With climate change in the news and the prospect of volatile oil costs, the pressure is on for fast moving consumer goods (FMCG) companies to become more efficient and environmentally responsible. As a result, the FMCG industry is reevaluating its approach to “green” programming. This is leading to exciting innovations that might not only profit the environment, but the bottom line as a whole.
Historically, FMCG companies’ green initiatives focused mostly on public relations. Few companies were involved in actually promoting and implementing programs. Green initiatives were presented most often as part of a strategic vision, with clear tactical goals taking a back seat.
To save the planet, companies have been told to reduce energy consumption and waste and to reevaluate product design. The market is saying, what is good for the environment is also good for the brand. Companies are employing a number of conventional and unconventional strategies to minimize the bad (e.g. energy consumption) and to maximize the good (e.g. ingredients). FMCG companies are also spending more time researching their options and identifying appropriate green solutions.
The big chill
In the beverage industry, vending machines are an integrated part of the supply chain strategy, especially in more developed markets such as the U.S., Japan and the European Union. Vending machines and corporate coolers provide “within arms reach” availability and merchandised products. Manufacturers’ cooling strategies have always been focused on keeping the lights on and the compressor running around the clock in order to increase sales potential.
Unfortunately, conventional coolers and vending machines consume significant amounts of energy as they rely on inefficient compressors and light bulbs. With increased pressure on companies to act, companies such as Coca-Cola, Pepsi and McDonalds are taking action.
Coca-Cola is currently spending $40 million USD to research next generation refrigeration technologies. Current research is focusing on reducing the energy consumption of compressors and light bulbs as well as developing greener vending technology. The company unveiled a hydrofluorocarbon-free (HFC) vending machine used at the 2008 Summer Olympics in Beijing. Coca-Cola plans by 2010 to have 100,000 HFC-free refrigerators and vending machines operating around the world.
Transportation systems are another area that is currently undergoing changes. Fierce competition and a traditional go-it-alone mentality have kept FMCG companies from collaborating. However, higher oil prices and the “green wave” are breaking down these barriers.
One example is in load consolidation. Load consolidation aims to maximize the space used for shipments and transport of goods. This system consolidates loads of manufacturers’ products that would have otherwise been shipped at less than truck load (LTL).
Solution providers, such as CaseStack, ship the products of manufacturers by combining many separate deliveries heading to the same distribution center. When the distribution center receives the order, they calculate the capacity, weight and stackability of products. The loads are then consolidated and transported to the distribution center. Some carrier initiatives use advanced algorithmic technology to do this. This allows FMCG companies to significantly reduce transport cost, especially for companies where seasonality is a major factor.
By eliminating LTL, companies also reduce “shipping air”. Shipping air is a concept referring to wasted space during transportation. This could significantly contribute to limiting carbon emissions by reducing the number of ships and trucks needed for transporting goods.
Working with partners and critics
For FMCG companies it is increasing important to manage the flow of materials from the supplier all the way to the end consumer. Companies are starting to take a more holistic approach through implementing green sourcing, procurement and certification programs. By following an end-to-end approach, companies are getting more involved in the life cycle of the product.
For example, multinational SC Johnson created Greenlist, a raw material classification system. Greenlist classifies raw materials according to their environmental and health impacts and characteristics. The system also creates a comparison table with other similar raw materials. The system gives each ingredient a Greenlist score and is then made available to SC Johnson laboratories around the world. The company shares the system with suppliers, who are encouraged to use the ingredients that score high on the list. Suppliers are currently using the tool to develop and market new products. In the process, they are greening the supply chain.
In addition to encouraging partners to adopt green initiatives, some companies are implementing a rigorous certification process for their products. Historically, self certification was common. However, this received criticism from activist groups about a lack of transparency. Now, companies such as Starbucks, are employing external auditors to track and monitor compliance and ensure improved performance against environmental standards. Certification focuses on the environmental life stages of the product including energy and water consumption. It furthermore tracks each stage of the product life cycle, including design, transport, manufacturing and disposal. Suppliers are advised how to adopt green practices and are scored according to the certification system.
Increasingly, FMCG companies are working with some of their biggest critics, including non-governmental organizations (NGOs) and international conservation groups in identifying green solutions. For example, Starbucks formed a long-tem partnership with Conservation International to promote methods of coffee production that help conserve global biodiversity. The criteria for the sourcing guidelines are based on the Conservation Principles for Coffee Production. The guidelines were developed jointly by the Consumers Choice Council, Conservation International and a number of other key stakeholders with inputs from Starbucks. Such initiatives have the added benefit of satisfying a growing consumer client base that values greener products and companies.
Making it work
Any successful green initiative requires leadership from the top. In addition to leadership, such initiatives require substantial resources and funding. The linkage between green initiatives and a company’s vision and goals must be communicated to all managers and employees. The mutual benefits to the company and the environment should be clear. In addition, technology is playing an important role, such as in reducing energy consumption and allowing companies to consolidate loads. Successful companies have shown a willingness to collaborate with all stakeholders, including critics. A transparent collaborative process in the end will benefit the environment and also the bottom-line.