The Circular Economy, Manufacturing and the

Role of Procurement in a Competitive World

Larry Berglund | SCMP | MBA | FSCMA

Larry Berglund SCMP | MBA | FSCMA

Facilitator:

Better Ways to Better Deals - negotiations

Strategic Management

Sustainable Supply Chain Practices

Leadership and Professionalism

Ethical behaviour and social responsibility

Greening the Supply Chain (UBC)

Supply Chain Finance

Supply chain metrics

Operations management

Social procurement

Public sector procurement - Swimming in the Fish Bowl

Basics of Buying

National Education Consulting Inc.

Athabasca University, Faculty of Business

Author:

Better Ways to Better Deals: McMaster University – Price Index model

McMaster University – Sustainable Supply Chain Management Practices

City of Granston Case Study

Cities and Ethical Purchasing as Means to Address Social Justice

Food, Finance, and Philosophy:

McMaster University - When Local is Logical: A Renewal of Interest in Local Sourcing

B2b Magazine

The Legal Edge

Good Planets are Hard to Buy

Supply Management Consultant:

Operational reviews

Policy development

Strategy

Public and private sector procurement

Training:

Buying

Operations management

Online public procurement - NECI courses/webinars

Workshops - negotiations; social procurement; CSR; competitive bidding; KPIs; TCO; inventory; leadership; ethics; conferences

Larry Berglund | SCMP | MBA | FSCMA

Agenda

Reverse innovation

Supply chain finance

Business ethics and values

Circular economy

Supplier diversity

Reverse innovation:

Mahindra & Mahindra

GE Healthcare

Procter & Gamble

Unilever

Wal-Mart

Entering emerging markets:

Ranbaxy

Huawei

Haier

Techtronic

Lukoil

Embraer

What’s a Trillion $ Problem?

What’s a Trillion $ Problem?

The direct costs of corrosion in the US

per year - poor manufacturing!

US Cost of Corrosion

1998 $276B

2013 $1.0+T

Hazardous chemicals - old school

Hydrofluoric acid burns - in pickle and passivation

process with stainless steel

Local solution - design for

environment

ProStar developed by

Protocol Environmental Solutions, Vancouver

Eliminates the use of hydrofluoric acid

Cost benefits with ProStar

A conservative estimate is

~30% reduction in total cost over

conventional SS projects!

Which product would you want your crew or

your contractors to be using?

Supply Chain Finance

Supply chain finance

What is SCF?

SCF is a set of solutions to source,

finance, and manage payments and

logistics across a supply chain to

mitigate risk and conserve working

capital.

Driving forces behind SCF

Globalization

Provenance of data and information

Increased competition

Security and flexibility of financial

instruments

Supply chain leverage

Financial constraints

Benefits of SCF to buyers

Reduced COGS

Reduced finance costs

Improved cash flow

Access to lower cost of capital

Improved customer relationships

Accelerated payment options

Reduced transactional costs

Less dispute resolutions required

Benefits of SCF to sellers

Reduce DSO

Reduced finance costs

Improved cash flow

Improved customer relationships

Flexible payment terms

Reduced transactional costs

Less dispute resolutions through

transparency

Volatility factors by industry

Industry Volatility Factor

Auto parts 1.93

Bank 0.89

Beverage 1.28

Electronics 4.37

Office supplies/equipment 1.87

Packaging and container 1.28

Retail store 1.99

Semi conductor 6.35

Wireless networking 5.90

security’s price:

1 = follows market

>1 = more volatile

<1 = less volatile

Leading service providers

Bolero, UK

Capital Tool, Peru

Castle Pines Capital, USA

Demica, UK

Finacity, USA

Global Supply Chain Finance, Switzerland

Orbian, USA

Prime Revenue, USA

SCC Swiss Commercial Capital, Switzerland

The Receivables Exchange, USA

Trade Card, USA

TradeCard metrics

TradeCard is bank agnostic and partners with 25+ financial

institutions

Manages US $2B in transactions per month

Assists its clients to attain more competitive financing rates when

required

Added Adidas to its client list in 2012 with its 300-400 global

suppliers

Continued growth and largely unaffected by economic crisis of 2008

Enables buyers and sellers to manage procurement and financial

transaction workflow with transparency, from order to account

settlement, which optimizes cash flow and credit lines

Branches in New York, San Francisco, Hong Kong, Taipei, Seoul,

and Tokyo

Supply chain finance opportunities

Conserving working capital

Efficiency in transactions

Reducing inventory investment

Shorter cash-to-cash cycles

Leveraging e-business practices

Competing and collaborating across their

supply chain

Citigroup, USA

GE Capital, USA

HSBC, USA

IBM Global Financing, USA

RBS, UK

SEB, Sweden

Santander, Spain

Siemens Financial Services, Germany

Standard Chartered, UK

UniCredit, Italy

Wells Fargo, USA

Leading funders

Mitsui & Co. key metrics:

~40,000 FTEs

$56.4B revenues

850 companies in 5 operating groups (metal

production and materials; electronics and information;

energy; consumer products/services and chemicals)

50% cost reduction by using open account vs LCs for

imports and exports

Improved JIT and reduced WIP

Customer satisfaction increased

Example of SCF benefits

Example of SCF benefits

Burton Snowboards key metrics:

56,000 SKUs supplied from Asia, Europe, and North American suppliers of boards, clothing and accessories

~500 FTEs in US, Europe, and Japan

Products sold in 36 countries

Key to low cost production based on WIP reporting from multiple suppliers

WIP reports require high accuracy to avoid production delays, enabling an agile production schedule, or to reposition the sequencing of high-moving popular items

By participating in a robust SCF solution most its suppliers have reduced their DSO

Business Ethics and Values

Ethics and Professional

Codes of Conduct

Are they important?

Hmm…

Maybe they

are…

Who says

cheaters

never

prosper?

WT…FIFA

VW - Fahrfromtruthen

Measuring Trust

Edelman Trust Barometer

Corruption Perceptions Index

Corruption Perceptions Index

Where do you think Canada ranks in the

global assessment?

Corruption Perceptions Index - 2015

Trans-Pacific Partnership (TPP)

Australia ……………… 13

Canada ………………. 9

Chile …………............ 23

Japan ………………… 18

Mexico ……………….. 95

Malaysia/Brunei …….. 54

New Zealand ………… 4

Peru …………………… 88

Singapore ……………. 8

USA …………………… 16

Vietnam ……………….112

TCO and Business ethics

Current dilemma: tax (corporate) inversion

The Slippery Slope

Unethical acts in one domain can

influence our ethics in other domains

“White” lies

Tax inversion - what is it?

Legal corporate tax avoidance

Apple Inc in Ireland ~20 years

Medtronic moving to Ireland

Mylan moving to Netherlands

Starbucks voluntarily paid ₤20m in UK taxes

Valeant

Tim Horton’s and Burger King

Tax inversion

Would you have any ethical concerns for

sourcing from a supplier which participated

in a tax inversion model?

Other inversion participants…

Abbott Laboratories

Adobe Systems

Eli Lilly and Company

Facebook

Forest Laboratories

General Electric

Google

IBM

Johnson & Johnson

Microsoft

Oracle Corp.

Yahoo

Recent Canadian

Bid Rigging Fines

Denso Corp $2.45M (2012 US fine $78M)

Furukawa Electric $5M

JTEKT Corp $5M

NSK Ltd $4.5M

Panasonic $4.7M

Showa Corp $13M

Toyo Tire $1.7M

Yamashita Rubber $4.5M

Yazaki Corp $30M (2012 US fine $450M)

Corporate image or brand

ADM - price-fixing on food additives

Bennett Environmental Inc - bribes

Samsung Electronics/Hynix Semiconductor – price-fixing

Nestlé, Cadbury, Hershey, Mars – price-fixing

City of Victoria – untreated sewage discharge

ECU Line Canada - price fixing cartel

K-Line - price fixing and bid rigging

SNC Lavalin - bribing foreign officials

The Circular Economy

How many cups of water does it take to make a 12 oz. cup of coffee?

Answer:

392 cups of water to make a cup of coffee!

OMG!

International Social

Procurement Shifts 1999 - Garstang, England is the first Fair Trade town

2005 - City of Vancouver introduces the first municipal social and

ethical procurement policy

2010 - Australia Social Procurement Guidelines published

2011 - Brazil instructed its government buyers to spend 25% more

on local goods to displace imports

2011 - India wants 30% of government contracts spent with Indian

SMEs

2011 - New Westminster B.C. first city to have a living wage policy

2012 - Scotland initiated Community Benefit Agreement

2012 - Social Value Act introduced in England

2012 - Buy Social UK launched

2012 - Circular Economy report by Ellen MacArthur

International Social

Procurement Shifts cont’d

2012 - SCMA Code of ethics revised

2013 - City of Toronto initiates social procurement framework

2013 - Province of BC targets 20% increase in business with SMEs

2013 - SNC Lavalin barred from World Bank projects for 10-years

2014 - India mandates 2% of net profits to CSR

2014 - City of Vancouver commits to increased business with SMEs

and SEs

2015 - Buy Social Canada

2015 - Infrastructure for Jobs and Prosperity Act, Ontario (Bill 6)

2015 - City of Vancouver introduces living wage program

2015 - Microsoft wants its US supply chain partners to offer at least

15 days paid leave per year

2015 - Federal Government Minister Foote wants to modernize

procurement practices to include green and social procurement

The Circular Economy

Principles:

1. Waste is eliminated

2. Diversity is strength

3. Energy must come from renewable

sources

4. Systems thinking

Linear economy Circular economy

Linear: take-make-dispose (infinite resources)

Circular: cradle-to-cradle (finite resources)

Circular economy and supply chains

What could you do to sustain your

business model in the absence of raw/new

materials?

What changes might be required in the

market to replace raw/new materials?

How could you remain competitive in a

circular economy?

Critical Material Risks

Two types of risk:

Supply risk - geopolitical, concentration of

product, potential for substitution and rate

of recycling

Environmental country risk - assessing the

risks by countries with weak environmental

performance which may threaten supply

Critical Materials

Antimony

Beryllium

Cobalt

Fluorspar

Gallium

Germanium

Graphite

Indium

Magnesium

Niobium

Platinum Group Metals

Rare earths

Tantalum

Tungsten

Conflict-free minerals

2011 - DRC mines are being validated to

ensure they are conflict-free

Green - OK

Yellow - warning

Red - banned for 6-months

Circular Economy and Supply

Management

Buy goods/services in accordance with the CE principles

repairable

can be broken down into components

components can be re-used in production

extraction of biochemicals

compostable materials can serve as biofuels

Circular Economy Supply

Agreements

Pay per use

Buy/sell back

Collection of consumables

How long does an appliance last?

Circular Economy and Electronics

9.8M smartphones sold in 2013

1.3B smartphones sold in 2014

1.5B smartphones forecast for 2015

Linear economy - designed for disposal (dfd)

Circular economy - designed for environment (dfe)

Circular economy and the

food/beverage sector Average WEIRD person consumes 800 kgs of

food/beverages; 120 kgs of packaging; and 20 kgs of new apparel/shoes per year

$37 Trillion of materials into FMCG per year

~20% of FMCG are recovered for further use

Only 50% of 19.8 Million tonnes/year of PET containers are recycled

~3B more consumers will enter the market by 2030

Opportunities:

Optimize design and materials

Provide economic incentive for increased

participation

Optimize collection, sorting, treatment and

repurpose infrastructure

Alignment of policy and education

Circular economy and the

food/beverage sector

Circular Economy and Water

How much does it cost Nestlé to

bottle water in BC?

Circular Economy and Water

It costs Nestle

$2.25 per Million litres of water

Circular economy and vehicles

Renault (Europe)

Remanufacturing, reengineering,

redesigning

Results: 80% less energy

88% less water

77% less waste

Circular economy and lighting

Philips (Europe)

Sell lighting as a service (pay for

use/return)

Increased recycling to 95% of materials

Circular economy and clothing

H&M Clothing

Customers return end-of-use clothes for voucher

I:CO* processes returned clothes

40-60% become 2nd hand

5-10% for reuse

30-40% fibre recovery

*I:CO (I collect)

Circular economy and employment

Collection and recycling generates more

localized employment

Reducing resources, improving production

efficiencies, and reducing energy

consumption while increasing labour costs

The Speed Factory

Adidas – Germany

Robotics-designed factory

Local materials

Local customization

Zero chemicals

Zero adhesives

Strategy:

Economic decoupling

Economic growth without a corresponding

increase in consumption in energy and

resources nor in environmental stress

Circular economy - Sweden 2015

Circular economy - Sweden 2015

70% reduction in carbon emissions

75,000+ jobs created

Improve trade balance by 3% of GDP

Method:

Renewable energy use

Energy-efficiency

Material-efficiency

Reverse logistics - e-waste

Companies spending 8-10% of revenue on

reverse logistics

Electronic waste recovery

Hong Kong-based Li Tong Group

Collect 200,000 tonnes per year of e-waste

Destruction of components

Harvest of components

Segregate raw materials for reprocessing

Resell end-of-life systems to emerging markets

Circular economy - leaders

Apple

Caterpillar

Chevron

Cisco

Coca Cola

DHL

H&M

IKEA

M&S

Michelin

Philips

Renault

Ricoh

SAB Miller

Steelcase

Unilever

Supplier Diversity

Supplier diversity programs

Motivators:

1. Improves orgn’s community impact

2. Improves orgn’s social standing

3. Broadens the supplier base

4. Improves corporate image/brand reputation

5. Matches demographics of consumers in target markets

6. Creates new business opportunities

7. Improves orgn’s supply chain performance

Diversity groups targeted by SD

programs in Canada:

Aboriginal peoples - 91.3%

Women - 78.3%

Visible minorities - 78.3%

People with disabilities - 47.8%

LGBT = 47.8%

CAMSC

If you are an MNC - you will need to be

inclusive and need to have a supplier

diversity policy

Larryberglund.com

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