Posted by: edwinrutten | December 22, 2010

Sustainable purchasing in healthcare (Dutch)

Duurzaamheid is in ziekenhuizen nog een couveusekindje. Duurzame inkoop heeft dan ook nog een lange weg te gaan. In een artikel in vakblad Deal! van december reik ik een stappenplan aan om duurzame inkoop, bottom-up, te realiseren. Klik op de link hieronder voor het artikel.

Artikel Deal! december 2010 MVI ziekenhuizen

Posted by: edwinrutten | December 3, 2010

Creating sustainable, innovative value chains: key takeaways

Yesterday, I attended the International Supply Management Congress “Creating sustainable, innovative value chains” in Amsterdam. It was good to notice that the interest for this topic is growing, and visionary multinationals are taking the lead. A poll among the attendees, revealed that 90% doesn’t expect any significant outcomes from the UN Climate Change Conference in Cancun that is taking place at the moment of writing. So it seems that businesses should be leading the way, albeit using a multi-stakeholder approach involving governments, NGO’s, suppliers and customers. Let me share with you some important insights from the CEO’s of these visionary multinationals and other key-note speakers.

All of them see the challenges that a population growth (6.5 billion people now, 9 billion in 2050), increased urbanisation & welfare will bring: a big change in the way we do business is necessary to secure sufficient supply of resources, in a sustainable way.

Björn Stigson, President of the World Business Council for Sustainable Development, states that “the green race has started” and there will be an increasing pressure on measuring and reporting sustainability along the value chain.

Professor Carlos Cordón of IMD Business School sees a need to change business models. With this comes a trend of insourcing, nearshoring and integration (as opposed to the trend over the last two decades) to secure supply and stay in control.

A representive of one of the largest NGO’s, WWF, Johan van de Gronden (CEO), stressed the importance of ‘peer-pressure’ and multi-stakeholder initiatives in getting things done. WFF has a clear strategy by focussing on 15 key commodities, key areas for biodiversity and key companies, thereby trying to exert the pressure where the leverage is. Sustainability is becoming a pre-competitive issue, so co-operation and competition can go hand in hand.

The CEO of AkzoNobel, Mr. Hans Wijers explained AkzoNobel’s strategy focussing on accelerated and sustainable growth. He highlighted the impact of the developments in high-growth economies, like China. Some 200 new cities of 1+ million people will develop here in the years to come. And with construction having a huge environmental footprint, AkzoNobel is looking for (business) opportunities to support this growth in a sustainable way. This calls for open innovation in their industry and new client-supplier relationships. Also, their incentive structure goes beyond financial performance and has a large sustainability component.

Nutreco, represented by Wout Dekker (CEO), clearly identified where they have the largest impact in their value chain. The main impact is not in their factories, but downstream in their supply chain. They’re trying to reduce their footprint, or in their case ‘foodprint’, by identifying issues in the whole value chain, taking an industry approach.

Mr. Feike Sijbesma, CEO of DSM, referred to Darwin’s survival of the fittest concept. Companies that show the greatest adaptability will thrive and survive. By seeing sustainability not only as a responsibility, but more so as a business driver, they can grow the scale and productivity needed to serve the need of high-growth economies. For SCM this means monitoring suppliers, reciprocal support, and joint improvement projects with SC partners. 

Darwin_monkey_business

Summarizing, we can conclude that sustainability is no longer a buzzword, but a true business issue. No more isolated CSR-departments at the end of the hallway, sustainability is (or should be) ingrained in all primary processes and along the value chain. Only in this way, we can realize growth in an innovative and sustainable manner. Hope you share this vision. I wonder what Darwin 2.0 will conclude in 2050 when analysing the evolution of business…what will have happened to monkey business?

Posted by: edwinrutten | November 25, 2010

Is sustainable SCM like opening Pandora’s box?

In Greek mythology, Pandora was the first woman to appear on stage. Her name meaning ‘all-gifted’, she was certainly gifted with a strong sense of curiosity. In the myth, spurred by curiosity, she opened a jar (not a box actually!), thereby releasing all the evils of mankind. Whereas some CEOs see their own supply chain as Pandora’s box, other (more gifted?) ones would like to open this black box and continuously improve company performance by learning from what they discover.

In the Accenture UN Global Compact CEO Study 2010,  ninety-six percent of CEOs, compared to just 72 percent in 2007, now believe  that environmental, social and governance issues should be fully integrated into the strategy and operations of a company. Also, these issues should be embedded into their global supply chain (88%). Although these are important and promising figures, embedding these issues in their global supply chain is showing the largest performance gap (difference between what companies should do and are doing). Now what is hampering these CEO’s most in meeting the execution challenge? According to the study, Rising concerns about complexity demonstrate how CEOs are shifting their sustainability focus from strategy setting to execution. Of particular issue for many of the CEOs we spoke to was the challenge of ensuring a consistent, companywide approach across large and increasingly complex supply chains as well as subsidiaries.”

Many of the CEOs interviewed, expressed concerns about whether they can effectively manage sustainability issues throughout such large, complex supplier networks. Maybe they are afraid that they might open a box of Pandora, finding unpleasant realities in their current business model and supply chain configuration…?

Well, as long as you’re not curious, you’ll never find out. But I’m convinced that it can be very rewarding to have a deep look into your supply chain wearing 3P-glasses. It will give you a head-start in the new competitive environment that is arising. According to these leading CEOs, this will be an environment with:

  • A broader sense of, and ability to measure, what value creation means to society as a whole, encompassing both positive and negative impacts.
  • New kinds of collaboration and partnerships with suppliers and distributors, civil society organizations and governments to drive sustainability outcomes.
  • More effective use of technology to drive transparency, resource efficiency and a transition to clean energy infrastructure.
  • New models of innovation that use an open approach to harness ideas and expertise from around the world, often at low cost and using collaborative technologies.
  • More effective business practices when operating in emerging markets to tackle different consumer and citizen needs and alternative distribution channels.
  • Sustainability leadership and culture that embeds sustainability issues into the way executives and employees think about strategy and execution.

Main question is: how to get there? The study identifies five enabling conditions (p.48) for integrated sustainability in general, but let me focus here on my suggestions for your supply chain:

  1. Draft your supply chain: map your product-, information- and financial flows. 
  2. Unravel it: identify the key variables in impact for Profit, People and Planet. 
  3. Simplify your findings (start with common sense) and envision what negative impacts on 3P can be avoided.
  4. Create measures to measure 3P value, helping to focus on things that make sense.
  5. Start understanding and improving your supply chain in an integrative and sustainable way.

Remember what finally came out of the box that Pandora opened? Hope.

Now let’s hope companies will be curious enough to open their black-box called supply chain. This will create hope in the first place, for a better profit and a more sustainable economy!

Posted by: edwinrutten | October 11, 2010

Greening the cotton chain: H&M and Wal-Mart move upstream

Wal-Mart and H&M, two of the world’s largest clothing retailers, are starting pilot programs with their Chinese textile suppliers to reduce water, energy, and chemical use in their supply chains according to this newspost on ProcurementLeaders. Both companies will focus at key mills for reducing their environmental footprint.
According to Linda Greer, director of the Health Program at NRDC and Clean by Design creator, “People don’t think of the fashion industry as polluting the environment like chemical or steel manufacturing, but in fact it is one of the biggest polluters in China.”

Please join me in having a closer look into this supply chain…

The textile supply chain generally consists of the following steps: 1. fibre production, 2. spinning, 3. fabric production, 4. dying/finishing, 5. clothing production and finally 6. clothing retailing.

The pilots will focus on low-cost practices that dramatically cut water, energy, and chemical use in textile dyeing and finishing. This is a great initiative, and a logical next step ‘upstream’ after a focus on social issues like child labour and poor labour conditions in clothing production.

From a supply chain perspective, it’s good to consider all the ‘People’ and ‘Planet’ issues from the ‘source to shop’. In the cotton case, there are quite some negative effects as well at the fibre production stage, as can been seen in Figure 1 below. Yet, it’s a start and a matter of choice where to start (start from the source or move upstream from the end).

Figure 1. Ecological and social impacts in a cotton chain [1]

Maybe these giants can learn from Bergman/Rivera, a company created in 2007 as the result of the merger of Bergman Sweden (formerly Verner Frang) and Cortextil’s organic cotton projects. They are one of the pioneers of the organic cotton movement in the world. A case study of this company by Beatrice Kogg [2] describes a change process in greening a cotton-textile supply chain. The lessons learned from this case were based on the experience of a small company. Below I modified it the for big players, in this case H&M and Wal-Mart:

  • Find someone your own size to pick on: work with suppliers that are motivated to participate since your orders are big enough (this should not be a problem in this case…)
  • Pay a premium: in the case of H&M and Wal-Mart, this may be financing initial investments and sharing anticipated revenues with the suppliers, since the NRDC reports very positive business cases. This is to be preferred over shifting away from these suppliers in case of non-participation in the initiative (which is of course a viable option for big players).  
  • Facilitate and make the process as painless as possible: share knowledge and resources.
  • Pick the right actors: use local connections, and close the gap. Use this initiative to get to know your suppliers well, don’t just demand things from a distance.  
  • Promise growth: for making collaboration interesting, make the business case as interesting as possible for the suppliers. If the measures taken require fixed investments, but their effect grows with production, the suppliers can make their whole production more sustainable and profitable, not just the part for Wal-Mart of H&M.

After making site specific improvements, the real challenge for H&M and Wal-Mart will be to go further upstream and create and co-ordinate sustainable cotton chains for the mass market. In my next blog, I will elaborate on the co-ordination implications of making supply chains more sustainable.

[1] Source: Goldbach, M., Seuring, S. and Back, S. (2003). Co-ordinating Sustainable Cotton Chains for the Mass Market, Greener Management International, Vol. 43.

[2] Source: Kogg, B. (2003). Greening a Cotton-textile Supply Chain: A Case Study of the Transition towards Organic Production without a powerful Focal Company, Greener Management International, Vol. 43.

Posted by: edwinrutten | July 12, 2010

Blood coal: If you can’t confuse them, convince them

In a documentary on the origins of coal used in the (Dutch) energy sector, tv-program “Netwerk” unravels unsustainable practices. The energy companies are accused of importing ‘bad’ coal from Colombia and South-Africa. The journalists found out that the quarries where the coal is excavated create environmental damage and health problems. In Colombia, 90% of the imported coal originates from mining companies that finance paramilitary missions that caused several casualties.

The documentary has led to a political debate which seems to result in a call for transparency. The energy companies in turn state that they are not familiar with the origin or circumstances of their imported coal since the commodities are marketed via middlemen and/or commodity markets. Yet, they state that they follow the guidelines as formulated by the UN Global Compact. Isn’t that inherently contradictory? How to apply something to someone you don’t seem to know?

Whatever happens next (e.g. a lawsuit, regulation or reputation loss), the companies better look into their supply chain: Who are my suppliers? Or better: where do my raw materials come from? In the end the supply chain is as strong as its weakest link. Traditionally this weakness could be e.g. bad quality or unreliable delivery, but in this case it means “risk” (from the company point of view).  

From the Netwerk  ‘factsheet‘, and as confirmed by a sector response, one can conclude that the supply chain in some cases is quite compact: vertically integrated multinationals own mines and sell coal. Horizontally integrated joint-ventures (partially owned by the same multinationals) take care of the exploitation (literally and figuratively..), handling and transportation. In other cases, coal is purchased on the international commodity market, which makes its origin less transparent.

To my opinion, energy companies should ask themselves the following questions:

  1. Do I want to make energy out of coal in the first place (since it’s inherently unsustainable)?
  2. If so, do I want to buy coal that is or could be coming from dubious (‘unsustainable’) sources?
  3. Which part of my supply originates from bilateral agreements with multinationals, which part comes from anonymous commodity markets?
  4. Do I want to buy from anonymous commodity markets? The current ‘intransparancy’ can give me an excuse for not ‘knowing’ what happens upstream in the supply chain.
  5. In bilateral agreements: do I feel responsible for the operations of my suppliers or my suppliers suppliers (if not: maybe my customers think I should). If so: can I identify them and their practices? If so, are there any irregularities? If so, how to influence my suppliers to become more sustainable (by shifting demand, imposing controls or cooperation)?

In short: energy companies can choose. From a sustainability point of view, parallel sourcing via commodity markets and directly from multinationals seem mutually exclusive in the current market. So companies come out into the open: choose your real responsibility level, choose your supply chain, get to know your sources (really) and lead the way in taking responsibility. Harry Truman once said: “If you can’t convince them, confuse them”. I advise energy companies the opposite: “If you can’t confuse them, convince them”. This is your canary bird early warning indicator.

Posted by: edwinrutten | April 13, 2010

E-waste and Closed Loop Supply Chains: who takes the lead?

Last February, the United Nations Environment Programme (UNEP) released
a
report on E-waste.

Last week, Greenpeace blocked (better: foamed) the main entrance of Dell’s headquarters in Amsterdam. A large banner was lowered from the top of the building asking Mr. Dell to “clean up his toxics”.

Now, let’s have a look what this is all about. In short, Dell is lagging behind when it comes to eliminating toxics from its computers. Companies like HP, Acer en Apple seem to lead the way. The day that Greenpeace knocked at Dell’s door, there was supposed to be an important meeting on the subject of “sustainability”. Unfortunately, the meeting was postponed, since the plans for sustainable computers weren’t ready yet.

To place the need for making electronics like (Dell) computers more sustainable in a macro-perspective, let’s have a glance at some of the highlights from the UNEP-report:

  • Sales of electronic products in countries like China and India and across continents such as Africa and Latin America are set to rise sharply in the next 10 years. This will create a huge pile of e-waste. For example, in South Africa and China the report predicts that by 2020 e-waste from old computers will have jumped by 200 to 400 percent from 2007 levels, and by 500% in India.
  • Global e-waste generation is growing by about 40 million tons a year.
  • Manufacturing mobile phones and personal computers consumes 3 per cent of the gold and silver mined worldwide each year; 13 per cent of the palladium and 15 per cent of cobalt.
  • Modern electronics contain up to 60 different elements – many valuable, some hazardous, and some both.
  • Carbon dioxide emissions from the mining and production of copper and precious and rare metals used in electrical and electronic equipment are estimated at over 23 million tonnes (note:  this is equivalent to the emissions of 4 million cars!).

A lot of the e-waste in countries like China, India and Brasil is improperly handled, much of it incinerated by backyard recyclers to recover valuable metals like gold. The risk of these practices is high, the returns are low.  The challenge of dealing with e-waste represents an important step in the transition to a green economy.

The report outlines smart new technologies and mechanisms which, combined with national and international policies, can transform waste into assets. Waste = food, isn’t it?

Here, I would like to make the link to an article of Guide & Van Wassenhove (2009*) on Closed Loop Supply Chains (CLSC). They approach the concept from a business perspective on waste and focus on capturing value along the life-cycle. From cases like e.g. Dell competitor HP, researchers have learned that smart firms spend money to make money. In general, the volume of returns, the marginal value of time and the quality of returned products are important for CLSC.  In the case of products with a short life cycle, like computers, time is an essential variable. This requires a decentralised and responsive CLSC. Closing the loop requires an integral focus, answering three questions:

– Does anyone want to buy remanufactured products?

– Can value be recovered from returns at a reasonable price?

– Is there sufficient access to used products?

Companies should start with getting things right up-front in the design phase, of the products (DfE, DfR, DfD) but even more so for the design of the forward and reverse supply chain.

Now, was it not Dell that realised an explosive growth in turnover by engineering a smart  business concept and a superb and agile supply chain. Why not start gaining market share again by using these core competences for the reverse supply chain?! Dell: release the hidden value in your supply chain, become king of CLSC, increase shareholder and stakeholder value. And, I would almost forget, this mission will certainly help you and the planet to reduce e-waste and toxics. Wouldn’t this glove fit “purely you, Dell“?

 

* Source: Guide & Van Wassenhove (2009). The Evolution of Closed-Loop Supply Chain Research, Operations Research, Vol. 57, No. 1. 

Last Wednesday I visited a symposium called “Good Purchasing = Supply Chain responsibility“, organized by a coalition of NEVI, COS Nederland, MVO Nederland and two other partners. Two companies presented on the dilemma’s they experience in the implementation of sustainable practices along their supply chain. The first was a Belgian trading company in natural stone, the second a Dutch company that trades in spices and sauces. Both experienced difficulties with the following factors:

  • Differences in cultures and norms in countries of origin (e.g. adapt to local standards or impose Western standards?);
  • Long supply chains with many middlemen;
  • Limits to supply chain visibility (the more upstream, the more  difficult to identify the actual suppliers);
  • Lack of urge or money to improve in the countries of origin.

They differed somewhat in the drivers that lead them to sustainable supply chain practices. The natural stone company was operating more from an inside-out perspective (family company with an enlightened manager-owner), although some project-based customers also demanded sustainable products. The spices and sauces company made the SSCM-start mainly from a strategic perspective, envisioning large retailers shifting demand towards more sustainable products (differentiating factor!). This could be called the outside-in perspective. With the “big evil retailers” in mind, the company faced the following dilemma:

“Should we make the supply chain more sustainable by investing in our own projects at/from the source (local farmers at the country of origin) and/or should we invest in enrolling for certification schemes?”

I think this is an interesting dilemma that more companies will run into when being confronted with the challenges of SSCM. Let me share some of the pros and cons we came up with in our round-table discussion:

Projects Pro:

  • Creates real understanding of SC issues;
  • Possibility of really improving product-quality and process-quality from the source;
  • Helps securing supply by improving horizontal cooperation or vertical integration (e.g. starting local plants, excluding middlemen);
  • Creates tacit knowledge that cannot be easily copied by competitors;
  • Adds a story to your product (selling proposition).

Projects Con:

  • Costly when trying to make improvements along the supply chain and across the whole supply base (e.g. how to reach the 90.000 farmers that supposedly are your supplier?);
  • High risk of getting stuck in the process (dead-end projects);
  • Projects becoming person-dependent (just some figureheads participating in the projects, while the rest of the company is doing business as usual). 

Certification Pro:

  • Relatively easy and cost-effective to implement;
  • Independent third-party auditing, adding validity to your sustainability;
  • Recognition in the market, retailers will probably demand certificates, not fragmented projects.

Certification Con:

  • What type of certificate to go for? What might be the right horse to bet on?;
  • How independent are the so-called independent auditors?;
  • Does certification really lead to sustainability; does it cover the full scope of triple-P (people, planet, profit)?

I think it is a sound business case to invest in both. The certificates will provide your ticket into the competitive arena (minimal threshold, level playfield). In order to win in the competitive arena, invest in projects that will help you understand your own supply chain from the inside. This will greatly improve your knowledge on the factors that make or break your supply chain regarding people, planet and profit.

Real beauty (and profit) comes from the inside!

Categories