Saturday 19th Aug 2017 - Logistics & Supply Chain

Green and mean

Over the past couple of years, many consumers in Europe have gone a distinct shade of green. They have also made it emphatically clear that, as well as goods that are environmentally friendly, they want them to be ethically sourced. The trouble is that they also want an unprecedented range of goods, constantly in stock, and they want them at very low prices. These objectives are not necessarily compatible with other trends in the fast-moving consumer goods (FMCG) sector. Can we really be green and lean and responsive at the same time, or will tough choices eventually have to me made?

Nevertheless, the companies that service the FMCG sector are giving the matter a lot of serious thought, explains Martin Jarvis, vice-president of the global sales and operations planning (S&OP) programme at Unilever. However, it’s very important to try and consider the whole picture, not take little bits of the supply chain and ‘green’ them in isolation he says.

A clearer view
‘The big difficulty is getting a clear view of what the total effect of an action will be.’ For instance, it can make a lot of sense from a supply chain point of view to encourage the use of concentrated soaps and cleaning fluids – less liquid to cart around, less plastic used in packaging and less cardboard for outer packaging. But concentrated soaps can cause a lot of damage if they get into the local water table. ‘Therefore, while it makes good sense in some markets, there are others where we wouldn’t dream of marketing them.’

It’s also important to question how ‘organic’ something is if it is produced, albeit without fertilisers and other artificial aids, and then flown half-way round the world to the consumer. How much carbon went into that particular product’s supply chain?

That said, there is a lot to gain thinking creatively about the supply chain and where and how products are manufactured. ‘We’re looking at how we’re sourcing and actively reducing the amount of water and fresh air we move around,’ says Jarvis. Just one example: instead of moving tins of made up iced tea, why not manufacture small capsules, transport them economically and then make them up with water closer to the point of consumption.

The problem with a lot of these ecological, ethical products is that while customers may protest that this is what they want, they do not necessarily want to pay a big premium for them. Governments, too, may impose green taxes but who is expected to pick up the tab for, say, a tax on packaging in Germany?

There is also quite a bit of tension between the need to be green and other demands made on manufacturers by retailers, says Jarvis. ‘We have constant tension with retailers, who want smaller unit sizes, shelf-ready packaging and ever-more SKUs. In fact, he suspects that a lot of the gains in supply chain efficiency over the past few years have been ‘spent’ not in reducing carbon footprints but in offering ever more choice to the consumer.

Sometimes the retailer’s aspiration to have products that are ready to go straight onto the shelf aren’t compatible with the need to minimise and lighten packaging. These though aren’t always compatible with green aspirations, though Unilever has been trying to do things like eliminating hard-to-recycle laminated packaging.

Unilever has, wherever possible, introduced returnable pallets and totes for use within the supply chain and it even has projects in a few countries to pick up empty margarine tubs and recycle them. ‘Where we have a local factory, it can be relatively easy to do this,’ says Jarvis. ‘However, the value of the recycled product doesn’t always justify the cost to us of picking it up. Whatever claims the supermarkets may make for factory gate pricing, picking up waste product often does mean extra transport legs or less efficient use of transport, so a green gain in one area may be lost elsewhere in the chain, he argues.

But while no one is quite sure what the consumer really wants – or more pertinently, is willing to pay for – the green issue has leapt up the corporate agenda, says Deloitte supply chain specialist, Marlow Truman. ‘The green supply chain has become a big area. There are issues like how far from the point of production do goods have to be moved to reach the consumer, where best to base the operation, where are the raw materials or should I be importing over long distances.’

Companies are investing in strategic network design and looking anew at the whole issue of delivery efficiency. The old model of perhaps three or four deliveries a day ‘is coming under pressure’ because it doesn’t necessarily equate to the best use of transport capacity.

One issue that needs to be faced though is that supply chains in many parts of Europe and the west have over the years been configured to meet the needs of a ‘just in time’ model; retail stores have largely dispensed with stock space, and warehouses and distribution centres may not necessarily be in the right place for maximum ‘greenness’. And there is more pressure on retail space than ever before, especially now that many food retailers in Europe have extended into non-food.

‘There will always have to be trade-offs,’ says Truman. ‘But the green agenda is very high profile and most big companies have gone public with corporate environmental strategies. However, the “old” supply chain issues such as responsiveness, availability, customer choice and so on haven’t gone away, and the supply chain hasn’t got any cheaper, either. And companies are still struggling to hold the right inventory.’

The key, Truman believes, is ‘we’ve got to be cleverer at capturing demand requirements.’ In recent years, he says, the supply chain has become much more complex and it has shown itself vulnerable to disruption, as in the 2000 fuel strikes in the UK. Companies have also had to address the problem of integrating suppliers in Eastern Europe or Asia.

The burning issue
At the heart of it all is the major challenge of getting the core data correct and accurate – still a burning issue for many extended supply chains. As well as being highly commercially desirable, it could also become a legal imperative as new security rules are introduced in Europe; customs and government security agencies are asking companies for a much more accurate picture of what they are importing.

‘It appears that many companies haven’t realised the implications of all this – but it could actually help them run their supply chains more effectively. And if you can develop greater confidence in the information you have, that should in theory mean that you need to hold less buffer stock.’

Big retailers like Wal-Mart are also starting to mandate new technologies like RFID and are also playing a leading role in ‘encouraging’ their supplies to use less packaging material. ‘Retailers are getting quite excited by concepts like shelf-ready packaging in which they are produced in a form ready to go on sale, and which can also eliminate double-handling. The idea has been around in areas like milk and bread retailing for some time but now it’s beginning to spread into many other FMCG areas – non-food as well as food. Again, the gains seem obvious but it could cost money to reconfigure handling and warehousing systems,’ says Truman.

RFID is also beginning to make some inroads into retailing in Europe. As well as British retailer Tesco, which is using the technology on pallets at some stores, German-based multinational, Metro, says it is planning a major expansion of its use of the technology and recently approved two Intermec RFID ‘starter packs’, specially tailored to the needs of the consumer goods industry, which will be offered to its suppliers. The preconfigured application makes it easy to fit pallets and boxes with the tags, it says.

Dr Gerd Wolfram, managing director of MGI Metro Group Information Technology GmbH said that by September, the Group plans to have 130 Intermec RFID portals rolled out across Germany at Metro Cash & Carry stores and the Varena Distribution Centre in Hamm.

Patrick Crampton-Thomas, supply chain solutions director for EMEA at SAP, however, thinks that companies have indeed solved a lot of the problems of moving information around between different entities in the supply chain. ‘That might have been true five years ago,’ he says, ‘but because of global pressures, they have had to implement solutions like collaboration strategies and supplier portals.’

SAP’s customers have responded to a whole range of legislative, health and safety, financial, ethical and environmental drivers over the past few years. In fact, compared to some of the more recent issues that have emerged lately, such as concerns over ethical sourcing, environmental issues have been around a few years and are comparatively well-understood. Yes, the general public has become more aware of environmental issues over the past couple of years or so, though whether that has been translated into a general willingness to pay more for consumer products to accommodate green concerns like recycling or carbon footprints is entirely another matter.

A portfolio of concerns
But with global sourcing having become the norm over the past few years, concerns over carbon emissions will have to be rolled up into a whole portfolio of wider concerns like ethical sourcing, says Crampton-Davies.

Of course, he adds, companies can get a lot greener by continuing the good work of the past decade or so, by continuing to create leaner, more responsive supply chains and to reduce waste. ‘By taking buffers out, by tracking and ordering daily rather than weekly and keeping supply much closer to demand, and by making activities like transport more efficient, you can better understand your supply chain. That means you don’t have to fire fight so often and hence reduce your dependence on air freight and similar means of transport.’

Getting unnecessary waste out of production planning could typically achieve inventory reductions of 30-50 per cent, with proportional savings in areas like packaging and warehousing, he says.

Retailers have also used concepts like factory gate pricing to get a better grip on total supply chain costs, while centralised sales and planning processes have matured over the past three or four years and now include areas like product development and collaborative planning.

Ordering packaging has been a relatively hit and miss affair up till now, but there are tools available now that allow manufacturers to make more optimal decisions, including web-based enterprise Your Packaging Partner (YPP).

Packaging consultant Gillian Wight says that the system offers access to 160 packaging printers in 33 countries in Europe, North America and Asia and brand-owners are exploring possibilities in places like China. ‘A lot of clients are taking packaging decisions more holistically, whereas before they might have been made by individual buyers.’

YPP operates a vetting system to ensure that packaging producers meet proper standards. Buyers are getting more ecologically-conscious, says Wight and look for certificates on forest management, for example. ‘A lot of retailers are also calling on the industry to actually reduce the amount of packaging used’ – Wight estimates that the potential reduction is of the order of 20-25 per cent.

Technology is improving all the time and the latest software can actually optimise planning within real constraints as opposed to merely plan a supply chain, says Andrew Kinder, Infor’s director of product management for supply chain. Companies want to be able to rapidly factor in changes to their parameters – for example, increased fuel or transport costs or a new government tax on plastic packaging – and decide how best to optimise their product, or indeed, whether to outsource some of it.

Companies routinely do this sort of ‘dynamic sourcing’ perhaps moving production between different plants in various countries on a month-by-month or even week-by-week basis. ‘The technology has existed for perhaps ten years or so; what is happening now is that it’s spreading from tier one suppliers to medium-sized companies as the hardware to run it becomes more affordable, and it’s often embedded in our ERP solutions.’ Customers usually buy the software to reduce their costs, but they often find that its real value is improved responsiveness.

Risk and uncertainty
In an increasingly uncertain world; commodity and raw material prices are more erratic, while green concerns are everywhere leading to new taxes being imposed on businesses – not always consistently between countries or regions. Extra taxes might be imposed on less green modes of transport such as trucking, while there may be incentives to use rail or inland waterway – and the software can factor all this in. ‘Globalisation has introduced more risk and uncertainty and what optimisation does is help develop a more “chaos tolerant” supply chain,’ says Kinder.

Packaging is also becoming a major issue, adds Kinder’s colleague, US-based director of product marketing for the process industries, Rory Granros. Big retailers like Wal-Mart are under pressure to reduce the amount of landfill they generate, and that all has implications for the design and sourcing of the product. ‘We also need to consider factors like social responsibility. You might need to be able to put together a plan to show what happens if you switch soucing from one country in favour of another.’

But what about ‘green’ transport? After all, road freight in particular is one of the biggest producers of carbon dioxide. FMCG is one of the target markets for freight management company P&O Ferrymasters in its recent opening of a new strategic office in Koln, Germany. ‘The Koln area is one of the logistics hubs of Europe,’ explains Ferrymasters’ commercial director, Mark Mulder. It is astride the river Rhine, which is north-west Europe’s major inland waterway, and is also the busiest rail junction in Germany. While it’s hard to believe that trains or barges could replace all functions currently carried out by road transport, Mulder is convinced that reconfiguring the supply chain – perhaps using a Rhine barge or a train as a ‘floating warehouse’ – the greener modes of transport could play a bigger role.

Viewpoint

Martin Jarvis, Unilever
‘We’re looking at how we’re sourcing and are actively reducing the amount of water and fresh air we move around’

Gillian Wight, Your Packaging Partner
‘Clients are taking packaging decisions more holistically, whereas before they might have been made by individual buyers’

Mask Mulder, P&O Ferrymasters
‘The Koln area is a key logistics hub for Europe, astride the river Rhine, north-west Europe’s major inland waterway, and is also Germany’s busiest rail junction’

Rory Granros, Infor
‘We have to consider factors like social responsibility. You might need to be able to put together a plan to show what happens if you switch soucing’

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