Category: Supp 5

OM in the News: A Green Mining Mirage

The history of the mining industry is littered with environmental destruction, pollution and detrimental impacts on local populations. But the raw materials it provides—including nickel, cobalt and lithium—are crucial to the transition for electric vehicles. The global race to secure a supply of these critical materials is on, but can it be done sustainably?

A nickel mining site in Sorowako, Indonesia

The big global miners’ stark message: Recycling is the only green source because most deposits contain such low concentrations of metals and minerals that, while methods can be improved to minimize damage, recovering the materials will always be messy and destructive. Most miners have been making efforts to clean up their practices. Some are even investing in recycling, but these aren’t likely to produce a meaningful supply any time soon.

Eventually, the collection infrastructure, recovery processes and recycling facilities may be developed and scaled up to the task, reports Wall Street Journal Pro ( May 11, 2023). There are plenty of old electronic devices cluttering up our drawers that could yield some metals, but it will take at least a decade or two for electric-vehicle batteries to be exhausted and become a sizable feedstock for recycling. Until then, we have mining.

Indonesia supplies about half the world’s nickel, a crucial input for EV batteries. Ford and VW are investing billions of dollars into the local supply chain as a low-cost source that they can directly control. But there are serious questions about destruction of the country’s rainforests in pursuit of the metal. Russia also mines nickel, but westerners are wary of buying from the country after its forces invaded Ukraine. New Caledonia—a French island group in the Pacific—is another possible source, but there are concerns about environmental impact there too.

Another option is to mine nickel from the seabed. It is less destructive than Indonesian sources, but environmental groups worry about damage to the relatively untouched deep sea ecosystem. A major problem is—ironically—that heightened scrutiny of new projects on environmental and social grounds is significantly raising the costs of the new mines necessary to fuel a low-carbon global economy.

Until there are significant developments in recycling, battery technologies, or both, there are tough trade-offs to be made in the transition to EVs.

Classroom discussion questions:

  1. Why is there a shortage of mines to produce the minerals needed in EV batteries?
  2. What are the ethical issues involved in the transition to EVs?

OM in the News: Retailers Tackle Cardboard Overload

The days of tiny online orders shipping to customers in oversized boxes are a step closer to becoming a thing of the past, writes The Wall Street Journal (April 4, 2023).

Big retailers are rolling out machines in their e-commerce distribution operations that make packages sized specifically to fit the items being shipped, potentially reining in some of the big volumes of cardboard generated as online shopping has grown.

Walmart is using machines from packaging-technology company Packsize that take dimensions needed to ship an item, then cut, crease and glue corrugated cardboard to make custom boxes. The machines then label and seal the packages.

Walmart said it has installed machines that churn out custom boxes at 12 of its fulfillment centers, and plans to add the technology to more. It has been able to cut down the amount of cardboard and filler material it uses per order by making individual boxes.

Amazon has also been increasing its use of made-to-fit packaging to ship items from books to shoes. It started using custom packaging in 2016 and is expanding its use of the technology.

Retailers traditionally have used boxes of set sizes to fill online orders, many of them not suited to the enormous array of products now available online. The push to deliver goods faster has also put a premium on speed in fulfillment centers, leading workers to stuff goods in the closest available boxes. But the speed and functionality of machines that make custom boxes has improved in recent years.

The accumulation of cardboard in households, trash heaps and recycling centers has been one visible result of the surge in online shopping in recent years. Each order has added to the boxes reaching Americans’ doorsteps, including containers that can be far bigger than the items inside.

Besides being better for the environment, the made-to-fit boxes can help companies cut shipping costs because the shipments take up less space in trucks and delivery vans.

Classroom discussion questions:

  1. How do companies benefit from better packaging?
  2. Are there other ways to improve packaging beside machines such as the one shown above?

OM Podcast #1: Sustainability and Supply Chains

 

Welcome to our newest Operations Management text feature–bimonthly podcasts on topics we think you and your OM students will find interesting.

 

Jay and I will be creating 8-9 minute podcasts–posted on this blog. They will be tied to specific chapters in the text. Assignable auto-graded exercises using this podcast (in the form of multiple choice questions) are available in our MyLab OM.  To learn more about these assignments in MyLab, contact your Pearson rep at  https://www.pearson.com/us/contact-us/find-your-rep.html

Today’s topic relates to Supplement 5, Sustainability in the Supply Chain. In it, we talk about new government regulations, the clothing industry, Apple, and greenhouse gasses. Let us know what you think. The next podcast will be released in two weeks on the topic of Blockchains.

OM in the News: China’s Dominance in the Rare Earth Supply Chain

The minerals, metals and rare earths needed for the green and digital transitions are shaping up to be the oil of this century—complete with a race to secure raw materials and production capacity at home or in friendly locations.

China has the early lead, writes The Wall Street Journal (March 9, 2023), dominating production of many critical materials including lithium and rare earths. Over the past years, China secured deposits around the world and invested heavily in the domestic manufacturing of clean technologies such as electric vehicles, batteries and solar panels. As the graph shows, China has a clear lead in the rare earth supply chain.

Western nations have now made it a top priority to secure a supply of these materials. The West has been tempted by the economic opportunity but also chastened by the recent semiconductor shortages, Europe’s efforts to replace Russian energy imports, and Beijing’s support for Russia after it invaded Ukraine.

Going back to President Trump, the U.S. signed executive orders for critical minerals– and has had recent success in starting to build local supply chains. The European Union’s latest effort—a Critical Minerals Act—aims to kick-start mining, processing and recycling in that region. There is one area where the EU act is right on the money—accelerating permitting. Permitting has been a key challenge for companies investing across geographies and sectors including mining, processing, power lines, solar, wind and batteries. In the EU, ambitious permitting reforms appears to be be the biggest hurdle to getting political agreement on that bloc’s local production of EV batteries. Limiting or overriding local opposition is rarely a vote-winning stance.

We may also get a G-7 critical minerals buyers club of the Group of Seven advanced democracies to secure supply from mineral rich countries in Africa, Asia and Latin America. Reduced Chinese supply—if it happens—will force Western policy makers and voters to face the trade-off between the carbon benefits of wind energy or electric vehicles and the environmental and pollution costs associated with manufacturing those technologies.

Classroom discussion questions:

  1. Why are countries and companies so concerned about “rare earths”?
  2. What is the main benefit in dominating the mineral supply chain?

OM in the News: Electric Cars and the Climate

An EV charging at a shopping center in California

Replacing all gasoline-powered cars with electric vehicles won’t be enough to prevent the world from overheating, says a new U. of California report. “The report offers a look at the environmental and economic sacrifices needed to meet net-zero climate goals,” writes The Wall Street Journal (Feb. 13, 2023).

The study notes three problems:

Problem No. 1: Electric-vehicle batteries require loads of minerals such as lithium, cobalt and nickel, which must be extracted from the ground like fossil fuels. If today’s demand for EVs is projected to 2050, the lithium requirements of the US EV market alone would require triple the amount of lithium currently produced for the entire global market. Unlike fossil fuels, these minerals are mostly found in undeveloped areas that have abundant natural fauna and are often inhabited by indigenous people. Mining can be done safely, but in poor countries it often isn’t.

Problem No. 2: Mining requires huge amounts of energy and water, and the process of refining minerals requires even more. Mining accounts for 4% to 7% of global greenhouse-gas emissions. Auto makers have made a priority of manufacturing electric pick-up trucks and SUVs because drivers like them, but they require much bigger batteries and more minerals. More mining to make more EVs will increase CO2 emissions. It will also destroy tropical forests and deserts that currently suck CO2 out of the atmosphere, the report says.

Problem No. 3: Producing EVs is an energy- and emissions-intensive process with high levels of embodied carbon. Electrification of the US transportation system will massively increase the demand for electricity while the transition to a decarbonized electricity grid is still underway.

The report concludes that the auto sector’s “current dominant strategy,” which involves replacing gasoline-powered vehicles with EVs without decreasing car ownership and use, “is likely incompatible” with climate activists’ goal to keep the planet from warming by more than 1.5 degrees Celsius compared with preindustrial times. Instead, the report recommends government policies that promote walking, cycling and mass transit.

Classroom discussion questions:

  1. Comment on the report’s recommendations.
  2. What can overcome the three problems cited?

 

OM in the News: Sprawling Supply Chains and Sustainability

Companies are rushing to more closely track materials across their sprawling supply chains ahead of expected new human rights and environmental laws, reports The Wall Street Journal (Jan. 24, 2023). Businesses, including consumer-goods company Unilever, clothing retailer H&M, and Renfro (which supplies socks to Ralph Lauren), say they are turning to technologies to help gather data on their supply chains and track materials.

Last year, H&M began rolling out a traceability platform for its recycled polyester and man-made cellulosic fibers, such as viscose, that can contribute to deforestation. It uses blockchain technology (see Chapter 11) to track and verify the use of sustainable fibers in garments. H&M has more than 600 commercial product suppliers who make their products in over 1,500 factories in Europe, Asia and Africa. The company says: “The closer we get to our 2030 goal for all our materials to be either recycled or sourced in a more sustainable way, the more traceability we gain.”

A host of supply-chain regulations went into effect in recent years and more are on the way, exposing companies to potential penalties and public criticism if found to be negligent. Many businesses, especially small and midsize ones, have a limited view of their supply chains and are struggling to broaden their oversight.

New European Union rules require larger companies operating there to identify, prevent and remedy risks to human rights and the environment in their supply chains, such as minimum age requirements, worker safety, pollution and biodiversity loss. There are a host of other regulatory developments threatening to affect companies’ supply chains. These include modern slavery laws in the U.S., such as the 2021 Uyghur Forced Labor Prevention Act.

Unilever has a sprawling global supply chain, with around 54,000 suppliers in 150 countries. The company tracks commodities such as palm oil and soy with satellites, geographical data and photos. But software that simply manages supply-chain data isn’t a silver bullet as it is difficult for companies to self-police the information they get from their suppliers. One startup, Wiliot, provides tiny tracking tags the size of postage stamps that can follow goods as they move, helping companies ensure materials aren’t coming from areas at risk of deforestation.

Classroom discussion questions:

  1. What other regulations in the US and the EU govern industry sustainability standards? (Hint: see Supp. 5 in your Heizer/Render/Munson text)
  2. Why are supply chains so difficult to manage with respect to human rights and the environment?

OM in the News: New York Goes After Cryptocurrency Miners

Bitcoin mines need cheap and plentiful electricity

Bitcoin mining – the process by which powerful computers solve complex mathematical equations to validate transactions is a crucial part of the cryptocurrency economy. And while amateurs could once mine coins at home, the complexity of equations, and the energy needed to solve them, has soared with the growing popularity and value of Bitcoin. We have twice posted blogs regarding cryptocurrency mining and its need for massive computers. (See “Going Crazy with Bitcoin Mining” on Nov. 15, 2021 and “Cryptocurrency’s Damage to the Environment” on April 19, 2021.)

But climate advocates have long said that the value of crypto–mining operations were not worth the environmental costs. The process requires an immense amount of electricity – so much so that China banned the practice last year in an effort to meet its climate goals. 

New York became the first state to enact a temporary ban on new cryptocurrency mining permits at fossil fuel plants, a move aimed at addressing the environmental concerns over the energy–intensive activity, reports the New York Times (Nov. 22, 2022). The move in NY comes months after some other states (Montana and Georgia) and Quebec, Canada had adopted more friendly policies toward the industry, offering tax incentives in hopes of luring crypto-mining operations after China cracked down. “This bill will create the pause we need in the current trend of purchasing old power plants in New York for corporate profits and allow us to properly evaluate the impact of this industry on our climate goals before it is too late,” says a NY State legislator.

But it also comes at a moment of intense turbulence, and a potential crossroads, for the cryptocurrency sector. Earlier this month, the crypto exchange known as FTX suffered a swift and public collapse that led to its declaration of bankruptcy. The fall of what had been a trusted player in the new market has led to broader questions about the future of cryptocurrency.

The Chamber of Digital Commerce, a crypto advocacy group, denounced the NY bill as unfairly targeting the cryptocurrency industry, saying: “To date, no other industry in the state has been sidelined like this for its energy usage. This is a dangerous precedent to set in determining who may or may not use power.” 

Classroom discussion questions:

1. Chapter 8 in your Heizer/Render/Munson text discusses location decisions based on government incentives. Relate that political issue to crypto mining.

2. What is your position on NY’s ban?

 

 

OM in the News: Apple Tries to Make Its Suppliers Sustainable

Apple is adding pressure on suppliers to get on board with its carbon-neutrality goal, highlighting the difficulties in tackling greenhouse-gas emissions from global supply chains, reports The Wall Street Journal (Oct. 26, 2022). The iPhone maker said that it would review the work of suppliers to specifically decarbonize their Apple-related manufacturing, such as by running on 100% renewable energy, and track their yearly progress as it strikes supply agreements. Apple already requires suppliers to report overall emissions from their operations and energy purchases, respectively known as Scope 1 and 2 emissions.

Close to 30% of Apple’s suppliers haven’t committed to using 100% renewable energy in the production of the company’s goods. In 2020, Apple set a goal to reach carbon neutrality across its entire business by 2030, aiming to cut emissions by 75% and develop carbon-removal projects for the remaining 25% of its footprint. The gap underscores the challenge large companies face in getting their supply chains in line with their climate change goals.

Scope 3 emissions, which cover suppliers and the use of a company’s products, account for the overwhelming bulk of a company’s carbon footprint. A big problem facing companies like Apple with global supply chains is that their suppliers are largely dependent on countrywide sustainability goals. For instance, most energy available to Apple’s Chinese suppliers comes from coal. “The truth is, no company or their suppliers are on track to reducing all three scopes of emissions. Current environmental circumstances require efforts most companies cannot humanly meet,” said one industry expert.

Still, Apple said that more than 200 suppliers have said they would power all Apple-related production with 100% renewable energy by 2030. Among the suppliers to make the commitment is Foxconn, which is the biggest assembler of iPhones and has operations in China, India and other regions. Others include Corning, Nitto Denko, STMicroelectronics and Taiwan Semiconductor Manufacturing.

Apple’s Scope 3 emissions stood at 23.1 million metric tons of carbon-dioxide equivalent in 2021, declining from 27.3 million in 2017. In 2021, the company’s Scope 3 emissions accounted for more than 99% of its carbon footprint. Since many of the lagging suppliers are in emerging markets where there is a lack of access to renewable energy or affordable contracts, companies with sprawling supply chains like Apple need to encourage collaboration. “Engaging low-maturity suppliers requires close partnership and collaboration, all while supply-chain organizations grapple with conflicting priorities such as supply disruption and inflation,” said another industry leader.

Classroom discussion questions:

  1. Why is it hard for suppliers to meet the standards Apple is setting?
  2. Will Apple be able to reach carbon neutrality by 2030?

OM in the News: Clothes and EU Recycling Regulations

The EU imports 3/4 of its textiles. Above, garment workers cut fabric to make shirts at a textile factory in India

Clothing companies will start selling more garments made from a single material this coming decade, a major shift in response to a European Union plan to require apparel to be longer lasting and recyclable.

Clothes often contain a mix of fibers, including organics, such as cotton grown on farms, and synthetics, such as polyester refined usually from petroleum. Garments with multiple materials—such as a T-shirt made from 99% cotton and 1% spandex—are difficult to recycle because separating the fibers is tricky.

Currently, less than 1% of the world’s textile waste is recycled into new clothes, with the bulk ending up in trash heaps, writes The Wall Street Journal (Sept. 7, 2022). The EU wants to change this. But the relatively short time frame promises to challenge the big players in fast-fashion, which may have to retool their design processes and rethink their sourcing, a topic we note in Supplement 5.

The EU recently published a plan that aims to put “fast fashion out of fashion” by 2030, referring to the trend of people buying clothes and throwing them out in less than a year. Clothing should be “long-lived and recyclable, to a great extent made of recycled fibers,” the EU said. Sustainability experts say that single-fiber, or monofiber, clothes present one of the best solutions.

The plan will affect not only Europe’s homegrown brands, but also American Nike and Levi Strauss and Japan’s Uniqlo or China’s Shein. EU nations have already agreed to collect discarded textiles separately from other waste by 2025.

German sportswear maker Adidas, for example, launched a line of single-fiber clothes last year including shoes, coats, T-shirts and pants under its “Made to be Remade” label. “These products are created with just one material and once they reach the end of their useful life, they can be cleaned, shredded and recycled for use in new products,” said the firm. Swedish fashion retailer H&M is stepping up repair services and offering rental and secondhand clothing as part of its push to cut waste and its associated greenhouse-gas emissions.

Classroom discussion questions:

  1. Are you concerned/aware of this issue?
  2. How does the proposed change impact the 10 operations decisions discussed in Table 1.2 of your Heizer/Render/Munson text?

OM in the News: The Problem with Solar

California has been pushing for rooftop solar power, building up the largest solar market in the U.S., reports The Los Angeles Times (July 15, 2022) More than 20 years and 1.3 million rooftops later, the bill is coming due. Since 2006, the state, focused on incentivizing people to use solar power, showering subsidies on homeowners who installed panels but had no plan to dispose of them. Now, panels purchased under those programs are nearing the end of their 25-to-30-year life cycle.

The majority of solar panels are ending up in landfills

Many are winding up in landfills, and in some cases, contaminating groundwater with toxic heavy metals. Only 1 in 10 panels are actually recycled. The challenge over how to handle truckloads of contaminated waste illustrates how cutting-edge environmental policy can create unforeseen problems. “The industry is supposed to be green,” said an industry expert. “But in reality, it’s all about the money.”

“This trash is probably going to arrive sooner than we expected and it is going to be huge,” writes Harvard Business Review. “While all the focus has been on building this renewable capacity, not much consideration has been put on the end of life of these technologies.” Disassembling panels and recovering the glass, silver and silicon is extremely difficult.

Highly specialized equipment, furnaces, and workers are needed. Panels are classified as hazardous materials, which require expensive restrictions on packaging, transport and storage. The economics of the process don’t make a compelling case for recycling. Only $2 to $4 worth of materials are recovered from each panel. It costs $20 to $30 to recycle a panel versus $1 to $2 to send it to a landfill.

The number of installed solar panels in the next decade will exceed hundreds of millions in California alone, and that recycling will become even more crucial as cheaper panels with shorter life spans become more popular.

A lack of consumer awareness about the toxicity of panels and how to dispose of them is part of the problem. “There’s an informational gap, a technological gap, and a financial gap,” say experts. The only solution seems to be extended producer responsibility, in which the cost of recycling is built into the cost of a product at its initial purchase. Business entities in the product chain — rather than the public — would become responsible for end-of-life costs, including recycling costs.

Classroom discussion questions:

  1. Supp. 5 in your Heizer/Render/Munson text deals with this issue in detail. Which model(s) can be applied here?
  2. What is the “systems view,” the “commons view,” and the “triple bottom line view” in this case?

 

OM in the News: Coal Gets Hot

Coal makes a comeback.

Contrary to observations in Supplement 5 (Sustainability in the Supply Chain) of your text, an energy-starved world is turning to coal as natural-gas and oil shortages exacerbated by Russia’s war against Ukraine lead countries back to the dirtiest fossil fuel. From the U.S. to Europe to China, the world’s largest economies are increasing coal purchases to ensure sufficient supplies of electricity, despite prior pledges by many countries to reduce their coal consumption to combat climate change.

“The global competition for coal—also now in short supply after years of declining investment in new mines and resources—has driven benchmark prices to new records this year,” reports The Wall Street Journal (July 5, 2022). The push is being led by Europe, which is boosting coal purchases to ensure it can keep power flowing to homes and factories after Russia cut gas supplies. Germany, which has promised to eliminate coal as a power source by 2030, is among the nations now importing more.

Trucks carrying coal in India, where coal powered generation hit a high this year.

Parts of the U.S. are boosting use of coal power, as high demand for electricity amid unusually hot temperatures pushes regional power grids to the brink of blackouts this summer. China, the world’s biggest coal consumer, is expanding production of the fuel and its use in power generation, spooked by shortages last year that caused country-wide electricity cuts and outages. India is also leaning hard on coal as energy demand increases.

Coal use fell in many major Western countries over the past decade, displaced by cleaner forms of energy that became more cost-competitive. Natural gas became more plentiful thanks to the American fracking boom and Russian exports to Europe. Wind and solar power also gained, buoyed by falling prices and government subsidies and mandates. In addition to Germany, Italy, France, the U.K., the Netherlands and Austria have now said they are preparing to restart coal-fired power plants, boost their production or keep them running longer than planned.

The resurgence of coal, which emits around double the carbon dioxide as natural gas, further threatens to set back international efforts to keep global temperatures under 2 degrees Celsius.

Classroom discussion questions:

  1. Why is increasing coal consumption an issue impacting operations managers?
  2. What are ISO 14001 and 50001 and how do they relate to this article?

OM in the News: Bumble Bee’s Sustainable Packaging Push

To the Bumble Bee Seafood Company, improving the sustainability and the quality of packaging go hand in hand. The company just announced new outer packaging for its multipack tuna cans made of readily recyclable paperboard. It is the first shelf-stable seafood brand to replace its shrink wrap packaging with a recyclable alternative.

The paperboard is made of 100% recycled material with at least 35% post-consumer content, and is certified by a major sustainability nonprofit. The new packaging has debuted on 23 SKUs, from 4- to 12-can packages. By moving from shrink wrap to paperboard, Bumble Bee will eliminate 23 million pieces of plastic waste per year. (This is an important topic in Supplement 5 in your Heizer/Render/Munson text).

Beyond the sustainability aspect, Bumble Bee saw other benefits to adopting the new paperboard packaging, writes Supply Chain Dive (April 26, 2022). For one, the carton allows the products’ barcodes to be scanned more easily than the shrink wrap, and to be placed on store shelves in two different orientations. In addition, the new paperboard packaging features bright colors and a picture of the tuna cans, along with nutritional information in a way that looks clearer than was possible on the shrink wrap.

This change from shrink wrap to paperboard will move the brand from 96% to 98% readily recyclable packaging. Both the new paperboard packaging and the metal tuna cans are curbside recyclable. A company survey that found 67% of consumers wanted its product packaging to be more recyclable.

“If you think about it, the U.S. recycling system was designed 50 years ago. It was designed for paper and bottles. It’s not designed for the type of flexible plastics that we have today,” said the company’s VP of global corporate responsibility.

Classroom discussion questions:

  1. Why is Bumble Bee making this change?
  2. What other product designs do your students note that have become more sustainable?

OM in the News: Packing Your Beer 6-Pack Sustainably

For many consumers concerned about their food, packaging has become a major factor in deciding what to buy. More than 2/3 consider it important that the products they buy are in recyclable packaging, according to one report. Another study found 58% of consumers said they were likely or very likely to purchase food products in packaging that clearly states it is reusable or recyclable.

With that in mind, companies like Molson Coors can no longer just depend on the taste and ingredients of the product itself to attract consumers but increasingly what the offering is packaged in. As more companies overhaul their packaging to make it more environmentally friendly, competitors have no choice but to respond or risk getting passed over on grocery store shelves, writes SupplyChainDive (March 15, 2022).

So Coors just announced that it will begin moving out of plastic rings this year from its packaging globally in favor of fully recyclable and sustainably sourced cardboard-wrap carriers. To support the move to more sustainable packaging,  Coors is investing $85 million in its operations to upgrade machinery to allow its entire North American portfolio — covering more than 30 brands that currently use plastic rings — to use cardboard wrap carriers by the end of 2025.  Coors estimates the move to cardboard-wrap will save 1.7 million pounds of plastic waste annually by 2025. The announcement moves Coors closer to its goal of ensuring its packaging is 100% reusable, recyclable or compostable, and consumer-facing plastic packaging is made from at least 30% recycled content by 2026.

Many sustainability-minded food companies, from Nestlé and PepsiCo to General Mills and AB InBev, have improved their packaging to help them meet their own environmental goals. Coors would be the largest beer brand in North America to move away from plastic rings.

What started out as a few companies making changes to sustainable packaging has quickly gained momentum across the industry. Nestlé is moving at least some of it Carnation Breakfast Essentials offerings from plastic bottles to Tetra Pak cartons made with paper it claims is responsibly sourced. General Mills’ Nature Valley Crunchy granola bars moved to fully recyclable plastic wrappers and PepsiCo’s Frito-Lay division is introducing a compostable bag for its Off The Eaten Path brand. Coca-Cola has introduced bottles made from 100% recycled plastic material while Mars Wrigley has created biodegradable wrappers for Skittles.

Classroom discussion questions:

  1. Why is Coors making this move?
  2. What is the “triple bottom line” (see page 195 in your Heizer/Render/Munson text) and how does it apply here?

OM in the News: Corporate Footprint Grows for Sustainable Packaging

Operations managers need to better understand modern consumer trends relating to sustainable products and packaging. According to McKinsey & Company (March 1, 2022), consumers believe that brands have as much responsibility as governments to create positive environmental change.

Over the past five years, there has been a 71% rise in online searches for sustainable goods globally, according to The Economist. Consumers are engaging with sustainable businesses in ways that they previously ignored. This trend isn’t just in first-world countries, please click on the graphic. Consumer satisfaction in developing and emerging economies is also tied to concerns around climate change, and many want businesses to commit to protecting nature and natural systems.

According to  McKinsey:

  • Consumers often consider a company’s environmental footprint before purchasing products.
  • 77% of the public thinks plastic is the least environmentally responsible type of packaging. Paper was deemed the most environmentally safe material.
  • 66% of the public (and 75% of millennials) say that they consider sustainability when they make a purchase.

Customers now align themselves with brands that are compatible with their values and priorities. With environmental stability as a high priority for many people, it’s important that operations managers do their part to lower their carbon footprint. “The shift in consumer buying, with more consumers willing to pay extra for environmentally friendly products, reinforces the need for companies to increase their commitments to responsible business practices,” said the head of sustainability at a large consulting firm.

Industries and companies are listening to their consumers about what they want. Over 50% of C-level executives in the fashion and textile industry have claimed that consumer demand is driving their brands to create sustainable products and best practices. Many of these companies have been sourcing sustainably produced raw materials to create their apparel. The trend of sourcing organic and sustainable materials has also been seen in the food, cosmetic and pharmaceutical sectors. These industries have been making a concerted effort to use sustainable materials.

Classroom discussion questions:

  1. What are some examples of successful product designs that are sustainable? (Hint: see pages 197-8 of your Heizer/Render/Munson text).
  2. Why is corporate social responsibility becoming more broadly accepted in C-suites?

 

OM in the News: Pepsi’s Supply Chain Emissions Problems

Two years ago, the CEO of a large British food chain, Tesco, told PepsiCo and its other suppliers: “We don’t sell air — and we don’t transport air”. He then warned all suppliers that, if they did not address the problem of overpackaging, their products were at risk of being removed from Tesco’s stores.

PepsiCo listened: it began cutting down on packaging and bringing in more eco-friendly materials, such as cardboard. Now, writes Financial Times (Feb. 22, 2022), the $235 billion company is looking to exert a similar influence on its own suppliers.

Like many consumer goods companies, PepsiCo set out ambitious climate goals, saying it would cut greenhouse gas emissions throughout its value chain by at least 40% by 2030. But 92% of PepsiCo’s total emissions come from outside its own operations, so it has to persuade suppliers and customers to cut emissions amounting to 22.6 metric tons of carbon dioxide per year — equal to taking about 5 million cars off the road.

The maker of Mountain Dew, Doritos and Quaker Oats is not alone in the scale of the challenge it faces. Tesco’s other suppliers risk falling behind on their climate aims because more than half of them lack any climate targets at all, and only one in 40 have science-based targets.

PepsiCo will make changes to its transport and to the coolers used for its drinks and will also push its suppliers to switch to renewable energy. But to achieve its emissions goals, it must also look back along its supply chain and persuade farmers who produce millions of tons of commodities annually to change their own practices. When it comes to Frito-Lay chips, this is comparatively straightforward. While PepsiCo does not own potato farms, it buys the crop directly from potato farmers, so it is piloting a program to process potato peelings into low-carbon fertilizer on its supplier farms. This has the potential to reduce fertilizer emissions by 70%.

In Illinois, for example, PepsiCo is working to pay farmers for switching to greener farming methods such as no-till cultivation and cover crops, to target 20,000 acres of land. Farmers are a conservative group, however, and not prone to rapid change. But they will need to scale up rapidly if PepsiCo is to reach its goals.

Classroom discussion questions:

  1. Watch the Supplement 5 video in MyOMLab called “Green Manufacturing and Sustainability at Frito-Lay” or read the case study on page 209 of your text. What other tools is PepsiCo (the parent company) employing to help environmental concerns?
  2. Why is sustainability a major issue for operations managers?