Santa is coming…I can see his footprints…

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!

Italian manufacturing companies are still going global, but…

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.

Source:

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

I have 69 slaves working for me

Slavery result

I discovered recently that my family and I are responsible for 69 slaves working all over the world to have us dressed, fed, provided with electronics and games, covered with jewels and precious goods. Slavery Footprint allows you to estimate the number of people that are involved in manufacturing components you purchase based on your life style. Besides the way in which this estimation is done (the methodology section states that some of the weights are based on focus group analyses) it is quite interesting the main areas that contribute to my “unintentional slavery”. Children account the most, mainly for diapers and toys, but also dresses and medicine are rather critical. Cars and home are other two rather important sources of slavery. Interesting my “slavery supply chain” is concentrated in Asia (mainly China and India), but also Africa and (surprisingly Australia) are not new to this problem. If you take a few minutes to  go on the site it may be interesting for you to benchmark.

In general this site arises another sustainable issue: the social impact of supply chains. In a paper we presented at the annual meeting of the Production and Operations Management Society (POMS) we analysed the issue of the trade-off among economic, environmental ad social sustainability. Some sustainability critical points are shared by several actors along the supply chain, thus  it is important to look at the whole chain when addressing such problems. However, environmental sustainability actions often provide benefits also on economical and social performance. On the contrary, social sustainability actions can negatively impact economical performance.

I consider the issue a complex one: it is out of question that slavery is something we all regret, but to which extent would you be willing to give away your tablet in order to improve your slavery footprint? Is there a real market potential for socially sustainable goods?

From:

Golini, R., Kalchschmidt, M., 2011. Sustainability in the food supply chain: evidences from the Italian beef industry. POMS 22nd Annual Conference. Reno, Nevada, U.S.A. April 29 to May 2, 2011.

Sources:

http://slaveryfootprint.org

Moderating the impact of global sourcing on inventories through supply chain management

December 10, 2011 Leave a comment

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.

From:

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.

Categories: Research in practice

Sustainability and security issues in Rare Earth supply chains

December 10, 2011 Leave a comment

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 General Electric note on 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)

Sources:

http://www.bbc.co.uk/news/world-asia-pacific-13777439

http://www.economist.com/blogs/babbage/2010/09/rare-earth_metals

http://www.altenergystocks.com/archives/2011/05/the_rare_earth_supply_chain_ores_concentrates_compounds_oxides_and_metals.html

Sustainability, vendor management and communication

KenSome 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.

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.

Product safety in global supply chains

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.

Year Industry Incident Effects
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
18.000 recalls
2011 Medical devices Surgical graft No injuries
3.000 lawsuits
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.
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