Category Archives: Sustainability

“China Defense” or “Chewbacca Defense”?

When it comes to reducing carbon emissions, we have the unfortunate situation in North America that many people, rather than tackle the problem head-on and doing something about it, are, instead, invoking the “China Defense”. The China defense goes something like this: There are other countries that are polluting the atmosphere much more than we are, like China, because they are still growing and emerging, especially from an industrial perspective. And they are not going to stop what they are doing.

The problem with this defense is that it makes about as much sense as the “Chewbacca Defense“. For those of you familiar with South Park, the creation of the mad minds of Trey Parker and Matt Stone, the “Chewbacca Defense” is a legal defense designed to deliberately confuse the jury by making use of the fallacy known as ignoratio elenchi (red herring). This defense, which (supposedly) satirizes Jonnie Cochran’s closing argument in the O.J. Simpson murder trial, starts off by stating that Chewbacca lives on the planet Endor, which isn’t true. Then it states that the statement does not make sense (which it doesn’t). Then it connects the senselessness of this statement to the actual legal case, to imply that the legal case is equally senseless.

Confused? Good. Because you’d have to be to fall for the “China Defense” when you consider, as pointed out in this great HBR blog post on ‘the fallacy of the “China Defense”‘, the following:

1. China is doing much more than we are to reduce carbon emissions.

  • China introduced a 10-year 5 Trillion Yuan alternative energy plan in 2010
  • In August 2012, it announced it would spend over 2.3 Trillion Yuan in the next 3.5 years to cut pollution
  • In August 2012, it announced it would reach 21 GW in solar power capacity by 2015
  • As of January 2013, Wind is the #3 source of energy in China
  • It just announced the implementation of a carbon tax

2. Science doesn’t care

We have to decarbonize at the rapid rate of 5% less carbon per dollar of GDP annually until 2050, or the catastrophic effects of global warming will make us long for the days when Hurricane Sandy and Hurricane Katrina were the worst we had to deal with (and the cost of catastrophes was under 100 Billion).

3. Not only is going green good, but it will put more green into your pockets than you can imagine.

The truth of the matter is that the clean economy will be a multi-trillion dollar market. Embracing the clean economy could go a long way to helping the U.S. manage it’s public debt!

So make sure to do your best to minimize carbon in your supply chain.

Could You Run Your Supply Chain from Another Country for A Month?

A recent post over on the HBR Blog Network on why we’re relocating our HQ to Dubai for one month about Starwood’s one month move of their HQ to Dubai for one month brings up an interesting question:

 

Could you run your supply chain from another country for a month?

 

It’s an important question. Because if you can’t, you’re not prepared for a disaster. And given that the likelihood of a disaster shutting down your primary location is increasing as the number of natural disasters rise each year (thanks to global warming), you should be. While the risk of a disaster shutting down your Supply Management headquarters is likely small compared to the risk of a significant disruption impacting your supply chain (which is approaching 85% for many companies), the risk is there. And you have to be ready.

Furthermore, if you have the right supply management infrastructure, you should be just as capable of running your supply chain from another country as you are of running it from a temporary location fifty kilometres away. If you have a true visibility solution, you just need an internet connection and you know where everything is. If you have a good sourcing and procurement platform, you can source and order whatever you need from anywhere. And if you have a good e-payment solution, you don’t need to pick up a check from a PO Box. Good distributors have their own on-line visibility and transportation management systems, and all of your 3PL and Import/Export Brokers can be connected with an e-Document Management solution. Plus, if you truly are global, you should be able to set up quickly near a major supplier who wants to help you out in the local country to keep you as a major customer.

In other words, if you couldn’t pick up and temporarily relocate your Supply Management headquarters at a moment’s notice, you probably don’t have a modern Supply Management office running on a modern Supply Management platform. And you should. Especially since there might be no better way to really learn a major market that you are sourcing from.

Are Your Groceries Killing the Environment?

According to a recent article on Sustainable Brands on “sainsburys reduced supply chain footprint”, The Co-operative Group, Nestle, and Sainsbury’s say they will improve the sustainability of some of their products in response to research from the Product Sustainability Forum of WRAP (Waste & Resources Action Programme), an independent not-for-profit company funded by all four governments across the UK and the EU.

The Product Sustainability Forum just released
an initial assessment of the environmental impact of grocery products which collates information from more than 150 studies across more than 200 grocery products. The main finding, summarized in the executive summary on page 4, is that the production and sale of grocery products contribute between 21% and 33% to household consumption GHG emissions and approximately 24% to abiotic resource depletion impacts. Wow! (In English, abiotic resource depletion is the deletion of non-renewable resources such as fossil fuels, minerals, etc. One calculation for abiotic resource depletion is given in a Wiley publication on Polymers, the Environment, and Sustainable Development.) In fact, food and beverage products constitute eight of the top-ten product groups from an environmental impact perspective:

  • Alcoholic Drinks
    cider, lager, spirits, wine
  • Ambient
    cereals; canned seafood, meat, veggies, soup, pasta, and noodles; pet food; chocolate; coffee; crisps; rice; sugar (confectionary); and processed snacks
  • Bakery
    (sweet) biscuits; breads; cakes; pastries;
  • Dairy
    butter; cheese; milk; cream; yogurt;
  • Fruit & Vegetables
    bananas; onions; potatoes; tomatoes;
  • Meat, Fish, Poultry, Eggs
    beef, deli, eggs, seafood, lamb, pork, poultry
  • Non-Alcoholic Drinks
    carbonates; concentrates; juices
  • Chilled & Frozen
    Veggie & Potato Products; Ice Cream & Frozen Deserts; Margarine; Pizza; Pre-packed Sandwiches; Ready Meals

The other two groups are:

  • Household
    dishwashing products, cleaning products, laundry detergents, paper products
  • Personal Care
    batch and shower products, deodorants, nappies

What’s scary is that these “Top 50” comprise approximately 80% of all GHG emissions associated with producing, transporting, and retailing the grocery products in the UK and food and drink is 80% of these categories. So, at the current time with current practices, our groceries really are killing the environment and these 50 products are contributing up to 20% of all GHG emissions that are currently produced!

Where’s all that GHG coming from? The worst offenders, according to the initial study, are meat products (at 37.4% of grocery GHG) and dairy and eggs (at 17.3% of grocery GHG). Why? The production process for milk takes a lot of energy. It turns out that the median product embedded energy for liquid milk is 5.1 MJ/kg (Megajoules/kilogram), and at a sales volume of 5,186 Million kg / year, 26,400 TJ (Terrajoules) of energy is required to produce the milk consumed in the UK. Similarly, a lot of energy is required in the fresh poultry production cycle: 40.35 MJ/kg for a total UK market consumption of 17,600 TJ of energy. And, of course, most current methods of energy production emit copious amounts of GHG. And where meat is concerned, many animals produce methane gas, and some in copious quantities. There are other reasons, and some are contained in the report (and the rest of the reasons are in the studies surveyed by the report), but it’s the findings that are important. The current production and distribution methods for many of our staple foods are quite damaging to our environment, and the companies producing and distributing those staples have to shape up. It’s good to see that a few companies have said they will. Let’s hope they follow through.

If You Really Want to Reduce Costs, Reduce Waste!

SI recently asked if you, like your peers, were chasing the lost cause of cost reduction, giving the recent findings by Supply Chain Insights that, from 2000 to 2011, 75% of companies in process industries lost ground on margins despite best efforts to reduce costs over the last decade or so. That being said, there is one cost that can be reduced — and that’s the cost associated with waste.

As per a recent article in Forbes on How GM Makes $1 Billion A Year by Recycling Waste (which should be titled how GM reduces costs by $1 Billion a year) that referenced a GM media publication on how “GM Makes the Business Case for Zero Waste”, the US generates 7.6 Billion tons of industrial waste a year that ends up in landfills. Given that the average tipping fee for a ton of waste exceeds $53/ton, industrial manufacturers are wasting over 402 Billion a year!

And that’s the losses assuming that the best that could be done with the waste is diverting it from the landfill. If the waste is scrap steel, which can be melted down, or cardboard that can be recycled, or smaller batches of chemicals that can be resold, the cost reductions can be extremely significant. Furthermore, 98% of these cost reductions go straight to the bottom line. As per the GM press release, the waste manage costs associated with its mature waste management program are about eighty cents per ton of solid waste reduced! In other words, in the long run, it costs pennies to save tens of dollars (and at the rates tipping fees are increasing and metal costs are rising, it will soon cost GM pennies to save hundreds of dollars). And once GM converts the other half of its manufacturing facilities to landfill-free facilities, it’s savings will double!

So if you really want to reduce costs, stop burying your money in landfills.

Don’t Forget the Recovery When Designing For Recovery!

In our recent post on how supplier circles are just loopy, we noted that the only difference between what the McKinsey article on “Manufacturing Resource Productivity” is preaching and what the environmentalists have been preaching for years is that the reduce, reuse, and recycle mantra should pervade the supply chain end to end and influence new business models that improve recovery, create new sources of supply, optimize production, and increase revenues instead of being an afterthought. In essence, as we pointed out, McKinsey is jumping on the Design for Recycle bandwagon that SI and a few other (lonely) thought leaders have been pulling for years (and years and years), but changing the language to make it look like it’s their idea (as all good consultants do — but at least they are not stealing your watch to tell you the time).

Design for Recycle, which is also known as Design for Recovery, is very important as the supply of more and more rare earth minerals become scarcer and scarcer and the most abundant source is in products (going) in (to) the hands of the consumers, who will eventually finish with the product, and without an alternative, toss it in the trash — where it may end up wasted in a landfill! But this isn’t the only reason you want your products back. Even when the initial customer is done with them, most of your products, or at least components thereof, still possess value and can still be refurbished and resold at a profit, even if they are not working. The obvious example is the iPhone 4S still has value when the customer upgrades to the iPhone 5. A less obvious example is that the laptop still has value if only the memory needs to be replaced. If the laptop can be resold for $300 with only $20 for new memory chips and $30 of labour, then recovering it at a cost of $30 of shipping and a trade-in credit of $100 should be a no-brainer as that leaves you with 40% profit — which is probably a heck of a lot more than what you made initially when prices were slashed to be competitive with your most aggressive competitor! And then there’s the fact that many jurisdictions are enacting legislation regarding returns management and proper disposal. If you don’t have a valid recovery mechanism to ensure customers have an option for proper disposal, in some of these jurisdictions, you could be fined if your customer, lacking such an option, decides to throw the product in the trash.

But these aren’t the only reasons to plan for recovery. As pointed out in a recent article on “reclaiming value through reverse logistics”, a retailer’s returns policy is a critical decision making factor in a customer’s purchase. Specifically, 63% of online shoppers look at the policy before making a purchase, and 48% will shop more often with a retailer that offers a lenient, easy-to-understand return policy. And while this is a retailer, and not manufacturer, statistic, it does indicate the significance of returns. Furthermore, the reality is that if you have a good return management process that is headache-and-hassle free for the retailer, then the retailer is likely to offer the customer a headache-and-hassle free policy as it knows it doesn’t have to worry about getting stuck with unwanted or defective products. Putting your customer first helps your customer put the end consumer first, which, according to the UPS commissioned study quoted in the article, increases the chances that they will buy from the retailer who is your customer. Plus, 32% of customers have indicated that they will focus less on price and more on quality of service if given a lenient, easy-to-understand returns policy. That’s how you maximize revenue and profit!