Developing Exxaro (Pty) Ltd Sustainable Supply Chain Strategy

 
Developing Exxaro (Pty) Ltd Sustainable
                     Supply Chain Strategy

                                           By

                         Mzimasi Eschalaus Tshikila

                      Research report presented in partial fulfilment
                          of the requirements for the degree of
                           Master of Business Administration
                  in the Faculty of Economic and Management Sciences
                                at Stellenbosch University

                          Supervisor: Mr Jako Volschenk

Degree of confidentiality: A                                            December 2011
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                                         DECLARATION

By submitting this research report electronically, I declare that the entirety of the work contained
therein is my own, original work, that I am the owner of the copyright thereof (save to the extent
explicitly otherwise stated), that reproduction and publication thereof by Stellenbosch University will
not infringe any third party rights and that I have not previously in its entirety or in part submitted it
for obtaining any qualification.

ME Tshikila

March 2011

Copyright © 2011 Stellenbosch University
All rights reserved
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                                ACKNOWLEDGEMENTS

                                 “no man is an island of his own”

Studying an MBA is a highly challenging commitment. My wife and the kids have shown valuable
support especially during the times I had to be away balancing my work and study responsibly.
Although they have agreed to allow me time for studying, I know it has not been easy for them to
spend very limited time with me and I thank them for assuring me of their love and understanding.

My lecturer, Mr Jako Volschenk, has not only presented himself excellent as my instructor, but also
demonstrated his willingness and commitment to assist with managing the quality of this research
work while marking my write-up with the attention it deserves. I really appreciate his technical
coaching with a challenging attitude towards me as his student.

The Exxaro supply chain functionaries, sustainable supply chain steering committee and supply
chain forum members willingly shared their experience and knowledge in a manner that made it
easier to produce the quality of work required for successful completion of this project. They have
been very responsive and challenging during the workshops and survey based “AS IS”
investigations while providing valuable inputs on the general focus of the study in a way that
motivated my learning experiences.

Lastly, I sincerely thank you my group manager, supply chain (Pieter Venter) for allowing me a
study environment and recognising the contribution that supply chain sustainability can offer the
Exxaro business. He has been very optimistic about how sustainability can contribute to value
release initiatives brought by supply chain management into Exxaro’s strategy. The time off from
the office that he has allowed me for visiting the Exxaro business units and other mining
companies for benchmarks and investigations, has been very helpful in formulating facts about the
study.
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                                           ABSTRACT

This exercise aimed at developing a sustainable supply chain strategy that was adopted by Exxaro
Resources (Pty) Ltd. The focus of the approach was to assess the status of Exxaro’s supply chain
sustainability compared to that of competitors operating in South Africa and the supply chain
dimensions    applicable   to   Exxaro’s   scope   (i.e.   green   inventory   management,    green
warehouse/storage management, sustainable procurement or sourcing, sustainable supplier
management and sustainable transport/business travelling). The strategy framework used includes
a review of supply chain sustainability relating to Exxaro and the requirements thereof, depicting
gaps, recommended actions or initiatives to close the gaps, an implementation approach and a
schedule. The strategy sets out to distinguish Exxaro in supply chain sustainable development
through the setting of guidelines, reporting standards and commitments to economic, labour,
human rights as well as social and environmental well-being. The approach envisages
collaborating with suppliers and Exxaro’s sustainable development department to continuously
improve and embed positive sustainability practices within Exxaro’s supply chain processes.

This research report highlights the progress already made with high-level sustainable supply chain
management implementation by selected Exxaro competitors, relevant schools of thought and
theories with the emphasis on bringing a link to opportunities for Exxaro to progress into supply
chain sustainability. The relationship between supply chain practices, environmental performance,
social and economic impacts was studied. The mining sector, with its history of negative impacts
on societies and the environment, is continuously challenged by the increasing emphasis to
demonstrate ethical, social and environmental performance and accountability throughout its
business practices.

The use of Exxaro as a practical case study limits the extent to which the recommended strategy
can be generalised to any mining environment or company. Findings mentioned may be subject to
further research by augmenting the scope to include mines operating outside of South Africa or
additional mining entities and theories.

The approach of the research included empirical studies in the form of in-depth interviews and
questionnaire surveys on various internal stakeholders. Some information was obtained from the
annual reports of Exxaro and a selected number of South African mining companies that are
mining similar products to Exxaro. The data was analysed using statistical methods for social
sciences with both qualitative and quantitative evaluation methods.
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                                                     TABLE OF CONTENTS

Declaration.......................................................................................................................................... ii
Acknowledgements .......................................................................................................................... iii
Abstract .............................................................................................................................................. iv
Table of contents ............................................................................................................................... v
Table of contents ............................................................................................................................... v
List of tables ...................................................................................................................................... ix
List of figures ..................................................................................................................................... x
List of acronyms and abbreviations ............................................................................................... xi
CHAPTER 1:                ORIENTATION ........................................................................................................ 1

   1.1        Introduction ............................................................................................................................ 1
   1.2        Problem statement ................................................................................................................ 4
   1.3        Research objectives .............................................................................................................. 6

       1.3.1 High-level deliverables ...................................................................................................... 7
       1.3.2 Detailed deliverables ......................................................................................................... 8

   1.4        Research focus ................................................................................................................... 11
   1.5        Clarification of key concepts ............................................................................................... 12

       1.5.1 Green ............................................................................................................................... 12
       1.5.2 Supply chain management .............................................................................................. 12
       1.5.3 Sustainable/sustainability ................................................................................................ 13
       1.5.4 Sustainable development ................................................................................................ 13
       1.5.5 Logistics ........................................................................................................................... 13
       1.5.6 Supplier ............................................................................................................................ 13
       1.5.7 Sustainable supply chain management .......................................................................... 13
       1.5.8 Green supply chain management ................................................................................... 14
       1.5.9 Exxaro .............................................................................................................................. 15

   1.6        Importance/benefits of the study ......................................................................................... 15
   1.7        Research design and methodology .................................................................................... 16
   1.8        Chapter outline .................................................................................................................... 21
   1.9        Nature and form of results................................................................................................... 21
   1.10       Conclusion ........................................................................................................................... 22

CHAPTER 2:                GREEN AND SUSTAINABLE SUPPLY CHAIN LITERATURE REVIEW .......... 23

   2.1        Introduction .......................................................................................................................... 23
   2.2        Defining the field .................................................................................................................. 25

       2.2.1 Sustainable development ................................................................................................ 25
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      2.2.2 Corporate social responsibility ........................................................................................ 26
      2.2.3 Labour standards in suppliers ......................................................................................... 28
      2.2.4 Supply chain management .............................................................................................. 28
      2.2.5 Human rights standards in suppliers ............................................................................... 29
      2.2.6 Supply chain .................................................................................................................... 29
      2.2.7 Green supply chain management ................................................................................... 31
      2.2.8 Exxaro strategy focus areas ............................................................................................ 32
      2.2.9 Environmental management ........................................................................................... 32
      2.2.10 Supply chain management challenges ........................................................................... 32

         2.2.10.1       Transparency of supplier information across functional and organisational
                        boundaries is limited: ............................................................................................. 33
         2.2.10.2       Communications gap – Misalignment between The South African Bill of Rights
                        companies, their suppliers and third parties: ......................................................... 33
         2.2.10.3       Fragmented supply chain information management: ............................................ 33
         2.2.10.4       Monitoring, capability building and training programmes are not aligned: ........... 33

      2.2.11 Green supply chain management ................................................................................... 34
      2.2.12 Sustainable supply chain management .......................................................................... 34
      2.2.13 Drivers and responses for sustainable supply chain information/transparency ............. 35

         2.2.13.1       Drivers .................................................................................................................... 36
  2.3       Conclusion ........................................................................................................................... 37

CHAPTER 3:              RESEARCH SCOPE, METHODOLOGY AND ANALYSIS.................................. 39

  3.1       Introduction .......................................................................................................................... 39

      3.1.1 Scope dimensions ........................................................................................................... 40

  3.2       Information gathering .......................................................................................................... 41

      3.2.1 Face-to-face interview visit on Exxaro peers or competitors .......................................... 41
      3.2.2 Face-to-face interview with Exxaro’s supply chain or materials managers .................... 42

  3.3       The questionnaire design .................................................................................................... 43

      3.3.1 Questionnaire sent to four selected mining companies .................................................. 43
      3.3.2 The business unit’s materials managers or supply chain managers questionnaire ....... 43
      3.3.3 Data collection ................................................................................................................. 44

  3.4       Data analysis ....................................................................................................................... 45

      3.4.1 Responses from the 4 mining companies ....................................................................... 45
3.5            General analysis .............................................................................................................. 46
      3.5.1 Policy analysis ................................................................................................................. 46
      3.5.2 Strategic objectives and targets ...................................................................................... 47
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   3.5.3 SSCM implementation ..................................................................................................... 47
   3.5.4 Carbon footprint ............................................................................................................... 47
   3.5.5 Sustainable reporting ....................................................................................................... 47
   3.5.6 General analysis .............................................................................................................. 47
   3.5.7 Responsiveness from the Exxaro business units’ materials managers and SCM
             managers......................................................................................................................... 47
   3.5.8 Analysis of response from the BU materials managers .................................................. 48
   3.5.9 Green inventory management implementation ............................................................... 49
   3.5.10 Sustainable supplier management implementation ........................................................ 49
   3.5.11 Sustainable procurement implementation ....................................................................... 50
   3.5.12 Green warehouse management ...................................................................................... 51
   3.5.13 Sustainable supply chain strategy ................................................................................... 52

 3.6     Conclusion ........................................................................................................................... 53

CHAPTER 4:            FINDINGS .............................................................................................................. 55

 4.1     Introduction .......................................................................................................................... 55
 4.2     High-level findings on Exxaro and its peers ....................................................................... 55
 4.3     “AS IS” findings on Exxaro’s sustainable supply chain management status ..................... 56

   4.3.1 Green inventory management ......................................................................................... 57
   4.3.2 Sustainable supplier management .................................................................................. 58
   4.3.3 Sustainable procurement................................................................................................. 59
   4.3.4 Green warehouse management ...................................................................................... 60
   4.3.5 Sustainable supply chain strategy ................................................................................... 61

 4.4     Conclusion ........................................................................................................................... 61

CHAPTER 5:            SUMMARY, CONCLUSION AND RECOMMENDATIONS .................................. 62

 5.1     Introduction .......................................................................................................................... 62
 5.2     Summary of the main findings ............................................................................................ 62

   5.2.1 Incapability to respond to THE JSE (SRI) index and the United Nations Compact Rules
             Surveys ............................................................................................................................ 62
   5.2.2 Exxaro strategic focus ..................................................................................................... 62
   5.2.3 Sustainable progress of Exxaro peers ............................................................................ 62
   5.2.4 Exxaro’s progress status on sustainable supply chain implementation ......................... 63
   5.2.5 Definition of a sustainable supply chain .......................................................................... 63
   5.2.6 Steps to follow when developing a sustainable supply chain strategy ........................... 63

 5.3     Implications for Exxaro ........................................................................................................ 63

   5.3.1 Globally ............................................................................................................................ 63
   5.3.2 South Africa ..................................................................................................................... 64
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         5.3.2.1         South Africa as a country ....................................................................................... 64

   5.4       The recommended “to be”................................................................................................... 64

      5.4.1 The strategy ..................................................................................................................... 64
      5.4.2 Strategy map.................................................................................................................... 65
      5.4.3 Maturity phases ............................................................................................................... 67
      5.4.4 Strategy actions and link to portfolio quadrants .............................................................. 69

   5.5       Recommended strategy staircase ...................................................................................... 70
   5.6       Sustainable supply chain strategy implementation plan .................................................... 71
   5.7       Conclusion ........................................................................................................................... 71

REFERENCES................................................................................................................................... 74
Appendix A Exxaro competitor questionnaire ............................................................................. 77
Appendix B Exxaro business units comparison questionnaire ................................................ 78
Appendix C Exxaro Resources Limited sustainable supply chain philosophy ....................... 79
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                                                     LIST OF TABLES

Table 1.1: High-level deliverables ....................................................................................................... 7

Table 1.2: Green inventory management detail investigation scope .................................................. 8

Table 1.3: Green warehouse management detail investigation scope ............................................... 9

Table 1.4: Sustainable procurement detail investigation scope........................................................ 10

Table 1.5: Sustainable supplier detail investigation scope ............................................................... 11

Table 1.6: United Nations Global Compact reporting requirements ................................................. 19

Table 1.7: JSE (SRI) Index reporting requirements .......................................................................... 19

Table 3.1: Visited mining companies, South African based .............................................................. 41

Table 3.2: Exxaro’s peers’ responses ............................................................................................... 45

Table 3.3: Competitor response comparison to Exxaro SCM and SD ............................................. 46

Table 3.4: Detailed response from BU MM managers ...................................................................... 48

Table 4.1: High-level comparison of Exxaro to its peers................................................................... 55

Table 5.1: Recommended Exxaro sustainable supply chain strategy map ...................................... 67

Table 5.2: Maturity phases to SSCM implementation ....................................................................... 68

Table 5.3: Linking strategic objectives with the portfolio quadrant ................................................... 69

Table 5.4: Sustainable supply chain strategy staircase .................................................................... 70

Table 5.5: Implementation schedule.................................................................................................. 71
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                                                     LIST OF FIGURES

Figure 1.1: Green initiatives portfolio framework................................................................................. 3

Figure 1.2: Exxaro supply chain management – inbound process ..................................................... 4

Figure 1.3: The green, sustainable supply chain .............................................................................. 12

Figure 1.4: Triple bottom line ............................................................................................................. 14

Figure 1.5: Green supply chain ......................................................................................................... 15

Figure 1.6: Inbound sustainable supply chain focus ......................................................................... 17

Figure 1.7: Exxaro’s case for sustainable supply chain .................................................................... 18

Figure 1.8: Exxaro sustainable supply chain stakeholders ............................................................... 20

Figure 1.9: Chapter outline ................................................................................................................ 21

Figure 2.1: Sustainable supply chain................................................................................................. 35

Figure 3.1: Sustainable supply chain................................................................................................. 40

Figure 3.2: Suggested sustainable supply chain dimension scope .................................................. 41

Figure 3.3: The mandate of the Exxaro steering committee and SCM forum .................................. 44

Figure 4.1: GAP illustration, green inventory management .............................................................. 57

Figure 4.2: GAP illustration, sustainable supplier management ....................................................... 58

Figure 4.3: GAP illustration, sustainable procurement...................................................................... 59

Figure 4.4: GAP illustration, green warehouse management ........................................................... 60

Figure 4.5: GAP illustration, sustainable supply chain strategy ........................................................ 61

Figure 5.1: Recommended Exxaro sustainable supply chain strategy focus areas ......................... 65

Figure 5.3: Maturity profile to SSCM implementation ....................................................................... 68
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           LIST OF ACRONYMS AND ABBREVIATIONS

BEE       Black Economic Empowerment
BBBEE     Broad Based Black Economic Empowerment
BU        Business Unit
CDP       Carbon Disclosure Project
CEO       Chief Executive Officer
EMS       Environmental Management System
GRI       Global Reporting Initiative
GSCM      Green Supply Chain Management
HAZCHEM   Hazardous Chemical
IEM       Integrated Environmental Management
JSE       Johannesburg Stock Exchange
5 “S”     Sorting, Sweeping, Self-discipline, Systematic and Systems
SAEP      South African Education Project
SCM       Supply Chain Management
SSCM      Sustainable Supply Chain Management
SD        Sustainable Development
SHE       Safety, Health and Environment
SRI       Socially Responsible Investment
IT        Information technology
MBA       Master of Business Administration
MMDB      Mining and Minerals Development Board
MSD       Material Safety Data
USB       University of Stellenbosch Business School
UN        United Nations
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                                           CHAPTER 1:
                                         ORIENTATION

1.1    INTRODUCTION

Exxaro Resources is a South African based mining group listed on the Johannesburg Stock
Exchange Limited. The company has a diverse commodity portfolio in coal, mineral sands and
industrial minerals, with exposure to iron ore through a 20% interest in listed Kumba Iron Ore. As the
fourth largest South African coal producer, with a capacity of 45 million tonnes per annum and the
third largest global producer of mineral sands, Exxaro is a significant participant in the coal and
mineral sands markets and provides a unique listed investment into these commodities (Exxaro
website, 2010).

The Exxaro brand is built on a strong vision – “everything we do and deliver today will allow others to
realise their vision tomorrow (Exxaro website, 2010)”. In view of this, it can be argued that Exxaro has
already taken steps to grow internationally and values the impact of its business operations to the
natural environment. However, the extent of Exxaro’s legitimate control over environmentally focused
activities is an area of active debate. Turner, Pearce and Bateman (1994:31-32) distinguishes two
broad ideological camps in environmentalism: technocentrism and ecocentrism. Supporters of an
extreme technocentrist position would not wish to see constraints placed on individual consumers or
on markets. They would support an “unfettered free market” philosophy and combine this with a
strong faith in the power of technology to overcome any “environmental limits” (extensive decoupling
possibilities). They label this position as “cornucopian technocentrism” and the resulting system the
anti-green economy.

A less extreme position, “accommodating technocentrism” accepts that free markets have beneficial
effects on the environment but only if individuals think and act green. The green consumer, green
investor, green citizen, green supplier and green employee are therefore powerful agents for a green
economy. They see a green economy as evolving over time in such a way as to decouple the growth
in economic output (activity) from the environmental impacts of the activity. On the basis of the
material balance principle, decoupling will involve technical changes such that our use of resources is
made more efficient and our output of pollution becomes less and less damaging. The extreme
ecocentrism (the deep ecology) supports a very deep green economy where economic systems must
as quickly as is feasible, be transformed into minimum resource-taking systems. This transformation
can only be accomplish by reductions in the absolute level of economic activity, negative change in
economic output and reduced population levels (Turner, Pearce & Bateman, 1994:31-32).

The question whether Exxaro utilises “accommodating technocentrism” or “extreme ecocentrism”
thinking is an aspect that will be addressed during the course of this research. Is Exxaro’s trend
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comparable to the widespread mining sector in South Africa? What factors are driving the mining
companies in South Africa to become more “green or sustainable” in their supply chain? Who
manages these initiatives in the mining companies? How is success measured? Simply stated, what
is the current state of “green or sustainability” practices in the Exxaro Resources’ supply chain?

According to the Council of Supply Chain Management Professionals, supply chain management
encompasses the planning and management of all activities involved in sourcing, procurement,
conversion and logistics management. It also includes crucial components of coordination and
collaboration with channel partners, which can be suppliers, intermediaries, third party service
providers, and customers. In essence, supply chain management integrates supply and demand
management within and across companies. Based on this definition of supply chain management,
can we then argue that a transition to sustainable supply chain management in Exxaro is not a clear-
cut process? The opportunities to implement sustainability initiatives in Exxaro’s supply chain will
require a comprehensive consideration of the entire supply chain.

According to Yug (2008:3), the implementation of green supply chain initiatives has evolved from
strictly a compliance issue into a means of generating value. Traditionally, companies incorporating
green projects have focused solely on cost avoidance by assuring compliance, minimising risk,
maintaining health and protecting the environment. In the emerging value creation model,
implementing green initiatives along a company’s supply chain can raise productivity, enhance
customer and supplier relations, support innovation and enable growth. The green supply chain is no
longer exclusively about green issues, but also about generating efficiencies and cost containment.
Companies can adjust multiple levers, such as energy conservation and recycling, to generate
positive bottom line impacts. This practice remains fluid as it continues to evolve. By acting now,
businesses can benefit from becoming part of a journey that is currently in its infancy, and with the
proper strategy, companies can exploit this competitive edge. In Exxaro, the supply chain
management unit focuses mainly on leveraging from cost savings through strategic sourcing
initiatives and is exclusive to green initiatives. However, it is important to note that the unit do
recognise the need to include green initiatives in its strategy staircase.

Yug (2008:5) suggests that, when prioritising potential opportunities, companies should consider re-
evaluating the return on investment for some areas, keeping in mind that not every initiative will have
a positive return on investment (ROI). Therefore, it is essential to think about all the green initiatives
together as a balanced portfolio, with some initiatives carried out as an investment rather than making
a clear-cut profit. The figure below shows the green initiatives portfolio framework that Yug suggests
when developing a green supply chain management strategy for application.
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                          Figure 1.1: Green initiatives portfolio framework

                                        Source: Yug, 2008:5

Finally, Yug suggest that the organisational foundation requires a strong programme governance to
drive the execution and adoption of green initiatives. Most companies face an uphill battle when
implementing green initiatives because these efforts are typically managed in isolation by a firm’s
environmental health and safety team. Instead, Yug recommends companies to establish a
governance council that can drive strong collaboration across all relevant business functions and
effectively govern the green programme to provide true business value. In order to implement a green
supply chain effectively, the strategy should be embedded in the company’s supply chain and
operations organisation, as well as the teams such as marketing and sales. Currently Exxaro
Resources (Pty) Ltd has thirteen business units. When putting a long-term strategy in place,
companies need to be aware that a full-blown green implementation could prove costly and it may
have a negative impact on the company’s bottom line in the short term. That is precisely why
companies must keep in mind that “greening” is best accomplish in smaller steps. For example, green
initiatives can start in areas that have the greatest business and environmental impact, and
companies can look for quick wins before moving forward.

According to Appendix 1 of the White Paper on Environmental Management Policy in South Africa
1997, The South African economy is dependent on mining and agriculture, both activities that can
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have major environmental impacts. These sectors remain important although the processing,
manufacturing and service sectors have overtaken them in size. Mining and minerals beneficiation
accounted for 11% of the GDP and over 50% of foreign exchange earnings in 1995. Employment in
the mining sector peaked in the 1980s and then declined to slightly to over 600 000 in 1994. The
sector's contribution to government income in the form of taxation has declined considerably. Mining
has a number of environmental impacts ranging from contamination of soil, air and water to impacts
on the cultural and aesthetic environment. Worker health and safety is also an important
environmental concern for this industry. Exxaro already conducts a number of environmental
management initiatives relating to prevention of such contaminations through the health and safety
functions designated to each business unit. However, the role of the supply chain management
function is not clearly defined as to how it has to contribute to the initiatives from a “green” point of
view.

1.2     PROBLEM STATEMENT

The Exxaro supply chain management function lacks capabilities to measure performance on
sustainability and therefore, is not in a position to monitor or track the progress made to reach targets.
Exxaro supply chain management consists of inbound and outbound supply chain activities. For the
purpose of this study, the aim was to focus on creating measures, to set targets and develop tracking
capabilities for sustainability reporting on the inbound functions of the Exxaro supply chain. The
inbound supply chain elements include supplier management, procurement/sourcing, inventory
management, warehousing, internal end-user, reverse logistics (movable asset disposal) and inbound
transportation.

                    Figure 1.2: Exxaro supply chain management – inbound process

                          Source: Adapted from the Exxaro supply chain blueprint

The sourcing process consists of strategic sourcing, tactical procurement, transactional procurement
and supplier management. Currently, sustainable development is responsible for the management
and coordination of all Exxaro BEE and Mining Charter compliance requirement.
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The group manager and the supply chain management annually receives JSE (SRI) index survey
forms from the Johannesburg Stock Exchange; a United Nations Compact Rules survey form from
the United Nations local office and other stakeholders enquiring about the corporate responsibility
and sustainability initiatives conducted in the Exxaro supply chain management. In order to respond
to these surveys, Exxaro supply chain should provide evidence of dedicated actions that ensure
strong programme governance to drive the execution and adoption of sustainable supply chain
initiatives. As a signatory of the United Nations Compact rules, Exxaro has an obligation to
demonstrate how it fulfils the requirements thereof. Exxaro currently does not have a policy and
strategy implemented for the coordination of all sustainability initiatives throughout the organisation’s
supply chain.

The general focus and the research question for this report will be; “What should the sustainable
supply chain management strategy for Exxaro Resources be?” In providing an answer to the
main research question, the following questions support the main research question.
   •   What are the types of relevant sustainable supply chain questions we get from the JSE (SRI)
       index survey and the United Nations Global Compact rules survey? Reference to the 2007 to
       2010 surveys is made as a guide for the questions. The solution to the answer should assist in
       the identification of the areas that the strategic action has to address in order to enable Exxaro
       to answer the questions from the surveys.
   •   What are the high-level sustainable supply chain management initiatives or practices already
       adopted by selected South African Mining companies that are doing business similar to
       Exxaro? In obtaining the information, the researcher will conduct interviews with key persons
       responsible for this area at the selected mining companies; send questionnaires surveys and
       review relevant literature recently published in the annual reports. In gaining insight about the
       various sustainable supply chain good practices a literature review on the research work
       already conducted is intended. For this purpose, internet archives are a source for obtaining
       the information. The outcome of this high-level assessment will assist in comparing Exxaro to
       progress already achieved by its peers. This should also help in weighing whether to propose
       a strategy that will make Exxaro a leader or a follower in the phasing in of its supply chain
       sustainability practices.
   •   What is the current (“As Is”) status of Exxaro’s internal sustainable supply chain initiatives in
       relation to specific questions contained in the JSE (SRI) index survey forms and United
       Nations Compact rules survey questions? In obtaining the information, personal interviews will
       be conducted and survey questionnaires sent out to key persons from the different business
       units in the supply chain or materials managers overseeing procurement/sourcing, supplier
       engagement, warehousing and inventory management to test sustainable supply chain
       awareness and current initiatives while making a comparison to general practice and
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          requirements of the JSE (SRI) Index. The content of the questionnaires was obtained from
          the JSE (SRI) index and United Nations Global Compact rules questionnaire (2010). It is
          important to note that the “AS IS” determination approach have been designed for relevance
          to Exxaro’s inbound supply chain. It is a baseline measure for where Exxaro’s inbound supply
          chain is today in order to gauge where it needs to go.
      •   What maturity portfolio approach will be recommendable for the successful implementation of
          the strategy?
      •   From the four portfolio quadrants (mandates, environmental consciousness, cost reduction
          and innovation), which green initiative portfolio(s) would the Exxaro Resources executive
          management commit or approve as basis for developing a green supply chain management
          strategy for the company and at what cost, if any, are they prepared to approve for
          implementing the strategy successfully?
      •   What will be the future (“To Be”) scenario of Exxaro in terms of sustainable supply chain
          management? The future will be reflected in the recommended strategy actions that will
          enable Exxaro’s inbound supply chain to respond to the JSE (SRI) and United Nations Global
          Compact rules surveys (2010). The strategy actions are based on specific goals and
          objectives designed through an audit process during the status quo (“AS IS”) investigation.
          The goals and objectives will be SMART (Specific, Measurable, Attainable, Relevant, and
          Timely) and focus on sustainability.

1.3       RESEARCH OBJECTIVES

Yug (2008:4) suggests that while green initiatives can lead to better supply chain efficiencies, the key
to extracting business value lies in establishing a long-term green strategy that is aligned with
corporate strategy and approached top-down with strong sponsorship. It also requires a strong
business case that highlights a prioritised list of targeted opportunities and a phased adoption
roadmap. The objective of this research report is to develop an Exxaro Resources sustainable supply
chain strategy that will assist in making it possible for Exxaro to respond to the JSE (SRI) Index
survey and the United Nations Global Compact questionnaire (2010). The sustainable supply chain
strategy should:
      •   be aligned to the Exxaro Resources strategy,
      •   be justified through a business case,
      •   Make it possible for the Exxaro supply chain management functionary to respond to the JSE
          (SRI) index and United Nations Global Compact survey triple bottom line principles;
      •   be phased in through a maturity matrix process,
      •   be recommended for support and approval of the Exxaro Executive management committee,
          and
      •   provide strategic initiatives/actions for application and implementation in Exxaro Resources.
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1.3.1   High-level deliverables

The following high-level deliverables were presented to the members of the steering committee and
approved as a guide to be used when developing the sustainable supply chain for Exxaro.

                                        Table 1.1: High-level deliverables

   No       Activity/Objectives                          Deliverable

   1        Develop a business case while                •   Approved project focus (by steering committee
            introducing the concept of                       and supply chain management FORUM)
                                                         •   Maturity process to be used by Exxaro
            green/sustainable supply chain
                                                             Resources to progress into competence in
            management and obtain buy-in from the            terms of sustainable supply chain.
            relevant stakeholders for
            implementation in Exxaro.

   2        Compilation of a good practice               •   Produce a sustainable supply chain good
            approach & scoping of sustainable                practice approach document (framework).
                                                         •   Approve a strategic approach that will phase in
            supply chain management strategy
                                                             Exxaro towards a sustainable supply chain
            execution in Exxaro

   3        Analysis/audit “AS IS” findings and          •   Documentation of the “AS IS” findings, including
            gaps.                                            identification of a baseline measure for where
                                                             we are today in order to gauge where we need
                                                             to go.

   4        Design “TO BE” recommendations.              •   Recommendations, including high-level goals
                                                             and objectives of sustainable supply chain that
                                                             are SMART (Specific, Measurable, Attainable,
                                                             Relevant, and Timely) and that are focused on
                                                             sustainability.

   5        Design implementation roadmap.               •   High-level implementation and monitoring plan
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1.3.2   Detailed deliverables

Detailed scope and deliverables

The table below details the key activity, scope and measurement criteria that was approved by the
steering committee as focus areas targeted for research.

                    Table 1.2: Green inventory management detail investigation scope

No      Activity                Research scope                          Measurement criteria

        Compile the green       •   Conduct research or investigation   Recommendation of the following:
        inventory                   on the existing inventory
                                                                        •   Appropriate or applicable
                                    management practices and
        management best                                                     Strategy
                                    assess whether green inventory
        practice & scope                                                        o Objectives
                                    management is implemented;
                                                                                o Actions
        approach (framework)            o Master data procedures
                                                                                o Map
                                        o Master data classification
                                                                                o Implementation plan
                                        o Bills of material (BOM)
                                                                        •   “As Is” report
                                        o Excess management
                                                                        •   Identified gaps report
                                        o Management reporting
                                                                        •   “To Be” report
                                •   master data management
                                    process and Exxaro’s ability to
                                    track green materials to enable
                                    green materials replenishment
                                    planning for:
                                        o Recyclables
                                        o Reclaimables
                                        o Returnables
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                   Table 1.3: Green warehouse management detail investigation scope

No   Activity                  Deliverables                             Measurement criteria

2    Compile the green         •   Research and investigate the         Recommendation of the following:
     Warehouse/storage             existing warehouse management
                                                                        •   Appropriate or applicable
                                   practices and establish green
     best practice approach                                                 Strategy
                                   storage management for;
     (framework)                                                                o Objectives
                                       o Storage efficiency
                                                                                o Actions
                                            (optimum inventory
                                                                                o Map
                                            keeping)
                                                                                o Implementation plan
                                       o Safety Health and
                                                                        •   “As Is” report
                                            Environment
                                                                        •   Identified gaps report
                                       o Motion sensor & timing
                                                                        •   “To Be” Report
                                            lightings
                                       o Solar or natural light
                                            roofing (sky light)
                                       o Turbo ventilators
                                       o Reducing storm water run
                                            off
                                       o Reducing water and
                                            energy use
                                       o Staff morale
                                       o Housekeeping and 5 S
                                            implementation (i.e.
                                            sorting, systematic,
                                            sweeping, self discipline
                                            and systems)
                                       o Inventory costs
                                       o Warehouse space cost
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                    Table 1.4: Sustainable procurement detail investigation scope

No Activity           Deliverables                                            Measurement criteria

3   Compile a         Research and investigate the existing                   Recommendation of the
    sustainable       procurement practices and establish whether a           following:
    procurement       sustainable supply chain is practiced (i.e.             •   Appropriate or applicable
    best practice     “using procurement to support wider social,                 Strategy
    approach          economic and environmental objectives, in ways                  o Objectives
                                                                                      o Actions
    (framework)       that offer real long-term benefits”) in the following
                                                                                      o Map
                      areas:                                                          o Implementation plan
                      •   Sustainable supplier management                     •   “As Is” report
                               o Supplier assessments                         •   Identified gaps report
                               o % sustainable supplier coverage              •   “To Be” report
                               o Supplier sustainable performance
                                  management
                               o Supplier sustainable review
                                  information
                      •   Supply category risk ranking and prioritization
                          in terms of:
                               o High
                               o Medium
                               o Low priority
                      •   Supplier selection criteria in terms of their
                          practices in:
                               o fair wage
                               o minimum standards of working
                                  conditions
                               o child labour
                               o fair trade
                               o environmental management systems
                                  (“reusable products, recycled or
                                  reconditioned materials”)
                               o BEE/BBBEE/HDSA procurement
                               o Local SMME procurement
                               o Hazardous waste not going into
                                  landfills
                      •   Sustainable specification in the form of:
                               o Tender criteria
                               o RFQ enquiry
                               o Standard terms and conditions
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                         Table 1.5: Sustainable supplier detail investigation scope

No    Activity                  Deliverables                              Measurement criteria

6     Compile sustainable       Research or investigate the existing      Recommendation of the following:
      supplier                  supplier engagement; classification       •   Appropriate or applicable
      management best           and establishing whether sustainable          Strategy
      practice & scope          supply chain practices are                        o Objectives
                                                                                  o Actions
      approach (framework)      implemented.
                                                                                  o Map
                                •   Sustainable supplier Management               o Implementation plan
                                        o Supplier assessments            •   As Is Report
                                        o % sustainable supplier          •   Identified Gaps Report
                                            coverage                      •   To Be Report
                                •   Supplier sustainable performance
                                    management and assessment
                                        o Supplier questionnaire or
                                            survey
                                        o Site visits/audits
                                •   Sustainable supplier classification
                                        o Green - sustainable
                                        o Amber - sustainable
                                        o Red - not sustainable
                                •   Frequency ranking of supplier
                                    assessments/audits
                                        o Quarterly
                                        o Half yearly
                                        o Annually
                                        o Every 2 years or less
                                Type of supplier information reviewed

1.4    RESEARCH FOCUS

This research focuses on various aspects of green or sustainable supply chain management. Penfield
(2007:1) used the diagramme below to show what a green, sustainable supply chain would look like
within a company.
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                             Figure 1.3: The green, sustainable supply chain

                                         Source: Penfield, 2007

The emphasis is on the following material input functions that are regarded as important for the
outcome of the study:
      •   Procurement;
      •   Supplier management;
      •   Warehousing/logistics; and
      •   Inventory management

1.5       CLARIFICATION OF KEY CONCEPTS

The following key concepts that are used in this research proposal are important for comprehension
and meaning when read by persons interested in the work contained herein, the following definitions
apply:

1.5.1     Green

Greenexhibits.org (2010) refers to “green” as a challenge to ourselves to think differently and work
toward new solutions in everyday design and fabrication decisions. We must make sure that all
construction materials help minimise waste, are safe and long lasting, contribute to healthy lives, and
at their best enhance the life system that supports us.

1.5.2     Supply chain management

As defined by the Council of Supply Chain Management Professionals (2006) supply chain
management encompasses the planning and management of all activities involved in sourcing and
procurement, conversion, and all logistics management activities. Importantly, it also includes
coordination and collaboration with channel partners, which can be suppliers, intermediaries, third
party service providers, and customers. In essence, supply chain management integrates supply and
demand management within and across companies (CSCMP: 2006:139).
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1.5.3   Sustainable/sustainability

According to the Dow Jones Sustainability Index (2010), sustainability is a business approach that
creates long-term shareholders’ value by embracing favourable situations and mitigating risks
originating from economic, environmental and social developments.

1.5.4   Sustainable development

According to Lawrence Berkeley Lab website (2010), sustainable development is a new term that
grew    out   of    the   conservation/environmental       movement    of   the   1970's.   While     the
conservation/environmental movement asked questions about preserving the Earth's resources,
sustainable development includes questions about how human decisions affect the Earth's
environment. At this moment, sustainable development means different things to different
people/groups. The most widely held definition is that of the Brundtland Commission Report of 1987
which states that we must “meet the needs for the present without compromising the ability of future
generations to meet their own needs". In other words, when people make decisions about how to use
the Earth's resources such as forests, water, minerals, gems, wildlife, etc., they must take into
account how much of these resources they are using, what processes they use to get these
resources and who has access to these resources. Are enough resources going to be left for your
grandchildren to use and will the environment are left as you know it today (lbl.gov website:2010)?

1.5.5   Logistics

In contrast to the supply chain, “logistics” concern the work required to move and position inventory
throughout the supply chain. As such, logistics is a subset of and occurs within the broader
framework of a supply chain. It is a process of creating value by timing and positioning inventory. It is
a combination of the firms order management, inventory, transportation, warehousing, materials
handling and packaging as integrated throughout a facility network.

1.5.6   Supplier

Is an organisation that provides goods and service to Exxaro.

1.5.7   Sustainable supply chain management

Sustainable supply chain management (SSCM) requires broadened approach to supply chain. It
should emphasise economic, ecological and social aspects of business practices and theory. Within
the context of our understanding of sustainable development, we define a sustainable supply chain
(SSCM) as a supply chain in which economic objectives can be achieved without externalising the
social and ecological costs. In addition to economic targets, sustained supply chains thus take
account of social, ethical and ecological objectives over the entire chain and can thus make a
decisive contribution to a sustainable economy (Svensson, 2008).
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                                     Figure 1.4: Triple bottom line

                           Source: Fauzi, Svensson and Rahnman, 2010, 1354

1.5.8   Green supply chain management

Green supply chain management (GSCM) involves traditional supply chain management practices,
which integrate environmental criteria or concerns into organisational the purchasing decision and
long term relationships with suppliers. The buyer and supplier selection criteria are fundamentally
different in conventional and green supply chains. In conventional chains, the predominant standards
are price, quality, lead-time, delivery and in green supply chains, ecological/environmental objective is
a part of the supplier selection criteria. Putting these criteria into practice requires careful supplier
evaluation, based on long-term oriented relationships (Gilbert: 2001:6).

The research through consultation and seeking of a mandate from the internal Exxaro stakeholders
determined whether the business wishes to adopt sustainable supply chain or green supply chain
practices as a mining entity. The figure below indicates elements of green supply chain that Exxaro
perceived for making decision whether to adopt green sustainable supply chain or sustainable supply
chain. Exxaro used Penfield’s model to determine that green supply chain only incorporates the
environmental elements in ensuring that an organisation procures materials, consumables and
services that are environmentally friendly input into its mining processes. Categories of consideration
are recyclable, returnable, reusable and reconditionable nature of the items procured. Exxaro viewed
this approach as narrow and disregarding the broader elements of sustainability and did not support it
for adoption.
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