A Case Study at PepsiCo Inc.
Christoph J. Meinrenken, Beth C. Sauerhaft, Anthony N. Garvan, and Klaus S. Lackner
Summary: Life cycle assessment (LCA)-based analyses of company value chains can inspire profound modifications to products’ design, material procurement, manufacturing, energy/water use, distribution, use, and disposal. However, such modifications often create trade-offs, improving some aspects while worsening others. How can firms decide whether or not to carry out such modifications? Or prioritize between different options to choose the one delivering the most competitive advantage? Typically, firms’ metrics fall into two groups: (1) product-level metrics across the life cycle, including up- and downstream of facilities (e.g., product carbon footprints); and (2) facility-level metrics (e.g., plants’ annual energy cost). Neither is sufficient for firm-wide cost-benefit analyses of modifications that affect multiple products and value-chain stages. Whereas facility-level metrics do not capture up- and downstream effects—where often most cost and environmental impacts originate—life cycle methodologies are currently not mature enough to be applied at the scale of entire product portfolios. We present a pilot system of key performance indicators (KPIs) that evaluate 3,337 products across 211 brands and five countries of PepsiCo, Inc. KPIs are firm-wide, annual figures (environmental, operational, and financial) across the value chain (cradle to grave) and can be determined at any level (single product, brands, or regions). Uncertainty analysis is included. In addition to KPIs for base cases, the system characterizes KPI impacts for any considered modifications (what-if scenarios). In a detailed case study, we present background about how and why PepsiCo used the system to evaluate all aspects of a strategic value-chain modification. For 7 of the 211 brands, this resulted in avoiding an 8% increase in greenhouse gas emissions and a 7% to 10% increase in procurement costs. It also saved PepsiCo an estimated #200 years full-time equivalent employee time (or al- ternatively #US$30 million in LCA consultant fees) had the LCAs of the 3,337 SKUs been carried out by traditional methods. This cost efficiency of the KPI system enables consider- ing environmental impacts with more-traditional business metrics side by side. As a result, environmental impacts can be considered on a routine basis as part of integrated strategy and business planning. We discuss implementation considerations of the KPI methodology and future improvements.
Full report available through Yales' Journal of Industrial Ecology