CorpComms Magazine

If you had asked brand communications managers about the reputational value of their company's distribution network five years ago, you might have been met with blank looks.

Getting products to retailers and customers was widely regarded as a cost centre, not something to do with winning hearts and minds. How times have changed. Company supply chains are now increasingly being seen as a source of competitive advantage.

Indeed, Professor Martin Christopher, professor of marketing and logistics at Cranfield School of Management, saw this coming, forecasting in 2001 that all companies would come to compete on their supply chains,  not on their brands.

He wrote: 'The rules of competition are changing. It is no longer enough to rely on brand values or proprietary technology. Certainly, strong brands combined with product and process innovation can provide a firm foundation upon which marketplace success can be built. But real competitive advantage comes from a combination of loyal consumers, committed customers and a superior supply chain.'

Nearly a decade later, logistics experts say that the professor is being proved right. 'Not only is a company's supply chain now seen as a source of competitive advantage. It is becoming a key differentiator of businesses,' says Dave Food, strategy director at Prophetic Technology, a supply chain consultancy based in Surrey. 'Brand owners are now including customer service logistics people in the same teams as marketing people when they are making decisions about products and services.'

In some senses, this trend can be seen as an expected consequence of our faster, on-demand society where the distributive power of the Internet means a 24/7 economy of consumer and corporate purchasers wanting goods and services ever faster and cheaper.

In addition, the supply chain has been targeted by The Carbon Trust and other proponents of a low-carbon society of the future as an effective route for ensuring that the environmental message permeates down the line.

Making large corporations that are seeking carbon neutral status take responsibility for the carbon footprints of their suppliers means the green message is going deeper and further than otherwise, while supply chain compliance gets policed not by carbon watchdogs but by corporate customers themselves.

So are moves to take shipments off the roads, consolidate stock holdings and share freight transport being driven by the high-minded rhetoric of climate change mitigation or the more basic necessity of cost reduction?

'Both,' says Liz Hayes, senior corporate communications manager at Nestlé UK, one of 40 leading household retailers and manufacturers that have linked with international food and grocery organisation IGD to reduce the annual miles driven by heavy goods vehicles on British roads by more than 120 million.

The four year target - equivalent to removing 2,000 lorries from Britain's roads a day - has been achieved one year ahead of schedule by companies, which also include Cadbury, Dairy Crest Group, Procter & Gamble UK and Reckitt Benckiser, through initiatives including moving to doubler decker vehicles, sharing lorries and working together to avoid empty return trips.

For example, Nestlé and United Biscuits UK came to an arrangement for sharing lorries making trips from their factories to distribution centres, with Nestlé merchandise travelling in trucks with United Biscuits liveries and vice versa.

'Sharing each others' lorries both saves money and helps the environment,' says Hayes. 'It's a combination of cost efficiency and climate change mitigation that's driving this trend and it's an ongoing programme for us. It's a win-win in terms of both because it improves efficiency and delivers the sustainability agenda at the same time.'

IGD media officer Meeta Darji adds that its recent survey of more than 130 European and UK suppliers found that sustainability continues to rise up the commercial agenda, despite the difficult economic climate.

More than 80 per cent of respondents stated that the recession had no negative impact on their sustainability agenda while another 28 per cent said they had stepped up their activity as it has become even more important.

Darji says: 'For many, sustainability initiatives have proved increasingly beneficial in the current climate. They have provided options for product differentiation and opportunities to drive operational efficiencies and gain cost savings within their business.'

Supply savings

There is also plenty of scope for more improvements. GS1 UK, the not-for-profit organisation dedicated to developing global standards to improve the efficiency and visibility of supply and demand chains, said late last year that Britain's grocery sector alone could save £1 billion over the next five years through improving supply chain data practices.

By comparing the product data held by suppliers such as Nestlé, Unilever, Procter & Gamble and Mars with that stored on the systems of supermarkets Tesco, Sainsbury's, Asda and Morrison's, the research says it uncovered inconsistencies in what should have been identical information in more than  80 per cent of cases.

After calculating the impact that this has had in terms of lost or late deliveries, inaccurate orders, extra transport costs and duplicated work, the association found that the savings opportunity was more than £700 million, while there was a further opportunity for £300 million of new sales.

Clearly when times are tough, such savings are highly attractive and Chris Long, managing director of EC Group, a contract logistics supplier operating from distribution centres in Middlesex and Essex and serving corporate customers such as Heineken UK, Rolex and Lloyds Banking Group, believes cost reasons have edged ahead of the environmental agenda in terms of the factors driving action of supply chains.

'From our perspective, the principal reason for addressing supply chains as far as our clients are concerned is reducing operational costs,' he says. 'It's definitely  a competitive advantage in that it gives firms more money to spend on other things.'

Long says efficiency can be improved through eliminating surplus packaging, reducing stocks held in warehouses, ensuring journeys are not wasted on part-loads, organising fewer next-day deliveries and saving on warehousing costs by printing marketing materials on demand.

The next wave of action, he says, involves companies switching to fleets powered by electricity or biodiesel fuels. 'It's inexorable. It's a coming thing,' he says 'We don't run hybrid vehicles but it's definitely something we're looking at.'

Chain mail

Of course, many of these measures also benefit the green agenda and management of the social risks associated with supply chains is another area where cost and sustainability converge.

Helen Ireland, UK head of Planet 2050, the specialist communications and change management practice of public relations agency Weber Shandwick, says: 'We work with a lot of companies looking at their supply chain and I think that brand, marketing and communications departments are realising that reputational risks tend to also be operational risks.

'Understanding where products come from and how they are made or grown is something thing that purchasers, governments and end users are all interested in. The child labour issue in China and the effects of palm oil production in Malaysia and Indonesia, for example, are not issues that are in the background. They are really front of mind.'

Guy Battle, a partner specialising in carbon and sustainability issues at consultancy group Deloitte, agrees, pointing to the campaign waged in the 1990s against Nike by lobbying groups concerned about allegations of the use of child labour by suppliers in Cambodia and Pakistan.

More recently, he acknowledges, Marks & Spencer's 'Plan A' sustainability campaign has been highly successful at targeting social, as well as environmental and cost benefits, from its supply chain, including sourcing Fairtrade products, while the London 2012 Olympics aims to be the most sustainable Games in the history of the event.

'People are having to get their act together on their supply chains because it's all part of building and maintaining reputations nowadays,' he says. 'Marks & Spencer is a really good example of how it is driving growth.'

As for the future, Professor Christopher is now forecasting even more tumultuous change, saying in a recent blog that the global economic turmoil has caused many companies to re-think their supply chains once more in response to their changing views on the likely shape of the future business environment.

'Seismic changes will force organisations to radically review their supply chain strategies to ensure their continued survival,' he predicts. 'Companies that aspire to be leaders in tomorrow's markets will need to start  now to scope out supply chain strategies that will work in a marketplace that may  be vastly different from the one they  serve today.'

Louisa Coward examines the McShake-up of a global restaurant chain

McDonald's last month launched a new series of guidelines aimed at improving the sustainability performance of a supply chain that serves nearly 47 million customers every day across 119 countries and territories.

The company is pioneering sustainability initiatives, seeking to instill ethical, environmentally sound and waste-minimising practices across its global supply chain.

The ubiquitous fast food chain is overhauling every step of a beefburger's journey, from cow to counter, as part of a new initiative under its The road to sustainability programme. These best practice guidelines have targeted the health and well being of suppliers and vendors, tightened up codes of practice for the welfare, transportation and slaughter of livestock, and strive to track and minimise waste and CO2 emissions, especially cattle-related greenhouse gases, at each stage of production.

But the financial incentives for other ethical practices are less immediately obvious and their implementation has required a radical change in the attitude of senior management. Employee citizenship, health and educational programmes will not necessarily increase productivity overnight yet the fast food chain has been supporting reams of these social initiatives worldwide.

The range of global suppliers in the chain means these schemes can be tailored to the demands of the local community. Brasil Foods, which has a 50 per cent female work force, has launched an educational support scheme for pregnant employees. Cape Oil & Margarine, a major supplier based in Cape Town, where four per cent of employees tested for HIV prove positive, has introduced a programme for managing the disease and drug dependency amongst its work force. Some production lines in America  are even served by their own chaplains, responsible for the pastoral wellbeing of employees.

Some sustainable practices offer clear economic benefits to a company aiming to mass-produce affordable food. For example, insulating livestock trucks against extreme fluctuations in temperature both minimises discomfort to the animals and also reduces deaths in transit, thereby increasing the yield of usable meat on arrival. Similarly, regular health check-ups for livestock can prevent disease and unnecessary waste.

Under increasing pressure from animal rights groups and consumers alike, animal welfare has shot to the forefront of the McDonald's corporate agenda. The company is currently funding research into humane stunning practices for livestock, investing in more farms for free range chickens and overhauling welfare practices at its suppliers in China to catch up with those in place in Europe and North America. A project in the UK, for example, is in place to improve the health of dairy calves by examining ways to prevent lameness, conducting tests on newborn calves and cows to reduce the incidence of diseases passed between the two and developing systems to monitor and improve the focus on animal welfare.

Ecological concerns are similarly being woven into corporate ideology, with McDonald's exploring a dizzying variety of alternative fuels: harnessing wind power at the UK plant of supplier McCain Foods, where turbines supply 60 per cent of the factory's fuel needs, paradoxically using solar power to chill freezers and refrigerators in Spain, and recovering biomass for energy at various plants - including converting potatoes into electricity at Austrian factories which saves 30 per cent of on-site electricity and also supplies electricity to 2,000 neighbouring houses.

Traceability has become one of the company's key mission statements and, with compassionate consumers increasingly using their purchasing power to reward companies that ensure animal welfare and work to reduce their carbon footprint, every good practice is an investment that can affect the bottom line.

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