Low-carbon, high-growth. The 21st century supply chain model

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1 Low-carbon, high-growth The 21st century supply chain model

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3 Low-carbon, high-growth The 21st century supply chain model

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5 Authors: Preeti Gandhi, Tata Consultancy Services Dipak Kripalani, Tata Consultancy Services Odd-Even Bustnes, Xyntéo Dr Åsgeir Helland, Xyntéo

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7 FOREWORD The old way of doing business has got us far. Since the Industrial Revolution, economy after economy has been lifted into modernity, propelled by relentless advances in technology and the repeated reinvention of how we create value. Yet the enormous wealth generated over the course of the last few centuries remains out of reach for too many. And though our ability to innovate has repeatedly defied the limits of what we thought possible, we have still not severed the link between economic and commercial success, on the one hand, and the degradation of our natural environment, on the other. It s time for a new model one which can deliver robust economic growth without destroying the biosphere on which this growth fundamentally depends. We must grow without putting carbon into the atmosphere, overhauling the way we move around and organise our cities, how we power ourselves, how we produce and consume. This calls for a revolution of the prevailing business model and all its aspects from design and procurement right through to the delivery of the value proposition to the customer. There is a strong business case for embracing this paradigm shift. The transition to ultraefficiency will open up substantial cost reductions. Shifting customer preferences are strengthening demand for low-carbon goods and services. Regulation is increasingly rewarding carbon-efficient business models. Embedding environmental protection, ultraefficiency and clean energy into business strategies is now essential for minimising risk. As in the Industrial Revolution, it will be technology that provides the catalyst for this next economic revolution. In many cases, the most powerful spur will be information technology. With this in mind, Tata Consultancy Services and Xyntéo have collaborated to produce a series of white papers, which set out cost-effective information management solutions to equip businesses to overcome challenges to low-carbon growth. This white paper Low-carbon, high-growth: the 21st century supply chain model makes the case for overhauling today s supply chains. The crux of this change will be to build closed-loop supply chains enabling cradle-to-cradle material flows. Tools to make sense of and manage a more open flow of information among multiple supply chain actors not just direct partners will be key to success. The result will be more resilient, more agile, more competitive supply chains that, in tune with the changing production-consumption patterns now underway, will support high rates of growth with reduced emissions of carbon. Removing carbon from business models depends on collaboration among value chain partners; this point forms a red thread throughout the series of white papers. This reflects the foundational principle of the Global Leadership & Technology Exchange, within the framework of which this important work has taken place. N. Chandrasekaran CEO and Managing Director, Tata Consultancy Services Osvald Bjelland Chairman and CEO, Xyntéo

8 Acknowledgments TCS and Xyntéo would like to thank those who generously gave their time to be interviewed for this white paper: Salla Ahonen, Director, Environmental Policy, Nokia; Peter Hogsted*, CEO International, Kingfisher plc; Nils Lie, Vice President SCM & Network, Wallenius Wilhelmsen Logistics AS; Antoine Namand, Head of Vehicle Logistics Division, Cat Vehicle Logistics; Tommy Paulsson, Managing Director, Bring SCM AB; Bo-Inge Stensson, Senior Vice President, Group Demand Chain, SKF; Søren Stig Nielsen, Senior Director, Sustainability, Maersk Line; Markus Terho, Director, Sustainability, Market, Nokia; and Jean-Eudes Tesson, President, Groupe Tesson. Their comments added enormous value to the papers by injecting them with up-todate industry insights. The participation of these individuals and their respective companies is a strong signal of their collective and collaborative leadership. We also thank the authors from TCS, Dipak Kripalani and Preeti Gandhi, and from Xyntéo, Dr Åsgeir Helland and Odd-Even Bustnes. We also thank supporting authors from TCS, Dr Syama Sunkara and Lakshminarasimhan Srinivasan, and from Xyntéo, Dr Gunther Krell and Cristian Leordeanu. For all design and editorial, our appreciation goes to the TCS Corporate Marketing Team and Xyntéo s Veronica Lie and Laura Bradon Mohn. Key advisors whom we also thank are, from the TCS side, Amit Bhowmik, Saurabh Jhawar, Prashanth Kaivar, Anil Kumar, Jayaram N., Edward Robbins, Dr Pardip Sandhu and Suresh Babu Sugumaran; and from the Xyntéo side, Lars Anisdahl, Thomas Bergmark, Roxana Brebenel, Stephen Cadden, Peter Carlin, Stephan Carlquist, Rune Frøyland, Dr Kevin Gordon, Phil Harrison, Lloyd Hicks and Rayson Ho. Finally, we would like to acknowledge the Global Leadership & Technology Exchange, for providing a targeted and relevant forum for collaboration around low-carbon growth solutions. * Please note that Peter Hogsted s insights are based on his industry perspectives, and are not necessarily identical to those of Kingfisher plc

9 Contents Executive Summary... 2 Opportunity Highlights... 4 Introduction A New Business Paradigm The Existing Supply Chain Model Leads to High-Carbon Growth Early supply chain models The existing supply chain model strengths The existing supply chain model limitations Restricted scope Slow business response Constrained information management The 21st Century Supply Chain Model Delivers Low-Carbon Growth Growth Opportunities Enabled by the 21st Century Supply Chain Model Enabling product sustainability Driving product sustainability through supplier sustainability information management Driving product sustainability by using life-cycle information Eliminating product waste Driving low-carbon logistics Maximising the reverse supply chain Outlook...42 Glossary

10 Executive Summary By upgrading supply chains to deliver growth as well as carbon reductions, businesses can capture value in an emerging competitive landscape characterised by changing consumer preferences and tightening resource constraints. The changing supply chain context Today s competitive business model is driven by cost-efficiency, growth, economies of scale and the disaggregation of consumption and production. The corresponding supply chain model optimises costs against service-levels. It features little emphasis on total sustainability, and is therefore carbon-inefficient and resource-intensive. This model has delivered high growth to be sure. But, now, a new business paradigm is changing the landscape, creating new sources of pressure and opening up fresh opportunities. Resource constraints are tightening, and regulation is increasingly favouring carbon-efficient businesses. Consumption and production points are moving closer together. Customer preferences are shifting towards lower-carbon goods and services; many are becoming less interested in owning products and more interested in the value of the service that the product ultimately offers. These paradigm shifts suggest that we are facing an unprecedented opportunity to align business, society and the environment around sustainability. To meet these 21st century requirements, the supply chain needs to adapt to deliver on total sustainability (financial, social and ecological). Rising to this challenge will mean moving away from the linear approach to supply chain management and building closed-loop systems. This will position businesses to make progress in four key opportunity areas: product sustainability, product waste, low-carbon logistics and reverse chain maximisation. Four key opportunity areas Enabling product sustainability Recalibrate design, engineering, manufacture, supply, use and recycling to improve product sustainability. Key enablers include collaboration to share life-cycle information among various actors in the supply chain. Eliminating product waste Remove product waste from along the supply chain by ensuring products fulfil their intended use. Key enablers include direct communication, real-time monitoring and information exchange along the supply chain. These enablers help improve demand forecasting as well as inventory and asset management for product waste reduction, which could in turn improve customer service levels. Driving low-carbon logistics Use transportation and warehousing capacity to move goods with maximum efficiency. Improved information exchange among actors in the supply chain can enhance capacity utilisation, inter-modality, route planning and transportation asset efficiency. Moreover, 2

11 integration of carbon information at a strategic level can optimise network efficiency while reducing carbon emissions, both during initial design and network re-design. Maximising reverse supply chain Re-capture materials in used products or extend product lifespans. This requires extending the forward supply chain with a reverse chain, in turn lengthening product lifespans and securing the resource base. This strategy is proving an effective means to create business value while reducing carbon. Enacting it requires high levels of collaboration and integration as well as transparent information exchange between the manufacturers and the actors in both the forward and the reverse chains. For some product categories, the largest sustainability gain will come through the adoption of a service-based business model. Several companies are already improving profitability by pursuing this route. To be successful the model needs to be rooted in a deep understanding of the value proposition for the customer and the precise nature of the sale that is, a service from a product, rather than ownership of the product itself. Benefits of employing the 21st century supply chain model The 21st century supply chain model will deliver high-growth, low-carbon performance. It does not constitute a wholesale replacement of the existing supply chain model; it builds upon it, continuing to deliver on agility and growth while radically improving sustainability performance. Some highly competitive companies are already working towards the 21st century supply chain model. Businesses from diverse industries are lowering carbon emissions while delivering high growth by pursuing one or more of the four opportunity areas identified in this paper. Xerox saved $400 million in 2009 (85% of net income) by designing for and using remanufactured parts in its production lines, eliminating 42% of carbon from equipment production. Since its inception, Caterpillar s remanufacturing business grew twice as fast as its main business, reaching 5% of Caterpillar s total revenue and avoiding 77,000 tonnes of CO 2 e in 2010 (the equivalent of 60,000 new cars in Portugal that same year). Zara s profit margin has been best-inclass in its industry, remaining stable at around 12% over the past five years, while having some of the lowest product waste rates in the industry avoiding 188,000 tonnes of CO 2 e in 2009, the equivalent of 150,000 new cars in Portugal in Cradle-to-cradle material flows, enabled by closed-loop supply chains, are central in the evolution of supply chains towards the 21st century model. The result for businesses that embrace this new model will be more resilient, agile and competitive supply chains that will support high rates of growth and lower carbon emissions. 3

12 Opportunity Highlights The business paradigm is changing, and supply chains will have to evolve to meet the challenge of new opportunities and risks. By transitioning to a 21st century supply chain model featuring closed loop systems, multilateral connectivity and information sharing, companies will be positioning themselves to satisfy emerging customer demands and achieve high growth in a carbon- and resource-constrained environment. By moving towards this model, businesses are already capturing value in four key areas: Developing more sustainable products Supply chains will increasingly require the exchange of life-cycle information among various actors. Two of the biggest players of the office furniture market, Herman Miller and Knoll, have understood this, engaging their suppliers in systematic efforts to make furniture with a lower environmental impact. Herman Miller and Knoll have improved market shares and net incomes in the years following concerted efforts to improve product sustainability. Reducing product waste in the supply chain By localising its supply chain, compressing lead times and deploying an intelligent feedback system from store to designers, Zara was able to reduce product waste substantially, avoiding about 188,000 tonnes of carbon emissions compared with the industrial average in The profit margin of Zara has been stable at around 12% for the past five years and the reduced product waste secured about 500 million in EBIT margin in Driving low-carbon logistics New ways of exchanging information and coordinating the movement of goods will provide low-carbon logistics solutions. An example of a new initiative is Shiply, an online exchange platform addressing unused capacity by matching people needing to move goods, on the one hand, with transport companies with available space, on the other. The shipper can save up to 75% compared to standard rates. Since starting business in 2008, Shiply has saved about 9,000 tonnes of carbon emissions. Closing the loop by reusing, remanufacturing and recycling New planning tools can help fully integrate the reverse chain in the forward supply chain, thus truly closing the resource loops. Companies which have integrated remanufacturing into their offering or business models are making a profit. Caterpillar gets 5% of their revenue from its remanufacturing business, while Xerox saved $400 million in material and production costs by using remanufactured components in its production line. The consumer base is changing: more consumers are re-evaluating the functional value of their consumption choices and, in some product categories, moving away from ownership. This is opening up new ways of running businesses, including the emergence of servicebased business models to support both environmental and financial performance. For example, the Xerox printing service business line made 25% out of the total company revenue in Pioneering companies have already started the transition to the 21st century supply chain model. By focusing on connectivity, collaboration and information management, they are moving towards a low-carbon, high growth supply chain model.

13 Low-carbon, high-growth The 21st century supply chain model Introduction This white paper forms part of a TCS-Xyntéo series which aims to map out practical ways key industries and business models can contribute to profits and lower carbon emissions. In so doing we hope to support better business performance while contributing to cost-effective solutions to the pre-eminent challenge of our era: the creation of a low-carbon economy. This paper argues that the business paradigm is changing, creating new risks and opportunities for supply chains. Transitioning to a 21st century supply chain model, based on closed-loop systems, multilateral connectivity and information sharing, will help equip businesses to meet changing customer demands and achieve high-growth performance in a carbon- and resource-constrained competitive landscape. The paper, which combines the results of joint research and analysis with interviews with senior industry executives, is structured as follows: Chapter 1 gives an overview of the changing business paradigm. It describes how supply chains and businesses geared for high-volume throughput are facing new challenges. Tightening environmental regulation, growing resource constraints and changing consumption patterns all suggest a turning point in the way supply chains are designed and run. Chapter 2 assesses the evolution of the existing supply chain model and analyses how it has led to deficient sustainability performance, including high levels of carbon emissions. Chapter 3 introduces the 21st century supply chain model, which delivers high-growth, low-carbon performance. The section describes how this model 1) enables connectivity and collaboration among various players in the supply chain; 2) allows new types of information (whether industry-specific or sustainability-related) to be collated, analysed and acted upon; and 3) empowers businesses to develop new capabilities in effective, innovative supply chain management. Chapter 4 outlines the four main opportunity areas in pursuing supply chain sustainability: product sustainability, product waste, low-carbon logistics and reverse chain maximisation. The opportunity areas are complemented by case studies of companies that have reduced carbon while increasing profitability by pursuing elements of the 21st century supply chain model. Chapter 5, the final chapter, demonstrates how the new supply chain model reduces supply chain and business risks while delivering on sustainability. It also highlights the gradual shift within some product categories towards a service-based business model. It concludes that the leaders of the future will gain competitive advantage by capturing, processing and sharing information in a way that enables new types of collaboration across low-carbon, highgrowth supply chains. 5

14 Chapter 1 A New Business Paradigm A transition to low-carbon growth is already happening at the global level. We see this as part of a larger trend of shifting production and consumption patterns, moving from global to regional. As a result, within regions, we are seeing a transition to higher volumes over longer distances, enabling significant modeswitching to lower-carbon options, from truck to rail and from rail to ship and barge. We now operate two Atlantic-sized vessels, and our flexibility and service level is, due to thoughtful multiport logistics, actually at least as good. Antoine Namand, Head of Vehicle Logistics Division, CAT Prevailing approaches to supply chain management have enabled business competitiveness by delivering high-volume throughputs and growth. This has heightened operational efficiency by keeping inventory and transaction times and costs low; enhancing direct supplier and customer communication; and increasing the focus on customers. But for all these strengths the approach has neglected environmental externalities; sustainability performance, such as carbon-efficiency, has not received priority. This chapter elaborates how the business paradigm of today is changing and how it will shape supply chain management in the future. Businesses need to contend with an evolving context. Steep population growth will aggravate competition over resources: the world s population is due to explode from 7 billion today to 9 billion by The rapidly growing ranks of the middle class in emerging nations now include almost 2 billion people, who are keen to spend their money on products and services. 2 And as global consumer demand increases in emerging markets, demand for products with lower transaction costs is likely to increase. Resource constraints are tightening and regulation is increasingly favouring carbon-efficient businesses. Consumers are increasingly expecting businesses to deliver on sustainability as well as on quality and cost. A 2007 global study found that 21% of consumers were willing to pay more for ethically produced and environmentally-friendly products. 3 A likely growth in service-based products relative to goods represents one way in which these emerging consumer demands can be met. The supply chain has traditionally been viewed as a linear process viewed from the vantage point of a single company, starting with the supplier and ending with the point of sale. What happens to the product materials after use has not been a core business concern. The limitations of this perspective have important implications for the supply chain s ability to compete in the emerging business paradigm. 1. To keep up with increasing consumer demand for products while coping with resource constraints, the supply chain cannot continue to waste resources that could have brought consumer value. Every year in the US, the embedded energy contained in aluminium beverage cans that are not recycled is worth approximately $750 million; associated CO 2 e emissions equal 4 million tonnes, or close to 0.1% of the country s total emissions United Nations. (2009, March 11). Press Release. World Population to Exceed 9 Billion by 2050: Developing Countries to Add 2.3 Billion Inhabitants with 1.1 Billion Aged Over 60 and 1.2 Billion of Working Age. Retrieved March 28, 2011, from All cited websites were last accessed on 3rd March 2011 (unless otherwise specified) 2 David Court and Laxman Narashimhan, Capturing the world s emerging middle class - McKinsey Quarterly website July 2010, 3 S. Bonini, G. Hintz, and L. Mendonca, Addressing consumer concerns about climate change - McKinsey Quarterly website March 2008, 4 Assumption: 41.1 billion cans in the US were not recycled in This equals about 500,000 metric tonnes. One kg of recycled aluminum saves 14 kwh and totals about 7.5 terawatt-hours of energy. 1 kwh = 0.1 USD. UBC_Recycling_Rate_2009.pdf All cited websites were last accessed on 3rd March 2011 (unless otherwise specified).

15 2. The linear view of the supply chain also means that companies external relations rarely go beyond the organisations with which they have direct dealings. This misses important opportunities. For example, about one third of the European truck fleet is, at all times, running empty. 5 Enabling cooperation among a wider range of supply chain players could put more of this capacity into play. 3. The current supply chain model is not geared to deliver the transparency that the new business paradigm demands. Recent events illustrate the risk to businesses which do not take steps to heighten visibility throughout their whole supply chain: In 2010, Toyota had to foot a $2 billion bill for the recall of defective parts; improved systems to trace products along the supply chain would have made the identification of the defect easier and more cost-efficient. 6 Mattel recalled 10 million toys in September 2010, just three years after even largerscale recalls of lead-contaminated and tiny magnets in toys. 7, 8 Apple s brand value dropped after making the headlines in February 2011 following the discovery that subsuppliers in China were using toxins which jeopardised the environment as well as the health and safety of workers. 9 To stay competitive against these pressures, businesses need to upgrade their supply chains. In 2008, 2.6 billion tonnes of waste was generated in the EU-27 countries, equalling 5,300 kg per inhabitant. 10 More than half of the waste generated was from businesses. Growing political and societal awareness of these impacts is increasing pressure on businesses. Supply chains need therefore to dramatically reduce raw material requirements and move towards zero-waste processing cycles in which resources are completely recycled or reused. The supply chain needs a new shape: it needs to be moulded into a closed loop enabling the flow of goods from the point of consumption back to the point of origin in order to maximise the capture of value. The core competitive advantage of the future will lie in an ultra-lean supply chain boasting minimal resource and carbon intensities, enabled by a high level of connectivity and information exchange. Reducing the environmental burden of supply chain operations is not only a question of corporate social responsibility ; it is becoming a matter of strategic risk management. The changing business world needs supply chains that can cope with the pressures, expectations and realities of the 21st century. Although the current supply chain has its advantages, it needs to change to remain competitive. 5 Empty running - Road freight - Maps and Graphs, Excel file, European Environment Agency website, eea.europa.eu/data-and-maps/figures/average-load-factor-utilization 6 F. Thomas, Data driven: How technology is reviving GM, Ford and Chrysler, news article, Fortune Tech, April 5th, 2010, 7 H. Chernikoff, Mattel s Fisher-Price to recall 10 million products, news article, Reuters, September 30th 2010, Mattel issues new massive China toy recall Business - Consumer news - msnbc.com, August 14th 2007, D. Barboza, An Apple supplier s murky record in China, New York Times, The Global Edition, February 23rd 2011, p European Commission, eurostat. (2010). Waste statistics - Statistics explained. Retrieved March 28, 2011, from epp.eurostat.ec.europa.eu/statistics_explained/index.php/waste_statistics We are seeing shifts in sourcing: the south/south trades are growing and regionalisation is happening. We are also seeing larger companies diversifying their sourcing, going direct and looking at producing closer to the point of consumption. Some are even talking about closed loops. Søren Stig Nielsen, Senior Director, Sustainability, Maersk Line Why should we care about making supply chains more sustainable? Fundamentally, it has to do with what the customer wants and acting in a responsible way in the markets we operate ultimately, taking out risk and creating value. The customer wants it at no price premium. Because competition in the future will be between supply chains, not companies, trusted and collaborative networks will increase in importance. Unless supply chains can enable sustainability, they will be outcompeted on this dimension alone, and run a higher-risk strategy. 7 Bo-Inge Stensson, Senior Vice President, Group Demand Chain, SKF

16 Key Messages: The current supply chain model s weak sustainability performance is not only exposing businesses to risk; it is also missing opportunities The business environment will change dramatically as population growth picks up, resource competition intensifies, carbon regulation tightens and the sustainability expectations of consumers grow To thrive in this future, businesses need ultra-lean supply chains fit for the 21st century, featuring minimal resource and carbon intensities 8

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18 Chapter 2 The Existing Supply Chain Model Leads to High-Carbon Growth A supply chain structures and coordinates how a company works with its partners to move goods from suppliers to customers. Along the supply chain, there is a flow of not only materials and products, but also information and financial transactions. Multiple actors are typically involved in driving the process forward, starting with raw materials extraction, then moving through various stages of production and on to the delivery of the final product to the consumer. This chapter begins by describing early supply chain models and considers their evolution into the prevailing model of the day. This is followed by a discussion of the main characteristics of the existing supply chain model its strengths as well as its limitations. 2.1 Early supply chain models A review of supply chains indicates that after the second world war supply chain models focused on increasing internal efficiencies for example, maximising the utilisation of machinery or reducing the number of workers required to produce a given measure of output. One stage of manufacturing pushed its outputs to a storage location, from which later production stages could then draw. These early models were therefore characterised by high levels of raw materials and semi-finished or finished products in the system. Since communication between supply chain players was limited, the early models were very resource-intensive and slow to react to changes in customer demand. Eventually, a quest for efficiencies prompted companies to look beyond their own operations for improvements. Toyota, for example, pioneered an early, low-tech form of just-in-time production to tighten the coordination of its production demand with its suppliers schedules. The system called kanban (the Japanese word for signboard) used coloured cards to signal the need to replenish materials. 11 This pull principle helped Toyota drive muda (waste) out of their production system, leading to faster turnarounds in production and lower inventory levels. 2.2 The existing supply chain model strengths In the 1980s, the supply chain evolved into the model that is prevalent today. Following Toyota s lead, companies saw that in order to improve agility and reduce the costs of moving goods from suppliers to customers, they needed to overhaul their way of interacting in supply chains. Today s supply chains are consequently much better at collecting and sharing information across different points. The existing supply chain, as illustrated in figure 1, is a linear sequence of processes, starting at raw materials extraction or in the supply network and ending at the manufacturer s customer, for example a distributor or retailer. The illustration shows that materials, products and services flow downstream from supplier to customer, with information being bilaterally exchanged both between the manufacturer and its suppliers and between the manufacturer and its customer. A number of tools help companies keep track of supply chain activities T. Ohno, Toyota Production System: Beyond Large-Scale Production, (Productivity Press), 1988, pp.17-44

19 Figure 1: The existing supply chain model Manufacturer Supplier network Distributor (retailer) Product flow Information flow The principal company (ie, the manufacturer), uses its internal enterprise resource planning (ERP) system to integrate information (such as orders, order forecasts and shipment information) from its direct suppliers and customers. An advanced shipment notification (ASN) notifies the consignee that certain goods are en route and provides information about the shipment s contents. This information is usually transferred via electronic data interchange (EDI) interfaces, directly updating the consignee s ERP. The consignee can then use this information to update records of available inventory and to speed up unloading, checking and storage processes at the receiving gate. Making use of tools like ERP and ASN has given today s supply chain model important benefits, enabling high-volume growth: improved information exchange with direct suppliers or customers better service levels to customers, via better knowledge of the materials available from suppliers or in transit but not yet in company inventory reduced inventory levels and transaction time and costs procurement benefits from working with suppliers and partners around the world There are other advantages of the existing supply chain model. These include: Agility and cost-efficiency The existing supply chain model uses far less inventory in process than earlier models, as it enables a high level of integration between companies and their direct suppliers and customers; this has helped speed up and even automate transactions. Electronic data exchange eliminating the need for manual data capture supports operations, increases volume throughput and lowers the cost per transaction. It also allows the company to 11

20 keep much tighter stock control and therefore lower inventory levels. This cuts down on transaction times and costs and enables big volumes to flow through the supply chain. We have now started to work differently with our customers. The 2008 crisis taught us to collaborate a lot more, and moved us from hard-edged negotiations singularly focused on price, to what makes most sense from a systems view. We see very good reasons for why carbon should enter this conversation. We are actually very well prepared for it. Antoine Namand, Head of Vehicle Logistics Division, CAT Good data access In the existing supply chain model, a series of company processes from sales forecasting and order tracking to revenue tracking and purchase order allocation benefit from increased access to real-time data from customers and suppliers. This has helped create a single view of the true business environment, making decisions quicker and more accurate. The same setup has enabled companies to control access to information and protect their commercial interests. 2.3 The existing supply chain model limitations The existing supply chain model has equipped companies to grow, cut costs, improve operational excellence and enhance customer service levels. However, the model has limitations which have negative implications on sustainability. There are three main limitations: Restricted scope Slow business response Constrained information management Restricted scope The scope of the existing supply chain is limited by its linear design, making it difficult for businesses to look beyond their immediate supply chain partners to find opportunities to increase efficiency or service levels. Organisational blinders The existing supply chain is a linear set of processes that starts at the point when supplied materials or components are sourced by a company and ends at the point where a product is handed over to a customer. Companies find it difficult to deal with processes outside this scope. For example, after-sales customer service and product maintenance tend to be perceived as a burden rather than the opportunities they really are. Viewing after-sales services as a chance for continued customer engagement requires companies to extend their view of the supply chain; they need to remove their organisational blinders. Companies who have done so are reaping the rewards. Caterpillar, for example, has expanded its supply chain focus to include their customers, the aftermarket network and remanufacturing partners. In so doing the company has not only improved its sustainability performance; it has also created new market opportunities. Closing the loop 12 The restricted scope of the existing model means that companies lose sight of the products, components or packaging materials flowing through the supply chain. This is a problem for those manufacturers which, under European legislation, have extended producer responsibility (EPR) for products and packaging material they put on the market. It also restricts manufacturers in moving their products, components and packaging materials from the point of consumption back to the point of origin, in order to recapture value from used goods.