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A CPG Giant Aims for Sustainability in Its Global Supply Chain

A conversation with Pier Luigi Sigismondi, chief supply chain officer of Unilever

With revenues of nearly $60bn in 2011, Unilever is one of the world's largest manufacturers of consumer goods and food products. Its brands include Lipton, Wish-Bone, Hellman's, Dove, Knorr, Vaseline and Ben & Jerry's ice cream. The company has a truly global reach, but with that big a market presence it must also cope with the severe environmental consequences of its operations. In recent years, the company has launched a concerted effort toward achieving sustainability in multiple links of its supply chain. What sets Unilever apart from many other businesses is its inclusion of the customer experience in that equation. That, says chief supply chain officer Pier Luigi Sigismondi, is where the biggest impact on the planet's resources occurs. In this interview, conducted at the Gartner Supply Chain Executive Conference in Palm Desert, Calif., Sigismondi explains the company's sustainability program. He also touts the importance of a "segmented" approach to evaluating and managing the massive Unilever supply chain.

Q: Can you elaborate on how Unilever's supply chain adds value to the business?

A: Sigismondi: It's a truly global operation. We own 260 factories around the world and 460 warehouses. We sell products in about 90 countries. Two billion consumers every day use our products.

The vision of value goes far beyond what I learned in school at Georgia Tech 25 years ago. This is not about "the right product, at the right time, in the right place, at the right cost." For me, that's the fundamental part of our duty. We make a difference - we add value to the business - if we think sustainably. If we actually leverage our global scale by being also local, with segmented business models, and we play with speed, which is our currency. We make a difference in the business by actually putting our products on the shelf as quickly as possible, by launching them globally. And by leveraging our strategic partnership with suppliers, so that we can openly innovate with them. We can engage them in our sustainability programs for the long term.

Our focus right now is about sustainability, global scale, agility, playing fast, and leveraging our relationship with our suppliers.

Q: So you've identified five different sources of competitive advantage within your supply chain?

A: Sigismondi: I would say so, yes.

Q: Talk about some of Unilever's achievements in supply-chain sustainability.

A: Sigismondi: Sustainability is at the core of our business model. We don't believe it is a corporate relationship program, a social responsibility program or a shared-value-creation type of initiative. It is at the core of our business model. We see sustainability end to end in our value chain - not only in the way we procure our packaging materials, or operate in our assets, but at the [point] of consumer use. Our ambition is basically three-fold. One, we want to sustainably source 100 percent of our raw materials by 2020. We want to [address] the impact of our business from end to end in terms of greenhouse gases. And we want to improve the lives of one billion consumers, in terms of their standard of living and hygiene conditions. It is an inspiring vision that represents a business opportunity for us. Consumers are more and more aware of the ethical practices behind multinationals. They are expecting us to play sustainably, as much as I do with my suppliers. This drives innovation and new business models. It changes and helps to facilitate the lifestyles of our consumers.

Let me give you an example. In India, our consumers do their laundry basically by hand. Many are on the outskirts of the city. When [a consumer] does the laundry, she needs four buckets of water, because she believes that the more water she uses, the better and cleaner the clothes will be. Our products are now being redesigned in a way that [require] only half the amount of water. It means convenience for her, but it also means less water consumption and less waste for the environment. In countries like India, with so much scarcity, it is an absolute necessity. We are very much looking at the entire way in which our consumers are dealing with our products globally.

From a supply chain point of view, we [are focusing on] the carbon footprint from our operation. Six hundred thousand tons of carbon have been eliminated in the past three years. We are seeing massive cost savings, with 20 percent of our energy coming today from renewable sources. Our ambition is to reach 40 percent. It is a massive undertaking. We are also certifying our sources of supply with NGOs like the Rainforest Alliance. They are helping us today to [obtain] at least 50 percent of our teabags from sustainable sources. It is quite an amazing and bold ambition, and I believe that supply chain is at the core, in the driver's seat of this quest.

This is an obligation for us for the future. According to [the World Wildlife Federation], humanity today is consuming 1.5 times the global resources that we have in the planet. If we [were] to apply the standards of the U.S. across the world, we would need five planets in terms of natural resources. This is obviously not sustainable. We see our role [as crucial to] the way in which we do business for the future. I think it's going to be soon an element of differentiation as well, in the eyes of our consumers.

Q: Have you managed to measure your entire end-to-end carbon footprint, given the large number of partners that make up your global supply chain?

A: Sigismondi: Absolutely. If you take the greenhouse gases that are generated from our operation, about 32 to 35 percent are related to our suppliers, and the way in which we source our raw packaging materials. Only 2 percent of our carbon footprint is generated from our factories. Although there are 260 of them, they represent a minority of the impact. Three percent is distribution, but about 68 percent is in consumer use. It's about how we use water in the morning when we take our showers. How high a temperature are we [setting]? How much water are we using? Americans in general use about 12 liters of water for their showers every day. That is 50 percent higher than people in the U.K. In the end, that's what makes the biggest impact on the environment. We want to make sure that after one year of the Unilever Sustainable Living Plan, we're tracking our progress in reducing the carbon footprint that we generate. So far, we're on track.

Q: You have spoken of the value of a segmented supply-chain management program. How have you rolled that out within your own organization?

A: Sigismondi: We all have pressures in overhead and indirect cost. That has generated in many companies an average [approach to] the way in which they manage their supply chains. At Unilever, we have decided to invest in very focused capabilities, looking at ways to differentiate our supply chain. When you buy a Ben and Jerry's ice cream in an amusement park, there is a completely different supply chain behind that than for the Dove bar product that you buy at Walgreens, or the laundry powder that is being used in the fields of India or Indonesia. We cannot just average out the way in which we are managing our supply chain globally - we need segmented ways of doing this.

The important thing is to understand how you add value at the end to your customers, and how you land your products at the lowest possible cost. Imagine the complexity of our supply chain. Our business deals with ice cream, with Lipton tea, with Knorr savory products, home care and personal care products. The difference between all these products and supply chains is huge. My best advice to any professional in supply chain is to understand how you can manage them in a different, shaded way - so they can stand on their own, be cost-competitive, agile and at the end provide the [appropriate level of] service and delivery for your products.

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Keywords: supply chain, supply chain management, international trade, global logistics, logistics management, supply chain planning, Unilever supply chain, retail supply chain

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