manual:Building a sustainable supply chain
Assembling a cleaner planet
For IKEA it isn’t just about making affordable furniture, it’s about making products in ways that are good for people and the planet. That’s why Stefan Karlsson, the Sustainability Compliance Manager for IKEA Purchasing Service (China) Co., Ltd. was interested in finding ways to help green IKEA’s global supply chain. But with over 300 suppliers in China alone, this isn’t easy.
Since 2016, Karlsson has brought on board four EDF Climate Corps fellows to help with IKEA’s Coal Removal Project—reducing coal use as a direct source from the energy portfolios of local supplier factories in China. The secret to their success? Working with China’s policies, making the business case and creating change at scale.
Working in China
Policies aimed at reducing the nation’s GHGs are changing the rules for how businesses operate in China. Even cities have their own carbon-cutting plans - like Shenzhen, one of the country’s top manufacturing hubs where a number of IKEA suppliers are based.
IKEA saw an opportunity to take advantage of these regulations: align its internal climate goals to those coming out of China's different policy levels and become a leader in its industry. Here enters the Coal Removal Project.
Could IKEA create self-sustaining factories that could operate independent of the national grid, relying on clean energy only? That's where EDF Climate Corps comes in.
The Coal Removal Project
The project was a global decision made in 2016, in line with the IKEA's sustainability blueprint.
What's the goal? Reduce coal use as a direct source from the energy portfolios of local supplier factories in China.
Why do it? Supply chains account for over 60% over global GHGs. IKEA's supply chain is enormous, spanning 49 countries, with over 300 suppliers in China alone.
How to start
Step I: Tracking coal
In 2016, Karlsson brought in two EDF Climate Corps fellows Tian Qiao and Shuyi Li. Using IKEA's Supplier Sustainability Tool (SSI) – the company’s internal benchmarking tool – Qiao and Li picked out which suppliers were using the most coal as a direct source of energy, had a solid plan and timeline for phasing it out, had not yet started and why certain initiatives had not been taken. Sixty IKEA suppliers were found to be using coal.
But mapping coal use was the easy part. The challenge was convincing suppliers that transitioning away from coal wouldn’t cost them more – in fact, it would probably save them.
Step II: Making the business case
Suppliers were reluctant to change "business as usual" – fearful of the possibility for incurring costs. To make the business case, Qiao and Li conducted an in-depth cost analysis to show financial returns. Yet still, the hesitation remained.
Qiao and Li realized that they needed a success story for convincing more facilities to get on board. And they were right. After sharing the success of Jinjiang Huafeng Weaving & Dyeing Industry, a textile company, more companies got on board.
Jinjiang Huafeng Weaving & Dyeing Industry
Qiao and Li examined the potential for greening the supplier's energy profile, and found that by using alternative energy sources to coal, the company could significantly reduce its GHG emissions and save on costs. Taking into account local government subsidies providing compensation, the company would save roughly 25 percent more by switching from coal. And, since the alternative sources were more stable than coal, it would also see improved product quality.
Step III: Increasing education and motivation
In 2017, two more EDF Climate Corps fellows were hired, Kaifu Han and Junyin Zhang, to evaluate how two suppliers have been using the SSI and identify low-hanging fruit projects. But after conducting energy audits, two problems became clear: suppliers had inefficient energy management systems and little knowledge about how they could improve energy efficiency and cost savings.
Looking to change this, Zhang and Han sat down with each supplier to talk through their goals, plans and guidelines for a management system. They also helped find practical energy-saving projects, like improvements to lighting and compressed air systems.
The next step was getting suppliers to improve their sustainability practices without IKEA by their side. To create autonomy the following resources were created:
- Sustainability Casebook
- Management System Framework
- SSI Verification Guide Revised
- Detailed Action Plan
IKEA’s work is the type of high-impact, scalable work that our environment needs. As more suppliers engage, and improve their SSI scores, more will follow. Beyond IKEA, these projects serve as a model for other companies looking to improve their global supply chains. And as more buyers put the same demands on their suppliers, we’ll see a transformation of the global supply chain unfold at a much faster pace.
IKEA Range & Supply is now equipped with materials offering tangible next steps for suppliers to follow, helping them to become better educated and aware of opportunities for saving both energy and money.
Moving forward, Karlsson can quickly identify new suppliers using coal and inform them of the processes and solutions for removing it, as well as leaving them with measures for tracking progress.
A finished product: sustainable suppliers
IKEA and its suppliers are wasting no time to take advantage of the potential savings. For example, in 2015, coal made up 91 percent of Jinan Dior Glass Product Co., Ltd's energy generation and by the start of 2018, coal was removed entirely from its operations, reducing CO2 emissions by 35,200 tons. Gas water boilers were switched out for electric boilers, and the waste heat from the furnace is now used as a heating source, replacing the need for a energy-thirsty heating boiler.
IKEA is working on a step-by-step approach for all suppliers to upgrade or replace air compressor systems - one of the most expensive energy sources - in the long run, resulting in improved energy efficiency, and therefore reduced CO2 emissions and production costs. IKEA plans to facilitate the process by sharing successful examples, including clear ROI results, with supplier that are hesitant, as well as increasing the awareness in understanding the importance of investing in high quality equipment.
The IKEA business idea is to offer a wide range of home furnishings with good design and function at prices so low that as many people as possible will be able to afford them.
IKEA Range & Supply, which is a part of Inter IKEA Group has the responsibility to develop, design, produce and supply IKEA stores around the world with home furnishing solutions available to the many people. Each year IKEA Range & Supply introduces 2,000 new products in the IKEA stores. The total range is almost 10,000 products.
About EDF Climate Corps
EDF Climate Corps is a network of professionals united to advance climate solutions. The fellowship program brings together an arsenal of top talent, resources and expertise in a variety of subject matters and industries to help organizations meet their sustainability and energy goals.