8. Lean and Green: Sustainable Supply Chains

As consumers become more vocal about humanity’s impact on the planet, Corporate Social Responsibility is becoming a top priority for companies.  Companies have taken on many Corporate Social Responsibility (CSR) projects, and increased dialogue on their environmental impacts.  Recent events, such as the factory fire and resulting collapse in Dhaka, Bangladesh, have continued to raise consumer awareness of supply chains, and the impact from each node.  Coupled with the increasing scarcity of critical resources and new transparency regulations, companies are now well incentivized to develop and maintain green supply chains as part of their overall CSR strategy.

Many CPG companies have addressed the need for green supply chains through innovative ideas.  For instance, Nestle is successfully upcycling all used coffee grounds from its products to make “Javalog” firelogs.  Kraft has converted an old limestone mine in Springfield, MO to a subterranean refrigerated warehouse, resulting in 65% less electricity usage than a comparable above ground warehouse.¹

Unilever has led the way in the CPG industry, incorporating sustainable practices into all aspects of its business, from sustainably sourcing raw materials to reducing impact from individual consumer use.  Unilever made headlines in spring 2012, when it announced plans to break ground on a palm oil processing plant in Indonesia to source oil sustainably.  Each year, Unilever uses 1.36 million tons of palm oil to create products from Dove soap to Vaseline²; about 10% of that need will be supplied by this plant.

These projects have resonated with consumers, making Unilever the top recognized brand by consumers, academia, governments, NGOs, and media worldwide.

Unilever has also begun production of sustainably driven products, such as low-fat margarines and concentrated detergents to reduce the environmental impact of its products.  General Mills, following in Unilever’s footsteps, recently announced its goal to sustainably source 100% of its ten most used ingredients by 2020.  These ingredients compose 50% of General Mill’s raw material purchases, including corn, sugar, and oats.³

While some CPG companies have made great strides in developing and integrating sustainable practices into their business models, the industry as a whole has a way to go.  To that end, Accenture has introduced a Top Priority list for the CPG industry.

Many CPG companies have addressed the need for green supply chains through innovative ideas.  For instance, Nestle is successfully upcycling all used coffee grounds from its products to make “Javalog” firelogs.  Kraft has converted an old limestone mine in Springfield, MO to a subterranean refrigerated warehouse, resulting in 65% less electricity usage than a comparable above ground warehouse.¹

Unilever has led the way in the CPG industry, incorporating sustainable practices into all aspects of its business, from sustainably sourcing raw materials to reducing impact from individual consumer use.  Unilever made headlines in spring 2012, when it announced plans to break ground on a palm oil processing plant in Indonesia to source oil sustainably.  Each year, Unilever uses 1.36 million tons of palm oil to create products from Dove soap to Vaseline²; about 10% of that need will be supplied by this plant.

These projects have resonated with consumers, making Unilever the top recognized brand by consumers, academia, governments, NGOs, and media worldwide.

Unilever has also begun production of sustainably driven products, such as low-fat margarines and concentrated detergents to reduce the environmental impact of its products.  General Mills, following in Unilever’s footsteps, recently announced its goal to sustainably source 100% of its ten most used ingredients by 2020.  These ingredients compose 50% of General Mill’s raw material purchases, including corn, sugar, and oats.³

While some CPG companies have made great strides in developing and integrating sustainable practices into their business models, the industry as a whole has a way to go.  To that end, Accenture has introduced a Top Priority list for the CPG industry.

Accenture’s Top Priority Actions for the CPG industry 

1.       Reduce product packaging, and increase the use of renewable feedstock in its manufacture
2.       Increase the energy efficiency of operations in manufacturing and distribution
3.       Create products that enable consumers to be more energy efficient
4.       Use renewable energy to power operations and facilities
5.       Reduce the amount of energy required to refrigerate and cool products
6.       Minimize energy required to source, heat, treat, and transport water

Packing and Supply Chain 

Accenture has identified sustainable packaging as the biggest opportunity for the CPG industry, as it not only reduces waste, but cuts the cost of materials and increases pallet density.⁴  The industry’s preference for plastic packaging drives energy use: in 2010, 191 million barrels of liquid petroleum gas were used to make plastic in the US alone.⁵  Companies have turned towards light-weighting, or reducing the product to packaging ratio, to improve transportation efficiency and environmental impact.  A GMA/Sustainable Packaging Survey found that CPG companies plan to reduce average packaging weight by 19% from 2005 to 2020.  More than 4 billion pounds are expected to be avoided by 2020.

Making Operations Energy Efficient through Automation 

Features like regenerative breaking on cranes or other machines harness surplus breaking energy, generating a sustainable power source.  Automation is programmed to optimize product movement, ensuring that only the necessary amount of energy is expended.⁹  The benefits of automation extend to reduced product waste.  The tempered speed, programmed force of automation, and puzzle software reduce product damage and shrink wrap usage, and improve order efficiency.

Sustainable Benefits Stemming from Collaboration 

While an individual approach has garnered benefits, companies are also banding together to share best practices for sustainability.  Walmart’s President and CEO, Mike Duke has said that “there will be no part of this company anywhere in the world that doesn’t contribute to making Walmart more sustainable.” To fulfill this goal, Walmart sponsors a sustainability hub, where suppliers and associates have a collaborative forum to collect and share knowledge, and has partnered with Patagonia to find the Sustainable Apparel Coalition.¹⁰ Coca-Cola partnered with the World Wildlife Fund to develop the Bonsucro production standard, which allows suppliers to identify certified sustainable sugar for use in beverage production.¹¹  Retailers and manufacturers alike are working with suppliers to promote sustainable practices.  Method, Unilever and Walmart each offer their suppliers incentives to become greener, offering monetary benefits in return.  Supplier collaboration has become more common as companies recognize that collaboration provides great potential to lower risks, reduce cost, and create revenue growth.¹²

Extending collaboration efforts beyond supplier initiatives and into warehousing and distribution is crucial to turning a supply chain into a sustainable energy chain.  Collaborative warehousing offers retailers and manufacturers many benefits, including reduction of CO₂ emissions and energy consumption via efficient transportation and building utilization.  Collaborative warehouses should be strategically placed throughout the energy chain to collect multiple manufacturers’ shipments and distribute product to various retailers across different formats and channels.  These warehouses need to be designed for different categories, and should integrate downstream networks for maximum impact.  Performing store selection at these collaborative warehouses will shorten the supply chain and increase flexibility.¹³

Retailers and manufacturers must be part of collaborative warehousing in order for the concept to be successful.  Collaborative warehousing can only be implemented through a commitment to share resources between multiple parties.  This commitment is essential to driving efficiency and reducing environmental impact, generating the maximum environmental benefit.

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