable and energy-efficient furniture.
28
41424344
4.2 EliminatING Product Waste
Product waste arises when a finished product does not fulfil its intended use. This can be
caused by a range of factors – including the misallocation of stock, a mismatch between
supply and demand or an unreliable logistics system – which causes the product to expire or
become unsellable in other ways in the market. Consequently, both the resources and carbon
embedded in the product are wasted.
For the food industry product waste is a particular problem. In 2009, 33 million tonnes of
edible food were thrown away in the US.45 The energy embedded in this waste represents
about 2% of the US’s annual energy consumption,46 4% of its annual oil consumption and a
quarter of its annual water consumption; the estimated cost of this waste is $43 billion.47
To tackle the problem of food waste, a company needs to communicate with its suppliers
and customers to manage and exchange complex information flows up and down the
supply chain. The rapid exchange of information makes the supply chain agile and capable of
delivering value with lean inventories and short lead-times.
41 Xynteo Analysis (2011), drawing on the raw data from the following sources: 2010 Annual Financial Statements,
Herman Miller Inc., and Subsidiaries, 2010, pp.4-5, p.62, http://www.hermanmiller.com/MarketFacingTech/hmc/
about_us/Investors/shared_assets/HMI_2010_FINANCIAL_STATEMENTS.pdf; 2008 Annual Financial Statements,
Herman Miller Inc., and Subsidiaries, 2008, pp.5 and 54, http://www.hermanmiller.com/MarketFacingTech/hmc/
about_us/Investors/shared_assets/HMI_2008_FINANCIAL_STATEMENTS.pdf; Form 10-K/A (Amended Annual
Report), Herman Miller, Inc., March 20th 2006, p.71, http://www.hermanmiller.com/MarketFacingTech/hmc/about_
us/Investors/shared_assets/HMI_2005_FORM_10-K_A.pdf; 2002 Form 10-K, Herman Miller Inc., and Subsidiaries,
2002, p.45, http://www.hermanmiller.com/MarketFacingTech/hmc/about_us/Investors/shared_assets/HMI_2002_
FORM_10K.pdf; Form 10-K, Herman Miller Inc., 2001, p.40, http://www.hermanmiller.com/MarketFacingTech/
hmc/about_us/Investors/shared_assets/08_10_01_10K.pdf; Form 10-K, Knoll Inc., 2010, pp.24 and 69, http://phx.
corporate-ir.net/phoenix.zhtml?c=66169&p=irol-SECText&TEXT=aHR0cDovL2lyLmludC53ZXN0bGF3YnVzaW5lc3M
uY29tL2RvY3VtZW50L3YxLzAwMDEwNDc0NjktMTAtMDAxNjM3L3htbA%3d%3d; Form 10-K, Knoll Inc., 2008, pp.23
and 66, http://phx.corporate-ir.net/phoenix.zhtml?c=66169&p=irol-SECText&TEXT=aHR0cDovL2lyLmludC53ZXN0
bGF3YnVzaW5lc3MuY29tL2RvY3VtZW50L3YxLzAwMDExOTMxMjUtMDgtMDQzNTY2L3htbA%3d%3d; Form 10-K,
Knoll Inc., 2005, pp.10 and 15, http://phx.corporate-ir.net/phoenix.zhtml?c=66169&p=irol-SECText&TEXT=aHR0cD
ovL2lyLmludC53ZXN0bGF3YnVzaW5lc3MuY29tL2RvY3VtZW50L3YxLzAwMDExOTMxMjUtMDUtMDY2MzkxL3htbA
%3d%3d; Form 10-K, Knoll Inc., 2002, pp.11 and F-26, http://phx.corporate-ir.net/phoenix.zhtml?c=66169&p=irolSECText&TEXT=aHR0cDovL2lyLmludC53ZXN0bGF3YnVzaW5lc3MuY29tL2RvY3VtZW50L3YxLzAwMDEwMTE1N
zAtMDItMDAwMDAyL3htbA%3d%3d; “The U.S. Office Furniture Market”, The Business and Institutional Furniture
Manufacturer’s Association, 2011, http://www.bifma.org/statistics/index.html;
42 This is one of the points made in the following reports: Our Journey Towards A Better World Around You 2009,
Herman Miller Inc., 2009, http://www.hermanmiller.com/MarketFacingTech/hmc/about_us/Environmental_
Advocacy/2009_A_Better_World_Report.pdf; Our Journey Towards A Better World Around You 2010, Herman Miller
Inc., 2010, http://www.hermanmiller.com/MarketFacingTech/hmc/about_us/Environmental_Advocacy/2010_A_
Better_World_Report.pdf; 2008 Environmental, Health & Safety Annual Report, Knoll Inc., 2008, http://www.knoll.
com/environment/downloads/Knoll_Enviro_2008.pdf
43 The start date for these initiatives are 2001 for Herman Miller and 2003 for Knoll as stated in the following sources:
All About the Molecules: Sustainable Products Require Sustainable Materials, solution essay, Herman Miller Inc.
website, 2010, p.3, http://www.hermanmiller.com/MarketFacingTech/hmc/research/solution_essays/assets/
SE_Molecules.pdf; Knoll and Sustainable Design – 2003 Environmental, Health and Safety Annual Report, Knoll Inc.,
2003, p.2 (of pdf document), http://www.knoll.com/environment/downloads/Envir_AnnReport_081604.pdf
44 When computing the net income compounded annual growth rate for the companies, the year 2002 was not taken
into consideration due to the 2001 dot-com bubble.
45 “Basic Information about Food Waste “, U.S. Environmental Protection Agency website, http://www.epa.gov/osw/
conserve/materials/organics/food/fd-basic.htm
46 A.D. Cuéllar and M.E. Webber, “Wasted Food, Wasted Energy: The Embedded Energy in Food Waste in the United
States”, Environmental Science & Technology 44, no. 16, 2010, pp.6464-6469
47 “Take a bite out of food waste”, news article, Yahoo Green,
http://green.yahoo.com/blog/daily_green_news/279/take-a-bite-out-of-food-waste.html
29
Understanding and sensing
demand better will be key
to lowering total cost and
risk. This will reduce waste in
all forms including product
waste, for example through
localised supply chains closer
to markets that are more
responsive to changing
customer demand. We need
to sense and manage demand
better, through consideration
of external macro factors as
well as designing flexibility
and responsiveness in our
supply chain. This will require
both intelligent information
management systems and
analytics to support decisionmaking, prevent information
overkill and align supply chain
business processes.
Bo-Inge Stensson,
Senior Vice President, Group
Demand Chain, SKF
30
A focus on reducing product waste can also help companies improve customer service levels.
By shortening lead-times, they can ensure that products are available when and where they
are needed. This is especially important for segments in which consumer preferences change
rapidly (with more predictable consumer goods, longer lead-times tend to be more acceptable).
Supply chains able to accommodate deferred finishing or postponement of product options will
have a competitive advantage in meeting customer demand eg, dyeing a garment at the end of
production to make sure that customers can get whatever colour is currently popular.
Inditex, commonly known for its Zara brand of stores (see case study) has been successful
in reducing product waste. By cutting the time required to move clothes to market (from
the industry average of six to nine months down to four to five weeks), Zara has honed its
ability to respond promptly to changes in the market. The company has achieved this by
concentrating its supplier base and keeping them geographically close to both its designers
and the market, shortening communication lines and increasing the overall transparency of
the supply chain. Now, if spring comes earlier than expected in a given region, the company
can swiftly switch the production line from the winter to spring collection and reroute the
winter garments to places where the weather remains cold.
48495051
Product waste reduction: Inditex (Zara)
Zara, the well-known high street retailer, has a profit margin which is among the best in
the industry. This can be largely accredited to an agile supply chain which has resulted in
short lead times, a high performing logistics infrastructure and reduced inventory levels
and product failure rates. The company has also reduced product waste and avoids the
corresponding carbon emissions from the production and transportation of garment
surplus, as well as the embedded emissions from raw materials. This case study outlines
the measures Zara has taken to achieve these reductions.
The company
Inditex is one of the leading apparel retailers in the world with revenues of €11 billion
worldwide during 2009. Some of the brands produced by the Spanish based group are
Zara, Bershka and Massimo Dutti, with Zara generating 64% of its revenue.48
Average profit margin ’05–’09 comparison
5%
H&M
14%
7%
Benetton
Gap
Tommy Paulsson,
Managing Director, Bring SCM
AB
12%
Inditex (Zara)
Industry
average*
A major source of product
waste reductions will be
driven by our ability to localise
production facilities nearer
to the markets. This includes
where future markets will be
and not necessarily where
these markets are today.
This eliminates warehousing
and improves inventory
management.
6%
* Textile – Apparel Clothing insutry average net profit margin MRQ (Yahoo Finance)
Source: Company annual reports, Yahoo Finance, Xynteo analysis
Financial and environmental impact
The ability to respond more quickly to customer needs has both economical and
environmental benefits. We estimate that by avoiding product waste, Inditex secured
5 percentage points in their EBIT margin and about €500 million in absolute terms in
2009.49 The company has also avoided 157,000 tonnes of CO2e potential embedded
emissions in textile raw materials50 and 24,000 tonnes of CO2e emissions from its
own operations.51
48 Annual Report, Inditex, 2009, pp25-29., http://www.inditex.com/en/downloads/Annual_Report_INDITEX_09.pdf
49 Indicative estimate, considering a rate of unsold items of 10% for Zara vs. 19% industry average (A.P. Palladino, “Zara
and Benetton: Comparison of two business models”, Master thesis, Universitat Politècnica de Catalunya, 2010, p.52
http://upcommons.upc.edu/pfc/handle/2099.1/9620)
50 Estimated considering an average weight per garment of 0.29 kg and carbon intensity of 10 kg CO2e per kg of
textiles (based on EcoInvent data, Environmental Resources Management data and Xyntéo estimates)
51 The current analysis focuses on Zara supply chain and does not assess the full garment life-cycle which can be
influenced by a variety of factors (including e.g. customer behaviour).
31
Zara’s agile supply chain allows the company to respond quickly to customer demands
trends in garment styles, while protecting it from over-investment in unsellable stock.
This has been a key ingredient of Zara’s success. They have had a stable profit margin at
around 12% for the past five years which is among the best in the industry.
Zara’s inventory management initiatives significantly reduce product waste
Impact of product waste avoidance on Inditex EBIT and carbon emissions
CO2e emissions avoided in raw materials
CO2e emissions avoided from own operations
EBIT increase from avoided product waste
EBIT estimate with average industry waste rate
2,000
1,000
0
EBIT (EUR Mil.)
EBIT margin % (as % of revenue)
1,356
5%
1,094
5%
1,652
5%
1,609
5%
1,729
5%
13%
11%
11%
12%
11%
-88
-109
2005
Source: Xynteo estimates
-21
0
-133
-137
2006
-24
-134
-155
2007
-148
-21
-171
2008
-164
-23
-188
2009
-100
-24
-200
‘000 tonnes
CO2e
Zara garments are produced by a global supply chain that includes both in-house
and outsourced production, and are delivered to a network of 1,608 stores across 74
countries. About 60% of the garments are produced in Spain, close to Zara’s distribution
hubs. These are predominantly fashionable items affected by changing market demand
and with shorter lead-times. Operations that benefit from scale effects, such as cutting or
dyeing are done in-house, while the rest are outsourced to a network of 300 dedicated
small manufacturers. The other 40% of the garments, for which lead time is not so critical,
are outsourced to manufacturers in East Asia.
Zara’s excellent communication across their supply chain allows the delivery of garments
with a lead time as short as two weeks (from design to store). Complex information such
as sales volume and design suggestions (eg, fabrics, cuts, colours) are sent in real-time
from the shop floors and picked up by the designers. Combined with a high performing
logistics infrastructure, this enables Zara to deliver new garments with an average lead
time of 4-5 weeks. This performance is far beyond the industry average of lead times
between 6-9 months.
The flexibility that Zara’s supply chain provides also leads to other benefits, such as reduced
inventory levels and product waste. On average, Zara’s pre-season inventory level is 1520% of total sales, while the industry average is between 40-60%. Product failure rates are
also much smaller; about 1% compared to the industry average of 10%. Unsold items are
typically less than 10% for Zara as compared to the industry average of 19%.
32
A service-based model could deliver massive cuts in product waste, by moving the company’s
focus away from its own processes and structures to its customers’ needs. This effectively means
eliminating the incentive for the manufacturer to pursue physical volume but instead create
partnerships with its suppliers and customers in which the financial rewards of reduced material
consumption are shared.52 By focusing on the service rather than the product volume, inventory
levels can be kept at a low level. As the manufacturer knows customer needs well, it will be able
to predict accurately the type of new products or replacement components needed, and would
thus be able to manage its inventories more predictably.
4.3 DRIVING Low-Carbon Logistics
The transportation and handling of goods is inherently carbon-intensive. Globally transportation
is responsible for around 60% of oil consumption53 and contributes 23% to global energyrelated CO2e emissions.54 About 60% of the energy consumed by transport stems from personal
travel and 40% from freight transport.55 Freight emissions are set to expand: growth rates for
freight transport and GDP are positively correlated.56
Worldwide, logistics-based buildings such as warehouses, ports and distribution centres
contribute an additional 371 million tonnes of CO2e each year.57 There are two main reasons
why logistics activities are so carbon-heavy. First, logistics is almost completely powered by
non-renewable energy sources. Second, logistics tend to feature inefficient asset utilisation.
Fossil fuel-dependency and inefficient asset utilisation are therefore the key carbon
challenges in logistics operations.
Fossil fuel-dependency – There exists limited scope for switching from oil to renewable
energy in logistics. Hydrogen-powered aircraft engines or wind-powered ocean freight are
still in their early stages of development and decades away from having a significant impact
on logistics. Closer to larger scale market adoption are options such as lower carbon gas,
biofuels, or electric alternatives such as hybrid trucks. Still fossil fuel will be the dominant fuel
for freight in the foreseeable future.
Inefficient asset utilisation – Under-utilisation of assets is leading to higher vehicle miles
to carry the same amount of cargo, at a higher financial and environmental cost. According
to the European Energy Agency, the principal European air carriers have a load factor below
60%; for trucking it is well below 50%. Over the last few years, the average load factor has
further decreased.58 Under the current model, empty containers and under-utilised fleets
have become intrinsic to operations. In the US, approximately 28% of all truck kilometres are
52 E.D. Reiskin et al., “Servicizing the Chemical Supply Chain”, Journal of Industrial Ecology 3, no. 2-3, 1999, pp.19-31
53 Transport, Energy and CO2: Moving Toward Sustainability, International Energy Agency/ OECD, 2009, p. 47,
http://www.iea.org/textbase/nppdf/free/2009/transport2009.pdf
54 Climate Change 2007: Working Group III: Mitigation of Climate Change, IPCC, 2007, Chapter 5, p. 328,
http://www.ipcc.ch/publications_and_data/ar4/wg3/en/ch5s5-2.html#5-2-1
55 Calculated based on data from International Energy Outlook 2010 - Report #:DOE/EIA-0484(2010) – Tables 15 and
16, International Energy Agency, Excel files, accessed at http://www.eia.doe.gov/oiaf/ieo/excel/tbl15.xls and http://
www.eia.doe.gov/oiaf/ieo/excel/tbl16.xls
56 Fuelling global trade - How GDP growth and oil prices affect international trade flows, Briefing paper, Economist
Intelligence Unit, 2008, p.12
57 Supply Chain Decarbonisation, World Economic Forum, 2009, p.20
58 TERM 2005 30 Load factors in freight transport, European Environment Agency, 2007, p.1,
http://www.eea.europa.eu/data-and-maps/indicators/ds_resolveuid/cc2687c43b2650260aa89068056bdb30
33
classified as empty;59 in the UK and Germany empty kilometres make up 27% and 38% of the
total, respectively.60 Moreover, laden trucks tend to be only partially filled.
Over the next 12 months,
we will look to further
commercialise the advantage
we offer our customers.
One way of doing so is by
combining and leveraging the
energy efficient assets across
the A.P. Moller – Maersk Group
and presenting them through
new services such as our ‘LowCarbon Corridors’ concept.
These carbon-efficient assets
on sea and land represent
very large investments that
will improve processes,
supply chain reliability and
attract low-carbon conscious
customers.
Søren Stig Nielsen,
Senior Director, Sustainability,
Maersk Line
Global logistics company reduces empty movement61
One of the world’s leading providers of integrated speciality chemicals transportation
and storage solutions were transporting empty tank containers alongside utilised tank
containers. The result was wasted fuel, high operation costs and high carbon emissions. In
planning their strategic roadmap for the next five years, our client was keen on reducing
costs associated with empty movement. It was crucial to plan for movement of the right
containers to the right facilities at the right time.
Implementing a network flow based “Optimised Empty Tank Container Repositioning
System” that integrated with the clients operational systems, has been estimated to result in:
„„ efficiency enhancement due to optimised asset utilisation; resulting in 8-10%
operational cost savings in year one. These savings were attributed to inter-region
repositioning of assets
„„ increased revenue and growth potential; in the subsequent financial year revenue
increased by 12% from now available assets
The reduction in unnecessary transportation of empty containers significantly reduces
fuel consumption per unit shipment and enables putting unused part capacity towards
new revenue opportunities. Carbon emission intensity is reduced commensurably.
As replacing oil consumption is not feasible in the near future, the key focus in driving lowcarbon logistics needs to be reducing the amount of energy used – or in other words, to
increase the efficiency of logistics operations. Some ways efficiencies can be driven are:
„„ Increasing asset efficiency
For both fixed and mobile assets, purchasing decisions should not be driven by procurement
costs alone, but include life cycle aspects of costs such as from fuel consumption, handling
or maintenance. Better inventory planning could also help to increase asset efficiency. Better
capacity planning – through, for example, statistical modelling and scenario-planning tools
– could help fill up the trucks and the kilometres. Supply chain collaboration is vital to the
success of any solution.61
34
59 G. Petty, “Benefits of Fleet Optimization Center”, National Private Truck Council, March 1st 2009,
http://www.nptc.org/index.php?option=com_content&task=view&id=538&Itemid=318
60 TERM30, “Empty running - Road freight”, European Environment Agency, 2009, http://www.eea.europa.eu/data-andmaps/figures/average-load-factor-utilization
61 TCS’s client experience
„„ Optimising network design
Network design and redesign is typically driven by cost, time and service quality, with
little consideration for sustainability impact. By introducing carbon emissions as a factor
when optimising the network, an organisation could realise a better match between
lead time, cost and carbon savings. Network optimisation tools could help improve
infrastructure positioning, choice of transport modes or asset acquisition by integrating
both cost and sustainability factors.
„„ Encouraging low-carbon supplier services
Companies are increasingly making use of logistics service providers (LSPs). Even wellplanned and able-executed logistics processes can generate an imbalance in inbound
and outbound shipments. For example, a commitment to a given customer service level
could mean that a truck leaves before it is full. LSPs can help address the imbalance by
consolidating freight on behalf of their customers, reducing costs and carbon emissions.
However, by using LSPs, the carbon visibility over logistics operations diminishes;
collaboration is important to regain this transparency while encouraging LSPs to provide
low-carbon services.
We would like to have a
network optimiser with
carbon information to
show customers how we
could improve their carbon
footprint.
Nils Lie,
Vice President of Business
Development, Supply Chain
Management, Wallenius
Wilhelmsen Logistics
„„ Direct collaboration among shippers
This is another way to achieve better capacity utilisation or to fill an empty backhaul.
For similar shipments, a second shipper will only need to send a truck if there is no more
capacity in the truck sent by the first shipper. To enable this kind of collaboration shippers
require real-time visibility of their shipments and available capacity. This ensures that
costs are allocated equitably and that each shipper’s service level requirements are met.
In recent years, horizontal freight marketplaces have been established. Shiply.com is an
electronic marketplace that matches shippers up with delivery service companies already
making deliveries to similar destinations. By connecting with transporters already making
similar trips, the customer saves money as well as emissions. Serving as an impartial third
party, the web-based marketplace ensures that relevant information on available capacity is
exchanged without compromising commercially sensitive data.
35
Shiply drives collaboration for sustainability in logistics and reverse logistics62
IT is crucial for our economic
success as well as for
enabling collaboration
with our partners. With
well functioning IT, we can
reduce stock, improve fill rate,
optimise truck driving and
measure results.
Jean-Eudes Tesson,
President, Groupe Tesson
In the United Kingdom, the level of empty backhauls in road cargo transportation reaches
27%,63 while the segment generates 19 million tonnes of CO2e per year which represents
3% of the country’s footprint.64 Accounting for load factors, about 1% of the UK’s carbon
footprint can be considered a business opportunity in terms of filling up unused capacity.
Shiply.com is an innovative online transportation marketplace in which hauliers
with spare capacity can bid for the business of customers looking for cheaper ways
to move goods. Launched in 2008, the company expected revenues of £0.5 million
already in 2009.65 The Shiply concept optimises the use of unused truck capacity (eg,
empty backhauls) to ensure a lower price for the customer, improved profitability for
transportation operators and reduced carbon emissions.
An untapped potential of optimising backhauls
More accurate forecasts
from customers on their
transportation needs would
improve capacity utilisation.
However, the customer’s
logistics division does not
necessarily have the required
information on, for example,
production volume data.
Access to such data would
improve capacity utilisation,
revenue and customer
value by increasing delivery
accuracy.
The company has identified an untapped business potential through its offering.
Traditional freight exchange platforms connect transportation providers and allow them
to communicate traffic information and vehicle space. Shiply goes one step further and
connects the end customers directly with the transportation providers. Through an online
reverse auction and proprietary algorithms to optimally match shipment order requests
with operators, Shiply unlocks the potential of unused transportation capacity.
Collaboration adds business and environmental value
Shiply reports to have saved approximately 6.1 million kilometres and 1.1 million litres
of fuel over a period of 16 months. Moreover, the reverse auction mechanism typically
ensures client prices of less than 75% of standard rates, and enabled total customer
savings of over £3 million in the same time period. Since the launch, Shiply claims to have
avoided about 9,000 tonnes of CO2e of potential greenhouse gas emissions.
62636465
Nils Lie,
Vice President of Business
Development, Supply Chain
Management, Wallenius
Wilhelmsen Logistics
36
62 “Shiply.com”, Case study, Smart 2020 website, http://www.smart2020.org/case-studies/shiplycom/
63 TERM30, “Empty running - Road freight”, European Environment Agency, 2009, http://www.eea.europa.eu/data-andmaps/figures/average-load-factor-utilization/term30_2009_assessmentv2_figure2.exl/at_download/file
64 UK Transport and Climate Change data, Factsheet, UK Department for Transport, 2010, p.6 http://www.dft.gov.uk/
pgr/statistics/datatablespublications/energyenvironment/latest/climatechangefactsheets.pdf
65 “Plan to cut transport waste moving forward with Shiply.com”, news article, The Telegraph, May 12th 2009, http://
www.telegraph.co.uk/sponsored/business/businesstruth/5314494/Plan-to-cut-transport-waste-moving-forwardwith-Shiply.com.html
4.4 Maximising the Reverse Supply Chain
Supply chain managers have to contend increasingly with resource scarcity and less stable
access to raw materials – which can drive higher prices and disrupt supply chains. Reverse
supply chain management could help lessen resource pressures. For example, although
copper is widely recognised as being subject to a high risk of disruption in the supply, even
more so than for other major metals such as iron and aluminium,66 26% of the extractable
copper in the Earth’s crust has been lost through its inclusion in products that are already in
landfills or in products that are non-recyclable. 67
Not closing the loop in supply chains has a negative impact on product sustainability due
to the higher-than-necessary levels of embedded energy and carbon. For example, 41%
of aluminium cans sold annually in the US end up in landfills.68 7.5 billion kilowatt-hours of
extra energy is required to produce these 41 billion cans from virgin aluminium instead of
from recycled aluminium.69 This is enough to supply almost 700,000 American homes with
electricity for a year.
Maximising the value that can be recovered depends fundamentally on the way in which the
product is designed – this is where reverse supply chain management needs to start (see also
chapter 4.1 on product sustainability). The purpose of the reverse chain is therefore to recover
the maximum value of the product, both in terms of monetary value and carbon emissions.
The reverse chain should therefore be set up to:
„„ expand the lifespan of existing products through servicing and repair
„„ enable product refurbishment and remanufacturing
„„ facilitate recycling with disassembly so that reusable components can re-enter
the product chain
„„ enable material recycling as raw material feedstock for new product cycles
In order to capture this value the new supply chain models should be designed to account for:
„„ a closed loop collection system where products are recovered from the users at the
end of use
„„ a service centre integration with refurbishment and remanufacturing centres to promote
a spare parts market by taking back parts and remanufacturing them
„„ a remanufacturing process that meets original product requirements through disassembly,
checking, replacing or restoring condition, and reassembly of its component parts
„„ the incorporation of the backward flow into the network design and logistics planning
66 E. Alonso et al., “Material Availability and the Supply Chain: Risks, Effects, and Responses”, Environmental Science &
Technology 41, no. 19, October 1st 2007, pp.6649-6656
67 R. B. Gordon, M. Bertram, and T. E. Graedel, “Metal stocks and sustainability”, Proceedings of the National Academy of
Sciences of the United States of America 103, no. 5, January 31st 2006, pp.1209-1214
68 “Aluminum | IndustryStatistics,” http://www.aluminum.org/Content/NavigationMenu/NewsStatistics/
StatisticsReports/UsedBeverageCanRecyclingRate/UBC_Recycling_Rate_2009.pdf.
69 Producing new cans using recycled aluminium saves 14 kWh, 6 kg bauxite and 4 kg chemicals for every kilogram
of metal. Source: “Metals - aluminium and steel recycling”, Waste Online website, http://www.wasteonline.org.uk/
resources/informationsheets/metals.htm. See footnote 1
37
70717273
To reduce mounting pressure
and risks from resource
constraints and resource
scarcity, supply chains need to
be designed in a ‘lighter’ way
considering recycling as a key
management capability. This
will reduce supply chain total
cost and improve efficiency.
As a result, there is increasing
focus on re-use, repair of
equipment and conditioning
monitoring solutions to see
failures before they occur.
Both are seeing growth and
emerging economies of
scale. Closing the loops via
expanding reverse chain
operations will be key and
changing the business model
from product sale to service
delivery could be a key
enabler for doing that.
A functioning reverse chain needs high levels of collaboration and transparent information
exchange between the manufacturers and the partners in the reverse chain. Companies
who want to capture opportunities in the reverse chain would need new capabilities such
as financial cost-benefit tools that would help the forward supply chain to make investment
decisions regarding the remanufacturing of any of the components of the products. Such cost
tools would consider the whole life cycle of the products, including costs that other actors in a
traditional supply chain model would typically have to bear. One such example of a company
is Caterpillar who has made a $2 billion profitable business promoting remanufacturing. Their
supply chain integrates suppliers, the aftermarket network and remanufacturing partners in
one network.
Caterpillar’s brand Cat Reman, is one of the largest global remanufacturers with revenues
reaching $2 billion in 2010 (5% of Caterpillar’s total revenues). In 2004, building on its
experience as a remanufacturer, the company opened its services to other industries
including automotive, rail and defence. As a result, Cat Reman’s remanufacturing business
line has grown by 7% p.a. in the last five years,69 stronger than Caterpillar’s total which
grew at 3% p.a.,70 and the company was able to save 77,000 tonnes of CO2e emissions
through its remanufacturing operations in 2010.71 The management at Caterpillar
believes that remanufacturing will offer stability to the company, especially in macro
economic downturns (ie, it is a hedge).72
Bo-Inge Stensson,
Senior Vice President, Group
Demand Chain, SKF
38
70 Sustainability Report, Caterpillar, 2009, p.89,
http://producttour.cat.com/Microsites/US/ARSR2009/SR2009/pdf/CAT_002_2009SR_FINAL_ENG.pdf
71 Annual Report, Caterpillar, 2009, p.56, http://www.cat.com/ar2009, and 4Q 2010 Earnings Release, p.1,
http://www.caterpillar.com/cda/files/2608052/7/Cat+Inc.+4Q2010+Final.pdf, Xyntéo analysis
72 Carbon emission savings estimated by using a saving intensity of 1.52 kg CO2e per kg of reused material, based on
Ecoinvent data and Xyntéo analysis. Reused materials were estimated from materials collected, by using a reuse rate
of 70% from J. Allen, “Remanufactured Products: ‘Off-The-Shelf’ Sustainability”, Vision Magazine, 2004, 1-2, as cited
on http://logistics.cat.com/cda/components/fullArticle?m=115228&x=7&id=382365
73 I. Brat, “Caterpillar Gets Bugs Out of Old Equipment”, The Wall Street Journal, July 5th 2006,
http://www.reman.org/Articles/WSJ_Cat_Reman.pdf
Business Value of Reverse Chain: Caterpillar Remanufacturing Outpaces Overall
Company Growth
Caterpillar low-carbon growth from remanufacturing
Caterpillar remanufacturing
revenue (% of 2005 base)
Caterpillar revenue (% of 2005 base)
Materials saved by remanufacturing (’000 tonnes)
Emissions avoided by remanufacturing
(’000 tonnes CO2e)
150%
7%
125%
3%
CAGR ‘05–’10
100%
0%
-43
-44
-65
2005
-67
2006
-39
-45
-45
-68
2007
-68
2008
-59
2009
-51
The perfect reverse chain
would be characterised by all
actors along the chain being
identified and connected,
including consumers.
Clear roles would need to
be created defining who
organises the take back, who
collects, who pre-treats and
who recycles. A common
reporting structure would
secure a clear understanding
of the material flows and
a transparent and credible
information exchange.
Salla Ahonen,
Director, Environmental Policy,
Nokia
-77
2010
Source: Caterpillar 2009 Annual Report and Sustainability Report, Xynteo estimates
Facilitates Reverse Chain Through Communication Platforms
For its own product lines, Caterpillar offers like-new, remanufactured products through
the Cat Certified Rebuild programme. The programme ensures the same reliability,
performance and durability (i.e. same warranty) as for new replacement products,73 at a
cost approximately 30% to 80% lower for the customer.74 Caterpillar equipment and after
sales services are delivered through a network of 178 independent dealers worldwide,
who are well trained and equipped to represent the company to the customer.
Information management and communication platforms, implemented by Caterpillar,
support the sales of new, remanufactured, re-built or used products and related services.
For example, an online part ordering platform allows customers to see real-time inventories
and prices from dealers. They can then choose from new or re-built products, or other
alternatives, as well as track the status of remanufacturing. The company also provides a
communication platform for selling used components and products among its distribution
partners and clients.75
747576
In the future, we see a
very large opportunity for
reverse chains, as costs of
components rise, legislative
support forms, OEMs include
reverse chains in their designs,
and collaboration among
the players improves. For
example, the products we
work with are not typically
holistically designed
for closed loops at the
conceptualisation stage, but
rather as elements of sub-part
design. This will change.
Antoine Namand,
Head of Vehicle
Logistics Division, CAT
74 Sustainability Report, Caterpillar, 2009, p.37
75 I. Brat, “Caterpillar Gets Bugs Out of Old Equipment”, The Wall Street Journal, July 5th 2006
76 Research on Caterpillar website (http://www.cat.com) and Caterpillar dealer websites
39
Key Messages:
„„ The new focus on sustainability opens supply chain opportunities with economic
benefits:
–– sustainable products, which are designed for using sustainable materials, low
consumption of energy in use and for recapturing embedded resources in the
reverse chain
–– product waste, which ensures resources are not wasted on products that don’t
reach a customer
–– low-carbon logistics, which minimises energy consumption in transport and
handling per unit
–– reverse chain, which closes the product loop and captures residual value
from returns
„„ Companies have seen growth opportunities in these areas, resulting both from cost
reductions and from new revenue opportunities
„„ For some product categories, sustainable growth can best be captured with a
business model based on providing services
„„ Companies working with the 21st century model have made significant progress
towards sustainability and are highly competitive
40
41
Chapter 5
outlook
Is cradle-to-cradle part of the
solution? Without doubt. It
will not only be important in
a resource constrained world
but also make good business
sense. To fully capitalise on
cradle-to-cradle thinking we
have to work, partner and
collaborate differently in the
future. For example, we are
now working with a major
shipyard in the production of
the world’s largest cradle-tocradle ships. In the process we
are both learning a lot about
materials and supply streams.
It will be a fine day when one
of our vessels is upcycled at
its end of life and we get a
price advantage on a new
ship because we supplied our
own materials.
Søren Stig Nielsen,
Senior Director, Sustainability,
Maersk Line
Closing the loops will be
key in the future and good
reverse chains will be critical.
As a logistics company, we see
big opportunities in terms of
additional service offerings.
Antoine Namand,
Head of Vehicle
Logistics Division, CAT
42
The case for a move from the current supply chain model to a new supply chain model has
been made in this paper. The current supply chain model serves a business world which is
focused on cost-efficiency, growth and economies of scale. This has led to a high-growth,
high-carbon business model.
However, the production and consumption model is about to enter a significant period
of change – what we believe to be a major watershed. We believe that we are facing huge
opportunity to balance the business dimension with the social and environmental. A core
driver comes from changing production and consumption patterns: points of consumption
and production are moving closer together, and customers are becoming less interested
in owning products and more interested in the value from the service that the product
ultimately offers.
Supply chains will have to deliver growth as well as carbon performance in the future,
especially as the focus of competition shifts away from individual businesses to entire
supply chains. In this environment, the best-performing companies will foster supply chain
collaboration as a source of competitive advantage. New constellations and partnerships
within supply chains and between industries will increase.
Figure 7: Illustrating the shift to a new supply chain model
Today’s World
World in 2020
• Agility
• Cost
• Service levels
Current
SC Model
Key Enablers
• Innovation
• Skill/Capabilities
Finance
• ICT
• Leadership
• Low-carbon
• Zero waste
• Collaboration
across all partners
21st Century
SC Model
• Closed loop
• Information and
Collaboration
Hub
Enabling Product
Sustainability
Eliminating
Product Waste
Driving LowMaximising Reverse
Carbon Logistics
Supply Chain
The 21st century supply chain will reduce strategic supply chain risks by more accurately
meeting customer demand, mitigating the risk of scarce resources through leaner supply
chains, and using higher efficiencies to shave costs.
The traditional supply chain model focusing on linear processes, costs and throughput will
need to be upgraded to:
„„ Enable product sustainability by design, engineering, manufacture, supply, use and
recycling of goods and materials to minimise and account for total life-cycle costs and
environmental impacts
„„ Eliminate product waste by matching shorter, more localised supply chains with
improved forecasts of customer demand
„„ Drive low-carbon logistics through better capacity utilisation, intermodal optimisation,
improved routing and transport efficiency
„„ Maximise the reverse supply chain through closing resource loops by repair,
remanufacturing or recycling
We also see a shift, in some product categories, towards a service-based model which could
not only increase profitability but also reduce impacts on the environment. Xerox, to name
one example, designs all its products to be remanufacturable; manufactures using recycled
materials; monitors the customer to prolong the life-time of its products; enhances fleet
utilisation; provides free-of-charge collection schemes; and optimises reverse chain logistics
to secure the availability of remanufacturable cores. More models along these lines are
likely to arise.
While sustainability
was initiated as a set of
requirements from our side,
they have also brought
opportunities for improving
other sides of the business,
such as new supplier
management procedures,
supplier documentation,
grouping suppliers and
training or building capability
with suppliers. Going forward,
this can be a stepping stone
to enable new types of
supply chain collaboration,
as suppliers performing on
sustainability are typically also
performing well overall.
Markus Terho,
Director, Sustainability,
Markets, Nokia
The new supply chain model will rely on capturing, processing and sharing information that
enables new types of collaboration along supply chains. This collaboration will accelerate the
transition from a high-growth, high-carbon supply chain model to a high-growth, low-carbon
one. We believe we have seen only the beginning of the shift towards a 21st century supply
chain model.
43
Glossary
44
Capable-topromise
A business method for verifying the amounts of products that will
be availble at a future point in time. This method is not limited to
inventory at hand, but also includes additional sources such as own
production capacity and the external supplier network
Carbon emissions
Emissions of carbon dioxide (CO2) into the atmosphere as a result of
human activity, typically due to burning carbon-based fuels
Closed loop
A system that utilises products, components or materials recovered
primarily from end users, for reapplication in the manufacture of
new products
Carbon footprint
The estimated emission of greenhouse gases (GHG) associated with
the life cycle of a particular product or activity, often expressed in
terms of CO2-equivalents or CO2e
Carbon intensity
Carbon emissions associated with a product or service, usually
expressed in carbon emissions for a given weight of material or
amount of energy
Customer
Relationship
Management
(CRM)
A business strategy to find, win and retain customers. Technology is
utilised to support a company’s customer facing business processes
such as sales, marketing, customer service and to provide customer
related information to other stakeholders in the supply chain.
Dematerialisation
Providing the same product or service with fewer resources, eg,
product light weighting
Design for
remanufacturing
In the product design phase, consideration is given to the way
the product or components will be eventually reutilised through
disassembly, refurbishing and integration into a new product
Embedded energy
A calculation of the total energy required to extract the raw materials
and manufacture a product, also known as embodied energy
Enterprise
Resource Planning
(ERP)
A business method for integrating and sharing management
information across an entire organisation, including sourcing,
manufacturing, accounting, sales, etc. ERP systems automate this
activity inside the boundaries of an organisation and provide
interfaces to outside stakeholders such as suppliers and customers
Extended Producer
Responsibility
(EPR)
A public policy designed to shift the financial burden of managing
discarded products away from municipalities, internalise these costs
in a product’s price, and compel the manufacturers of the products
to be involved in the end-of-life management – creating an
incentive for manufacturers to design products that are less wasteful
and easier to recycle
Global warming
A rise in the Earth’s average temperature that scientists believe is the
result the release of carbon dioxide, primarily from human activities,
preventing heat from escaping the atmosphere
Horizontal market
Consist of customers that share a common need that exists in many
or all vertical industries
Intermodal
transport
Freight in specifically designed containers or vehicles, which is
transported using multiple modes (rail, truck, ship or air). When
changing the mode of transport only the intermodal container or
vehicle but not the freight itself needs handling
Load factor
A performance indicator, that measures the share of total available
loading capacity of a transport vehicle that is actually used by a load
Low-carbon
A reduction in carbon dioxide emissions through more efficient use
of resources, eg, reducing demand for carbon-based fuels
Low-carbon growth A trajectory that decouples economic growth and greenhouse
gas emissions by allowing the economy to expand while reducing
total emissions
Life-cycle
A holistic view of the complete succession of changes undergone by
a product or activity from beginning to end
Life-cycle
assessment (LCA)
A process that examines the inputs/outputs of materials and energy
to determine the environmental impacts that are associated with a
process, product or service system
Material intensity
A performance indicator, which measures the amount of resources
needed for producing, processing and disposing of a product
Product Life-Cycle
Products go through a life-cycle that includes various phases
Management (PLM) such as design, development, production, distribution, use and
maintenance, recycling. PLM integrates these processes and
provides related data throughout the supply chain – across phases
in the life cycle and across stakeholders in the supply chain
45
46
Remanufacturing
The process of restoring equipment condition to meet or exceed
original equipment requirements (through disassembly, checking,
replacing or restoring condition, and reassembly of its component
parts)
Reverse logistics
All operations related to the reuse of products and materials
Service-based
model
Fulfillment of customer needs, wants, or aspirations through paying
for the fulfillment function itself as opposed to paying for the
product delivering the fulfillment
Supply chain
The structure through which a company works with its partners
to move goods from suppliers to customers. In advanced supply
chains, used products may re-enter the supply chain at any point
and residual value is captured
Sustainability
Three spheres are commonly used to describe sustainability:
environment – where we maintain the stock of ecological capital
that supports us, society – where we strive to improve the
distribution of wealth, and economy – where we support economic
development
SRM
Supplier relationship management (SRM) includes planning and
managing all relations between a company and its suppliers.
Technology helps a company to find, segment, manage and monitor
potential and current suppliers within a supply chain
TMS
Transportation Management System (TMS) is a software system that
manages transport operations
Total landed cost
The total cost of purchasing, transporting, warehousing and
distributing raw materials, semi-finished and finished goods
About Xyntéo
Xyntéo is an international advisory firm that equips business leaders with knowledge, networks
and tools to compete in the low-carbon economy. It works practically and strategically with
some of the world’s leading companies from across a range of industries, among them oil and
gas, utilities, consumer goods, financial services and IT.
For more information, visit www.xynteo.com
About GLTE
The Global Leadership & Technology Exchange is a one-of-a-kind partnership uniting worldclass businesses engaged in the pursuit of low-carbon growth and innovation. GLTE helps
senior executives build their knowledge of the low-carbon economy, connect with low-carbon
pioneers from other companies and sectors, and collaborate to improve business performance
while removing carbon from value chains. The partnership currently includes: Det Norske
Veritas, Deutsche Bank, the Electric Power Research Institute, Gazprom, Hess Corporation,
PG&E, Siemens, Shell, Statoil, Subsea 7, Tata Consultancy Services, Tata Sons, Unilever and Wilh.
Wilhelmsen. Ericsson, FMC Technologies, Nexans and Telenor are taking part in collaborative
projects with GLTE partners.
About Tata Consultancy Services (TCS)
Tata Consultancy Services is an IT services, business solutions and outsourcing organization
that delivers real results to global businesses, ensuring a level of certainty no other firm can
match. TCS offers a consulting-led, integrated portfolio of IT and IT-enabled services delivered
TM through its unique Global Network Delivery Model™, recognized as the benchmark
of excellence in software development. A part of the Tata Group, India’s largest industrial
conglomerate, TCS has over 160,000 of the world’s best trained IT consultants in 42 countries.
The Company generated consolidated revenues of over US $6.3 billion for fiscal year ended 31
March 2010 and is listed on the National Stock Exchange and Bombay Stock Exchange in India.
For more information, visit us at www.tcs.com
For further information, please contact:
Eco Sustainability Services at TCS: [email protected]
Xyntéo: [email protected]
IT Services
Business Solutions
Outsourcing
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here is correct at the time of publishing. No material from here may be copied, modified, reproduced, republished, uploaded, transmitted,
posted or distributed in any form without prior written permission from TCS. Unauthorized use of the content / information appearing here may
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Copyright © 2011 Tata Consultancy Services Limited

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