Chain 7 the triple bottom line issue

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The st udent magazine f o r Suppl y Chain Management at UCD: t he t r ipl e bo t t om l ine issue

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CSR: A Dir t y Wor d?

Kate and Norma spoke to companies at our Career Fair

in February to see what Corporate Social Responsibili t y

means to them.

Agr ic ul t ur e: Ir el and's t r ipl e bo t t om l ine f oc used g r ow t h indust r y.

Grainne and Byron spoke to Paul Brennan to get his

view on I reland's growth potent ial.

Fr om Far ml and t o Wast el and: The jour ney o f India's f r esh f ood pr oduc e.

Sr iram explains India's problem with food wastage.

e-w ast e: Chok ing one t h ir d o f our pl anet

Suraj it discusses the growing issue of elect ronic waste,

and how we can approach it .

Thr ow aw ay Fashion

Grainne looks at the negat ive side effects of the 'fast

fashion' consumer t rend.

Soc ial Responsibil it y c oming sec ond

Kate quest ions why companies have an increased focused

on environmental responsibili t y, when negat ive effects of

social ir responsibili t y are greater.

St ar t -Up Co r po r at e Soc ial Responsibil it y.

Norma found some interest ing companies whose premise

for established was environmental or social responsiblit y,

and they are making money from it !

Bo t t om o f t he Pyr amid as a business oppo r t unit y: Can soc iet al and ec onomic pr og r ess be ac hiev ed?

Aldo quest ions if companies should invest in poorer

communit ies in an effort create new markets.

Tr ipl e Bo t t om l ine

Welcome to the seventh issue of CHAIN magazine, the magazine written, designed and edited by the students of UCD's M Sc in Supply Chain M anagement. This year's cohort have put a great edition looking at the issues that concern them and that are the issue of the current generation.

Triple bottom line reporting is becoming more commonplace and skills in social, environmental and economic sustainability will be key for the next generation of supply chain managers. We can no longer ask if products and services will be profitable or save money we must be asking will it improve the environment and will it improve the lives of people.

Leading companies have found it is no longer good enough just to say something doesn't have a negative impact on the environment or society but understand that they can gain competitive supply chain advantage by creating a positive impact on the environment and on people's lives.

We are also seeing a surge in supply chain reporting, led by the fashion and electronics sectors. This new supply chain transparency will change how companies gather supply chain data and also report data in the public domain. If this is something your company hasn't thought about before, it might be time to get started rather than playing catch up when regulations change. Our students see this as vitally important and fortunately they will be leading the supply chains of the future. If you are interested in these issues let us know as much of our faculty and students are researching in this area.

Enjoy the new issue!

Donna Marshall (Director of UCD MSc SCM)

in t h is issue...

If you are interested in applying for the M Sc in supply chain management either full- time or part-time contact [email protected].

If your company is interested in getting more involved with the UCD M Sc in supply chain management, either with consulting projects, sponsoring part-time M Sc students, or sponsoring prizes and raising your company?s pro?le in the supply chain community just get in touch with Donna M arshall at [email protected].

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Chain Apr i l 2015

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T he UCD Supply Chain

M anagement Careers Fair was held on the 17th of February 2015 in the UCD M ichael Smurfit Graduate Business School. We felt that this was a good opportunity to talk to some of our corporate partners regarding the role of the triple bottom line in their company strategy. We asked the broad question: ?What does CSR mean to your company?? which received some interesting and varied responses.

The first factor that was a driving force for many companies? sustainability practices was legislation. A poignant realisation was that this legislation was coming from Europe, and not the national government. One attendee went as far as to say that the government seems more content in paying fines from non-compliance than implementing harsh measures and policies to enforce the radical change needed.

In comparison, mere anticipation of European Union legislation is affecting change. Excellent examples of this were seen throughout the careers fair. X ilinx discussed their desire to change their processes to remove all lead from their products in advance of

the European Legislation requiring this. Similarly, DHL discussed their anticipation of the introduction of carbon taxes in the very near future and their development of alternate modes of transport and services to enable customers to determine the costs of their parcel?s carbon footprint depending on the transport method used, enabling customers

to choose their package transportation mode accordingly. Additionally, the Office of Public Procurement also noted that when the government put offers out to tender, the specifications set placed an emphasis on issues such as sustainability. They view sustainability as an area with great potential for driving innovation, something with which we agree.

Kate D avies & Norma O'M ahony MSc in Suppl y Chain Management 2014/15

CSR - A Dir t y Wor d?A perspective on what CSR means to companies in the industry

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With such requirements becoming prerequisites for attaining a public contract, we hope this will become best practice and trickle through to national legislation.

To a certain extent CSR seems to be a ?dirty word? loaded with thoughts of economic hardship and liabilities as opposed to opportunities. Yet some companies are going above and beyond and undoubtedly reaping the rewards. M axim Integrated did not view their sustainable practices as CSR because of the fact that they were deriving economic benefits from them and they were completely immersed in the company?s strategy. With recent acquisitions in solar panel technologies and progress in hybrid and electronic cars, the company is placing themselves as a driving force in the emergence of ?green commerce?.

Continuing on the theme of transportation, DHL stands out as a driving force in the sustainable logistics sphere. Aside from the anticipation of a carbon tax, other motivating forces stem from top management and their CEO Dr. Frank Appel whose passion and belief has transcended into the overall corporate strategy and the belief of employees, which we felt from speaking to their representatives at the Fair. The result of this is forward-thinking technologies such as electric planes,

trucks and development of railway connections from China to Poland which they stated as being the least carbon-emitting mode of transport. The third driver for DHL?s policies was customer desires. Customers were reported as actively inquiring into DHL?s carbon footprint before even entering into an agreement. This meant that the company?s practices in sustainability directly led to a competitive advantage in the industry.

While in DHL customers were calling for sustainability, X ilinx was encouraging sustainability and pushing it to customers by offering unleaded products at a cheaper price than those using lead. X ilinx removed the potential costs of moving to lead free products by offering the sustainable product at a cheaper price and therefore proactively leading their customers into this area. X ilinx also engages their local community by using their own core competencies to contribute to local schools. They organise events such as mock Dragon?s Den competitions and impart their knowledge to aid in the development of

technical skills. These examples are easy ways for companies to not only improve their own market visibility but create a pool of potential future employees with the technical know-how and resources.

On final contemplation, a perceived common denominator for the companies who were becoming leaders in the sustainability sphere was the perception of issues as speed bumps as opposed to barriers and were willing to invest time and resources in the future success of their company.

They saw sustainability not as a public relations stunt or ?green-washing? but a competitive advantage from which they would derive future benefits. Leading companies are not built on short short term wins but long term goals, and have immersed sustainable practices into their actions as opposed to merely viewing them as an add on. CSR for companies has been viewed as a ?dirty word?. However when redefined in line with the triple bottom line concept where social, environmental and economic sustainability are not separate but interdependent, we believe buy in from all stakeholders can be achieved.

As a final note we would like to thank those who contributed and kindly gave us their time and knowledge.

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I reland?s agricultural sector is

one of the fastest growing in the world, currently employing over 300,000 people. In 2014 Ireland produced 12% of the global supply of powdered milk and had an agricultural export trade worth $9bn. The growth potential is closely linked to eastern markets who are beginning to realise that quality is synonymous with Irish produce. Yet, despite this growth, there are challenges for Irish farmers in terms of the triple bottom line and supply chain logistics.

Paul Brennan, former General M anager of M artin Bower Europe, M cDonalds Global Supply Chain provider, Head of M arketing for Celtic Supply Chain Solutions recently discussed the opportunities China has to offer. ?Powdered milk products which sell for ? 11 in Ireland have the potential to sell for ? 45 in China and there is a real desire for Irish produce - which is AQLSC certified?. Brennan also notes that the recent lifting of bans on Irish beef in both the US and

China offer new opportunities. The Common Agricultural Policy does pose challenges for farmers, such as deflating milk prices, but it also provides new opportunities to increase production and land efficiency.

This agricultural growth will come with environmental trade-offs. ?A real problem faced by Ireland, in particular in beef and dairy is methane gas released from cattle.? Ireland?s intensification in cattle farming is likely to have a serious effect on greenhouse gas emission and groundwater pollution. ?It makes sense to collect methane gas by farming cattle in sheds, utilising waste gas to create energy?, however this approach is unlikely to find favour with many in Irish agriculture, and undoubtedly would have huge environmental effects on the landscape

A more acceptable solution may be to focus on adapting supply chains to be more efficient, and adopt closed-loop processes. Bakerview EcoDairy in British Columbia has actively applied methods to create a closed loop production process,

Agr icul t ur eI reland?s triple bottom line focused growth industry

"Powdered milk products which sell for ? 11 in

I reland have the potent ial to sell

for ? 45 in China and there is a real

desire for I r ish produce"

- Paul Brennan

Grainne O'Brien & Byron Smith MSc in Suppl y Chain Management 2014/15

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collecting cow excrement for anaerobic digestion which can then produce gas for powering farms and transport, and solid by-products being used for cow bedding. Brennan feels that Irish agriculture can control its worldwide supply chain from farmer to fork, real value can be created at each level of the supply chain. This is a view also shared by Simon Coveney, M inister for Agriculture, who recently stated that farmers must no longer be ?simply a supplier of raw material for other people to make money on the back of,? and that if we farm sustainably Ireland can refocus on high value production.

There are also non-agricultural environmental issues, which have economic ramifications, such as empty food grade containers reaching Ireland in order to service export demand. Brennan reckons that each empty container costs ? 300-? 400 to be placed in Ireland. This increases the costs of exports. Celtic

Supply Chain Solutions estimates that by 2020 there could be as much as ? 26bn worth of trade with China from Ireland, Brennan notes that there is real scope for Ireland to re-imagine its place in global logistics. He believes that Ireland could become a major logistics hub for Europe with the proper infrastructural development of a port such as R ingaskiddy and surrounding transport links. Ireland can become an ?island warehouse? allowing onwards forwarding to other nations, using smaller vessels, relieving already crowded European ports of heavier traffic. This influx of larger vessels should make exporting cheaper, and provide ample inward container capacity for food exports. This will, however, have an environmental impact in terms of increased carbon emissions.

Despite these trade-offs it does seem that agriculture can provide opportunities for Ireland?s economy.

Fr om f ar ml and t o w ast el andT he journey of India's fresh food produce

I ndia is a country with a heavy

reliance on agriculture with 65% of the population engaged in farming. The country produces approximately 250 million tonnes of food every year to feed its growing population. India ranks as one of the largest producers of milk and the second largest producer of fruits (15% of world output) & vegetables (11% of world output) in the world.

It is astonishing to note, however, that the post-harvest wastage of

food produce stands at an estimated 30-40% (2013-14) which is valued

over a whopping 440 billion IN R (? 6 billion). Due to the size of the agricultural sector in India, Indian farming has a huge impact on global food security and sustainability issues.

As in any developing economy, there are a number of challenges and obstacles to be faced in building an efficient system. However, these challenges also provide a plethora of opportunities for change and development. Wastage is a known cause of food

Indian Farming has

a huge impact on

global food secur ity

and sustainabilit y

Sriram Prabhashankar MSc in Suppl y Chain Management 2014/15

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shortages that in turn drives up demand and price. Wastage worsens malnutrition and scarcity of food that poses a big threat to the nation. Adding to this, the impact on the environment and cumulative wastage of resources typically goes unaccounted for.

M ajor contributors to the problem of wastage:

Fragmentation:

The agricultural sector including wholesalers, transportation companies, and traders is highly fragmented and unorganised. With 70% of farmers having less than 3 acres of land for cultivation and a vast number of logistics & distribution companies present in the sector, it is a herculean task to implement efficient and transparent warehousing, distribution and storage practices. M ost of the time, farmers and stakeholders do not have the required capital to invest in modern technologies and storage facilities to protect their produce.

Technology & Infrastructure:

Fruits, vegetables and especially milk need to be stored in a cold environment to increase their shelf life and maintain their nutritional value. Due to lack of sufficient cold chain networks and facilities, wastage occurs during transportation and storage of these temperature-sensitive fresh products. The storage of these fresh

produce predominantly takes place in government regulated warehouses and few private players in towns and cities. M ost of these warehouses do not have cold storage and the excess food items sometimes rot due to improper storage facilities.

The existing cold storage facilities are located near the point of production. They are insufficient in number and are unevenly scattered in terms of location. This means that fresh produce has a long distance to travel, unrefrigerated, to get to the market. Poor road conditions and lack of dedicated road networks also add to the problem by delaying the transportation of goods and damaging the food produce.

However, the Indian government has taken significant steps to address these issues: Firstly, the

cold chain has been identified as a sub-sector of infrastructure and a designated fund has been set up to establish 451 cold storage facilities in India. Secondly, they have introduced fair play policies with less bureaucratic hurdles to encourage private investments in developing cold storage and network in different parts of the country. Finally, they have established national centre for cold chain development integrating the cold chain network for perishable products.

The objective of any initiative should be to reduce the wastage of fresh food produce. This can be achieved by building a robust, efficient and transparent system. Effective implementation of Indian governmental policy will go some way to solving one of the underlying causes of malnutrition.

E-Wast eChoking one third of our planet

Due to the short life of

electronics, they quickly become out-of-date and are considered e-waste. Once electronics become obsolete, the recycling industry extracts certain metals from the

waste (copper, gold, silver etc.). But only 11-14% of global e-waste is recycled, with the rest going to landfills. Conventional waste disposal processes (often shredding, burning, and dismantling products) generates hazardous toxic chemicals and gases causing life-threatening

illnesses. Additionally, developed western countries send their e-waste to developing countries, either to be disposed in wasteland or for cheaper recycling. It is estimated that by 2020, domestic television e-waste will double, computer e-waste will increase five

Surajit Kumar M oi MSc in Suppl y Chain Management 2014/15

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times, and cell phone waste will be 18 times that of 2007 levels.

The collection of obsolete electronics also needs to be addressed as, to be recycled, e-waste must first be collected. The lack of a collection system is a significant factor leading to e-waste being stock-piled in homes, offices and repair shops. In addition, society needs to be educated about the environmental awareness. The question that arises is, who will bear the responsibility and burden to solve this and why would they do that?

As an extensive user of the electronics, IT giants like Google, M icrosoft, IBM etc. should step forward to solve the issue that makes the world a better place to live. There are many ways to handle the e-waste - Reduce, Reuse and Recycle.

- As a bulk purchaser, IT companies could choose to buy products that are less toxic and drive manufacturers towards

eco-friendly electronics. - Old electronics could be

refurbished and sent to developing countries where people cannot afford to buy computers to combat both illiteracy and e-waste.

- Help the formal recycling industry to grow. The IT giants could work together to help the recycling industry to grow faster.

During the last decade, The European Union took some positive steps towards addressing the issue. The Waste Electrical and Electronic Equipment Directive (WEEE Directive), together with

the Restriction of H azardous Substance (RoHS) Directive, became European Law in February 2003. The WEEE Directive set collection, recycling and recovery targets for all types of electrical goods, with a minimum rate of 4 kilograms per head of population per annum recovered for recycling by 2009. The RoHS Directive set restrictions upon European manufacturers as to the material content of new electronic equipment placed on the market.

As a result, companies started implementing recycling practices and helped improve the European

E-waste problem. Public awareness has also been improved, with people adopting the right methods for electronics disposal.

IT firms most valued assets are its employees. Absenteeism causes huge revenue loss to organisations. While industries may be focused on cost-cutting strategies, investing in corporate social responsibility

Only 11-14% of

global e-waste is

recycled

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T wenty years ago it was more

common to purchase quality clothing for purpose as opposed to buying for fashion trends. Consumers are demanding that the latest trends be delivered quickly and cheaply. The recession only amplified the change from customers investing in high quality, low value items to buying large amounts of poor quality garments.

In response, apparel retailers changed their supply chain configurations. Retailers began to move away from mass producing and sourcing from eastern counties due to the long lead times and obsolescence. As the life cycle became shorter, retailer's supply chains became increasingly efficient and responsive. The chain became 'buyer driven'. As retailers ruthlessly competed to capture the rapidly moving trends, they increased the number of fashion seasons in their collections, from the original spring/summer autumn/winter by adding a further three to five 'mid' season collections. All of this was achieved, resulting in ever changing collections at low prices; and so emerged the phenomenon of 'fast fashion' or 'throwaway fashion'.

Fast fashion bears an enormous price tag for environmental and social but the fact is that this simply is not enough.

Thr ow Aw ay Fashion

programmes to increase the productivity of employees would increase profits in the long-term.

Another value-adding factor would be the increased value of the organisation's brand. Working on a social cause attracts social and environment-conscious investors

and employees. Organisations should understand that the idea of confronting the e-waste issue is not just to help others but to secure their own future. Technological advancements have shown a substantial growth in the last few decades and are growing much faster now. But the true

advancement will happen when the world will work together to achieve the ?Triple Bottom Line? of a healthy environment, strong economy and a caring society.

Grainne O'Brien MSc in Suppl y Chain Management 2014/15

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'I think we are all aware that

the world is full of problems? but I think what really separates this time from others in our world is the awareness of these problems?.

This was the opening message from M ichael Porter's T.E.D talk on business solving social issues. Porter?s point is not lost when considering the genuine increased

awareness society, the media and external stakeholders have regarding business practices. The question arises however as to why when one considers the notion of sustainability, the first thing that comes to mind is the environment? Social sustainability is completely overshadowed by the emphasis on environmental sustainability.

Yet, when one considers consumer reactions to recent business stories,

social issues are those gaining the most attention. Customers unquestionably drive business and therefore it is understandable why such issues have resulted in not only financial implications but loss of market share and reputational repercussions. To demonstrate I completed a simple Google search of two famous sustainability related scandals, namely Apple?s Foxconn working conditions and Coca

Soc ial r esponsibil it y c oming sec ond

sustainability. The EPA estimated that a staggering 11 million tons of textiles are dumped in landfills annually in the US. In the UK only 16% of unwanted textiles are recycled and reused (resulting in 1.4 million tonnes being dumped in landfills). There are phenomenal amounts of textiles discarded very year in China and Bangladesh from textile manufacturers. The decomposition of textiles releases M ethane. H armful dyes and chemicals also leach from the textile in the landfills into

surrounding surface and ground water. The process isn?t even economical, as it costs hundreds of millions each year to dispose of these textiles to the landfill.

Clothes wastage does not even consider the extreme harm to the environment and communities that comes from the toxic pesticides from growing cotton or the chemical run off, water and energy consumption that is used in cloth manufacture. It takes 8,500 litres of water to make one pair of jeans,

according to the World Wildlife Fund. Fashion companies rejoice about recycling clothes hangers and boast about some energy savings

The future prospects for recycling of textiles starts with supply chain. As apparel retailers supply chains become increasingly responsive, churning out masses of cheap clothes, it is unacceptable to ignore the millions of tons of unwanted textiles that are accumulating around the globe. The answer may lie in retailers creating closed loop systems. Patagonia allows customers to drop back unwanted clothes back to their stores. H&M partnered with high end designer Lanvin to create a line made from left over pieces. Walmart are working with suppliers to increase recycling of polyester and nylon for industrial use. U ltimately it comes down to the consumer. Consumers need to demand ethical fashion, sweatshop free, from biodegradable materials. As consumers, it may be the case that we need to adjust our shopping habits. The question also must be asked how sustainable is fast fashion?

Kate D avies MSc in Suppl y Chain Management 2014/15

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Wi t h i ncr eased suppl y chai n t r anspar ency, compani es ar e bei ng hel d mor e account abl e f or t hei r act i ons as publ i c

r epor t i ng and out si de st akehol der i nvest i gat i ons become i ncr easi ngl y common.

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Indian water crisis. A simple Google search with the exact above wording for two of the top 5 most valuable brands in the 2014 Forbes global rankings produced a results rate of 443,000 for Apple and 169,000 for Coca Cola. Quite the disparity of consumer attentions.

Unfortunately, despite social issues resonating particularly strongly with customers, the management of social issues is lagging. Organisations are especially vulnerable to anything damaging their reputation, something Benjamin Franklin reminds us as ?taking many good deeds to build. But only one bad one to lose?.

Perhaps a reason that social sustainability has been given a back seat stems from the fact that firms are struggling to realise the associated competitive advantages. Environmental sustainability advantages are more transparent and measurable, whereas social issues are being managed in a more reactive manner. But companies

can drive revenue and reduce costs by engaging in social sustainability. It is a sign of good processes and a safe environment. Accidents are expensive, especially when one considers the scope of impacts associated with accidents such as a global product recall or supplier scandal.

With increased supply chain transparency, companies are being held more accountable for their actions as public reporting and outside stakeholder investigations become increasingly common. Social sustainability practices can be viewed as risk management. Given recent public scrutiny of corporate practices, preserving human rights right down the supply chain is both reputational and legal risk management. The former allowing companies to attract better talent and be perceived as providing more value. With heightened freedom of speech presented by social media, it takes mere minutes for something written online to reach thousands

of users. A dangerous rate of exposure if carrying negative connotations.

Social sustainability needs to be afforded a place of importance. However, it should also be viewed as passing positive elements to companies; satisfied workers, lower risk and an ability to attract new talent. Companies cannot expect to escape consumer scrutiny with the increased attention being placed upon business practices, and merely denying or attributing blame is a sure way to exasperate the issue raised. With increased transparency, companies must incorporate social sustainability as a means of remaining competitive and positively engaging with that which is important to their biggest stakeholder, the end user.

St ar t -up Co r po r at e Soc ial Responsibil it y

Norma O'M ahony MSc in Suppl y Chain Management 2014/15

B efore studying sustainability,

the current M Sc in Supply Chain M anagement students considered there to be big economic trade-offs between doing good socially and doing well financially. N ot many people will argue with the fact that the implementation of sustainable practices is a necessary step to take for the sake of keeping this planet as a viable option as our home. Personally, I was under the impression that companies implementing sustainable practices was akin to someone walking

across burning coals. You may gain spiritual enlightenment, but you also blisters on the soles of your feet.

Therefore, the question needs to be asked: Why should companies focus on being ?green? and socially responsible? Is it for the good of future generations? Is it because companies are being forced to do so by government regulation? Or is it because companies can actually do well financially as a result of doing well socially and environmentally? After extensive research I uncovered some

interesting start-up companies who have found their competitive advantage by looking at sustainable practices, and they certainly will not be living on beans and toast because of their choice to be sustainable.

Obvious Ventures is a venture capitalist firm with a difference. The firm invests in start-ups whose mission is to ?combine profit and purpose.? Obvious has some interesting investments in its portfolio relating to sustainable systems, people power and healthy living. The founders of this firm,

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who are financially wealthy from past successes, must feel fulfilled by enabling their investments to thrive and impact both the social and environmental realms positively. But, the fact is that these businesses are also profitable.

Another interesting company is Gram Vaani, an Indian voice-based social network that allows users to post and receive social media messages using voice on basic mobile phones. It empowers the poorer population who may not have access to the internet nor the ability to read and write. Gram Vaani does not see why people, who are perceived as the bottom of

the pyramid, should be prevented from having a global voice. This is a fantastic company that is gaining a lot of interest, with partnership with N GOs and venture capitalist funds to help it expand. The venture capitalists are not just investing because it is a good cause they can also see the profit potential. The network has millions of users. It is a social technology, but the profit potential that can be gained from solving a social problem is certainly sizeable.

Crystal Wash 2.0 is a chemical-free way to wash clothes, using bio ceramics. N ot only does this product remove the need to

contaminate clean water with chemical detergents, but it is also more energy efficient, as shorter rinse cycles are needed reducing the carbon emissions of every wash. The product is currently on the crowdfunding website K ickstarter, where it exceeded its $100,000 goal in the first four days.

These are just a few of the start-ups who are gaining momentum at the moment. Larger companies are also seeing the financial benefits of being sustainable, with more efficient resource for companies like Apple and green products like electric cars making money for companies like Tesla. Therefore it makes sense to take the leap towards sustainability, for the sake of the profits (and future generations). Companies who do not start their journey across the hot coals on the path to the triple bottom line are not just missing out on additional profits, they are leaving themselves on the back foot for regulation which is inevitably coming. From city councils passing regulations such as N ew York banning Styrofoam; to European Regulation, such as carbon credits, sustainability is not going to be a choice for long.

Bo t t om o f t he Pyr amid as a Business Oppo r t unit yCan societal and economic progress be achieved?

Aldo Ramiez MSc in Suppl y Chain Management 2014/15

F or years national governments

and N GOs have fought to help the world?s 4 billion poor people who live on less than $2 a day. However, to date, they have been unsuccessful in eradicating poverty,

which has threatened to divide nations. The Bottom of the Pyramid (BOP) is a socio-economic concept popularised by C.K. Prahalad a decade ago, which groups this vast segment of society often ignored by the private sector.

Some estimates have shown that the BOP?s consumers account for $5 trillion in purchasing power parity terms. It represents a significant market and an opportunity for radical innovations in technology and business models. The BOP is not a market that

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allows the traditional pursuit of high margins, normally, business models at this segment tend to be low price, low margin, and high volume. This model works well when two conditions are met: access to infrastructure and consumer awareness.

Companies like Unilever have been successful in implementing a ?low price, low margin, high volume? model in India, by selling detergent to low-income consumers. Unilever already had a local distribution network in place and consumers were familiar with the product and the brand. Thanks to these conditions Unilever was able to sell their detergent for less than a third of the price of other detergents.

There is, however, a risk that companies like P&G with similar capabilities to Unilever will offer similar low-cost products in the same market. Generating competition based on low price benefits the consumer, but reduces margins and market share for both companies.

Companies that focus on creating economic value by investing in beneficial societal initiatives can achieve a sustainable business in the BOP market, while differentiating themselves from competitors. This approach is known as creating shared value. Introduced by M ichael Porter and M ark Kramer, creating shared value focuses on enhancing the competitiveness of a company, while simultaneously addressing the societal needs of the community in which it operates. In other words, a company can differentiate from its competition and generate profit, by addressing social and environmental issues in the location in which the company operates.

M exico-based cement manufacturer CEM EX is a successful example of shared value creation in the BOP. In M exico, providing houses for the poor has

never been seen as a profitable business for construction companies, and had been left to the government or not-for-profit organisations. CEM EX found new ways to reach low-income customers through innovation, and by changing its traditional business approach.

In 2000, CEM EX launched Patrimonio Hoy, a membership programme for low-income home improvement customers. CEM EX had to overcome three main challenges: financing for the poor, cost-effective distribution channels, and generating trust with people. By using a shared value approach, CEM EX redefined the way poor people save money and get access to credit by following a basic ?solidarity group? micro-lending model. CEM EX redesigned its distribution network to increase the delivery capabilities for distributors. Finally, they implemented a new compensation model where the local community gets economic benefits based on their commitment to the programme.

CEM EX?s objective was never purely to serve a social cause, but also to make it a profitable, sustainable business. This approach enabled them to innovate and redesign their traditional business model to develop a new market in the BOP. This market is currently generating more profit to the company than other market segments and is improving people?s lives by providing decent housing for the poor.

Although most companies are not created to cure social problems, there is evidence that differentiation and value creation can be achieved by solving social and environmental issues, especially in BOP markets. Shared value creation at the BOP is a good approach for inclusive capitalism, and a way for companies to contribute to making a better world without trade-offs.

Creat ing shared

value focuses on

enhancing the

compet it iveness

of a company,

while

simultaneously

addressing the

societal needs of

the community in

which it operates

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Connect on LinkedIn

Join the 'Supply Chain M anagement UCD ' group on LinkedIn and keep up to date on the latest industry news, trends in the field of Supply Chain M anagement and meet alumni.

Edit or s:

Al an Fi t zpat r ick

Norma O'Mahony

Donna Marshal l

Cont r ibut or s:

Al do Ramirez

Byron Smit h

Grainne O'Br ien

Kat e Davies

Norma O'Mahony

Sriram Prabhashankar

Suraj i t Kumar Moi

Chain

Ch

ain

Apr

il 2

015

Chain 7 the triple bottom line issue

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