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274Case - IN S E 707-026—1 The Business School for the...

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Unformatted text preview: IN S E 707-026—1 The Business School for the World Empowering the Bottom of the Pyramid via Product Stewardship: Tetra Pak Entrepreneurial Networks in Brazil 10/2001-54'12 This case was written by Renato ]. Orsato. Senior Research Fellow at the INSEAD Social Innovation Centre. and Fernando Von Zuben, Sustainability Director of Tetra Pal: Ltd. Brazil, and Luk Van Wassenhove. The Henry Ford Chaired Professor of Manufacturing, Professor of Operations Management at INSEAD. It is intended to be used as a basis for class discussion rather than to illustrate either effective or ineffective handling of an administrative situation. Copyright © 200? INSEAD N.B.: TO ORDER cor or INSEAD cases ass DETAILS ON THE: sscx COVER. Cop MAY NOT BE ms mom PERMISSION. awn-1mm“ and us; North amulet: Metuumfld . mmdlmm t +1 781 239 sun-1 t muons-1 150903 the case for learnmg Alulgmsruewed t+1?3|2395385 f mtomuisms Prlnted in UKand USA a ecchusaélecchxom a ecchfllecchxorn 707-026-1 I N S EA D “A package should save more than it costs. ” Ruben Rausing, founder of Tetra Pak “We acknowledge that our operations have an impact on the environment that must be balanced with the benefits our products and services bring to society. ” www.tetrapak.com Aseptic Carton Packaging Consumers in no fewer than 165 countries are familiar with the benefits of long-life packaging — cartons manufactured with aseptic technology which keep food fresh for at least six months without refrigeration or preservatives. The aseptic process ensures that both food and packaging materials are free from harmful bacteria at the moment the food is packaged. It allows food to retain colour, texture, taste and nutritional value. The use of aseptic technology for packaging purposes was pioneered by Tetra Pak, a Swedish company, in the 1960s. Not only did it allow the life cycle of liquid food products to be greatly extended, it also conferred an enduring competitive advantage on the company: for more than half a century the company’s uninterrupted growth has been based on this technology. Long-life packaging is made from Tetra Brik, which consists of six layers of three different materials: long fibre duplex paper (75% by weight), low density polyethylene (20%), and aluminum (5%). The intemal polyethylene layers make the packaging impermeable and prevent the food from coming into contact with the aluminum (see Exhibit 1). The aluminum layer prevents the penetration of air, light and microorganisms, ensuring the preservation of the food content. At first glance an observer might be hard pressed to identify any problem with aseptic packaging. Technically it has never been bettered as a solution for the long-term storage of liquid food products. Commercially it enjoys high levels of consumer satisfaction. However, it is in the post-consumption phase that problems arise: the multi-layered packaging material makes total recycling very difficult, presenting a great environmental challenge. Tetra Pak: a Very Good ‘Package’ Tetra Pak was founded in 1951 by the Swedish entrepreneur Ruben Rausing. From its origins as one of the first packaging companies for liquid milk, Tetra Pak has become a global supplier of packaging systems for liquid food products worldwide. Forty years after its foundation, the company has expanded into liquid food processing equipment, plant engineering, and cheese manufacturing equipment. Today the company not only supplies hundreds of different types of carton packaging formats but also develops processing solutions and designs, and services complete plants. It operates Copyright (5;) 2007 ENSEAD 1 10/2001-5412 707-026—1 INS E A D W in 165 countries with over 20,000 employees, providing integrated processing, packaging and distribution lines, and plant solutions for food manufacturing. Tetra Pak belongs to the Tetra Laval Group, which owns also the DeLaval and Sidel industrial groups and has its headquarters in Switzerland. The industrial groups’ activities focus on systems for processing, packaging and distributing food and equipment for dairy production and animal husbandry. The three industrial groups are leaders within their respective areas of business (See Exhibit 2 for key figures about the company). Tetra Pak’s Commitment to Environmental Protection Tetra Pak has long been committed to running its business in a sustainable manner, setting goals for continuous improvement in development, sourcing, manufacturing and transportation activities. As its environmental policy makes clear, the company takes a long- tenn, life cycle view: continual environmental performance improvements, the use of design for environment, open communication with stakeholders and regular reporting on performance. It is company policy that all Tetra Pak packages must be suitable for recycling and in recent times it has become involved in the identification of appropriate recycling technologies. Tetra Pak supports customers in finding environmentally acceptable solutions for their packaging waste, and is committed to facilitating and promoting local collection and recycling activities for post-consumer carton packages, such as: a supporting the development of new technologies for the recycling of used packages and the recovery of their materials; II working closely with governments, local authorities, suppliers, recycling companies and local entrepreneurs to find stable, low-cost recycling solutions and capacity with a minimal environmental impact; 0 finding ways to make recycling more cost-efficient, for example, by promoting new sorting equipment. Tetra Pak also actively endorses efforts in the areas of human rights, labour and the environment made by organizations such as the United Nations Global Compact,1 NetAid, a growing network of people and organisations committed to ending extreme poverty,2 and the International Business Leaders Forum (IBLF),3 a not-for-profit organization established in 1990 to promote responsible business practices that benefit business and society and that contribute to sustainable development. More recently, Tetra Pak has signed an agreement with WWF on forestry management.‘ www.unglobalcompact.org (All sites quoted in this article were accessible in August 200'?) wwwnetaidorg ww.iblf.org http:ttwww.panda.org/about_wwffwhat_we_dolforestsfindex.cfln?uNewle=60020 «lime Copyright © 200? INSEAD 2 10/2007-5412 707-026-1 IN S E AD Tetra Pak Brazil: Entrepreneurial Networks Tetra Pak Brazil started operating in 1957. By 2005 it had become the second largest operator in the Tetra Laval Group, surpassing eight billion packages in sales.5 There are several reasons for the company‘s successful growth: a broad variety of products for customers; state- of-the-art filling machines, packaging and processing equipment; a devoted workforce and a long—term market approach, which has created very close relations with customers. Tetra Pak has two factories and seven regional offices in Brazil, and more than 200 corporate customers, among them well-known giants such as Unilever, PepsiCo, Nestle, Italac, ELEGE, and Coca-Cola. Dairy products account for about 80% of the business, beverages for 20%. As an extension of the mother company’s Swedish culture, Tetra Pak Brazil has always adopted a ‘beyond complianee’ approach to corporate environmentalism. In the mid-19905 it started addressing the problem of the disposal of post-consumption aseptic cartons. The Brazilian branch has consistently invested in corporate environmentalism, spending €500,000 per year during the period 1997—2000, €1 million per year in 2001—2, and 62 million per year in 2003—5. As a result, recycling rates of aseptic cartons increased from 12% (14,000 tons) in 2000 to 25% (40,000 tons) in 2005. These figures, which exceed the worldwide average of 15%, are important not just because the overall environmental impact has been reduced, but also because the recycling networks promoted by Tetra Pak have generated new sources of wealth and alleviated poverty. The proactive role of Tetra Pak has made it possible to develop a variety of collection systems which are unique to Brazil. In general, people working as selective waste collectors in Brazil are from the bottom of the pyramid (BoP)a who make a living out of collecting saleable materials recovered from household waste. There are approximately 400,000 street collectors in the country. In SE10 Paulo alone, a city that generates around 10,000 tons of household waste per day, there are around 20,000 collectors. According to the Brazilian Bureau of Geography and Statistics (IBGE), these people are from the “E” economic segment, with a family income that does not exceed two minimum wages — around €250 a month. Tetra Pak Brazil’s initiatives have made it the group leader in environmental innovation involving breakthroughs in both basic and advanced technologies for increasing the recycling rates of aseptic packaging. Such innovationshave made Tetra Pak not only a leader in technology but also in the domain of corporate social responsibility. [)1 httpn’fwww.tetrapak.com.br{home.asp 6 The concept of “bottom of the pyramid” (BoP) was devised by C. K. Prahalad (2004). See Fortune at the Bottom of the Pyramid' Erodicoring Poverty Through Profits. Upper Saddle River, NJ: Wharton School Publishing. Copyright © 2001 INSEAD 3 manor-5472 70?—026—1 INSEAD Selective Collection The Problem: Low Rates of Selective Collection Closing the cycle of aseptic packaging requires the selective collection of material. The economic viability of recycling is highly dependent on economics of scale, so the first step — the separation of household waste — is critical for the success of the overall process. From the point of view of a privately owned company, the low recycling rate of h0usehold waste was a major challenge in Brazil. The management of post-consumption waste was the responsibility of local councils. Waste management was considered a ‘public good’, so unless private firms were paid to carry out such services there were no regulations forcing companies to be directly involved in the management of household waste. Tetra Pak representatives were aware that most local councils tended to run very tight budgets and had little leverage to create comprehensive recycling schemes, which required education, curbside collection, and subsequent recycling. It was also aware that in local schools, financed by local municipalities or the state, educational materials were a very rare asset. Initiative 1: Sponsorship of Environmental Education Tetra Pak addressed this bottleneck by sponsoring environmental education. From 199? it began supporting an educational programme on the problem of municipal solid waste and its solution. The University of Campinas (UNICAMP) developed a teaching pack to support classroom discussion about the problem of urban solid waste, the importance of selective collection, and the environmental, social and economic benefits of recycling. Although the programme has national reach, the states of Rio Grande do Sul, Santa Catarina, Parana, Minas Gerais, Goias, Rio de Janeiro and 85.0 Paulo were specifically targeted because relatively more advanced schemes were already in place in these more urbanized areas. By 2006 around 5,000 primary school teachers had been trained to use the materials. The latter have been distributed to more than five million students in 40,000 schools around the country. In 2006 Tetra Pak made the programme available via videoconference. This sort of training is seen as the primary step towards increasing the levels of waste separation in households and subsequent curbside collection. The education of new generations is the first step towards more sustainable societies, as children influence the behaviour of their parents. Initiative 2: Technical Support for Municipalities and Street Collectors’ Cooperatives From 1997 to 2005 over 200 local councils were contacted by Tetra Pak representatives who offered their recycling expertise. Tetra Pak also spurred councils to form collectors’ cooperatives. These provided a more systematic approach to the problem of collection but their formation served a much broader social purpose as their members received social assistance in the form of education and medical services, among others. Copyright © 2007 INSEAD 4 10/2007-5422 707-026-1 INS E A D The formation of collectors’ cooperatives and the retention of their members remained a challenge, however. There was constant competition for raw materials from private recyclers, luring some individuals away from the cooperatives to work independently. Also, from a behavioural perspective, cooperative work did not suit everyone — collectors who had lived on the streets for most of their lives did not easily adapt to organisational rules and routines. Between 199? and 2005 Tetra Pak sent more than four million brochures to municipalities and collectors’ cooperatives. In order to increase process efficiency, during that period Tetra Pak also donated 30 press machines to cooperatives in various states of Brazil. By 2005 this support meant that Tetra Pak aseptic cartons accounted for 6—10% of collectors’ income. According to research carried out by by CEMPRE} 347 municipalities had selective collection programmes in 2006, representing a 200% increase in ten years. While obviously this was not a result of Tetra Pak initiatives alone, the parallel between the growth of recycling rates and the number of Tetra Pak’s initiatives cannot be denied. 7 ht_tp:!fwww.cempre.org.brf Copyright © 2007 INSEAD 5 10/2007-5472 707-026-1 1 NS E A D Material Recycling “The more they make money, the more we recycle! ” Fernando von Zubcn Once the material was being collected proper recycling could start. But until 1997 several technical and commercial hurdles limited the recycling capacity. The Problem: Insufficient Paper Recyclers Technically the recycling of paper present in aseptic packaging had never represented a major problem, but first the paper had to be extracted from the sandwich layers of PelAl via hydrapulpers, a kind of large industrial blender. Even though hydrapulpers are standard equipment in paper recycling plants, they had to be adapted for the separation of the Pei’Al material and the filtering of eventual residues. Such requirements made paper manufacturers reluctant to use fibre from aseptic cartons until 1997. Initiative 3: Development of Recyclers Tetra Pak addressed the viability of paper recycling by demonstrating the technical advantages of the fibres present in the Tetra Brik packaging: being new they are longer than fibres that have already gone through a recycling process, and therefore of better quality. Once they had understood the quality of the fibre, paper recyclers gradually started to give priority to Tetra Pak aseptic packaging. By the end of 2005 there were ten aseptic packaging paper recyclers using waste from factories and post-consumption packaging in Brazil. The range of recyclers is now very broad, varying from Klabin Embalagens,8 a world-class corporation specialising in the manufacturing of paper, to medium and small local producers. Trombini, a paper manufacturer located in Canela (in the South of Brazil), offers a good example of the development of paper recyclers. In 2006, after two years of communication, Mario Cerqueira, the Environmental Engineer of Tetra Pak, managed to convince Trombini representatives to recycle Tetra Pak material. One year later Trombini was recycling 350 tons of Tetra Pak cartons per month, a volume which would double if more material were available, according to Nelson Slompo, Operations Director of Trombini Canela. The Problem: Technical 8: Economic Viability of Recycling Pe/lil Having extracted the paper from the packaging, the next challenge was to find a use for the blend of polyethylenefaluminum (PefAl) that remained. Until 1999 there were no applications for the discards coming either directly from the Tetra Pak factory or as post-consumption waste. A solution had to be found. 8 Klabin has been the focus of media and academic studies because of its early commitment to environmental protection. The company has received several environmental awards, including “Premio Expressao de Ecologia" (www.expressaocombrlecologiaf) for the years 1998, 1999, 2001, 2002 and 2005. See wwwklabinonline.com.brif Copyright © 2007 INSEAD 6 10/ 2001-5412 707-026-1 I NS EA D Initiative 4: Developing Pe/lll Material Recyclers Tetra Pak Brazil’s environmental team led the drive to find uses for the PelAl discards. They discovered that: (i) PeiAl could simply be washed and dried, and used directly in the fabrication of roof tiles and boards; (ii) PelAl could be melted and extruded into pellets for later use in the manufacturing of plastic products.9 Production ofRoof Tiles and Boards The idea of using Per’Al for roof tiles emerged in 1999 to solve the problem confronting paper mills of how to deal with this kind of material. Tetra Pak experts already knew that laminated material from factory waste could be pressed at high temperatures to produce boards, but nothing had yet been done with Pei'Al. The team conducted several trials to centrol moisture and particle size and, after modifications to the press, a hard board was created. The second issue was not technical but economic. Recycled board had difficulty competing with wood (a very cheap commodity in Brazil), whereas roofing tiles were more viable because they were cheaper to produce, lighter and had more mechanical resistance than fibre-cement tiles. Basically, the process consisted of melting the PefAl compost under pressure, with subsequent cooling in the first phase. To reduce the size and increase the homogeneity of the material the PelAl went through a knife-grinding mill. The second phase consisted of putting the material into moulds, which were then pressed under temperatures of around 180° C. Finally, products were cooled — acquiring the shape of plain boards or corrugated roof tiles. Even with very low levels of process optimisation the business could be profitable. The initial investment in equipment was about €45,000 and revenues were around 638,000 per year. Obviously profitability was dependent on various factors: location strongly influenced the cost of transport and the price of raw materials, and since profit margins were relatively low, fluctuations in the price of raw materials could have an adverse effect on the business viability. Production of Plastic Products Mercoplas, a company located in Valinhos in the interior of the state of Silo Paulo, was the key partner in the development of the process. It already had the expertise to recycle low density polyethylene (LDPE) but at that time (1998), it did not believe the extrusion of polymers contaminated with aluminum was possible. During early trials the villain of the piece was identified: the problem was not the residual aluminum but the paper fibres that remained in the PelAl blend after the de—pulping process (S—lO% by weight). The fibres burned inside the extruder chamber, generating carbon and water vapour, which compromised the final pellet quality, jeopardising the whole process. After a year of failed attempts, Mercoplas found a solution for the fibre contamination — a major breakthrough not only for the extrusion process but also for success of the plasma project, described below. 9 Cerqueira, Mario Henrique de (2002). “Boards and Roofs Produced with Recycled PolyethyleneiAluminium from Tetra Pak Packaging”. Proceedings of the International Aluminum Conference, Sic Paulo, Brazil. Copyright © 200? mass]: 1 10/2001-5472 707-026-1 INS E A D The production of PetAl pellets was based on a well-established technology for a new type of raw material. After the PetA] mix was taken from the hydrapulper (as residue of the paper recycling process), it was cleaned to remove dried-up fibre and then ground to increase the homogeneity of the material. The residue was then...
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