Sustainable business operations start in the supply chain. But investments in sustainability are often high and have a long payback period. Including social and environmental costs in decision-making can prevent supply chain sustainability plans from being shelved. This was demonstrated by Michel Scholte of platform True Price, who explained the eponymous concept of true price at a meeting of the Supply Chain Excellence Leadership Platform (SCELP). "It is not about making products more expensive, but about bringing additional information into the discussion."
SCELP's last meeting on sustainability ended with a ranking of bottlenecks that SCELP members encounter in practice. At the top was the 'return on investment' of investments in sustainability. Those investments are high and often yield a positive return only after a long time. But many companies do not allow themselves that time. What can supply chain managers do to get out of this impasse? SCELP invited speakers from HEINEKEN, KwikFit, Intersnack and True Price to share their experiences.
The first solution is simple: settle for a longer payback period. "We didn't start sustainability to make money. But every initiative has to be accompanied by a sound business case," says Jan-Willem Vosmeer, global manager corporate social responsibility at HEINEKEN. He talks about the brewery's many initiatives to make operations more sustainable. "Without a business case, it becomes difficult to sustain measures in the long term. But that doesn't mean we always have to pay it back within two years. Sometimes we keep a longer payback period, especially with sustainability. Also, we should not want to do it alone, partnerships with other players in the chain are necessary to make an impact."
In search of win-win
Paul van der Leer, Supply Chain Director at KwikFit, gives some examples of how the company looks for win-win solutions with suppliers. For example, the car service chain is delivered eight times a day by its regular parts supplier. If KwikFit halves the delivery frequency, the parts supplier is willing to give a discount on the purchase amount. "Ordering eight times a day had become an automatism. Whereas we know in advance which cars we will receive and what for. Based on that, we can cluster orders so that the delivery frequency can be reduced. This saves both CO2 emissions and costs. This now makes us an example for the industry."
That the search for a sound business case takes time and energy is demonstrated by the story of Intersnack. This company produces prawn crackers for Conimex, for which shrimps are sourced in Indonesia. The fishing method used by shrimp fishermen depletes the fishing grounds. Together with Conimex and the supplier processing the shrimp, Intersnack is trying to persuade the shrimp fishermen to use other fishing methods. The first shrimp fishermen have now 'converted'. "But the question is how to make this scalable and affordable," says Intersnack's Bas van den Brink.
True pricing
Michel Scholte of the True Price platform presents a new perspective on this issue: include not only internal costs, but also social and environmental costs in the business case. These are the costs of the impact a product or service has on society and the environment. "How do we calculate those costs? First, by looking at what it costs to repair the damage done. How many trees do we need to plant to get the emitted CO2 out of the air again? If that fails, we look at the costs needed to offset or prevent the damage."
The true price that Scholte and his team calculate is the market price plus social and environmental costs. "True pricing is often associated with making products more expensive, but that doesn't have to be the case at all. It's primarily about enriching the data on which companies base their sustainability decisions. We have a huge database for this purpose."
More sustainable and cheaper
He gives the example of how the introduction of true price helped make the supply chain for roses from Kenya more sustainable. Initially, the grower's profits seemed to evaporate completely by paying employees in Kenya a fair wage. But with other measures, the grower managed to reduce not only social and environmental costs, but also supply chain costs. One of the measures: no longer using air freight, but sea freight. "In the end, this made the roses not only more sustainable, but also cheaper," says Scholte.
True price can make all the difference in discussions about the business case of sustainability initiatives. Scholte: "Suppose a chemical manufacturer wants to install a new plant. Where should that manufacturer get the energy from, hydropower or biomass? Maybe from a business perspective there is no difference between those two energy sources. But if the company includes the true price of both energy sources, there may well be a big difference. Then you arrive at very different optimisations."
People, planet and profit
The meeting was organised by SCELP's sustainability working group, consisting of Pim Pilon (Vivera), Annemarie Goijarts (Coop), Frederik Blömer (Videojet), Paul van der Leer (KwikFit), Janko van Elderen (Gwynt) and Stijn Sweere (Group of Butchers).
Jack van der Veen on behalf of SCELP at the end of the session reiterated the importance of a conclusive business case. "After all, it's about people, planet and profit. It may be wise to include the true price in that business case. Maybe you don't have to pay those social and environmental costs now, but we can be sure that the government will force us to pay at least a larger share of them in the future. "
SCELP's next meeting will be on the topic of digitisation and will take place on 17 November 2020.
