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Sustainable Supply Chain Overview What’s the Issue?

• Stakeholder pressure for companies to measure and reduce greenhouse gas emissions across supply and value chains

• Increasing Government focus on sustainable procurement – placing pressure on suppliers and service providers

• Changing consumer trends and expectations

• Investment analysts increasingly incorporating environmental, social and governance (ESG) factors

• Increasing focus on resource efficiency and waste minimization as key drivers of innovation and business value

• Evidence that poor management of sustainability risks can result in significant costs, depressed sales and broader reputational harm.

2

Sustainable Supply Chain What Does it Really Mean?

Supply Chain experts have, for many years, balanced conflicting priorities of quality, cost, and risk. In today’s world, decisions often need to incorporate environmental, social, and economic considerations.

A major British department store estimated that they have a direct influence on less than 10 percent of the life cycle of their products. Sustainable supply chain is about ‘managing the impact’ of the remaining 90 percent.

CostCostQuality/ performance

Quality/ performance

SUPPLY CHAIN VALUE

EQUATION

SUPPLY CHAIN VALUE

EQUATION==Risk

profileRisk

profile++ ++ ++

Environmental: reduce overall consumption of goods and services; understand the carbon footprint of your supply chain; encourage product re-usage and resale; reduce waste and water pollution.

Social: understand human rights impact within your supply chain; manage the labor issues within your supply chain; work against corruption in all its forms.

Economic: seek to offset potential increased pricing through lower consumption; consider increases in revenue by taking sustainable option; build disposal into the total life cost model.

Environmental: reduce overall consumption of goods and services; understand the carbon footprint of your supply chain; encourage product re-usage and resale; reduce waste and water pollution.

Social: understand human rights impact within your supply chain; manage the labor issues within your supply chain; work against corruption in all its forms.

Economic: seek to offset potential increased pricing through lower consumption; consider increases in revenue by taking sustainable option; build disposal into the total life cost model.

HOLISTIC APPROACH

TRADITIONAL APPROACH

Sustainability considerationsSustainability

considerations

Sustainability considerations – management of key risks and opportunitiesSustainability considerations – management of key risks and opportunities

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Sustainable Supply Chain OverviewTriggers for an Organization’s Supply Chain Sustainability Response

Product improvement or consolidation

Process redesign/ transformation

Competitive positioning

(e.g. low carbon products, fair

trade, organics)

NGOs* pressure and campaigns

(e.g. child labor, farming practices,

certified wood products)

Legislative change

(e.g. greenhouse gas emissions

reporting)

Customer attraction and

retention

(e.g. ‘green’ purchasing

criteria)

Resource price, availability & substitution

(e.g. rise of bio-plastics/alternative

feed stocks)

Investor pressure and

reporting expectations

(e.g. Carbon Disclosure Project

(CDP))

Corporate sustainability

targets

(e.g. contribution towards internal

targets)

Risk management

(e.g. improved management of potential supply chain events)

Resource efficiency

(e.g. reduced waste production,

reduced input costs)

Value creation

(e.g. improvement and introduction of new products and

services)

Contract reviewDevelopment of a low

cost country sourcing strategy

Typical triggers for organization’s supply chain sustainability response

* Non-Government Organizations

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Sustainable Supply Chain OverviewWhere is the Value to an Organization?

The value proposition of sustainable supply chain management:

Other potential benefits to be gained:

• Improved communication with shareholders on material sustainability risks and opportunities

• Improved management of issues associated with resource scarcity and/or resource substitution

• Improved confidence and knowledge to respond positively to critical media reporting.

Cost reduction

Revenue growth

Reputation enhancement

Risk management

Increased resource efficiency; rationalization of assets and suppliers; reduction in waste; reduction in packaging; reduction in disposal costs from removing hazardous materials from design; compliance with regulatory requirements can remove potential cost of non-compliance.

Introduction of environmentally or socially responsible products and services; penetration of new ‘responsible’ consumer markets.

Protection and enhancement of corporate reputation as a socially and environmentally responsible enterprise; improve employee morale and retention. Create collaborative relationships with supply chain partners.

Improved transparency in identifying and managing supply chain events and risks; respond to regulatory changes appropriately; protect brand and reputation.

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Sustainable Supply Chain OverviewAlignment Between SCO and the SSC

Supply Chain Optimization

This SCO methodology describes the business changes that are required to enhance an organization ’s supply chain model from the perspective of a number of often-interrelated perspectives (lenses). Sustainability is one of the eight lenses.

The methodology starts by assessing the existing supply chain model in terms of its support for the business strategy and taking into account the business environment, products, services and markets, and enterprise core competencies and capabilities. This leads to the development of a series of improvement hypotheses. The subsequent diagnostic is driven and scoped by the hypotheses and analysis is conducted to verify the hypotheses using the various lenses. This results in identification of a series of improvement projects organized into a program.

Short-term improvement opportunities are identified and implemented as a means of achieving early potential business benefit and as a means of funding the broader redesign of the supply chain model.

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Sustainable Supply Chain OverviewSCO model

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Sustainable Supply Chain Overview Applying the Sustainability Lens within a SCO opportunity

• Sustainability Positioning Review

• Sustainability Positioning Assessment

• Materiality Assessment

• Develop sustainable supply chain hypotheses

• High-level mapping and analysis of the supply chain

• Diagnose enterprise positioning within the SSC model

• Diagnose specific elements of the SSC model

• Refine hypotheses

• Consider lens alignment

• No additional guidance

• No additional guidance

• No additional guidance

DesignDesign MonitorMonitor Implement ImplementPlanPlan DiagnosticDiagnostic

PlanPlan DesignDesign MonitorMonitor Implement ImplementDiagnosticDiagnosticPlanPlan DiagnosticDiagnostic

Help develop future state design and

implementation plan

Help implement the design

Help monitor and implement lessons

learned

Help diagnose opportunities

Enterprise strategy review and assessment

SUPPLY CHAIN OPTIMIZATION METHODOLOGY

SUSTAINABILITY LENS

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Sustainable Supply Chain OverviewSustainable Supply Chain Model

Two additional supply chain-related components have been included in relation to ‘Design’ and ‘Service and End of Life’.

Information on each component within the SSC model is provided within this section.

SUSTAINABLE SUPPLY CHAIN MODEL

SourceSource OperateOperate DeliverDeliver

Service & End of lifeService & End of life

SuppliersSuppliers CustomersCustomers

Coordination and collaboration with channel partnersCoordination and collaboration with channel partners

Plan and ManagePlan and Manage

DesignDesign

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AppendixScope 1, 2, and 3 GHG Emissions

The GHG Protocol has classified GHG emissions into three key categories. It is important to understand the difference between the 3 scope categories as they underpin all legislation in this area.

Scope 1: Direct GHG emissions

Direct GHG emissions occur from sources that are owned or controlled by the company. For example: emissions from combustion in owned or controlled boilers, furnaces, vehicles, etc., emissions from chemical production in owned or controlled process equipment.

Scope 2: Electricity indirect GHG emissions

Scope 2 accounts for GHG emissions from the generation of purchased electricity consumed by the company. Purchased electricity is defined as electricity that is purchased or otherwise brought into the organizational boundary of the company. Scope 2 emissions physically occur at the facility where electricity is generated as Scope 1 emissions but are also counted by the consumer as Scope 2 emissions.

Scope 3: Other indirect GHG emissions

Scope 3 is an optional reporting category that allows for the treatment of all other indirect emissions. Scope 3 emissions are a consequence of the activities of the company, but occur from sources not owned or controlled by the company. Some examples of Scope 3 activities are extraction and production of purchased materials; transportation of purchased fuels, and use of sold products and services.