Exclusive: Sustaining Gaia

The earth’s capacity to sustain the activity of people is shrinking fast.

Associate Director Sustainability, for the Portland Group Mark Reynolds and chair of a panel examining the essence of sustainability told the 2008 Supply Chain Business Forum that using a simple resource accounting tool it’s possible to ascertain that in 1985, our ecological footprint, or the land and water area we use for resources and waste disposal, exceeded the capacity of the biosphere for the first time.

In 2008, the human population is now consuming 25 per cent more than what the earth’s long-term biocapacity can give. By 2030, this figure will reach 50 per cent.

“Biocapacity is expected to decline further as we overload or exhaust some resources,” Reynolds says.

“For example, our dependence on fossil fuels has grown 9-fold since 1960, with rich countries having the greatest footprint.”

“Cheap energy has enabled the tremendous growth in goods and services we have enjoyed for the last half century, but as we’re all aware, the situation has been changing for some time.”

“As developing nations achieve greater economic prosperity the challenge will grow exponentially given the sheer number of people in those countries.”

Reynolds told the invitation-only Forum, an initiative of internationally recognised supply chain expert John Gattorna, that 90 per cent of the human ecological footprint is made up of supply chains delivering food, goods and services.

“Goods and services include everything we buy — cars, TVs, toys, furniture, haircuts, holidays, concerts,” he explains. “Supply chains are therefore powerful vehicles to drive sustainability.”

Supply Chain Director for George Weston Foods and panellist Maurice Sinclair says consumer demand for processed food is a significant contributor to greenhouse gas emissions (GHG).

“The growth of processed food production incurs longer travel distances, changed chemical states, extra packaging and higher water content,” he says.

“By default it impacts on GHG greater than products consumed in a natural state.”

By way of example, Sinclair points to the production of a can of baked beans, which has a supply chain extending back to the iron ore mined and procured to produce the steel cans, the forests and paper mills used for the labels and of course, to the farming of the beans.

“It also involves the logistics operations between the manufacturers who package the beans and retailers who sell them,” Sinclair says.

“In addition, it’s pertinent to remember Australia is expected to generally receive less rain than it has done in the past,” he reasons.

“The dispersal of that rain will impact on our sheep and wheat belt and other major food producing regions.”

“Achieving sustainability in the supply chain is not simple,” Sinclair says, “there are many areas to consider.

“However this should not dissuade us from moving towards a greener supply chain environment.”

Panellists agree sustainability is a system condition; it must be considered through the end-to-end supply chain and collaboration is necessary in order for it to flourish.

Link Strategy Principal Alice Woodhead has completed several collaborative projects with producers aiming to reduce the carbon output of their operations.

The Sugar Link Project is a significant example.

“The project aimed to help develop a shared vision for a sustainable sugar supply chain in NSW,” Woodhead says.

“With the burning of sugar cane viewed as dangerous and negative for the environment, the strategy of the project was to develop some new processes, systems and technologies for ‘green harvesting’.”

Alice Woodhead says the Sugar Link Project also attempted to build an understanding of collaborative initiatives towards a sustainable sugar supply chain which includes consumers, their communities and the environment as stakeholders.

“From an initial position of producing a huge carbon output, to becoming energy positive, the process took five years, including the development of new systems and the associated training,” she says.

“Being a fairly insular cooperative, it also took some time for the farmers to develop an understanding with the community about what they were seeking to achieve.”

“In the sugar industry, management of supply chains is changing considerably in response to the often-difficult market environment,” Woodhead explains.

“Market forces present real challenges to wholesalers and retailers but are exceptionally problematic for primary producers who often lack the knowledge to manage these new and dynamic relationships.”

“Food manufacturers and retailers increasingly demand consistent quality and on-time products from their suppliers.”

“In recent years, considerable emphasis has been placed on rationalising the economic value chain to reduce excess costs and increase efficiency.”

“Manufacturers and retailers have responded to the marketing opportunity with product-label claims such as ‘animal friendly’ and ‘organic’.”

“However, the credibility of these products depends on the ethical values of the chain partners and the verification of the claims through the entire supply chain.”

For many companies, which in the past have had an exclusive focus on providing economic value for shareholders, these consumer demands are driving new business strategies and changing relationships among chain partners.

“Ultimately, the Sugar Link Project achieved a commitment from stakeholders to sustainable farming practices, including waste water management, best practice guidelines for farm management and ‘green harvesting’ through collaboration and increased transparency,” Woodhead says.

“It resulted in the ethical branding retailers were looking for to cater to the concerns of an increasingly influential breed of consumer.”

Along with improvements in practices, the Sugar Link Project developed a target and reporting system to ensure the continuation of the process.

While the achievements of the Sugar Link Project represent the efforts of just a few, the tide is turning in Australia.

Our largest polluters, classified as companies who emit greater than 125 kilo tonne of GHG and produce or consume 500 terrajoules of energy will soon be required to report under a new legislative framework.

The National Greenhouse & Energy Reporting (NGER) Act 2007, along with subordinate legislation, the NGER Regulations, the Emissions and Energy Methodologies Instrument and the External Audit Instrument, demand mandatory reporting for any Corporation that emits GHG and produces or consumes energy at a specific activity level.

“The NGER System Regulations Policy Paper, released early in 2008 proposes to phase reporting in over 3 years from July 2008,” Maurice Sinclair says.

“Corporations will report within legislated industry sectors as a precursor to a Emissions trading scheme.”

Initial compliance will come at a cost in the short term.

“At the end of the day mandatory reporting will be incorporated as a business cost,” Sinclair says, “while companies ascertain their base position.”

“Once they’ve measured their actual output there will be all sorts of opportunities to reduce GHG and energy consumption, which should result in significant commercial benefits along the way.”

“The process will force businesses to look at better ways to rationalise and create more efficiency across their supply chains.”

For example, companies might focus on distribution, particularly into difficult to serve and high cost-to-serve markets.”

“It could involve shared reverse logistics in terms of crate returns, pallet returns and other handling devices and materials that require reverse logistics operations.”

“Collaborative efforts, essential to achieving sustainability, might result in the redesign or creation of more efficient rolling stock such as low profile trailers, mezzanine trailers to allow for the elimination of shipping waste or looking to reduce the amount of drag and tear by close coupled trailers,” Sinclair adds.

“Investigating alternative energy sources or hybrid fuel systems to reduce the significance of the fossil fuel base is another growing area, along with the use of multi-temperature vehicles to increase shipping efficiency and to reduce the number of vehicles on the road.”

“Companies might also attempt to reduce the amount of airfreight where possible, and increase sea freight.”

“Shipping is more CO2 efficient when measured on a per unit basis and space on the ship can be used as a warehouse with stock holding time calculated in.”

According to Sinclair, waste is one of the most significant contributors to GHG.

“If we can reduce the global waste in the food industry, which is estimated to be as high as 20 per cent, this equates to a reduction in GHG emissions of about 4-5b litres of fuel and as many as 5m tonnes of emission annually,” he says.

“In the George weston Foods business for example, 15 per cent product returns is considered the industry average.”

“That means at best we expend 115 per cent of effort to get 85 per cent efficiency.”

“This is an industry norm globally. Can you imagine the excess packaging, wasted finished goods, reduced production efficiency, excess marketing effort, increased transport in and out of the plants, and so on?”

“Essentially, better demand planning will lead to reductions in stored inventory and ultimately waste.”

Despite the opportunities, Sinclair says only about 5 per cent of companies actually know what they’re in for.

“The beauty of the legislation is that it’s mandatory,” he says.

“In the same way as GST reporting is now part of everyday life, the requirement for NGER compliance will drive daily business activity.”

“The need to generate sustainability as added value to the business will also grow as strong leadership embeds it throughout the organisation.”

But what is the first step for companies wishing to comply?

“In reality the first step towards creating a sustainable supply chain is to actually know what your carbon footprint is so that you have a base measure going forward,” Sinclair explains.

“Understanding the commercial impact will come once you know your footprint.”

“Whereas a year ago you might never have heard of measuring carbon footprint, three companies that have achieved it include Fonterra, MacDonald’s and DHL,” Sinclair says.

“George Weston Foods is employing an environmental manager and developing a working group to look and address our greenhouse gas emissions and future compliance activity.”

“I know of at least half a dozen other companies with whom I directly liaise that are looking at the same principles. I think we’ve moved beyond lip service now.”

“This legislation has been the best thing that’s happened to our planet for many years.”

Without dynamic alignment of supply chains, however, it’s not possible to accurately measure your carbon output.

“John Gattorna’s ‘dynamic alignment’ model is a way to ensure the often conflicting goals of commercial success and socio-environmental responsibility can be reconciled and achieved,” says Maurice Sinclair.

“By looking at the behaviour of supply chains it’s easier to match and design the interrelationships in a more harmonious way, to reduce waste and improve efficiency.”

“I would say that other than measuring your output, companies need to understand their strategy; the different buying and selling behaviours of their customers and suppliers, and then create the appropriate supply models through their chains.”

“That will impact on the amount of inventory held, how it’s procured, where it’s held, how it’s held, and the speed through the chain.”

“Once alignment is understood, you can go about measuring your current footprint against the climate model and start making improvements within that context,” Sinclair says.

While there clearly is a growing concern for the environment, as evidenced by the significant call from clients to investigate sustainability and compliance within Mark Reynold’s business in 2007, Maurice Sinclair says there will still be those who’ll need to be forced to comply, ‘kicking and screaming’, rather than being proactive.

Senior Research Analyst Sustainable Funds, AMP Capital Investors and panellist, Dr Ian Woods says businesses must think carefully about the impact to brand and reputation, and ultimately cost, of this attitude.

“A recent AMP Capital Investors analysis finds 77 per cent of the value of the typical Australian company is made up of intangibles,” Woods says.

“Successful risk management and supply chain relationships and management can represent an important part of company value.”

“Consumers now look for signs of certification and assurance, such as quality, safety and environmental management systems,” he explains.

“These might include an organisation’s general approach such as a ‘green lead’, the use of biofuels, or product stewardship.”

“It might equally include specific sector chain of custody initiatives such as the Forest Stewardship Council Certification, the Waste Electrical and Electronic Equipment Directive or the National Packaging Covenant.”

Alice Woodhead sees emergent thinking within organisations looking to engage with social and environmental auditing, transparency, equitable distribution of wealth and knowledge and corporate responsibility.

“The change has come about in part because of the need to connect with the ‘conscientious consumer’,” she observes.

“Finding a common language between competing needs and agendas within the supply chain is the next challenge.”

Maurice Sinclair maintains there’s a huge opportunity for Australia to use its wealth and technology to restructure our economy with a view to staying prosperous while using energy more cleverly and reducing waste and land use.

“The big dilemma facing developed nations is that on one hand we need to maintain the noble goal of sustaining Gaia or looking after Mother Earth and on the other we have to make sure that our companies are commercially viable,” he says.

“Otherwise the effort required will be severely short changed by rationalists whose sole focus is shareholder wealth.”

“Those that do position themselves early, with the muscle, mass and collaboration skills will obviously be in the strongest position to maximise the opportunities as early adopters by incorporating the culture of sustainability as value into their business.”

Held at the Sofitel Hotel in Werribee, Victoria, the 2008 Supply Chain Business Forum was hosted jointly by the Institute for Logistics and Supply Chain Management at Victoria University, Melbourne, and Macquarie Graduate School of Management, Sydney.

The next Forum is scheduled for February, 2010 in the Hunter Valley.

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