Just five days are left before Santa comes. So it is time to make a final count of what Santa is doing for us. Besides all the presents he is going to delivery, the funny old man is going to win the prize for the largest carbon footprint in history. Ethicalocean decided to make a few estimations of Santa’s Carbon Footprint. Due to his very long trip, in one night Santa releases almost 69.4 million metric tons CO2 (similar to what Qatar does in one year). Most of this is due to the life cycle of toys, but also the manufacturing of all cookies he is going to eat, all the wrapping paper he is going to use, etc. have a significant account. So what can Santa do in year 2011? Sustainable innovation is the buzzword: change the old fashioned sleigh with a new one more efficient and (why not?) electricity powered, avoid leaving coal to naughty children but some other alternative form of energy, use recycled paper for wrapping presents. And what can you do to help Santa? Maybe leave only local milk and cookies for the old man?
By the way… Merry Xmas!
Yesterday ISTAT (the Italian National Institute of Statistics) released the results of a research on Italian multinational companies (sorry the page is still in Italian). The research considered 6,173 Italian multinational companies and how they have evolved in the last years (the time frame is 2009 – 2011). Several interesting results are in the report but I was interested by two elements. First of all, in the last two years companies have increased their investments abroad; mainly these investments have been concentrated in Romania, Brasil and China (two of these countries are characterized by a very low cost of labor. At first I interpreted this results as Italian companies moving their production units abroad to reduce costs, and I admit I was somehow annoyed by this evidence. Quite interestingly however these companies report that the main benefits of having foreign branches are (in order of importance – in brackets the frequency of the element): access to new markets and local services for customers (78.7%), logistics and distribution (56.6%), labor cost (42.1%), access to competences (41.9%), new product development (41.3%). Italian companies have indeed invested in manufacturing activities abroad but mainly to expand their markets and not to abandon their country. I see this result with optimism; now it is time to see if we will be able to make ends meet…
It is also important to consider that going global is a strategical decision and companies making this decision with limited attention can be highly risky. In a paper, we recently showed that choosing localization of production without a strategical approach has a direct impact on operational performance. So pay attention when you move production that you have clear in mind why you are doing that.
Golini R., Kalchschmidt M., Threats of sourcing locally without a strategic approach: impacts on lead time performances, Reiner G. (Edited by), Rapid Modelling for Increasing Competitiveness, 2009, IV, 277-292, Springer
In recent years, companies have paid growing attention to supply chain management at a global level. With regard to the upstream part of the supply chain, the need for better suppliers, the research into specific competences and concerns related to international competition have forced companies to improve their ability to cope with suppliers located in different countries around the world.
One of the main issues related to the geographical distance of suppliers is higher inventory levels primarily because of longer and more uncertain lead times.
However, a work published by Golini and Kalchschmidt in 2011 on the International Journal of Production Economics demonstrates that companies can significantly limit this effect by means of specific investments in the supply chain and in their relationships with suppliers. The empirical analysis is based on data from the last edition of the International Manufacturing Strategy Survey (IMSS), a database of more 700 companies in the assembly manufacturing industry from more than 20 countries.
We conclude that global sourcing companies tend to invest in restructuring supply strategy and supplier portfolios and in vendor rating and supplier development since and they can gain a beneficial effect on inventory levels. However, an effort to increase integration and coordination with suppliers, even if more difficult in a global sourcing context, can bring about further improvements.
Golini, R., Kalchschmidt, M., 2011. Moderating the impact of global sourcing on inventories through supply chain management. International Journal of Production Economics 133, 86-94.
A nice video of June 16th 2011 by BBC News of points out issues related to Rare Earth Elements (for instance Ores, Concentrates, Compounds, Oxides and Metals.)
These materials are always more used in many consumers products (for instance: electronics, batteries, lenses, medical devices) and in many high-efficiency products (for instance: flat panels television, generators for wind turbines, efficient electric motors, efficient light bulbs). Toyota Prius has more than 25 pounds of lanthanum in its nickel-metal hydride battery.
However, several sustainability and security issues are related to the adoption of these materials.
- China has almost the monopoly (95-97% of the global production) of the production of these Rare Erath Elements and has been imposing tariffs and decreasing quotas on its rare earth exports for several years
- Demand for rare-earth metals is estimated around 134,000 tons in 2009, and only 124,000 tons have being produced. By 2012, demand will reach 180,000 tons, which could exhaust the world’s remaining inventory
- Prices are very variable and, generally, soaring
- A lot of water, acid and electricity has to be used in to extract and manufacture rare earhts
- Workers might be exposed to radioactive material
- Only low wages make economically efficient the production of Rare Earhts
Companies are worried about the situation. General Electric, about the production of efficient light bulbs that involve the use of rare earths, has a dedicated web page. In a recent note, Gerenal Electric also reported the trend of soaring prices of Rare Earths.
From a supply chain perspective, companies should:
- Secure the supplies through partnerships with suppliers
- Hedge price variability through financial instruments
- Forecast needs and order with advance
- Were possible assess suppliers’ sustainability performance
- Design products with less need of rare earths and more easy to be recycled
- Increase alternative supply sources (e.g. from reciclying)
Some months ago a short movie was published providing support to Ken (yeah, Ken…Barbie’s friend) to leave Barbie. No treason was involved in the case but deforestation. The video in fact was published by Greenpeace to sustain their campaign against Mattle policy on buying paper for packaging from suppliers that were purchasing basic materials from sub-suppliers involved in rainforest deforestation.
The case is an interesting example of vendor management problem: how can you be sure from where your components come? You may claim you are adopting a sustainable policy, but what is happening in your supply chain? this issue makes ir rather complex for companies to be sure about what they are communicating outside: are you sure about your behavior? The Mattel case is rather well known and in general the entire toy industry has been under deep investigation on this issues, but this is rather general problem. Another well know case appeared on HBR and focused on the same issue faced by Timberland. The issue was due to Brazilian cattle farmers that were illegally clear-cutting Amazon rain forests to create pastures, and the leather from their cows might be winding up in shoes—including Timberland’s. The issue is again: how can you trust your supply chain?
More recently Mattel announced the definition of Sustainable Sourcing Principles. In these principles Mattel explicitly avoids to source virgin fiber from controversial sources. Similar actions have been undertaken also from other producers; for example Golden Agri Resources has committed itself to source palm oil only from reliable countries (i.e. where deforestation is not a critical concern). LEGO has similarly decided to close any relationship with APP (Asian Pulp and Paper) as long as the multinational company of paper production will not guarantee the protection of Indonesian forests.
Recently an interesting piece of work appeared in the Journal of Operations Management (http://www.sciencedirect.com/science/article/pii/S0272696311000945). The paper reviews the topic of product safety and security in several industries (i.e. food, pharmaceutical, medical, consumer products). A key concern of authors is that product safety becomes a major concern in our economy where most of manufacturing activities are outsourced and thus making traceability and control a real challenge. Recent cases such as Toyota massive recalls (http://www.toyota.com/recall/ , video http://www.youtube.com/watch?v=NDYou3B8-hs) or Fischer Price / Mattel ones.
In the last five years the list of product safety issues is rather disappointing.
|2011||Food||E.coli contamination of bean sprouts||37 people died
3.000 people sickened
210 million € for farmers aids
|2011||Medical devices||Balloon catheter||No injuries
|2011||Medical devices||Surgical graft||No injuries
|2008-2011||Automobiles||Toyota||9 million cars recalled worldwide|
|2006-2011||Notebook batteries||Sony||4 million batteries|
|2008-2009||Food||Salmonella in peanut butter||9 deaths
637 people sickened
4.000 products affected
Table: recent product safety cases (adapted from Marucheck et al. 2011)
Industrial companies have to face relevant challenges if they want to keep consumers really at the center of their strategy. From a supply chain management perspective attention should be devoted to:
- Relative benefits of vertical integration versus outsourcing with respect to safety. Usually focus is given toward purchasing costs when suppliers have to be selected but “some low-cost suppliers are really high-cost suppliers when the expected costs of safety risks are considered” (Marucheck et al. 2011). In this light total cost (or total sourcing) models should be considered so to address product safety completely
- Controlling and monitoring suppliers for product safety. The adoption of certification programs and testing rules can contribute to the mitigation of product safety issues. Real-time monitoring of manufacturing provided by information technologies can be beneficial too.
- Suppliers education. Frequently issues with suppliers are not the result of intentional violation of rules, but simply are due to lack of knowledge of the implications of certain behavior. When buyers leverage more on cooperation in the relationship instead of coercion, suppliers tend to be more compliant (Jiang, 2009). Training the supplier is an effective way in which both the supplier relationship and its compliance can be positively affected.