The building blocks of product and supply chain sustainability

Adam HydeBlue Tree Strategies

Northwest Food Processors Association

Sustainability SummitApril 18, 2012

Contents

Target: be convinced that sustainability is the single greatest source of competitive advantage in the 21st Century

Objectives:

I. Provide context for a strategic sustainability approach

II. Help suppliers think like a retailer (or large customer)

III. Make the case for collaboration

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LIFE SUPPORT SYSTEMS DECLINING

POPULATION & GDP RISING

The defining challenge of the 21st Century

4

Meet the challenge

Underlying trends are not going away

Requires radical reductions in resources and waste per unit of GDP

Implications for business

Risk – Disruptive change

Opportunity – Innovating to create new products and processes

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“Every single pressing social and global issue of our time is a business opportunity”

- Peter Drucker

Legal Compliance

Led by Legal

Most Companies

CSR, Environmental Protection,

Philanthropy

Led by staff (e.g. CSR, PR)Separate from the business

Most MultinationalsHome Depot, Starbucks

Business Value from Smaller Footprint and

Solving World’s Challenges

Driven from the top Led by line management

Integrated into the business

DuPont, GE, IKEA, Interface Carpets

Don’t get in legal

trouble

Be a good corporate

citizen

Compelling business

proposition

TraditionalBusiness

StrategicSustainability

Social Responsibility

Strategic sustainability

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Strategic sustainability can deliver three types of value

Cost - do more with less (energy, waste, materials, water, pollution

Revenue – new products, new markets

Shared / Amplifier – policies, practices and initiatives that advance conditions for economic and social progress through engagement Within supply chains Across silos Among stakeholder communities

Contents

Target: be convinced that sustainability is the single greatest source of competitive advantage in the 21st Century

Objectives:

I. Provide context for a strategic sustainability approach

II. Help suppliers think like a retailer (or large customer)

III. Make the case for collaboration

Environmental Footprint

The vast majority of environmental impacts related to Wal-Mart’s The

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Illustrative

Think like a retailer or large customerThe majority of impacts are not under a retailer’s direct control.

Reducing the retail footprint of products and supply chains demands collaboration with

suppliers, to understand impacts and then identify and implement innovative reduction strategies.

Strategy development

① Understand risks and opportunities

② Prioritize areas for action

③ Set goals for improvement

④ Engage suppliers to move the needle

EXPANSIVE DECISIVE

Engage Explore Expand Distinguish Decide Define

CONVERGENTDIVERGENT

Factory / facility audits

① Assess environmental and social performance at facility level

② Establish performance baseline

③ Benchmark against standards and peers

Footprinting

① Determine lifecycle approach and boundaries

② Apply lifecycle lens to products

③ Identify “hot spots”

④ Identify levers / strategies for reducing impacts

Concentrations of impact = opportunities for innovation !

0%

5%

10%

15%

20%

Climate

Air Pollution

Water Pollution

Water Use

Land Use

1Excludes some dry groceries such as beverages which have been analyzed separately

Type of Footprint

Note: Based on order-of-magnitude environmental impact model that uses footprint intensity factors developed by the Union of Concerned Scientists. Model has many limitations but is suitable for providing directional guidance and strategic perspective.

1

Mea

t

Dry G

roce

ries

Produ

ceDair

y

Café

Snack

Bar

Bever

ages

Froze

n Foo

ds

Cerea

l/Bre

akfa

st

Baked

Goo

dsAlco

hol

Toba

cco/

Cigare

ttes

OilsCof

fee/

Tea

Seafo

od13

Example

Understanding what matters2006 food footprint, based on Wal-Mart’s total footprint

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Example

Understanding what mattersGHG footprint of the U.S. Diary Industry (Fluid Milk)

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

62%

23%

4%

10%

0%

44%

56%

84%

14%

0% 1% 0%

The biggest impacts are on the farm Greenhouse Gas Emissions (kg CO2e/kg eggs) Water Pollution (grams PO4-e/kg eggs)

% o

f to

tal life

cycle

im

pact

Crop Production& Processing

Egg Production & Processing

PackagingTransport / Distribution

Retail

Lifecycle impacts of an egg

Example

Results:1. Gained third-party certification

2. Demonstrated commitment to lowering

carbon footprint

3. Identified carbon “hotspots” in product

lifecycle

4. Became empowered to collaborate with

suppliers

5. Learned a lot about bagasse products

Carbon footprint of bagasse compostable tableware

Example

Supplier scorecarding

① Establish common measurement system & standards, often aligned with retailer’s priorities and goals

② Measure and track sustainability performance of supplier companies

③ Integrate sustainability metrics into existing supplier scorecards

Purchasing / sourcing policies

① Identify sustainability criteria / standards / certifications to address life cycle areas of concern

② Integrate into product specifications, sourcing practices, supplier evaluation

③ Drive continuous improvement in key impact areas throughout the value chain

Step 1 – Wal-Mart’s “The 15 Questions”

Step 2 – Product Life Cycle Analysis Database – The Sustainability Consortium

Step 3 – Merchant and Customer Engagement

“Democratization” process underway

Today’s Business Practices

SustainableBusiness Practices

Sustainable Pathway

A “bigger win” for business

and a “win” for society

Quick Wins

Innovation Projects

System Change

Focused on a “win” for business Engaging with stakeholders

and partners of all types

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Supplier implementation: Organize around a tiered set of actions

Quick wins and innovation projects

Operations Work with distribution network to optimize logistics efficiency Streamline materials management & recycling (sandwich bales) Organics diversion & conversion (compost & energy) Conduct energy and water audits and invest in conservation

measures / process improvements Source renewable energy (onsite generation, utility programs) Build high efficiency facilities (e.g. Kettle’s LEED Gold facility)

Product Packaging reductions (ripple effect) Packaging material innovations (e.g. commercial compostability) Product reformulation (concentrated detergents, toxics

elimination) Certifications (e.g. Organic, Salmon Safe, Food Alliance, etc.) Product traceability (e.g. Patagonia Footprint Chronicles)

Contents

Target: be convinced that sustainability is the single greatest source of competitive advantage in the 21st Century

Objectives:

I. Provide context for a strategic sustainability approach

II. Help suppliers think like a retailer (or large customer)

III. Make the case for collaboration

Supplier / value chain collaboration

① Demonstrate sustainability leadership

② Differentiate your company & product with key customers

③ Drive product innovation

④ Reduce life cycle impacts

⑤ Create shared value

Business transformation

Industry collaboration

① Address complex challenges that individual companies can not do alone

② Often about changing the rules of the game of the economic system

③ Intensive & pre-competitive, within and across industries

④ Involves NGO’s, GO’s, academics, experts

⑤ “System Innovation” examples include: Magazine industry waste reduction Dairy industry carbon reduction Sustainable cotton sourcing

System change = major opportunity

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Summary Increasing pressures on business

Address society’s challenges Eliminate negative impacts

These expectations can be a source of innovation and competitive advantage

Leading companies will seek to understand societal challenges and trends, integrate sustainability into their strategies, and creatively collaborate with stakeholders to: Identify and manage risks Improve operations Reduce costs Develop new products Enter new markets Foster systemic change