Point of view from 2degrees on how Sustainability might take you beyond lean in your supply chain

1. Viewpoint
Beyond Lean: how sustainability
unlocks collaborative efficiencies
Where sustainable business happens October 2012

2. Contents
Introduction . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
What is a ‘lean’ process?. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
The limitations of lean and the benefits of green. . . . . . . . . . 4
Video interview: GlaxoSmithKline . . . . . . . . . . . . . . . . . . . . . . 5
Case study: Interface. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
Going further and closing the loop. . . . . . . . . . . . . . . . . . . . . . 5
Three other reasons why green out-performs lean. . . . . . . . 6
Video interview: Asda reveals the size of the opportunity. . . 6
The real challenge: the collaborative imperative. . . . . . . . . . 6
How do you reap the benefits of the opportunity? . . . . . . . . . 7
Case study: APS Salads and the Tesco Knowledge Hub . . . . 7
Case study: Asda Sustain and Save Exchange . . . . . . . . . . . . 8
Case study: Tesco Knowledge Hub. . . . . . . . . . . . . . . . . . . . . . 9
Contact details. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
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3. Beyond Lean: how sustainability
unlocks collaborative efficiencies
T
rying to understand why a sustainable business lens uncovers waste and inefficiency that
lean processes miss has been a subject of discussion at 2degrees since our launch four
years ago. It started with Marks and Spencer’s Plan A eco-factories in Sri Lanka, out-
performing factories elsewhere that had undergone lean re-engineering. (Not surprisingly M&S
are now rolling out 200 eco-factories across Asia.) It sprung up again when Asda identified £800
million of waste in the supply chain of its fresh produce category (part of the inspiration for the
Sustain and Save Exchange program on 2degrees).
And it is apparent in dozens of small but cumulatively important interactions in the Tesco
Knowledge Hub on 2degrees where
Tesco’s top 1000 suppliers are
It is ironic, but the man who is accredited with documenting the
collaborating to cut cost and carbon by
Toyota Production System, which became the inspiration for
30% by 2020.
lean processes, can in hindsight be said to have highlighted lean’s
However, it took a passing conversation own short-comings when he said,
at the end of last year with Richard
Pamenter, Global Head of Engineering “The most dangerous kind of waste is the waste
at GlaxoSmithKline and then recently we do not recognize.”
appointed Chief Environmental ~Shigeo Shingo (documenter of the Toyota Production System).
Sustainability Officer, to set us towards
a clear explanation.
What is a ‘lean’ process?
To understand why a sustainability approach can uncover the savings that lean misses - as well
as why so few companies are yet achieving them - requires us to start by considering what lean
processes are.
Lean processes define waste as any
Gaseous Waste cost that does not produce value
to customers, or Non Value Added
(NVA). This can include everything
Raw First Quality from scrap materials and defective
Materials Production product to misdirected shipments
Industrial or incorrect invoices. Lean
Energy System Energy promotes high efficiency but solely
Boundary within the boundary of the system
People People
as defined by a value stream map
and limited concept of ‘value to
customer’. Lean promotes resource
conservation and efficiency inside
Liquid Solid
that boundary, which may be the
Waste Waste
walls of a plant or may extend to
supply chains (See diagrams).
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4. Raw Material Converter
Energy Mfg. Customer
(manufacturer)
The limitations of lean and the benefits of green
The limitations of lean start with how it sets the boundaries to the industrial system it is analyzing. A
system boundary is simply an arbitrary limit for analytical purposes. It can be made large or small to
encompass many different types and scopes of analysis. However, the setting of tight boundaries as
defined by limited definitions of ‘customer’ and ‘customer value add’ reduces the opportunity to find
synergies with other systems. It also relegates remaining waste that is produced from its process as
having no value, rather than viewing it as a potential in-put and resource for another process.
Looking at a business through a sustainability lens requires you to set much wider systems
boundaries; setting the business and process within an environmental and social context,
considering customers alongside other important stakeholders and thinking of the value added
more broadly. It encourages analysis across whole business-environment and social ecosystems,
identifying potential synergies between processes, organizations, supply chains etc., and forces us
to consider material in-puts and out-puts which would not normally be considered by lean e.g. CO2.
Expanding the boundaries increases the number of issues to be analyzed and addressed, but it also
increases significantly the opportunities for saving and creating new value. Put simply, a sustainable
business approach identifies opportunities between the siloes that arise from the more narrowly
defined systems that are created by lean processes. What was waste from one silo-ed system
becomes in-put to another (see diagram). So a sustainability approach doesn’t just help cut cost
better, but in many cases turns a cost or risk into a source of revenue.
Raw Material Converter
Energy Mfg. Customer
(manufacturer)
Raw Material Converter
Customer
Energy Mfg. (manufacturer)
Raw Material Converter
Customer
Energy Mfg. (manufacturer)
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5. Case study: Interface
“Sustainable analysis generally begins where lean
Video interview: GlaxoSmithKline
leaves off. Suppose that conservation cuts the Hear Richard Pamenter of GSK talking about finding
business’s energy use in half. That cost reduction resource efficiencies in manufacturing (4 minute video):
is very helpful, but sustainability doesn’t stop
there. Look at a much larger system boundary —
the environment — with the business operations
nested within it. That opens up new opportunities.
Here’s an example. At one manufacturing site,
Interface cut natural gas energy use in half and
negotiated the lowest cost per cubic foot possible.
This resulted in a very low total cost of natural
gas, but the carbon emissions footprint from
burning natural gas, even though conserved to the
minimum, was still there.
Using sustainable analysis, we looked outside
our business boundary to energy opportunities
in our communities. Several looked promising. A couple didn’t work out, but a third, landfill gas from
a local municipal landfill, did. This turned out to be a sustainable triple win. This project voluntarily
remediated the air and groundwater contamination from this landfill. Thus the sale of a waste by-
product improved city services for the residents, generated a long-term revenue stream for the city,
and offset a large percentage of Interface’s entire North American manufacturing carbon footprint.
The project was the 2005 United States Environmental Protection Agency Landfill Methane Outreach
Program Energy Partner Project of the Year. (Burning methane still puts CO2 in the air, but methane
seeping from a landfill is a worse greenhouse gas; plus burning it avoids burning natural gas, so the
EPA encourages this with offset credits.) Incidentally, Interface saved an additional 30 percent on the
unit cost of the energy. That’s an example of triple bottom line synergy.” (Thanks to Dave Gustashaw,
Assistant Vice President, Supply Chain and Engineering, Interface, Inc.)
Going further and closing the loop
When the boundary is set wide enough to encompass how end customers use a product or service and
how it is disposed of after use, then opportunities to ‘close the loop’ create an even wider array of potential
benefits. As well as cutting cost found in the siloes between processes and creating new revenues from
what was waste, closing the loop and taking responsibility for products post-life can also:
• help with security of supply; and
• lower exposure to price volatility in raw materials.
Raw Material
Energy Mfg. Manufacturer Customer
Manufacturer
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6. Three other reasons why green
out-performs lean Video interview: Asda reveals
There are three other main reasons why taking a
the size of the opportunity
rigorous sustainable business approach generates Listen to Julian Walker-Palin, Head of Corporate
such high and often unexpected returns: Sustainability at Asda, talk about the vast efficiency savings
opportunities available through supply chain collaboration
• eturn on engagement. Staff, suppliers and
R - Asda and 2degrees have identified an estimated £800
customers engage much more enthusiastically million of savings in Asda’s food supply chain, with an
around the universally important issue of estimated £70 million of savings available from energy
sustainability than they do about making a efficiency from just one group of 23 suppliers.
process more efficient and/or shareholders
richer. Most reported sustainable business
programs provide powerful, qualitative evidence
of the importance of engaging stakeholders.
• nnovation. Because sustainability is a far-
I
reaching socio-economic revolution across
industries and geographies, it is continuously
generating new business models and clean
technologies which often provided new and
surprising breakthroughs e.g. anaerobic
digestion that can turn waste into fuel, heating
and rich fertilizer (see Case Study: APS Salads).
• isk reduction. Because sustainability considers a business’s environmental ’off-balance sheet’
R
impacts, it acts as an early warning radar to identify challenges to security of supply of essential raw
materials and anticipates commodity price inflation.
The real challenge: the collaborative imperative
To find and exploit these higher levels of efficiency requires new levels of
collaboration:
• Within companies and across internal siloes
B
• . etween companies and particularly within and across supply chains
• Between companies and their customers
• Between the private, public and third sectors
Collaboration at the levels required to unlock this hidden value between siloes
is neither strategically, culturally nor managerially easy or common place;
and up until now it has been very expensive to do so at scale and across geographies.
Furthermore, it is made even more difficult by traditionally competitive and sometimes hostile
relationships within and between organizations: suppliers are often suspicious of the motives of
buyers; the private sector often lacks confidence in the public sector; and the NGOs have in the
past viewed private enterprise as the problem and not as part of the solution. All of this requires
frequent engagement at depth and at scale to overcome.
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7. How do you reap the benefits of the
opportunity?
The answer: managed services like 2degrees that
use social media technologies.
Fortunately, the last 10 years has seen an explosion in social
media technologies which can be ideally adapted to support
peer-to-peer collaboration at scale. As the world’s leading
community for sustainable business, 2degrees has for the
last 4 years been helping support large-scale collaboration
between organizations looking to unlock the value of
sustainability to cut costs, risk and to grow their businesses.
Our Enterprise Services division offers a managed service which makes it efficient to organize
and facilitate large scale collaboration amongst key stakeholder groups wherever they are.
Currently we are running:
• Two supply chain collaboration programs for Tesco and Asda
• An internal manufacturing collaboration program for GSK
• A best practice sharing program for the Property Leadership Team within Kingfisher Group plc
Our unique blend of technology, sustainable business expertise and processes for facilitating
collaboration mean we can enable both knowledge sharing/capacity building within stakeholder
groups and the identification and initiation of practical projects that deliver real cost and impact
reductions.
Case study: APS Salads and the Tesco Knowledge Hub
How many bacteria does it take to run a Tesco van on tomato leaf waste? 1798, at least for this biogas
powered van, the latest in a string of APS sustainability achievements.
Back in 1998 APS were the first British horticultural company to install combined heat and power
with CO2 extraction. Since then they’ve designed and installed their own ground source cooling
plant, achieving 40% energy reduction (and a 3-month
payback period) and a four part ‘cow’s stomach’
anaerobic digestion (AD) plant diverting 3500 tonnes
of tomato leaf waste from landfill and producing
CH4 CO2 H2, water, fertilizer, heat, power and
biopolymers.
APS Salads are one of the leading contributors
on the Tesco Knowledge Hub, a private space on
2degrees for Tesco suppliers to collaborate and
share best practice to improve resource efficiency.
They hosted one of the first site visits from the
Knowledge Hub program - the 3.5 minute video of
the site visit in October 2011 gives an insight into
On site at APS with the tomato powered van. their remarkable carbon reduction activities – and
illustrates perfectly the spirit of collaboration that
the Knowledge Hub generates.
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8. Case study: Asda Sustain and Save Exchange
The Asda Sustain & Save Exchange on 2degrees is a private online community of Asda employees
and suppliers, built to improve resource efficiency in energy, waste and water.
There are 350+ members from 200
companies, with median operating costs of
$130 million.
A tailored activity plan identifies
collaborative projects to implement
practical changes and deliver cost savings in
the supplier categories.
“The Sustain & Save Exchange is an important
Asda programme. We want to work together
with our supplier partners so we can learn
from each other to increase our efficiencies and
increase our resilience to the growing challenges
of resource scarcity. At Asda, we want to build
a world class supply base for the future, so we’ll
be working with the most proactive suppliers
on this agenda to explore how we will continue
to support each other for the future. For us,
sustainability isn’t about reinventing the wheel – it’s
just what we do. It’s also part of what Walmart - our global family - does. And when you are part of the biggest
retailer in the world, you have an opportunity – and a responsibility – to make a difference.”
- Barry Williams, Food Trading Director, Asda-Walmart
Supplier resource efficiency is benchmarked to identify opportunities for improvement, whilst
keeping supplier identities anonymous.
Since 2011 the Exchange has enabled Asda and its suppliers to benchmark resource efficiency in 3
product categories, representing £12bn of sales.
“Sustainability means responsibility
– working collaboratively and in
partnership is part of the solution.
The Asda Exchange offers a two-
way conversation with our supply
chain, allowing us to work more
collaboratively and efficiently with our
valued suppliers.”
Julian Walker-Palin, Head of Corporate
Sustainability, Asda
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9. Case study: Tesco Knowledge Hub
The Tesco Knowledge Hub on 2degrees is the world’s largest supply chain collaboration, providing
an engagement platform for Tesco’s top 1000 suppliers from over 20 countries.
It is also a resource for hundreds of
Tesco staff and partners like WRAP, IGD
and the Carbon Trust.
The collaboration helps to reduce the
energy costs, waste and environmental
impacts of the products Tesco buys, and
aims to cut 30% of the carbon emissions
from the supply chain by 2020.
“We’ve pledged to reduce the carbon
footprint of the products we sell by 30% by
2020. To do this we need to work with all
of our suppliers and the Tesco Knowledge
Hub provides an excellent way for us all to
learn more, and to share best practice.”
- John Scouler, Commercial Director, Tesco
The Hub was a key factor in Tesco being named top retailer for carbon reporting and performance by
the Carbon Disclosure Project in 2010.
The project was then recognized with a Gigaton Award for outstanding carbon reductions and
sustainability performance. For its collaboration with suppliers on the Knowledge Hub and overall
strategy, Tesco won the Grocer Gold Award 2012 for ‘Green Retailer of the Year’.
Hear what makes the Hub so interesting in a short video interview with Helen Fleming, Climate
Director at Tesco.
“ [The Hub is] not just a bit of IT,
or the bit of infrastructure that
you import… but real people with
knowledge and commitment, who
shape what’s on the Hub, who help
people come on board, find out what
they want, really understand how
people are going to use it; and then
offer guidance to those people. ”
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10. This Viewpoint was produced by 2degrees, the world’s leading
community for businesses driving growth and cutting costs by
being more sustainable.
2degrees (UK Office):
228-240 Banbury Road
Oxford
OX2 7BY
United Kingdom
Tel: +44 (0)1865 597 640
Printed on 100% FSC certified paper.
Where sustainable business happens October 2012