GBSA 563

Sustainable global supply chains

Peppercorns…….who uses

them?

Origin - India

Chilli Pepper…….who likes

Indian or Thai food?

Origin - Americas

The Spice Route

Opium Wars (1839 and again in 1856)

Supply Chains?

• Who Cares?

It’s where all the money is!

• Revenue:

- On average, manufacturing firms spend 70% of their

revenue with suppliers.

• Capital:

- Capital is typically invested by firms in their

facilities, equipment and manufacturing technology.

• Logistics

- costs range from 6% - 20% of the price to the final

customer

- transport costs account for 1/3 of logistics costs

60 - 100

0 - 30

30 - 60

≥ 100

Data not available

Ratio of exports and imports of goods and commercial

services to GDP, 2008 (%)

Source: WTO

Source: WTO

Source: WTO

Source: WTO

• Levi Strauss factory

fined $10 million for MW

and OT violations

• Levi cuts factory ties

1992 1993 1994 1995 1996

•Guess contractors fined

$.5mn for wage violations

•Guess signs first DOL

monitoring agreement

• Guess faces labor

conflict at Salvadoran

factory; boycott campaign

led by US activist group

• Levi develops first

supplier Code of Conduct

•Thai slave laborers

found in garment factory

in El Monte, California

•Kathie Lee Gifford

clothing label found to

have child labor in

Honduras factory

•White House Apparel

Industry Partnership

formed with leading

companies.

•LIFE magazine

publishes story on child

labor in Nike’s Pakistan

soccer ball production

•Nike accused of unsafe

working conditions in

Vietnam shoe factory

1997

• United Students Against

Sweatshops is

established.

• SA8000 Standard is

created.

• Disney targeted in

media campaigns for

poor working conditions

in Haiti

1998 1999 2000 2001

•Fair Labor Association is

established.

•Worker Rights

Consortium is

established.

• National Labor

Committee releases

report “Made in China:

Role of US Companies in

Denying Human and

Worker Rights”

• WRAP certification

program is established.

• Chinese workers in

Saipan win $20 million

landmark settlement from

26 US retailers.

• Electronic Industry code

of Conduct established

2002 2003 2004

• Fair Factory Clearing

house is established.

• CAFOD releases report

exposing dire working

conditions in computer

production in developing

countries.

• US NGO groups file suit

against US retailers and

Saipan garment factories

for violating US labor law

and international human

rights standards.

•ILO adopts 4 universal

core labor standards,

regardless of country

ratification.

• United Nations Global

Compact is launched,

with principles against

child labor and forced

labor.

• Chiquita signs landmark

agreement with

international unions to

respect worker rights.

• GAP invites SAI and

Verite to evaluate its

factory monitoring

program

• Last garment factory on

Saipan closes following

years of exposes and

changes in trade

preferences.

2005 2006 2007 2008 2009

• Slaves in Brazilian

Amazon forced to make

materials used in cars.

Ford, Toyota named.

• Nike publicly discloses

all their sourcing factories

•NLC report on abusive

working conditions in

China toy factories

•US-Jordan Free Trade

Agreement reviewed

amid allegations of forced

labor and human

trafficking in production of

US apparel.

•NLC report on Microsoft

using teenage workers

under false work study

schemes

• Bangladesh factory fire

leads NGOs to demand

retailer accountability and

improved conditions for

workers.

2010

•Russell Athletic

concludes agreement

with Honduran union to

re-open local factory after

losing contracts with 96

universities.

• Walmart sued in U.S. by

labor rights group for

failing to uphold code of

conduct regarding worker

treatment overseas.

• Unocal settles lawsuit

alleging complicity in use

of forced labor in Burma.

•Nike CR Report sets 5-

year target to improve

supplier labor conditions.

• United Nations appoints

Special Rep on Business

& Human Rights

95% of the raw Materials used to produce and deliver

products are absorbed in the supply chain (Cradle to

Cradle)

It’s where capabilities are found

Channel Management

• Delivering excellent customer service

• Fulfillment

New Product development

• Innovation

• Product/service launch

Operational capabilities

• Productivity & efficiency improvements

• Quality improvement

ProductsProduct Provider Buying

Systems System Integrator Logistics Chain

MissionAreas/

Capabilities

IntegratedSupply Chain

CUSTOMER CORPORATION SUPPLY CHAIN

User Service Integrator

The World Is Changing

Focus On the Customer

EXAMPLE:

The Global Supply Chain for Lee Cooper Jeans

Synthetic Dye

Frankfurt, Germany

Calliope, France

Pesticide

La Societe National pour

la Promotion Agricole

Benin

COTTON

ItalDenim, Milan, Italy

Spin, Mill, Dye

Japan

Brass Wire

YKK, Japan

Zip

Australia & Namibia

Copper & Zinc

Prym, Germany

Rivets

Pakistan

Cotton

Korea

Cotton

Pakistan

Denim for pockets

Japan

Polyester Fibre

Coats Viyella

Lisnaskea, N Ireland

Thread

Spain

Dye thread

Lee Cooper, Ras Jebel, Tunisia

Factory

Lee Cooper, Amiens, France

Warehouse

Lee Cooper, London, UK

Warehouse

Cromwells, Ipswich, UK

Retailer

Source: The

Guardian 29.05.01

The Global Supply Chain for Lee Cooper Jeans

Cromwells

(retailer)

Ipswich, UK

The Global Supply Chain for Lee Cooper Jeans

Lee Cooper

(warehouse),

London, UK

The Global Supply Chain for Lee Cooper Jeans

Lee Cooper

(warehouse),

Amiens, France

The Global Supply Chain for Lee Cooper Jeans

Lee Cooper

(factory),

Ras Jebel, Tunisia

The Global Supply Chain for Lee Cooper Jeans

ItalDenim

(spin, mill, dye),

Milan, Italy

Dye

&Threads

Spain

Prym (rivets),

Germany

The Global Supply Chain for Lee Cooper Jeans

Calliope,

FrancePesticide

Japan

Polyester Fibre

Lee Cooper, London, UK

Warehouse

Cromwells, Ipswich, UK

Retailer

Pakistan

Denim for pockets

YKK, Japan

Zip

The Global Supply Chain for Lee Cooper Jeans

Pakistan,

CottonJapan

polyester

fibre

Synthetic Dye

Frankfurt

Germany

Japan

Brass Wire

Coats Viyella Lisnaskea, N Ireland

Thread

The Global Supply Chain for Lee Cooper Jeans

Calliope, France

Pesticide

Australia &

Namibia

Copper & Zinc

Korea

Cotton

La Societe National

pour la Promotion

Agricole

Benin

COTTON

The Global Supply Chain for Lee Cooper Jeans

Lee Cooper's Global Supply Chain

Synthetic Dye

Frankfurt, Germany

Calliope, France

Pesticide

La Societe National pour

la Promotion Agricole

Benin

COTTON

ItalDenim, Milan, Italy

Spin, Mill, Dye

Japan

Brass Wire

YKK, Japan

Zip

Australia & Namibia

Copper & Zinc

Prym, Germany

Rivets

Pakistan

Cotton

Korea

Cotton

Pakistan

Denim for pockets

Japan

Polyester Fibre

Coats Viyella

Lisnaskea, N Ireland

Thread

Spain

Dye thread

Lee Cooper, Ras Jebel, Tunisia

Factory

Lee Cooper, Amiens, France

Warehouse

Lee Cooper, London, UK

Warehouse

Cromwells, Ipswich, UK

Retailer

The Global Car Production Network, 2003

Ford

Jaguar Land Rover

Volvo Aston Martin

Mazda Isuzu Suzuki

GM

Vauxhall Opel

Daewoo Saab

VAG

Bentley Skoda

Seat AudiVW

Dailmer Chrysler

Mercedes Benz

Chrysler Jeep

Fiat

Lancia Maserati

Ferrari Alfa Romeo

Toyota

Daihatsu

Porsche

Nissan Renault

Hyundai

PSA

Peugeot

Citroen

BMW

Rolls Royce

Mitsubishi

Honda

Equity ownership

Joint venture

Equity relationship

Functionally integrated group

The Automobile Supply Chain

Supplying

industries

Steel and

other metals

Rubber

Electronics

Plastic

Glass

Textiles

Bodies

Components

Engines and transmissions

Final

Assembly

Manufacture and

stamping of

body panels

Body assembling

and painting

Manufacture of mechanical and electrical

components (wheels, tires, seats, breaking

systems, windshields, exhausts, etc.)

Forging and casting of

engine and transmission

components

Machining and

assembly of engines

and transmissions

Consumer

market

Cereals Supply Chain

Farm

Wood Pulp

Mfg

Processing

Facility

Packaging

Label Mfg

Converter Distributor Store

Packaged Cereal

Packaged Cereal

Grain

Wood Pulp

Paperboard

LabelsWood Pulp

Cereal

Distribution and Retailing

ManufacturingExtraction

Main contractors – F22 Raptor

Sustainable Supply Chains?

Sustainability…..

Anthropology

Man through history

Ecology

Living organisms and their surroundings

Environmental Science

39

Concerns Anthropogenic (Mans) Impacts on Nature

How Nature and Humans Operate and Interact

40

How Do We Interact With Nature?

• Production of

Goods & Services

• Resource use &

exploitation

• Landscapes

• Aesthetics

• Food

• Shelter

• Clothing

• Leisure

• Pollution

41

Changes in Anthropogenic Impact

• Hunter Gatherers

• Subsistence Farming

• Agricultural

Communities

• Industrial Revolution

• Information

Revolution

• Nomadic

• Organic Methods

• “Tragedy of the

Commons” (Hardin)

• Where there’s smoke,

there’s work

• Self determination &

Individualism

42

Limiting Factors in using Nature

Carrying Capacity

• The maximum amount

that can be assimilated

by the environment

without causing

dysfunction in resource

processes

Assimilative Capacity

• The amount the

environment can

tolerate without harm

Threshold Level

• The point at which the

environment stops

functioning as a

resource

• The point at which

dilution is no longer the

solution

43

Exponential Growth

Population Growth

• 1930 = 2 billion

• 1960 = 3 billion

• 1977 = 4 billion

• 1989 = 5 billion

• 1999 = 6 billion

• 2011 = 7 billion

Doubling Time*

• 30 years

• 17 years

• 12 years

• 10 years

• 12 years

• *Officially doubling time is the time it takes any population to double in size (i.e. twice as large)

44

Sustainability

Sustainable Society

• manages its economy and population size without

exceeding the environments ability to absorb

pollutants, replenish resources, and sustain human

and ecological life forms.

Sustainable Development

• meeting present needs without preventing future

generations from meeting their potential needs

45

Theories on Sustainability

Neo-Malthusian

• Population will exceed Earth’s carrying capacity

- Food production is a linear curve

- Population is an exponential curve

- When the lines cross, something has to give…a

crash occurs

(Essay on the Principle of Population)

46

Theories on Sustainability

Hardin’s “Tragedy of the Commons”

• No economic disincentive to not use up resource

• Overuse and pollution of resources leads to environmental collapse

• Users are free riders

Essentially – individuals will not observe the common good in terms of resource usage – but will follow self interest

Sustainability/Self sufficiency

• Can we, as individuals, be self sufficient?

- Think of your own resource consumption

• Can organizations be self sufficient?

- 70% of average income spent with suppliers

• Can communities be self sufficient?

- Aboriginal Australians, American Indians, Aztecs, Egypt,

Roman Empire, Chinese Dynasties

• Is there conflict between individual, group, local, regional,

national and global sufficiency?

- Resource consumption per capita – US vs. developing world

So, where is the incentive?

• According to Werner Marx – the only incentive to be

sustainable is through compassion. (This is a

‘postmodernist’ view; one that reflects a philosophical view

of an acceptable, new and fragmentary view of the world)

Week Three

• Where are the pressure points in your supply chain?

The debate

• Falsification/exaggeration - problems with IPCC’s claims over Himalayan glaciers and the Netherlands’ exposure to sea incursion

• Bjorn Lomborg – ‘contrarian’ whose latest book (“Smart Solutions to Climate Change: Comparing Costs and Benefits”) calls for investment in carbon neutral energy.

United Nations Global Compact

Human rights

Businesses should support and respect the protection of

- internationally proclaimed human rights; and

- make sure that they are not complicit in human rights abuses.

Labour

Businesses should uphold the freedom of association and the

- effective recognition of the right to collective bargaining;

- the elimination of all forms of forced and compulsory labour;

- the effective abolition of child labour; and

- the elimination of discrimination in respect of employment and occupation.

Environment

Businesses are asked to support a precautionary approach to

- environmental challenges;

- undertake initiatives to promote greater environmental

- responsibility; and encourage the development and diffusion of environmentally friendly

technologies.

Anti-corrupt ion

Businesses should work against corruption in all its forms,

- including extortion and bribery.

California Supply Chain Transparency Act

& Slave and Sweat Free Code of Conduct for goods sold

to the State of California (SB 1231)

• In India “children as young as 10, came from a poor farming district on the other side of the country, and said they had never been given promised wages for working up to 15 hours a day.”

• In China children as young as 8 are working 15 hour days, 7 days a week for 26 cents.

• In the United States children are working 10 to 12 hours a day.

–There are about 80 sweatshops in Los Angeles. In

the U.S. one of the many sweatshops makes jeans for

Guess

Restriction of Hazardous Substances

(ROHS)

• Lead (Pb)

• Mercury (Hg)

• Cadmium (Cd)

• Hexavalent chromium (Cr6+)

• Polybrominated biphenyls (PBB)

• Polybrominated diphenyl ether (PBDE)

Environmental Protection Agency

• Taking action on climate change

• Improving air quality

• Assuring the safety of chemicals

• Cleaning up our communities

• Protecting America's waters

• Expanding the conversation on environmentalism and working for environmental justice

• Building strong state and tribal partnerships

Greenpeace

• Not for Profit (501(c) in USA) Founded in 1970 originally to protest nuclear weapons testing, now includes environmental activism.

• Has been subject to attacks by French government (Rainbow Warrior sinking in 1985).

• Extensive research on Oil, Autos, Forests, Coal, Oceans,

• Eg Campaign to make Costco source sustainable fish

Amnesty International

• NGO focused on human rights violations

• Strong proponents of the UN Norms on the Responsibilities of Transnational Corporations and Other Business Enterprises with Regard to Human Rights

• Considerable focus on human dignity and micro-loans, BoP .

A moral imperative?

A legal requirement?

A political expediency?

Sound business sense?

Sustainable Supply Chain…a process

view

Environmentally Friendly Environmentally Friendly Environmentally Friendly

OutputTransformationInput

Reuse process Disposal Process

Recycled

Reclaimed product

Recyclable Material

Reclaim/Reuse/Improve

By-products

End of life

Raw materials

© Patrick C Penfield 2007

• looking at … supply chain(s) as the next frontier for combating climate change. “Carbon footprint is absolutely new territory." says a Herman Miller VP. "“We’re not sure how we’ll measure it, we’re not sure how we’ll deal with it, but we’ve told our suppliers, ‘Get ready, because we’re going to ask you a lot of questions.’” New York Times Nov 7, 2007

• 95% of the raw Materials used to produce and deliver products are absorbed in the supply chain (Cradle to Cradle)

Carbon emissions in the supply chain (UK)

Political changes can impact on every

supply chain..

Use of composite materials

• The Earth has an estimated 61 years of copper reserves remaining. Environmental analyst, however, has suggested copper might run out within 25 years based on a reasonable extrapolation of 2% growth per year.

• Copper has been in use at least 10,000 years, but more than 95 percent of all copper ever mined and smelted has been extracted since 1900. And as India and China race to catch up with the West, copper supplies are getting tight. Copper is among the most important industrial metals. Like fossil fuels, copper is a finite resource.

Copper

• The earth has been estimated to have 46 years supply of zinc. A chemist estimated

in 2007 that at the current rate of usage, the world's supply of zinc would be

exhausted by about the year 2037

Zinc

Aluminium

In the Earth's crust, aluminium is the most abundant (8.13%) metallic element, and the third most abundant of all elements (after oxygen and silicon). Almost all metallic aluminium is produced from the ore bauxite. Bauxite occurs as a weathering product of low iron and silica bedrock in tropical climatic conditions

Titanium

• Significant titanium-bearing ilmenite deposits exist in western Australia, Canada, China, New Zealand, Norway and Ukraine. Large quantities of rutile are also mined in North America and South Africa and help contribute to the annual production of 90,000 ton of the metal and 4.3 million ton of titanium dioxide. Total known reserves of titanium are estimated to exceed 600 million ton

Producer Thousands of tons % of total

Australia 1291.0 30.6

South Africa 850.0 20.1

Canada 767.0 18.2

Norway 382.9 9.1

Ukraine 357.0 8.5

Other countries 573.1 13.6

Total world 4221.0 100.1

Material in an average automobile

Rare Earths

OverviewThe term “Rare Earths” refers to the 15 Lanthanide

elements and Yttrium

• Rare Earths aren’t really “rare”

• More plentiful than silver

• Rare Earths are extracted from Bastnaesite, Monazite,

Apatite, Xenotime and Ionic Clays

Four Major Factors

• China

Became a major player in a short time

Went from 16,500t REO in 1990 to over 100,000t REO in 2003

• Breakup of the USSR

Large stockpiles of Rare Earths became available on the world market for the first time

Predominantly Rare Earth metals, suited for military purposes

• Radiation Problems

Problems with disposal of Thorium byproducts

Australia and India decreased in importance

• Shutting down of Molycorp

Molycorp was shut down due to environmental problems

Cyclical Chinese Market

•2000

Several Chinese producers have gone bankrupt (Down to 80 from 150)

Chinese Government steps in, creates export quotas

Minimum prices are set•2000-01

Uptrend in prices due to increased demand in the telecom/computer industry

Several closed units are re-opened•2001-03

Telecom/Computer Industries collapse

Prices drop drastically•2003-2007

Chinese Government attempts to organize the Industry into two groups

Prices about 30-50% below 2000 levels

Chinese Market - Today

• Increased domestic consumption

• Chinese enterprises moving up the value chain

Battery Powder

Magnetic Powder

Chinese Govt. very keen on catalyst plant

• Crack down on environmental problems

• Reduction in illegal mining

• Increased production of Bastnaesite in Sichuan

• Ionic Clays production continues to increase

Cartel Formation

“Rare Earths is to China what Oil is to OPEC”Deng Xiaoping

• A first attempt was made in 1994 – It failed

• The Chinese Govt. wanted to create a cartel because of these reasons

• Severe oversupply

• Price undercutting

• Margin erosion (2004 prices were lower than the prices in 2000)

Steps Taken

• ‘Cap’ on annual Rare Earths export through restricted export quotas/licenses

• A willingness to let uneconomic enterprises go bankrupt

• Suspension of new mining licenses until Dec. 2005

• Creation of two blocs

North, controlled by Baotou Steel and Rare Earth

South, controlled by Aluminum Corp of China & China

National Metals & Minerals (Minmetal)

The Plan

• Supply all mined Rare Earth ores only to members of these blocs

• Export quotas would only be provided to members of the groups

• Government to actively shut down plants operating without a mining license

• Coordinated, centrally orchestrated pricing

The Result

• The Govt. could not control the entrepreneurial spirit of the owners

• Fundamental differences in:

• Goals

• Scales

• Production Technologies

• Difficulty in setting up co-financing agreements

• The plan has been completely abandoned

Demand - Catalysts

Appl. Specific Application Units RE Used 2003 2004 2005 2006 2007 2008

tpy Ce 4,704 5,137 5,583 5,937 6,237 6,457

tpy La 250 273 297 316 331 343

tpy Nb 250 273 297 316 331 343

Catalysts for Diesel

Vehiclestpy Ce 0 0 0 10 55 57

Fuel Additives tpy

FCC Catalysts tpy La 11,000 11,330 12,825 13,210 13,606 14,015

Catalysts

Autocatalysts

No Information

Auto Catalysts – Car Production

2003 Car Production 56,849,000

2003 Cars with Catalysts 48,000,000

2003 % with Catalysts 84%

Average cells in a catalyst 2.8

Cerium per cell 35 gms

Cerium Consumed (2003) 4704 tons

Auto Catalysts – Growth Components

To Monitor Is new environmental legislation introduced in the US, Europe and Japan ? Yes

Growth Rate Components 2004 2005 2006 2007 2008

- Auto Production 2% 2% 2% 2% 2%

- Increased use of catalysts 2% 3% 2% 2% 2%

- Stricter Legislation 5% 5% 4% 3% 2%

Impacts Catalyst Usage

Impacts Cerium

consumption/Cell

Impact

Auto Catalysts - Substitution

To Monitor Do lean burn engines meet the emission standards ?

To Monitor Has fuel borne cerium catalyst tehnology been perfected ?

Substitution Components 2004 2005 2006 2007 2008

- Lean Burn Engines -1% -1% -1% -1%

- Fuel Borne Cerium Catalyst 2% 2% 2% 2%

- Hybrid Cars -0.50% -0.75% -1% -1.50%

- Recycling - - - - Negligible Impact

Impact Cerium

consumption/Cell

Impacts Catalyst Usage

Using the world’s water?

• How do you use water?

• Washing

• Laundry

• Drinking

• Heating

• Swimming

• Irrigation……

External water footprint i.e. the Quantity of “virtual*” water deriving from

other countries in imported goods

• The UK imports most of its requirement for tomatoes in winter from Morocco: where 1 tomato requires 13 liters of water . By 2020, at current rates, groundwater in Morocco will be effectively exhausted

• A shirt made from cotton grown in Pakistan or Uzbekistan requires 2,700 liters of water: Much of which comes from depleted sources such as the Indus river (that often runs dry before it reaches the sea), or from Aral Sea that has lost 80% of its volume in the last 40 years because of excess irrigation.

Source: WWF

”Virtual water is water used during the production process”

Invitrogen

Main sources of Co2 across the supply

chain

Opportunities to reduce Co2 in

newspapers

Why is there a problem with food prices

now?

• Soaring oil and energy prices have pushed up costs:

–fertiliser is up more than 70%,

–fuel for tractors and farm machinery is up 30%,

–pesticides, which depend on oil, are up too,

–as are labour costs;

Why is there a problem with food prices

now?

• Demand is rising as the global population grows and increasing affluence impacts on demand for meat, eggs and dairy products. (Over 30% of the world's grain now goes to feeding animals rather than people directly. Farming one acre of decent land can produce 138lbs of protein from grain, but one acre given over to beef farming will produce only 20lbs of protein;)

Why is there a problem with food prices

now?

• Droughts in grain-producing areas of the world have hit harvests in the last few years. Grain stocks are at a historic low;

Why is there a problem with food prices

now?

• Biofuels are competing with food for arable land, with both the US and the EU mandating their use. About 30% of the US corn crop is expected to be diverted to biofuels this year;

Why is there a problem with food prices

now?

• Speculative trading in agricultural commodities has grown dramatically.

• Several big investment banks have launched agricultural commodity index funds, as they look for new areas to make profits in following the credit crunch.

• The result ? Enormous fluctuations in market prices that do not appear to relate to changes in fundamentals such as supply and demand.

• Four years ago $10-15bn was invested in agricultural commodities funds - now that figure is more than $150bn. (Wall Street investment funds own 40% of US wheat futures and more

than one fifth of US corn futures.)

WORLD CLASS SUPPLY

CHAIN MANAGEMENT

Evolution of Supply Chain Management

Source: ““How Do I Drive Value Through a Value Network?” AMR Research, December 2007

Cross-functional coordination

Demand Networks, Design Networks and Supply Networks

Supply Networks

Shift to external focus on the design and management of relationships

Set of processes and technologies based on a near real-time demand signal

Multiple networks of employees, suppliers, and customers

Value Networks

Efficient Supply

Procure-to-pay and order-to-cash transactions

Direct material management while reducing costs

Late 1980s Today2000 to 2005

Evolution of Supply Chain Management

Cross-functional coordination

Demand Networks, Design Networks and Supply Networks

Supply Networks

Shift to external focus on the design and management of relationships

Set of processes and technologies based on a near real-time demand signal

Multiple networks of employees, suppliers, and customers

Value Networks

Efficient Supply

Procure-to-pay and order-to-cash transactions

Direct material management while reducing costs

Late 1980s Today2000 to 2005

Shift to external resource management

Accountable for total network carbon footprint

Engagement in risk and reward sharing

Innovation as the engine of sustainability

Lean Networks

Tomorrow