Online Exclusive: Sustainability Requires a Good Reverse Run

With sustainability and supply chain on everyone’s agenda, Estée Lauder’s Frank Murphy provides Beauty Packaging readers with an exclusive update on the strategies specific to our industry.

Written by: Frank Murphy, The Estée Lauder Companies

AUTHOR BIO: Frank Murphy, CPIM and CSCP, is a 28-year operations veteran of The Estée Lauder Companies. He is currently in Supplier Support, and managing implementation SAP Portal for Subcontracting. He is an Executive Board Member of APICS – Northern New Jersey Chapter.

A new day is coming in how we measure business success, and the tipping point is closer than you expect. This past June at the UN Compact Leaders Summit, 70% of participating CEOs said they expect “sustainability” will be fully embedded in core business strategies of all business globally within 15 years (well within the career horizon of most readers).

As stated in A New Era of Sustainability (UN Global Compact – Accenture CEO Study 2010), “This will be characterized by a shift away from focusing solely on financial profit and loss to a broader, long-term understanding of value creation that acknowledges that every business action has an impact on society and the environment…CEOs see a time when value creation and profit optimization (rather than profit “maximization”) will be business’s primary objective.”

In the view of PepsiCo CEO, Indra Nooyi, the defining metric for success in the new era will look something like:

Full Business Value = (Profit + Loss) – (Positive + Negative Impact on Society)

Regulatory, societal and competitive pressures are all drivers for the new era. High-end consumers largely ascribe to sustainability values, and will pull prestige beauty into the new era more quickly than other segments.

So what is sustainability? And how will its demands impact beauty packaging? And what supply chain strategies can best enable it?

Sustainability is a strategy for economic activity allowing mankind to thrive and prosper by using the world’s resources without destroying the world’s environment.

The challenge for beauty packaging is to deliver the highest level of elegance and cutting edge style with minimal environmental impact (i.e., designing to stay out of the landfill).

Supply chain management best enables sustainability by closing the loop with reverse logistics. As with all SCM strategy, reverse logistics takes a full product life cycle view and deep dives to the bill of materials’ lowest level. The hierarchy below prioritizes modalities to mitigate environmental impact.

Reverse Logistics Hierarchy

The most effective way to mitigate environmental impact is to REDUCE the amount of materials entering the stream. So we need lighter packaging materials with comparable strength to traditional designs. And containers that achieve minimal head space for both aesthetic/legal requirements and also allow full evacuation by the consumer. Utilize close to market 3rd Party Logistics services (3PLs) to practice “Postponement” when executing seasonal gift set programs.

“Postponement” delays final assembly of an end item until a replenishment signal is received from the Retail Partner. Retailers’ shelves would be stocked with just enough gift set inventory to protect the replenishment time from the 3PL. The 3PL would hold inventory at the set-up box and work in progress (WIP) levels. The 3PL assembles sets to retail order (not forecast). There are three benefits:

1. Component/wip/labor does not get committed to set configurations which are not selling through.

2. At the end of season WIP can be assembled into standard saleable configurations

3. Unused set-up boxes can be returned to the supplier to be repurposed for future gift programs.

The next most effective method is REUSE. The EU is leading the regulatory charge in placing the onus for disposing of packaging on consumer product manufacturers. Consumers are directed to return packaging to point of sale and from there “the producer pays.” The rest of the world is following this model. We need to examine the possibility of a system that recovers, refurbishes and reuses primary components (bottles, caps, screw-on pumps).

If REUSE does not seem feasible then RECYCLE is the next alternative. Primary and secondary packaging needs to be made from materials that are readily converted into other uses.

The Swiss-based chemical company Clariant will present color additives for use with compostable bioplastics at the K 2010 – International Plastic and Rubber Trade Fair (www.mdna.com; Oct. 27-Nov. 3/Dusseldorf). Designing packages with this technology allows for a RECYCLE application and reduces the volume of caps and jars headed to the landfill.

Also glass and plastic containers could be designed to be produced from compounds that can be “reground” for RECYCLE applications.

Paperboard packaging can be both a product and source for RECYCLE-d paper.

RECOVER ENERGY DURING DISPOSAL is next. The vast majority of plastics today are hydrocarbon based. There are processes that can convert them into marketable liquid or gaseous fuels. Many plastics can be used to directly power “Energy Recovery Plants.” These plants are designed to burn waste or minimally sorted wastes. So we need to design with an eye toward collaboration with these energy recovery businesses.

When there are no other workable methods, the least desirable method is DISPOSE IN RESPONSIBLE LANDFILL.

Another aspect of Reverse Logistics actually recovers value while reducing the waste stream. It is called “Reverse Supply Chain for Product Returns.”

Like its Forward brother, the Reverse Supply Chain has key processes. There are five:

1. Product Acquisition – Obtaining the used product from the consumer.

2. Reverse Transit – Transporting the products to a facility for inspecting, sorting and disposition.

3. Inspection and Disposition – Assessing the quality of return and the most cost-effective reuse decision.

4. Refurbishing – Working the product into compliance with original specifications.

5. Marketing – Developing secondary markets for recovered parts/products.

Below plots Forward Supply Chain vs. Reverse Supply Chain For Product Ret

California Management Review Vol 46.No 2 Winter 2004

urns.












Also similar to Forward Supply Chain, Reverse Supply Chain comes in two flavors: Efficient and Responsive. The Responsive model has higher costs but greater speed.

As we all know, beauty may be timeless but fashion is ephemeral. In Supply Chain terms, that means prestige beauty has a high “Marginal Value of Time” (MVT). So if we view Product Returns as the asset stream it truly is (rather than nuisance cost recovery), our need for a Responsive model becomes readily apparent.

In Forward Supply Chain, we use “Postponement” to be responsive to Retail Partner demand. In Reverse Supply Chain, we use “Preponement” to speed the flow of Product Returns back to market. The Responsive strength of both “Postponement” and “Preponement” comes from decentralized architecture and a high level of collaboration with Retail Partners.

The below displays “Preponement” flow. The flow is initialized by the issuance of RGA (Returned Goods Authorization).

California Management Review Vol 46.No 2 Winter 2004

Retail Partners collaborate to perform Inspection/Disposition (Re-Stock v Scrap v Refurbish):

• Unopened/Undamaged prepacks can be sent directly to re-stocking points.

• Damaged/Unrecoverable goods can be sent to disposal partners.

• Consumer Returns, on-counter stock sans outer-pack, and end of program gift sets can be sent to close-to-market 3PLs.

The 3PLs can perform testing, refurbishing and repurposing. The 3PLs then distribute to re-stocking points, after-market outlets, component parts centers and disposal partners.

The collaboration, systems and management costs of a Responsive Reverse Supply Chain are offset by the preservation of asset value and also support the values of sustainability.

The New Era of Sustainability is upon us, and success will be measured in “Full Business Value” not just profitability. We need to deliver a net positive impact on societal and environmental issues. Effective Reverse Logistics and Responsive Reverse Supply Chain are integral to achieving those goals.

For additional articles on Supply Chain from Frank Murphy, please go to nitesh_bp.rodpub.com. Frank also welcomes comments on his thoughts, which can be sent via [email protected].