Understanding Key Sustainability Issues

Transcription

1 Understanding Key Sustainability Issues Monday, October 15 th 4:00 pm 5:15 pm The panel Jonathan Thatcher Nic Delaye Sunil Ambekar Rocco Ciccolini APICS PwC PwC PwC Director of Research Sustainable Business Solutions Director Operations Consulting Director Operations Consulting Manager 1

2 Introduction to the session Corporate sustainability is about improving the societal impact of an organization in a way that is meaningful, is measurable, and makes business sense. Therefore, a company s supply chain vision should focus on generating a positive environmental, social, and economic impact while increasing business value and controlling risk. In this session, the presenters will examine the types of business value, risks, and untapped business opportunities that stem from sustainable supply chains. In addition, PwC and APICS will launch an innovative research project exploring how supply chain and operations management professionals translate and deliver on the sustainability vision of their CEOs and companies. APICS 2012 Sustainability Survey 2011 Supply Chain Sustainability Survey Follow up Survey ran lt late Fb February to early April il2012 9,000 random APICS Members and Customers invited 201 complete responses Margin of error about 6.91% at a 95% confidence interval 2

3 What is Sustainability? Sustainability is a business approach that creates long term shareholder value by embracing opportunities and managing risks deriving from economic (profit), environmental (planet) and social (people) developments.* More than two-thirds thirds of all 500 respondents also say sustainability will play a more important role in the supply chains of the future. PwC s Global Supply Chain Survey 2013, 2012 The global market for environmental goods totaled $782.4 billion in 2008, with the U.S. market at $299.5 billion in 2009 US Commerce Department, 2012 $2.51 trillion in US assets are managed under policies that incorporate environmental, social and governance (ESG) criteria Social Investment Forum Foundation, 2010 High Sustainability companies significantly outperform their counterparts over the long-term, both in terms of stock market and accounting performance Harvard Business School, 2011 * Sustainable Asset Management (Dow Jones Sustainability Indexes) Changing supply and demand dynamics Demand increasing exponentially Supply constraints Population growth Billion Historical and Projected Global Population Growth Source: Population Reference Bureau, 2007 untries Developing cou Nutrition transition Vegetable protein (% of diet) 55% 45% 27% 63% Population growth (& urbanisation) Soil Degradation (& yield depletion) Water Stress Bio-fuels Unsustainable consumption 2.3 planets Weather volatility & climate change R&D investment lag Greenhouse gas emissions (and govt. action to reduce) Battle for scarce resources leads to price increases, more volatility and increased ethical risks Efficient use of resources is increasingly regulated and is becoming a competitive advantage 3

4 Examples of resulting sustainability issues in the supply chain Source: British Standard BS 8903:2010, Principles and Framework for Procuring Sustainably Survey findings summary Sustainability maturity continues to increase Current practices have room to include or integrate t additional sustainability Gaps persist between senior management and supply chain and operations management Visibility, tactical versus strategic views, may need greater attention 4

5 Comparisons People, Planet, Profit Supply chain and operations roles 5

6 Sustainable supply chain governance 70 85% of all functions aware of sustainable supply chain practices Uncertainty t on definition dfiiti of sustainable ti supply chain hi including at senior levels Roles in direct contact with suppliers are struggling with implementation Unclear roles and accountability between Supply chain, CSR/Sustainability, Ethics & Compliance and Legal Question Who is accountable for sustainable supply chain practices in your company? Does sustainability have the right priority? 6

7 Sustainability is rarely embedded in decision making Confirms high awareness levels Views are split, with 35% of respondents believing sustainability has too little priority, and 43% believing it has the right level of priority Immature approaches to determine priority levels often event driven Priority varies dependent on industry and customers Supply chainoperationaland and reputational integrity needs be managed holistically Question Which of your companies have undertaken a formal assessment of material sustainable supply chain issues? A holistic view of supply chain integrity Operational integrity Economics addresses the satisfaction of contractual arrangements between business partners and preservation of the mutual business case for the transacting parties Quality includes the quality and reliability of the end product sold as well as to the ability to identify and remedy problems that may arise anywhere from source to shelf Operations refers to the core operational processes, from ideation and research and development through distribution and logistics and associated service requirements Social & Labor Supply Supply Chain Chain Integrity Integrity Economics Flexibility Reputational integrity Environment practices and standards refer to the importance of environmental preservation through safe handling of hazardous materials, responsible sourcing, carbon footprint management in distribution and logistics, and other environmental impacts Social and labor practices and standards address primarily the impact on the health and welfare of farm and factory workers and the surrounding communities Ethics practices and standards include compliance with applicable laws and regulations as well as overall processes by which to monitor and enforce business partners contractual and ethical commitments 7

8 Perceived risks of sustainability practices? Perceived risks are often misinformed Perception of complexity, cost and increased risk Senior management is either disconnected from these issues or well aware of the net benefits SSC programs can be complex to implement, and in some industries the number of suppliers to choose from is limited The cost of inaction can be higher than the cost of action although supporting hard data is lacking Leading practice is to engage gg with suppliers to realize mutual business benefits Question Has any companies represented compared cost of action with cost of inaction? 8

9 The cost of inaction Case studies The direct costs linked to supply chain reputational risks represent on average 0.7% of a company s revenue Direct costs Costs US $110 million US $11 million US $285 million Case Studies 2007: Mattel spent US $110 million on recall expenses and a communication campaign due to an erroneous assessment of lead content used by Tier 2 Suppliers. 2008: Baxter spent US $11 million on recall expenses of Heparin products made by a Chinese supplier. 2008:Total S.A was charged with negligence in oil transport relating to the 1999 Erika oil spill resulting in 200 million in cleaning expenses plus a fine of 200 million The indirect costs can be significant too e.g., an average 15% decrease in market capitalization Indirect costs Stock Value Decrease 14% 18% 13% Case Studies 2006: Palm s stock value dropped 14% in June 2006 due to suppliers not meeting the RoHS directive causing Pl Palm to withdraw Treo 650 from the European market. kt 2007: During the crisis related to the recall of toys with unacceptably high levels of lead paint, the stock value of Mattel dropped 18% between August and December In addition, several lawsuits have been brought against Mattel as a consequence of the incident (e.g., Mattel sued by State of California in November 2007). 2008: In the first quarter of 2008, Baxter s stock value decreased 13% due to contamination of Heparin imported from China. Source: PwC and EcoVadis in collaboration with the INSEAD Social Innovation Centre Value of Sustainable Procurement Practices Opportunities from more sustainable supply chains Cost reduction Low energy / low carbon supply chains Increased resource efficiency/ reduced over specification Procurement of more efficient products/ reduced consumption Integration in Whole of life/total cost of ownership initiatives Changing supply and demand dynamics Revenue growth Risk reduction Competitive advantage eco innovation Increased sales/ income from recycling programs and green products Tax incentives Security of supply Reputation and legal risks/compliance direct / indirect costs (recall, share price drop, PR, fines) Meeting emerging external requirements Meeting evolving customer expectations Investors name and shame Accelerating regulation (Conflict minerals, SB657, Food safety) 9

10 Benefits on the factory floor Strategic and tactical cost savings Embedding sustainability in product design and sourcing strategy can reduce cost of goods sold, including though new revenue streams from waste (strategic) Eco efficiency can also help reduce operating costs (tactical) Question Who wouldlike like to sharesuccessstories success stories of tangible benefits achieved by managing raw materials more sustainably at the factory floor? 10

11 Sustainability reporting standards Reporting is rapidly becoming mandatory Contrast between low level of awareness and increasing requirements showing supply chain professionals may not be as involved as they should in reporting Increasing customer, investor, regulator and NGO requirements to report sustainable supply chain metrics Industry initiatives focused standardizing approaches and reporting metrics (EICC, SEDEX, FLA, GSCP, FCC etc.) New Global Reporting Initiative (GRI4) introduces many new sustainable supply chain metrics chain Question How many of you are actively involved in preparing reporting on sustainable supply chain? 11

12 APICS & PwC research project Research, including surveys done by APICS on sustainability indicate a need for clear definition of sustainability and how to implement the broad strategic concepts in daily operations Our research will help define leading practices as well as provide insight into tools APICS members employ to best operationalize sustainability for supply chain and operations management Leveraging the experiences of APICS members, as well as PwC's extensive knowledge gained from working with leading companies globally to operationalize sustainability strategies, we hope to provide pragmatic, tactical outputs that allow members to elevate their supply chain performance Questions? 12

13 Thank you Panelists Nic Delaye San Jose, California Sunil Ambekar Atlanta, Georgia Rocco Ciccolini Florham Park, New Jersey Jonathan Thatcher Chicago, Illinois Contact information PwC, Sustainable Business Solutions Director P: (408) PwC, Operations Consulting Director P: (678) PwC, Operations Consulting Manager P: (973) APICS, Director of Research P: (773)