sustainable strategies

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Sustainable Strategies

IGD’s Hot Topic report to help plan your approach towards a sustainable supply chain

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© IGD© All rights reserved. No part of this presentation may be reproduced or transmitted without the prior permission of IGD.

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About this Report

• Why should you look at sustainability now?– What does sustainability include, industry initiatives & the priorities

• Carbon & Energy Management– Performance measures, KPIs, industry initiatives, best practice examples, supply

chain implications

• Packaging & Waste Management– The waste hierarchy, closing the packaging loop, KPIs, industry initiatives,

examples, supply chain implications

• Distribution Optimisation– KPIs, industry initiatives, best practice examples, improvement initiatives, supply

chain implications

• Sourcing & Supplier Engagement– KPIs, industry initiatives, best practice examples, supply chain implications

• Preparing your plan to meet future needs



IGD’s Research on Sustainable Strategies

• Online poll of senior retailer and supplier executives – 134 companies in 24 countries including 15 European countries

• Survey of senior supply chain professionals – 66 companies in 10 European countries including the UK

• Over 20 in-depth interviews with senior retailer and supplier executives and industry experts in Europe and the US

• Detailed analysis of CSR reports of the top 20 retailers from IGD’s Global Retail Index

• Analysis of the outputs from ECR UK & ECR Europe workgroups in the areas of sustainable distribution & packaging



Why should you look at sustainability now?

• Concerns over environmental degradation, resource exploitation and general business durability

• There are a number of supplementary reasons why sustainability has become more important. These are:

Commercial/pragmatic considerations

• Cost reduction

• Alignment with evolving consumer requirements

• Potential for increased shareholder value

• Protecting and developing the brand

• Safeguarding future business

Ethical/ idealistic considerations

• Political activism

• Economic/ ethnic/ religious favouritism

• Employee relations



Sustainability is rising up the commercial agenda

“There is a real change in terms of sustainability not being solely a corporate function but now filtering through the commercial and marketing

functions. This is a new way of doing business”.

“At first our buyers thought sustainability was a fad. However, measuring carbon footprints is built into the bonus system of all our senior managers

so they had little choice but to participate”.

“Consumers increasingly expect leading brands to do their share towards environmental and social issues”.

Senior Executives, Multinational Suppliers

Source: IGD International Sustainability Survey, May 2008



Sustainability is an opportunity to differentiate

6.1

6.4

6.8

7.0

7.2

7.2

7.3

7.8

5 6 7 8

Shopper demand for ethical products

Legislative compliance

Beliefs of management team

Innovation in products & processes

Potential cost savings

Opportunity to differentiate

Need for better customer engagement

Building a positive corporate image

Average RatingScale: 1 = least important, 10 = most importantSource: IGD International Sustainability Survey, May 2008

What are the influences that have shaped your company’s strategy on sustainability?



What does sustainability include?

ENERGY WASTE DISTRIBUTION WATER SOCIAL

•Energy efficiency

•Refrigeration

•Renewable energy

•Food & material

waste

•Packaging

optimisation &

innovation

•Recycling

•Road transport

optimisation

•Warehousing

•Alternative modes of

transport to road

•Water sourcing

•Water usage

•Embedded water

•Sustainable &

ethical sourcing

•Health & nutrition

•Community

Source: www.igd.com/sustainability



Sustainability: a long-term journey

Source: IGD Research, 2008



Industry initiatives & priorities

Source: IGD International Sustainability Survey, May 2008

1. Energy reduction

2. Waste reduction

3. Packaging reduction

4. Transport optimisation

5. Carbon measurement

6. Water management

7. Sustainable sourcing

8. Ethical sourcing

9. Eco-design of products

1. Energy reduction

2. Packaging reduction

3. Carbon measurement

4. Waste reduction

5. Transport optimisation

6. Sustainable sourcing

7. Water management

8. Ethical sourcing

9. Eco-design of products

NEXT 2-3 YEARSNOW



Carbon & Energy Management are fundamental

• Retailers are investing in new technologies across the supply chain and collaborating with manufacturers' to drive change

• The most advanced retailers in this area have made environmental initiatives central to their corporate strategy

• The focus of these retailers is to:

– Limit the environmental impact of their own businesses

– Engage with suppliers to drive change across the wider supply chain, and

– Build this into their communication strategy to gain a competitive advantage



Carbon & Energy – what is being measured?

• Leading retailers in the UK & Europe are focusing on limiting their own energy consumption & carbon emissions

• Typical measures include

– Energy consumption per case sold/ per sqm

– Electricity usage in facilities

– Greenhouse gas emissions from refrigerants’ loss

– Meeting energy standards for buildings

– Share of energy from renewable sources



Global retailers – Carbon & Energy KPIs

Retailer Key Performance Indicators

• Establish a Greenhouse Gas (GHG) Network to study and actively reduce its carbon footprint

• Be supplied 100% by renewable energy• Make new stores 25-30% more efficient by 2009 & existing stores 20% more efficient by

2012 • Reduce water consumption

• Carbon emission in tonnes, and per shipping unit (kg)• Energy consumption per sqm• Refrigerant consumption/ sales area (kg/1,000 sqm)• Water consumption in thousand cubic metres and per sqm

• Reduce carbon emissions from existing stores and distribution centres worldwide by at least 50% by 2020

• Reduce energy consumption per square foot by 10% by 2010 as part of a long-term commitment to reduce energy use by 50%

• Reduce its water consumption per square metre by at least 2% compared with 2006 • Work with SCI (Sustainable Consumption Institute) to investigate biofuels

• Extend the collection of key environmental figures to all Metro companies by 2010• Raise energy efficiency in its business operations• Develop guidelines for the application of coolants • Reduce fresh water consumed per square metre




Carbon & Energy – Industry Initiatives

Carbon offsetting High efficiency refrigeration equipmentMinimising wastewater discharge

Geothermal systems

Reduced air conditioningMotion activated light sensors

Cold/ hot air retrieval systemsAlternative refrigerantsReducing refrigerants leakageCarbon measurement of stores & warehousesRainwater harvesting

Carbon measurement of products (on a test basis)

Low energy lighting Adding doors to fridges and freezersLow water use appliances and housekeeping

Solar panels Wind turbines

Ease of implementationLowHigh

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What are other leading retailers’ key focus areas?

• Making ongoing improvements in energy efficiency

• Increasing the use of renewable sources of energy

• Reducing the emissions and energy consumption per case sold year-on-year

• Setting carbon targets for stores and other operations

• Reducing the consumption of water and the contamination of waste waters



Eco-design & carbon labelling – Industry Initiatives

Sustainable criteria in PL tendersCarbon labelling (on a test basis)Selling environmentally friendly products such as products made from alternative fibres

Selling environmentally friendly products such as home composting solutions

Energy-saving products e.g. light-bulbsConsumer education – e.g. leaflets, website

Concentrated productsDetergent and household product modificationDesign changes for electrical products


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Eco-design: what are other leading retailers’ focus areas?

• Promoting products that are good for the environment

• Minimising air transport while helping trade with developing economies

• Increasing the range of energy-efficient product ranges sold

• Helping customers choose energy efficient products

• Supporting the development of a methodology to measure embedded carbon within products and piloting carbon labels



Best Practice – Carbon & Energy

Source: IGD Research, Company websites, 2008



Supply Chain Implications

• The food supply chain will be expected to lead the way in reducing greenhouse gas emissions

• Increasingly, savings from energy efficiency & use of alternate sources of energy will gain strategic importance

• There will be greater focus and need for carbon measurement of the entire supply chain

• The supply chain will need to move from ‘quick wins’ to reduce energy consumption to looking at more structural changes to their operations



Packaging & Waste – what are industry priorities?

• Packaging reduction continues to be a key initiative, with a trend towards

– Reduction in volume & weight of packaging

– Increased sourcing of sustainable materials

– Further use of recycled material

• Retailers are engaging with suppliers to reduce waste generated at source by:

– Managing the waste hierarchy

– Closing the packaging loop



Global Retailers – Packaging & Waste KPIs


• Reduce overall packaging by 5% by 2013 & become packaging neutral by 2025• Replace PVC (polyvinyl chloride) in own label packaging• Zero waste in all Wal-Mart and Sam's Club stores by 2025• Reduce solid waste from U.S. stores and Sam’s Clubs by 25% by October 2008

• Reduce packaging by 10% by 2013• Increase recyclable content in packaging by 75%• Waste recycled in tonnes and per sales area (kg/sqm.)

• Reduce the weight of packaging on branded and Tesco own-label products by 25% by 2010

• Divert 75% of waste from landfill, as part of a long-term commitment to divert 80% between 2006/07 and 2008/09

• Where recycling units are present, double customer recycling by 2008 relative to 2006 levels

• Reduce carrier bags given out by 50% by February 2009 vs. May 2006

• Minimise the packaging of own brand products• Maintain the current levels of waste generation and recycling of 93% for German

operations• Reduce waste produced by other locations beyond Germany by at least 5%• Increase recycling levels in countries outside Germany from 64% to at least 67%




What are other leading retailers’ focus areas?

• Increasing the amount of packaging made from sustainable materials and its recycled /recyclability

• Reducing food waste and recycling, composting or using the waste as input for anaerobic digestion

• Extending the scope of packaging reduction agreements with suppliers

• Controlling cost of waste management

• Setting specific operational standards for measuring waste



Packaging & Waste – Industry Initiatives

Food waste sent for compostingUsing packaging scorecards with suppliers

Issuing packaging guidelines to suppliers

Local community partnership e.g. schoolsUsing recycled print material

Reusable secondary packagingClosed loop recycling schemes(test basis)

Using new types of sustainable or recycled materials (test basis)Compostable or degradable packaging (test basis)

Recyclability information on PL packagingCarrier bag recycling or chargingRecycling points at storeBack-office store recycling schemes

Reduced volume packaging e.g. concentrated/ refillable


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The Waste Hierarchy




Closing the Packaging LoopPackaging Cycles

Home

Retail

Extraction Manufacture Filling

Distribution

Inci

nera

tion

or L

andf

ill

Com

post

Return /

Reuse

Recycle

Tertiary Primary Secondary




Examples of RRP: Reducing Primary and Overall Packaging

Sou

rce:

IGD

Res

earc

h, C

ompa

ny w

ebsi

tes,

200

8



2007Count: 48 cartons Pack: 6 across X 8 deepPallet Configuration: 8 cases/layer;

80 cases/pallet

2008Count: 35 cartons Pack: 5 across X 7 deepPallet Configuration: 9 cases/layer;

90 cases/pallet

New shipper case: more efficient & environmentally friendly USA / Macaroni & Cheese

Benefits Easy open / Less labor Eliminate overhang

Printed case Reduced case count

Reduces corrugate by 20%



Germany / Central Europe Jacobs Coffee SRP tray facilitates in-store handling with minimal outer packaging waste

Corrugate tray – No hood – No wrap





• Regulation will focus on the issue of food-waste and portion size; retailers will continue to engage with suppliers to reduce waste

• Simplification (and the integration) of primary, secondary and tertiary packaging will lead to a shift in warehousing and transport strategies

• Closed loop packaging will gain traction and will become important in the movement of ‘consumables’

• With the increasing use of recycled plastic, standardisation of acceptable materials is likely

• Development of alternative types of packaging, packaging materials and systems will create new opportunities and challenges



Distribution – what are industry priorities?

• Transport & warehousing are visible parts of the food supply chain and key to supporting and delivering against the CSR agenda

• Major industry initiatives in this area include:

– Improving space utilisation and fuel usage

– Optimising road transport, including vehicle design, engine type, fuel type

– Building and retro-fitting warehouse facilities to improve sustainability

– Developing alternate non-road transport modes (rail, canals)



Global Retailers – Transport & Distribution KPIs


• Make distribution fleet 25% more efficient in three years• Make distribution fleet 100% more efficient in 10 years compared to current

levels

• Implementation of central distribution in a country

• Reduce the amount of CO2 produced in the distribution network per case delivered by 8% by 2008 and by 50% between 2006 – 2012

• Restrict air transport to less than 1% of their products• Improve efficiency in the distribution network through more efficient transport

methods

• Change the entire truck fleet to vehicles that comply with Euro 5 Standard by late 2009




What are other leading retailers focusing on?

• Increasing the use of bio-diesel in own fleet operations

• Introducing a ‘green’ travel policy to reduce carbon emission caused by travel

• Replacing fleet with vehicles that meet Euro 4 & Euro 5 emissions standards

• Using battery operated vehicles for online shopping deliveries



Transport – Industry Initiatives

Out of hours deliveries*Transport collaboration*

Logistics system redesign*

Modern engine design*Trailer designLarger vehicles*

Alternative fuels -natural gasAlternative fuels - Bio-fuelsAlternative fuels - ElectricityHybrid/ parallel hybrid(all often on a test basis)

Vehicle telematics*Driver trainingVehicle maintainanceVehicle utilisation

Modal shift/ inter modality (test)


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* Areas explored as part of IGD Research



Best Practice - Sustainable Transport




Technical improvements lead the way

Logistics system redesign

Vehicle telematics

Modern engine design

Transport collaboration

Out of hours deliveries

Larger vehicles 56%

69%

71%

71%

74%

76%

0 20 40 60 80

% mentioning already in use, under development or planned for the future




Warehousing – Industry Initiatives

Rainwater harvesting*Low water use appliances*

Timber from sustainable sourcesGreen roofsRecycled building materials Reclaimed building materialsRecycled floor coveringsOn site energy generation (wind, solar)*Geothermal heating and cooling*

Sun shading and insulationAir tightness & use of inner and outer doors

Energy efficient lighting*Housekeeping practices to save energyOn site recycling*


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* Key initiatives identified by ECR UK workgroup



High adoption of quick-wins in warehousing

Energy efficient lighting

On-site recycling

Low water use appliances

Rain-water collection

On-site energy generation

Green building materials

Geo-thermal heating/cooling

87%

13%

28%

48%

48%

60%

83%

0 20 40 60 80 100

% mentioning already in use, under development or planned for the future




Best Practice – Sustainable Warehousing





• Technology and innovation will continue to lead

• Best practice will move from quick wins to site-builds– Geo-thermal heating/ cooling, use of green building materials will soon become

more widespread

• Transport collaboration will gain momentum, for both inbound and outbound deliveries

• The use of shared warehouse facilities will increase

• The use of sustainability scorecards will feature as part of the selection criteria of logistics providers

• Standard 3PL contracts will incentivise providers to reduce road miles.



Sourcing & Supplier Engagement

• Three main trends in this area:

– Encouraging suppliers and associates on compliance to mitigate risk

– Engaging with suppliers on improving performance metrics including sustainability led criteria

– Developing new ranges to meet consumer (ethical shopping) needs

• As retailers make sustainability a core competence, suppliers will need to assess their end-to-end operations on these criteria



Global Retailers – Sourcing & Supplier Engagement KPIs


• Promote more sustainable practices in the food and agricultural industries• Make a broad range of familiar products more sustainable accessible to everyone• Source all wild-caught fresh and frozen fish for the North American and the UK

market from fisheries that meet the Marine Stewardship Council’s (MSC) standards

• Number of organic or ecological own-brand products listed • Number of Quality Line (supporting sustainable agricultural practices) products and

contracts • Percentage of controlled food products purchased from local suppliers• Number of fair-trade products listed

• To audit and register all organics growers in countries prioritised for the first of the three year Nature’s Choice programme and to ensure all comply with standards by the end of 2009/10. Nature’s Choice is Tesco’s integrated farm management scheme.

• Continue to source seafood responsibly.

• Extend the ‘Online Service-Food Safety’ (OSFS) system for fruit, vegetables, meat and fish by 2008

• Implement the IFS (International Food Standard) as the auditing standard for private label suppliers and the EurepGap for fruit and vegetable suppliers by 2008

• Develop a strategy to promote sustained fishery by 2008



Sourcing & Supplier Engagement – Industry Initiatives

Standards applied on fresh produceStandards applied on meatScorecards for retail buyers Sustainability audits

Pesticide reduction initiatives

Organic food certification

MSC or other fish certificationFairtrade certificationLaunching ethical private label rangesFocus on national or local foods

Ethical codes of practice


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What are other leading retailers focusing on?

• Support local businesses including small and medium-sized enterprises

• Support suppliers who are ethical and responsible

• Increasing sourcing from certified organisations and sustainable sources

• Improving standards of animal welfare



Best Practice – Sourcing & Supplier Engagement




Supply chain implications

• Increasing focus on local and regional products will challenge supply chains built to moving bulk groceries through a standard, national supply chain

• Rising costs of transport could undermine the benefits of centralised production

• The security and continuity of supply of internationally sourced products could further shift sourcing strategies

• The use of sustainability criteria-led scorecards in procurement decisions could affect supply chain strategy



How should you plan your approach?

• Energy, packaging & waste, sourcing and transport are priority areas for retailers

• The most advanced retailers have clear KPIs and have made sustainability central to their strategy

• To build a sustainable supply chain internal efficiencies will need to be addressed first before working externally

• The quick-wins will need to be balanced with the longer-term solutions across the wider supply chain

• Common solutions and partnerships will be essential, and industry working groups will be key to finding good solutions



For Further Information

• Visit www.supplychainanalysis.igd.com to understand the major issues affecting the FMCG supply chain with our Hot Topics

– Each Hot Topic is an in-depth guide designed to help you understand the background behind the issues, identify their benefits, see news and case studies from leading retailers and manufacturers, and recognise future business opportunities


sustainable strategies

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