ROI of Sustainability
April 1, 2008
ROI of Sustainability
By Andy Hanacek, executive editor
In Part Two of our special report on sustainable packaging (Part One, Feb. 2008), The National Provisioner analyzes the challenges of determining the return-on-investment of a sustainable packaging program with three experts in the field. Matt Dannenfeldt, General Manager, Rehrig Penn Logistics, and Bob Klimko, Director, Corporate Sales & Marketing, Norseman, represent the Reusable Pallet & Container Coalition (RPCC). Dannenfeldt is a member of the RPCC, while Klimko is the coalition’s vice president. Contributing her expertise to the discussion as well is Pamela Long, Partner, Little Big Brands, a company that specializes in brand strategy and package design among its core competencies.
Q: Is the food industry on the whole still in its adolescence as far as sustainable packaging is concerned? Or has it become pretty advanced? What steps can the food industry take to improve that standing further?
RPCC: Whether it is the food industry or any other, the concept of sustainable packaging in North America, especially the United States is relatively new. The first step is awareness, and the industry has achieved general familiarity with sustainable concepts. But fully sustainable implementation across primary and secondary packaging is very much in its infancy. The food industry is poised to embrace these types of changes, but it’s up to the packaging providers to deliver packaging that satisfies environmental consciousness with economic reality.
Certain segments of the food industry have been using reusable packaging as a method to improve their sustainability and reduce their costs already, including bakery, dairy, beverage and produce segments. Economics and sustainability are integrated in these applications to provide users sustainable solutions with compelling economic results.
Long: Every industry is in its adolescence in terms of sustainable packaging. We are just beginning to scratch the surface, and we have a lot to learn. As more companies get on board with the concept, that will drive innovation of new materials and options, and bring down costs. The industry needs to begin by making sustainability a concern at the onset of product development — how much packaging is truly needed, how will it be sourced responsibly, and what will happen to it after it’s used? Champions of the cause are also needed — those who are pushing the envelope in terms of innovation, and challenging suppliers.
Q: What are some of the challenges that face meat and poultry processors in the quest for sustainable packaging?
Long: There are still limited options, and cost can definitely be a factor. And while more biodegradable options are emerging, there are many questions about just how green these products truly are. According to the Biodegradable Products Institute, today’s landfills are engineered to retard biodegradation. This speaks to the importance of companies first focusing their efforts on source reduction. Consumers’ perceptions of safe practices when it comes to meat and poultry also present challenges. This is one sector of the food industry where consumers are likely to be more skeptical about recyclable or biodegradable claims.
RPCC: Meat and poultry processors face an interesting challenge in that they must be close to their customers and comply with their needs in terms of sustainability, while concurrently trying to meet the consumer’s demands. This reality coupled with their own sustainability needs can create potential conflicts and compromises.
For example, marrying packaging decisions with marketing & sales represents a big challenge. Meat providers or retailers are not likely to make a packaging decision based solely on packaging costs and sustainability. In addition, they must consider consumer demand and taste — how does the typical shopper want to see their product merchandised? This can be contradictory to the sustainable package of choice, and that is when it becomes difficult for someone to pull the trigger for change.
Q: Is there an easy way to determine a processor’s return on investment (ROI) when incorporating sustainable packaging?
Long: The Global Reporting Initiative (www.globalreporting.org) is one resource for companies. Their sustainability-reporting framework provides companies with principles and indicators to measure and report their economic, environmental and social performance. A supplement specifically for the food-processing industry is in the works. Wal-Mart’s packaging scorecard is obviously another way for companies to rate their sustainable-packaging efforts and find new ways to improve upon current initiatives.
RPCC: While the measurement of ROI is fairly standard, the inputs across varying supply chains can offer different results. For instance, in business-to-business supply chains, the ROI involves fewer inputs since merchandising and comp sales numbers are not required. These inputs (merchandising/comp sales) can make for a very complicated, if not unreliable, measurement of the impact of packaging changes. Yet, the freight impacts, operational impacts and direct packaging costs can be measured fairly systematically. The fear is that each retailer will have its own method of measuring sustainability, burdening the processors. So a standard may be a future industry objective.
Q: What are some of the areas in which processors can trim additional costs to improve their ROI?
RPCC: There are several areas where cost reduction can be achieved. First, by reducing the secondary packaging required, less energy and waste result in lower amounts of carbon footprint. The real “meat” in cost reduction lies in the comparative lifecycle studies that look at different secondary packaging methods. This type of study analyzes the energy inputs in the secondary manufacturing process using ISO 14040 standards, which are the investigation and valuation of the environmental impacts of a given product or service. These studies, while not new, are fairly new to packaging in a general sense.
Long: Manufacturing efficiency, cost-effective transport, active and intelligent packaging. When companies make the commitment to examine how sustainability can enhance every part of their business, they stand to gain the most.
Companies committed to sustainability as a business strategy often find innovative ways to use the practice to save money and have a positive effect on the environment. For example, JBS Swift & Co, a U.S. meat processor, is going to start turning beef waste into biogas burned at the facility. This anaerobic digestion technology extracts methane gas to generate energy. At capacity, the facility is expected to generate 235,000 MMBtu per year, the energy equivalent of 1.7 million gallons of oil, about 25 percent of the plant’s natural gas consumption.
Q: As it relates to the ROI that processors might be able to achieve, do you see the drive for sustainable packaging in the meat and poultry industry as continuing to gain acceptance, and if so, how quickly?
Long: Sustainability, while a great thing for the environment, is only going to be truly embraced when companies see a clear connection with ROI. Legislation could certainly have a huge impact on timing. A study published in The McKinsey Quarterly found that 82 percent of respondents (executives from around the world) said they expect some form of regulation on climate change in their country in the next five years.
RPCC: The industry seems poised, but they need a packaging platform that will deliver these clear metrics for an ROI. When you begin talking about “soft” savings, it gets tough for them to justify it. It really is on the packaging providers to make the ROI clear, and then you will see meat and poultry companies aggressively responding to the options for change.
Q: Beyond product packaging, where else are meat and poultry processors looking to incorporate sustainable packaging (i.e., in transfer of raw materials in plants, or in terms of shipping crates/cartons, etc.)? What promise does that realm hold for processors looking to improve their standing with consumers?
Long: Companies stand to benefit the most from going green when they take a holistic approach — from ethical sourcing to innovation and streamlining the manufacturing and distribution process. Sustainability should be considered, first and foremost, a business strategy that drives innovation and contributes positively to their bottom line. By just looking at packaging, companies miss a much bigger opportunity. Consumers also want to see the people they do business with walking the walk, and the more companies embrace being green as a way of doing business, the more they stand to gain with the consumer.
RPCC: Sustainable packaging requires a holistic view of all the inputs and choices that companies make, including meat and poultry processors. As has been stated, the drive to sustainable packaging must be measured in both economics and environmental responsibility. This combination will help consumers through cost-effective products that use the best environmental method to transport and protect in this case the meat and poultry products they seek.
Reusable packaging provides a unique blend of environmental responsibility in a cost-effective way to help processors in the future. The “meat” is in the details.
Since 1999, the RPCC has been a collaboration between manufacturers, poolers, distributors, retailers and educators to promote the environmental, safety, and economic benefits of reusable packaging. Moving forward, the RPA will leverage its collective voice of industry leading knowledge to advance the adoption of reusable packaging by clearly demonstrating supply chain efficiencies, environmental benefits, ergonomic improvements, and cost advantages to end users in all industries.
To strengthen and advocate this message of reuse, the RPCC will become the Reusable Packaging Association (RPA) in May 2008, with a singular and powerful focus on promoting the value and expansion of reusable packaging as the preferred solution across supply chains in all industries. Material submitted by Jeanie Johnson, Executive Director, on behalf of the Reusable Pallet & Container Coalition (RPCC).
For more information,visit http://www.rpcc.us/ or call 202-625-4899.