Assignment
Case: IKEA's Sustainable Cotton Supply Chain
In 2017, for the second year in a row, IKEA, the home furnishings retailer, was judged to have the most responsible cotton supply chain in the world, out of 75 consumer-goods companies that used significant amounts of cotton. A group of leading nonprofits scored these companies on three dimensions-having a strong sustainability policy, using a high percentage of sustainable cotton in their products, and tracing the origin of cotton across their entire supply chains. "This ranking shows we are well on our way, even if we all have to do more to transform the cotton and textile industry," said IKEA's sustainability manager. In 2018, IKEA-founded in 1943 by Swedish entrepreneur Ingvar Kamprad-was the largest furniture retailer in the world, with annual revenues of $36 billion. The privately owned company operated 415 stores in 49 countries, selling ready-to-assemble furniture, housewares, and home décor to mass-market customers. Cotton was the company's second most important raw material after wood. IKEA used nearly 1 percent of the world's entire supply in a range of products, including bedding, bath towels, upholstery, mattresses, and cushions. First grown by humans in the Indus Valley 7,000 years ago, by the 2010s cotton was grown in more than 80 countries and supported more than 250 million people worldwide, most of them in developing economies.
Cotton's supply chain was long and complex. Cotton was grown on a farm, then sent to a ginning mill to remove seeds, stems, and dirt and compress the lint into bales. These were then shipped to a spinning mill to be made into yarn, then to a factory to be woven or knit into fabric, and then to a separate facility to be dyed. Yet another supplier cut, stitched, and made the fabric into products for sale to IKEA or other retailers. IKEA sourced its cotton from all over the world, with the largest shares coming from India (25 percent), China (23 percent), Pakistan (18 percent), and Turkey (11 percent). Only 5 percent came from the United States. Conventional cotton farming had many adverse environmental and social effects. Cotton used more water than any other agricultural commodity; about 3,000 gallons were required to grow the fiber used in just one pair of jeans, depleting surface and groundwater supplies. The sector was a major user of synthetic fertilizers, pesticides (insect-killers), and herbicides (weed-killers), many of which were highly toxic-threatening worker health and polluting land and water. Many cotton farmers had poverty-level incomes, and women received on average 25 to 30 percent less pay than men doing the same work. Child labor was used in the cotton industry in 18 countries. IKEA was an early mover in supply-chain responsibility.
In 2000, it adopted a supply chain code of conduct, called the IKEA Way on Purchasing Products, Materials, and Services (IWAY), which established minimum standards for environmental and social practices. The company believed this code to be consistent with its core values, which it described this way: "We want to economize with resources. We do not want to be wasteful, and we always strive to make more from less." It also believed that clear supply-chain standards would reduce risk and appeal to customers. In its efforts to implement IWAY, the company quickly recognized cotton as a key area of concern. In 2005, IKEA joined with several other companies and NGOs-including the World Wide Fund for Nature (WWF), Oxfam, the Pesticide Action Network, The Gap, H&M, Levi Strauss, and Marks & Spencer-to form the Better Cotton Initiative (BCI), a multi-stakeholder collaboration aimed at making the global cotton industry "better for the people who produce it, better for the environment it grows in, and better for the sector's future." In 2009, the BCI published a set of standards calling for farms to use water efficiently, care for the soil, conserve habitats, maintain fiber quality, and promote decent work.
BCI aimed to have 30 percent of the world's cotton produced to its standards by 2020. For its part, IKEA adopted an ambitious goal of sourcing 100 percent of its cotton from sustainable sources by 2015. It started by mapping its own supply chain to better understand the long journey of cotton fiber from farm to end product. The company held workshops for tier-1 and 2 suppliers to communicate its sustainability commitments and provided them with preferred sourcing lists. It also worked directly with farmers. In Pakistan, for example, IKEA partnered with the WWF to train cotton farmers in more sustainable methods. The pitch to farmers was straightforward: they could save money and increase their incomes by reducing their use of water and chemical inputs. In China, the company worked with ginners to convince them to separate sustainable from conventional cotton; although the ginners would incur extra costs, they would benefit by winning market share.
IKEA announced it would no longer source cotton from Uzbekistan, where child and forced labor had been ongoing concerns. It worked with BCI to introduce specialized software that farmers, spinners, and traders could use to track sustainable cotton through the multi-tiered supply chain. By September 2015, IKEA had met its goal: 82 percent of its cotton supplies were grown to BCI standards, and the remaining 18 percent came from recycled sources. In a 2017 evaluation, researchers found that the BCI and allied companies like IKEA had in a sense become too successful. The proportion of the world's cotton that was grown sustainably had increased rapidly. But demand for "better cotton" had lagged supply-even though the price was comparable-so only 21 percent of it was purchased by buyers looking specifically for sustainable cotton, with the rest entering the conventional cotton market. Several NGOs argued that the movement for sustainable cotton should shift its focus from improving practices on farms to convincing more retailers and brands to buy their output. "Without demand from buyers, more sustainable cotton will remain a niche product, and the cotton sector's social and environmental problems will persist," said one NGO report.
Task
A. Draw a supply chain map of IKEA's cotton supply chain.
B. What social, ethical, and environmental risks were present in IKEA's cotton supply chain?
C. What characteristics of the cotton supply chain made enforcing its code of conduct especially challenging for IKEA?
D. What were the advantages and disadvantages to IKEA of working collaboratively with other companies and NGOs to improve sustainability in its cotton supply chain?
E. What motivated actors throughout the complex cotton supply chain to comply with IKEA's sustainability goals?
F. What more, if anything, could IKEA do now to improve sustainability in the cotton sector?