This is the fifth blog by Jim Harris and Tyler Elm to appear in BoomerWarrior. Also posted on HuffPost Business as part of a weekly series on how sustainability can save business. (Editor)
Using sustainability as strategy can drive change within a company’s supply chain by engaging suppliers and service providers with the resulting savings running into the millions of dollars a year.
A case in point: one of Canadian Tire’s most popular products is a six-foot folding utility table, selling many tens-of-thousands a year. The company collaborated with its supplier on product redesign and packaging to use less raw materials to make and package the product. Now, the tables use 11 per cent less plastic in their construction and occupy 15 per cent less volume for shipping. The annual savings for Canadian Tire: more than $375,000 a year as a result of reduced material, packaging and shipping costs.
Sustainability as strategy can also engage employees. In 2010, Canadian Tire’s Senior Vice President of Merchandising invited all the company’s buyers to the conference centre for an afternoon departmental meeting. Employees thought it was to discuss organizational restructuring. Before the start of the meeting, the conference centre was very quiet.
The goal, it turned out, was to engage buyers in a creative way — to shake things up — to facilitate some disruptive innovation on something that should have been a core element of their business activities, but at the time wasn’t.
Corporate thinking is often to execute on a perfect plan — in this case, we wanted to take buyers out of their usual, comfortable environment and see what insights could be developed by briefing them on a subject and then turning them loose in a store to see how they could apply it. We wanted our buyers to see things with new eyes.
At the conference centre, the buyers learned the real purpose of the event: to gain new insight into how packaging sustainability can affect profitability and the environment. After a couple of presentations, the group boarded buses to a local Canadian Tire store where the goal was to discover examples of “stupid packaging” — examples of too much packaging, improper packaging, or even too little packaging resulting in damaged product, waste, squandered energy use, and excessive greenhouse gas emissions from shipping damaged product that can’t be sold.
The buyers identified over 3,000 examples and calculated the potential savings to the company of improving the packaging into the millions annually in cost avoidance. One of the best finds: the company sold a tool for opening plastic clam-shell packaging. And guess what? The tool came in a thick plastic clam-shell.
Prior to the session, buyers really hadn’t seen the relevance or value of packaging to profitability. The session kicked off a disciplined, systematic focus on package right-sizing that each year results in hundreds of packaging changes and is generating more than $3 million annually in avoided costs.
In 2011 and 2010, Canadian Tire completed 320 packaging changes that saved the company $6.3 million in costs, while reducing greenhouse gas emissions by more than 4,300 tonnes each and every year the products are stocked.
Of course to sustain such an initiative requires more than just a bus trip, it also requires the systems and structures to support and foster the ongoing effort, such as good measurement, reporting — and aligned incentives — now going into a third year.
There’s another reason for companies to focus on cutting unnecessary packaging. Extended Producer Responsibility (EPR) costs are rising dramatically. Since 2004 stewardship fees charged to companies and the associated cost of managing dozens of different EPR programs across Canada have grown at a cumulative average rate of 38 per cent.
This dramatic rise has been driven by four factors: 1) implementation of EPR legislation in provincial jurisdictions across Canada; 2) increasing rates being charged for products and packaging under EPR programs; 3) a shift of those costs from government to business, and 4) the data management, the point of sale and other systems and resources required to manage them.
The cost of the Blue Box program used to be shared equally between companies and the government. But today, corporations are paying all the blue box fees. For Canadian Tire in 2008, fees alone were $8.9 million and these have doubled to $18.5 million in 2011. In 2008 only 4,000 products had environmental fees and this has grown almost six-fold to 23,541 at the end of 2011, with many products being attached to multiple programs in different provinces.
Fees are based on the type of material used and the weight and volume of packaging. Having a disciplined focus on packaging materials and right-sizing can decrease the fee rates applied and the volume and weight of packaging, dramatically mitigating costs and the risk of increasing EPR fees.
Of course there is a balance that needs to be achieved: packaging can’t be reduced so much that it results in higher damage rates to the goods being sold.
Rightsizing packaging also resonates with customers, as the number one complaint re sustainability from customer is excessive packaging.
So using sustainability as strategy is a way of engaging employees, suppliers and service providers in a concerted effort to drive innovation within retail, to drive out waste and inefficiency, and to lower the corporate footprint and reduce the liability to extended producer fees. We believe all retailers should be aggressively pursuing sustainability as strategy.