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Poole College of Management 
Supply Chain Resource Cooperative

Key Sustainability Issues in the Electronics Industry: Sustainability Industry Report

June 18, 2012

Executive Summary

In general we learned sustainability is not as simple as recycling or ‘being green’. To be sustainable is to look after the environment, the people living and working in it and how one’s business decisions, products and suppliers affect those around them.

As our team completed our research we came across many key issues in the electronics industry. Fueled by growing demands in both mature and emerging markets, electronics are in high demand. This demand coupled with intense competition for the lowest price creates many challenges for companies as they outsource and offshore to chase profits and supply. Couple this with ever shortening product life cycles and sustainability begins to become even more critical for this industry.

On the front end of the supply chain, we feel the industry needs better regulation of companies to audit their supply base. This can help prevent human rights labor violations, as well as, environmental destruction and pollution. On the back end of the supply chain, as products become end of life (EOL), this industry lacked consistency with recycling or take back efforts. While some companies tracked take back rates, in the wireless telecommunications sector for example, this effort lacked any consistency and came across as a marketing effort. Through regulation, companies will be required to get more phones back, which will improve take back rates and recycle/reuse more devices.

Across the entire supply chain, the industry lacks consistency with regards to corporate responsibility, sustainability and human rights programs. Just as there are organizations such as ISO and TL that measure specific aspects or programs for companies and financial and regulatory requirements with thousands of consultants who assist, there needs to be a governing body to assist companies with the creation of sustainable supply chains. This governing body would work to establish global standards for all aspects of supply chains. One idea we had was they could also establish consumer product labeling. This would help make it easier for sustainable minded consumers to make an educated purchasing decision, something similar to ingredient labels on packaged foods.

The final issue we came across was transparency, specifically with regards to those in the satellite TV portion of the telecommunications sector. It was very difficult to get any information about these companies supply chains, labor/human rights or sustainability programs. While we understand this information could be part of their competitive advantage and therefore confidential, their scores are reflected as such.

Methodology and Rating System

Companies are evaluated based on the framework developed by previous researchers*, which has already proved to be effective. The framework incorporates assessment about supplier relationship management (SRM), supply chain management, LHR (labor and human right risk) and sustainability. Each indicator is ranked from 1 to 5 (the worst to the best) according to the result of group discussion. Company research is conducted through reviewing corporate website, public news, and corporate annual report, documents from NCSU library, Garner database and inside information.

List of Company Ratings

The ratings for all companies we have accesses within electronics industry can be seen on the Appendix. The average scores for the industry are as follows:

Electronics Industry Company Rating Sustainability

For most categories the companies in this industry have scored in the middle of the range. However, we are concerned that LHR, Labor and Human Rights scores are the lowest, followed by second lowest score in sustainability. That signals that the industry in general has significant room for an improvement in these areas.
SRM, Supplier Relationship Management stands out with the highest score because companies are very aware of the need to build satisfactory relationship with their suppliers. This is gaining importance as supply chains are more globalized, inventories are low and rely on just-in-time processing. Any glitches in supply chain system will affect thin profit margins typically found in electronics manufacturing sector. Because of that, companies expend significant resources on SRM.

Standards on Sustainability

Sustainability is still very new, emerging business concept. Because of that, we lack uniform guidelines or standards applicable per industry sector that can help companies establish best practices.

Currently, there are two ISO standards available: ISO 14001 on Environmental Management System, and ISO 50001 on Energy Management. Unfortunately, like all other ISO standards, they do not set performance benchmarks for companies in specific areas, but they rather focus on the internal compliance for the processes created by a firm. Even though ISO 14001 and 50001 do not enforce CO2 emissions from operation, water or energy use, they are still not implemented by the companies we have evaluated. In fact, Whirlpool is the only one that have implemented ISO 50001 standard in their operations. Similarly, Nokia the only is IS 14001 certified company on our list.

To fill for the lack on standards, and to satisfy customers’ need for better transparency regarding environmental and social impact on the business operations, some companies join forces and and form non-profit organization. The primary goal for these organizations is to collect and report sustainability metrics from member companies. Unfortunately, we are seeing a proliferation of these types of organization and there is no uniformity of metrics being collected. Wall Mart spearheaded Sustainability Consortium Group that attracted 82 members, with only few electronics companies joining (HP, Samsung, LG, Toshiba), but no companies on our list are members. Carbon Disclosure Project, Supply Chain members list little over 50 member companies. World business council on sustainable development has only 38 member companies in North America in 68 in EU. Fragmentation in reporting and disjoint membership is a testament to the complexity of standardizing sustainability reports, as well as unwillingness by the corporate world to engage in solving this problem.

Best Practices – Highlights

During our research, we have found few companies that stand out from the pack in terms of their supply chain management and focus on sustainable business practices. In this section we are highlighting some of the best practices we have found and we recommend that they are being used across the industry, as applicable.

Nokia — Sustainable Business Practices Leader

It is not a surprise that Finish based Nokia scored the highest in our scorecard. Scandinavian countries and companies are known worldwide for their focus on sustainability in general. The importance of the sustainability is reflected in the corporate organization and embodied within Nokia Leadership Team (called the Group Executive Board) that approves sustainability and related Key Performance Indicators as part of the strategic planning process. Hence, the company reports so much more about their operations than what is required by regulation; they publish annual reports for Global Reporting Initiative, Carbon Disclosure Project, Global eSustainability Initiative (GeSI ) materiality analysis, and UN Global Impact. All their reports are audited by an independent third party, usually PwC which is different practice from other companies that rely of self-reporting without accountability or verification by a neutral party. But, Nokia doesn’t stop there. They have very active educational program for their suppliers that resulted in 66% of them publishing similar reports by 2010.

Because Nokia has sold over billion handsets worldwide, the product lifetime, from cradle to grave is on forefront of their product development. They start with products that as environmentally friendly as possible, by sourcing raw materials that are either biodegradable or made from recycled materials. Since 2007, the company has been striving to make “sustainable devices”. In fact, 100% of the materials used in these sustainable devices can be and are used again through collection of e-waste.

Applied Materials — Sustainability Strategy

Bruce Klafter, Director for Environmental, Health and Safety (EHS) at Applied Materials, Inc., Provided some tips about how to build a sustainability strategy in a company:

Step1: Shift thinking from risk to opportunity

Bruce believes a sustainability strategy provides a chance to both improve risk mitigation and to identify new business opportunities. Companies should not neglect the risk side, because companies must, at the very least, be in compliance with regulatory requirements. At the same time, companies should also focus on opportunities: Cost savings, Enhanced workforce, Production improvements, Revenue opportunities and Business model innovation.

Step 2: lay the foundation for sustainability program

Bruce suggests understanding firstly about how the company is performing in terms of the key sustainability metrics. Then, the company should work through a process that includes brainstorming, benchmarking, planning and articulating the aspirations in terms of a vision that can later be translated into specific projects. Internal and external communications regarding those plans will help fuel an ongoing process.

Step 3: Get others involved

It is believed to be essential to get input from key participants because the company can use this process to drive consensus around programs and then garner buy-in as the action moves forward.

White paper from http://www.naem.org/?CP_Sus_Program

Whirlpool’s focus on sustainability and transparency

Whirlpool Corporation, from their participation in the newly released ISO 50001 energy management standard, to their 100+ year history of being part of the community to their well-developed sustainability and corporate responsibility programs are a great company to benchmark as a best practice. Not only do they have mature programs and a focus on continual improvement, but they also are very transparent and willing to share this information. Of all the companies evaluated Whirlpool had the most historical information available on their sustainability programs.

E-waste collection

E-waste activity is becoming a norm in the telecommunications industry. Many of the companies involved in the sale of wireless devices discussed take back programs and reported these volumes annually in their CR or sustainability reports. This is encouraging and demonstrates the trend towards sustainability in the industry. As the product life cycles become shorter and shorter it is critical the industry continues to leverage take backs to offset the environmental impacts associated with improperly disposed phones. Since this practice was only discussed in the phone sector, we consider it a best practice of the industry.

Dow Corning — energy efficient distribution center

Dow Corning built a energy efficient distribution center, which uses optimized workflows to improve materials delivery capabilities, quality and customer service performance.

Dow Corning transparent structural silicone adhesive (Dow Corning® TSSA) was used to attach insulating glass units to the spider facade system which allows creating a frameless glass façade, improving a building’s lifespan and efficiency. The company increased the levels of roof insulation and installed heat recovery facilities on the HVAC (heating, ventilation, and air conditioning) systems. The use of natural lighting was maximized via the use of roof lights and where possible motion lighting controls. The structure of the distribution center is also equipped to support solar panels on the roof.

Furthermore,the new distribution center increases Dow Corning’s safety performance. Safety interlocks at the loading bays make it impossible for the trucks to drive off accidentally; state-of the-art high integrity designs for the containment systems guarantee that chemicals are managed responsibly and high integrity fire detection and protection systems ensure the highest possible level of safety.

Texas Instruments — supplier management IT solution

TI uses an internally developed program called CETRAQ to evaluate its suppliers. CETRAQ stands for, Cost, Environmental, Safety and Health, Technology, Responsiveness, Assurance of Supply, and Quality. It is a unique tool used by TI to continuously evaluate TI’s strategic business partners. The system can be used to help make purchasing decisions and to challenge suppliers towards continuous improvement, based on the overall performance of each supplier.
(http://focus.ti.com/quality/docs/gencontent.tsp?templateId=5909&navigationId=11744&contentId=5040)

Long-standing partnerships are promoted with suppliers to achieve TI’s goals of zero wasted resources and zero injuries and illnesses from the use of manufacturing equipment and materials. TI expects the same level of EHS performance from suppliers and contractors working at TI sites as from its own employees.

Common Gaps, Opportunities, and Industry Recommendations

Guideline vs. Execution

While most companies put sustainability or green into their code of conduct, very little achievement can be found in many companies. One reason is that the guideline in code of conduct is just generally phrased without clearly defined goal and execution plan. And many companies do not have additional effective program to manage and monitor the sustainability. Therefore, their suppliers or companies themselves have no enough incentive in making their products or supply chain more sustainable. To close this gap, companies can implement programs that can quantify the sustainability. One example is an EICC Carbon Reporting System tool that used by Applied Materials to engage its suppliers on their carbon accounting and improve its ability to collect data and report. By using this tool, Applied Materials heighten its awareness of its suppliers and resulted in a positive change in both its supplier expectations and a reduced carbon dioxide footprint at the supplier sites.

http://www.eicc.info/documents/AppliedMaterials_CSFinal_09_2011.pdf

APPLIED MATERIALS CASE STUDY (2011), Partnering with the Supply Chain for Improved Energy Efficiency of Products

Supply chain transparency

The degree of supply chain transparency is different across industries and it’s different in companies even in the same industry. Companies in semiconductor industry normally have better transparency than companies in scientific, photographic and control equipment industry. Companies formed by merger and acquisitions have less transparency.

Keeping supply chain transparent is an efficient way to help a company comply with EHS regulations. Lack of transparency can lead to criticism that may diminish a company’s image, brand value and sales. Apple used to be accused of using suppliers that release environmental toxins and pollutants, and/or expose employees to unsafe working conditions. And it refused to divulge information about its suppliers, which had put itself in risk. Now Apple becomes more and more transparent in its supply chain. Its annual sustainability report addresses environment and labor concerns which helped it win back its customers.

Consumer Labeling

As consumers gain a better respect and appreciation for sustainable practices the need for clear labeling is required. Today there are some labels across varied industries for organic items or partially recycled content that attempt to leverage this info, but the electronics industry lacks this type of approach. We feel it would be useful to have a label to identify the carbon footprint associated not only with the use of the item, but the entire supply chain utilized to bring the item to market. This would allow consumers the ability to make an educated buying decision, while also providing a point of regulation to manage the effect of specific products on the environment and human rights.

Recycling/Take Back Program Maturation

While we listed take backs as a best practice for the phone sector of the telecommunications industry, its use is not widespread enough across the entire industry and therefore it is also a gap. We recommend better regulation and accountability to ensure proper disposal of all electronic devices. Through better regulation companies can be held accountable for their products impact to the environment all the way to the end of their life cycle. This is much needed in an industry growing as fast as the electronics.

Appendices

Show background information on ratings, links to research sites, references, interview transcripts, etc.

Electronics Industry Appendix p1

Electronics Industry Appendix p2

Membership organizations reporting sustainable business practices: