10. GroBaby Foods: Green Sourcing
Sheneeta W. White, PhD
This case was written by Professor Sheneeta W. White as a basis for class discussion and is not representative of an actual company or a company’s actions.
Introduction
Janine Bowman walks back to her office after a long meeting. She still can’t believe what she just saw: a recently aired television documentary titled “Are these companies really green?” featuring GroBaby Foods. The program highlighted companies that claim to have environmentally friendly processes and products but don’t hold their suppliers to the same standards. One of GroBaby Foods’ best suppliers, Bass Solutions, was criticized for failing to meet the EPA’s Clean Air Act quality standards for the past five years. Bass Solutions supplies the packaging for all GroBaby Foods products. But why is it our responsibility to make sure Bass is in compliance with the Clean Air Act? Bowman mumbles to herself.
Bowman is the new vice president of Global Sourcing for GroBaby Foods Company (GBF), a leader in the organic baby foods industry. GBF prides itself on being a company with strong convictions toward preserving the environment. So, a documentary of this nature devastates investors, stakeholders, and everyone affiliated with the company. With only a month on the job, Bowman is faced with the task of developing a green sourcing strategy. She has to make a tough decision. Should she require Bass to set and meet environmentally friendly production standards, end the relationship with Bass and find a new supplier, or just do nothing?
Bowman understands the necessity and advantages of “greening” the supply chain but realizes that a comprehensive strategic green-sourcing effort will be an enormous undertaking. The decision between continuing with the current packaging supplier and selecting a new (more environmentally friendly) packaging supplier is critically important. But she has to come up with a recommendation on a sourcing strategy that supports the company’s commitment to sustainability. She must think about what makes sense for her organization. Where should I start—the contract renegotiation with Bass is only two weeks away, she says to herself as she steeps another green tea bag.
Company Background
GroBaby Foods is a mid-size organic baby-foods manufacturer. In 1980, friends Lola Grosser and Stephanie Daniel started making healthy food options for their young children out of their homes, located in the Pacific Northwest area of the United States. Through the encouragement of friends and family, they started selling their creations at local farmers’ markets. Five years later, they launched GroBaby Foods.
GroBaby Foods produces a variety of foods for infants and toddlers. For infants, they have products such as cereal and purées, and for toddlers, they have yogurt, fruit snacks, cereal bars, and cookie products. GBF products were certified USDA Organic in 1990, which means that all products are free from synthetic fertilizers and free from the use of genetic engineering. Around this same time, there were many other organic baby-food products saturating the marketplace. There are barriers to entry, but the market for healthy food options for babies is plentiful. GBF is now a global producer and distributor of organic baby foods.
Competitive Pressures
GBF has several formidable competitors in the organic baby food industry. These include large multinational manufacturers as well as other mid-size companies. The larger companies provide a wide range of baby products and also have the purchasing power and resources to ensure sustainable practices throughout their supply chains, whereas the mid-size firms offer a more limited selection and have used nonprofit agencies to assist with supplier evaluation and selection based on resource constraints.
GBF became an instant hit, capturing a large share of the market with their innovation in packaging. They focused on portable packaging for their infant purées to make life easier for parents. This innovation was the direct effect of a new supplier relationship with Bass Solutions Company. Bass spent many years developing this new packaging for GBF. Many competitors now offer the same type of packaging.
Over the past few years, sales have declined for the first time in the company’s history. As a result, the company decided to cut costs and switched to a new packaging supplier. This particular supplier has not always used responsible production practices. Many of GBF’s competitors have recently made improvements in waste reduction and renewable energy throughout their supply chains. Evan White, Director of Environmental Strategy, says, “Sustainability is changing the competitive landscape; consumers are more educated, and now they want more.”
Infant Purée Production
The company’s manufacturing is based in a single 30,000-square-foot facility. The company uses two large machines for its infant purées and one filling machine. Each machine can produce up to 10,000 units per hour and needs one operator working five eight-hour shifts per week. The company produces a variety of purées with an organic fruit and/or vegetable as the only ingredient.
The production process includes the following steps: (1) receive and inspect packaging containers, (2) load fruit or vegetable into the blender, (3) load purée containers into the filling machine, (4) fill containers with purée, and (5) box and ship.
The Supply Chain
From the beginning, GBF has always ensured that the agricultural products used in their foods were grown in a sustainable way. GBF has done a great job sourcing organic farmers who are members of the USDA’s National Organic Program. However, they seem to have dropped the ball regarding having those same standards throughout the supply chain.
GBF’s supply chain consists of the following stages:
1. Raw materials extraction (fruit and vegetable producers, barley and wheat producers).
2. Product manufacturing (production, packaging, and quality control).
3. Distribution and retail (transportation, chilled storage, and retail).
4. Consumer use (refrigeration).
5. Disposal and recycling.
Each year, GBF performs a carbon audit of its own production. Nearly 50% of the company’s electricity comes from green sources, which saves the company around 5,000 tons of carbon dioxide and $200,000 each year. Last year, for the first time, the company performed a carbon audit of its supply chain (see Exhibit 1). The audit results helped GBF understand carbon emissions at every stage of the product’s life cycle and showed that the actual production of products is where improvements need to be made, inclusive of packaging and other process elements.
At GBF, major sustainability improvements have been in the areas of energy conservation. They have installed skylights in offices and conference rooms, installed energy-saving light bulbs throughout the plant, and lowered the thermostats during daytime hours. Within the next five years, they hope to be running the plant off recycled water and renewable fuels and to install fuel-efficient ovens that recapture heat from exhaust stacks.
GBF has been outstanding in reducing its own carbon emissions, but it has fallen behind the market in ensuring the emission reduction of suppliers. “The audit identifies opportunities to achieve savings of 15,000 tons of CO2 per year, equivalent to 10% of the total emissions across the supply chain,” says White. White prepared a report to show Bowman a list of operational improvements, their respective costs, and the anticipated benefits to support an increase in sustainable operations. Bowman knows that consumers want infant purée packing to be recyclable and currently it is not.
The Sourcing Strategy
Bowman did some research to find out how the existing sourcing strategy evolved. She found that the current strategy is to procure quality products at the lowest costs. This is exactly what the company did when making Bass Solutions Company the single supplier of packing solutions for its products. GBF prides itself on building strong supplier relationships and has rejected multisupplier bidding wars. Bass has also given the company financial advantages such as waiving shipping charges for high-volume orders. GBF is Bass’s largest customer. Despite the excellent working relationship, GBF has to decide whether Bass is the supplier that will help them build a more environmentally friendly supply chain.
The current packaging supplier, Bass Solutions Company, is not using environmentally friendly materials or production processes, but GBF has a good relationship with them, the costs are low, lead times are good, they are reliable, and they have good quality. Bass is a private, family-run company based in the United States that has been slow and resistant to becoming green in its operations. Bowman knows that a strong supplier relationship is essential to the success of GBF. The problem is that Bass will not provide enough transparency into their processes. Bass clearly does not view product and process changes in support of GBF sustainability efforts as an opportunity that they are willing to undertake.
Perdos Inc., a mid-size packaging supplier and competitor of Bass, also based in the United States, has provided a proposal for its new environmentally friendly infant purée containers to GBF. This company is committed to sustainable business practices and production. Perdos has a compelling case since they are using recycled material for packaging and are guaranteeing food safety, freshness, and quality. Perdos is promising that they are committed to helping GBF meet its sustainability objectives (see Exhibit 2) through a cooperative, long-term relationship.
GBF thought they had done all the right things. Their supplier selection process included the following steps:
1. Conducted an industry analysis.
2. Built a total cost of ownership model.
3. Built a supplier selection matrix.
4. Conducted a supplier analysis.
5. Wrote an RFP with input from key stakeholders.
“How could we forget about measuring environmental friendliness?” asked Bowman.
Developing a Green Sourcing Strategy
Whether Bowman decides to continue a relationship with Bass or go with Perdos, she still has to develop an eco-friendly sourcing strategy. She has decided to use the Life Cycle Assessment (LCA) tool as input to a new sourcing strategy. LCA is a technique that helps to assess the cradle-to-the grave environmental impacts associated with products and processes. The goal of LCA is to select the best processes and products with the least amount of harmful impact to the environment. The results of an LCA study will provide the basis for GBS’s supplier evaluation and selection. The results will help to define environmental expectations of suppliers and to establish clear supplier assessment procedures.
These are the four stages to an LCA:
1. Goal and scope definition: Identify the purpose of the assessment, how data should be organized, how the work will be performed, and how results should be analyzed.
2. Inventory analysis: Diagram the flow of the processes, determine how data will be collected, and collect data.
3. Impact assessment: Evaluate environmental and human impact.
4. Interpretation: Check and evaluate results.
Bowman will be able to use the results of the LCA study to narrow the list of potential suppliers. Then she can use the existing supplier selection and evaluation process, which consists of (1) conducting an industry analysis, (2) building a total cost of ownership model, (3) building a supplier selection decision matrix, (4) conducting a supplier analysis, (5) writing the RFPs, and (6) selecting the best suppliers. She knows that after she performs the LCA, Bass will not be on the list of potential suppliers.
The Challenge
Bowman has to consider every angle of a green sourcing strategy, including these factors:
• Dependence on partners for results
• Speed at which partnerships can reach the ideal point
• GBF’s expectation for growth
• Higher administrative burden
• New data requirements (e.g., emissions and waste tracking)
• New skills and resources required to educate sourcing staff
• Market perception and brand image
• Potentially higher prices
Bowman tells herself that if she makes the right decision, she could improve customer satisfaction, improve the company’s brand image, and ultimately improve the company’s bottom line. If she misses the mark, then she loses an opportunity to help GBF succeed. The suppliers are very similar in terms of performance metrics. What are the merits and risks of continuing a relationship with Bass, selecting Perdos, or doing nothing? Are there other options out there? Bowman reached for another cup of tea because she knew it would be a long day (see Exhibits 3 and 4).
Discussion Questions
1. Discuss the organic baby food market. What are this market’s order winners and qualifiers? How do customer preferences influence the level of environmental friendliness of a supply chain?
2. Describe the sustainability challenges facing GBF.
3. To what extent should GBF be responsible for the sustainable practices of companies in their supply chain? How might GBF monitor supply chain member performance in this area?
4. What criteria should Bowman use when measuring the eco-friendly behavior of and selecting a supplier for the infant purée packaging? What are the trade-offs associated with weighting certain criteria higher than others in the selection process?
Exhibit 1 GroBaby Food’s supply chain carbon footprint.
Supply Chain Carbon Footprint 2010/2011 (CO2/Kg)
Exhibit 2 Sustainability objectives (over the next 5 years).
• Improve the environmental footprint of existing products.
• Implement stronger supplier performance requirements for compliance with environmental standards.
• Work with governments to promote sustainable development in the countries in which GBF operates.
• Communicate the organization’s performance on sustainability to investors and stakeholders.
• Develop new environmentally friendly products and processes that help reduce or prevent environmental problems.
Information provided by Bass and Perdos:
Note: GBF must order lot sizes of 1,000 each.