Tuesday, October 18, 2011

Case Study Illustrates the Profitability of Sustainable Supply Chains

Research published in Supply Chain Management: An International Journal, shows that sustainable supply chains can be profitable. By focusing on personal relationships built on trust, a collaborative supplier network can outperform a buyer-centric “mission control” supply chain. According to this research, such a network results in a steady supply as well as financial benefits to suppliers and quality assurance.

A Cranfield School of Management case study by Alvarez, Pilbeam and Wilding, consulting used historical documents and conducting employee interviews. The profitability of a sustainable supply chain was illustrated by Nespresso, a division of Nestlé. In the 1990s the company was struggling to meet growing demand for high-quality coffee. It needed a sourcing strategy that improved conditions for subsistence farmers while ensuring a reliable supply of high-quality product over the long term.

In 2003, Nespresso created the AAA Sustainable Quality Program with just three initial partners: two coffee suppliers and an NGO. By 2007, the network had grown to include 14 partners in five countries, and Nespresso sales had reached 1.7 billion CHF (Swiss Francs) – compared to 445 million CHF in 2003.

Here are five keys to Nespresso’s supply chain success:

1. Dive In. Nespresso opted not to do extensive planning or budgeting in advance of the program launch. Instead, they experimented as they went and allocated resources from existing departments to the project.

2. Pick a Few Strategic Partners. Nespresso started with only three initial partners. One of those partners was an NGO, Rainforest Alliance, which possessed subject-matter expertise and conferred credibility on Nespresso’s activities.

3. Focus on Quality. Nespresso focused on generating premium coffee, not letting their sustainability efforts overshadow the need for high-quality product. Nespresso also paid a premium to their coffee growers.

4. Communicate Often. The supplier network partners interacted frequently – by phone, video conference, email and even face-to-face meetings in coffee producers’ countries.

5. Introduce Policies as You Grow. Initially, they relied on trust and personal relationships to keep the program moving. As its supplier network grew, Nespresso introduced formal governance mechanisms such as objective-setting sessions, contracts, guidelines, project reports, stakeholder forums and annual review meetings with suppliers.

© 2011, Richard Matthews. All rights reserved.

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