Sustainable Production and Consumption (SCP) Challenges and Solutions Rutgers Center for Advanced Infrastructure and Transportation

Transcription

1 Sustainable Production and Consumption (SCP) Challenges and Solutions 2011 Rutgers Center for Advanced Infrastructure and Transportation

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3 Sustainable Production and Consumption (SCP) Challenges and Solutions AUTHORS: Mohsen Jafari, PhD Niloofar Salahi CONTRIBUTORS: Sara Salahi Niloofar Mirhosseini COPYRIGHT: Rutgers Center for Advanced Infrastructure and Transportation, 2011 cait.rutgers.edu

4 ABSTRACT This white paper is motivated by the fact that sustainability requires coordinated measures and integrated practices on production and consumption, and consumer products are common denominator for this integration. With consumers at the center of the loop and with sustainability as a differentiating attribute of consumer products, supply chains will soon be required to enhance their business models and practices. Businesses will be challenged to design, produce and deliver sustainable products without substantial price increases. Initial premium pricing will be expected to level off with higher market shares, adoption of advanced technologies and collaborative business solutions. Sustainability data on product basis will be a vehicle for consumer confidence and transparency across supply chains. Data integrity and availability will be a major requirement to run a sustainable business. The success of SCP is ultimately conditioned on producers, consumers and governments collectively meeting these challenges. While this article does not offer any specific solution to face these challenges, it sets the stage for a cloud computing platform supported by physical and virtual metering backbone for data gathering. This infrastructure will be an enabler for the businesses and supply chains to estimate energy content of their products (and services) on a quantitative basis, and use it for optimizing their business strategies and processes. With consumers at the center of the loop, businesses will be challenged to design, produce, and deliver sustainable products without substantial price increases

5 Sustainable Production and Consumption (Jafari, et al.) 2011 Consumers Desire More Sustainable Products The dynamics of supply chains has already started shifting from manufacturer-centered to retailer-centered with consumer satisfaction at the peak. Today it is retailers that drive the agenda and successful manufacturers are those who can meet customer demands for options, styles or features as well as fulfil and deliver orders quickly. Ultimately, supply chains will grow and be profitable by having the products and services consumers want to buy at the right time in the right place, consistently and cost effectively. On the other hand, consumers in the western countries are more demanding and sensitive to the ecological and social impacts of the products that they consume (see Figures 1 & 2). Over 25% of consumers surveyed by the EU poll are demanding the retailers to bring more sustainable products onto their shelve space. But this does not necessarily imply that they are willing to pay substantially higher premiums for eco-friendly products. Our poll indicates that majority of consumers are only willing to spend additional premium of 5% or less on products that are functionally the same but are more ecologically friendly. How much more would a customer be willing to pay for a product with less environmental impact? How important is the product s impact on the environment for a consumer when making a purchase decision? Figure 1. These polls are based on a sample of 650 responders in New Jersey.

6 How is it Changing? Switch-Asia funded by EU is aimed at introducing sustainable consumption and production (SCP) principles to Asian manufacturing communities. SCP is an attempt to reconcile the increased demand and bring a better quality of life, while minimizing the use of natural resources and wastage. With the consumers willing to share the responsibility and the increasing awareness on global warming, sustainability will be the new differentiating factor replacing the traditional factor of quality. With the quality factor becoming de-facto across many supply chains, product and service branding will be recognized more and more with sustainability and how effectively and economically it is delivered to the market. While sustainability will be initially at a premium that some consumers will be willing to pay, the cost effective delivery of it will ultimately drive the market share for sustainable products and services. Through local programs and globally funded efforts, Asia is already practicing some aspects of sustainable production 1. Western markets, especially European Union markets, are also demanding more sustainable products (see Figure 2) 2, through eco-reporting and eco-labeling practices. There is already a coalition of businesses and government organizations in New Zealand united by a shared commitment to sustainable development via sustainability principles. These have already been practiced in food product supply chains. 3 There are similar examples in the United States too. Green Seal is a nonprofit standard-setting organization that awards the Green Seal of Approval to products that cause less harm to the environment than other similar products as defined by their certification standards. Green Seal both develops environmental standards for product categories as well as carries out the actual certification of particular products from interested manufacturers. Examples of available Green Seal standards are household cleaners, alternative fueled vehicles, dishwashers, refrigerators, etc.

7 Consumer Purchasing Habits and Promotional Campaigns What are the best ways for retailers to promote environmentally friendly products? Provide Better Information for Consumers Increase the Visibility of Environmentally Friendly Products on Shelves Have a Dedicated Green Corner Within Stores With Environmentally Friendly Products Only Have Regular Promotions Focusing on Environmentally Friendly Products Don t Know/ Not Applicable How important are the following aspects when making a purchasing decision? Quality Price 2% 1% 1% 8% 2% 1% 67% Very Important 30% Rather Important Rather Not Important Not Important 47% Don t Know 42% How important 18 is eco-labeling when making purchasing decisions? Impact on Environment Brand Name 2% 4% 1% 12% 23% 14% 25% 34% 37% 49% Figure : Europeans attitudes towards sustainable consumption and production, Hungary, 2009

8 Business Challenges With or without government regulations and incentives, many supply chains will soon be asking these questions due to increasing market pressure. But unless sustainability and business process optimization are properly interlinked, there will be reluctance on the business side to fully endorse its adoption. To compound the complexity of this problem even further, the two objectives above work on two different time scales and could be perceived as conflicting, at least initially. Business process optimization is intended for rapid return of investments and higher productivity, whereas sustainability requires a longer time horizon for profitability. Furthermore, while business process optimization Trust and transparency within the supply chain will play an important role in building value at the network level. How to make an eco-friendly product with minimum price increase How to build credible consumer perception that the product is indeed eco-friendly How to create credibility and trust between the business partners within supply chains usually emphasizes local effects and internal business impacts, sustainability is measured at supply chain level with the goal of optimizing the overall network value. Change in corporate culture and appropriate decision making instruments are required to tackle these issues. Building credible consumer perception requires systematic and holistic measuring and monitoring tools and reporting instruments at individual organizational levels and robust communication channels amongst the organizations within a supply chain. Trust and transparency within the supply chain will play an important role in building value at the network level. Data integrity and unified measurement scales and units across the supply chain will contribute to the credibility of sustainable supply chains. Sustainable Production and Consumption 2011 Sustainable Production and Consumption (Jafari, et al.) 2011

9 Figure 3: The Wheel of Consumption and Production Activities. Transportation Residential Commercial Industrial Industrial Subsectors* Transportation Subsectors* Commercial Subsectors* Paper (383) Education (30) Food and Beverage (3141) Computer and Electric (4063) Chemicals (66) Passenger (17, 997) Freight (6,550) Office Building (64) Health Care (79) Retail/ Service (50) Printing (718) Apparel (861) Furniture (233) Plastic and Rubber (142) *All figures in TBtu

10 Technical Challenges To build the above tools and instruments requires international standards and access to an enormous space of different data sources and data types, some with a substantial level of uncertainties and some others immeasurable with current instruments. Focusing only on the existing data sources, there are three fundamental areas to cover: standards; macro-level footprint and emission data and statistics to set business strategies; and computational models and supporting business tools and data for product-level footprint calculations and business optimizations. The existing international ISO family of standards have been designed to assist companies in reducing their negative environmental footprint, including design and implementation of effective environmental management systems; life cycle assessment (LCA) and life cycle inventory (LCI) Product-level footprint and energy content calculations require a holistic view of what goes into the product from natural resources to human labor. guidelines; and measurement and quantification and reduction guidelines for GHG emissions. There are also environmental labeling programs introduced by the U.S. EPA. More comprehensive international standards are required on unified measurement units and techniques for footprint calculation of products (on the basis of emissions and energy content) over a two-dimensional space of lifecycle and supply chain. Product-level footprint and energy content calculations require a holistic view of what goes into the product from natural resources to human labor. Figure 3 (previous page) illustrates a wheel concept where the outer ring defines the product lifecycle, and the most inner ring gives the four main sectors of the economy (i.e., industrial, residential, commercial, and transportation). The wheel is indicative of a continuum space over which the relationships between the contributing elements are defined. The rings in between demonstrate the contribution of these sectors into the making and the whole lifecycle of the product. Clearly, accounting for all the energy units that go into a product (including what is used for cleanup of wastages and pollutions) is a formidable task, due to many uncertain and immeasurable contributing factors, the lack of appropriate computational models, and the lack of information infrastructure. The urgency for information is already felt in commercial circles in Europe, a few private companies 4 have already started commercializing carbon footprint data for a number of industrial applications.

11 Sustainable Production and Consumption (Jafari, et al.) 2011 For businesses to strategize and supply chains to set the stage for negotiations, macro-level computations and analysis may be sufficient. There are statistics published by the U.S. Department of Energy 5 on the relationship between the four sectors and natural resources. By interlinking this data stream with the business and trade data published by the U.S. Department of Commerce 6, and using economic input/output (EIO) models, one can roughly estimate product footprints at an aggregate level. For eco-labeling of products and/or process optimizations, micro-level product footprint computation and analysis will be required. Recalling the wheel model, a comprehensive mapping of the contributing factors and their interrelationships must be created and supported by measurable and readily accessible data and accurate statistics. It is more than likely that some product emission and energy data already exist in the current business information systems. For instance, energy content of products at the manufacturing stage may be extracted by carefully reviewing accounting and engineering data sources. Similarly, primary and secondary transportation emission and energy data may reside with logistics companies. The usage data may also be tractable even at individual households by proper metering. An ideal information infrastructure must support distributed data and computation platform data ownership, tolerance and integrity, transparency, accountability, and contractual agreements across supply chains. Educational Challenges Consumer education on consumption footprints and the sustainable marketplace are the key elements of successes for SCP. Thirtyone percent of consumers polled by an EU survey (see Figure 2) are demanding more information on sustainability from retailers. Businesses must also be educated on how to change the corporate culture and to integrate sustainability into their business practices in the most efficient ways. Credible channels must also be opened between consumers and retailers, and between retailers and their supply chains for communication and exchange of information. Primary and higher-level educational institutes need to effectively and expeditiously build the necessary curricula to educate future buyers and sellers.

12 CONCLUSION SCP is a challenge that governments and businesses must take seriously. Gradually, market pressure is building up, especially in Western countries, by consumer demand on eco-friendly products with no substantial increase on price. Eco-labeling of products will soon be a marketing tool for product promotions and strategizing higher market shares. Challenges facing businesses and supply chains are immense and include, but are not limited to, standards, viable data and measurement techniques, and computation models that sustain decision support tools for strategizing supply chains and optimizing business processes. While the existing information repositories of companies can be mined for some of the energy data that goes into products, many additional external and internal data elements are still necessary. We envision a cloud computing application platform where the underlying data flow and calculations are driven by a distributed flow model defined on a two-dimensional space of product lifecycle and supply chain. The backbone for this infrastructure includes physical and virtual metering (i.e., indirect calculations using existing metered/sensory data) and instrumentation of business processes across supply chains and product lifecycles. The details will be explained in another upcoming article. Eco-labeling of products will soon be a marketing tool for product promotions and strategizing higher market shares.

13 Sustainable Production and Consumption (Jafari, et al.) 2011 More Readings 1 A Key Solution To Climate Change: Sustainable Consumption and Production, Switch-Asia Network Facility, Europeans attitudes towards the issue of sustainable consumption and production, The Gallup Organization, Hungary, New Zealand s business council for sustainable development, 4 Carbon Trust, U.K., Default.aspx 5 U.S. DOE/Energy Information Administration, Annual Energy Review, U.S. Department of Commerce/Bureau of Economic Analysis, benchmark input/output data industry/io_benchmark.htm

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