Sustainable Strategies

1. Sustainable Strategies IGD’s Hot Topic report to help plan your approach towards a sustainable supply chain

2. To get the most out of this Report • Each slide in this report is accompanied with written commentary • This commentary can be viewed in the Slide Notes • To do this go to the View Menu and select ‘Notes Page’ • To print the slides with commentary, ensure you are printing the Notes pages

3. About this Report • Why should you look at sustainability now? • What does sustainability include, industry initiatives & the priorities • Carbon & Energy Management • Performance measures, KPIs, industry initiatives, best practice examples, supply chain implications • Packaging & Waste Management • The waste hierarchy, closing the packaging loop, KPIs, industry initiatives, examples, supply chain implications • Distribution Optimisation • KPIs, industry initiatives, best practice examples, improvement initiatives, supply chain implications • Sourcing & Supplier Engagement • KPIs, industry initiatives, best practice examples, supply chain implications • Preparing your plan to meet future needs

4. IGD’s Research on Sustainable Strategies • Online poll of senior retailer and supplier executives • 134 companies in 24 countries including 15 European countries • Survey of senior supply chain professionals • 66 companies in 10 European countries including the UK • Over 20 in-depth interviews with senior retailer and supplier executives and industry experts in Europe and the US • Detailed analysis of CSR reports of the top 20 retailers from IGD’s Global Retail Index • Analysis of the outputs from ECR UK & ECR Europe workgroups in the areas of sustainable distribution & packaging

5. Why should you look at sustainability now? • Concerns over environmental degradation, resource exploitation and general business durability • There are a number of supplementary reasons why sustainability has become more important. These are: • Ethical/ idealistic considerations • Political activism • Economic/ ethnic/ religious favouritism • Employee relations • Commercial/pragmatic considerations • Cost reduction • Alignment with evolving consumer requirements • Potential for increased shareholder value • Protecting and developing the brand • Safeguarding future business

6. Sustainability is rising up the commercial agenda “There is a real change in terms of sustainability not being solely a corporate function but now filtering through the commercial and marketing functions. This is a new way of doing business”. “At first our buyers thought sustainability was a fad. However, measuring carbon footprints is built into the bonus system of all our senior managers so they had little choice but to participate”. “Consumers increasingly expect leading brands to do their share towards environmental and social issues”. Senior Executives, Multinational Suppliers Source: IGD International Sustainability Survey, May 2008

7. Sustainability is an opportunity to differentiate What are the influences that have shaped your company’s strategy on sustainability? Scale: 1 = least important, 10 = most important Source: IGD International Sustainability Survey, May 2008

8. What does sustainability include? Source: www.igd.com/sustainability

9. Sustainability: a long-term journey Source: IGD Research, 2008

10. Industry initiatives & priorities NOW NEXT 2-3 YEARS • Energy reduction • Waste reduction • Packaging reduction • Transport optimisation • Carbon measurement • Water management • Sustainable sourcing • Ethical sourcing • Eco-design of products • Energy reduction • Packaging reduction • Carbon measurement • Waste reduction • Transport optimisation • Sustainable sourcing • Water management • Ethical sourcing • Eco-design of products Source: IGD International Sustainability Survey, May 2008

11. Carbon & Energy Management are fundamental • Retailers are investing in new technologies across the supply chain and collaborating with manufacturers' to drive change • The most advanced retailers in this area have made environmental initiatives central to their corporate strategy • The focus of these retailers is to: • Limit the environmental impact of their own businesses • Engage with suppliers to drive change across the wider supply chain, and • Build this into their communication strategy to gain a competitive advantage

12. Carbon & Energy – what is being measured? • Leading retailers in the UK & Europe are focusing on limiting their own energy consumption & carbon emissions • Typical measures include • Energy consumption per case sold/ per sqm • Electricity usage in facilities • Greenhouse gas emissions from refrigerants’ loss • Meeting energy standards for buildings • Share of energy from renewable sources

13. Global retailers – Carbon & Energy KPIs Source: IGD Research, 2008

14. Carbon & Energy – Industry Initiatives Ease of implementation High Low Low Level of adoption High

15. What are other leading retailers’ key focus areas? • Making ongoing improvements in energy efficiency • Increasing the use of renewable sources of energy • Reducing the emissions and energy consumption per case sold year-on-year • Setting carbon targets for stores and other operations • Reducing the consumption of water and the contamination of waste waters

16. Eco-design & carbon labelling – Industry Initiatives Ease of implementation High Low Low Level of adoption High

17. Eco-design: what are other leading retailers’ focus areas? • Promoting products that are good for the environment • Minimising air transport while helping trade with developing economies • Increasing the range of energy-efficient product ranges sold • Helping customers choose energy efficient products • Supporting the development of a methodology to measure embedded carbon within products and piloting carbon labels

18. Best Practice – Carbon & Energy Source: IGD Research, Company websites, 2008

19. Supply Chain Implications • The food supply chain will be expected to lead the way in reducing greenhouse gas emissions • Increasingly, savings from energy efficiency & use of alternate sources of energy will gain strategic importance • There will be greater focus and need for carbon measurement of the entire supply chain • The supply chain will need to move from ‘quick wins’ to reduce energy consumption to looking at more structural changes to their operations

20. Packaging & Waste – what are industry priorities? • Packaging reduction continues to be a key initiative, with a trend towards • Reduction in volume & weight of packaging • Increased sourcing of sustainable materials • Further use of recycled material • Retailers are engaging with suppliers to reduce waste generated at source by: • Managing the waste hierarchy • Closing the packaging loop

21. Global Retailers – Packaging & Waste KPIs Source: IGD Research, 2008

22. What are other leading retailers’ focus areas? • Increasing the amount of packaging made from sustainable materials and its recycled /recyclability • Reducing food waste and recycling, composting or using the waste as input for anaerobic digestion • Extending the scope of packaging reduction agreements with suppliers • Controlling cost of waste management • Setting specific operational standards for measuring waste

23. Packaging & Waste – Industry Initiatives Ease of implementation High Low Low Level of adoption High

24. The Waste Hierarchy Source: IGD Research, 2008

25. Extraction Manufacture Filling Compost Recycle Return / Reuse Distribution Retail Incineration or Landfill Home Primary Secondary Tertiary Closing the Packaging Loop Packaging Cycles Source: IGD Research, 2008

26. Examples of RRP: Reducing Primary and Overall Packaging Source: IGD Research, Company websites, 2008

27. 2007 Count: 48 cartons Pack: 6 across X 8 deep Pallet Configuration: 8 cases/layer;80 cases/pallet 2008 Count: 35 cartons Pack: 5 across X 7 deep Pallet Configuration: 9 cases/layer;90 cases/pallet • Benefits • Easy open / Less labor • Eliminate overhang • Printed case • Reduced case count • Reduces corrugate by 20% New shipper case: more efficient & environmentally friendly USA / Macaroni & Cheese

28. Germany / Central Europe Jacobs Coffee SRP tray facilitates in-store handling with minimal outer packaging waste Corrugate tray – No hood – No wrap Source: IGD Research, Company websites, 2008

29. Supply Chain Implications • Regulation will focus on the issue of food-waste and portion size; retailers will continue to engage with suppliers to reduce waste • Simplification (and the integration) of primary, secondary and tertiary packaging will lead to a shift in warehousing and transport strategies • Closed loop packaging will gain traction and will become important in the movement of ‘consumables’ • With the increasing use of recycled plastic, standardisation of acceptable materials is likely • Development of alternative types of packaging, packaging materials and systems will create new opportunities and challenges

30. Distribution – what are industry priorities? • Transport & warehousing are visible parts of the food supply chain and key to supporting and delivering against the CSR agenda • Major industry initiatives in this area include: • Improving space utilisation and fuel usage • Optimising road transport, including vehicle design, engine type, fuel type • Building and retro-fitting warehouse facilities to improve sustainability • Developing alternate non-road transport modes (rail, canals)

31. Global Retailers – Transport & Distribution KPIs Source: IGD Research, 2008

32. What are other leading retailers focusing on? • Increasing the use of bio-diesel in own fleet operations • Introducing a ‘green’ travel policy to reduce carbon emission caused by travel • Replacing fleet with vehicles that meet Euro 4 & Euro 5 emissions standards • Using battery operated vehicles for online shopping deliveries

33. Transport – Industry Initiatives Ease of implementation High Low Low Level of adoption High * Areas explored as part of IGD Research

34. Best Practice - Sustainable Transport Source: IGD Research, Company websites, 2008

35. Technical improvements lead the way Logistics system redesign Vehicle telematics Modern engine design Transport collaboration Out of hours deliveries Larger vehicles Source: IGD Research, 2008

36. Warehousing – Industry Initiatives Ease of implementation High Low Low Level of adoption High * Key initiatives identified by ECR UK workgroup

37. High adoption of quick-wins in warehousing Energy efficient lighting On-site recycling Low water use appliances Rain-water collection On-site energy generation Green building materials Geo-thermal heating/cooling Source: IGD Research, 2008

38. Best Practice – Sustainable Warehousing Source: IGD Research, Company websites, 2008

39. Supply Chain Implications • Technology and innovation will continue to lead • Best practice will move from quick wins to site-builds • Geo-thermal heating/ cooling, use of green building materials will soon become more widespread • Transport collaboration will gain momentum, for both inbound and outbound deliveries • The use of shared warehouse facilities will increase • The use of sustainability scorecards will feature as part of the selection criteria of logistics providers • Standard 3PL contracts will incentivise providers to reduce road miles.

40. Sourcing & Supplier Engagement • Three main trends in this area: • Encouraging suppliers and associates on compliance to mitigate risk • Engaging with suppliers on improving performance metrics including sustainability led criteria • Developing new ranges to meet consumer (ethical shopping) needs • As retailers make sustainability a core competence, suppliers will need to assess their end-to-end operations on these criteria

41. Global Retailers – Sourcing & Supplier Engagement KPIs

42. Sourcing & Supplier Engagement – Industry Initiatives Ease of implementation High Low Low Level of adoption High

43. What are other leading retailers focusing on? • Support local businesses including small and medium-sized enterprises • Support suppliers who are ethical and responsible • Increasing sourcing from certified organisations and sustainable sources • Improving standards of animal welfare

44. Best Practice – Sourcing & Supplier Engagement Source: IGD Research, Company websites, 2008

45. Supply chain implications • Increasing focus on local and regional products will challenge supply chains built to moving bulk groceries through a standard, national supply chain • Rising costs of transport could undermine the benefits of centralised production • The security and continuity of supply of internationally sourced products could further shift sourcing strategies • The use of sustainability criteria-led scorecards in procurement decisions could affect supply chain strategy

46. How should you plan your approach? • Energy, packaging & waste, sourcing and transport are priority areas for retailers • The most advanced retailers have clear KPIs and have made sustainability central to their strategy • To build a sustainable supply chain internal efficiencies will need to be addressed first before working externally • The quick-wins will need to be balanced with the longer-term solutions across the wider supply chain • Common solutions and partnerships will be essential, and industry working groups will be key to finding good solutions

47. For Further Information • Visit www.supplychainanalysis.igd.com to understand the major issues affecting the FMCG supply chain with our Hot Topics • Each Hot Topic is an in-depth guide designed to help you understand the background behind the issues, identify their benefits, see news and case studies from leading retailers and manufacturers, and recognise future business opportunities