Low Carbon, High Growth: The 21st Century Sustainable Supply
Transcripción
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 1 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, 2 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. 3 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. 4 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 All content / information present here is the exclusive property of Tata Consultancy Services Limited (TCS). The content / information contained here is correct at the time of publishing. 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