A.T. Kearney 82/7478 1 Sustainability is Free Dr. Dale S. Rogers Center for Logistics Management University of Nevada Petroleo Missao Tecnica Houston,

A.T. Kearney 82/7478 1

Sustainability is FreeSustainability is Free

Dr. Dale S. RogersCenter for Logistics Management

University of Nevada

Petroleo Missao TecnicaHouston, Texas

June 11, 2008

Dr. Dale S. RogersCenter for Logistics Management

University of Nevada

Petroleo Missao TecnicaHouston, Texas

June 11, 2008

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DefiningSustainability

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Sustainable Supply Chain Management DefinedSustainable Supply Chain Management Defined Sustainable supply chain management (SSCM) is the strategic,

transparent integration and achievement of an organization’s social, environmental, and economic goals in the systemic coordination of key interorganizational business processes for improving the long-term economic performance of the individual company and its supply chains.

Source: Carter and Rogers, 2008

Sustainable supply chain management (SSCM) is the strategic, transparent integration and achievement of an organization’s social, environmental, and economic goals in the systemic coordination of key interorganizational business processes for improving the long-term economic performance of the individual company and its supply chains.

Source: Carter and Rogers, 2008

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The Sustainable Supply ChainThe Sustainable Supply Chain

NaturalEnvironment

Society

EconomicPerformance

Sustainability

Good?

Best

Better Better

Strategy•Sustainability as part of an integrated strategyLong-term view

Risk Management•Contingency Planning•Supply Disruptions•Outbound Supply Chains•Headline Risk

Transparency•Stakeholder Management•Financial Reporting (SOX)•RFP/RFQ Process•Supplier Operations•Leadtimes to Customers

OrganizationalCulture•Deeply Ingrained•Organizational Citizenship•Values and Ethics

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Fortune 100Fortune 100

Sustainability is clearly becoming more important to the most successful companies.

Sustainability is clearly becoming more important to the most successful companies.

Sustainable Element Number of Fortune 100

Sustainability Report 31

CSR Report 38

Sustainability/CSR/Environmental elements included on website

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Chicago Climate Exchange members

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On the road in ChinaOn the road in China

There are 6 million cars in China. That number is growing about 10% per year.

However, every day there are 174 million people on the road in China traveling in buses, cars, and trains. That number of people traveling is similar to the number of travelers in the United States during the Thanksgiving holiday. The Thanksgiving holiday is the busiest travel time of the year in the United States.

Source: Michelle Caruso-Cabrera, Squawk Box, February 28, 2006

There are 6 million cars in China. That number is growing about 10% per year.

However, every day there are 174 million people on the road in China traveling in buses, cars, and trains. That number of people traveling is similar to the number of travelers in the United States during the Thanksgiving holiday. The Thanksgiving holiday is the busiest travel time of the year in the United States.

Source: Michelle Caruso-Cabrera, Squawk Box, February 28, 2006

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Sustainability, n – a business model that creates value consistent with the long term preservation and enhancement of environmental, social, and financial capital.

Sustainability: A common platform

Source: Ian Olson, Global Manager, Supply Chain Sustainability, Ford Motor Company

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Sustainability: A common platformSustainability: A common platform

“Sustainability is not a value projection, it is not CSR, and it is not an aspiration. It is a real market pressure. And responding to that pressure means success and good management in the 21st century.”

-Prof. Andy Hoffman, University of Michigan

The pressure can also be an opportunity

A company that gets ahead of the pressure should not have to respond because it will be a “natural” part of their business model.

Driven by Crisis or Driven by VisionSource: Ian Olson, Global Manager, Supply Chain Sustainability, Ford Motor Company

“Sustainability is not a value projection, it is not CSR, and it is not an aspiration. It is a real market pressure. And responding to that pressure means success and good management in the 21st century.”

-Prof. Andy Hoffman, University of Michigan

The pressure can also be an opportunity

A company that gets ahead of the pressure should not have to respond because it will be a “natural” part of their business model.

Driven by Crisis or Driven by VisionSource: Ian Olson, Global Manager, Supply Chain Sustainability, Ford Motor Company

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What have we learned?What have we learned?

Are corporations more responsible?•Certainly, progress has been made with governance, ethics, voluntary codes and standards

Are corporations more sustainable?•More work to be done

— Massive Economic Growth— Increased Resource Demand— Population Growth

The Sustainability agenda is moving fast…

Are corporations more responsible?•Certainly, progress has been made with governance, ethics, voluntary codes and standards

Are corporations more sustainable?•More work to be done

— Massive Economic Growth— Increased Resource Demand— Population Growth

The Sustainability agenda is moving fast…


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What does this mean?What does this mean?

In the past 10 years:•Proliferation of voluntary standards, codes and practices

•Lots of experimentation by companies•More industries are involved

Voluntary period is coming to an end•Competition among the voluntary practices to see what becomes the “de facto” practice, standard or regulation

•Still room for innovation, choice and influence

In the past 10 years:•Proliferation of voluntary standards, codes and practices

•Lots of experimentation by companies•More industries are involved

Voluntary period is coming to an end•Competition among the voluntary practices to see what becomes the “de facto” practice, standard or regulation

•Still room for innovation, choice and influenceSource: Ian Olson, Global Manager, Supply Chain Sustainability, Ford Motor Company

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Key areas of focus for FordKey areas of focus for Ford

Securing and Preserving the “License to Operate”•Aggressive growth plans need to keep communities,

environment, employees and financial focus•New Market Opportunities

— New consumers, new locations•Wal-Mart Example

— Perceived image (real or not), share price, push back

Access to capital markets•Mainstream analyst consideration (Duetsche Bank, Goldman

Sachs, Merrill Lynch, etc.)•Share price influence and effect•Proactively managing “Headline Risk”

Securing and Preserving the “License to Operate”•Aggressive growth plans need to keep communities,

environment, employees and financial focus•New Market Opportunities

— New consumers, new locations•Wal-Mart Example

— Perceived image (real or not), share price, push back

Access to capital markets•Mainstream analyst consideration (Duetsche Bank, Goldman

Sachs, Merrill Lynch, etc.)•Share price influence and effect•Proactively managing “Headline Risk”


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Key areas of focus for CompanyKey areas of focus for Company

Management Commitment•Key to be part of the business model•Remain relevant in good times and bad times•Long-term journey•Awareness, Recognition, Implementation, Culture

Business Integration•Central strategy coordination•Business unit ownership•Performance Reviews/Objectives•Goals, Metrics, Performance, Reporting (Scorecard)

… to become a seamless part of the business

Management Commitment•Key to be part of the business model•Remain relevant in good times and bad times•Long-term journey•Awareness, Recognition, Implementation, Culture

Business Integration•Central strategy coordination•Business unit ownership•Performance Reviews/Objectives•Goals, Metrics, Performance, Reporting (Scorecard)

… to become a seamless part of the business


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The Goal: Sustainability LeadershipThe Goal: Sustainability Leadership

Firm

Business Partners• Private Brands

• Licensing

• Construction

• Working Conditions

• “Beyond Monitoring”

Customers• Awareness, Market Creation

• Branding

Policy • Industry Efforts

•Transparency

• Carbon Trading

Community• Social Impact

• Environmental Impact

Business • “License to Operate”

• Access to Capital Markets

Unique influence, “touch points” are endless…focus on critical few is key


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Sustainability GoalsSustainability Goals

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Nike Product Life CycleNike Product Life Cycle

Source: http://www.nike.com/nikebiz/nikebiz.jhtml?page=27&cat=lifecycle#

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Longevity

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LongevityLongevity The average life expectancy of a multinational

corporation-Fortune 500 or its equivalent-is between 40 and 50 years.

One sixth (85/500) of the original 1955 Fortune 500 firms are still part of the 2005 Fortune 500.

One-third of the companies listed in the 1970 Fortune 500, for instance, had vanished by 1983-acquired, merged, or broken to pieces.

The average life expectancy of a multinational corporation-Fortune 500 or its equivalent-is between 40 and 50 years.

One sixth (85/500) of the original 1955 Fortune 500 firms are still part of the 2005 Fortune 500.

One-third of the companies listed in the 1970 Fortune 500, for instance, had vanished by 1983-acquired, merged, or broken to pieces.

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Built to LastBuilt to Last Visionary companies did certain things very differently

More about the internal than the external

Had little to do with technology or number-crunching.

”Cultlike cultures"

Adhere to an ideology that went beyond the simple pursuit of profits

Rely on homegrown management

Focus on creating a lasting organization "clock building" vs. opposed to "time telling”

Have the ability to see things not as either-or propositions (the "genius of the 'and,’” as opposed to the "tyranny of the 'or' ").

"A visionary company doesn't simply balance between preserving a tightly held core ideology and stimulating vigorous change and movement; it does both to the extreme.”

Source: Collins & Porass, Built to Last, 1994

Visionary companies did certain things very differently

More about the internal than the external

Had little to do with technology or number-crunching.

”Cultlike cultures"

Adhere to an ideology that went beyond the simple pursuit of profits

Rely on homegrown management

Focus on creating a lasting organization "clock building" vs. opposed to "time telling”

Have the ability to see things not as either-or propositions (the "genius of the 'and,’” as opposed to the "tyranny of the 'or' ").

"A visionary company doesn't simply balance between preserving a tightly held core ideology and stimulating vigorous change and movement; it does both to the extreme.”

Source: Collins & Porass, Built to Last, 1994

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Enron vs. Kinder Morgan RevenuesEnron vs. Kinder Morgan Revenues

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Headline RiskHeadline Risk

Product sourcing Healthcare Wages Community involvement Diversity Products Zero Waste Transparency Environment

Product sourcing Healthcare Wages Community involvement Diversity Products Zero Waste Transparency Environment

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Long Term vs. Short TermLong Term vs. Short Term

If a company believes that their suppliers are going to be supplying them for a long period of time, it makes a lot of sense to treat those suppliers as if they were partners.

Good for companies to consider each other's objectives and motives in putting together a supply-chain that will last for a long time.

In the 1990s American companies tried to move away from only adversary all purchasing. Instead the idea was to optimize the profitability and long-term viability of the entire supply-chain.

Today companies are often only thinking about their short term viability. •quarterly profits •cannot be a sustainable company if you're not making it in the

short-term. •firms need a solid supply base that is willing and able to

continually produce raw materials, and components

Instead, a purchasing manager or other manager is often a hero yesterday tightening down the profits of their suppliers. At some point in the process, the supplier can really not continue to cut costs without damaging their product offerings or the company as a whole.

If a company believes that their suppliers are going to be supplying them for a long period of time, it makes a lot of sense to treat those suppliers as if they were partners.

Good for companies to consider each other's objectives and motives in putting together a supply-chain that will last for a long time.

In the 1990s American companies tried to move away from only adversary all purchasing. Instead the idea was to optimize the profitability and long-term viability of the entire supply-chain.

Today companies are often only thinking about their short term viability. •quarterly profits •cannot be a sustainable company if you're not making it in the

short-term. •firms need a solid supply base that is willing and able to

continually produce raw materials, and components

Instead, a purchasing manager or other manager is often a hero yesterday tightening down the profits of their suppliers. At some point in the process, the supplier can really not continue to cut costs without damaging their product offerings or the company as a whole.

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SustainableSupply Chain

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Moving towards SustainabilityMoving towards Sustainability

The key to sustainability is collaboration.

It is at the point of collaboration that companies become learning organizations.

The key to broader transformation is to draw on the expertise of others.

We need to develop new business models.

The key to sustainability is collaboration.

It is at the point of collaboration that companies become learning organizations.

The key to broader transformation is to draw on the expertise of others.

We need to develop new business models.

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Mattel Toys - Prague, Czech RepublicMattel Toys - Prague, Czech Republic

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Drivers of Business ResilienceDrivers of Business Resilience

Foresight

Disruption

Prevention

ResourceEfficiency

Strategic

Alliances

Security

Diversity

Agility

Safety

Adaptability

Source: Yossi Sheffi, (2005) The Resilient Enterprise

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Another Reason…Another Reason… How many more places can you find cost reduction?

Typically, many firms have tightened up their operational efficiency. Another place to find cost savings is through moving towards sustainability.

How many more places can you find cost reduction?

Typically, many firms have tightened up their operational efficiency. Another place to find cost savings is through moving towards sustainability.

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Impact of Supply ManagementImpact of Supply Management

“I can do more to improve sustainability with one purchase order than 1,000 protestors can do with all their efforts.”

Source: Fortune 500 Purchasing Manager

“I can do more to improve sustainability with one purchase order than 1,000 protestors can do with all their efforts.”

Source: Fortune 500 Purchasing Manager

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Green BuildingsLEED

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LEEDLEED Since LEED was established in 1998, there have been

approximately 400 buildings that have been certified by LEED.

Currently 6000 buildings are registered and are to be certified by LEED in the near future. (Zimmerman & Kibert, 2007)

A 2006 study shows that the average cost of a green building falls within the same range as the costs for non-green buildings.

Most green building projects are considered additive by the project managers. This does inhibit some because they are deterred by the thought of adding costs.

In addition, many of these projects thrive when green building procedures are engrained into the actions of the company. In this study, it was noted that both non-LEED and LEED certified buildings show similar statistics when considering the range of costs associated with their construction. Both have high cost potential and low cost potential. (Morris & Matthiessen, 2007)

Since LEED was established in 1998, there have been approximately 400 buildings that have been certified by LEED.

Currently 6000 buildings are registered and are to be certified by LEED in the near future. (Zimmerman & Kibert, 2007)

A 2006 study shows that the average cost of a green building falls within the same range as the costs for non-green buildings.

Most green building projects are considered additive by the project managers. This does inhibit some because they are deterred by the thought of adding costs.

In addition, many of these projects thrive when green building procedures are engrained into the actions of the company. In this study, it was noted that both non-LEED and LEED certified buildings show similar statistics when considering the range of costs associated with their construction. Both have high cost potential and low cost potential. (Morris & Matthiessen, 2007)

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LEEDLEED

LEED certification has four levels: (U.S. Green Buildings Council, 2006)•LEED Certified projects achieve 40% or more of the core credits

•LEED Silver projects achieve over 50% of the core credits

•LEED Gold projects complete over 60% of the core credits

•LEED Platinum projects complete over 80% of the core credits

LEED certification has four levels: (U.S. Green Buildings Council, 2006)•LEED Certified projects achieve 40% or more of the core credits

•LEED Silver projects achieve over 50% of the core credits

•LEED Gold projects complete over 60% of the core credits

•LEED Platinum projects complete over 80% of the core credits

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Green BuildingsGreen Buildings

Green construction only 5% more than traditional construction.

Forty percent of greenhouse gas emissions are from buildings.

Source: Inside Supply Management, October 2007, p. 9.

Green construction only 5% more than traditional construction.

Forty percent of greenhouse gas emissions are from buildings.

Source: Inside Supply Management, October 2007, p. 9.

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Dow JonesSustainability Index

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Dow Jones Sustainability IndexesDow Jones Sustainability Indexes

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Dow Jones Sustainability Index ComponentsDow Jones Sustainability Index Components

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Cap & Trade

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Chicago Climate ExchangeChicago Climate Exchange

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Chicago Climate Exchange MembersChicago Climate Exchange Members

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Energy

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Wal-Mart’s Environmental GoalsWal-Mart’s Environmental Goals

To be supplied by 100 percent renewable energy

To create zero waste

To sell products that sustain our resources and environment

Source: Lee Scott, CEO of Wal-Mart, Speech to Associates, Twenty First Century Leadership, October 24, 2005

To be supplied by 100 percent renewable energy

To create zero waste

To sell products that sustain our resources and environment

Source: Lee Scott, CEO of Wal-Mart, Speech to Associates, Twenty First Century Leadership, October 24, 2005

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Hubbert’s PeakHubbert’s Peak

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Oil PricesOil Prices

Source: The Wall Street Journal, May 16, 2008

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PETROBRAS ANNOUCES PURCHASE OF 50% OF TOTAL SHARES OF

PASADENA REFINERY SYSTEM

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BiodieselBiodiesel

Produced from readily available sources

1992 legislation has already introduced B20 as a major fuel in the trucking industry

Produced from readily available sources

1992 legislation has already introduced B20 as a major fuel in the trucking industry

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EthanolEthanol

Brazilian sugarcane based ethanol program

E10 and E85 are the two most widely used blends

Fuel Flexible Vehicles

In 2006 ethanol will only provide 3.2 percent of the United States’ vehicular fuel need.

Brazilian sugarcane based ethanol program

E10 and E85 are the two most widely used blends

Fuel Flexible Vehicles

In 2006 ethanol will only provide 3.2 percent of the United States’ vehicular fuel need.

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Hydrogen Fuel Cells/ HybridsHydrogen Fuel Cells/ Hybrids

Hydrogen fuel cells and hybrids are environmentally friendly alternatives

Hydrogen fuel cells and hybrids rely on resources that are finite

Hydrogen fuel cells and hybrids are environmentally friendly alternatives

Hydrogen fuel cells and hybrids rely on resources that are finite

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Criteria for Measuring Viability of Fuel TypesCriteria for Measuring Viability of Fuel Types

Source: Rogers, Kelly, Rogers and Carter, (2007), Alternative Fuels: Are They Achievable, ILJRA

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Fuel Type ViabilityFuel Type Viability

Source: Rogers, Kelly, Rogers and Carter, (2007), Alternative Fuels: Are They Achievable, ILJRA

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Economic ConclusionsEconomic Conclusions

Biodiesel is still more expensive than standard petroleum based diesel

Tax breaks and incentives will create a nationwide ethanol infrastructure by 2020

Hydrogen fuel cells will be limited by cost and availability.

Hybrid cars will become more cost effective and widespread

Biodiesel is still more expensive than standard petroleum based diesel

Tax breaks and incentives will create a nationwide ethanol infrastructure by 2020

Hydrogen fuel cells will be limited by cost and availability.

Hybrid cars will become more cost effective and widespread

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Hubbert’s Peak TheoryHubbert’s Peak Theory

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Alternative Fuel Sources

AvailabilityNational Average Cost (February 1 2006) Per Gallon

Cost Efficiency Product Viability

Biodiesel

Plentiful sources provides potential for wide scale production

B20- $2.64 B100- $3.23

Cost effective in energy balance; economically stable outlook for large scale production

Near future; Wide scale production projection by 2015

Ethanol

Production possibilities are exceeded by production need

E85- $1.98 Energy potential is cost effective; Infrastructure inhibits the effectiveness on an economical level

Large scale production is outwardly unattainable with current regulations on imports of ethanol feedstocks

Hydrogen Fuel Cells

Hydrogen is available, but not for general public use. Fuel Cell Vehicles are still in experimental phases; none are ready for production currently

N/A Fuel cells tend to have high expenses; the need for platinum in the chemical process to separate hydrogen is financially impractical

The world's platinum is one fourth of the amount needed to equip every car on earth, thus unrealistic with current progress in this field

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U.S. and Global OutlookU.S. and Global Outlook

The global demand for petroleum based fuels will pass the supply in this generation

Learn from Brazilian successes and failures

The global demand for petroleum based fuels will pass the supply in this generation

Learn from Brazilian successes and failures

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Petroleum enters and leaves the US supply chain at many locationsPetroleum enters and leaves the US supply chain at many locations

Source: Energy Information Agency, 2002

US Petroleum Oil Flow — Supply Chain Energy Balance — 2002(Million Barrels per Day)

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Social Responsibility

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Corporate Social ResponsibilityCorporate Social Responsibility

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U.S. Alcohol vs. Tobacco SalesU.S. Alcohol vs. Tobacco Sales

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Green IT

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Green ComputingGreen Computing

EPA found that in 2006, corporate datacenters accounted for 1.5% of US electricity consumption.

EPA found that in 2006, corporate datacenters accounted for 1.5% of US electricity consumption.

Year Percent Cost

2000 0.75%

2006 1.50%

2011 2.50% $31B

Source: Jeffrey Burt, Rackspace embraces environmental responsibilities, eWeek, October 15, 2007, p. 15

48% of IT budgets is being spent on energy

Most of the power used for power & cooling

1 megawatt datacenter takes 177 million worth about $17 million over 10-year life (10 cents per kwh)

Humans created 161 of data in 2006. Green computing is not an option long-run.

48% of IT budgets is being spent on energy

Most of the power used for power & cooling

1 megawatt datacenter takes 177 million worth about $17 million over 10-year life (10 cents per kwh)

Humans created 161 of data in 2006. Green computing is not an option long-run.

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Green ITGreen IT

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Measure Effectiveness of Recycling ProgramMeasure Effectiveness of Recycling Program

Dell has proposed a simple measure •assume a seven year product lifetime, •and measure the percentage of the total weight you recycle each year compared to the total weight of what you sold seven years earlier.

Dell has proposed a simple measure •assume a seven year product lifetime, •and measure the percentage of the total weight you recycle each year compared to the total weight of what you sold seven years earlier.

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Sustainable RetailersSustainable Retailers

Documents

A.T. Kearney 82/7478 1 Sustainability is Free Dr. Dale S. Rogers Center for Logistics Management University of Nevada Petroleo Missao Tecnica Houston,