DRIVING SUPPLY CHAIN EFFICIENCIES
Retailers recognize that managing the complete life cycle of the products they sell is a valuable competency to leverage as their sustainability efforts progress. Doing so helps them identify opportunities to cut costs and innovate products as well as potential business and supply risks.
Retailers can intervene in their product supply chains to achieve business and environmental benefits. Not surprisingly, transportation and logistics top the list of current activities that retailers have long focused on. Other product lifecycle issues that more than half of companies are addressing include reviewing materials of concern in products, packaging design, product take-back, and manufacturing’s environmental impacts.
MANAGING THE FULL PRODUCT LIFE CYCLE
Retailers are at different stages on the road to managing the full lifecycle impacts of the products they sell. However, it is important to note that four out of five retailers who responded to our survey intend to engage in nearly all aspects of product supply chain sustainability within the next five years: from product and packaging design (including measuring lifecycle impacts and chemicals of concern) to sourcing, manufacture (environmental and human rights impacts), transportation, sale, and product use and disposal (take-back options).
Design is the first stage in any product’s life. Considerations like product size, ingredients or materials, function, energy usage specifications, packaging, recyclability, etc., influence the future impacts associated with the manufacture, transport, use, and disposal of that product. Therefore, designing products with an eye to environmental efficiency—and cost savings and product innovation—is crucial. To do so first requires alignment within the company, including involvement from the merchandising, sourcing, and product design teams and then partnerships with suppliers. While only 48 percent of retailers report that they are currently designing products with the environment in mind, that figure is expected to increase to more than 80 percent in two years.
Lifecycle analysis (LCA) is a key tool for assessing the lifecycle impacts of products. LCAs account for the raw materials, manufacturing processes, transportation, and typical use and disposal of products to calculate the impact of products across the full supply chain. Using LCAs uncovers supply chain inefficiencies, innovative design and manufacturing techniques, and potential supply risks. Measuring lifecycle product impacts is expected to grow threefold from 23 percent today to 77 percent in five years.
Manufacturing operations are complex and global. Retailers work diligently to partner with suppliers and manufacturers to ensure that products are produced in factories with the highest quality working conditions, proper health and safety features, and ecologically-efficient production capabilities.
Components and finished goods are then transported across the globe. Transportation accounts for a small but important component of product cost and greenhouse gas emissions from the burning of fuel. Retailers who pursue transportation sustainability have experienced measurable savings by optimizing fleet efficiency through local sourcing, smart packing methods, route optimization, mode optimization, technology implementation, and setting goals. The recent surge in popularity of online retail shopping makes transportation improvements even more important as traditional retailers look to streamline costs and maintain store inventory.
At some point, consumers determine that they no longer need a product. In any locale, there are often multiple ways to dispose of unwanted products: donating, selling, recycling, and disposing are the most common. Some retailers have voluntarily developed customer recycling centers in stores where their capabilities, store footprint, and staffing allow for it and where the business can benefit from it. Some companies even provide incentives, such as cash or a gift card, for consumers to bring back their used goods for recycling. These incentive programs drive additional traffic and shopping trips to the store and spur sales of new items. Also, some of the products returned are still valuable—as fully functioning items or scrap materials—and retailers can reroute these products to offset costs or even open a new revenue stream.
INCREASING SUPPLY CHAIN TRANSPARENCY
New media sources and increased access to information throughout the world have allowed communication to be easier and faster. Additionally, certain regulations require public disclosure of social and environmental impacts throughout the supply chain, such as conflict minerals, human rights, and logging practices. These changes have led to a global trend toward increased transparency within the supply chain.
Questionnaires, scorecards, audits, and LCAs are simply some of the basic tools used to increase visibility within the supply chain. Long-term strategies include certifications, product traceability, supplier management training, data sharing, and more.
Transparency efforts pay dividends. From the standpoint of consumers, retailers expand their loyalty base when customers trust retailers and recognize their efforts, even when they make mistakes. And when operations are transparent, retailers and suppliers alike can more easily identify opportunities to improve performance and can develop plans to reduce costs or supply chain risks. However, it is also challenging for retailers—who sell many thousands of products, each with its own unique environmental and social footprint—to gather accurate product and sourcing data. Manufacturers’ energy, water, material, and ingredient usage is often thought of as proprietary information, meaning that they are unwilling to share it. Furthermore, current data systems and processes struggle to reach through the whole supply chain to the farms, mines, raw material sources, and numerous organizations involved, making it difficult to assess the impact of complete product life cycles and effect change.
MANAGING SUPPLY CHAIN RISK
The global recession has made companies more susceptible to market and supply chain risks. To maintain the health of their brands, retailers are working to manage and mitigate sustainability-related risks such as those related to reputation, agricultural output, commodity prices, resource availability, and the possibility of regulations.
Because retailers care about factory labor conditions and because media organizations are quick to identify labor concerns in manufacturing facilities, companies pursue risk management and sustainability efforts in order to ensure positive relations with their suppliers, consumers, and other stakeholders. Sharing success stories about sustainability efforts not only mitigates certain public scrutiny, but it also promotes a positive brand image. However, companies must be careful with their external messages, as public reporting exposes companies to additional accountability. Since much of a retail company’s value lies in the value of its brand, retailers recognize the importance of proactively mitigating reputational risks.
Agriculture is the foundation of many supply chains, from apparel to food. With the increase in extreme weather events like droughts, fires, and storms, agricultural-based supply chains will become increasingly volatile and difficult to manage. Water conservation, commodity efficiency (for cotton, grain, and fuel, for example), and other measures can be used as a hedge against increasingly severe weather conditions.
And as the public continues to recognize the importance of environmental stewardship and human rights in supply chains, they will advocate for stricter controls on global supply chains. Retailers are proactive about these issues, ensuring that they have a solid understanding, where possible, of the materials they use to make their products, where those materials come from, and how they are made.
PRACTICES OF TOP-PERFORMING COMPANIES
Supply chain sustainability performance
Focus on transportation, materials including chemicals of concern, packaging design, and product take-back