Assessing long-term value chain sustainability
Adriaan Kroonenberg on his internship at Roland Berger Strategy Consultants, September 2007
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“From May 1 to August 31, 2007, I had a position as intern at Roland Berger Strategy Consultants. My primary activity was working on a project team carrying out a project for a Dutch chemical company, and after the completion of this project, I worked a number of smaller assignments. Roland Berger’s client produces a bulk chemical (Chemical A), which has a large number of uses. One of these is that it is used in the production of an organic chemical (Chemical B), in a plant near by. The company that produces Chemical B expects strong growth in the demand for this product. Increasing the capacity of the plant producing Chemical B has significant impact for Roland Berger’s client. Not only will they have to produce more of Chemical A to facilitate the increase in Chemical B production, it also affects waste streams between these two companies and a third company, also a customer of Roland Berger’s client. These waste streams can be recycled to get back Chemical A, but a larger waste stream would exceed the current recycling capabilities and upset the delicate balance in the entire constellation.
The client wanted Roland Berger to address two questions. First, is the expected growth in the demand for Chemical B justified, and second, how can be best organized all the streams and the pending imbalance in the system.
My project was focused on the first question, so the second will be disregarded in what follows.
Depreciation times in the chemical industry are very long, in the order of 20 years. This means that a traditional market forecast, which is typically reliable up to 5 years is not very useful, as the demand may crumble in Year 6 and the investment might not be paid back. To assess long-term sustainability, we worked with a method called Eco-efficiency analysis. In this method a number of competing products is compared on costs (the economical axis) and environmental burden (the ecological axis).
Note that the method only works as a comparison, there is no absolute number that results from the analysis. To calculate the relative scores along both axes, the entire life cycle of the products is analyzed, from raw materials, through installation and maintenance to disposal. A calculation of the costs at every step provides us with the economical axis. To calculate the ecological axis, the products are scored on six categories over the entire life cycle: energy use; non-renewable resource consumption; emissions to air and water and solid waste; toxicity of the material and raw materials; physical risk associated with the raw material industries; the use of land.
The scores in these categories are weighted according to special weighting scheme and the result is a relative ecological score for each product. The result of all this is that the competing products can be ranked according to their sustainability. The assumption underlying this method is that present/day ecological advantage will translate into economical advantage in the future, considering the increasing power of environmental lobbies.
To assess the sustainability of Chemical B, we looked at three distinct consumer products that emanate from the chain, which, together with some uncontested uses, account for 54% of the entire market for Chemical B.
I was responsible for performing the analysis for one of these products, to wit a type of construction panel used primarily in the United States. This entailed defining which products competed with it, and making an analysis of the entire life cycle of these competing products.
In particular: determining the raw materials needed; how they were produced; how they were installed and what materials were necessary for this; what maintenance was required and differences in isolation values, which could cause extra need for heating over the entire life time; and finally, how the products were disposed, if they could be recycled or used for energy production via incineration.
The result of my investigation was that the product that came from Roland Berger’s client’s chain was, very narrowly, the most sustainable, although the differences were barely significant. As a whole, all three products analyzed scored well, if not spectacularly, but showed significant upward potential, leading us to conclude that the predicted growth was probably correct and sustainable.
My internship was a very enjoyable, instructive and above all rewarding experience. I learned a lot about team work, improved my social skills tremendously and gained valuable, if somewhat limited, knowledge of how businesses operate. I cannot recommend an internship at a strategy consultancy firm, and particularly Roland Berger, highly enough.”
Adriaan found a job at Roland Berger after graduation and still works there as a business consultant.
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