Innovative Packaging Trends: Reuse or Recycle?

Innovative Packaging Trends Reuse or Recycle sustainability banana leaves

Companies from Loop to Amazon implement sustainable packaging and sourcing solutions to answer eco-friendly demands from consumers. Two diverging trends currently dictate innovative package design, leaning toward heavy-duty and reusable, or more lightweight and compostable. They both serve different and necessary roles in reducing waste through life-cycle thinking.

Life-cycle analysis of a product’s environmental impact from “cradle to grave” and “cradle to cradle” plays an essential role in a circular economy (Geissdoerfer, 2017). Life-cycle thinking relies on the understanding that producers control the materials, design, and post-use expectations which inspire innovative packaging. Sustainable initiatives require concentrated efforts across a variety of platforms, from advancing compostable and recyclable materials to restructuring supply chains to circulating informational campaigns.

Though it seems counter-intuitive, in a circular economy, lightweight and reduced doesn’t mean less protection. The best packaging ensures that products arrive in the best possible condition to facilitate a sale. Given the choice between a dented package and an intact package, consumers seek undamaged goods.

Shifting to sustainable packaging methods, like all new packaging ventures, requires testing to ensure materials are capable of withstanding the rigors of transportation. After all, damaged goods deemed unsalable are more wasteful than less-sustainable packaging options. In most cases, more energy goes into producing the product than the packaging and loss of product is one of the worst energy impacts designs can generate. If there is no life-cycle of the product, there is no reason to have spent the energy packaging it.

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Innovative packaging designs can reduce waste and increase product life-cycle potential.

Reduce Means Reuse

One of the best ways to cut down on single-use packaging is to avoid it entirely. A growing number of companies dedicated to a zero-waste model are popping up around the globe. Zero-waste packaging minimizes single-use plastics in favor of reusable and recyclable materials like metal and glass to mold their containers.

Circular Economy Delivery

Loop’s delivery service rollout in New York and Paris this year is highly anticipated. Reintroducing the milkman model of delivery, Loop supplies subscribers with high-quality, reusable containers of well-known products like Crest and Häagen Dazs in sturdy cloth packaging. Once a product is used up, consumers simply rinse and return their containers in the bag they came in. After pickup, containers are sanitized and sent back full of fresh products.

Innovative packaging challenges in the closed-loop model require durable containers which can withstand use after use. Investing resources to create such products necessitates that their life-cycle outlast single-use recyclables or other renewably-sourced products. Rewarding high consumer accountability when it comes to recycling products at the end of their life-cycle also fuels the sustainable circular economy. While this mindset has a higher associated cost, thinking green is capable of being a sustainable business model when whole-heartedly adopted.

 

Zero-Waste Supermarkets

As customers grow increasingly aware of the environmental impact of their purchasing habits, demand has produced a wave of zero-waste supermarkets. Founded in 2013, one such chain has garnered much success across France. day by day shoppers bring reusable containers to the store and purchase loosely-stored bulk products like spices, condiments, and rice. For consumers who know exactly how much of an item they require, day by day’s take-what-you-need, use-what-you-take model has the potential to reduce household food waste and keep single-use packaging out of landfills.

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Innovative zero-waste stores are trending around the world.

Though shoppers may find themselves throwing out less food, stores must keep careful track to ensure that their bulk supplies leave the shelves before they go bad. Zero-waste blogger “Litterless” maintains a list of United States stores where customers can find products without individual packaging and demonstrates the role of the internet in the growing green mentality surrounding consumer purchases.

Bring-Your-Own-Container

Busy commutes can mean grabbing a quick bite from the rows of prepackaged meals grocery stores and gas stations prepare each day. While consumers still purchase these single-use plastic-wrapped meals, reusable containers are trending in 2019 with eye-catching designs ranked on Spruce Eats, an award-winning food and lifestyle website. As Millennials exercise their spending power, it becomes increasingly apparent that environmentally-conscious companies are capturing the attention of consumers.
Metro Grocery is the first store of its kind in Canada, permitting customers to bring in their own clean reusable containers to be filled with once-pre-packaged fare. While plastic packaging is still available, the store hopes that customers will consider bringing in their containers to reduce single-use plastic waste. Creating a network of stores where bring-your-own-dishes is an option will provide greater motivation to carry reusable containers and cutlery, both fantastic habits in reducing plastic waste.

Reduce Means Recycle

The minimalist approach to sustainable packaging solutions asks companies to reduce as much material as possible without compromising the product. Whether that means cutting down on package sizes or ensuring the recyclability of a product, companies are reexamining every aspect of their supply chains. Creative sourcing solutions are an opportunity for eye-catching design which distinguishes products on the shelves.

Material Matters

While the idea of wrapping food in banana leaves is hardly a new concept, using banana leaves in lieu of single-use plastic wrap caused Rimping Supermarket in Thailand to go viral this March. Incorporating banana leaves, a simple, easily-accessible, and biodegradable product, into a niche once filled by plastic wrap generates a straightforward sustainable package design. While banana-leaf wrapping isn’t easily accessible in other regions of the world, it is a testament to the power of reevaluating the sourcing solutions at a company’s disposal.

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Sustainable banana-leaf packaging reduces plastic waste in supermarkets.

Companies like Green Cell Foam are taking a more high-tech approach and developing a considerably more eco-friendly alternative to foam used in shipping. Their innovative foam is cornstarch-based, compostable, and water soluble. With die cut designs, Green Cell Foam calculates exact measurements to minimize resource consumption while ensuring product safety. And once the package arrives, recipients are encouraged to simply add water and watch their packaging dissolve down the drain.

Smarter Shapes

Consumers aren’t just concerned about what sustainably-sourced materials packaging uses, but also form and functionality. Sometimes all three come together to maximize eco-friendly and cost-cutting potentials. Tetra Pak’s Classic 65ml Aseptic Cube, an innovative packaging solution, optimizes storage while minimizing void space. Six tetrahedron-shaped pieces fit snuggly together to form easily stackable cubes.
Creative packaging can not only entice shoppers to unique products, but clever designs like the Classic Aseptic Cube can also increase the number of products that fit on palettes, reducing shipping costs and improving the ecological impact by shipping more products together.

Investing in Consumer Education

People want to do the right thing. They want to recycle what’s supposed to be recycled. But sometimes it isn’t that easy to know what goes where. Recycling carries a mess of rules and varies between cities. How2Recycle labeling is one way brands are trying to standardize the way people recycle in the United States. By providing clear labels which indicate what part of a product should be recycled and how, How2Recycle helps prevents incorrectly disposed trash from spoiling batches of potential recycling. Companies which adopt How2Recycle labels better ensure that their products are properly disposed at the end of their life.

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Innovative and simple labeling helps make sure the right products find the right disposal centers.

Determining ideal sourcing solutions depends on the company, product, and the habits of their consumers, but steps can always be taken to diminish a company’s ecological impact. At ET2C International, we are dedicated to helping companies through strategic sourcing. Contact our team of dedicated sourcing agents for more information about how your company can rethink the sustainability of its supply chain.

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The Needs of Omnichannel Retail & Impact on Manufacturing

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Consumer 2.0

The Millennial and Gen Z consumers continue to shift the expectation on retailers and brands. This evolution is enabled by technology and driven by an almost capricious approach to purchasing products. Buying decisions are no longer solely made based on the product, if at all, but rather on experience (78% of Millenials prefer to spend on experience over product) and online reviews. The rise of influencers and Key Opinion Leaders (“KOLs”) further underlines the importance of peer reviews. As an example, and perhaps extreme, Becky Li, who has a mere 7.5m followers sold 100 minis (as in the car) in 5 minutes.

The pace of change is fast

These ‘consumers’ are looking at their devices more than 30 times per hour. Retailers and brands are therefore looking at a broad range of touch points to capture their attention, which notably is no more than 8 seconds. What is important to these consumers has evolved to the extent the traditional retail model is now largely defunct. This has given rise to a focus on areas such as customer experience, peer influence, seamless expectations and personalisation.
Retail has changed. Sellers have had to adapt how they connect and engage with their customers through a multitude of online and offline mediums. As a result, manufacturers are also having to evolve to best service these changing needs.

Digitalization

The characteristics of omnichannel digitization focus on putting the customer first through digital mediums. Consumer behavior has driven the necessity for streamlined and unified systems on both mobile and traditional platforms. The aim of digitization is to create a flowing process, where the time in a traditional brick-and-mortar store fits seamlessly together with the user’s experience online. According to one survey, up to 49% of US spending occurs through online platforms and 55% of purchases end on an e-commerce platform (Mceachran, 2019).

Omnichannel Retail Shopping
Omnichannel retail will pass much of the retail process to customers, allowing easier access to comparision shopping, letting customers get the best deal possible in seconds.

With no signs of this trend slowing down, businesses must adapt to this new environment by facilitating the integration of the physical and digital world. Imagine a customer using their phone in a brick-and-mortar store, scanning barcodes to compare the many products in stock within the store. Not only will this process decrease the total time commitment a shopper needs to make deciding on a product, it also allows for the business to save money on staff as the customer serves themselves.
Artificial intelligence is being adopted more frequently within the digital arena to further enhance the information and foresight companies wield on their customers.

Data

The use of customer data is now an essential part of engaging with customers on an individual level. Likewise, information from across the supply chain is being used to help the customer make decisions (for example some retailers are giving their customer a choice of which factory to purchase from). Omnichannel marketing allows the collection of information on customers across multiple interactions that businesses can utilize to make the shopping experience both more relevant and efficient. A good example of this is loyalty programs. These allow retailers to not only collect information on every purchase you make but also develop foresight around what you are going to buy based on the time of year and stage in your life. Given shortening attention spans, putting relevant products in front of the consumer is increasingly the only way to create that all important sales opportunity.

Omnichannel Retail Ecommerce

Customization

90% of consumers now value individualized products, of which 25% are willing to pay a premium for their unique products. Brands are looking for ways to personalize the experience for their customers and being able to produce and deliver individual products forms a part of this. Technology has been at the forefront of this capability with manufacturers investing in some level of automation and robotics to be able to deliver personalized products. Some of the large sports brands have harnessed additive printing technology (3D Printing) to even print shoes tailored to your actual foot size.
As this need grows, there are also opportunities for retailers to create efficiencies within their supply chain. Through modern technology and omnichannel customer experience, clothing can be manufactured to order. Instead of mass producing a product and holding it in inventory, products are created as and when the customer demands them. The process of customization should ultimately lower costs for businesses and reduce waste on the manufacturing floor.

Sustainability

Conscious consumerism also increasingly forms part of this modern buying decision. The younger generations now have access to information about the products, suppliers and even in some instances who is actually making each product. Radical supply chain transparency is on the rise with large brands committing to publish all their suppliers on line. Alternative materials that are more environmentally friendly because of biodegradability are being looked for as part of companies’ sourcing function. Recycled material (in the past has often had perhaps negative quality connotations) is now becoming mainstream to limit the impact of the product on waste.

Omnichannel Retail Sustainability
Omnichannel marketing also allows for businesses to reduce the amount of waste generated through massproduction

This is direct consequence of the level of engagement that omnichannel retailing has enabled. From a manufacturing perspective, omnichannel retail has already proven itself by eliminating tons of wasted materials in traditionally wasteful industries like clothing manufacturing (Hodgkinson, 2018). This is in part via automation and customization processes but further waste can be reduced through demand planning. A tool which allows for businesses to more accurately track demand for products, either by seasons, trends, or other elements. This allows companies to optimize their purchases and supply chain to meet demand, reducing wasted resources and lowering their carbon footprint.

Conclusion

The world of retail is in a disruptive state. The Millennial and Gen Z consumers are more fickle than ever. Brands and retailers are having to engage with them through a variety of mediums to ensure that their offer is both relevant and timely. As retail has to evolve, the back end and the supply base has to likewise adapt. Asian manufacturing has taken up this challenge. China has committed to Smart Manufacturing by 2025 and India has similarly identified technological innovations in manufacturing as an important component of economic growth.
Omnichannel retail has become a necessity in order to capture the consumers’ attention. The aim is to spike the interest of the consumer within that 8 second time frame. It is not a lot of time; less than that of the often referenced forgetful Goldfish, which has an attention span of 9 seconds.

ET2C is a soucing company that understands your needs. For all enquiries on manufacturing in Asia, customization, radical supply chain transparency strategies and other topics, please contact us via our website, www.et2c.com.

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Entering New Markets: The Challenges of Social & Ethical Compliance

social and ethical sourcing compliance

 

Asian sourcing markets are in a state of flux. With the rise of protectionism, currency volatility and emerging manufacturing economies, companies are increasingly looking to pursue diversified sourcing strategies. Whilst the old adage of ‘not putting all your eggs in one basket’ rings true, entering new sourcing jurisdictions is not always easy. Not only must suppliers meet the quality, capacity, price and delivery requirements, but also all relevant compliance requirements. Certain markets present their own unique issues with regards to compliance expectations. Whether cultural, regulatory or standard business practices, having an insight will help mitigate the risk of buying from these countries.

New Sourcing Trends

In recent years, social and ethical compliance has become increasingly important for any purchasing decision, as issues like worker safety, modern-day slavery, fire safety and working hours have gained attention from not only NGO’s and consumers, but both governments and investors alike. ‘Corporate Social Responsibility’ strategies are widespread and ethical audits are not only common place anymore but mandated.

China’s manufacturing base has already been through an extensive compliance transformation, due to the audit requirements that have been in place for many years (backed by the Government recently on environmental practices). Similarly, Vietnam also has years of experience in the compliance arena; even to the point where new technologies are being invested in and the wider story is compelling. For example, one Vietnamese garment factory’s dye treatment plant is so good that they are using it to clean the local communities drinking water. That’s not to say that there is not any non-conformance in these markets, but just that the manufacturing base is well developed and generally understands the requirements to export products.

What about other markets that fall further from the China basket though?

Where is Sourcing Going?

Cost has always been a driver in determining emerging low cost manufacturing markets. Industries that have a reliance on cheap labor, such as garments and textiles in particular, are often the earliest entries into these markets. Many companies are therefore looking towards low-cost countries in Southeast Asia, such as Bangladesh, Cambodia, Indonesia and Myanmar, where there is an abundance of low cost labor, while others are focusing on newer locations in Africa, specifically Ethiopia.

 

cheap labour markets compliance
Industries such as garments and textiles often rely on cheap labour markets.

 

Clearly, Asia as a continent has its own idiosyncratic operational and regulatory business practices that provide an overlay of complexity when working in this part of the world. Corruption, language, cultural differences, developing fiscal and monetary policy are all often referred to. However, when entering new emerging manufacturing markets, which are not as experienced with exporting products, there are often additional challenges as the nascent manufacturing sector emerges. Being aware of such challenges in these alternative sourcing destinations should be an integral part of working with suppliers from these markets.

Bangladesh

Bangladesh’s large population, low minimum wage and high capacity strategically places the country as a great option as an alternative sourcing location. Although it has seen significant growth particularly in the traditional ‘cut and sew’ categories over the past five years, this has only seen an increase of 0.9% in exports of global market share .

Ever since the devastating and tragic collapse of Rana Plaza, workplace safety has been a key focus with the emergence of the internal initiative, the Accord on Building and Fire Safety. The accord has been responsible for the upgrading of just under 2,000 factories including fire door installations, compliant electric wiring and sprinkler systems. The Government is now looking to take over from the Accord even though some media outlets are reporting that they are not in a position to. The concerns around building safety persist with a spate of deadly fires breaking out in recent months. The decision is currently with the High Court as to whether the Accord can extend and continue its work.

 

sourcing compliance in Bangladesh
The Accord on Building and Fire Safety has been responsible for the upgrading of fire door installations, compliant electric wiring and sprinkler systems in Bangladesh.

 

Myanmar

After years of Junta rule, Myanmar does not have developed laws and regulations that support the manufacturing sector. While their fellow Asian counterparts have had exposure to social and ethical compliance requirements, many factories in Myanmar simply lack this knowledge. There have been multiple reports of underage workers and inconstant policies with minimum hiring age. Although child labor is illegal, companies have faced issues with proof of age and tampering with age verification.

The Sourcing Journal reported that many factories have found their employees regularly working more than the permitted weekly limit, usually without correct compensation, as employees do not know how to calculate their wages. Factories tend to lack compensation packages or have ones that conflict with Myanmar law for overtime and paid leave. The factories also lack experience with fire safety and emergency procedures leading to unsafe working environments and proceeds. The country’s limited rule of law and underdeveloped regulatory regime therefore make Myanmar a riskier sourcing destination as it is more susceptible to land disputes, corruption and general social and ethical compliance. There has also been the recent case of the treatment of the Rohingya People and the broader impact on international perception of doing business with this country.

Cambodia

Cambodia, like some other South East Asian countries, has duty exemptions on shipments to the EU. It is part of the ‘Everything but Arms program’ which allows what the bloc calls “vulnerable developing countries” to pay fewer or no duties on all their exports to EU bloc. However, the EU is considering revoking the special trade deal as they say the Cambodian Government had engaged in “serious and systematic violations of core human rights and labor rights”, which is one of the programs stipulations. According to Ecotextile, The American Apparel and Footwear Association (AAFA), Fair Labor Association (FLA) and six other apparel industry organizations have written letters to Prime Minister of Cambodia urging action. These letters highlighted problems linked to criminal charges and convictions of labor leaders, the Trade Union Law of 2016, and the diminished role of the Arbitration Council. Each cited as a factor for hindering progress towards improving workers rights. Beyond these, the country’s manufacturing sector also faces poverty wages, gender inequality and violence, and the potential impact automation may have on the further degradation of workers’ rights.

Ethiopia

Ethiopia offers a lot of opportunity for sourcing companies with low costs and the ability to become a source of raw materials. However, social and ethical compliance has been a significant issue. Like many Asian sourcing locations Ethiopia has many health and safety, workers compensation, and corruption concerns. However, unlike the Asian destinations mentioned, Ethiopia lacks a minimum wage. Companies already invested in Ethiopia have faced issues with land disputes as the Government has assigned land that communities consider to be jointly owned grazing land. This raises concerns of potential land grabs in Ethiopia and other potential social compliance issues. As one would expect, the general understanding of compliance is less widespread and therefore increases the risks to those investing in Ethiopia.

Summary

There is no doubt there is, to a certain extent, a commonality of issues around compliance when operating in Asia. It should also be remembered that there are examples of social and ethical non-conformance in developed markets as well. It is all of our responsibility to ensure that we are engaging with businesses, wherever they are located, that understand social and ethical compliance.

Ultimately, price will always be a driver. And with that, new markets can in certain industries provide cost savings but it is important to remember that there will generally be a higher level of risk in low cost markets. Often companies will look to leverage an established factory (such as Chinese, Taiwanese or Korean) that is relocating or opening a new facility in a new market. In these cases, there is often a presumption of similar compliance practices being transferred to the new site.

At ET2C we are committed to social and ethical compliance. We are constantly monitoring our Asian supplier base and are in the process of setting up our own Code of Conduct at all our vendor sites to reinforce the practices we expect of our partner factories. We continue to stay up to date with new sourcing destinations through our network of partners where we do not have our own offices. For more information, please contact us.

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The Price of a Better Future: IMO 2020

IMO increases costs of freight in 2020

 

In the wake of the many “green” movements striving to secure a healthier and more sustainable future for future generations, some costs have emerged that we must endure. In the process of disrupting an unsustainable status-quo, the International Maritime Organization (IMO) has voted to reduce the amount of sulfur in bunker fuels from 3.5% to .5% by 2020. This declaration will have an impact on shipping costs but a necessary cost in what is a polluting industry, particularly when there are greener alternatives being developed.

Why the IMO 2020 was Passed

To provide some context; bunker fuel is a term that describes the type of fuel used by ships. Hence, the name “Bunker” comes from the part of the ship in which the fuel is stored. These fuels are derived from the residue of crude oil distillation, which contains sulfur. When a ship travels, it burns these heavy fuels and creates emissions that hold high levels of sulfur. These sulfur emissions, according to the IMO, cause health and environmental damage, including widespread lung disease, the creation of acid rain, and increased acidification of the oceans (IMO, 2019). Without the regulations in place, the IMO estimates that up to 570,000 premature deaths could be caused between 2020 and 2025 along with the extinctions of many marine species.

 

IMO regulation to protect biodiversity
The IMO’s regulation aim to protect the rich biodiversity of the oceans we travel across and the future generations that depend on us for a healthy planet.

 

The IMO 2020 rules apply to multiple jurisdictions on fuels used for ships crossing the open oceans, which ultimately represents 3.9 million barrels a day, according to the International Energy Agency (Liang, 2019). These regulations have shipping companies debating over which options they should pursue in response to the IMO 2020 regulations. Some of these options include:

  • Use of Low Sulfur Fuels
    But…This creates significantly higher fuel prices. While refineries still must determine how to price the new low-sulfur fuels, they will undoubtedly be more expensive than current fuels being used due to the complexities of their creation.
  • Scrubbers and the Increased Use of Scrubber Fuels
    Yet… The installations of scrubbers create high investment costs and require dry-docking, a time-consuming and resource-intensive process. It also comes with some regulatory uncertainty about the use of scrubbers in creating low-sulfur fuels.
  • Use of LNG (“clean gas”) propelled vessels
    But…This can only be used on new vessels since it is too expensive to replace the parts of old ships required to utilize these products. It also creates more complex fuel handling, causing cargo loading to possibly be limited during fueling as well, creating a larger time commitment and increasing the opportunity costs. The use of these fuels will also add a $400,000-800,000 cost per voyage to each ship once all the modifications are made to comply with the new regulations.

What It Will Do

Although there are a range of options, none of them are without risk and additional costs. Refineries will be on the receiving end of the increased demand for low-sulfur fuels, impacting margins for simple refineries and giving larger margins to complex refineries that can already produce the low-sulfur fuels. As for high-sulfur fuels, their value will most likely collapse until it is able to find lower-value end-uses, where it would compete with coal for electrical power generation, reducing its price to roughly a third of its 2018 value (Hamilton, 2018). This cross-sector ripple from the IMO regulations threatens to impact not only the prices of bunker fuels but also the costs of shipping goods around the world, with an estimated $30 Billion cost to the US shipping industry (Poskus, 2018).

 

economic costs due to IMO
Many ship owners and refineries will feel both the accounting and economic costs of the new IMO regulations.

 

The cost of the IMO regulations will have a broad impact. Firstly, compliance with the IMO 2020 regulations is set to increase the costs of port-to-port shipments by 20%, most of which will be paid for by the end user (i.e. the consumers). For instance, the site Flexport.com states that shipping 40” TVs from Shanghai to Los Angeles will cost shippers an additional .50 cents per unit. With enough scale, this increase in landed cost could potentially have an inflationary effect. Furthermore, the regulations may cause freighters to reduce their carrying capacity by 4-5% in the short-run and up to 2% permanently. This will also lead to the practice of “slow-steaming,” where a ship reduces its speed to save fuel, to possibly become more common, which may lengthen delivery times for businesses ordering goods from abroad (Poskus, 2018). Overall, the costs of the IMO2020 movement will be felt around the world, from shippers to consumers.

Closing Remarks

From the 1st January 2020 these new regulations will come into effect. The shipping lines are already taking measures to accrue the additional investment in their fleets and, if not already, you should anticipate shipping rates to start increasing in the near term. Although a reduction in sulfur will only have a positive impact on the environment in line with some of the United Nations Sustainable Development Goals, there are also other technologies being developed that will hopefully not only reduce emissions altogether but potentially lead to cost reductions as well.

At ET2C, we have a range of partners including within the logistics sector and would be happy to provide additional insights on this topic or contacts. Please contact us for further inquiries.

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The Dawn of the Machines: Automation in East Asia

automation in east asia

 

When the word “automation” is mentioned, what comes to mind? Is it self-driving cars that allow you to catch some extra sleep on the way to your job? Or is it some futuristic notion of a robot butler who is able to clean your house, walk the dog, and maybe even do the laundry? Well, the concept of robots doing our work for us is not as far off as it may seem. According to the Brookings Institute, 25% of American jobs are already at “high risk” for being overtaken by automation. And that number has been expanding from factory line jobs to more white-collar professions like accountants, data analysts, and even HR directors.

What is automation?

Automation is defined as “the technique of making an apparatus, a process, or a system operate automatically.” In other words, it’s creating a machine or utilizing artificial intelligence (“AI”) to do the job that person or team of people would normally do. Today, jobs centering around food prep, production, and office administration are among the highest risk for automation, with AI being sufficient to cover 70% or more of the occupation’s responsibilities. While workers in the United States and Europe may be nervous for the rise of AI, many countries in East Asia are already experiencing mass automation.

Robotics & AI in Asia

In 2017, Asia led the world with the highest population of robots. With over 1 million robots within the region, Asia has already started to experience the economic and social benefits and risks associated with massive-scale AI and automation. To capture the sheer scale of these advancements, the IMF has estimated the world’s robot population in all continents. Here, Asia far outnumbers all other regions by claiming 65% of the world’s robots, 50% of which are located in China.

Robotics in Asia, reflecting automation
Asia (more specifically, China) claims a majority of the world’s Robotics population. Source IMF, 2018

As far as robot density is concerned, Korea and Singapore are global leaders, followed closely by Germany and Japan (IMF Blog, 2018).

Within Asia, China is automating its manufacturing capability whilst the rest of its Asia neighbours are slow to follow. This is aligned to Beijing’s 2025 initiative of “Made in China”, which focuses on Smart manufacturing. This should lead to additional productivity gains and ultimately reduce the competitiveness of some of the smaller emerging exporting countries.

Smart manufacturing is a broad term that describes manufacturing processes that use technology such as robotics, AI, digitisation to drive efficiencies and increase the levels of agility within the production cycle. Importantly, in line with the ever-evolving consumer, this will enable mass customisation and enable Brands to create more personalised experiences for their customers.

Robotics: Here to Stay

When viewing some of this data, some skeptics may wish to point out that automation is simply a niche market or fad. They believe that human labour, with all of its flaws and risks, will prevail in the long term. Yet, world-recognized authorities on economic trends, such as the IMF and WEF, seem to forecast otherwise. The World Economic Forum stated in an article published in September that “More robots than humans doing technical work may bring down the cost of business, including labour costs, significantly.” Using conventional economic knowledge that firms will try to maximize profit and reduce costs, it seems extremely likely that many businesses could adopt automation into their manufacturing processes. This is especially the case if the cost of robots continues to fall and the opportunity cost for not adopting automated processes increases.

Robotics and Manufacturing as part of automation
Will the usage of Robotics become more and more common in Manufacturing?

Hi-tech Manufacturing: less variability in production

Manufacturing also stands to gain from increased automation. Most companies using robotics justify their decision to make the switch with increased productivity and producing more outputs. Automated systems are usually able to produce with less variability than human beings, which often results in greater control and consistency in quality (Groover, 2019). It’s clear that robotics and automation offer many advantages to a firm. Yet, there are still some costs associated with phasing out human labour.

Brands themselves are also investing in hi-tech manufacturing. Nike, Adidas and Under Armour are investing millions of dollars in new technologies that will revolutionise how and where they make their products. It is estimated that by Nike using ‘Flex manufacturing’ to manufacture Nike Air shoes, they will be able to reduce the cost of labour by 50%.

advantages of Manufacturing and thus advancing automation
Manufacturing also stands to gain from increased automation, greater control and quality consistency for example offer many advantages.

Clearly the level of automation in a manufacturing plant is highly dependent on the products being made. The Garment sector, for example, still to a large extent relies upon low-value added manual labour. This has enabled the industry to globalise to many different emerging manufacturing countries around the world. As a result, it is likely that the clothes that you are currently wearing are made in multiple different export markets. The cost advantages of broad automation within the Garment industry is not therefore immediately obvious versus the capex required. In stark contrast, automated production lines for car manufacturing are now common place.

Summary

There is no doubt that Robotics and AI will continue to develop and become more common at manufacturing plants across Asia. China is leading this evolution, supported by Central Government. Therefore, expect to see levels of automation broadly increase in factories to drive productivity gains and more agile production. The rise of the machines is a reality, but do not expect to hear the phrase ‘I’ll be back’ quite yet!

We are constantly speaking with our factories to understand what automation means to them and what the future holds. To learn more, contact us.

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It’s Not Just a Phase: Why the difference between Greenwashing and Sustainability is Important

greenwashing and sustainability

 

Hip… tubular… fly… slammin’… At one point, these words were a mark of being one with the times; status symbols displaying social aptitude. However, over the years and through thousands of uses, these worn words are more likely to prompt an eye-roll than a positive response. Today, Could the same be said for the word “sustainable?” How about “green?” Perhaps even “environmentally-friendly?”

If you have ever felt overwhelmed or exhausted walking through any grocery store as labels and signs proudly boast the words “all natural ingredients” accompanied by pictures of bucolic landscapes with welcoming farmers smiling with their products in the foreground, you may be experiencing what is known as Green Fatigue.

Green fatigue, as defined by the website EcoWho, “becoming tired with some of the constant messages of corporate green credentials and tales of impending global doom” (EcoWho, 2018). In today’s world, it’s easy to feel a bit of green fatigue. Nobody likes being told the world may be ending or that the food they’ve been eating all their lives comes from some nightmare-inducing industrial plant. This may cause some to look away from the promises of sustainable practices. The word gets used so often, how is the average consumer supposed to know what it means or if the company is really helping the environment?

difference between greenwashing and sustainability
Pictures like this are common in outlets that support sustainability. But what does it mean?

What Happened to the Word “Sustainable?”

A lot of things happened to the word “sustainable”. While environmental friendliness picked up steam as a widespread social movement in the 1960s counterculture era, words like sustainability didn’t start popping up so much in business rhetoric until the 1970s. In the 70s, various companies capitalized on the fresh environmental policies in the US at the time, such as the National Environmental Policy Act of 1970, the Clean Water Act, and the Endangered Species Act, in order to gain favor in the eyes of the public and government.

 

Sustainability in Politics

However, it wasn’t long till the word sustainable began to become politicized. Politicization of science is nothing new in the United States, so once green policies became popular among democratic politicians, the opposite side of the political spectrum became skeptical about the legitimacy of the evidence used to back up these policies. A report by political scientist, David Karol, states that:

“Endorsements and campaign contributions from environmental groups now overwhelmingly go to Democratic candidates, while economic sectors frequently at odds with environmentalists, including fossil fuel producers and much of agribusiness, increasingly support Republicans. Divisions between Republican and Democratic voters on the environment, while not as great as among political elites, have grown as well” (Karol, 2018).

The result of this growing divide has seen more eye-rolling at the word “Sustainable” by those who fall on the conservative side of American politics. Right-wing news sources are often quick to decry companies promising more sustainable practices or environmentalist policies passed by the government as part of an agenda to weaken other businesses or increase taxes. Hence, these sentiments have radiated out from this community, influencing the minds of many to doubt the credibility of the word “sustainable.”

 

Sustainability Becoming Greenwashing in Marketing

Most people in business are familiar with the term whitewashing, which is used in reference to an entity covering up certain vices by utilizing biased investigation techniques or data. However, not as many are familiar with the term greenwashing, but they definitely have experienced it in one way or another.

So what exactly is this…Greenwashing? Business News Daily defines greenwashing as, “when a company or organization spends more time and money claiming to be “green” through advertising and marketing than actually implementing business practices that minimize environmental impact.” The article continues to mention that this is rarely caused by evil intentions but usually occurs by overexcited marketers who desperately want to sell to the rising number of environmentally conscious consumers (Edwards, 2018). And the numbers provide a good reason for enthusiasm:

environmental impact and sustainability
Shoppers in the US are becoming more environmental conscious. And so are marketers (Walker, 2013).

However, there are also good reasons for nervousness when it comes to buying products that claim to be sustainable, even if one does support the concept. For instance, in 1991, DuPont, a chemical company, used an ad portraying animals rejoicing as the company showed off its new sustainable double-hulled oil tankers. Consumers who viewed the ad had their visions of a green DuPont dashed in front of them when it was discovered that the company was the largest polluter in the US that year.

So does this mean we should give up on companies that promise to be eco-friendly? Not at all. Like in most things, the bad minority of news tends to reach us before the good majority. For the most part, businesses that promise sustainability are making a difference.

 

A cliché, but a Good Cliché

Still, the word sustainable draws a lot of confusion. Are there any requirements for a company to call itself sustainable? What are the motivations to actually become sustainable? Is it all just a bunch of corporate jargon or are there results to back up these claims? These are all valid questions that any consumer doing their due diligence should be asking themselves. Nonetheless, most of these smart shoppers would be happy to report that, for the most part, there are hopeful answers.

Guidelines Exist for Responsible Marketing

For starters, there are many strategies companies can follow when becoming sustainable. One of these procedures was released by the U.S. Federal Trade Commission, which offers voluntary guidelines for green marketing claims including processes like “qualifications and disclosures should be clear, prominent and understandable,” “not [to] overstate, directly or by implication, an environmental attribute or benefit, “ and “to avoid consumer confusion about the comparisons” (Investopedia, 2018).

While these tips are voluntary, following these guidelines is great for risk management when marketing sustainability. Marketing responsibly, a company can avoid lawsuits, community outrage, or a multitude of other problems that could arise from greenwashing.

Interestingly, there is growing evidence that for a company to market ‘sustainability’, it needs to be an integral, innate part of the company’s strategy. It needs to resonate with the organization to the extent that all the stakeholders engage within the initiatives. The modern consumer has to believe that it is a genuinely held and executed mantra within the organization for it to have an impact on the brand/product resonance.

Sustainability Helps Companies Grow

The data-collection company GlobeScan points out that, “continuing the trend of the last few years, most high-ranked companies are consumer-facing brands” This means that more now than ever before, companies really do care what their consumers think about them.

The increased transparency of markets and increased access to information has boosted the practice of sustainable standards. Realizing this is companies such as Unilever, Ikea, and Patagonia, that follow through on their sustainable values which retain and capture audiences through their reputation as global leaders of sustainability (GlobeScan, 2018). This should send a clear message to marketers that the best way of selling the idea of sustainability is through actual implementation. This correlates with GlobeScan’s survey data which displays a majority of marketing experts agreeing that “Integrated sustainability values are the best way for a company to become known as a sustainable leader” (GlobeScan, 2018).

values for sustainability
Data from GlobeScan’s survey shows a majority of experts agree that integrated values are the best way for a company to become a leader in sustainability

Even so, the benefits of sustainability can help companies in more departments than just marketing. An article from McKinsley and Company presents executives of various and diverse industries sharing the benefits sustainable practices have offered to them, such as risk management, systematic management of value chains, and returns on capital through decreasing operational costs through better resource management (Bonini, 2011). So whether companies are trying to market to certain demographics or not, walking the walk for sustainability still offers many benefits for both big and small enterprises. Philip Kotler recently suggested, at Sustainable Brands 2018 – Madrid, that companies that ‘do good’ do better financially, even if there is an initial cost’. It can actually make the company more profitable.

 

Walking the Walk in Sustainability

So, has sustainability become a buzzword? Unfortunately, there is no denying that it has. Politicians and marketers have sucked a lot of the meaning out of the standalone expression. However, this could be for the better. It is displaying to companies that they need to go the extra mile to win over the increasing number of environmentally-conscious consumers.

Consumers are getting more detail-oriented when it comes to buying “green products,” which may come off as a chore for companies to cater towards. Evidence shows otherwise though. For instance, Walmart, number one on the Fortune 500, has saved $12 billion in global supply chain savings in 2011 through a packaging “scorecard” that lowered packaging costs throughout the company’s global supply chain by 5 percent from 2006 levels (Bonini, 2011). Walmart displays what walking the walk in sustainability can do for your company, especially in the way of supply chains.

AT ET2C, we’re serious about sustainability and it’s benefit to our existence as well as the ultimate commercial benefits for purpose driven companies. We are therefore looking into different aspects of sustainability within the supply chain and what it may mean to some of our clients. If you want to talk to us about your own sustainability objectives and how to implement them, contact us.

It’s Not Just a Phase: Why the difference between Greenwashing and Sustainability is Important Read More »

A Local Presence is a MUST for Companies Sourcing from Asia

local presence is a must for companies sourcing from asia

 

Asia has been an export powerhouse over the past decade. Although the manufacturing base is increasingly fluid across country borders (labour costs, tariffs etc), this will continue for some time yet. In 2017, East Asia exported 5.2 trillion dollars of products to locations like the European Union, the United States, and other East Asian nations like Japan and South Korea.

It remains that sourcing and manufacturing products in Asia can be advantageous and a benefit to your company. However, there are considerable risks of buying from overseas markets; the internet and platforms such as Alibaba have created a massive market (a positive) that can often ‘brush over’ the risks inherent with distance, new cultures, languages and foreign laws and regulations (a negative).

 

Develop relationships

Anybody who has conducted business in Asia will stress the importance of meeting the manufacturer face to face. Companies operating in overseas markets do not always have this luxury. This is where some form of presence is an integral part of benefiting from your Asian supply chain. The ability to develop relationships, monitor production and relay information to the decision makers should not be underplayed.

Depending on product category, volumes, markets and product value, a company has a variety of options to establish a presence. Setting up one’s own office and operation in Asia is at one end of the spectrum. This requires a considerable amount of capital investment and understanding of the local laws and regulations. It is also relatively inflexible and in a fluid market entrenched with global uncertainty there is an argument that now is not the time to be establishing entities in Asia.

 

Work with local partners

Alternatively, one can look to work with local partners, such as sourcing companies and trading houses. Of course, there is a cost to this, but there is also a service being provided where often the communication piece is managed in your local market. With the right partner, it is possible to alleviate the risk, leverage product and operational expertise and provide the visibility that you require to manage your suppliers.

sourcing from Asia
A Buying Office is an Integral Part of Any Business Looking to Source from Asia

Some of the key points to consider when looking at strategic options to have some form of presence in Asia are as follows:

On the Ground

There is no point visiting a factory today, for you to drop down their list of priorities once you have left and are on the plane back home. To develop a relationship that is meaningful, there needs to be some form of constant presence that can be actively engaged with the supplier. We have seen factories in the past change the names on the side of the building for the arrival of their customer!

You need to be able to deal with your key suppliers in their language and in their time zone to ensure clarity and efficiencies (applies particularly for US companies given they are between 11-15 hours behind Asia). It will also help with the development of medium term relationships that are that much more meaningful than arm’s length interactions.

 

Visibility Across Production

If your company was manufacturing products ‘up the road’, you would constantly be visiting the factory to understand how production was going, whether the raw materials were received on time, spot checking in-line quality, and likely doing a final inspection before shipping the goods. It should be no different when buying from Asian suppliers. Having this level of visibility across your production is primarily possible through some form or presence be it an office or a partner in the region.

The ability to identify issues early means that you can put in place solutions. That can be something as simple as the raw material being late and therefore the critical path being extended. Understanding this at the outset means that different parties from logistics, to the ultimate client can be engaged with and expectations managed.

sourcing from asia
Visibility on suppliers at home is usually taken for granted, but visibility from suppliers abroad is just as important.

Risk mitigation

Clearly ensuring that you are getting your products on time and to the requisite quality ultimately enables companies to drive profitable sales. There is nothing worse than receiving goods in your local market that are not compliant and therefore not salable (particularly when you have paid the factory and they are no longer responding to your calls!). Addressing this risk upstream means that there is greater leverage in any discussions required with suppliers given the goods are still on site.

Another part of risk mitigation relates more to establishing an entity in the region and the potential risks that this can come with. Particularly, in China and India, the bureaucracy and regulations and complexity inevitably result in incremental costs building up and time lines being pushed out. These often become a significant distraction to the business when the primary function will be to source and manage the Asian supplier base. Scale of business and expertise will clearly be a factor when establishing your own entity in Asia, but in a lot of instances the costs and other implications can be prohibitive to a business. Just make sure that this is the right solution for you before you move forward.

 

Cost Effective

We are stating the obvious that any option needs to be cost effective. We have seen numerous companies go down a chosen route without a clear understanding of what the final costs will look like and have ended up tripping up down the line as a result. This is applicable whether you a setting up your own office or working with a trading house.

Look at dollar spend on a granular basis rather than get stuck discussing the difference between ‘capex’ and ‘opex’ budgets as a justification for the $100,000 being spent setting up a new office. Understand the full cost implications of establishing an entity before setting it up. For example, there are considerable costs associated with closing a WFOE in China that not many companies are fully aware of at the time of establishing a local buying office. Lastly, leverage solutions that allow a mix of fixed costs versus variable costs (potentially buying some products through sourcing houses).

 

Speed to Market

As the well-known adage says: “Time is money.” When setting up a buying office, a quick set-up is essential to maximizing profitability while minimizing risks in the production process. Given the bureaucracy, establishing an entity in Asia can take longer than anticipated. Build in time to make sure everything is taken into account and you know when the entity is fully operational.

 

Our Solutions

At ET2C, we recognize every client has different needs and we therefore look to tailor our solutions to your individual requirements. Whether it is creating a dedicated team in Shenzhen or working on a sourcing basis, we are here to help you source from Asia in the most cost effective and transparent way. Having operated in Asia for almost 20 years, we understand the complexities of doing business in this part of the world. We know the pitfalls, we know the ‘real’ costs of operating an office in China, Vietnam and India.
Still have more questions or want to learn more about our offerings? Take a look at our website , or contact us at any of our many offices across the world . Our supply-chain professionals are standing by, ready to take your call!

A Local Presence is a MUST for Companies Sourcing from Asia Read More »

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