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DWT Monthly CLE Series Greening the Supply Chain January 11, 2012 Haeryung Shin and Stephen Ellis.

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Presentation on theme: "DWT Monthly CLE Series Greening the Supply Chain January 11, 2012 Haeryung Shin and Stephen Ellis."— Presentation transcript:

1 DWT Monthly CLE Series Greening the Supply Chain January 11, 2012 Haeryung Shin and Stephen Ellis

2 Why are we here? 2

3 REI Dell Amazon Exxon Mobil Walmart Proctor & Gamble Pop Quiz REI Dell Amazon Exxon Mobil Walmart Proctor & Gamble At __________, we know that being an efficient and profitable business and being a good steward of the environment are goals that can work together. Our broad environmental goals are simple and straightforward: To be supplied 100 percent by renewable energy; To create zero waste; To sell products that sustain people and the environment. 3

4 Trends 2004 Number of publicly traded U.S. companies with a chief sustainability officer 1 2011 Number of publicly traded U.S. companies with a chief sustainability officer 29 [W]e estimate that half of all shareholder resolutions in 2011 will center on social and environmental issues. Ernst & Young 4

5 5

6 Hows Walmart Doing? To be supplied 100 percent by renewable energy 65% improvement in truck fleet efficiency Pledge to remove 20 million metric tons of GHGs from supply chain by 2015 Installed LED lighting in 350 store parking lots in Central America 6

7 Walmart from 2005 to 2010: To create zero waste Eliminated > 80% of landfill waste from operations in California Reduced 47.95 million pounds of plastic bag waste globally 7

8 Walmart from 2005 to 2010: 8 To sell products that sustain people and the environment: Pledge to sell $1 billion of food sourced from 1 million small- to medium-sized farms To train 1 million farmers in sustainable techniques

9 Can I Ignore this? 9

10 ANSWER: 10

11 Integrated Manufacturing Model 11

12 Supply Chain Management Model 12

13 Common Fact Pattern Acme makes Widgets … … which it sells to Big Box retailer. Widget Buster Chen Acme uses two principal suppliers: Buster, a US company and Chen, a Chinese OEM Chen supplies 90% of the Widgets. Acme then assembles the Widgets in the U.S. by combining one or two critical components supplied by Buster with Chens output. 13

14 Green Supply Chain Contracts: A Few Practical Legal Provisions Define your terms State your intent Use technical specifications and performance standards Sustainable processes Inspection and audit rights Specific enforcement and damages 14

15 Define Your Terms Goals of contract are to allocate risk and define obligations. Clearly define terms such as Sustainable, Green, and Recycled. For example: To do otherwise is to ensure ambiguity. 15

16 Rules of Construction The default rule of contractual construction is that it is construed against the drafting party. Consider providing your own contract construction rule. 16

17 Technical Specifications and Performance Standards OEMs are accustomed to meeting technical specifications. Use specifications to require finished goods to meet clients sustainability requirements. Examples Require that lead is not be included anywhere within the product or its accessories (power cords, etc.) Require that finished products to contain stated percentages of recycled materials Require paperless ordering Require suppliers to minimize packaging or to use recyclable packing materials Require supplier to recycle or compost excess or waste material 17

18 Improving Sustainability Many OEM agreements require manufacturers periodically to suggest ways to lower costs. Consider requiring the manufacturer periodically to suggest improvements in the products sustainability. To do so, create a sustainability profile and include a process to enhance the sustainability profile. 18

19 Language for Sustainability Profile 19

20 Inspection and Audit Rights How much policing do you want to ensure contract requirements are being met? You could do without audit or inspection rights, but we believe the better practice is to include them. Such provisions arent always popular. How will you know if your supplier is complying with the contract if you dont include these rights? Similar to standard product or factory inspection provisions, with an emphasis on issues of sustainability. 20

21 Relief for Breach – Part 1 The question of remedies is the most difficult legal issue. Contract termination is always a possiblity, but is it desirable? Specific performance may be possible in some jurisdictions. If a suppliers breach causes Acme to lose the Big Box contract, there are measurable damages but be careful with usual limitation of liability clauses customarily used in the US. 21

22 Relief for Breach – Part 2 How do you measure monetary damages if only the environment is harmed? Can you legally claim damages in this situation? Liquidated damages may seem an obvious answer, but liquidated damages need to be reasonable in light of clients possible damages. Learn to include creative damages provisions in your contracts. We believe this will become an area of law which must evolve. 22

23 Is This Far Fetched? 23 Funny honey? California Transparency in Supply Chains Act of 2010

24 Notes on the FTC Green Guides General environmental benefit claims Green certifications and seals of approval Degradable Recyclable Made with renewable energy 24

25 When you get back to the office … 25 Inventory of your companys current practices across factors like carbon emissions Research your biggest/dream customer and answer Have they implemented green requirements for vendors? How would you score on those requirements? How could you improve your score? Would incorporating green contracting provisions into your upstream supply chain contracts improve your score? Consider whether its time to bring your green marketing materials into line with current/anticipated revisions to the FTC Green Guides

26 Thank you! Haeryung Shin Of Counsel Chair, Clean Technology Group haeryungshin@dwt.com 206.757.8144 direct Stephen C. (Steve) Ellis Partner stephenellis@dwt.com 206.757.8040 direct 26


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