S2E8: Sustainability in Manufacturing with WestRock’s Peter Anderson and Philips’ Jeff DiLullo

Introduction: 0:00

Welcome to the Tennessee on Supply Chain Management podcast. Listen in as co-hosts Ted Stank and Tom Goldsby set sail into the world of end-to-end supply chain management, diving deep into today's most relevant business topics. They'll share insights in pressing industry issues and tackle the challenges keeping supply chain professionals up at night. If you're enjoying the ride, download and subscribe to Tennessee on Supply Chain Management on your favorite podcast platform now.

Tom Goldsby: 0:27

So hello and welcome to another edition of the Tennessee on Supply Chain Management podcast. I'm your co-host, Tom Goolsby, joined by my good friend Dr Ted Stank. Hello, Ted, How's it going?

Ted Stank: 0:37

I'm going well, thomas, thank you. Did you know we're in front of a live television audience?

Tom Goldsby: 0:41

Are we really?

Ted Stank: 0:42

Are we really Listen?

Tom Goldsby: 0:43

to them.

Ted Stank: 0:43

There you go so you can tell them yeah, all right.

Tom Goldsby: 0:46

We want you to be alive. This is awesome. Hey, Ted, you know it's always great to be a Tennessee volunteer, but you know, mornings like this it's particularly special, isn't it? I mean, I've got my smoky dog socks on and we're surrounded here. Just a little bit of context of the Supply forum spring edition. I work expecting 700 guests, about half of which are students, alums and faculty, and then the other half coming from industry far and wide. So it's just great if you all out there in podcast listening world just imagine it that you're being surrounded by 700 of our good friends here at rocky top and you know if they all downloaded this episode, because they're here, our numbers have instantly gone up.

Ted Stank: 1:27

Maybe we'd get some sponsorship.

Tom Goldsby: 1:30

I love it. Let's have those conversations right after the podcast. In addition, we should probably point out our guest, ted, you want to introduce our guest?

Ted Stank: 1:36

Yeah, let me introduce our guest. Many of you know these two folks. They're good friends of ours. Similar to PTI, we like to have friends come on as our guests. We've had people contact us say hey, I'd like you to have this person on as guests. We're like no, we only want friends on, because eventually we want to do this at the Tennessean with smoked old fashions when we do this. So that's where we're going to go next with the podcast, but let me introduce our-.

Tom Goldsby: 1:59

That might be our final podcast that might be, so we might want to think about that.

Ted Stank: 2:03

Notice we didn't say that when Randy Boyd was in the room. Peter Anderson, chief Supply Chain Officer of Westrock, been friends of ours for a long time. He's worked for a number of companies, both consulting companies and manufacturing companies, in the past and has vast knowledge of all things supply chain, all things leadership. Great to welcome Peter with us on this podcast. Our other guest is Jeff DeLulo, chief region leader for Phillips Products. Jeff, this is your second podcast with us and I think we've been told, if Brian's in the room, that your last podcast was our most popular podcast ever.

Jeff DiLullo: 2:38

Definitely you and Tom. No challenge, no pressure Break it.

Ted Stank: 2:41

Okay. So our two guests we're going to get them to do an introduction of their companies in a minute and then talk about some of the sustainability initiatives that they are implementing. This really evolved from our last forum back in November, when we had a session on sustainability and these guys grabbed me out in the hallway and were like, hey, we're doing amazing things in sustainability. You need to get us on. And about a week later I said be careful what you ask for, because I'm going to ask you to be on a panel and we'll do a podcast on it. So, tom, before we launch into it, let's let Jeff and Peter kind of give us a little intro to their companies. Then let you and I review some of these new economic statistics and then jump into sustainability Sounds good.

Jeff DiLullo: 3:20

All right, maybe I'll start Philips Healthcare. We're a Dutch-based company 18 billion global revenues, about 7 billion of that is in the US. It's a 130-plus-year-old company that has really been known for innovation and got its roots really in consumer electronics, and about 14 years ago we made the choice to move to a pure health tech concern. So we spun off about two-thirds of the company about $50 billion so that we could concentrate purely on improving people's lives with med devices and med technology. So that's been our journey. We live and breathe by our mission. It's to improve lives through healthy living. Two and a half billion people this decade reached to include in our mission statement 400 million in underserved communities. It's part of our charter to do everything we can for design and innovation to reach people that would never have access to health care that you have in this room today. Some of our products include anybody had an MRI ever Big, clunky, clinky thing? Yeah, 10,000 pound magnet. We do everything from an MRI all the way through hospitals. If it's equipment that helps save lives, we do most of it and one of the leaders globally in that. And then Sonicare toothbrushes, norelco razors Anybody have those. So that's all the way down to consumer, because we believe in-home habits are the formulary for better healthcare and prevention of care.

Jeff DiLullo: 4:37

The last thing I'd say for our credentials is Philips. We've been committed as a Dutch company, so there's a bit of a. Europeans are quite a bit ahead of Americans in terms of genuine sustainability effort, but for us, we've been carbon neutral since 2020. 100% of our operations are from renewable sources of energy and we have 50% of our supply chain is sourced from like-minded, science-based target providers. We've been recognized by Forbes, fortune, wall Street Journal as one of the top health tech sustainable companies in the globe and we actively participate on the administration's sustainability task force and we were the first health tech company to sign up on the sustainability charter with Health and Human Services to try and evangelize the value of sustainability to increase access to care in North America. So we're pretty active in our government affairs as well as just our provider network, which is mostly hospitals that you would go to. So that's a quick about us, peter.

Peter Anderson: 5:34

How can I follow that? Jeff? Try, peter, give it a try. How many people in the room are suppliers or customers of Westrock? Oh, I've got a lot of converts here. We need to convert.

Peter Anderson: 5:46

So Westrock is the largest paper and packaging company in the world about 21 billion revenue. Our purpose says everything about our approach to sustainability. It's about innovate boldly, package sustainably. And when we talk about innovation and boldly innovating, it really is about what we can do to make the environment better. It's about what we can do to make better recyclable packaging.

Peter Anderson: 6:11

I feel so proud because I actually get to manage the supply chain of a truly circular company. I have everything from taking wood from forests right the way through making paper with it, putting it into boxes, everything you pick up every day. I'll lay a bet with you Tomorrow when you get taking things out of the fridge at home and that I bet you touch 20 Westrock products before the day is out. That's how pervasive all of our products are. But we want them to be recycled as well, and we have recycling facilities. So we have a truly circular loop, a closed economy around it, and now we're trying to get more people involved in that so we can actually make it even more circular than what we have today. But the US is where we primarily are. Huge presence here. A little over 300 factories, 300 warehouses in the US. So big presence. Tom Ted, thank you for inviting us along.

Tom Goldsby: 7:08

Thank you so much for being here and we're going to circle back to you here in just a moment. But, ted, you want to have a little back and forth about the latest news and notes and supply chain.

Ted Stank: 7:16

Yeah, let's just spend a couple of minutes on that, because I think one of the things that we bring value-wise in our podcast is just to kind of put some of these economic statistics in front of us that impact the initiatives our companies pursue, whether it's in hiring or new initiatives or investments, and those things are pretty impactful to us in the supply chain. And then we'll pivot to sustainability. But if I'm going to summarize this as a supply chain manager and not an economist, I'm going to say that almost all our statistics are showing that the economy is starting to burn again. Manufacturing starts are up. The logistics managers index, which tracks activity in transportation and warehousing and inventory, are up. Purchasing managers index, in both services and manufacturing, are up, which tracks how confident purchasing managers feel about going out and buying new inputs because of initiatives.

Ted Stank: 8:04

Jobs the jobs report came out last week. I think they were expecting 180,000. It hit 303,000. So again, heating economy, although we have some MBA students who are incredibly talented that need jobs, so they're right over there. So a lot of things showing that the economy is kind of heating again. Just today, while we were in here in our first session on AI, the latest inflation numbers came out and guess what? 3.5 percent. It's up 0.4 percent from February, up 0.3 percent year on year from February. So lots of implications that interest rates are probably not going to come down in June and, as a result, tom just told me that the stock market's not doing very well, yeah, my wife pinged me via text and said have you seen what's happened to your retirement account?

Tom Goldsby: 8:52

So I, like so many people, I'm extending it out, waiting for that market to come back. And it will. It will, I'm very confident it will. But you're right. A lot of very strong, robust numbers. I continue to be perplexed, really, by how the analysts continue to be perplexed, I mean month over month. You know they come in here and the numbers come in, you know, above it, do we have any?

Ted Stank: 9:14

financial analysts in here. You know, one of the things that really bugs me about financials is that you can bet against us doing well and then, when we do well, it hurts us Like come on, I mean at least in supply chain.

Tom Goldsby: 9:25

When we have, you know, an exception, then we overshoot the next month, right, and then you know, over course, correct. But yeah, no, no, red hot. And yeah, it's on that news that inflation's up, that we can expect maybe those interest rates to come down, maybe a little later in the year, maybe not quite so much as expected, and that was already starting to temper last week. I think it was the Minneapolis Fed chair who opened his mouth and said yeah, I wouldn't expect that to happen quite so soon. So the market was taking a little bit ahead last week before the-.

Ted Stank: 9:55

Since we have two senior leaders here, how are you seeing all this economic fluctuation and interest rates impacting your initiatives? Are you having a hard time getting capital?

Peter Anderson: 10:08

No, not at all, ted. I mean it really is interesting. We've got a bit of this dichotomy because we have industry out there talking about things are going to start bouncing back in quarter two, yet now the latest reports came back and said quarter two is going to be flat. It's now going to be quarter three, quarter four before we see a rebound. So I've got to admit I'm not taking bets on economists at the moment.

Tom Goldsby: 10:26

It's the micro versus macro view. There it is yeah.

Ted Stank: 10:30

Can I tell a relatively off-color joke? Somebody told me once an economist or somebody that had to make love a thousand ways but have never been on a date.

Tom Goldsby: 10:38

Another one. You know, while we're riffing on economists and I'm an econ undergrad myself, so I kind of throw myself under the bus here but if you were to lay all the world's economists end to end, they would never reach a conclusion, and so that's why it takes us to interpret this stuff right.

Ted Stank: 10:58

And I heard Randy Boyd say supply chain management is everything, so let's just take over. Okay, it is everything, so let's just take over.

Tom Goldsby: 11:04

Okay, it is everything. But you know, with that in mind, if we kind of make a bit of a pivot to the sustainability topic and I got to admit you know, sustainability has been a passion for me personally for a long time Do you remember, stank, when you were on my committee at Michigan State back in 1997, a new faculty member at Michigan State and I said, hey, I'd like for you to be on a dissertation committee and I kind of explained what that meant and fortunately you signed up Soon. Thereafter we did a survey on environmentally responsible logistics.

Tom Goldsby: 11:32

Do you remember that, which I think is still a kind of an underappreciated article that was out there. But something else that was underappreciated was that one survey that came back, ted. Do you remember that one?

Ted Stank: 11:41

Yeah, these were still back in the days of paper surveys, right? So we're mailing out surveys and getting them back, and one of them came in, folded up and had like ink writing all over it, and it's like you liberal professors, we know where you're trying to go with this.

Tom Goldsby: 11:55

And it wasn't just that, the message in words. Right yeah, there was an outline and I won't be graphic here, but an outline of a hand and then a projection somewhere in the middle of a hand, and it came back around. We got the message and we counted the data point, I think as well we didn't throw it out.

Ted Stank: 12:12

Did we use that as part of the?

Tom Goldsby: 12:12

survey.

Introduction: 12:13

I think we can't keep it in the sample.

Tom Goldsby: 12:14

But anyway it's been a passion. My dissertation was on consumer recycling. Before it was cool.

Ted Stank: 12:20

Yeah, and we were in Michigan where recycling of cans has been a big issue for a long time. It's a 10-cent deposit rule and they have approved closed-loop distributors to bring it back to the cleanest most pristine roadside in America right thanks to that dime deposit.

Tom Goldsby: 12:36

Now, when we first moved to Michigan, mrs Goldsby goes shopping a grocery store and she sees an advertisement for 12-pack of soft drink. Grocery store and she sees an advertisement for 12 pack of soft drink and she goes to the checkout and they ring it up at the sales price plus 12 times 10 cents and she's like what kind of scam are you trying to pull here? You know, and she didn't take the purchase, but anyway we came to appreciate it. But it's been a passion of ours for some time and a lot of our faculty and students are very impassioned about it here in the year 2024. We offer coursework in it.

Tom Goldsby: 13:06

I've been working on a book for 12 years in sustainability Finally put the last chapter to bed. Now we just need to update chapters one through 11. A lot's happened in 12 years. I can't believe the publishers stayed with us.

Tom Goldsby: 13:18

But as you think about the world, I think of what the Procter Gamble chief sustainability officer I interviewed way back when we were starting the book and he said you know, the way we kind of look at it is we break our market up, we segment, which is something we teach and preach and use a lot of different criteria. But he said you know, we've got the evergreens that are perhaps willing to seek out that green product, perhaps even pay a little bit more. They might even have some different performance expectations for that product. Be willing to pay a little bit more for a little bit less. Then, meanwhile, most everyone else is somewhere in between. You know, altruistic, they want to do the right thing. You got to make it easy. But then there's also the so-called never greens that you just can't. You know there's just no way you're going to bring them over, and so it's. I think that's where we are still Some years later. It's a mixed bag, but you got to somehow resonate.

Ted Stank: 14:07

So I just did a little bit of digging before we started this panel and I found this McKinsey report from a year ago that said that traditional supply chain strategic focus was on service cost and capital and quality. Today, the new normal is those three plus resilience, agility which we could have other podcasts on and sustainability. So for these guys up here, their job 10 years ago was on service, cost and capital and quality, and today their executive boards, their boards of directors, are asking them to also be responsible for resilience, agility and sustainability. So I'd like to use that as a jumping off point to get you all to start talking about what some of your initiatives are and really, what are the things driving that, the motivators driving those sustainability issues? So, peter, you want to start us off about some of your initiatives I'd love to.

Peter Anderson: 15:01

I'm going to be politically incorrect to start with.

Ted Stank: 15:04

Do you know what In Europe we?

Peter Anderson: 15:05

thought about sustainability more than 10 years ago sustainability more than 10 years ago and you know what?

Peter Anderson: 15:11

I'd love to bring the practices not all of them, by the way, just some of them from a sustainability practice to the US, and we struggle day in, day out around it. And that comes back to some of the initiatives. Sustainability is not a choice. Every one of my customers wants us to report on it and it's the right thing to do, so you don't have a choice now. It's how you attack it. What do you do, how do you take suppliers, customers and others on that journey with you? So we have a holistic approach to it. I mean, Jeff and I were talking about it over the last couple of weeks and it really is about how do you create a network. So a lot of our initiatives are about how do we connect with others to actually drive a better, sustainable solution.

Peter Anderson: 15:56

There's an awful lot around how we manage our facilities, investments in new equipment, how we think about logistics. Do we send something by rail or by road? We have a huge emphasis and effort on actually converting more to rail, because it's just environmentally friendly and better overall. But there are obviously, as many of you will know, cons with sending things by rail as well. But that's just one element from a supply chain perspective.

Peter Anderson: 16:25

Overall, as a company, we think about it from a water stewardship perspective, how we think about cleansing of water, because we use a lot of water, obviously in our production processes. There's a lot of the water we take out of the ground or out of rivers, we put back through bio-lagoons and clean it and it actually goes back cleaner than when it came out, which is a great thing to talk about. Likewise, we're looking at initiatives around power supply how do we have the most optimal boilers, heating, how do we cut down on losses so you get that best answer but also things like VPPAs, virtual purchase, power agreements through solar and wind. So it really is just fundamentally core to everything we do these days in our organization, and everybody from a site manager right the way through to a salesperson making that pitch to the customer, has a pitch around sustainability and how we add and make it better as we go through this. That, for me, is a big change over the last 10 years. 10 years ago we had a choice. Today we don't. It has to be done.

Jeff DiLullo: 17:37

Yeah, peter, I think we talk about this having a choice. So my constituency is hospitals, generally speaking, hospitals in North America. There is more of a choice here to not than to do it. So let me give you a little bit of the opportunity in hospitals in the US. So, first of all, health care is the most carbon inefficient segment in the US economy. Most people don't know that. It's even more than oil and gas. Seven percent of carbon emissions come from health care.

Jeff DiLullo: 18:02

Now, if you think about it just for a minute, that makes a lot of sense. I've got 7,000 hospitals in North America running 7x24x365. A lot of lights, a lot of monitors, a lot of power draw. I do these MRI images, I do x-rays. They draw incredible amounts of power and you have to keep those things on 24-7 and cool them. An MRI is a big magnet that spins around, makes a lot of noise, but it also creates a lot of heat, and so you have to cool that magnet around makes a lot of noise, but it also creates a lot of heat, and so you have to cool that magnet with. Helium has been the trick of the day for since the inception of radiology to cool it. It's very environmentally inefficient and it costs a lot of money. If anybody checked the spot price on helium today, if you'd invested 10 years ago, you wouldn't be in this room. So it's just that sort of natural reality. Now the other piece of this is that hospitals, unlike many industries, most people don't know about 90% of hospitals in the US are not-for-profit or nonprofit community hospitals, smaller regional hospitals that don't make a lot of money. They rely a lot on donations and government funding and reimbursement. So during the pandemic they lost a ton of money. Most of them have just gotten back to break-even or possibly positive. But when you ask me about capital spending, hospitals are not spending money on improvements yet and they're certainly not spending money on sustainability initiatives if they don't see the economic value in it. So with lower staffing that we all know is a real thing, higher cost of staffing it just doesn't hit the radar, but the problem is sizable in North America.

Jeff DiLullo: 19:29

I say that I'll go back to Peter's comment on the ecosystem On behalf of the whole system. If we look at it, a hospital may not be able to start, but I can help them. My supply chain can be more efficient and more sustainable and I actually provide that scope three capability to them. I'll use a couple examples here. But where I'll say in this segment is if I don't work with the federal government, if I don't work with the FDA to educate and help regulate correctly new capabilities around digital technologies to be able to get things out into the market that actually do work faster over remote distances, it's very hard for hospitals to really drive a sustainability agenda. The second area is with reimbursement. I mentioned that If we don't work with CMS or Health and Human Services to make sure that hospitals can get paid back for the things that they deploy to create that resiliency digitally and sustainability, it's very hard to get them to adopt. So we take the ownership to do a lot of those things to make that three legs of the stool work, not just the OEM in my universe, but also how I deliver better capability and actually help them fund those investments in a very cost-constrained, capital-constrained world and actually help them fund those investments in a very cost constrained, capital constrained world.

Jeff DiLullo: 20:31

I'll go here on this one because I wanna talk about Philips for a second, because we're we just like Peter, we sort of divided into a couple different areas. Our first area is we've actually trademarked eco design, so we get some royalty from it. But what we do everything from that MR to that toothbrush there's an eco design requirement for us, from the very point of innovation all the way through the market that says I've got some sustainability feature. Two quick examples that toothbrush, you get the easy one. Every piece of packaging from a Sonicare toothbrush is completely recycled material. Much of the product itself is from regenerated or recycled material. And then every piece of packaging you can completely recycle and goes right back into that circular system. Peter's team is one of the pioneers in that world and they are a great example of what doing that at scale looks like across the globe.

Jeff DiLullo: 21:16

The other one is that, mr, we've spent 10 years taking the helium out of a magnet. So we actually have an industry-leading first one in the industry a helium-free magnet. Why is that a big deal? Well, for me it's exciting because it's totally revolutionary technology that in my mind I think. Well, it avoids the carbon footprint. Helium leaks. You have to refill it. It's very costly, but when I can put that into a hospital and say, yeah, it's going to cost a little bit more, I got to pay for a better product. I might charge you 10% more for a helium free magnet. But you're going to save 25 to 30% on your operating costs because you'll never have to buy helium, you'll never have to quench it, you'll never have to run it 24-7 like you do today. If it's not in use, I can actually put dollars to it and I'll talk about that later, how we actually can do that economic valuation. That's a big deal to a hospital. That's an immediate no-brainer to a CFO.

Tom Goldsby: 22:05

That's such a great example because, by virtue of reframing the problem, you've suggested that there's not necessarily a sacrifice to be made. Right and the performance of the product, the economics. It does require a different business model, different approach and certainly different supply chains to get there, but to that point it takes something of a leap of faith. You know there was the mention of the science around it and certainly the science has made huge strides over the last couple of years to kind of measure this project forward. But let's get to that business impact a little bit. Jeff, you kind of teed it up there so we'll come back to you. You mentioned the finances. How do you get to some sense of an ROI calculation?

Jeff DiLullo: 22:42

It's interesting Right up the street. I'm going to give two examples of this. These are really important, but right up the street, in Vanderbilt University, they are maniacal. They're one of the best sustainability hospitals, the research center. They really are trying to find ways to decarbonize radiology. They are great partners with us and so we signed up to do a study. They wanted to look at the decarbonization effect of more efficient radiology or more efficient imaging. We wanted to look at the economic value to a hospital. So we did a joint study and published it at the Radiology Society of North America this last year.

Jeff DiLullo: 23:09

But basically what we could show is that I can get higher throughput, in other words, more patients seen in a diagnostic imaging scenario, significantly more at a lower total carbon footprint and a lower energy draw, like 17% lower carbon footprint for 25% more people through the process at a lower total operating cost. We measured the power draw on a more efficient MR. We measured the cooling impact that we had to have, so periodically you have to cool it. You don't have to do that. We actually put it on a trailer and moved it, so we actually have an MR that you can drive around, which is incredible to think that you could just move a diagnostic imaging into a community that would never see it and start to get access to better diagnostics everywhere. So we do the economic value and they endorse it.

Jeff DiLullo: 23:53

Now I have something to go talk to CFOs around all hospitals to say I understand the capital impact here. The second aspect is we're doing more with business models to make it more of an operational type of model. It seems pretty simple, but to get people over the hump of what they have to commit on a capital, but if I can stream that out over a long period of time, I actually am able to start bringing technology refreshes that significantly reduce their scope. Three, because I'm giving them. I'm giving them visibility to it, but I'm also reducing their scope too because they're drawing less power to operate their facility in tangible ways when they really need the money.

Ted Stank: 24:29

You know what I love about these stories and, peter, I want to, I want to get your take on this in a second but let's say 25 years ago, not 10 years ago, but 25 years ago, when that respondent to Tom and my survey reacted so viscerally and negatively about what we were talking about. What I love about our stories today is that sustainability initiatives are good business. You know they're not like let's do something because it's the right thing to do, which which it is, but it's also good business. I mean it's good business sense. I mean if we could fill a truck up from 64% loaded to 75% loaded, that saves us money in transportation, but think of all the other implications it has from a-.

Tom Goldsby: 25:03

And I just want to add just a little more commentary for our students benefit. It sounds like what you're saying is you're going beyond the purchase price right, making that decision, even going beyond landed cost, and it's something we teach total cost of ownership. Where's Wendy Tate? See, we do there you are, wendy See, we listen, we listen and it is looking at the full life cycle of that product and I think later you're going to be talking about not just a single life cycle with your products, but multiple life cycles. So we'll save that for Peter.

Peter Anderson: 25:31

I mean, we were actually talking about it just before breakfast today, where there's actually an argument now and, wendy, if you have it in, I apologize, but actually putting in some sort of ESG calculation into the TCO, which there's nobody I know of from my consulting days that actually calculate things that way. You do it because it's the right thing to do and because I mean to your point, ed, eliminate waste. If we can move from 80 tons loading in a rail car and put 83 tons in instead, actually there's a sustainability impact to it. So, no, the initiatives are really interesting because for us it's not just about making a better product for all of you, it's about making something that's recyclable. It's also I mean, jeff, again we were talking about clinical trials how could a paper and packaging company get involved in clinical trials? Well, through digitization and creation of boxes, no longer the pullback with the pieces of plastic and foil to get to the tablets, a tamper-proof, sliding cardboard top that actually registers when you take a tablet out of the packaging. Now, again, it's sustainable because it can be recycled.

Peter Anderson: 26:42

I mean, there's a whole host of things that go with that, but the bit I wanted to focus on and the bit that really gets me excited is many of our businesses haven't thought about some of the opportunities that we have for byproducts, the selling things back into the sustainability circle. I mean, one of the things that we have is this thing called CTO crude tall oil. I won't try and explain what it is, but it's a byproduct of what comes out and guess what? It's a key constituent, key component of making sustainable aviation fuel, with the European regulations just saying that we need to have sustainable aviation fuel to fly into Europe. Now it's a byproduct that's actually worth probably 10 or 20 times what it was to me previously. And so if we just challenge ourselves and look at actually our own businesses and what we're doing carbon capture, all of those sorts of things we're looking at most of our sites today in terms of being able to deliver something over and above the finished product, and I think that's a challenge for all of us Can.

Jeff DiLullo: 27:48

I pee off something, peter said Please, please, like.

Jeff DiLullo: 27:50

This excites me. How many of you have been in a hospital where you've had a nurse come in and administer something a blood sample or medication? They've scanned something or done biometric. Raise your hand if you had anybody. Okay.

Jeff DiLullo: 28:01

So a lot of you see this technology deploying in hospitals. Hospitals are great places to get attention. The problem is it's very expensive and it consumes staff that isn't really in the ranks anymore. So to get people back to home would be a great opportunity. Digital capability, what Peter just talked about.

Jeff DiLullo: 28:16

You can measure somebody opening a package, but you don't actually know if they took it. So today, if I can send somebody home and I can measure, at least I know they opened it, whether they gave it to their cat or they flushed it on the toilet, who knows? But the number one problem with readmissions in North America, which is a very expensive thing, is that people don't take the medication they go home with. They have a recurrence, particularly with heart or stroke related victims. They have a recurrence and they have to get readmitted, so the cost goes up tenfold. So we're actually experimenting with capability to take that scanning capability.

Jeff DiLullo: 28:45

Anybody have an aura ring or a watch. We're doing pilots with the DOD and the VA on forced degradation based on biometric signals, so we're now parlaying that into home medication. So if your medication gives you an uplift of some kind of biometric signal or decomposition, if you don't take it, we can alert somebody at a nurse's desk that can call your house and say hey, I see you haven't taken your medication yet. Can you tell me what's up? Do you need help? That's powerful and it puts people back in their homes, it reduces the total cost and improves the efficiency of health care workers all because of stuff that Peter's putting into the market and that we can capitalize on with this kind of digital tracking layer that now exists with an IoT-enabled health care system.

Ted Stank: 29:25

So to underscore this theme that we were talking about in terms of can you imagine 20 years ago at this forum, the topics we'd be talking about? It wouldn't be how do you get patients to take the meds so that they don't get readmitted to the hospital? And that's a core supply chain concern, right? That's pretty fascinating.

Tom Goldsby: 29:43

So I think it was maybe Peter that might have introduced the notion of scopes, and certainly regulation was something very much talked about, going beyond compliance perhaps, but meanwhile a lot of rules and regulations coming about. We were very closely watching what the SEC was going to do around scope 1, 2, 3 emissions and they announced a few weeks ago scope 3 is off the table, Scope 1, 2 seem to be on the table.

Ted Stank: 30:09

Except in California and Europe.

Tom Goldsby: 30:13

How about a little bit of explanation, maybe about what those Scope 1-2-3 emissions are and kind of you know maybe what you're doing presently and what you expect to do into the future.

Peter Anderson: 30:20

Well, let me start with Scope 3, because I was watching it very closely, as you can imagine, tom, and it's a real challenge for us at the moment because every one of my customers still wants me to report scope three to them. By the way, every one of my customers says here's my format, can you actually submit it to me? So I get hundreds of requests in different formats asking for slightly different information, and so I was hoping maybe praying is too hard a word but that we were actually going to have some standardization and the ability to start reporting on scope three in a common way, just because the SEC decided not to do it. Many companies still have to do it because they have a European influence, or they sell products in Europe or they are European. So it's really interesting. I'll tell you a really funny one.

Peter Anderson: 31:16

I had five strategic initiatives in my supply chain this year.

Peter Anderson: 31:18

One of them was waste elimination, which was to get at all of the things to do with sustainability.

Peter Anderson: 31:23

The second one was scope three, and so our team set about looking at the different elements of scope three and saying how do we do things differently?

Peter Anderson: 31:31

And we presented it to the broader leadership team and they looked at it and said, okay, and then I had one of our smarter young individuals come through and say well, peter, does that mean I can work from home now, because part of Scope 3 reporting is your home commute to work and so they felt that they could be more sustainable and that means that I can do home working for much longer and I don't need to come into the office. I don't know whether anybody else has actually had that challenge yet, but it made me smile about where scope three is taking things to. But scope three is, I mean, it's super broad, and the sooner we can get some clear regulation around reporting and standards and everything else that's consistent across all industries, the easier it will be for all of us, because I'm sure all of you are having the same challenges that I have with customers in terms of having to report it in different ways. Did they provide?

Ted Stank: 32:27

any indication that they would be coming in the future with some kind of standardization, or did they just say?

Peter Anderson: 32:32

I think they left it hanging out there at the moment, unfortunately.

Ted Stank: 32:36

We're the government. We're here to help Mr Reagan.

Tom Goldsby: 32:41

Now meanwhile, jeff, you come from a highly regulated industry anyway, right, and then we have these environmental expectations kind of layered in there as well, kind of what's Philip's position.

Jeff DiLullo: 32:51

All right, I'm going to riff on what Peter said, because my universe is different. I have hospitals that are struggling to understand and digest even the basics of sustainability. I talked about it because of consumption but for everyone everyone probably knows in this room scope one is your stuff. Scope two is the stuff you use that other people provide you. Scope three is your upstream, super high level. Scope three and health care is 73 percent of emissions. So scope three is a big freaking deal now. So I work up my scope three right. So I'm working.

Jeff DiLullo: 33:19

I told you 50 of our suppliers, by volume, have science-based targets that we require I actually think that's differentiation for the suppliers to be able to comply with that. I'm going to report that, which means my 37-page annual report section on sustainability. I can provide to my customers and say this is what I'm doing to help you. If there's an appetite to digest, that they will. But most of them have a hard time, so I'm helping them on scope too, just to refresh. That's the economic value that I can provide them in terms of their total cost. So we are trying to work very cleverly with hospitals to help them do that. But the regulation's a big deal. I talked about this eco-design, which is embedded in our design philosophy, but there's also the realization of new technologies. Ai, broadly speaking, and IoT-enabled capability allow us to do things digitally that you could never do. The problem is the government doesn't catch up with the reimbursement and the regulatory aspects of those things. So we have technology today that can go into people's homes and track their biometrics, and you can't reimburse hospitals for it. So we spend a lot of time doing that because we think it has to be a carrot and a stick. You can't just beat people into compliance. You have to show a path, and usually incentives for hospitals mean government increases in Medicare and Medicaid capabilities and commercial payers may follow, but really getting the impetus to have support behind it. I'm going to give you one example of where digital matters and it aligns to our mission.

Jeff DiLullo: 34:43

I have an ultrasound on an iPad. Not this iPad, sorry, but I have an ultrasound on an iPad. It's a product we sell. We send it to battlefields in the Middle East and we send it to rural communities for OBGYN care in central Tennessee. If you are west of Jackson, you probably have to drive an hour to get to an OBGYN.

Jeff DiLullo: 35:00

There are 55 counties in the state of Tennessee that have no OBGYN birthing center or direct care. So what do you have to do? You either take off work multiple times during your pregnancy to drive someplace you have to do. You either take off work multiple times during your pregnancy to drive someplace. If you're a single mother, that's worse or you can have a PCP or a doula come to you. So the hospital provides you a doula. We arm them with a remote ultrasound capability, with an OBGYN expert stenographer at Vanderbilt that can literally over the shoulder and interpret in real time why you're getting your ultrasound.

Jeff DiLullo: 35:29

We dramatically reduce the cost of access to care and you bring people closer to their home. There's no driving. There's a lot of sustainability implications there as well from a carbon footprint, but really you're increasing care. Now the one thing I want to say here it's slow to come and that's where we have to spend a lot of energy. Virginia yesterday approved the law that funded this into the state of Virginia. Tennessee is next, but we're going to multiple states to do this, because if you get the regulatory side, the incentive or the carrot, it goes much faster. And then you're getting the decarbonization effort and you're increasing care along the way. Better care, more people. It's amazing what we can do with technology today.

Peter Anderson: 36:07

For me, tom, the regulatory piece pays a huge leg in what we do from a recycling perspective. One of my biggest challenges is actually getting recycled material into my recycle plants. And, by the way, I take mixed waste. I mean I'll quite happily take cardboard, plastic, aluminum, steel, concrete blocks. Sometimes Yep people put those into waste, say in concrete blocks.

Peter Anderson: 36:32

Sometimes Yep people put those into waste, say in the recyclable, which is always interesting, but we just can't get enough of it, and it's because we don't have a culture of recycling in the US. So do we actually have to start thinking differently to get people to recycle more? Goodfield tells me we're not going to enforce it too well in the US. So how do we create something that's more? It goes back to the very start of this conversation. Do you actually create something where there's an incentive you get your 10 cents when your pizza box goes through the waste recycling center? Is there a way of actually digitizing that to be able to track it back and say, oh, that's Tom's box, let's put it back onto Tom's credit card because he deserves it, because he recycled it.

Ted Stank: 37:17

I think there's a lot of misinformation too about recycling. I think I'm just going to use my own example. When we first started recycling, I was very excited about it. Put everything in the recycling. Then you start hearing well, there's a lot of scams in recycling and the plastics that have the different recycling numbers. We think that they're getting recycled, but they're not really getting recycled. And so I think from a consumer standpoint, I think a lot of people are a little bit leery about what they really can put in and what they can't put in.

Tom Goldsby: 37:43

Yeah, we've really been focusing on transparency. We even talked about that earlier in the forum, you know, and it's really kind of focused on that inbound side of the business. But to your point, having that transparency of the closed loop and it's like where's this stuff go? Is it really being put to some productive use on the far side of my consumption?

Ted Stank: 37:59

Yeah, I mean to Peter's point. That's a big aha. I think for all of us that he can't get enough recycled, recyclable material.

Introduction: 38:10

And you know, COVID was a nightmare.

Peter Anderson: 38:11

We didn't have drivers to pick up with garbage trucks. So guess what, instead of the recycling truck coming around and then, just maybe 10 minutes later, a separate truck coming around and collecting the normal garbage, we'd have the recycling truck drive up the road. So people still think they're getting things recycled and they're paying a little bit of a premium for it. And guess what? You do a U-turn at the top of the road and come down and put the garbage into the same truck. So something as simple as getting enough drivers to actually be able to do the collections is a challenge.

Tom Goldsby: 38:38

So I think we've done a great job of kind of capturing where we are and how we've gotten here. But what about into the future? What are the two of you seeing? There's been a little bit of reference to maybe how digitalization tools, logic, business models need to adapt. Even you know, again, how the regulatory statutes need to adapt as well. But what are you seeing within your businesses in terms of you know, Peter, you mentioned the initiatives and amazing to hear that going to focus on the recyclability of product, closing that loop, and, Jeff, you've spoken of net zero four years ago. All right, so what's kind of the future? What are the goals and organizations and how do you expect to get there?

Peter Anderson: 39:20

I mean we have a science-based target of a reduction of 27.5% SBTI, and so we are absolutely working towards doing that, and a lot of that is through upgrading our assets. I mean, my average mill age is 57 years old. So there's a lot of opportunity for us to keep actually investing in terms of developing new technologies, new chemicals, new materials. I mean for those of you that drink your coffee every morning, I mean that chemistry on the inside of the cup in many instances is actually a poly layer. So inventing cups with a different type of chemistry that is absolutely recyclable, I mean those different types of things. Grease-proof cardboard, I mean four years ago, did you ever see meat products actually in a cardboard container? And the answer was no, because blood bled. Meat products actually in a cardboard container? And the answer was no, because blood bled through and there was a problem. Well, today the chemistries allow us to actually have it fully recyclable but also to increase that barrier. So we're using cardboard products for much greater use than we ever did in the past. So that's the big initiative For us, big push, and if you listen to our investor calls plastics replacement is the way forward.

Peter Anderson: 40:33

We can recycle our own materials. We can create that circular economy much, much harder. There was a great comment made by one of the big drinks companies that I was talking to. It was about 12 months ago and this particular individual said you know, if I took all of the recycled plastic that I need to make the bottles for my drinks, nobody else in the world would have any. Is that right? So there's an even bigger problem from a recycling perspective for plastic than there actually is with cardboard and paper and corrugate. So us being able to get that more back into the network, build out recycling facilities, to be able to do more, it really comes down to education. For me, the education is the bit that the more we can do and get it out to people in different parts of the country I mean we have good programs on the East Coast and California and then odd spots in other major conurbations, but nobody recycles anywhere else. For me that's one of the big initiatives that we're working on?

Jeff DiLullo: 41:34

Yeah, I think working. I'll break it in a couple areas because our product lines are so different. In some of the smaller packaged goods, working with companies like Peter's to make sure that our packaging is really, you know, leveraging as much sustainable material as you can. And recycling network. That's actually the easiest. What people do with that, whether they put it in their blue bin or their green bin, is different. But making sure that I'm providing a really sustainable product to them, even into the product components I talked about with the eco design.

Jeff DiLullo: 42:00

The second area, that is, if I outfit, let's say, a hospital, if I go to a Tennessee hospital over here and we outfit all 300 rooms with new monitors, there are boxes like this. Every, every bed has a monitor. I can do that today in a way that instead of doing a monitor replacement every four or five years when the life cycle of the box, I can now put it in there and run it as a software upgrade where I'm just upgrading the software. That's tremendous amount of material that's not coming out of a hospital. It's better future-proofing and economics for the hospital and I can actually do more at the software layer. So technology is enabling me to interact with devices with less boxing, less in and out. And then the big ones. Here I always go back to the MR, because if you can solve that problem a 10,000-pound magnet what do you do with that? So keeping those systems in use longer. So if an active life cycle is 10, how do I stretch two more years with upgrades and things that I can do in place? And then one thing we've been getting very good at in the last few years is how do I responsibly recycle that product? So if I take it out, it doesn't the hospital's not taking it out, I actually offer the service. I'll take it out, I'll take it back, thank you. And then I'll either break it down to the lowest possible parts, use everything I can for aftermarket support, or I grind it up and make sure everything's done in a recyclable way. Or one thing we love to do because it actually helps.

Jeff DiLullo: 43:16

Our mission is refurbish and reset to a secondary market or access to care for people that would never have access to care. I go to this maternal mortality thing. So we have a partnership with the Phillips Foundation, but also with another company called MedShare. It doesn't matter, we've got many of them, but we'll take it and then offer it to them. They go into the South Bay area in Oakland where black mothers and babies have a three times higher likely death rate, and we have them partner with clinics to deploy and train these assets. So we bring access to care not just in the US but also around the world. But these are ways if you can extend the life of a product that has a life, and then I can still bring it back through our circularity program. By the way interesting fact we even take the cellophane wrapping of the pallets that come into our North American recycling branches in Nashville. We even turn that over to Tendot and they grind that into the asphalt that Nashville roads so desperately need.

Tom Goldsby: 44:06

Amen. And, by the way, that's such a compelling example of your closed loop circular example, and you featured it when you were last with us in the podcast I think it was fall 22. And so I encourage people if you want to learn more about that example, you can go back and find it in the library. Also, I included that in our supply chain textbook and also my sustainability book. Do I get a royalty? You'll get a share, I'll get something. Yeah, it's not exactly a get-rich-quick scheme, so stay with it.

Ted Stank: 44:32

Tom, you want to go to the screen and see if we do some Q&A. I mean, I think you guys have provided some amazing examples of true innovation, but do you feel that greenwashing is prevalent across industry?

Jeff DiLullo: 44:43

I think there's a desire to want to go here. I think people lack the skills and the impetus to want to go here. I think people lack the skills and the impetus. Unless people can understand the total value chain creation in sustainable innovation and you really work as partnerships, it's very hard to get started. So I wouldn't call it greenwashing. There's plenty of that, but I think people that are actually deeply committed to it it's probably much fewer than those that talk about it. The other thing I just want to add on this and Peter your thoughts ESG is like a dirty word in some parts of the country, sorry. There are really good things that people should be doing. Do not believe we should not be contaminating our earth, right Like, it's just common sense. So don't throw everything away with your ideology, because there's a lot of good things that happen for our kids and their kids when we do things responsibly, and that's part of our commitment to our own planet that we should just practice.

Ted Stank: 45:32

And I would go back again to the notion that, even if you are like totally opposed to that, you think all this science is BS. There are really good business case reasons for doing this right.

Tom Goldsby: 45:43

You know just as I used to spend a lot of my time, you know, teaching, preaching operational excellence, and I'd speak of those beautiful days when you could serve a customer better at a lower cost. Right, those are the great ahas. That's the true innovation. I think we have that opportunity here to bring forward better solutions, perhaps at a lower cost, perhaps at healthier margins, and have that positive impact on the society, environment.

Peter Anderson: 46:06

It goes back to the TCO piece. Tom, If you really look at the true cost of something and you measure it from ground back to the earth again and all of the steps in between, if we actually look and calculate it that way, I think you do get to the lowest total cost of ownership. If you only look at segments of it, then you can optimize your own and actually make something that's much worse for the whole.

Tom Goldsby: 46:31

It does mean we've got to reframe that problem right. We've got to get beyond the month or the quarter. These are long-term solutions.

Ted Stank: 46:35

I sat on a panel yesterday for our MS and supply chain students who are here in an immersion for a few days. They're in an online program but they have to come to campus and several of them are here today as well. And there was a question about, over the years that we've been doing research, what are kind of the major themes that have emerged? And my two were, first of all, speed kills we need to speed processes. And second of all, and probably the most important, is we need to start talking in terms of TCO that if we can couch almost all of our initiatives in TCO, we have so many wins out there. But again, it's an education process, right?

Tom Goldsby: 47:11

I think to that point. There's a question from the audience that is directed to Peter. But, jeff, you can take this as well how are companies like Westrock supporting nonprofits, government agencies, to help educate public and promote increased recycling, that education piece? So how are you getting that message out?

Peter Anderson: 47:28

Every damn way possible. Like can I put my dirty pizza box?

Ted Stank: 47:32

in the recycling bin.

Peter Anderson: 47:34

Absolutely.

Ted Stank: 47:34

Because I have been told that if you have any kind of food product in there, you can't. Education starts right here.

Peter Anderson: 47:40

I don't have some, but I mean the new coatings that are inside of pizza boxes are grease-proof.

Ted Stank: 47:46

Okay, you heard it here. First Recycle your pizza boxes.

Peter Anderson: 47:50

I'll take all your pizza boxes back. There's certain things that obviously the cardboard that we put in comes from Virgin, because there's a requirement for that from fibers, from trees. But there are certain things we recycle, so not primaries, like sort of secondary and tertiary packaging products. So for us, the way we're looking at it is we're taking it one right the way down to the schools level. I mean we're actually working with a number of schools in different places to actually try and get the kids of today to understand the benefits of recycling, because we've probably lost the cause for some of the older people in the world. So how do we get the kids to actually adopt it? How do we get them to think about recycling as the right thing to do?

Peter Anderson: 48:34

We're also working with a number of non-for-profits in terms of promoting what we do around recycling. I mean people think of recycling facilities as really horrible, dirty places they can be. But I also have some of the highest technology that we have in the whole of our company, with high-speed automated picking robots that actually pick high speed off conveyors and actually can determine whether that's a piece of brown paper or white paper and pick it off and put it into the right bin. No longer is it a case of having people standing there and doing this. So the technology exists to actually do a lot of this, but the next big piece around it is we're working with all of the forestry agencies around the different groups to promote recycling as well, and obviously that's our link into DC and all the things that we're trying to do from a recycling perspective.

Peter Anderson: 49:29

There Europe is taking it to a different level. I'm not sure that we'll ever get to that sort of level, but it is going to have a cost on us if we don't, because it may force us to actually think of things very differently, about how we manufacture them in the US for use in Europe. Those regulations are coming, jeff, kind of how are you working?

Tom Goldsby: 49:49

You know it's incredible to hear what you're doing kind of within the four walls of Philips. But what are you doing upstream, downstream and also with the larger stakeholder environment?

Jeff DiLullo: 49:57

Upstream, I mentioned, I think we're pretty transparent. We actually favor supply base, that is, practicing science-based target activities and we validate those. We have a team that goes and validates our supply base and I think that to me, that incentive to get more business for doing that is a big one to shape us. There's a 7x increase if I can improve my scope three to the effectiveness of what I deliver back to hospitals. I mean the value is huge. So we're pretty committed upstream.

Jeff DiLullo: 50:23

Downstream, I think the circularity aspect of that we continue to push away at the circularity, or keeping things in use longer or repurposing them. There's a question I think about how do you work with nonprofit and government? I mentioned that we have multiple nonprofits that we actually partner with as part of that circularity journey. So instead of us owning the asset when it comes back from a hospital, we repurpose it to them. They take ownership, bring it back to us when it's done in its secondary life. That's just a network. It's sort of like a partner ecosystem. It's not overly complex to think through. You just have to dedicate resource to doing it.

Jeff DiLullo: 50:57

The last thing I'd say and this is a big one most of the things that we're delivering today have a digital or software-enabled component to it. That, candidly, the FDA. They're amazing people but the technology is moving so fast If you think about the potential negative implication of moving predictive analytics for life-saving diagnosis that you could get wrong you have to be very careful how you're doing it. So we spend a lot of energy with partners at the FDA, helping them explain and understand and demystify what the capability is. They inform us of what we need to do to raise the bar. That's an industry-level thing and that's also a Phillips level thing.

Jeff DiLullo: 51:31

And then I think that the magic for us is, you know, public service announcements, the things we do partner with hospitals locally for public service announcements. There's, there are funded resources that we can partner with. But but really helping this reimbursement chain? I know it's unique to hospitals, but it's not unique to how you proliferate capability, because you always have to have a path to money. So if you look at it only from us to hospitals, it doesn't work effectively. If you look at it across the whole ecosystem of how health care gets funded, technology developed, delivered and then circularly back into new environments, you have to kind of take that. So our team has to look that end to end, even though we're only really delivering products to customers. We're trying to influence the whole chain.

Tom Goldsby: 52:11

It's kind of an interesting question that came from the audience, the notion of horizontal collaboration. So are you working with any non-traditional stakeholders, ie perhaps competitors? Are you all kind of aligned in some way, absolutely?

Jeff DiLullo: 52:24

I'll just say briefly because one of the largest med tech advocacy group in the world. I work with GE and Siemens and Holosite and so many others that are really we're all partnering in a lot of these initiatives that are really important because our altruistic nature is to improve access to care. We think we can do that in a very sustainable way, but it takes the whole economy, it can't just be one or two partners. So we're pretty active in a lot of those forums that allow us to express our voice collectively to the decision makers.

Peter Anderson: 52:53

No, it's a great question and I mean part of my team does it every single day. So paper industry in the US. We have paper mills in lots of different places, lots of different geographies. Maybe I get a contract with Walmart where I'm collecting all of their cardboard waste out of a site in a particular locality. Maybe it doesn't actually fit with me to move that cardboard waste 400 miles across the country to actually one of my mills. We'll actually do a trade with our competitors and say how about you give me some of yours in this area and I'll give you yours? And we both win and the environment wins because we don't have the logistics costs associated with it. So we do have a very active trading network around that as well. It's not just about getting the best price for us, it's also looking about how we can work together to actually get to the overall best result. Fascinating.

Ted Stank: 53:47

Well, we're reaching our end of this session. How about a big round of applause, since we are in front of a live television for our guests? Guys, I could talk to you all all day long. What are you all doing? April 9th 2025? Should we book it or what?

Tom Goldsby: 54:04

All right, we'll put a wrap on it there. And again, just remind our friends out there, you can find us at gsci at utkedu. And put a wrap on it Until next time. Thanks so much.

Introduction: 54:13

Thanks for tuning in to Tennessee on Supply Chain Management. If you enjoyed the episode, subscribe today on your favorite listening platform to get all of our episodes as soon as they drop, and don't forget to take a moment to leave us a rating. Have any questions, thoughts or feedback? We'd love to hear from our listeners. Email us at gsci at utkedu. Join us next time as we continue pulling back the curtain on the world of supply chain, educating and entertaining you along the way. Until then, listeners.