Corporate Social Responsibility (CSR) has been more and more important today in consumers mind. People started to care not only about themselves, but also their environment. Unilever, Consumer Package Goods (CPG) company, launched “Unilever Sustainability Living Plan” (USLP) in 2010. The plan drew a vision that before 2025, the company is going double the business while halving environmental footprint. It is a challenging and unconventional mission statement. Traditionally, people perceived there is a trade-off between economy development and environmental impact. Unilever sent an extraordinary signal that it’s going to improve both at the same time. Rather than simply focusing on charity or donation, Unilever built each brand with purpose. For example, Dove stands for “Real Beauty”, saying that women shall be confident in themselves regardless of their ages, races or body shapes; Lifebuoy dedicates to promote sanitary concept by educating people in remote, developing areas.
The brand which address climate change and environmental issues is Lipton. Its Yellow Label Lipton Tea is now selling in more than 100 countries. To make commitment to environmental sustainability, Lipton volunteers to cooperate with an NGO called “Rainforest Alliance” (RA), which aim to fight climate change by reducing negative impacts from agriculture. Lipton set an ambitious goal that, by the end of 2015, all tea bag products under the brand should be sourced by Rainforest Alliance certificated tea farms.
The concept was highly recognized by consumers in Taiwan. As soon as it was deployed and communicated to consumers, the sales of the tea bag products grew 13.2% versus the same period in preceding year, which was a significant turnaround of Lipton tea bag’s business in 2016 H1 while the product line was suffering from decline in previous years. After the business success, more farmers were committed to join the certificate. Moreover, competitors followed Lipton’s pace to certify their tea farms to attract consumers. Lipton literally changed the face of the competition in Taiwan in 2016.
Despite of the success on business, Lipton team faced significant challenges on the whole supply chain. Firstly, tea leaves sourcing was a big issue. The procurement team had to find farmers who were willing to cooperate with Lipton to meet the standards required by the Certificate, which was extremely strict and complicate. For example, the pesticide usage was divided to 3 categories – green light (safe), yellow light (moderate toxic) and red light (dangerous to soil and human body). The certified tea farms could only adapt the pesticides in the first 2 categories, most of the farmers having to their previous behaviors. Beside pesticide regulation, there were ten regulatory categories, consisting of 100 sub-rules. The efforts put on communicating, persuading and changing incentive system was huge and costly. Moreover, production site audit was required. The factories used to produce Rainforest Alliance certificated tea products should pass the audit by the NGO. The process often takes half an year preparation and 3 days dedicated on-site audit, which were extra investment and complexity on factory operation.
Furthermore, there were several problems faced by the supply chain of Lipton tea bags. Firstly, the reaction of demand of tea leaves was slow. When the demand went up, it usually ends up with supply shortage because Lipton products can only use the tea leaves which came from the certificated tea farms – the flexibility suddenly became low. To avoid Out of Shelf (OOS) in trade, the only thing the team could do was to ask supplier to build higher safety stocks and absorb the cost of inventory or potential write-off of the remaining unsold tea leaves. Moreover, the difference in government regulation across different countries posted complexity on global supply. For example, the factory in Indonesia supplied Yellow Label tea bags to 8 Asian countries including Taiwan. Taiwanese government changed pesticide restriction on imported tea leaves frequently in response to the uncertainty of the safety of the raw materials. When Lipton team raised request on pesticide requirement to Indonesia supply chain, the reaction of the factory was often lagged. On one hand, Indonesia procurement team had to push back to farmers to improve pesticide usage, which was troublesome and time-consuming; on the other hand, Taiwan’s demand of tea leaves accounts for relatively small portion of total supply volume, the Indonesia team simply reluctant to help or change anything.
Although the excellent business result, the project was still suffering from huge complexity on sourcing, which raised cost of the product. The low margin was frequently reviewed by upper management team and stress was put on Lipton team. What’s the best way to drive business and sustainability while improving the gross margin? How should Taiwan Lipton team negotiate with Indonesia supply team to provide products that conform to local regulations? Should Taiwan team keep investing on Rainforest Alliance Certificate project?
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Mostly from personal experience when I was the Product Manager of Lipton Tea in Taiwan.
Unilever website: https://www.unilever.com/
Rainforest Alliance website: https://www.rainforest-alliance.org/