Joining Forces - the case for collaboration

Joining Forces

The case for collaboration brought to you by 2degrees

www.2degreesnetwork.com 1Joining Forces

These leading brands have progressed beyond compliance, are embedding sustainable practices into their operations and are increasingly designing sustainability into their products and supply chains. They are planning on thriving, not just surviving, in this new world order.

But the reality of tackling the fundamental operational issues needed to make practical change happen can be daunting. This challenge is made worse because making the change requires co-ordinated, collective action across a whole value chain and industry. Operating sustainably cannot be done alone.

One way of unlocking the potential of working in a more sustainable way is by embracing a more collaborative, joined-up approach to operational business practices. 2degrees refers to this concept as ‘fully-linked collaboration’.

Fully-linked collaboration makes it easy for producers, manufacturers, suppliers and retailers to work together at scale, at an operational level, sharing information and best practice in order to solve common, practical problems.

It’s a simple concept, but a powerful one. This report examines the emerging evidence which suggests that through communication, cooperation and collaboration, businesses can:

• Save money

• Reduce impacts and risks

• Innovate and grow

Introduction We are entering an unprecedented period where global demand for resource is beginning to out-strip supply. Market leaders and pioneers are responding by changing the way they do business. Across all industries, and in increasing numbers, they are realizing there is an opportunity to cut costs, reduce risks and grow by being more sustainable.

15%the annual revenue increase achieved by companies who are working in a more collaborative way with their supply chains (Next Manufacturing Revolution Report)


Introduction (cont.)Evidence implies that this is more than just a ‘feel-good’ concept that looks good on paper, but is becoming a new commercial reality. Technology now provides the ways and means to make it efficient for companies to work together to implement practical initiatives that can deliver measurable returns to their bottom line.

The 2degrees global collaboration platform and its client programs (see below) are at the forefront of this development and act as an important facilitator, helping to engage, inform and enable companies in a value chain to work together to realize the benefits of being more sustainable. Recent research has uncovered compelling evidence of the direct operational savings to be made through increased collaboration:

• $1.3 billion estimated p/a savings in the food supply chain of one leading supermarket as a result of its supplier collaboration network

• 12% improved profit margin for manufacturing companies involved in collaborative initiatives

• €4.6 billion estimated p/a savings for the European manufacturing sector through supplier collaborations in areas such as energy, transport and waste

In addition to these direct operational savings, there is also more hidden, strategic value to be gained from collaboration. A more collaborative approach to business can:

drive innovation

build competitive advantage

strengthen brandreputation

reduce risk

increase transparency and traceability

secure supply

For example: Tesco Plc as part of its ‘Using our scale for good’ corporate value aims to foster a new spirit of partnership with suppliers that delivers innovation for its customers in the three key areas of food waste, health and obesity, and youth employment.


In the next few pages, we look in more detail at the savings and wider benefits of collaboration around the areas of energy, waste, procurement and distribution, and see examples of companies who are already benefiting from working in a more collaborative and fully-linked way.

About the researchUnless otherwise stated, all information in the report is based on the following research:

The Next Manufacturing Revolution: Non-Labour Resource Productivity and its Potential for UK Manufacturing, published July 2013: www.nextmanufacturingrevolution.org

2degrees Strategic Consulting Project, 2013: MBA Saïd Business School, University of Oxford

The Carbon Disclosure Project S&P 500 Climate Change Report for 2013: https://www.cdproject.net/CDPResults/CDP-SP500-climate-report-2013.pdf

Real life case studies of companies working collaboratively through the 2degrees platform: www.2degreesnetwork.com


Summary of findings

This report concludes that collaboration is a crucial element in a broader sustainable business strategy that can help achieve significant cost savings in the areas of energy, waste, procurement and distribution, as well as generating important strategic and long-term benefits.

Highlights include:

1. In waste: $1 billion - the additional annual revenue that General Motors

claims it generates from the reuse and recycling of by-products

2. In procurement: 10-35% - the potential savings of a buying group,

according to procurement and purchasing consultancy, The Buying Support Agency

3. In distribution: 27% - the number of estimated empty freight truck journeys in the EU

4. In energy: $1.9 billion - the potential annual saving on energy spend in the

UK manufacturing sector, based on current best practice. An overall saving of 20%

5. In strategic benefits that can accrue to the players we include: innovation, competitive advantage, risk reduction, brand reputation, transparency

and traceability and security of supply

The challenge is that achieving ‘fully-linked collaboration’ is a new approach and requires the ability to:

• engage stakeholders at scale around the goals of the collaboration

• create new relationships at an operational-level between suppliers

• drive the exchange of knowledge around the business practices needed to achieve these goals

• enable companies involved to realize measurable outcomes in target areas such as energy, resource efficiency and security of supply


The global energy landscape is changing, affecting the cost competitiveness of companies across the world. Global electricity consumption is expected to double by 2035. Europe is increasingly reliant on importing natural resources to produce electricity and generation capacity will decrease as a number of coal plants are retired.

As a result, a restricted supply, relative to demand, poses a threat to a secure and affordable energy supply. To mitigate this threat, companies are switching on to the benefits of energy efficiency. In the UK manufacturing sector, for example, best practice companies have achieved savings of 40% through energy efficiency initiatives, as the table below demonstrates.

€22.5billionthe potential annual saving on energy spend in the European manufacturing sector, based on current best practice.

Collaboration can play a fundamental role in helping businesses to identify and implement energy efficiency initiatives. 2degrees has been working with a leading global supermarket group to manage an online collaboration network of around 500 of its food suppliers. The table opposite reveals the main areas of focus for collaboration in that network and the substantial potential combined savings in energy that those areas represent for the 500 suppliers.

Low range (€M)

High range (€M)

Capex (€B)

Solar panel installation 16 38 0.5

LED/more efficient lighting 57 117 0.5

Air compressor efficiency 51 114 N/A

Refridgeration 223 444 0.7

Voltage optimisation 73 104 0.5

Transportation efficiency 70 99 0.1

Total (€M) 490 916 2.3

Energy

Estimated energy savings from efficiency initiatives 2degrees Strategic Consulting Project, 2013

45

40

35

30

25

20

15

10

5

0

Energy Efficiency Savings %

Sources: Department of Energy and Climate Change, Energy Consumption UK 2010, 2012; Office of National Statistics, Detailed Production, 2011; Next Manufacturing Revolution Survey responses; Literature review

1990

1991

1992

1993

1994

1995

1996

1997

1998

1999

2000

2001

2002

2003

2004

2005

2006

2007

2008

2009

2010

Best practice companies

Industry-wide average company efforts since 2002

Manufacturing sector averagebackground improvement


Stateside Food Pizza production company, Stateside Food was aware of RS-45, as a R22 replacement gas, but wanted to seek advice from the 2degrees managed Asda Sustain & Save Exchange about its merits and risks. With the advice received they are now strongly considering RS-45, over a new ammonia plant, potentially saving €600,000.

Arla FoodsDairy company, Arla, realized savings of 6% of its total site electricity bills within one year of upgrading to LEDs. The company shared its experience through one of the ‘fully-linked’ supply-chain collaboration programs on the 2degrees prompting other suppliers to soon follow suit.

Case studies

Energy efficiency also brings a range of hidden financial benefits, including improved energy security, eased load on transmission and distribution assets, and reduced need for new assets including line reinforcement and power plants.

BranstonBefore investing in new voltage optimization technology, UK potato company Branston, wanted to seek further advice. It engaged with the Tesco Knowledge Hub, an online collaborative platform powered by 2degrees. As a Tesco supplier, Branston was able to talk to other companies who were already using the technology and hear their experiences and feedback. As a result of these conversations, the company installed the technology, which is expected to deliver a 5-8% reduction in electricity use and cost.

Walkers CrispsA study of the upstream energy usage for Walkers Crisps (owned by PepsiCo) identified that substantial energy was being used by potato farmers humidifying their produce in order to maximise their revenues because they were paid by weight. Walkers then spent 10% of its potato-frying energy removing this additional water. Changing the contract eliminated this misalignment, saving the supply chain €1.4 million p.a.

Energy


As raw materials become more scarce and costly, resource efficiency and waste management have become pressing issues for companies today. Furthermore, business is beginning to recognize waste as a potential resource instead of an unwanted burden.

From 2002 to 2009 in England, total waste halved and waste sent to landfill dropped by two thirds, driven in large part by legislation and significant increases in landfill taxes. Many companies are leading the way in re-using, recycling and re-selling their waste, but there is still much more that business can do. Recent research has indicated that if the UK manufacturing sector followed best practice, further savings of $800 million p/a could be achieved.

Collaborating with your supply chain in a fully-linked way has the potential to bring a number of benefits when tackling waste:

• A joint waste management scheme across the supply chain can help achieve economies of scale for sorting and transporting waste and building recycling facilities

• A network can help match internal material supply with demand

• Increased dialogue between retailers and manufacturers can set the criteria for the design of innovative new packaging and products

This last point has been identified as a major source of savings for business. The Carbon Disclosure Project 2013 S&P 500 Climate Change Report discovered that the biggest savings in the past year have been achieved by sustainable product design, with the 334 participating companies revealing collective savings of $1.2 billion.

Such re-design opportunities can deliver substantial improvement, but require stakeholders along the whole value chain (packaging convertors, manufacturers/fillers, retailers and waste management) to work together and collaborate to deliver the necessary innovations.

Waste

$1billionthe additional annual revenue that General Motors claims it generates from the reuse and recycling of by-products (Next Manufacturing Revolution Report)


Interface This international carpet tile manufacturer worked with its yarn supplier to enable it to send discarded fishing nets from developing nations for reprocessing into nylon yarn. The resulting carpet tiles have improved eco-credentials while providing an income for poor communities from cleaning up their shorelines.

Design innovation through collaboration

Estimated savings from resource efficiency and waste management initiatives that could be realized in the supply chain of leading supermarket as a result of knowledge sharing and collaboration initiatives.

Bakers Basco Bakers Basco Ltd is an example of 5 different companies - Warburtons, Premier Foods (Hovis), Fine Lady Bakeries, Allied Bakeries and Frank Roberts - collaborating together to not only supply product to customers in a common basket (Omega basket) but to also operate a highly successful combined waste recovery division that recovers misappropriated equipment from abusers or recyclers, and also clears locations such as markets where equipment would have gone to landfill.

Waste

Adnams Adnams found that half of the carbon footprint of its beer arises from the production of the glass bottle. So it created a lighter bottle, reducing its CO2 emissions by 415 tons per year and saving 624 tons of glass. It achieved this by working with multiple parties to understand requirements of the packaging and using good design as well as emerging materials and technologies to create innovative solutions.

Low range (€M)

High range (€M)

Capex (€M)

Waste reduce/reuse 4 105 N/A

Diversion from landfill to anerobic digestion

15 25 N/A

Water reuse/recycling 31 127 252

Total savings (€M) 50 257 252

Case studies


While not a new concept, buying groups are a perfect example of collaboration in action. When companies join together to make purchases, the following benefits can be achieved:

• Lower prices – economies of scale are created by increased volumes, realized by aggregating purchase orders across organizations. A buying group can usually negotiate lower prices than any single

member would be able to on its own

• Streamlined process – when suppliers join together, the supply chain process

can be faster and more efficient

• Information sharing – ongoing benefits of a buying group can include sharing of information such as new technologies, market developments and historical spending behavior

Procurement

10-35%The potential savings of a buying group, according to procurement and purchasing consultancy, The Buying Support Agency

Tesco Buying ClubThrough its ‘fully-linked’ collaboration program on 2degrees, Tesco launched The Buying Club in 2013 to help its suppliers invest in energy efficient lighting. The club realizes up to 25% savings on the cost of equipment, resulting in approximately an 80% reduction in lighting energy bills.

Typhoo is one of the first companies to sign up and expects to cut 900 tons of emissions from its factory as a result of the new lighting.

PepsiCo India Under its collaborative farming model, PepsiCo India provides technical and financial support to around 24,000 potato farmers. This includes tie-ups with banks and insurance firms to offer the farmers better deals and credit at a lower rate of interest.

Case stud

ies


27%the proportion of estimated empty freight truck journeys in the EU (Next Manufacturing Revolution Report)

Distribution

Throw rising transport costs into the mix and distribution becomes one of the most urgent issues for companies today.

To try and combat these increasing costs and complexities, collaborative initiatives are emerging where multiple retailers and suppliers combine and collectively manage transportation networks, sharing trucks, warehouses and routes.

In 2008, 37 leading retailers and manufacturers in the UK food and beverage sector started a collaboration scheme in order to share trucks on certain routes. This initiative followed a pilot by Nestlé and United Biscuits that significantly reduced empty return legs.

The collaborative network has reduced UK heavy goods vehicle transportation by c. 320 million km. Some of the initiatives thatmembers undertook included:

• Sharing trucks to minimize empty mileage

• Using advanced scheduling technology forreal-time logistics planning

• Switching distribution from road to rail

In addition, interactive tools and best practice sharing helped companies to improve the efficiency of their supply chain.

In response to a consumer market which demands access to products anytime and anywhere, business distribution models have become increasingly complex. Products are sourced and distributed globally using multiple transportation methods, with much of the process now outsourced.

DHL Case studyLogistics provider DHL has introduced ‘mega warehouses’ as part of its service offering. The FMCG sector, in particular, can benefit from bigger warehouses closer to cities, to serve (online) customers as quickly and cost-effectively as possible. Economies of scale result from higher utilization, up-to-date efficient technologies and automation and an integrated order fulfilment and distribution network.

2degrees worked with a leading UK supermarket to identify savings through optimizing distribution capacity in its supplier network. It found a cost saving potential in the range of €0.1-0.4 billion. Applied to the wider FMCG sector, thisrepresents an estimated 4-15% saving potential through shared transportation and further savings potential of up to 20% through shared warehousing.


Strategic benefits

InnovationWe have already seen how collaborative behavior can drive innovation, for example in product design and packaging which reduce waste and increase efficiency. Only by sharing information and seeking synergies beyond its direct operations can a business access the knowledge, skills and talent to enable it to innovate.

Competitive advantage The sharing of knowledge and best practice does not, as some might assume, impede competitive advantage, but can actually enhance it. Innovation, the advantages of speed and scale and greater access to resources are all key factors to achieving competitive advantage.

Risk reduction and security of supplyCollaboration strengthens relationships throughout the supply chain, benefiting both the suppliers and the retailers. Suppliers are incentivized to participate and invest in retailer-driven efficiency

initiatives in order to secure longer-term contracts and future security. Retailers are in turn incentivized to invest in and engage with their supply chain, in order to ensure security and quality of supply.

Transparency and traceabilityModern supply chains are increasingly complex, often with a global reach and involving multiple sub-contractors. Recent food scandals and major health and safety failures, such as the Bangladesh factory disaster, only highlight the importance for complete supply chain transparency and traceability. Only by truly engaging and connecting with its supply chain can a company minimize risk and build customer confidence.

Brand reputation

Such customer confidence is an influential factor in building brand and establishing the reputation of a business. Today’s consumers want brands which they can trust and which can demonstrate social and environmental credentials.

So far, we have demonstrated tangible examples of how working collaboratively can have both an immediate and long-term impact on a business’ bottom line. However, there are many further benefits which are harder to quantify, but no less compelling:


Strategic benefits

IKEABrand Reputation

Swedish furniture and textile company, IKEA, works with WWF and other local partners to help cotton farmers introduce more sustainable growing practices. The share of more sustainable cotton in the IKEA range increased by 50,000 tons in 2011, accounting for almost 25% percent of its textile products. By advertising this fact to customers, IKEA acknowledges the ‘green’ marketing benefit of this initiative, reinforcing the integrity of it its brand.

Innocent Drinks Risk Reduction

Innocent Drinks, a large user of blueberries, recognized that there are very few growers of blueberries in the UK. It therefore built a longstanding relationship with the leading grower with long- term contracts. The grower accepted a lower price for his produce in return for the surety of the off-take and was able to invest in his business to improve his yields and service to Innocent Drinks.

Case studies

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More organizations are facing up to the challenges of resource efficiency, security of supply and sustainable innovation for their customers. They realize the needs to compete not just as a brand, but as an entire supply chain. This means that communication, co-operation, collaboration are not mere ‘buzz’ words. These are the tools for a better, more efficient, sustainable and, ultimately, more profitable business.

As a crucial element in a broader sustainable business strategy, collaboration is essential to achieve significant cost savings in the areas of energy, waste, procurement and distribution, as well as generating important strategic and long-term benefits.

But change requires the commitment of senior leadership and the engagement of operational management along the value chain. To seize these very real opportunities, companies must look beyond their immediate boundaries and start a conversation with a wider network of suppliers, peers, colleagues and consumers to drive practical operational change.

Make it happen. Start your conversation today.

Conclusion

About 2degrees2degrees Enterprise helps major corporations cut costs, reduce risk and grow by being more sustainable. We help them do this through a unique approach we call ‘fully-linked collaboration’. This transforms business practices and makes it simple and efficient for organizations to work closely and at scale with their suppliers, internal operations and customers - driving smarter, faster, sustainable business growth.

Our online service enables our clients to collaborate with hundreds or thousands of stakeholders to achieve significant and measurable outcomes. This is made possible through an innovative combination of our at-scale leading technology platform, our experienced engagement managers and unique collaboration processes.

Making Sustainable Business Happen

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Joining Forces - the case for collaboration