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Unilever and its Supply Chain: Embracing Radical Transparency to

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Unilever and its Supply Chain: Embracing Radical Transparency to

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Page 1 of 31Unilever and its Supply Chain: Embracing Radical Transparency to Implement Sustainability Erica Dhawan, Elisha Goodman, Shayna Harris, and Chris Mitchell 15.915, S-Lab Final report, May 12, 2010 Unilever contact: David PendlingtonIntroduction When a company with a well-established supply chain enters the sustainability space, it is understandably with trepidation, and in the best-case scenario, with curiosity and a willingness to experiment. In order to drive sustainability changes, there are a plethora of places to start – from shifting consumer buying patterns, to farmers’ production practices, to corporate culture. Commonly, large multinationals rely on multiple product streams going into multiple product lines; the task to green’ the entire supply chain is daunting, and the process iterative. A company must do two things over and over again. First, the company must find the appropriate tools to help prioritize a starting place. Second, once this prioritization process happens, the company must dig into an evolving toolbox of items which can drive sustainability down the supply chain and ensure compliance in the areas that the company is seeking sustainability. Finally, the company must follow these steps over and over again capturing learning as the tools are applied – and then re-evaluating its sustainability priorities up and down the supply chain. To assist Unilever with this iterative process, Unilever requested two primary tasks. First, Unilever wanted high-level strategies and frameworks with which the company can make decisions about where to begin implementing sustainability measures across its vast supply chain. Second, Unilever asked for a discussion of ways that the company could drive sustainability down the supply chain and verify supply chain sustainability compliance, particularly in cases where Unilever did not use 3rdparty certification schemes. To satisfy Unilever’s requests, our team began by researching background information on Unilever and its sustainability values and practices, using mainly external literature sources and the limited internal Unilever documents for which we had access. We also tapped into MIT’s network of sustainability experts in the Media Lab and Center for Transportation and Logistics. After several brainstorming sessions discussing various prioritization schemes that Unilever could employ, we developed a supply chain prioritization tool called the Sustainability Stakeholder Rating Tool (SSRT). Taking into account the complex supply chain ecosystem, the tool is meant to prioritize supply chain actions based on a combination of financial, social, and environmental consideration in various product lines (dairy, oil, and vegetables) from the perspective of Unilever’s main stakeholders. The culmination of these exercises is reported below and is split into four sections. First, the paper provides a background on Unilever as a company. Second, this document discusses several lenses with which Unilever may view their options to find the most optimal starting point or points to enact sustainability measures. The paper then demonstrates one such tool, Sustainability Stakeholder Rating
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Page 2 of 31Tool (SSRT) and discusses how this weighting tool may be applied to three key products including dairy, vegetables, and palm oil. Following this, the document discusses various ways that Unilever may encourage sustainable supply chain compliance, verify practices, and drive sustainability down the supply chain via the innovation and still relatively new radical transparency practices of certification, crowd-sourcing, and trust -based networks. Unilever and Sustainability Unilever, based in Rotterdam, Netherlands, owns many of the leading consumer brands in foods, beverages, cleaning agents, and personal care products. Unilever employs 163,000 people in around 100 countries and their products are sold in over 170 countries around the world.1The top 25 brands in their portfolio account for nearly 75% of their sales. They are the global market leader in all the food categories in which they operate: Savoury, Spreads, Dressings, Tea and Ice Cream. They are also the global market leader in Mass Skin Care and Deodorants, and have very strong positions in other Home and Personal Care categories. They have 264 manufacturing sites worldwide, all of which align with their values of safety, efficiency, quality and environmental impacts. Around 50% of the raw materials that they use for our products come from agriculture and forestry. They, “buy approximately 12% of the world’s black tea, 6% of its tomatoes and 3% of its palm oil.” 2Unilever as company has made a strategic shift towards sustainability, and CEO Paul Polman recently wrote that, “2009 saw the launch of a new vision for Unilever – to double the size of the company while reducing our overall impact on the environment. The commitment presents Unilever with a major challenge... In short, we intend to decouple growth from environmental impact.”3Unilever’s largest opportunities in sustainability are in the expansion in developing and emerging markets and the growing movement of socially conscious consumers.4Developing countries face a plethora of issues including major climate change challenges, poverty, and mal-nutrition which may seem daunting for companies to react to. However, large players like Unilever can develop products that meet their functional needs while factoring in the social and environmental challenges. This will allow Unilever to be better positioned to grow in the future compared to those who do not address these challenges. Another significant opportunity is the growth of the ‘conscience’ consumer, those who prefer niche products, which has a positive social or environmental impact. While this began as a small consumer group, it has emerged into a broader movement in recent years.51http://en.wikipedia.org/wiki/Unilever2http://www.unilever.com/aboutus/introductiontounilever/unileverataglance.aspx3http://www.unilever.com/sustainability/introduction/ceo/4http://www.unilever.co.uk/sustainability/ourbrandsinsociety/ourbrandsinsociety/5http://www.unilever.com/Images/Beyond%20Corporate%20Responsibilty%20-%20Social%20innovation%20and%20sustainable%20development%20as%20drivers%20of%20business%20growth_tcm13-95521.pdf
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Page 3 of 31At the same time, Unilever’s commitment to sustainabilitypresents a major challenge: incorporating their sustainability impact from the sourcing of their raw materials, to processing and manufacturing, and then all the way to the consumer use and disposal of products. Ironically, Unilever’s largest sustainability challenges come from the places it least controls, in the sourcing of raw materials and consumer disposal of products. Unilever must decide where and how to start the prioritization process, while ensuring alignment with thousands of suppliers.6As a result, Unilever has relied on a plethora of partners to address sustainable practices at different stages in the value chain over the past 20 years. 7Unilever’s Sustainable Agriculture Initiative, developed during the 1990’s, aims to ensure Unilever’s access to key agricultural raw materials and to continually develop market mechanisms that allow consumers to influence the sourcing of agricultural raw materials. The company commissioned two field studies in 1995, one capturing the opinions of leading players and decision makers and another translating the concept of sustainability into a set of operational indicators based on experts for use in Unilever practice. 8As a result of this theoretical work, Unilever instituted five projects testing their approach to sustainable agriculture. These field projects were used to develop Unilever’s ten sustainable agriculture indicators along with the support of farmer groups and various community partners. These ten indicators cover soil loss, pest management, product value, water and the local economy.9In 2005, they embedded their sustainability indicators across product brands using Brand Imprint. Brand Imprint provides their brand teams with a 360 degree scan of the social, economic and environmental impact that their brand has on the world. A multidisciplinary team performed a detailed assessment of each brand, looking first at the direct and indirect impacts of our products, or their 'imprint', across the value chain. The team completed stakeholder research and gained insight on various influences on the brand’s growth.10More recently, Unilever developed a Business Partner Code to ensure their suppliers meet their expectations on social and environmental impacts.11At the same time, Unilever’s Sustainable Agriculture Initiative considered how to make their corporate activities more visible to their consumers. They partnered with organizations to educate consumers on how to reduce their environmental footprint.12They also began to assess their environmental impact across the supply chain from sourcing raw materials to production, distribution, consumer use, and disposal, developing: In 2008, a set of metrics for the environmental impact areas: GHG emissions, water, waste, and sustainable sourcing. 6Based on conversations with David Pendlington and Unilever presentation from April 14 2010 7http://www.unilever.com/sustainability/introduction/ceo/index.aspx8http://www.unilever.com/images/1999%20Sustainable%20Agriculture%20Brochure%20-%20'Growing%20For%20The%20Future'_tcm13-5333.pdf9http://www.article13.com/A13_ContentList.asp?strAction=GetPublication&PNID=135910http://www.unilever.co.uk/sustainability/ourbrandsinsociety/ourbrandsinsociety/default.aspx11http://www.unilever.com/aboutus/purposeandprinciples/business_partner_code/12http://www.unileverusa.com/sustainability/environment/
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Page 4 of 31In 2009, a social impact metrics in order to track performance across the portfolio, allowing them to show consumers the broad scale impact of their purchases13; andIn 2010, the Sustainable Agriculture Code, a 70+ page document codifying sustainability benchmarks across ten areas.14Future Goals in Sustainability Moving forward, Unilever’s goals for sustainability are vast. As described by Paul Polman, CEO of Unilever’s vision in 2009 is, “to double the size of the company while reducing our overall impact on the environment by 2020.”15Unilever’s sustainability goals include both business operation improvement and the broader impact associated with the total lifecycle of their products. The company has already taken the lead in many areas. In palm oil, they have bought GreenPalm certificates covering 15% of their volumes. In addition, Unilever founded the Roundtable on Sustainable Palm Oil (RSPO) helping to move the industry to sustainable palm oil and have set their own target to be 100% sustainably sourced by 2015.16Decision Making Frameworks for Sustainability Practices: Supply Chain Mapping To help Unilever meet their sustainability goals, this paper’s first objective is to provide Unilever with a high-level framework for thinking through where to begin transitioning to more sustainable practices. Discussions with Unilever reveal that the company has a clear picture of the supply chain from the point of the distributor forward through to Unilever, but significant gaps in knowledge exist regarding how products move down the supply chain from farm to distributor. Consequently, the first step in identifying key pressure points where Unilever can best improve its sustainability practices is to fill these gaps via research to create a complete map of the supply chain from farm to Unilever. Once the supply chain is clearly illustrated, Unilever can identify key pressure points or hot spots to begin making changes. Most companies choose to begin change in places that produce the most change for the least amount of effort. This is the proverbial “low hanging fruit,” which is easiest to pick. Several factors contribute to determining what constitutes the lowest hanging fruit. First, there is the financial cost. Obviously, that which costs the least in both time and effort is generally cheaper to implement. However, there may be instances when actions with the lowest cost or the least amount of effort may not be the most logical place to start. One instance of this is when efforts cost little but take a very long time to implement. A company may wish for sustainability efforts to take root in a shorter timeframe, even if they cost a more. For example, a change initiative that costs little - but 13http://www.unilever.com/sustainability/strategy/vision/14Internal document from David Pendlington, shared in April 2010. 15http://www.unilever.com/sustainability/introduction/ceo/index.aspx16http://www.unilever.com/sustainability/strategy/vision/index.aspx
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Page 5 of 31take 10 years to produce visible results - may not be the proper place to start as opposed to an initiative that costs a more but produces faster sustainability results. Second, company must also then consider the sustainability return on investments (SROI) for themselves and their stakeholders, being patient as change occurs. “Sustainable project decisions require more inclusive forecasting of future costs and benefits. These elements are subject to uncertainty and are not typically captured in conventional ROI methods.”17From Unilever’s perspective, calculating an SROI over time includes not just the financial return, but an environmental and social return over a longer period of time which brings Unilever closer to fulfilling the terms outlined in its Unilever Sustainable Agriculture Code. In addition, Unilever can estimate an ROI on investments in a sustainable supply chain by looking at the actual dollar amount in brand damage ameliorated by investing in sustainability. Similarly, from a farmer or supplier perspective, an SROI becomes more realistic when they have a longer timeframe from which to calculate the ROI because they have entered into long-term relationships with the buyer and will see the benefits of their investments. Third, Unilever should consider if their customers are willing to pay more for a sustainable product. This may vary by product. For example, customers may be willing to pay more for a highly visible whole food product, such as tea, while they may not be willing to pay more for a less visible product such as powdered onions that go into a soup cube. In instances where customers are wiling to pay more for a product that is sustainable, Unilever may be able to start implementing sustainability measures without a need to think as much about keeping costs low. In instances where customers are not willing to pay more for sustainable products, Unilever must ensure that the cost of Unilever products remain the same as that of its competitors.18Finally, in cases where customers are not willing to pay more for sustainable products, one strategy for prioritizing which ingredients to target for implementing sustainability measures is to start with products in which Unilever has the ability to change the practices of the industry overall. Unilever may have such a significant market share in global purchasing of that ingredient that it has significant sway in the industry to effect agricultural practices of the entire industry. Or, even for products in which Unilever has small market share in overall global purchasing, there may be an ingredient that has significant momentum around it from pressure groups, with whom Unilever can work to change the industry overall. 17http://www.hdrinc.com/Assets/documents/clients/SustainableReturnBrochure.pdf18This may be accomplished in at least three ways. First, Unilever may enact sustainability measures that cost less or no more than current practices. Second, Unilever may enact sustainability measures that have a return on investment (ROI) on capital cost that over X number of years actually saves money. Third, Unilever may enact sustainability measures that do cost more than current practices, but are adopted across the industry so that the cost of competitors’ products remains the same as that of Unilever. Here, having the ability to change the industry overall is an important aspect from the standpoint of competitiveness.
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Page 6 of 31One Example of a Metric: The Sustainability Stakeholder Rating Tool We’ve outlined four ways that Unilever might think about how to prioritize its supply chain, including financial cost, the SROI, customers’ willingness to pay, and Unilever’s industry influence. There are invariably more. Added to this complexity is the fact that sustainability covers a wide array of different natural resources (water, chemicals, energy sources, etc.) and processes (planting, growing, harvesting, sorting, washing, etc.). Given that Unilever is part of a complex web of various stakeholders throughout a multi-billion dollar supply chain, we have sought for a way to both capture the various parts of this web and think through the sustainability dynamics at play throughout the supply chain at the farm level. The result is the Sustainability Stakeholder Rating Tool (SSRT). SSRT is a qualitative effort to capture: Stakeholders’ perspectives on sustainability at the farm level; Sustainability-related categories; The relative importance of each of these categories to the various stakeholders; and The way in which sustainability categories may differ across different crop categories. The stakeholders include: The Consumer – an “average” Unilever consumer who is focused on price and taste above all else; The Environment – the various systems that make up the proper functioning of the planet: water, air, and soil; The Farmers – those responsible for growing the products; The Suppliers – those who purchase the raw product and usually conduct the first (and sometimes) second levels of processing; and Unilever Shareholders – taking the corporation to be a profit maximizing entity, this category is most concerned with getting a quality product to its consumers.
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Page 7 of 31The SSRT is an Excel-based tool which helps to expose how various people across the supply chain perceive the relative importance of sustainability categories. Users can “spend” a total of 100 points based on assuming the priorities of various stakeholders.19There are no correct or scientifically accurate numbers that must be attached to each of these categories and sub-categories. Rather, the SSRT is most useful when it is used by a number of different stakeholders and the relative point allocations can be compared. This comparison provides a quasi-quantitative demonstration of how important each category and sub-category is to the various stakeholders. The tool is shown in some screen captures that follow, and points are allocated based on our collective opinions. These are not the definitive scores, they are simply the allocations that make most sense to us based on the research we have done and our collective experience in the farming, supply chain, and agricultural input industries. For example, when considering the importance of nutrient management at the farm level (as opposed to nutrient loss or dilution due to processing or spoilage) we believe that the consumer is not aware of nor cares about any of the sub-categories within this category. As a result, the consumer does not spend” any of their 100 points in this category. The environment (which we have taken the liberty of embodying for the purposes of the exercise) spends 15 of the 100 available points given that a high nutrient balance is a sign that the balance of nature has been maintained. For farmers nutrient management is vitally important to the sustained fertility of his or her farm. As such, the farmer spends” 5 points on preventing soil erosion, 3 point on each of crop rotation, organic fertilizer, chemical fertilizer, and soil and plant testing and measurement. Nutrient management dissipates in importance as we move away from the farm with Suppliers and Unilever shareholders only spending 9 and 8 point, respectively. As the user spends points according to their perception the “Nutrient Management” row will be automatically tallied. The tool is built so that the users only need fill in the subcategories. 19This tool is included with this report in the Excel File titled, “Sustainability Stakeholder Rating Tool_v1.xlsx.” STAKEHOLDERSThe ConsumerThe Environ-mentThe FarmersThe SuppliersUnilever Share-holdersNutrient Management0151798Less soil erosion03520Crop rotation03310Organic fertilizer05313Chemical fertilizer00333Soil/Plant Testing/Measurement04322STAKEHOLDERSThe ConsumerThe Environ-mentThe FarmersThe SuppliersUnilever Share-holdersNutrient Management00000Less soil erosionCrop rotationOrganic fertilizerChemical fertilizerSoil/Plant Testing/Measurement
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Page 8 of 31The first set of rankings, under the header “Single Weightings” take the exclusive point of view of each of the five stakeholders. The second set of rankings “Combination Weightings” allow the user to assign a weight to each of the stakeholders and the tool will then calculate the relative point allocation. For example, the tool can produce the relative point allocations for a 35% Environment and 65% Unilever Shareholder weighting: As the SSRT is shown above, in the first column the user has weighted all of the Environment’s allocations by 35% and the remainder, 65%, to Unilever shareholders. This weighting shows where the relative “hot button” sustainability areas are if we are largely taking the Unilever shareholder’s perspective into account but tempering this with some concern for the environment. These weightings can be combined and compared across the five different stakeholders. The final part of the tool is the rankings across the various products. These tabs allow the user to think through how the sustainability categories differ across product groups. As with the other parts of the tool, the user should simply fill out the rankings according to how he or she believes they would differ based on the various product groups. See the appendix for our rankings of dairy, variables, and palm oil. While the scores within a Stakeholder column are not precise (a 5 versus a 3 is largely arbitrary) the point distributions are most illuminating across the stakeholder columns. As such, it makes sense that the farmer and the environment have relatively similar scores as nutrient management keeps his or her farm productive and also potentially limits the amount of harmful nitrogen-based fertilizers the farmers will put into the soil and which can run off into the water supply. Similarly, it makes sense that the suppliers and Unilever are approximately equally interested in nutrient management in so far as it has the potential to keep down costs (through the prudent application of fertilizers and soil and plant testing to limit the application of fertilizers when they are not required for plant growth). STAKEHOLDERSShareholders & EnvironmentShareholders & SuppliersShareholders & FarmersEnvironment & FarmersThe ConsumerThe Environment35%50%The Farmers30%50%The Suppliers45%Unilever Shareholders65%55%70%WEIGHTINGSCombination Weightings
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