Calling for fresh thinking
When it emerged in 2010 that a disturbing number of workers at a Chinese company called Foxconn had committed suicide, allegedly in response to stressful working conditions, it had little resonance with the UK’s techno-geeks.
Likewise, few of the early adopters, who queue up to get their hands on the latest smartphone, have heard of the mineral tantalum. Yet these are both issues that are deeply embedded in the global supply chains for some of the world’s largest makers of consumer electronics goods and illustrate just a few of the challenges that can arise as a result of the globalisation of the world economy.
Foxconn is one of the biggest suppliers to Apple and other companies, while tantalum is vital to electronic goods such as mobile phones. One of the main sources of supply for this mineral, however, is the war-torn Democratic Republic of Congo (DRC), where profits from mining this substance have funded both sides in a bloody civil war, according to members of the US Congress.
Sustainability in the supply chain is now a business imperative, says Gary Hanifan, global head of supply chain at Accenture. “Companies are looking beyond the lowest price and maximum availability to evaluate suppliers on factors such as their ability to help the business to withstand supply chain disruption,” he says. “We have seen all sorts of examples where a company’s share price has been punished because of an inability to resist disruption, whether that is from natural disaster or it is self-inflicted.”
Marks & Spencer introduced a new type of trailer, which can carry 16 per cent more load but uses 10 per cent less fuel
There is a particular business risk for branded consumable companies, says Mike Bernon, director of executive development within logistics and supply chain at Cranfield School of Management. “Companies that purport to be sustainable can be caught out by unethical or non-sustainable practices in the supply chain,” he says.
But the issue goes far beyond reputation. “Supply chain stewardship extends across physical environmental factors ranging from greenhouse gas emissions and water use, particularly in stressed areas, to waste production and biodiversity impacts,” says Hugh Jones, managing director at Carbon Trust Advisory. “It also covers social and community impacts and opportunities.”
Many companies have discovered that a focus on sustainability can cut costs at the same time as improving environmental performance. For example, as part of its Plan A programme, Marks & Spencer introduced a new type of streamlined “teardrop” trailer, which can carry 16 per cent more load but at the same time uses 10 per cent less fuel, allowing the company to save 840 tonnes of carbon a year. “Looking for efficiencies such as this can pay unexpected dividends,” Mr Bernon says. “Plan A produced about £75 million of savings that M&S had not budgeted for.”
Companies looking to offer more sustainable products soon discover that many of the major impacts are not within their four walls but embedded in the supply chain. Pharmaceuticals company Glaxo-SmithKline found 80 per cent of its product carbon emissions occur outside its direct control, says Mr Jones. “As consumers look to understand the impacts of the products they buy, and companies look to manage the risk and cost of materials or processes in their supply chains which are vulnerable to future scarcity, so the spotlight is increasingly focused on sustainability in the supply chain,” he adds.
When Procter & Gamble made its Ariel Excel washing gel more concentrated, it meant the company used less water and packaging, and could transport more bottles per truck load, reducing its distribution costs. However, the new liquid also gets customers involved by allowing them to wash clothes at just 15C, saving energy they would have used heating the water.
Customers are becoming an evermore important part of the supply chain as companies commit to reducing the impact of their products, as Joe Franses, director for corporate responsibility and sustainability at Coke bottler and distributor Coca-Cola Enterprises, explains. “We committed to reduce the carbon footprint of the drink in the customer’s hand by a third and we knew we could only do that by working with our suppliers,” he says.
The company undertook a full lifecycle analysis of its products, which revealed that 48 per cent of the company’s carbon emissions came from packaging. “We realised that our customers could make a significant difference to the lifecycle impacts of our products by recycling that packaging,” Mr Franses says.
Another factor that extends the concept of the supply chain is the growing range of legislation, often emanating from the European Union, which makes businesses responsible for products once consumers have finished with them, such as the End of Life Vehicles Directive, and the Waste Electrical and Electronic Equipment Directive. Having to think about how products will be disposed of leads companies to change the way they are designed and how they are used so that they are easy to recycle.
Mr Bernon highlights a trend known as servitisation – more snappily explained by aero-engine maker Rolls-Royce’s tagline “power by the hour” – which works on the basis that, rather than sell airlines the engines, the company (and all other aero-engine groups) charges a fixed sum per hour flown. Additionally, it provides a complete maintenance and replacement service, allowing airlines to forecast their costs with greater accuracy, and relieving them of the need to worry about engine care.
Programmes such as this have profound implications for supply chains and the way products are designed. In a sector such as mobile phones, for instance, rather than having devices with a built-in obsolescence period of two years or less that are easier to throw away than fix, phones would be more robust, better quality and built to last. They would also be easier to maintain and would be “future proofed” so they could be upgraded as technology improved. When they did reach the end of their life, they would be easy to dismantle and recycle. There may also be changes in the way products are used, with many being leased for a certain period of time and then returned, rather than being bought and owned.
For suppliers too, the focus on sustainability is both an opportunity and challenge. “Sustainability is becoming a central business issue for the companies we deal with,” says Frances Way, director of the supply chain programme at the Carbon Disclosure Project. “We hope to see suppliers who understand sustainability and deal with it well getting bigger orders and having better relationships with suppliers.”