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How supply chain managers are looking at sustainability


iStock 000011494683Small webSome of our executives recently attended SCM World Live in Miami. While the reprieve from winter was probably appreciated, the key driver for our attendance is that the organization brings together a large number of innovative, successful, front-line supply chain practitioners who openly discuss problems and solutions. It’s not your typical trade show and we consistently learn a lot from these SCM World events. In the opening presentation in Miami, there was considerable reference to the SCM World Chief Supply Chain Officer Report 2013, a year-long study looking at “perspectives and practices of supply chain management around the world.”

One of the summaries that struck me was in the area of sustainability – something we’ve written about on this blog quite a bit over the last couple of years.

  • Almost 1 in 3 supply chain managers and executives polled say their business has already generated cost savings from managing energy efficiency, waste, supplier diversity and/or resource scarcity.
  • 80% are motivated by an enhanced image, although the true business case for implementation of programs rests more on savings than on the benefits of improved brand perception.
  • Most interestingly, the report indicates that we are moving away from on-the-surface programs – perhaps the most readily available and more easily implemented image builder activities – to systems and processes that are deeply woven into the daily execution of getting products to market.

We are certainly seeing this meaningful change among our clients, particularly those who are involved with groups like the Electronic Industry Citizenship Coalition (EICC), which accomplishes its aggressive goals through collaborative efforts and accountability all the way down the supply chain. Publishing corporate social responsibility KPIs and follow-up reports
helps drive sustainability efforts into standard operating procedure.  As we can see from the data, this benefits both brand and the bottom line.

Another data point in the extensive CSCO Report indicated that 89% of client sourcing and supplier management teams view strategic vendor and partner engagement as a competitive advantage. That’s the way we approach our business – by acting as a strategic business partner. The goal is to help our clients differentiate themselves from competitors through a tailored mix of supply chain and logistics programs that integrate efficiency, cost savings, brand objectives and customer expectations, from factory to doorstep delivery.

And this collaboration extends to sustainability in our own operations and by helping clients achieve their goals. Success comes through services that make a discernible difference in costs and on the environment, such as package design, optimized transportation networks and final product configuration close to the customer. For more specifics, download our most recent CSR
or for a shorter read, take a look at how we helped Toshiba Electronics Europe save money and improve their use of resources.  


Losing dim weight


dimweightI have held previous positions where there was a separation between packaging engineering and logistics. “We design what the customer wants, then it becomes logistics’ responsibility to calculate and figure out the method and costs for moving it around.” Over the past year at ModusLink I have had several dimensional weight projects come across my desk that show how these two disciplines are so clearly interrelated. 

For those not familiar with the term “dimensional weight,” let me explain. When carriers ship parcels by air, there are two different ways to cost the freight. These two categories are actual weight and dimensional weight. Actual weight is basically that—the actual weight of the item. In order to avoid losing money by shipping air in a too-large container, carriers will also calculate the dimensional weight of a parcel. This is often done with a formula such as (length x width x height)/constant. The two numbers are compared and the one that is larger is what the carrier will charge. 

In the submitted case study for our most recent Green Supply Chain Award, our client was using a stock package for shipments that were predominantly orders for a single phone, although the box could accommodate more. As a result, they were shipping unnecessary amounts of air and being hit by the larger dimensional weight shipping costs. By designing size-appropriate packaging, ModusLink was able to have shipments charged at actual weight. This relieved the client of the dimensional weight surcharge for over 90% of their orders. 

Another benefit with this redesign is the elimination of unneeded bubble wrap. Not only is this a material and labor costs savings, but the lack of excess packing material also gives an improved out of box experience. By removing bubble wrap, which the customer ultimately has to throw away or try to reuse or recycle, and reducing the shipping box’s size, our client was also able to achieve a reduction in the carbon footprint for the packaging by decreasing the CO₂ generated to produce the packaging materials. 

Combining packaging engineering with logistics is the smart approach. In this case, it checked all the boxes (pun intended) and provided a package that was less costly to ship, less costly to source, measurably more sustainable, easier to assemble and a better experience for the customer.

-Tyler O’Neill is a packaging engineer at ModusLink


The links between CSR and operational efficiency


describe the imageCorporate Social Responsibility or “CSR” today goes far beyond a feel-good message. As my colleague Doug Cutler discussed in a recent article for Supply & Demand Chain Executive magazine “it is in many cases a fundamental business requirement for ModusLink as a supply chain provider to be heavily engaged in the same environmental, health and safety programs as our clients.” The fact is more and more companies are looking at global CSR-based initiatives like EICC and incorporating those principles not only into their own operations, but also into their supplier requirements.

This is obviously moving large numbers of companies in an excellent direction toward real and measurable improvements in ethical and environmental standards. And in many cases, there can be clear synergies between CSR initiatives and business-driven initiatives.

For example, we recently worked with Toshiba Electronics Europe on a packaging redesign (you can read the full case study here.) The engagement resulted in a best of both worlds situation.

The company experienced clear bottom-line cost savings by overhauling its memory products’ packaging—in some cases with up to 80% less material. By carefully taking stock of the environmental impact in all aspects of their business, Toshiba naturally measured the sustainability impact of this efficiency project. The company can report that not only did they save considerable money by reducing materials use and improving the shipping density of their products, they also realized a 31% reduction in annual CO2 emissions as a result.

I believe this will become a norm as enterprises begin to routinely think about operational improvements and CSR initiatives in tandem. What better place to start than with your supply chain?


Defining Sustainability


describe the imageWhen I ask friends, family and colleagues how they view the topic of sustainability, I usually get the expected buzzwords—green, environmentally friendly or recycling are leading answers. In the academic environment, I had more than one instructor quote the Seven Generation Iroquois proverb and push the ideal of giving back and correcting more than you have taken away and have destroyed. At this point one may still be left asking “What is sustainability, how do we convey it and how can you possibly measure it?”

Personally, I view sustainability as larger than just an environmentally friendly stance or a corporate mission statement. To be sustainable you must have an objective and path forward that promotes survival. For a business, this means making decisions in its own self-interest, while also being conscious of the environment. There is a balance that must be achieved between the planet and business, preservation and growth. Building a business and profits while also being able to limit one’s adverse effect on the environment should be the global sustainability goal of a company. Often a dichotomy exists between business and the environment that is unnecessary and unproductive. Packaging can be a tremendous asset for a company’s sustainability goals and is a great example of these two principles working together.

Whether it’s been fashionable to promote or not, package engineering is a discipline that has always worked towards sustainability. Of course it can be deviated from when not properly conducted, but the science of package engineering is not new and its goal of achieving optimal packaging supports business growth and resources. Distilled down, it is the minimal amount of packaging that is required to deliver a product undamaged to a customer. As engineers, we have specific tests and standards that we follow to scientifically determine if a package is within this optimal zone. Different materials, shapes, technology, marketing, deadlines and emotions will inherently play a role in the outcome, but science helps to dictate the optimal packaging solution which is the most sustainable.

Let’s see how packaging is a player in promoting sustainability and brings it full circle into helping a business’s bottom line. The proper selection of material equals less cost, which helps increase profits. Satisfied customers receiving functional items equal fewer returns and repeat business, which also translates into future profits. Minimal material and the use of recycled and/or renewable material helps reduce the impact on the environment. Together, these elements clearly play a huge role in achieving a business’s global sustainability goals.

Going back to science, it is through tools such as the WalMart Scorecard that we can assess and determine the amount a CO2 that is generated within the lifecycle from raw material(s) to one of our solution centers, where the product is packaged. Sustainability isn’t just CO2 or reduced or recycled materials, it is also reflected in other areas like pallet densities. For example, how much more can we fit on a shipping pallet through package size reduction? Any improvements will result in freight savings, which will result in reduced gas consumption – again, both a cost savings for the company and an environmental benefit.

A global view of sustainability well executed can almost always circle back to the company through profits, allowing the business to succeed and grow and implement even more new sustainable ideas. The integrated view best helps people realize the importance and understand the meaning and impact of corporate sustainability.

-Tyler O’Neill is a packaging engineer at ModusLink where he works with clients across the globe to develop new packaging designs that improve sustainability.


Keeping Score on Supply Chain Management Performance


According to The World Bank, the global economy is experiencing strong headwinds in the form of Euro uncertainty with deleveraging from European Banks, fiscal consolidation from high-GDP countries while key developing countries are facing production constraint with their capacity utilization. All these drivers are translating to moderate growth for 2012.

All facets of business are buckling up in the wake of anaemic growth and poor runway visibility. This would imply to the supply chain function as well with newly laden pressures on raising the bar set on the balance between market responsiveness with cost efficiency.  In the process of rationalising which process needs improvement, Michael H. Hugos in his book “Essentials of Supply Chain Management” provides 4 paradigms to frame supply chain performance measurement:

Customer Service: Defines the ability of the supply chain to meet the expectations of the customer in terms of product availability and delivery turnaround time. This expectation varies from market to market. Zappos, the online merchandising company known for its customer service and customer loyalty, overhauled its supply chain strategy by eliminating the drop ship model from its business in order to improve order fulfilment to its customers. In his book, “Delivering Happiness”, Tony Hsieh talks about how Zappos chose to run its warehouse 24/7 in order to maximize customer experience by getting orders to their customers as quickly as possible.

Internal Efficiency: Refers to the capabilities of the supply chain to achieve appropriate level of profitability that is associated with the market conditions. For instance, in some mature markets where demand forecast is more accurate with less risk and also profit margin, supply chain can take the opportunity to leverage economies of scale and commit large business volume to boost the company’s gross profit and to make up for gross margin. On the other hand, form factor can be a key cost efficiency driver. In situations where the core product, such as a digital camera, only takes up 30% space of the final product packaging but accounts for 90% of the product value, it would be more cost efficient to air freight the high value camera to the regional distribution center but have the package sourced and perform pack out near the end-user market. This is discussed in more detail in the article from Loadstar, A tale of two parts: why the high-tech supply chain is coming to Europe, where the author, Gavin van Marle toured ModusLink’s Brno facility.

Demand Flexibility: Flexibility here is two-fold. First, it refers to the ability to respond to uncertainty in demand forecast and the fluctuations that happen concurrently in different markets. Second, it is defined by the ability to respond to uncertainty in the range of products that may be demanded.  In the white paper, “Meeting the Challenges of Supply Chain Management”  we rationalized that shipping units in bulk to regional distribution centers near the actual end-user market and performing localized configuration and/or packaging there might be the strategic choice for a business that has lower forecast accuracy (which could result in excess and obsolete inventory) and/or in cases where there are different end-market configuration requirements for finished goods.
Product development: This capability involves evolving along with the markets served. It measures the speed to develop and deliver new products in a timely manner. These capabilities can be pivotal in a developing market where the climate is shrouded with uncertainty in terms of demand and supply and industry platform and standards are still emerging and on tectonic grounds.

What are the areas your company looks at when trying to improve Supply Chain? Write and share your experience.


Energy Resources in Times of Turmoil – Costs on the Supply Chain


As 2011 draws to a close, I think it’s worth noting this was a banner year for supply chain disruptions.  Those disruptions covered the gamut from political upheaval to natural disasters and all had far reaching implications for supply chain professionals.  During the last 11 months, the global market has been impacted by the Arab Spring, the earthquake and tsunami in Japan as well as the flooding in Thailand.  Although the latter situation is still developing, we’re already feeling some of the impact – Honda, which has facilities in the flooded area, has been forced to roll back the availability of at least one of its new models.

While your operations or suppliers might not be in these regions, that doesn’t mean you won’t remain unscathed.  Here’s why: disruptions on this scale will absolutely effect the world’s energy production and cost.  And our modern supply chains are inextricably tethered to oil, gas, electricity and natural energy sources like solar and wind.  Let’s take a minute and break down how we consume energy.

  • Planes, trains and automobiles – Logistics account for a significant amount of energy consumptions worldwide.  And that consumption comes with a price tag.  As Dan Gilmore (@scdigest) states in an article on the topic, “… transportation is a huge element of supply chain costs, representing 6 percent or so of US GDP and even higher levels in many countries.”  The political unrest in the Middle East has strained oil production in countries like Libya.  In a March Special Report by Dun & Bradstreet, “The Global Fallout from the Middle East Crisis,” the disturbances were said to likely affect hydrocarbon prices and raise business costs.  Additionally, natural gas supply disruptions were predicted that would significantly raise counterparty risk and have ramifications on supply chains in Europe and around the world. 
  • Manufacturing – The ability to sustain manufacturing operations is based on energy availability.  We saw this first hand last spring in Japan.  In September, CNN reported the Japanese government mandated big industrial energy consumers cut down their power usage by 15 percent to avoid blackouts.  While the country’s manufacturing ability is improving, this isn’t a long-term solution.  And if you rely on components from Japan, chances are your business has been impacted.
  • Storage – Once made, products spend a certain amount of time in storage.  Keeping those products cool and secure adds to the overall energy costs.  While all products are likely to require high-tech security systems, storing temperature-sensitive products such as produce, pharmaceuticals and technology can add significant energy costs.  Ensuring the warehouses had sufficient electricity in Japan this year was yet another issue raised after the tragic events of last March.

The popular saying, “When man plans, God laughs,” has special meaning for supply chain professionals.  While there is no way to anticipate events that will impact energy availability and cost, there are steps you can take to mitigate those risks.  Here are five tips for your consideration as you plan for 2012.

  1. Ensure you have visibility into your suppliers’ sub-tier suppliers so you can quickly recalibrate your supply chain if energy availability will comprise your ability to meet production quotas.  Also, diversify your supplier base and develop relationships with suppliers in different regions around the world to ensure continuity if one region is impacted by a natural disaster.
  2. If your logistics costs are particularly high due to your industry segment or competitive pressures, consider hedging the price of oil.
  3. Adopt postponement strategies that allow you to finish products closer to the end consumer.
  4. Investigate more sustainable sources of energy.  Place your storage facilities in areas that can tap into natural energy such as wind or solar.
  5. Redesign your packaging for further pallet optimization.  This has additional benefits such as meeting retailer requirements and consumer demand for less packaging.

BP puts out an annual review of energy production and consumptions every June that is a veritable gold mine of information on the state of global energy.  In the most recent report, BP estimates that global energy consumption rose 5.6 percent in 2010, the highest rate since 1973.  It will be interesting to see how 2011 will compare given recent events.


Package Redesign Can Save the Planet


With Earth Day this Friday, sustainability and the environment are top of mind.  But it’s important to remember that small changes can have a big impact.  Especially in packaging design. The infographic below highlights real-world examples of changes in consumer electronics packaging and the resulting amount of CO2 that can be eliminated. 

ModusLink has helped our clients eliminate a combined 4,085 metric tons of GHG through package changes – the equivalent of 672 passenger vehicles not driven, 8,254 barrels of oil not used and 404,421 gallons of gasoline not used. Not only are these packaging changes good for the environment, they are also good for the bottom line, representing a $6.2 million annual cost reduction.

Do you have a package redesign success story? Share your experiences in the comments section below.

Sustainable Packaging - Infographic


Sustainable Packaging: Room for New organizations, Councils and Consortiums?


As I left Bentonville last week, wrapping up our semi-annual sustainable packaging meeting with the Walmart corporate team, I reminisce about a part of the meeting that made me feel a bit uncomfortable. 

Having been deep in the sustainable packaging movement for years, I felt like we were up to speed. At ModusLink, we beta tested both the Walmart and COMPASS packaging modeling tools before their launches, have been actively involved in the ISO standardization effort, judging awards programs and co-chairing sessions and speaking at various events over the years.  I thought we were at the forefront.

But an uncomfortable feeling came over me when the presentations started to roll.  One after another, the birthing of new sustainable packaging organizations, councils and consortiums were being announced, layered onto the existing gaggle of sustainable this and sustainable that already in place.  More meetings to attend on top of all our already saturated schedules at PIRA, SPC spring, SPC fall, ISTA, Walmart spring, Walmart fall, SPS, Esko, Pack Expo, East Pack, West Pack, etc etc … and that’s just grazing the U.S. events.  As a global company we keep tabs on European and Asian programs as well.

I looked around in the room and saw familiar expressions of concern among my brethren at the event.  During a break I had a conversation with a long time accomplice (we both have a reputation for boisterousness at the events).  “Victor,” I said. “How are we going to keep up with all these meetings?”  Victor owns a consultancy that prospers within the movement.  Unlike my role within the supply chain innovation group at ModusLink, sustainable packaging is his practice … 24/7.  “Chicago, then San Diego, now Bentonville …” Victor scowled. “And I’m starting to wonder why we need some of these new organizations.”

And that’s it.  Redundancy.  As we move through 2011 it will be more important than ever to harmonize our efforts within the movement.  Or else we could lose valuable time stopping the train and removing some excess baggage.  If we are ever going to make breakthroughs with sustainable packaging, educating the general public on what sustainability is and what they need to do to support the models we build behind closed doors within industry, we need to settle into an efficient stride.  Maybe we still have room for some new organizations, councils and consortiums … time will tell.


Walmart Sustainable Packaging Program Still Thriving


Last month, I found myself in Bentonville, Arkansas at our semi-annual packaging strategy meeting with Walmart.  It’s been a little more than four years since Walmart launched its sustainable packaging scorecard to its supply base, and the initiative is still thriving.  Just last year Walmart announced its incredible goal of eliminating 100% of its packaging waste by reducing, recycling or reusing everything that comes into its 4,100 U.S. stores by 2025.

In our meetings, we discussed a wide array of initiatives, assessed the tracking of goals, the setting of new ones and held information sessions on everything from Bisphenol-A (BPA) linings in cans, the state of the recycling infrastructure for paper liquid containers and low-toxicity label adhesives.

The dialogue continues to be fresh and high spirited as Walmart and its hand-selected strategic partners continue along the journey towards zero waste and sustainable solutions for packaging across all sectors of business. 

For me, the most impressive highlights are a commitment to pursue perpetual enhancements to the scorecard program (although it’s already the undisputed leading retail tool in the market) and the international expansion of the program beyond what Walmart has been able to accomplish already. 

One of the most profound elements of the Walmart sustainability strategy is the colossal savings it has realized throughout this journey.  From day one, Walmart has made it very clear that while the environment benefits from the company’s commitment to sustainability, a conscious eye is also focused on the bottom line and the efficiencies gained.

I haven’t seen a figure disclosed publicly, but would wager that Walmart has saved millions … maybe tens of millions of dollars over the past few years across all its sustainability programs.  I continue to be amazed by its leadership in the field and while some retailers are certainly further along than others, I wonder when the rest of the U.S. retail community is going to commit to sustainability strategically, build a network of experts and begin the journey to efficiency.  Why wouldn’t they?

What sustainable initiatives are you working on for your company? Share your experiences in the comments section below.


Carbon Reduction Makes Sense for Business


Green PlanetThe Carbon Disclosure Project (CDP) is a not-for-profit organization funded by governments and large corporate entities such as Microsoft and SAP. The purpose of the organization is to promote carbon reporting and assisting companies with putting a framework together to help with reporting.

The CPD just published its S&P 500 report. In this year’s report more S&P 500 companies reported their emissions up from 52% in 2009 to 59% in 2010.

The survey found that 70% of respondents plan to capitalize on opportunities related to climate change indicating that they see the value in carbon reduction strategies from both reducing costs and assisting in selling products or services. The survey found that 93% of the S&P 500 companies will be incorporating climate change risks or opportunities into there overall business strategy.

The survey also noted that outside the S&P 500 only 35% of companies are planning on integrating climate change risks or opportunities into their overall business strategy.  

So what does the survey tell us about companies that are reporting and acting on carbon deduction programs?  These companies are realizing opportunities by doing the following:

  • measuring carbon footprint 
  • executing measures to reduce carbon footprint including:
    • Making operations more efficient by utilizing energy efficient lighting and heating in buildings
    • Reducing the dimension of packaging  to reduce the amount of freight and components
    • Designing eco-friendly products that are lighter and more power efficient.
    • Disclosing their carbon reduction efforts

The survey overall is promising and shows that the leading companies in the world are taking measures to report and reduce carbon in their businesses.

How does your company measure its carbon footprint? What actions are you taking, or planning to take, to reduce your carbon footprint?


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