1. Assessing the Sustainability Performance
Lecturer: Radim Lenort, David Holman, David Staš, Pavel Wicher
Winter School 2017
ŠKODA AUTO University
Mladá Boleslav
Czech Republic

2. Lecture Content Supply Chain Management Sustainable Solution Beer Game
Sustainable Supply Chain Management
Sustainable KPIs

3. Introduction
There is a difference between doing things right and doing the right things.
Peter F. Drucker

4. + = + = Introduction Doing the right things rightly
The Role of Interactions and Purposes in Sustainable Competitiveness
Logistics
Value Added +
1. Logistics Value Added
2. Production Value Added =
Doing things right
Doing things right

5. System Thinking, Definitions, Examples
System is the whole.
System couldn’t be divided in to the independent parts.
Properties of the system are these, which none of it’s parts have. These properties are derived from superior system, which is an examined system a part of.
Properties of the system are derived from cooperation of the particular parts, not by performance of isolated parts.

6. System Thinking – The Significant Part of Logistics Theory
System thinking is based on holistic philosophical principle, which says that the whole is more than just sum of its parts.
The holistic principle replaces the previous reductionism principle, which says that the whole is only the sum of its parts.

7. System Thinking in SCM
Doing the right things…
Doing things right …

8. Lean – Practical Example of System Thinking Success
Reductionism Reductionism Holism 4 LEAN Principles

9. SCM Principles as Sustainable Solution in Actual Market Conditions
Integration
Process management
Value Added
Push and Pull Principle
Decoupling point
Bullwhip effect (Forrester effect)

10. SCM Principles as Sustainable Solution in Actual Market Conditions
Integration
From the supplier to customers
From the purchasing, supplying, production, distribution and retail including after sales services and recycling
With the help of transportation, informative and communication technologies

11. SCM Principles as Sustainable Solution in Actual Market Conditions
Process management

12. SCM Principles as Sustainable Solution in Actual Market Conditions
Value Added
Production VA processes - PVA
Transformation of physical and nonphysical production resources into final product or service, which is customer willing to pay for
Logistics VA processes - LVA
Optimal availability of physical and nonphysical resources in the whole supply chain from withdrawing of raw material to delivery to final customer
in Supply Chain
Final Producer
PVA
LVA
Supplier
PVA
Supplier
PVA
LVA
LVA
EDI, RFID, ECR, Bar codes
Transport, manipulation, packaging, warehousing, crossdocking, forecasting, etc

13. SCM Principles as Sustainable Solution in Actual Market Conditions
PUSH vs PULL principle
PUSH – production is managed and optimised based on the production efficiency without any consideration for the customer demand or ultimately the follow-on supply chain.
PULL – production is managed and optimised by real customer demands

14. SCM Principles as Sustainable Solution in Actual Market Conditions
Decoupling Point

15. SCM Principles as Sustainable Solution in Actual Market Conditions
Bullwhip (Forrester) effect
Cause – long period of time as a reaction to changes in demand (demand bullwhip effect)
Effect – unplanned, chaotic activity starts to displace the planned activity
Traditional solution – improving the accuracy of the demand including, earlier start of the realisation of prediction – more time for reaction
Ideal solution – reducing lead time – time for satisfying the order

16. Beer Distribution Game – Simulation of Bullwhip Effect Make the Negative Sustainable Impact Naked
SUSTAINABILITY
ECONOMIC
Higher warehouse level (space), transportation costs, higher costs for flow of containers
ENVIRONMENTAL
Production of CO2 – Unutilised trucks, waiting
SOCIAL
Stress of the employees, safety conditions

17. Sustainable Beer Distribution - Consumption
Doing the right things…
Doing things right …
Happy Customer

18. Sustainability Environment Social Economic
Sustainability is an ability of a company or supply chain to balance its economic, social and environmental performance:
Environment
Social
Responsible
Economic
Sustainable
Bearable
Equitable

19. Sustainability - The Economic Dimension
Direct economic value generated: revenues = typical topic
An example of another important topic is:
Economic value distributed - this topic include:
Employee wages and benefits
Payments to providers of capital
Payments to government
Community investments

20. Sustainability - The Economic Dimension
Employee wages and benefits
Total benefits can include:
Regular contributions, such as to pensions, insurance, company vehicles and private health
Other employee support, such as housing, interest-free loans, public transport assistance, educational grants and redundancy payments
Payments to providers of capital
Interest payments made to providers of loans can include:
Interest on all forms of debt and borrowings (not only long-term debt)
Arrears of dividends due to preferred shareholders

21. Sustainability - The Economic Dimension
Payments to government
Organisation taxes can include:
Corporate
Income
Property
Payments to government exclude deferred taxes because they may not be paid.
If operating in more than one country, the organisation can report taxes paid by country, including the definition of segmentation used.

22. Sustainability - The Economic Dimension
Community investments
Total community investments refers to actual expenditures in the reporting period, not commitments.
Voluntary donations and investment of funds in the broader community where the target beneficiaries are external to the organisation can include:
Contributions to charities, NGOs and research institutes (unrelated to the organisation’s commercial research and development),
Funds to support community infrastructure, such as recreational facilities,
Direct costs of social programs, including arts and educational events.

23. Sustainability - The Social Dimension
In the social dimension usually include topics:
Employee
Governance
Local Community (Region, Institutions, Universities, Regional authorities).

24. Sustainability - The Social Dimension
Employee
Topics of Employee can include:
Occupational Health and Safety
Training and Education
Diversity and Equal Opportunity
Security Practices
Labour / Management Relations.

25. Sustainability - The Social Dimension
Governance
Topics of Governance can include:
Compliance with government laws and regulations
Freedom of Association and Collective Bargaining
Forced or Compulsory Labour
Rights of Indigenous Peoples
Human Rights Assessment
Marketing and Labelling
Customer Privacy
Child Labour.

26. Sustainability - The Social Dimension
Local Community
impact for: Region, Institutions, Universities, Regional Authorities
Topics for the Local Community can include:
Local Communities
Supporting Universities
Social Assessment Supplier
Public Policy
Customer Health and Safety
Socioeconomic Compliance

27. Sustainability - The Environmental Dimension
This dimension usually includes topics:
Recycling
Product design
Change in raw materials
Increase manufacturing effectiveness
Reduce energy consumption
Environmental initiatives
Renewable energy
Reduction of waste
Use of environmentally friendly products.

28. Sustainability - The Environmental Dimension
One of the possible and typical effort:
The alignment of sourcing, manufacturing, distribution, transportation and remanufacturing / recycling processes with the goal of reducing a company’s carbon footprint.
Used in many business
sectors
Manufacturing
Services
Government
Education

29. Sustainability - The Environmental Dimension
Benefits:
Reducing the consumption of toxic chemicals
Lowering amount of waste
Sustainability of natural resources
Cost reduction
Increase of efficiency
Brand reputation
Reducing risk
Employee morale
Ethics

30. Sustainability - The Environmental Dimension
Barriers:
Customer preference
Suppliers adapting to change
Cost of implementing processes
No concrete way to measure return on investment

31. Example of Sustainable Strategy
Volkswagen sustainability strategy:
Strategic goal: By 2018, we aim to be the world’s most successful, fascinating and sustainable automotive manufacturer
Key action areas: Economy, People, Environment

32. Example of Sustainable Strategy
Strategic goals of the key action areas by 2018:
Economy:
Leader in customer satisfaction
Group return on sails before tax higher then 8 %
Annual sales of more then 10 million vehicles
People:
Top employer in the automotive sector
Environment:
Reduce energy and water consumption, waste and emissions per unit produced across the Group by 25 %

33. Example of Sustainable Strategy
New sustainable VW strategy 2025
We will inspire our customers. This includes offering them products with above-average carbon efficiency.
Our earnings power will be as strong as that of our top competitors.
We will be a model of environmental compatibility, safety and integrity. Important steps in this direction include a continuous reduction of our carbon footprint and a decrease
in the emissions of our vehicle fleet.
We will continue to be
an outstanding
employer.

34. Example of Sustainable Strategy
And Sustainability in TOYOTA?
Areas of focus:
Economy
Social responsibility
Environment
In the economy part, there is a focus on efficiency.

35. Example of Sustainable Strategy
Toyota Social responsibility
6 programs of Toyota social responsibility
Initiatives for Improving Traffic Safety
Customer First and Quality First Measures
Collaboration with Business Partners
Stakeholder Engagement
Respect for Human Rights
Employees

36. Example of Sustainable Strategy
Toyota Environmental Challenge 2050
In the environmental part, there is now new 2050 challenge.

37. KPIs – Key Performance Indicators
Set of quantifiable measures that a company uses to gauge its performance over time.
KPIs evaluate the success of an organisation or of a particular activity in which it engages.

38. Sustainable KPIs – Case Study
The aim of the case study was to identify and categorise the most often used sustainable KPIs in the metallurgical industry:
Identification of the top 15 steel-producing companies and selection of sustainability reports with a comprehensive system of sustainable KPIs,
Determination of sustainable KPIs used by World Steel Association,
Assessing and categorising KPIs from the selected sustainability reports according to GRI sustainability reporting standards,
Discussion of obtained results and drawing conclusions.

39. Sustainability Reports of Metallurgical Companies
A comprehensive system of sustainable KPIs was found only in sustainable reports of three companies:
Rank
Company
Country
Tonnage
GRI
KPIs 1
ArcelorMittal
Luxembourg
97.14 x 2
Hesteel Group
China
47.75 3
NSSMC
Japan
46.37 4
POSCO
South Korea
41.97 5
Baosteel Group
34.94 6
Shagang Group
34.21 7
Ansteel Group
32.50 8
JFE Steel Corporation
29.83 9
Shougang Group
28.55 10
Tata Steel Group
India
26.31 11
Wuhan Steel Group
25.78 12
Shandong Steel Group
21.69 13
Hyundai Steel
20.48 14
Nucor Corporation
USA
19.62 15
Maanshan Steel
18.82

40. Sustainability Report of World Steel Association
World Steel Association uses Sustainable Development Policy with seven principles and eight sustainable KPIs.

41. GRI Sustainability Reporting Standards
Global Reporting Initiative (GRI) is an international independent organisation that helps businesses understand and communicate the impact of business on critical sustainability issues.
The GRI standards enable organisations to measure and understand their most critical impacts on the environment, society and the economy:
The economic dimension of sustainability concerns an organisation’s impacts on the economic conditions of its stakeholders, and on economic systems at local, national, and global levels.
The environmental dimension of sustainability
concerns an organisation’s impacts on living and
non-living natural systems, including land, air,
water and ecosystems.
The social dimension of sustainability concerns
an organisation’s impacts on the social systems
within which it operates.

42. GRI Sustainability Reporting Standards
GRI defines topic-specific standards for each sustainability dimension:
GRI 200: Economic
GRI 300: Environmental
GRI 400: Social

43. GRI Sustainability Reporting Standards
GRI defines topic-specific standards for each sustainability dimension:
Economic Topics
Environmental Topics
Economic Performance
Materials
Market Presence
Energy
Indirect Economic Impacts
Water
Procurement Practices
Biodiversity
Anti-corruption
Emissions
Anti-competitive Behaviour
Effluents and Waste
Environmental Compliance
Supplier Environmental Assessment
Social Topics
Employment
Rights of Indigenous Peoples
Labour/Management Relations
Human Rights Assessment
Occupational Health and Safety
Local Communities
Training and Education
Supplier Social Assessment
Diversity and Equal Opportunity
Public Policy
Non-discrimination
Customer Health and Safety
Freedom of Association and Collective Bargaining
Marketing and Labelling
Child Labour
Customer Privacy
Forced or Compulsory Labour
Socioeconomic Compliance
Security Practices

44. KPIs Categorisation 62 sustainable KPIs were identified in total:
15 economic KPIs in 2 GRI economic topics out of 6: economic performance and anti-corruption,
19 environmental KPIs in 6 topics out of 8: materials, energy, water, emissions, effluents and waste, and environmental compliance,
28 social KPIs in 9 topics out of 19: employment, labour/management relations, occupational health and safety, training and education, diversity and equal opportunity, freedom of association and collective bargaining, human rights assessment, local communities, and supplier social assessment.

45. The Most Common KPIs Economic KPIs: Environmental KPIs: GRI topic KPIWS AM PO HS
Economic Performance
Investments in new processes and R&D x
Economic Value Distributed (EVD)
Direct economic value generated (standard financial KPIs)
Environmental investments
GRI topic
KPI WS AM PO HS
Energy
Energy intensity x
Energy consumption
Water
Water intake
Emissions
Greenhouse Gas (GHG) emissions
Dust emissions
NOx emissions
SOx emissions

46. The Most Common KPIs Social KPIs: GRI topic KPI WS AM PO HS Employment
Number of employees x
Number of contractors
Employee turnover rate
Occupational Health and Safety
Lost time injury frequency rate
Accidents
Training and Education
Training hours/days

47. Conclusions
The environmental dimension is very crucial for the metallurgical industry due to very serious negative impacts on environment.
The most important topics are:
Economic dimension: economic performance,
Environmental dimension: energy, water, and emissions,
Social dimension: employment, occupational health and safety, and training and education.

48. Aggregated Economic Performance of Metallurgical Industry

49. Aggregated Social Performance of Metallurgical Industry

50. Aggregated Environmental Performance of Metallurgical Industry

51. Aggregated Sustainability Performance of Metallurgical Industry

52. Thanks for your attention