Sustainable Supply Chain Guide
There is probably not a single New Zealand business that is not both a supplier and a customer.
To be effective, sustainable development must extend from an individual company, both up and down the supply chain, and can be extremely complex.
Yet more and more companies are addressing this issue driven by media and Non Governmental Organisation (NGO) campaigns, customer and consumer demand, regulatory frameworks and, as Ab Stevels, Senior Environmental Advisor, Philips suggested at a UK sustainable supply conference: ”because some managers are actually part of the human race and want to contribute to it”.
Whatever the reasons for embarking on the journey, the focus areas are the same.
- Improving the performance of the business’s own operations
- Ensuring that the goods and services provided by suppliers are sustainable and working with suppliers to increase efficiency and competitiveness.
In large companies, the supply chain manager has a pivotal role in the process from procurement through to managing the reverse logistics, which can be described as the process of moving goods back through the system with the purpose of finding another use for the products, or for proper disposal. Whilst most New Zealand companies are too small for this to be a dedicated position, recognising what is involved is almost a prerequisite to addressing the issues successfully.
Few organisations make significant progress in sustainable development without the benefit of strong and committed leadership which empowers the management team to include social and environmental considerations alongside the economic ones. Often waste management and resource recovery is left to junior management and considered as ‘housekeeping’, and purchasing decisions are made without any consideration of the wider issues.
Each organisation has its own way of entrenching and demonstrating its commitment. Organisations such as Shell and The Warehouse build specific measures into executive incentive schemes. Several have appointed senior managers with the specific mandate to focus on sustainable development and Sanford has even gone so far as to incorporate the word Sustainable in the company’s name.
Having made the decision to get started, organisations follow through with practical initiatives to provide the momentum for the programme. Some examples include The Warehouse’s reverse logistics system that recycles almost all retail store wastes, and the efforts made by Progressive Enterprises and Landcare Research to design new facilities that incorporate eco-efficiency and both social and economic considerations.
Generally speaking a company can elect to follow either a conformity-based approach towards improvement or a process management approach. In the conformity-based approach the organisation elects to follow and implement a system based on a framework such as ISO14001, SA8000 or Enviro Mark. In the process management approach the organisation focuses on its own unique priorities and develops a customised approach.
The process management approach works well for global organisations such as Shell and Danone – parent company of Griffins in New Zealand. The smaller organisation with more limited resources may benefit from using an existing framework.
Having made the initial internal efforts, organisations turn towards the improvements which can be achieved by working with suppliers and service providers. This is often done through a Code of Conduct for suppliers, reviewing the purchasing Terms of Trade and conducting surveys and audits. The greatest gains are made though working closely with suppliers to identify those areas where improvements can be made. However, working with its direct suppliers is not sufficient; companies also have to engage with their suppliers’ suppliers on a similar basis.
A further challenge as well as a benefit, lies in working with suppliers and customers to improve the design of products and the processes that connect the business with customers. Whilst this is the least developed area, there has been some significant success in redesigning packaging and in increasing the recyclable content in products as diverse as mobile phones, whiteware and cars.
Process collaboration with suppliers and customers in planning, forecasting and replenishment has been shown to deliver improvements in manufacturing and logistics efficiency whilst reducing emissions, road congestion and improving employment stability.
The supply chain provides the focus for any organisation, whether service- or product-based, seeking to improve the social, environmental and economic performance of its operations. Apart from the moral imperative, substantial business benefit can be achieved through a combination of leadership commitment, focused and practical initiatives, and improved systems and processes.
What is a Sustainable Supply Chain?
There are numerous definitions of the terms ‘Sustainable’ and ‘Supply Chain’.
For the purposes of this Guide we have chosen to use the following simplistic, but practical, definition:
“Management of raw materials and services from suppliers to manufacturer/service provider to customer and back with improvement of the social and environmental impacts explicitly considered”.
The supply chain considers the interactions between a business and its customers and suppliers. The greatest benefits are derived by extending the focus as far as possible upstream towards the raw materials, downstream towards the consumer and then back again as the product and wastes are recycled.
How is it Changing?
The emphasis has shifted from the ‘green consumer’ to the ‘responsible retailer’.
The retailer/service provider and the brand owner assume responsibility for ensuring that consumers can buy products and services with confidence in their source and manufacture.
Similarly the relationship between manufacturers and retailers has shifted.
In the past manufacturers were the drivers of the supply chain, managing the pace at which products were manufactured and distributed. Today it is retailers that drive the agenda and successful manufacturers are those who can meet customer demands for options, styles or features as well as fulfill and deliver orders quickly.
Why Does it Matter?
In all sectors, quality and costs, the traditional competitive differentiators have become broadly similar across many suppliers.
One way in which companies can differentiate themselves, reduce costs and improve service is to consider the environmental, social as well as economic factors relating to their supply chain.
Products and services are global commodities. A shift in one market or industry can have a huge impact. For example:
1. The Public Sector Tender Process: The New Zealand Central Government spends $2.5 billion on goods and services each year and Local Government spends a further $1.5 billion. If sustainable development criteria were built into the tendering process this would have a major impact on the supply base.
2. Retail Pressure: The top five grocery retailers in the UK have a 69% market share and have combined sales of £67 billion. These supermarket chains have all committed to sustainable procurement practices. New Zealand’s food exports to the UK represent NZ$1 billion per annum and are 76% of total exports to this region. This market will decline if suppliers cannot guarantee that they meet their customers’ codes of practice, but conversely offers huge opportunities to those producers who build on New Zealand’s reputation as a safe source of food.
3. Industry Shift by Sector: New Zealand exports of seafood to the UK were NZ$32 million in 2001 and market growth continues because we can demonstrate to retailers our sustainable fishery practices.
The globalisation of consumption patterns and sourcing and outsourcing are both causing and resulting in complex supply chains. This is compounded by the increasing visibility and scrutiny of 24-hour news and the Internet which publicise potentially ‘unsustainable’ practice hidden in some supply chains. Organisations need to come to terms with the social and environmental impacts as well as the cost structure of their supply chains and to find ways of managing them.
This includes companies at the beginning of the supply chain, eg. commodities which represent a significant part of our export market; those in the middle, eg. manufacturers and logistics companies; and those at the end, eg. retailers and the public or service sector.
Benefits of a Sustainable Supply Chain
Re-evaluating a company's supply chain, from purchasing, planning, and managing the use of materials to shipping and distributing final products, with an emphasis on improving environmental and social performance, has had real benefits for those companies participating in this Guide and others.
Reputation and brand are among a company’s principal assets. One of the parameters that can have a negative influence on corporate reputation and share price is whether the company’s supply chain is socially responsible and accountable. The book value of a company is significantly enhanced by investment in its people, environmental impacts and local communities.
Shareholder returns: Sustainable development pays
Dow Jones has valued more than 300 companies in relation to their sustainable development in the Dow Jones Sustainability Group Index (DJSI). The index provides evidence that sustainable development pays, with companies in the index outperforming the Dow Jones Group Index. The 2003 annual review of the components of the DJSI found that since September 2002 the DJSI World (in US$) has outperformed the mainstream market, rising 23.1%, compared with 21.2% for the MSCI and 22.7% for the DJ World Index.
In the mid-1990s, Shell’s plans to dispose of the Brent Spar oil rig, and its alleged negative impacts on local communities in Nigeria, brought social and environmental responsibility to the world stage. Shell’s journey towards sustainable development commenced with these wake-up calls and started at the top of the organisation. Since then, Shell reviews its sustainable strategy as part of its planning process and has moved from its initial ‘Trust me’ programme to its current ‘Show me’ approach.
The growing demand for sustainable products particularly by European retailers and the response by manufacturers are due in part to recognition that one bad story can do lasting damage to a brand. Damage control is more costly than proactively managing an issue.
Appealing to markets: Financial benefits
Sanford Sustainable Seafood
Sanford’s business is based on the growth and harvesting of wild fish and shellfish within the sustainable fish quota management system and is entirely dependent upon long-term fish supply. This focus is underpinned by the inclusion of Sustainable in the branding and name.
The Quota Management System (QMS) lies behind New Zealand's reputation as a world leader in sustainable fisheries management. Individual New Zealand companies such as Sanford own the quota and it is therefore treated with the same respect as any other valuable asset. The QMS ensures that New Zealand waters are not over-fished and that New Zealand seafood will be available for generations to come.
More than 90% of New Zealand's seafood – with an annual value of approximately US$669 million – is exported. The most valuable export species is New Zealand Hoki. In 2001, Hoki exports to the European Union were worth US$150 million and those to the USA were worth an additional US$90 million.
In 2001, New Zealand Hoki became the world's first large whitefish stock to achieve Marine Stewardship Council (MSC) certification. This eco-label is independent confirmation that the fishery is being managed according to the principles and criteria of the MSC.
Appealing to customers: Increased sales and brand security
Companies embracing sustainable development can benefit from being a first mover in a market. All else being equal, 82% of UK consumers prefer to purchase goods from socially and environmentally responsible companies, according to a 2003 study, and 23% would do so even if this option is more expensive.
Increased efficiency reduces costs
Driving out inefficiency from processes is good business practice and reduces costs. In the service sector, introducing videoconferencing (phone conferencing) reduces energy consumption and emissions associated with travel; increases productivity and reduces costs. See SBC's Business Guide to Energy Efficiency.
Legislation now and future
Regulatory trends in certain industries and countries support the business case for action. These include electronics product take-back and recycling legislation in the European Union; United States biosecurity requirements and frameworks which support the Kyoto process. There are also a number of emerging intergovernmental supply chain certification schemes such as the ILO Declaration of Principles and Labour Standards which is referred to on page 25.
How to Implement a Sustainable Supply Chain
The sustainable development of products is based on the social, environmental and economic impacts of these goods and services along the supply chain.
The participating organisations may differ in product or service and are at varying stages of the supply chain. However, there are a number of consistent themes, which help drive progress and can be adopted by others.
We have provided a number of tools in this Guide to help companies in planning their own supply chain impact and in implementing change.
Dick Hubbard:"If you're not sustainable yourself how can you demand it of others."
Look at Your Internal Processes First and Map Your Own Risks
Organisations need to identify, understand and manage issues within their own organisation before they start working with other organisations in their supply chain. That will ensure these issues are successfully managed throughout.
Creating a sustainable supply chain can therefore be a next step for companies that have produced a Sustainable Development Report. Greater detail on how to do this is provided in SBC's Sustainable Development Reporting Guide. If there is one key driver for all of the participating companies it is that sustainable development is driven from the top down within each organisation. If senior management is unconvinced – it won’t happen.
Identify Your Supply Chain
First identify what the supply chain means for your organisation and at which point you fit within other supply chains. This is often difficult for companies with particularly complex supply chains.
Such companies may find that appointing a supply chain manager with overall responsibility for purchasing and forward and reverse logistics will provide the necessary focus. Large companies such as The Warehouse and Griffins have appointed Supply Chain Directors to ensure board level commitment to ‘sustaining’ the supply chain.
Trevor Johnston, Sustainable Development Manager, The Warehouse: “Striving to improve the operational efficiency and thus the financial performance of our supply chain is a given in our business. However we are also looking to extend our partnership with suppliers to improve the social and environmental characteristics of our supply chain. This is our long-term vision and we have begun by strengthening our supplier code of conduct in these areas. The simplest early gains have come from reducing unnecessary shipper packaging and associated handling costs, and streamlining and rationalising freight distribution patterns.”
Other companies may not have the resource for a dedicated supply chain manager but might give overall responsibility to an individual to identify its supply base and its relationship with its customers and position the organisation within this framework.
Identify Issues in Your Supply Chain
Do you understand the issues that could potentially affect your supply chain?
Rate the importance of each issue at each stage in your supply chain, where 5 is most important. If you are a supplier, consider your own suppliers and your retail customers and the final customer or consumer. If you are a retailer consider your suppliers, their suppliers and your consumers. If part of the chain is not relevant give it a 1. At the end of the survey you will be provided with a list of the greatest impacts in your business.
Make Sustainable Development Part of Your Business Strategy
Some organisations including Shell and Christchurch City Council have appointed a Sustainable Development Manager.
Whilst this can appear to place responsibility in one person’s hands, there are clear benefits.
Ken Lawn, Director of Operations, Christchurch City Council: “Our sustainable development manager acts as a ‘conscience’ for our organisation and drives the internal activities so that sustainability is mainstream throughout the Council.”
Make Sustainable Development a Key Perfomance Indicator (KPI) for your Organisation at all levels from the Board to junior management.
Roland Pechtold, General Manager NZ and Pacific Islands, Shell Gas: “Sustainable development is a KPI for Board and Management and has comparable weight on our balanced score card as financial success.”
KPIs are useful to measure and monitor performance whether quantitive or qualitative. For example, costs reducation from improved waste management; deliveries in full on time; staff satisfaction rating for companies as good employers; and energy savings. Other examples of KPIs are provided in the Code of Conduct.
Adopt Measurement Tools Which Work For Your Organisation
These include written policies and communications materials, prequalification of suppliers (using social, environmental and economic criteria), purchasing guidelines and supplier partnerships.
Managers often lack appropriate decision-making tools to help them assess the risks and benefits associated with managing their suppliers. For many companies there is a process to achieve regulatory compliance, through risk management, to long-term sustainable development strategies:
Building a chain of custody to identify the origin of raw materials and resources and the conditions at the point of origin through to manufacturing and subsequent delivery to customer can prove daunting without a systematic approach. There are systems including ISO 14001, A8000, AA1000 and Enviro-Mark which help companies to manage this process. These systems can be integrated with existing HACCP; Occupational Health and Safety or Quality Management Systems.
In addition, category-specific systems have been created to meet the needs of specific industry sectors. A few examples are forestry certification including the forestry stewardship certification (FSC) or the Marine Stewardship Council MSC sustainable seafood accreditation.
Process management approach
For some companies, the cost and resource required to ensure compliance has led to a customised approach. This may also be driven by a belief that many compliance programmes focus on commonly purchased goods or try to fit companies into a ‘mould’. In addition, current low demand for some types of ‘greener’ goods means ‘eco-labels’ may not be recognised, causing confusion as to which is best.
Nevertheless process management can be as rigorous as ‘off the shelf’ compliance systems. Global organisations including Shell and Danone have established their own Environmental Management Systems and their own Supplier Standards and operate to these codes in New Zealand.
The method chosen needs to be practical or they will not be sustained. The Warehouse initially set out to source all of its timber from FSC forests, however, by setting a more realistic target to buy to Tropical Forest Trust standard, it has been able to achieve 100% compliance.
Identify Initiatives Throughout the Organisation
The initiative needs to be driven from the top but will only succeed if everyone is involved. Use your relationship with suppliers or customers to progress sustainable development thinking across the supply chain.
Suppliers: include sustainable development criteria in setting Supplier Code of Conduct. Start with a handful of suppliers and some easily defined principles.
Customers: influence customers to reward sustainable suppliers. Stan Pope, National Procurement Manager, NZ Police: “Vendors need to explain why their products or services are more sustainable. If they don’t tell us, we don’t know.”
Tips for Getting Started: Project Planning Process
- Decide what the supply chain means for your organisation.
- Choose a pilot project(s) which will provide early success and win the 'hearts and minds' of employees.
- Identify available resource – internal and/or external.
- Agree timescale for initial project.
- Use the Model for Decision Making to progress your project.
Upstream Supply Chain
In the 1990s a number of companies, largely in the USA and Europe, developed their own ethical guidelines or Code of Conduct.
A Code of Conduct is a document that presents a number of social and environmental standards and principles that the company itself and its suppliers or contractors are expected to observe.
Subsequently companies have realised that these standards have no actual effect unless the company’s business partners are monitored and required to follow them. This has led organisations to include clauses relating to conduct in the terms and conditions of supply. By signing such contracts, business partners agree to comply with the company’s Code of Conduct; for example, that they will not use child labour in production or that they will follow health and safety standards. Inevitably companies recognise that a signature does not verify action and internal or external monitors need to visit suppliers to determine whether their social and environmental conditions are in accordance with the company’s requirements.
Implementing a Code of Conduct
Steps to Implementing a Code of Conduct for Suppliers
||Board member to lead; others to include Purchasing; Quality/Environment; HR consider involving stakeholders including suppliers, NGOs and customers in discussion as appropriate.|
||Identify top 10 suppliers; Top 20% by value; Concentrate on particular sector, eg. The Warehouse started with timber.|
||As above. Global suppliers may drive best practice because they supply multiple markets but may also pose most risk.|
||Use Risk Monitor toolkit Chapter 2, page 13. Identify those products which have high profile with NGOs or have had significant media coverage, eg. forestry, specific chemicals, country of origin might be associated with child labour or human rights. Remember that your supplier is likely to buy raw materials from other suppliers.|
||Refer Chapter 3: Code of Conduct for Suppliers, page 21. A. New suppliers and contracts, consider which criteria will be part of the decision-making process. Establish criteria which are prerequisite of any contract. What are your minimum requirements? B. Existing Suppliers. Include in annual review.|
||Ask suppliers to review their own performance against the Code of Conduct on page 22 and to work with you to find market winners for both companies. Provide ongoing support to suppliers.|
||Ensure that the person making purchasing decisions is sufficiently senior to be listened to by the Board. Make sure they understand the wider implications of purchasing decisions by setting for example, joint targets with Marketing. If buyer is ‘rewarded’ on the basis of cost savings then they may not be looking at sustainable development or brand image.|
||Define what would force you to ‘walk away’ from a supplier.|
||Evaluate suppliers against criteria, eg. Chapter 3, page 22. Each company will set a different starting point for their suppliers. Appoint internal or external resource depending on size of operation. Monitoring should involve interview and visit. Know the questions to ask. These might relate to your risk areas identified on page 13, Chapter 2. Document progress and communicate.|
||Introduce internal awards process or recommend best practice for external awards.|
Code of Conduct Example
1. Employer Practices
|Comply with Local and International Labour Standards||
2. Health & Safety
Commitment to Health and Safety which meets as minimum legal requirements
Health & Safety Employment Amendment Act (May 2003)
3. Working Conditions for Factories in Developing Countries
Comply with International Labor Standards and where local standards are higher to local standards
Demonstrates commitment at Board level
5. Environmental Responsibility: Energy Efficiency
Company complies with existing and pending national and international legislation on the energy efficiency of products and the energy use of buildings it operates
6. Environmental Responsibility: Eco-efficiency
Products and production procedures which maximise eco-efficiency
7. Hazardous Substances / Chemicals / GMOs
Comply with existing pending chemicals-related legislation. This might include legislation on product ingredients, product labelling and product disposal
8. Supplier Management
|Commitment to local economies and reduced transport costs. Supplier relationships||
The Warehouse published revised Terms of Trade in 2002 which incorporated specific Social and Environmental performance requirements.
The company has begun a process of educating suppliers about these expectations and conducting a limited number of factory audits to verify compliance.
It has also revised its packaging guide and has begun re-specifying packaging based on the guide through a series of product audits and exception reporting at the company’s distribution centres. Easy wins which resulted in high volume packaging reductions include eliminating unnecessary plastic carbon strapping and inner plastic bag liners.
The Warehouse helped co-ordinate a learning group of 10 New Zealand manufacturers through the Enviro-Mark system of integrated Health, Safety and Environmental Management (HSE) facilitated by Landcare Research. The project aims to improve HSE management and reduce costs through eco-efficiency.
The Enviro-Mark NZ process is web-based and has five standards of certification based on the ISO 14001 system:
- Bronze: Compliance with the most commonly applicable HSE legislation
- Silver: In-house HSE policy based on environmental impacts assessment
- Gold: Monitoring of objectives to demonstrate continuous improvement
- Platinum: Control of organisation’s activities with operational documentation
- Diamond: Continuous improvement driven by internal audit programme.
City Care & Christchurch City Council – Ethical Procurement
The supply chain is a series of interconnected relationships. Introducing social and environmental principles in one part of the chain in isolation may make that part less commercially competitive. This has been the experience of City Care until recently.
City Care is in the business of construction, maintenance and management of roads, parks, waste and other facilities and employs 500 people based in Christchurch, Auckland and Tauranga. The company is committed to sustainable development and has sought to lead by example, but recognises that in the price-driven industry in which they operate, this can put them at a disadvantage if the value of sustainable practices is not recognised throughout the supply chain.
In 2001, Christchurch City Council awarded a cleaning contract to a lowest-price tenderer because the selection process was substantially price driven. The Council later realised that its own tender processes were producing poor community outcomes in high-labour-content tenders, as they were rewarding companies that had the lowest wage rates, at the expense of companies whose employees had better terms and conditions.
On review of this event, Christchurch City Council found it was restricted by Transfund rules and its own procurement policy, and set about a review of its terms and conditions to establish how they could incorporate sustainable development principles.
As a result the Council will be considering introducing the framework established by The Redesigning Resources group as a basis for its future tender process on specific and agreed projects. It is proposed that Contractors will be asked to supply and validate information relating to energy efficiency, good employer practices, eco-efficiency, hazardous substances, health & safety, local supply base, accountability and governance. This will give companies like City Care who can demonstrate good practice via their Triple Bottom Line report, accreditation to ISO14001 and NZS 4801 a potential advantage in the selection process.
Fundamental Social Principles
The seven social principles below refer to the international labour standards defined by the International Labour Organisation (ILO)
1. Child labour
The company does not, in any case, employ children aged under 15. If the law sets a higher minimum working age or compulsory schooling is to a higher age, it is this limit that applies. Educational programmes and training care not included in this limitation.
2. Forced labour
The company does not use forced or compulsory labour, meaning any work or service performed under threat or that is not consented to by the person concerned.
With due regard for applicable law, the company refuses to engage in any discriminatory practices. Discrimination means any distinction, exclusion or preference limiting equality of opportunity or treatment. It may be based on race, color, sex, sexual orientation, religion, political opinion, age, nationality, family obligations or other considerations.
4. Freedom of association and right to collective bargaining
The company recognises and respects employees’ freedom of association and their right to freely choose their representatives. The company also recognises employees’ right to collective bargaining. The company ensures that employee representatives do not suffer any discrimination.
5. Health and safety at work
The company ensures that the workplace and its environment do not endanger the physical integrity or health of employees. Action to reduce the causes of accidents and improve working conditions is the object of ongoing programmes. Sanitary equipment, canteens and housing provided to employees are built and maintained in accordance with applicable legal requirements. As a minimum, the company must provide employees with drinking water, clean toilets in adequate numbers, adequate ventilation, emergency exits, proper lighting and access to medical treatment.
6. Working hours
The company must ensure that applicable legal restrictions on working hours are complied with. The normal working week is 48 hours at most. Overtime is on a voluntary basis. Employees have at least one day off each week, except in exceptional circumstances and for a limited period.
The company ensures that:
- no wage is lower than the applicable legal minimum.
- all employees receive a pay slip.
- employees receive a decent wage relative to country.
- wage rates for overtime are in all cases higher than for normal hours.
Demonstrating Chain of Custody
New Zealand imports NZ$32.1 billion worth of products and exports goods to the value of NZ$29.2 billion.
There can be long and often complex supply chains involved in getting goods from farm to fork or forest to table. One of the main drivers for demonstrating a chain of custody has been product safety; however, organisations have also recognised the benefit of understanding their environmental and social impacts before someone else (eg. NGO or media) investigates on their behalf.
The meat industry represents 13% of New Zealand exports and most meat packers have responded to international market demand to provide traceability back to the farm. This claim is further substantiated by a farmer-driven initiative, initially involving 30 North Island farmers, known as Green Project Farm Assurance Programmes which provide a management tool that promotes animal welfare, enhanced environmental standards and social responsibility.
Assurance will increasingly be a prerequisite for trade as the development of Euro-Retailer Produce Working Group (EUREP), a body responsible for the development of a number of assurance schemes for overseas producers, demonstrates. For example, Safeway UK is in the process of rolling out EUREP standards in the fresh produce and livestock sectors and expects fresh produce suppliers to be fully compliant by 2005, and for a significant proportion of its fresh meat suppliers to be operating to the EUREP Livestock standards by 2008.
Internal Operations: Logistics
The Institute of Logistics and Transport defines logistics as: “Ensuring that the right products reach the right place in the right quantity at the right time to satisfy consumer demand.”
Physical distribution involves transport and storage at all stages either using a company’s own resources or by outsourcing to a third party contractor. Once known as warehousing and distribution the sector has metamorphosed through logistics to become part of supply chain management. This encompasses inbound delivery of raw materials and the distribution of finished products out to market, and cuts across internal organisational lines as well as international boundaries, reaching out to both customers and suppliers.
Sixty-one percent of New Zealand’s domestic distribution is by road, with 13% by rail and 26% by coastal shipping. Sea plays an important role in transport within New Zealand not just in the crossings over the Cook Strait, but also a regular, popular container service between the major ports. Significantly, road freight accounts for 91% of freight transport energy used compared to 4% energy used by rail freight and 5% for coastal shipping.
Whether raw materials or product are shipped internally within New Zealand or imported from overseas, there are social and environmental impacts which need to be considered. A reduction in the number of articulated vehicles on the road will reduce fuel usage and emissions and helps alleviate congestion. This can be achieved by improving vehicle utilisation and scheduling trips to less populated areas either by collaborating with other suppliers or using a third party operator.
Strategic partnerships between suppliers and their customers and vice versa can address many of the potential obstacles and create significant value for both parties.
Suppliers can also partner with other suppliers to share warehouses and fleets.
Whoever operates the vehicle, fuel represents a significant operating cost for many companies and it is worth considering the total life-cycle costs and impacts of running a vehicle rather than just comparing kilometres per litre used. For example, City Care selected their fuel supplier based on a range of criteria including close proximity of their facilities to fuel supply and the NZ Police have introduced 400 LPG vehicles into their car fleet.
60 billion kilometres per year are travelled on Europe’s roads by empty trucks at an estimated cost of US$48 billion. (Neil Kinnock – European Commissioner for Transport 1999). The amount of empty vehicles on NZ’s roads is also likely to be significant. Target your distribution zones to maximise vehicle fill, and minimise fuel and running costs. Plot deliveries and frequencies on the adjacent grid and then work with your suppliers, customers and with other companies to try to fill vehicles in both directions.
Issues & Opportunities
The key components of the physical supply chain and associated sustainability issues/opportunities are characterised in the diagram below.
The Manufacturer / Shared-User Solution
Griffins Foods manufactures high volume, low weight products such as potato chips and biscuits, thus making warehousing and transportation of the product a costly exercise.
The company subcontracts its warehousing operations to Toll Logistics, and, together with other manufacturers who share the warehouse facility (Kelloggs and Carter Holt Harvey,) has worked with Toll to maximise warrehouse utilisation and optimise transportation loading through projects such as standardising carton configurations, identifying optimum pallet heights etc.
Transportation is also on a shared-user basis allowing for load optimisation where possible.
Griffins works closely with its principal transport provider (Provincial Freightlines) to optimise drop sequences and delivery cycles. There are also plans to further enhance IT capabilities in the area of Transportation Management to enable improved transport efficiencies, thus reducing the impact on the environment, as well as reduced costs.
Griffins has also undertaken trials with Frucor Beverages to top-stow product above heavy beverage pallets, thus enabling maximum container volume loading without exceeding weight restrictions.
The Grocery Retailer: Sustainable Design
Progressive Enterprises’ NZ$28 million Distribution Centre (DC) at Mangere, South Auckland, is the size of 10 rugby fields and operates 24 hours-per-day seven days-per-week, distributing to 153 supermarkets in the North Island.
Each week 700,000 cartons of groceries are distributed, requiring 120 trucks in and 130 trucks out each day.
Introducing round-the-clock distribution means Progressive can schedule deliveries to improve traffic flows at the DC, which also reduces congestion from the peaks. To manage this process, Progressive is increasingly controlling its supply chain by buying direct from the factory. This improves vehicle utilisation because primary distribution can be carried on store-returning vehicles and supplier collections can be combined where possible with a minimal amount of cross-docking at the DC. For international suppliers, particularly from Australia, Progressive brings product directly into its own network, cutting out additional storage, cross-docking and an extra transport link.
The construction project not only increased the floor space and height of the existing building but turned the orientation around by 90 degrees so that the truck traffic to and from the facility is away from a residential area on the site boundary, reducing noise pollution via a specially constructed wall. The DC also includes a recycling facility for both the distribution centre and the stores it supplies.
The Warehouse is New Zealand’s largest mixed retailer and has two distribution centres, one in the North Island (NIDC) and a new South Island facility (SIDC).
The SIDC will improve the movement of stock to South Island stores, and potentially the southern part of the North Island, resulting in substantial savings in transport costs from reduced kilometres.
The SIDC occupies 32,750 square metres, has space for approximately 400 containers and has positions for 12,168 pallets stored up to 10.2 metres high. The 850-metre long automated storage system consists of positive sortation and accumulation conveyors. Sensors relay movement and dimension information to the computer control centre. Cartons pass beneath an overhead scanner at the rate of 80 per minute and bar-code label information is read instantly for directing these to one of ten despatch lanes. Shrink-wrapped pallets are loaded on to trucks within the building. Rapid action doors minimise time for the approach or departure of delivery vehicles and control exposure to weather elements thus reducing energy costs.
Automation typically eliminates the need for repetitive work. Good preparation will also ensure accuracy and less waste. At first glance, energy usage may be higher, but many operations can be run in darkness.
Reverse logistics is one of the least understood and least studied aspects of the supply chain. In some businesses, the level of returns is so low that little time and effort is invested in making it work as efficiently as the major picking or storage operations.
Well-managed operations operate a credit process and move equipment and product returns back into stock or elsewhere as quickly as possible. The mail order industry can receive up to 50% of all goods ordered back as returns. To achieve this it is essential that they have organised processes to quality-check products back into stock and credit the customer. This same process is increasingly applied to handling equipment and packaging waste.
Third Party Logistics Provider
It may make sense for some manufacturers and even retailers to outsource their warehousing or distribution because they do not have sufficient internal resources or more specifically there is no specialist core competency.
Managed well, such partnerships can result in cost reduction, increased efficiency and significant improvement in customer satisfaction. Leading third party logistics companies incorporate environmental and social criteria as standard within their service offering.
Tibbett & Britten Group’s partnership with UK grocery retailer Sainsbury spans 30 years and environmental management has become a fundamental part of both companies’ management system. Tibbett & Britten has published an Energy and Environmental Checklist for warehouse design and refurbishment which ranges from Insulation to Rainwater Recovery.
Product Development & Stewardship
The opportunities for reducing social, environmental and economic impacts in a company’s interactions with its customers and sales channels generally lie in three areas:
- Improving the processes for efficiently getting the product or service to the consumer – including planning demand and supply
- Product stewardship which adopts a ‘cradle to grave’ approach
- Improving the design of the product or service as part of product stewardship
Success is dependent on supply chain partnerships between suppliers and their customers.
Planning Demand & Supply
The Relationship between Manufacturers & Retailers
Increasing consolidation in the retail market, whether in the grocery sector, general merchandise, whiteware or DIY, has changed the dynamics of the supply chain from manufacturer driven to retailer led.
Small manufacturers have always had to tailor their production to the needs of their customers. however large and often global brands have had significant bargaining power with their retail customers. Global retailing now competes with global manufacturing and the smart players have recognised the need for a collaborative approach which starts with what the consumer wants to buy rather than what the shop wants to sell or the manufacturer wants to make.
Global manufacturers including Danone and Fonterra have all put in place ‘customer facing’ organisations, which produce to demand and involve collaboration between the manufacturer and the retailer often in several geographies to stimulate and satisfy consumer demand. This market-driven approach redefines the way companies manufacture, distribute, promote and sell products by focusing on consumers, customers and the supply chain so that all information and logistics are linked throughout the organisation to deliver the most preferred product at the lowest cost.
Responsive manufacturing requires a supply chain system, which will capture product sold and ensure that production is geared to meet that need. It is an integral part of a sustainable supply chain because it drives out inefficiency. Griffins have revised their supply chain to better respond to consumer and customer demand as depicted in the following diagram.
Griffin’s Model Supply Chain
Revised supply chain vision is customer facing and comprehensive (from crop to consumer)
The detailed consideration of supply chain strategy and supply chain management systems is beyond the scope of this Guide. However, streamlining the supply chain and implementing advanced supply chain management systems can improve supply chain performance by as much as 5 to 25% with substantial impact on KPIs including emissions, facilities demand and employment stability.
Ensuring supplier behaviour meets market demand
Collaborative effort is imperative to achieve success. For example, Fonterra is working with the New Zealand Ministry of Agriculture & Forestry, the Ministry for the Environment and Environment Waikato (representing regional councils) to achieve clean, healthy water in dairying areas. Their goal is to minimise the impact of dairying on streams, rivers, lakes and wetlands so they are suitable for fish, drinking by stock and swimming. Fonterra is also working with its supplier shareholders to promote the adoption of environmentally sustainable farming practices under its ‘Market Focused’ programme. The company assists with identification of issues and solutions at farm level, helping individual farmers to develop practical solutions and adopt practices of the highest standard. This programme is designed to focus the dairy industry's attention on the perceptions of consumers around the world, and to protect New Zealand’s clean, green image.
This is vital because there is clear evidence that consumer preference is moving towards more sustainable products and services both in New Zealand and in our export markets.
The growing importance of product traceability
Concerns about product safety are the largest driver in changing consumer demand. Traceability from ‘farm to fork’ is fundamental to consumer confidence and this is increasingly recognised by legislation.
European farmers will be subject to strict new levels of accountability, including regular on farm audits which will be published and inspections by European Union officials and ultimately electronic tagging which could follow a carcass to the processing plant and track it through the boning room.
Japan, one of New Zealand's top beef export markets, is adopting tighter traceability rules after a number of BSE (mad cow disease) scares. The law now requires each locally raised animal to have a 10-digit identification number which will be displayed on the beef labels in supermarkets. Information on the history of that individual animal can be checked through the identification number. It is likely to give a major boost to beef sales in a country where 80 per cent of housewives surveyed last year remain uneasy about the safety of beef. New Zealand's traceability systems can track back to a batch of around 200 animals within hours. Some processing plants are also saving DNA samples from each animal for up to two years.
All products have the potential to cause environmental degradation, whether from their manufacturing, use or disposal.
For example, a washing machine has environmental impacts through the materials it is made of – such as steel and plastic – the energy, water and detergents consumed during its use and its end-of-life disposal.
In fact, generating electricity for all the appliances in the average New Zealand home produces about five tonnes of climate-changing carbon dioxide (CO2) every year – as much as two small cars.
New Zealanders would save about $9 million on annual energy bills and stop nearly 38,000 tonnes of harmful greenhouse gases entering the atmosphere if we could lift the rating of every household appliance by just half a star. That would do as much for the environment as taking 12,000 cars off the road.
However, existing environmental product-related policies have tended to focus on large point sources of pollution, such as industrial emissions and waste management issues, rather than the products themselves and how they contribute to environmental degradation at other points in their life cycles. Measures have also tended to look at the chosen phases in isolation.
Product stewardship is a product-centred approach to environmental protection and social consideration. It requires those in the product life cycle, including manufacturers, retailers, users, and disposers, to share responsibility for reducing the environmental impacts of products and improving the quality of life of those using them.
Product manufacturers can and must take on new responsibilities to reduce the environmental footprint of their products. However, real change cannot be achieved by producers acting alone: retailers, consumers, and the existing waste management infrastructure need to work together to find the most efficient and cost-effective solution.
Businesses and Product Stewardship
In many cases, manufacturers have the greatest ability, and therefore the greatest responsibility, to reduce the environmental impacts of their products. Product stewardship also represents a substantial business opportunity. By rethinking their products, their relationships with the supply chain, and the ultimate customer, some manufacturers are dramatically increasing their productivity, reducing costs, fostering product and market innovation, and providing customers with more value at less environmental impact. Reducing use of toxic substances, designing for reuse and recyclability, and creating take-back programmes are just a few of the many opportunities for companies to become better environmental stewards of their products.
Retailers and Product Stewardship
As the sector with the closest ties to consumers, retailers are an important part of product stewardship. They can influence by preferring product providers who offer greater environmental performance, educating the consumer on how to choose environmentally preferable products and enabling consumer return of products for recycling.
Consumers and Product Stewardship
All products are designed with a consumer in mind. Ultimately, it is the consumer who makes the choice between competing products and who must use and dispose of products responsibly. Without consumer engagement in product stewardship, there is no closing of the loop. This means encouraging them to select products responsibly, to use products safely and efficiently and to recycle products that they no longer need.
Local and National Government and Product Stewardship
Ultimately households will only recycle product if facilities are provided to them and the system is easy to use. The Government also has a major opportunity via its procurement policy to promote change. Incorporating environmental and social performance standards into the Calls for Tender process will have a major impact on product stewardship.
Improving the Design of the Product and its Packaging
The life cycle of a product covers the whole supply chain from the extraction of natural resources, through design, manufacture, assembly, marketing, distribution, sale and use, to their eventual disposal as waste.
This process involves designers, industry, marketing people, retailers and consumers.
There has been a rapid increase in consumer products partly due to an increase in disposable income and smaller households. For example, in 2002 there were approximately 2.4 million cars in New Zealand with 1.17 licensed drivers for each car. Products also come in more shapes and sizes as a result of rapid innovation and global trade patterns, and are becoming increasingly complex.
Introducing a life-cycle approach to product development helps companies analyse their environmental impacts and to concentrate on those areas where they can bring the greatest benefits, however invention is often not enough on its own. For example, Interface Agencies have designed floor coverings which can be ‘unzippered’ to allow nylon components to be recycled; however there are no recycling facilities in Australasia for nylon products at present.
Whether companies make or sell products or services, every business can incorporate sustainable development into its own creative process. Service industries often have a major impact in terms of office space and travel budgets.
Landcare Research’s new 4,000-square-metre Research and Development building located at the Tamaki campus in Glen Innes, Auckland, is designed to be the most sustainable in New Zealand and to influence the architecture and construction industries.
The building is constructed to have a low energy consumption and CO2 footprint incorporating alternative technologies such as solar power, composting toilets, wetlands for waste treatment and will be retrofitted with energy-reducing systems such as fuel cell sources. Landcare adopted an innovative procurement method, used in the UK government tender process whereby the project is designed in phases. The overriding objective was to embody learning for contractors through the design process, and to achieve this Landcare used the expertise of Dr Robert Vale from the University of Auckland’s School of Architecture.
From Cradle to Grave
New Zealand puts 3.5 million tonnes of waste annually into its landfills which equates to approximately one tonne of lost potential resources for every New Zealander.
There are a number of initiatives by manufacturers to drive ‘take-back’ and reuse of products and parts.
It doesn’t need to cost the earth…
Fisher & Paykel has been operating a whiteware take-back scheme since 1993, giving dealerships and service centres an alternative to landfilling. The company has agreements with most of its North Island dealerships and has extended this to South Island to take back old appliances for dismantling and recycling. Fisher & Paykel processes around 25,000 appliances annually with approximately 75% materials re-used or recycled by weight. It recovers 1,600 tonnes of materials, including aluminium, stainless steel, copper, steel, plastics, packaging, electric cable, compressors, glass and circuit boards. Refrigerants are removed from freezers and refrigerators. With sales of recyclable materials and internal savings from the reuse of packaging material, the take-back centre made over $500,000 in 2000.
Vodafone has launched a nationwide mobile phone recycling campaign to reduce the amount of mobile waste each year. In conjunction with Nokia, equipment is collected in New Zealand and shipped to Singapore where certified recycler, Citiraya, recycles the equipment.
Toolkit for Companies
Sustainable Project Management System
Over the past decade many companies have introduced their own product development process to systemise decision making.
Sustainable development needs to be built into the processes so that decisions are made in full knowledge of the environmental and social impacts of product development, design and build, or market development.
In smaller organisations the design-to-market process is much shorter and decisions are taken by a smaller group of people. This is often one of the dilemmas when small companies are acquired by larger organisations as the very ‘entrepreneurship’ which made the company attractive in the first place can be stifled within the larger enterprise.
A reliable Project Development Process provides a toolkit for companies to prioritise projects including new product development. The following model illustrates the stages which might be considered in the design of a product or facility and at which points sustainable development could be factored into the process.
Download the Product Development Checklist [210KB]
What Drives Change?
As the businesses and Crown entities on this website have illustrated there are real commercial benefits for seeking sustainable development throughout the supply chain.
As outlined in the 'How To' section, organisations including local and national government need first to address their own internal procedures before starting to attempt to influence others.
The scope of this guide does not allow for a comprehensive review of global supply chain initiatives; however, there are two principal groups driving the sustainable supply chain:
- Government leading by example and providing a framework for sustainable development.
- Retailers and brand owners making it happen.
Governments have a major opportunity and responsibility to influence the supply chain because of their own procurement budgets.
New Zealand’s Central Government spends $2.5 billion and Local Government $1.5 billion per year on goods and services. The Ministry for the Environment is developing a cross-government project to help minimise the environmental impact of Central Government operations, and encourage and facilitate eco-efficient procurement and reporting of operational environmental performance. The project will later be extended to Local Government. It is likely that this project will, to some extent, stimulate green demand from the public sector.
Crown entities such as Transit with their $0.5 billion budget have set specific KPIs for sustainable development and are grappling with how best to introduce sustainable development criteria into their procurement policies.
Government action is fundamental in getting business to embed environmental and social objectives into their culture and practices and to make this ‘mainstream’.
However, pre-selection systems tend to accept ‘just enough’ as the pass mark and then allow the next phase of the tender process to be awarded primarily on a cost basis which does not reward those companies ‘making a real difference’.
We recommend that the public sector adopts a Code of Practice for suppliers, with specific objectives which need to be met based on those outlined in Chapter 3, to really generate momentum in New Zealand.
This objective appears consistent with European strategic thinking around public procurement, which represents 12% of the European Community’s GDP. The EC Green Paper recognises the need to examine Community public procurement law and its possibilities for giving preference to environmentally-friendly products. This proposal includes publication of a practical hand-book on best practice with Life Cycle Assessment in 2005 and the development of a Commission action programme for greening its procurement in 2006.
In June 2003, The European Commission adopted a Communication on Integrated Product Policy (IPP), outlining its strategy for reducing the environmental impact caused by products. The Commission will take a number of actions to stimulate continuous improvement in the environmental performance of products throughout their whole life cycle and will work towards identifying those products with the greatest potential for environmental improvement, collaborating with industry, business and consumers to green those products. This proposal, however, does not include legislation.
There are a whole variety of tools – both voluntary and mandatory – which can be used to embed sustainable development in everyday business. These include measures such as economic instruments, substance bans, voluntary agreements, environmental labelling and product design guidelines. Some of these are being used in New Zealand to drive the agenda but there is scope for more to be done.
Current New Zealand Measures or Initiatives
|Consumer Awareness Instruments||Consumer education; Information campaigns Guidance for purchasers (Internet procurement Guides; Advice Centres)||
|Voluntary Information Instruments||National Eco Label schemes, eg. Blue Angel (Germany); Terra Choice (Canada) Sector labels, eg. VOC paint; FSC, Fair Trade, MSC, Blue Angel Environmental Management Systems||
|Compulsory Information Instruments||
EU Energy Rating Labels,new car CO2 labels.
Compulsory declaration of contents or information on use of disposal
Using economic incentives to drive change: Taxes and charges, subsidies for better products, deposit refund schemes, etc.
|Product Bans||Minimum energy performance standards
At local level, there are a number of Cty Councils that are embarking on their own sustainable development journey.
Christchurch City Council is mentioned in Chapter 3. Auckland Regional Council has appointed an experienced Sustainable Procurement Project Manager to incorporate social and environmental criteria alongside economic ones in their future tender procedures.
Each Council can make a considerable impact if it changes its own practices and its procurement policy. North Shore City Council has a proposed capital expenditure programme of around $76 million for the 2003-2004 year. The Council has started to include environmental considerations for supplied products which are being trialled in their printed stationery tender process. The Council has also developed, together with Landcare Research, a customised programme called BusinessCare Enviro-Mark for local businesses to achieve the Enviro-Mark Gold level and a range of environmental objectives within two years of joining the programme.
For the public sector in particular the devil is in the detail, because introducing considerations wider than price and health and safety into the selection process can become a political debate in its own right. However, many participants in this study voiced the same message:
“Local authorities influence local communities. They can make choices to structure their contracts so that they provide sustainable livelihoods, communities and families.”
Selling Sustainable Products
Research commissioned by Department of the Environment Transport & The Regions (UK) has found that consumer focus groups “erred on the side of ‘laissez faire’ rather than stricter control of environmental factors”, preferring to let market forces drive an increase in the availability of “green” products.
However, New Zealand consumers do not currently “go out of their way to shop at businesses with good environmental policies”, according to a survey commissioned by The Warehouse in 2002. Seventy per cent of respondents did not rate retailers, suppliers or products more highly if those products are made in a more environmentally-friendly manner. That said, consumers want to purchase products which they can trust, and expect retailers and suppliers to behave responsibly.
New Zealand’s export market is dependent upon global consumer practices and there is growing demand for sustainable products in Europe and to a lesser extent USA driven by retailers and brand owners rather than end-consumers.
Retailer and brand leadership is changing the supply chain in Europe with a clear decision by some to do the research on their products so that consumers know that they can ‘trust’ them to have a sustainable procurement policy. The top 10 European grocery retailers share 40% of the market and increasingly prefer to select products with a demonstrable chain of custody and/or certification, and require their suppliers of goods and services to comply with terms of trade which extend beyond service and price.
In short, these retailers have a huge influence on the supply chain and their policy decisions will drive change across the market. This inevitably will impact on New Zealand manufacturers who will need to demonstrate that they meet these terms of trade in order to do business.
A number of local and international organisations are working on many of the issues covered in these guidelines. This section is not intended to provide an exhaustive list of organisations and sources of information, many of which are referred to by footnote through the report, but to highlight a range of currently available resources.
Department for Environment, Food and Rural Affairs, UK
Provides tool box for strategy developed for UK market
Friends of the Earth
World Wide Fund for Nature
Rainforest Action Group
Global retailer demonstrates development and implementation of supply chain code of conduct over a period of years. See its suite of sustainable development reports.
Integrated Health, Safety and Environmental Management
Bureau Veritas NZ
Health, Safety, Social and Environmental Management: ISO 14001; HACCP; SA8000
European producers' assurance scheme
Logistics and Transport NZ
Professional association for the logistics industry
Packaging Council of NZ
Proposed NZ Packaged Goods Accord 2004