4 minute read • published in partnership with SCCG
Insight: Supply chain sustainability in the FMCG sector
Most people associate sustainability with protecting the environment but it is much more than that. Sustainability is often defined as meeting the needs of today without compromising the ability of future generations to meet their own. The Supply Chain Consulting Group looks at the triple bottom line – planet, profit and people – which involves working to preserve the environment while keeping the organisation financially stable. The approach also focuses on the people and the society within which it operates.
The business case for supply chain sustainability is growing as it is seen as vital to delivering long-term profitability. 93% of the world’s 250 biggest companies report on sustainability. It is now a mandatory requirement for listed UK companies that have more than 500 employees to report on their sustainability objectives and performance against targets. Some of the global fast-moving-consumer-goods (FMCG) companies that are regarded as leaders in sustainable supply chain management are Coca Cola, Nestle, L’Óreal, Proctor and Gamble, Unilever, and Nike.
The influence of the consumer
Consumers are increasingly expecting their products to be made and distributed ethically without negatively impacting the environment, and by not depleting natural resources. They are also concerned about food waste and plastic packaging. They want to see consumer-facing-companies exhibit sustainable practices in their businesses like concerning themselves with human rights, limiting their carbon emissions and reducing their use of non-renewable energy and water.
People care about the seasonal availability of food and its provenance. They want to limit their carbon footprint by buying local produce. The UK government recently published guidance that stated that it would maintain its current set of standards on food safety, food labelling and food quality, despite Brexit.
Nielsen, the market research company, reports that 66% of global customers surveyed are willing to pay more for sustainable goods. Customers are looking for:
• Sustainable products that are biodegradable, environmentally sustainable, and ethically sourced
• Manufacturing processes that strive for zero waste and impact the environment minimally while increasing health and safety numbers
• Logistics processes that optimize loads to reduce mileage, emissions, and carbon footprint
• Assets that are designed and operate in an energy-efficient manner and are safe for the environment and workforce
• Adherence to environmental and government regulations and standards such as the initiatives outlined in both the United Nations Sustainable Development Goals.
The Coca-Cola Company
Coca-Cola aims to grow its global juice business significantly by 2020 so sustainably sourcing fruit for its juice products becomes increasingly important. The company estimates that it will have reached 54 per cent of its goal to sustainably source its lemon by 2020. Half of Coca-Cola’s lemon is sourced from Argentina, with 90 per cent of the country’s supply for Coca-Cola sustainably sourced. What they mean by ‘sustainably sourced’ is that farm suppliers meet certain standards set for them, among other things, relating to human and workplace rights, environmental protection, and responsible farming management.
Moving towards sustainability
Sustainability is not just about going “green”. It is a holistic approach that considers environmental, social and economic factors together when entering into any business relationship. Leading companies are identified as those that regard sustainability as part of the company culture and being its DNA. They regard suppliers as an extension of their business and work with them to build capacity and reduce long term risk.
The L’Óreal Group
By 2020, 100% of L’Oréal’s strategic suppliers will participate in its sustainability programme. The Group has developed a two-pronged approach. It selects suppliers on the basis of their environmental and social performance and provides them with training tools. L’Oréal is recognised as a leading company in fighting climate change. In the area of sustainable production, they are ahead of target in their transformation towards a model low-carbon enterprise.
Consumers are increasingly becoming environmentally aware of unnecessary packaging and especially about the disposal of single-use plastics. They care about recycling to avoid pollution of our oceans. The FMCG sector is highly competitive so there is a major drive to reduce costs whilst still considering the environmental and social impacts.
Swedish companies leading the way
Ikea, the furniture company, has invested in forests in Romania and the Baltics, wind farms in Poland and now it is investing in a plastic recycling plant in the Netherlands. Its aim is to become more sustainable by avoiding environmentally damaging activities like illegal deforestation and plastic waste. The packaging manufacturer, Tetra Pak, requires third-party verification that its paperboard suppliers do not use wood from any form of deforestation that breaks the natural forestry cycle. A company cannot supply Tetra Pak if it fails to meet these requirements.
Making your supply chain more sustainable
McKinsey believes that three approaches can help consumer companies make their supply chains more sustainable:
• identifying critical sustainability issues across the whole supply chain and addressing them
• linking the company’s supply chain sustainability goals to the global sustainability agenda i.e. the UN Sustainable Development Goals 2030.
• helping their suppliers to manage their environmental and social impact which in turn provides a basis for strong growth.
Nestle’s annual purchases of cocoa are in excess of 300 000 tonnes. The company only uses sustainably sourced cocoa from suppliers accredited by independent third parties to make its KitKat bars. Nestle’s Cocoa Plan operates across three key pillars: better farming practices, better lives of employees and their communities and better quality cocoa.
Supply chain consultancies are providing expertise to companies to help them understand the benefits of sustainable practices. FMCG Companies that are most sustainably aware may be the earliest to gain from the growth in consumer spending that is expected to take place over the next decade.