Increasing the rate of exchange

With 40% of its carbon impact found along the supply chain, GSK has found a novel way to engage and encourage its suppliers to cut energy, water and waste. Tom Idle speaks to the company’s manager for supply chain sustainability, Caroline Rüter

The British pharmaceutical business GlaxoSmithKline (GSK), worth some £65bn, develops, manufacturers and sells a range of products – from medicines and nicotine patches, to toothpaste and the malted milk drink Horlicks.

As the world’s sixth biggest pharma company (behind the likes of Pfizer and Novartis), GSK has huge reach and impact around the world. It was the first company to develop a malaria vaccine which back in 2014 it promised to make available for 5% above cost. In the oft-contentious sector of pharmaceuticals, where brand reputations are continuously battered and bruised by the NGO and charity communities, GSK has worked hard to build responsibility into the company.

Improving access to its medicines – developing new vaccines and medicines faster, accelerating R&D, opening up research, and exploring new delivery models and partnerships – is a central plank of its strategy. A consistent No.1 ranking in the annual Access to Medicines (ATM) Index is testament to this effort.

But with such a diverse inventory of product offerings, which includes brands such as Aquafresh, Nicorette and Night Nurse, it also recognises the carbon impact of not only its own operations (it employees almost 100,000 people and has manufacturing plants and R&D centres in 36 countries) but also within its big supply chain.

“We know that the impact of producing our products and medicines is much broader than simply what we do in our own operations. In fact, 40% of our carbon footprint comes from the raw materials associated with our supply chain,” says Caroline Rüter, GSK’s sustainability manager for supply chain.

But with more than 6,000 raw material suppliers dotted around the world, encouraging each and every one to reduce their own energy, waste and water impacts – thus reducing GSK’s overall footprint – is no mean feat. In 2014, Rüter and her team started the process of collecting carbon, water and waste data from around 200 of GSK’s biggest materials suppliers, covering more than £1bn of the company’s spend on raw materials. “We are now using this data to identify hotspots in our supply chain,” she says.

Data collection has been hugely important. For example, a carbon footprint analysis of GSK’s top 30 products from a revenue perspective, has identified areas for improvement – not least with its Ventolin inhaler which has the highest carbon footprint in its use phase and one of the reasons GSK created an inhaler recycling scheme.

But engaging suppliers and helping them to tackle their impacts is an altogether bigger task – but one which GSK is getting to grips with via its new online information-sharing platform which it expects to lead to emissions reductions within the supply chain of 25%.
“The GSK Supplier Exchange means our suppliers are able to benefit from the experience of others, as well as collaborate – with or without GSK – to accelerate their own sustainability projects.”

So far, 500 suppliers from 45 countries have joined the forum to share practical ideas about improving energy efficiency and reducing other environmental impacts. By enabling supplier companies to talk to each other via a Facebook-like online network and share information, case studies and documents, the theory is they will be able to accelerate their efforts and have confidence to make the necessary investment or business decisions that will make them more resource efficient.

“Our biggest challenge is the vast number of suppliers, as well as the diversity of our supply chain across the entire world – which is why we need to communicate and collaborate at scale,” says Rüter.

Supplier surveys had previously identified that 65% of suppliers did not have an active programme in place to reduce energy costs – and no one single supplier has more than a 1% impact on GSK’s carbon footprint, making the task seem huge. By facilitating a platform whereby suppliers can ask each other, or GSK, for advice or answers to questions, the company gets a unique insight into the challenges currently facing its supply base. As a result of this insight, GSK has been running energy reduction workshops at a number of its supplier sites uncovering and highlighting opportunities cut energy costs by up to 30%.

The business also ran a packaging innovation challenge last year, asking suppliers to come up with new ideas to reduce both cost and the carbon associated with the products GSK buys from them. “Thirteen suppliers responded with 21 ideas,” says a proud Rüter, who is now working with GSK’s procurement teams to take forward some of the ideas which might lead to packaging rationalisation, alternative print technologies or the light weighting of materials.

It’s early days for the Exchange but in 2015 the number of users tripled and 70 individual requests for advice have been logged – all of which have been answered. One of those requests resulted in two suppliers collaborating – one helping the other get his LED lighting project off the ground, saving him about 210,000 KWh a year. In fact, the 40 case studies shared online in the last 12 months have collectively driven more than 300,000 tonnes of CO2 equivalent out of GSK’s supply chain and saved more than £80m across supplier sites.

And the business case for ramping up supplier engagement is ever-increasing, says Rüter, with more stakeholders asking how GSK manages third party risk. As you’d expect, standards and policies on quality, ethics, labour rights, health, safety and the environment are in place. And while GSK looks to work with suppliers to agree improvement programmes where performance gaps are identified, it isn’t afraid to terminate relationships if things don’t improve. “Third party oversight is a strategic priority for us – and we’re investing heavily in it,” she says.

Challenges remain for a company of the magnitude of GSK. But driving its own values to reduce impacts and become ever leaner further along its value chain is a tough ask and GSK is succeeding. “I’m personally very proud of our having set ambitious goals to reduce carbon, water and waste across our entire value chain. And our supplier engagement programme is key to us achieving our target to be carbon neutral by 2050.”