The Life Cycle Management Navigator Knowing Market Demands Training Session 4

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The Life Cycle Management NavigatorKnowing
Market Demands Training Session 4
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Knowing Market DemandsMajor Trends
Outline
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Supply chain pressure
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Stakeholder pressure
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Knowing Market Demands
Trends

• Trend
• Competitive Pressure in Global Markets
• Global Product Chains
• Regional Competitiveness
• Global Opinion Leaders

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Competitive Pressure in Global MarketsGlobal
Product Chains
Trends

• Globalisation of product chains
• Increasing competitive pressure
• Global stakeholders on the watch

Global systems of PC
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Competitive Pressure in Global MarketsRegional
Competitiveness
Example
Case-study of textile industry in Wuppertal
around 1870
2001

• 4 of total industrial production
• Minor business branch (Employees lt 3.000)

• about 70 of revenues of industrial production
• One of the most important textile regions in
  Europe

• Today Most production in Asia, textile industry
  in Wuppertal only a minor business branch
• Structural change is a major challenge for SMEs

Source Chambers of Commerce Wuppertal-Solingen-Re
mscheid
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Competitive Pressure in Global Markets Global
Opinion Leaders
Trends
From stakeholder challenges...
to business opportunities
Greening the Supply Chain
Reputation reward Higher quality Trustful
relationships
Manage your global supply chains!
Stakeholders
New business models
Take responsibility for your product applications!
Least Cost Supply Performance
ContractingProduct-Service SystemsOpen new
markets
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Competitive Pressure in Global Markets Global
Opinion Leaders - NGOs
Example
International Business Leaders Forum
Source IBLF, 2002, Business Human Rights A
Geography of Corporate Risk
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Competitive Pressure in Global Markets Global
Opinion Leaders - Financial Benchmarks
Example
Dow Jones Sustainability Index (DJSI)
Dow Jones Global Index2,500 largest companies
60 DJSI Industry Groups34 countries Component
SelectionTop 10 of companies in terms of
sustainability in each industry group 20
target market cap coverage in each industry
groupDJSI World317 Components60 DJSI industry
groups22 countries
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Competitive Pressure in Global Markets Global
Opinion Leaders - Financial Benchmarks
Example
Dow Jones Sustainability Index (DJSI)
Weightings for the DJSI
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Competitive Pressure in Global Markets Global
Opinion Leaders - Intl Initiatives
Example
The Life Cycle Initiative

• Objective To put Life Cycle Thinking in
  effective practice
• Initiated by UNEP Society for Environmental
  Toxicology and Chemistry (SETAC)

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Competitive Pressure in Global Markets Global
Opinion Leaders - Intl Initiatives
Example

• Human Rights
• Principle 1 Businesses should support and
  respect the protection of internationally
  proclaimed human rights
• Principle 2 make sure that they are not
  complicit in human rights abuses.
• Labour Standards
• Principle 3 Businesses should uphold the freedom
  of association and the effective recognition of
  the right to collective bargaining
• Principle 4 the elimination of all forms of
  forced and compulsory labour
• Principle 5 the effective abolition of child
  labour
• Principle 6 the elimination of discrimination in
  respect of employment and occupation.
• Environment
• Principle 7 Businesses should support a
  precautionary approach to environmental
  challenges
• Principle 8 undertake initiatives to promote
  greater environmental responsibility
• Principle 9 encourage the development and
  diffusion of environmentally friendly
  technologies
• Anti-Corruption
• Principle 10 Businesses should work against all
  forms of corruption, including extortion and
  bribery.

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Competitive Pressure in Global Markets Global
Opinion Leaders - Intl Initiatives
Example

• The Marrakech Process
• Refers to the international effort to develop 10
  Year Framework Programmes on Sustainable
  Consumption and Production
• Lead by UNEP and UN-DESA
• In cooperation with national governments,
  private sector, and civil society

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Knowing Market Demands
Trends
Trend Increasing Costs for Waste,Energy
Materials
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Increasing Costs for Waste, Energy Materials
Trends

Rising costs for waste-treatment and disposal,
energy supply, raw-materials etc. increasingly
influence the bottom line.
Why?
Overall costs
time
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Increasing Costs for Waste, Energy Materials
Example
Material- and energy costs
Personnel costs
Factor 2-3 1
23 of total costs
51 of total costs Material flow causes 21 on top
Cost elements as of total costs
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Federal Statistical Office, Cost Structure of
Manufacturing Industries, 1999
0
material energy
Depreciation rent
personell
others
Source Dr. Hartmut Fischer, 2003, ADL
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Increasing Costs for Waste, Energy Materials
Example
Material consumption is linked to costs
Saving 1 kg raw materials at the beginnig of the
life-cycle reduces the ecological rucksack by 1 t.
Source Wuppertal Institute
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Increasing Costs for Waste, Energy Materials
Example

• Waste Treatment
• Waste dumps and open landfills are a threat to
  human health as well as to the environment.
• Increasing awareness of proper landfill practices
  among decision makers.
• Introduction of standards/guidelines/regulations
  in Africa, Asia, Latin America, Caribbean.

• Examples
• South Africa passed minimum requirements on
  landfills existing dumps have to comply or
  close.
• China developed a comprehensive set of policies
  on household waste, defining detailed criteria.

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Increasing Costs for Waste, Energy Materials
Example

• Cost implications of those measures
• Disposal fees for municipal waste currently
  average US 10/ton throughout the regions,
  ranging from US 1.3 to 18.
• Increasing standards and enforcement will
  inevitably increase the costs.

• Examples
• China is taking World Bank loans of US 269
  million to invest in the solid waste sector.
  These expenses will increase tipping fees.
• Expenditure in waste management in Mexico
  increased from 130 million US in 1990 to 275
  million in 1994.

Source World Bank
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Increasing Costs for Waste, Energy Materials
Trends

• Eco-efficiency
• Strategy to reduce costs
• By World Business Council on Sustainable
  Development

Doing more with less impact
Source WBCSD, 2006, Eco-efficiency Learning Modul
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Knowing Market Demands
Trends
Trend Supply Chain Pressure
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Supply Chain PressureUpstream and Downstream
Pressure
Trends
Impacts and Opportunities among consumer products
high
Environmental and social impacts
low
Natural Resources
Manufacturing sites
Product distribution
Natural Resources
Manufacturing sites
Product distribution
Transportation
Consumers
Transportation
Consumers
Value Chain
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Supply Chain PressureUpstream and Downstream
Pressure
Trends
Current Management Effort
Manufacturing sites
Product distribution
Consumers
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Supply Chain PressureUpstream and Downstream
Pressure
Trends
Mismatch between Impact of Products and
Management Efforts
Manufacturing sites
Product distribution
Consumers
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Supply Chain PressureUpstream and Downstream
Pressure
Trends
Manufacturing sites
Product distribution
Consumers
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Supply Chain PressureProduct Chain
Interdependencies
Trends
Interdependenciesin the Supply Chain
Producer operating in a market with high(er)
environmental requirements
Supplier
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Supply Chain Pressure Greening the Supply Chain
Trends

• A new quality of competition networks of
  companies, led by a multinational, form virtual
  cooperations or partnerships along the value
  chain.
• Large companies include environmental issues
  when evaluating their suppliers, in order to
• comply with regulations
• minimise their financial risk (liability)
• reduce costs.

Formal requirements like certified environmental
management systems (e.g. ISO 14001) are more and
more common.

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Supply Chain Pressure Procurement Policies of
Corporations
Example

• Royal Philips Electronics
• Considers suppliers commitment to adhere to the
  Supplier Declaration on Sustainability (i.e.
  Declaration) as an important factor in its
  decision to enter or remain in a business
  relationship.

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Supply Chain Pressure Procurement Policies of
Corporations
Example
The IKEA Way on Purchasing Home Furnishing
Products (IWAY)
Significance of supplier depends directly on the
scale of environmental and social impacts.

• High possibility for
• Cost reduction,
• Waste minimization,
• Reduction of downtime,
• Decreasing risks of interruption,
• Enhancing product and process safety, etc.

High level of impact
IKEA developed IWAY criteria on these issues


IWAY auditors screen its 1,600 suppliers in
compliance with the company code of conduct.
This allows IKEA to locate a geographical focus
for performance improvements.
Source CSCP, Retailers Calendar UNEP, 2007,
Life Cycle Management - A Business Guide to
Sustainability www.ikea-group.ikea.com
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Supply Chain Pressure Greening the Supply Chain
Example

• Companies greening their supply chain
• Goal to green the supply chain.
• Environmental performance criteria extend beyond
  company-owned facilities.
• Seek partnership with ecologically-responsible
  suppliers.
• Offer assistance to suppliers through own
  Environmental Action Team.
• Increasing importance of environmental audits due
  to corporate liabilities.

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Knowing Market Demands
Trends
Trend Stakeholder Pressure
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Stakeholder Pressure
Trends
Employees
Public Authorities
FinancialInstitutions
NGOs
Media
Customer
Shareholder
Community
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Stakeholder Pressure Opportunity or Threat?
Trends
Opportunities
Threats
Stakeholder involving decision making
Greenwashing
Credibility
Distrust
Value creation
Value limitation
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Stakeholder Pressure Public Authorities
Trends

• Increasing regulation and authority pressure are
  observed all over the world.
• Traditional regulatory instruments (command
  control) cover more and more sectors /
  environmental issues.

BUT Often problem with enforcement
Consequence 1 Trend towards flexible and
efficient regulation, providing strong incentives
to reduce pollution (e.g. fees or pollution
charges).
Consequence 2 Legislation moves towards
emission prevention instead of end-of-pipe (e.g.
Mexican Env. Law encourages the development of
programmes to prevent, control, abate pollution).
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Stakeholder Pressure Public Authorities
Example
Laguna Lake Development Authority, Philippines

• Problem Laguna Lake high in organic pollutants
• Authority identified 5 industry sectors as prime
  source.
• Implementation of pollution charge for those
  sectors
• Fixed charge per discharge volume
• Charge per unit emission that meets standard
  (low)
• Charge per unit emission above standard (high).

• Result
• After 2 years reduction of biological oxygen
  demand (BOD) by 88
• Increase of resources for monitoring and
  enforcement due to fixed charge

Source World Bank
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Stakeholder Pressure Environmental Policy
Approaches
Trends
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Integrated Pollution Prevention Control (IPPC)
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Producers responsibility, recycling quotas
Sustainable Consumption Production Action
Plans (incl. raw material taxes)
Source Adapted from Wuppertal Institute
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Stakeholder Pressure Policy - Extended
Producers Responsibility
Trends
What is Extended Producers Responsibility (EPR)?

• Strategy to close the loop of material use.
• Extend the (financial) responsibility of
  producers across the life cycle - in particular
  to the stage of disposal.
• Model example Take-back systems.

• Aim to encourage environmental improvements in
  the entire product life cycle

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Stakeholder Pressure Policy - Extended
Producers Responsibility
Example

• EPR Systems in Europe
• EU EPR integrated in the Directive on
  End-of-Life Vehicles and the proposal
  Directive on Waste Electrical and
  Electronic Equipment
• Sweden Packaging, Newsprint, Tyres, Cars,
  Batteries
• Germany Take-back obligation for transport
  sales packaging.

• EPR should be extended to further areas of
  Community and Member State legislation whenever
  the integration of environmental concerns into
  the product design can be usefully achieved in
  this way.

Source EU
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Stakeholder Pressure Policy - Extended
Producers Responsibility
Trends
Waste of electrical and electronic equipment
(WEEE)
Source EU
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Stakeholder Pressure Policy - Corporate Social
Responsibility (CSR)
Trends

• Green Paper
• Promoting a European Framework for CSR
• (July 2001)
• Broaden the dialogue on CSR
• by supporting companies to manage CSR more
  efficiently

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Stakeholder Pressure Policy - Corporate Social
Responsibility
Trends
European Multistakeholder Forum on CSR
2002
2004
2007
2006
Founding of the CSR forum
New Communication on Corporate Social
Responsibility Making Europe a pole of
excellence on CSR
CSR at the global level What role for the EU?
Common understanding of CSR among European
stakeholders for competitiveness
Promote innovation, transparency and convergence
of CSR
Demands on SMEs via MNCs
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Stakeholder Pressure Policy - Sustainable
Consumption and Production
Trends
Sustainable consumption and production ... gives
consumers the opportunity to consume products and
services that meet their needs in an efficient
and effective way, while minimizing the negative
environmental, social and economic impact. The
ultimate goal of sustainable consumption is to
improve quality of life for all consumers in our
and future generations, while minimizing
associated environmental impacts.
Source Sustainable Consumption in Asia, A
Guidance Manual, UNEP, 2005.
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Stakeholder Pressure Policy - SCP Action Plans
Example
...Build on, bring together, and improve
coherence of existing policies...
EU SCP Action Plan
Leveraging Innovation
Lead Market Initiative, Networking Of Innovation
Stakeholders
Timeline
Better Products

• Towards a Green Paper
• Background Document released
• Consultation process ongoing
• Communication
• In 2008
• Based on consultation

Dynamic Performance Requirements, Sustainability
Labels, Eco-Design Instruments, Standardisation
Leaner And Cleaner Production
Resource Efficiency Targets, Eco-Innovation and
Environmental Technologies, Review of EMAS, SMEs
Smarter Consumption
Retailer agreements, Market-Based Instruments,
VAT rates, EU Eco-Label, Advertisement, Green
Procurement
Global Markets
Exploiting first mover advantages and leveling
the playing field worldwide for sustainable
technologies and products
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Stakeholder Pressure Community
Trends

• The local community living next to the company is
  of high importance, since

• the companys workforce is likely to be recruited
  among residents
• it is exposed to the operations social and
  environmental impacts
• it might push authorities to more strictly
  monitor the operations and enforce existing
  regulations
• it could start a campaign against the company.

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Stakeholder Pressure Community
Example

• IKPP Indonesian pulp producer
• 1984Operation start with old technology.
• Early 90s Local community NGOs claimed
  severe health damage from mills emissions.
• Mid 90sExpansion of business ? need to access
  bond markets. BUT concern about long-term
  liability for pollution damage.Indonesias
  national pollution control agency (BAPEDAL)
  mediated agreement between IKPP and community.

Source World Bank
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Stakeholder Pressure Community
Example

• IKPP Indonesian pulp producer
• IKPP made investments in environmenal technology

Business is running profitably and outperformed
the Indonesian Stock Index.
Source World Bank
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Stakeholder Pressure Financial Market
Trends
Banks, Insurance companies and Investors are
increasingly interested in a companies
environmental performance.

• High pollution intensity signals
• inefficient production processes
• potential financial losses from regulatory
  penalties
• potential losses from liability settlements
• potential losses through accidents
• risk that financial markets revalue a firm in
  reponse to bad news (accident, NGO campaign,
  etc.).