Ethical Sourcing and Csr Practices

Lush is a cosmetics company which manufactures and distributes a range of fresh and handmade products in over 900 free standing stores worldwide. Operating in an industry which has its ethical challenges, Lush as a ‘green born’ company, has a unique approach to its supply chain management practices and procedures. The company prioritizes CSR across all levels of its supply chain. Credible CSR practices go beyond marketing. With numerous social and environmental policies such as ethical buying, fair trade, animal protection, and zero waste Lush guarantees ethical procedures across all levels of the supply chain. Vertically integrated, Lush sources its raw materials globally, creates and manufactures its products, and delivers them to its stores. The company is a seasonal business with a 60% increase in sales towards Christmas times.

Sourcing Raw Materials

Lush sources its raw materials by taking into consideration the impact it has on the people and the environment. With CSR at the heart of its operations, lush has created creative buying teams. The team’s role is to look beyond lowest prices and bottom line, and instead, find the best, safest and most suitable products in accordance with their ethics. To safeguard the environment and social impact, the team would often travel to the communities where they source their raw materials from. Lush supports Fair Trade and Community Trade initiatives, which builds strong relationships with their suppliers. By using this method, the company removes the proposition of middle men and ensures that, materials as well as suppliers, are treated with respect.

Inventory Management

Most of Lush’s raw materials are fresh and require special storage as perishable goods. On a large scale it becomes a challenge to manage inventory levels efficiently, keeping waste to a minimum. For instance, the company purchases 50 tones of fresh fruit and veg, 8000 bunches of flowers, and 55 tons of cocoa butter a year. A just-in-time inventory approach, keeping their inventory levels extremely low to avoid rotting and over-ripening is crucial in sustaining and delivering fresh products to stores. The factories have ‘tiny grocery stores’ which get stocked on Fridays, usually depleted by the following Wednesday, and restocked by Friday. Through this process inventory can be controlled and maintained daily. The raw materials are kept in refrigerators until processed. Most products are processed, dried or solidified and kept in large plastic containers in the manufacturing process, and will be stored under a week in the inventory before reaching its final product form and being send to a store.

Transport and Packaging

Lush’s biggest hurdle in terms of sustainability is transporting their products. Products are transported mainly by land, and air across 49 countries which creates a carbon footprint, fuel consumption and potential inefficiencies. Lush uses intermodal transportation systems. The freight is being transported by multiple modes of transportation, such as vehicles, rail and ships, without being handled itself while changing modes. This allows Lush to reduce damage and waste of their cargo. Motor carriers are used for delivery from factories to retail stores which are mostly outsourced.

Their finished products are 100% vegetarian and over 70% self-preserving. However, Lush’s strict freshness policy makes transportation a particularly difficult as products need to be transported overnight. About half of the products in store can be taken home with no packaging. Lush uses packaging when its necessary, 90% of which is recycled. Lush’s long-term goal is to have 100% recyclable or compostable packaging materials. Currently recycling their black packaging pots is not available everywhere. When they are brought back to the shops they are recycled or used as art material.

Strengths

Adopting a ‘Creative buying’ approach

Lush’s creative buying approach is a system to deliver the best quality products to the customer. This allows lush to get a better understanding of the raw materials, how they are produced and what factors might affect the cost such as the climate or seasonality. Purchasing products with face-to-face communication lush is guaranteed uninterrupted supply of materials. This method allows their suppliers to understand their business's needs, and at the same time, lush understanding the suppliers constrains of their operations. Consecutively the business can plan around any difficulties with the supply of their raw materials in time and avoid shortages or out of stock situations down the supply chain. This way the company streamlines their supply chain leaving little room for errors. Through the practice of creative buying the company acquired enough knowledge about agriculture to be able to purchase rose and other flower fields which are used to produce essential oils for their factories. This moves lush further into vertical integration, allowing them to have full control over the supply of essential oils. Lush strives for efficiency through collaboration with local communities, the understanding and support of their practices and performance.

Flexible Inventory Management

Lush managed to reduce its on hand inventory by 7 days by shifting implementing software for automation and streamlining their inventory management systems. Electronic data interchange (EDI) is an electronic communication method that provides standards for exchanging data via any electronic means between two different companies even in two different countries. Considering the many international suppliers this system allows lush to interchange documents such as purchase orders, invoices and shipping notices efficiently with all suppliers. With systems like this in place helping them to manage a sometimes less than 24h inventory turnaround can minimize waste. Lush does not store excess of raw materials at the warehouse due to limited space which could reduce the efficiency and time management. That speed and quality control goes a long way in supporting rapid-pace product development. Lush’s innovation team manages to bring out dozens of new products to serve the consumer during a new season. In response to customer feedback, and thanks to its flexible inventory management system it can withdraw products which don’t sell at high speed. Using a smart allocation of raw materials for production, Lush ensures the raw materials will not waste away in wait to be processed. Lush orders its ingredients mainly according to the orders it receives from individuals and stores, which again allows the factories to keep as little inventory as possible, thus decreasing food waste.

Zero Waste Aspirations

Although the products are perishable which constitutes a major challenge in shipping, the company saves time and costs in removing packaging off their products. Lush removing most of their packaging manages to fit more products per shipment, and reduces time unpacking and assembling products in store. At lush the manufacturer has a list of making liquids into solids, and therefore removing packaging. The products are delivered ‘naked’ to stores. Wrapped in paper and put into plastic boxes, lush makes sure the product is delivered safely to the store. Lush encourages customers to bring back their little black pots to stores with a promotional incentive. With every 5 black pots brought back the company promises a free face mask. As a part of their no waste policy this promotion allows the company to recycle their pots.

Weaknesses

Difficulties with Suppliers

Some difficulties with suppliers may be dependent on cultural differences. Lush when sourcing their raw materials will not intervene in the ways in which local farmers harvest and handle their materials. Considering the scale, and range of raw materials that is being purchased it is impossible for Lush to have the same quality control and efficiency as they would with a supplier operating on large scales. In addition, the harsh criteria for suppliers cause lush to have a limited pool of suppliers to choose from. If due to external factors (such as weather, or crop) suppliers don’t meet the quantities needed for production Lush could face issues finding alternative suppliers for a specific raw material. For example, due to child labor issues in India Lush has decided to move its sandalwood sourcing to Australia. This despite sandalwood being more prominent in India than Australia. Lush relying on few suppliers to self-audit makes it difficult to ensure ethical standards are being met. A supplier can claim to have a sustainable supply chain, but if they do not audit their internal processes or do not make use external auditors then this uncertainty excludes them from becoming Lush’s suppliers.

Rapid growth

The company has experienced a surge in sales since 2013, with profits rising by 50% to above £31 million, a factor that has led Lush Cosmetics to diversify its sources globally, creating a social impact. Lush's expansion to about 930 stores in 50 countries, it is becoming more difficult to monitor its performance across the supply chain. With such a rapid growth it is impossible to say that the supply chain is completely clean. The company has had to jump over hurdles while finding new suppliers for their raw materials. Many times, the company would find out about cases of slavery, or child labor and be forced to find new suppliers. Not settling down for one supplier and finding alternative ways of sourcing their materials requires time, resources and creative thinking. Simon Constantine, the company’s ethical buying director explains ‘From the supply chain point of view, we have struggled to keep up,”. “With the amount of work, you need to do to keep on top of things and everything changing so rapidly…I would never be comfortable saying our supply chain is 100 percent clean.”

Inefficient Transporting

As motor carriers which transport their products from factories to stores are outsourced, lush has little control over the choice of vehicle. The company uses less than truckload shipping for its freight Products transported long distances may be damaged as most are considered ‘naked’ products. Careful handling is required while loading and off-loading the trucks which may add time to the company’s outbound logistics. In season best-selling products will sell out quickly and will require replenishing in individual stores. This task can be difficult as the factory supplies individual stores to order, so in case of an out of stock emergency arises the factories will not be able to replenish the stores.

Concluding, lush manages to create a certain degree of transparency within their supply chain through various social and environmental policies. Through the close collaboration with their suppliers, the company benefits from a clear information flow which allows them to adjust to changes in demand and prepare for potential changes with supplier output. As the company continues to grow it will become more difficult to maintain all CSR processes and efficiency on similar levels. Lush uses land, air and sea transport, however tries to avoid air transport when avoidable due to their ethical ethos. As the company grows so will the demand for its products. Lush will be forced to ship larger amounts of raw materials which will have to be handled in a relatively short amount of time to reach the customer in time. Therefore, lush will have to use more air traffic which will have an effect on their CSR policies.

Alterations

Alterations in the external or internal environment may cause new challenges or opportunities for the supply chain management of Lush. Anticipating these changes give companies time to prepare their supply chain systems in accordance to the effect these changes have on supply and demand.

Potential Changes in EU regulations

Due to child safety concerns the European Union was considering banning non-edible products which resemble fruit, sweets or other food which children might be tempted to put in their mouth. Speakers for the ban argued that products like fragranced soaps or bath bombs resembling foods could be a potential safety hazard. This change in legislation could mean a major loss in Lush’s product range and a potential withdrawal from the European market which constitutes over 70% of their annual sales.

Reusable Packaging, and refilling stations?

Potential changes for reusable containers and refilling stations could revolutionaries the company’s practices. Currently legislation will not allow companies to reuse their black pot packaging, hence it is recycled or re-used as art. However, with a change in legislation this could potentially mean that once the packaging is purchased by a customer it can be reused without it ultimately becoming waste.

Technological Advances

New technology allowing the development of more efficient machinery could have a major impact on turnaround times, managing inventory levels, or the perishability of the company’s products. Ultimately, if local communities desired to acquire new technologies in harvesting raw materials it could have an impact in Lush’s output. It could improve the quality of their crops, rate and scale of harvesting.

Recommendations

Effective auditing not only sends a strong message to suppliers, it increases transparency and helps identify problems that need remedying. Whilst the cost of a thorough auditing process may seem prohibitive in the short-term, the long-term benefits of a well-designed process will almost always pay off. Lush should continue to expect suppliers to self-audit or use external auditing to ensure their suppliers comply with the company’s ethical policies.

Mixture of large and small trucks in their fleet ensuring that large trucks are not being used for delivery of only a few items which will result in cost savings in fuel. Potentially changing to hybrid, or electric motor carriers for short to medium distance destinations to minimize the amount of CO2 emissions.

Prioritizing the supply of ‘best sellers’ in separate trucks in season to satisfy high demand. Social media could be used as a part of forecasting and improvement of assortment planning as consumers use social media to talk about their favorite products in stores.

Cradle to Cradle (C2C), who are helping companies all over the world to assess the impacts their products are having from source all the way through to re-birth. Products which adhere to the steps of the cradle to cradle process receive certification ‘Leadership in Energy and Environmental Design’ and ‘Environmental Assessment Method’. By using this method lush could ensure that their packaging can be used in continuous cycles without using its integrity, instead of it being downcycled and ultimately becoming waste as it is in their current situation. With this C2C model which has been used as a framework by the EU and the United States and the company’s lobbying power, lush could potentially appeal to influence legislation regarding refilling stations, and reuse of their black containers. Therefore, lush could increase the amount of reusable packaging, or remove packaging completely.

The further integration of the supply chain could be beneficial to streamline the movement of their raw materials to factories. In terms of sustainability, the process of harvesting crops and managing biodegradable waste could be standardized by purchasing more farms and serve as an alternative to the ethically sourced raw materials from small communities. Ensuring that the company has ownership over the materials from raw material, through Manufactuing, to end product will create transparency and allow for additional control over supply and production. This could serve to overcome the issue of rapid growth and increasing demand. Through the continuous use of external auditing the company could still ensure the ethical practices in farming raw materials.

Lush

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