Dell: Upcycling Ocean Plastics Through Supply Chain Innovation

For the exclusive use of E. Atolagbe, 2019.

case Ravi Anupindi June 18, 2018 Andrew Hoffman W91C21

Piyush Bhargava, vice president of global operations at Dell, glanced out his office window. It was a sunny and hot late-August day in Round Rock, Texas in 2017. The sunshine reminded him of the beaches in Indonesia and he could not help but wish he were back there where his goals seemed much more straightforward. It was not long ago that he and his team had been in South Asia surveying the availability of ocean plastics waste, meeting with processors, and enjoying more than their fair share of bakso.i Indeed, the trip to Asia had been a huge success. The team, supported by two University of Michigan Tauber Institute for Global Operations1 interns, had not only proven that incorporating ocean plastics into Dell’s packaging for products was feasible, but that doing so could deliver both meaningful cost savings over conventional sources of plastic and a substantial diversion of waste from the oceans.

Bhargava had been happy to see the results but he also knew now that the real work was only just beginning: developing and certifying the supply chain that the team recommended and finding ways to utilize meaningful volumes of ocean plastics, through both Dell products and packaging and creative partnerships with other companies. Even by the most conservative estimates, millions of tons of plastic enter the ocean every year. The scope of the environmental crisis was staggering and it would take a concerted effort well beyond Dell’s scale to fully address the problem.

Bhargava glanced back at his computer. His Chief Supply Chain Officer, Kevin Brown, wanted a strategic plan for how to proceed with the Ocean Plastics Initiative by the following week. But even with the recent successes, there were still many unknowns. Dell prided itself on being a leader in both packaging innovation and supply chain management, but this latest initiative would test its mettle in both. The list of internal stakeholders from whom Bhargava needed buy-in to make the ocean plastics supply chain operational and certified was staggering. Even more challenging, Michael Dell had a vision of the ocean plastics supply chain being open to any company interested in following suit, and to that end Dell was positioning itself to lead a consortium of like-minded companies to drive major demand for ocean plastics. i A traditional Indonesian meatball soup dish. Published by WDI Publishing, a division of the William Davidson Institute (WDI) at the University of Michigan. © 2018 Daniel Partin, Luke Sawitsky, and Allison Ward. This case was written by University of Michigan graduate students Daniel Partin, Luke Sawitsky, and Allison Ward under the supervision of Andrew Hoffman, Holcim (US) Professor of Sustainable Enterprise, and Ravi Anupindi, Colonel William G. and Ann C. Svetlich Professor of Operations Research and Management, at the University of Michigan’s Ross School of Business. The case was prepared as the basis for class discussion rather than to illustrate either effective or ineffective handling of a situation. The case should not be considered criticism or endorsement and should not be used as a source of primary data. This case is based on the 2017 Tauber Institute for Global Operations summer internship project that won first prize in the 2017 Tauber Spotlight! Team Project Showcase and Scholarship Competition.

This document is authorized for use only by Ezekiel Atolagbe in OPMT 620 Winter 2019 taught by LARRY EARNHART, University Canada West from Dec 2018 to Jun 2019. For the exclusive use of E. Atolagbe, 2019. Dell: Upcycling Ocean Plastics Through Supply Chain Innovation

Dell’s communications campaign around the Ocean Plastics Initiative had been a huge success and its unique approach to the problem was well received by the public. Carly Tatum, Dell director of communications, happily reported that the initiative already had two billion media impressions. Several publications were running articles about the pilot Dell had conducted in Haiti as a proof of concept for incorporating ocean plastics into its packaging, and Michael Dell himself was posting his support on Twitter and LinkedIn (see Exhibit 1 and 2). Bhargava knew all too well, however, that this publicity would also bring scrutiny and raise expectations, and that the company would really need to demonstrate that its efforts were making a difference for ocean health—what the corporate sustainability team referred to as delivering “additionality”.ii On top of all this was Dell’s pledge at the United Nations Oceans Conference in June 2017 to increase ocean plastics usage tenfold by 2025 as part of Dell’s commitment to the UN’s Sustainable Development Goals.2 The pressure to deliver was truly “on.” Bhargava reflected on this and opened the slide deck he would present at the end of the week. The question before him was not only what an operational ocean plastics supply chain should look like at scale, but how should Dell approach developing a consortium of companies to ensure meaningful demand for the material? He knew it would be a stressful endeavor, but he hoped that the impact he could deliver for both Dell and the oceans would make it all worth it.

Exhibit 1 Michael Dell Tweets About Ocean Plastics

Source: www.twitter.com/MichaelDell. Accessed 22 May 2018.

Exhibit 2 Michael Dell Authored LinkedIn Article on Ocean Plastics

Source: www.linkedin.com/pulse/ocean-plastics-problem-we-can-solve-together-michael-dell/. Accessed 22 May 2018.

Dell Technologies: Company Background

Dell Technologies (previously Dell Inc.) was a large, privately held company based in Round Rock, Texas, in the Austin metropolitan area, that provided consumers, industry, and government customers with a range of technology products and service solutions. In 1984, founder Michael Dell began selling specially configured computers out of his University of Texas dorm room. It was here that the company was born. The

ii Typically applied to carbon offset markets, “additionality” is the concept that an intervention has a demonstrable effect when compared to an alternative baseline or status quo. 2

direct sales model of “build to order” and “configure to order” was a significant disruption in the technology industry and helped Dell become a leader in supply chain development.

In 2008, Dell announced that it was entering the retail business and restructuring its supply chain toward outsourcing large amounts of manufacturing. This shift was due to an evolving consumer market requiring multi-dimensional supply chains to meet the needs and demands of all customer segments. After being public since 1988,3 Dell went private in 2013 in a $24-billion deal that removed it from the NASDAQ stock exchange.4 In 2016, Dell Inc. acquired EMC (now Dell EMC) in the largest technology deal in history, forming Dell Technologies and expanding into the server and cloud computing markets.5 In 2017, with 140,000 employees, Dell was the third-largest PC vendor in the world by market share (see Appendix A), and a market leader in 21 other information technologies, hardware, or services spaces in which Dell operated (see Appendix B).

A History of Innovation Dell had a history of both industry-leading and environmentally impactful innovations, especially in the packaging domain. Using its “3 Cs Strategy” of focusing on the cube (size and shape), content (material choice), and curb (recyclability), Dell led the incorporation of sustainable materials into packaging. In 2009, Dell replaced petroleum-derived foam with bamboo harvested near its manufacturing facilities; then in 2011, cushions that were “grown, not made” inspired mushroom packaging, which reduced the size of the packaging footprint and could be used for heavier shipments in North America. The success of these material substitutions allowed Dell to push the boundaries further, most recently with ocean plastics packaging. An evolution toward ocean plastics marked a shift from elements that “do no harm” toward a strategy that focused on actively improving the current environment.6

Sustainability at Dell Throughout its growth, Dell prided itself on keeping the entrepreneurial mindset that originally inspired Michael Dell. To maintain this mission and commitment to the environment, the company developed a sustainability and corporate responsibility plan called the 2020 Legacy of Good7 (see Exhibit 3). This document outlined a strategy of using technology to create a positive impact through environmental and social milestones for the business and offerings to create a positive effect on the environment, communities, and people by adding 10 times the amount of “good” when compared to the footprint that the technology created. The commitment started with Dell’s own operations, addressing the efficiency with which it delivered technology solutions worldwide. It expanded to the company’s supply chain, where Dell sought to ensure consistent, transparent environmental and social stewardship of its partner companies around the world. Finally, it provided customers with solutions that gave them the power to do more while consuming less.8

“Our aspirations and goals for 2020 reflect our approach of considering the environment at every stage of technology’s life-cycle—from design through end of life—and then measuring the impact to inform future efforts. Together they form the interconnected, inseparable components of our work to make a positive impact on the world we share.”—Dell 2020 Plan

The 2020 Legacy of Good goals outlined several key metrics that would eventually reinforce Dell’s progression toward the Ocean Plastics Initiative. First, Dell was committed to having 100% of its packaging sourced from sustainable materials. Second, all packaging needed to be either 100% recyclable or compostable. Third, Dell sought to use 100 million pounds of recycled-content plastic and other sustainable materials in its products. Fourth, Dell would phase out environmentally sensitive materials as viable alternatives became available.9 3

Exhibit 3 Dell’s 2020 ‘Legacy of Good’ Progress

Source: Dell. “An Annual Update on Our 2020 Legacy of Good Plan.” FY17 Corporate Social Responsibility Report, 2017. legacyofgood.dell.com. Accessed 18 March 2018.

Ocean Plastics Background

The Problem Plastics are ubiquitous and have enhanced lives in many ways. However, they come with many concerns. Materials used in their production do not biodegrade in nature. Plastic products are made with many different chemical compounds that are not recognized by microorganisms responsible for decomposing organic matter. As a result, once these compounds enter ecosystems in the form of plastic debris, they cannot be removed by means of natural ecosystem services. While some plastics are biodegradable, they are projected to comprise a fraction of overall production in the future,10,11 and furthermore they biodegrade only in very specific conditions found only in industrial compost facilities.12

Due to a shortage of adequate waste disposal infrastructure and policies, plastics often collect in certain areas, with marine and coastal environments becoming common aggregation sites for plastic waste around the world. While the scientific community struggles to find consensus on the exact amount of plastic entering the oceans annually, one study, published in Science magazine in 2015, estimated that of the 275 million metric tons (MT) of plastic waste generated in 192 coastal countries in 2010, between 4.8 and 12.7 million MT entered the ocean. The majority of this plastic (roughly 60%) was found to originate from just five countries in South Asia: China, Indonesia, the Philippines, Thailand, and Vietnam (seeExhibit 4). The same study predicted that without policy intervention and infrastructure improvement, the amount of plastic waste entering the oceans would increase ten-fold by 2025.13

Mismanaged waste (lacking effective collection processes or disposal/recycling infrastructure) in coastal countries was a significant contributor. This included materials gathered through either formal or informal waste collection processes and ineffectively disposed of afterward. One study found that, of land- based sources of ocean plastics, up to 25 percent leaked from within waste-management systems.14

Exhibit 4 Top 10 National Sources of Ocean Plastics Waste (2010 Data)

Source: news.nationalgeographic.com/news/2015/02/150212-ocean-debris-plastic-garbage-patches-science/. Accessed 8 June 2018.

Leaked land-based plastic, consisting primarily of consumer waste, has been the leading contributor of ocean plastics since at least 2010.15 The resulting total amount of plastic in the oceans is difficult to quantify because once it enters the water, currents carry it out to sea where water flows pair with wind patterns to move the waste into areas called ocean gyres. A gyre is a system of circular water movement that creates a stable inner area in which marine waste collects and remains indefinitely. One of the largest and most well-known is the North Pacific Subtropical Gyre, also known as the Pacific Garbage Patch. While estimates vary as to the exact size, it is believed to be larger than Texas (see Exhibit 5).16 A study published March 22, 2018, in Scientific Reports estimated the plastics in the patch totaled at least 87,000 tons— in 1.8 trillion pieces.17

As plastic waste sits in the ocean near the surface, sunlight and wave action break it down into increasingly smaller pieces, called microplastics (defined as pieces <5mm), through a process called photodegradation. Some estimates place the number of plastic particles in the ocean at more than 5.25 trillion due to this effect.18 While many people may imagine a concentrated mass of plastic floating on the surface when they hear the term “garbage patch,” recent studies have found evidence indicating that plastic debris drifts into deeper water over time.19

While most plastics that end up in the ocean start out as macroplastics (pieces larger than 5mm, typically plastic bottles, bags, packaging, etc.), some enters the ocean directly as microplastics. Many products have microplastics included in their construction, such as microbeads present in many toiletries. Brushing teeth or taking a shower with such products allows the microbeads to be washed down the drain and many eventually flow into the ocean. This problem led countries such as Canada and the United Kingdom to institute bans on microbeads, and companies such as Estée Lauder to voluntarily remove them from product lineups.20,21,22 Additional microplastics are created by the mechanical wear and tear from friction of tires on pavement or shed from synthetic fabrics in the wash and also end up in the ocean via sewer systems. Combined, these sources make up over half of the estimated 1.5 million tons of microplastics entering the ocean annually. That is the equivalent of every single person throwing a plastic bag directly into the ocean every week for an entire year.23 5

Exhibit 5 Overview of Plastic Gyres in the Pacific Ocean

Source: marinedebris.noaa.gov/movement/great-pacific-garbage-patch. Accessed 22 May 2018.

The accumulation of plastic waste in the ocean, including microplastics, creates risks to marine ecosystems and sea life in four primary ways: by entangling, by being ingested, by creating chemical exposure, and by acting as a carrier for diseases and invasive species. (See Appendix C to learn more about the effects of plastic once it is in the ocean.)

The Search for Solutions The global scale of ocean plastics garnered significant attention following the aforementioned 2015 study in Science magazine,24 which brought its magnitude to the general public’s attention. Since then, the United Nations has included “Life Below Water” as the 14th Sustainable Development Goal25 and convened a global Oceans Conference in the summer of 2017 to discuss ways to support its implementation.26 At a subsequent conference in the winter of 2017, over 200 nations pledged to undertake efforts for the long-term elimination of plastics from the oceans, through both preventive measures and cleanups, by 2025. While the agreement was non-binding, the executive director of the United Nations Environment Programme, Erik Solheim, expressed his enthusiasm for potential market-based solutions, noting: “I’m very optimistic that in 20 years, we will see a much more circular economy.”27

Several companies undertook programs to stem the flows before they reached water. Adidas partnered with Parley for the Ocean,iii a nonprofit with the mission of providing consumer-focused solutions to improve ocean health, to release a line of shoes made from recycled ocean plastics.28 Another company, Thread,iv was dedicated to recycling plastic bottles, predominantly from coastal regions of Haiti, and turning them into raw materials for reuse.29 Thread sold textiles to consumers and worked with companies such as Timberland and Hewlett-Packard to incorporate ocean plastics into their products. Procter & Gamble and Methodv

iii For more information, see: www.adidas.com/us/parley iv For more information, see: www.threadinternational.com v For more information, see: www.methodhome.com/beyond-the-bottle/ocean-plastic/ 6

released lines of soap bottles made with ocean plastics, and innovator Bureovi made a line of skateboards from discarded fishing nets. 30,31,32

Each of these efforts faced some daunting challenges when dealing with the five types of plastics typically found in waste management systems: PET (polyethylene terephthalate), HDPE (high density polyethylene), PS (polystyrene), LDPE (low density polyethylene), and films and composites made of different types of plastics. Plastics with the lowest residual values are the ones most likely to become mismanaged waste and leak into the ocean (see Exhibit 6).

Exhibit 6 Relative Hierarchy of Plastic Value, Type, and Common Products

Value Plastic Type Common Product Examples High PET Water bottles, soda bottles, clothing fiber High HDPE Milk jugs, laundry detergent bottles Medium PS Coffee cups, packing foam Medium LDPE Plastic wrap, trash bags Low Films/composites Food wrappers, electronics plastic Source: www.oceanconservancy.org/wp-content/uploads/2017/04/full-report-stemming-the.pdf. Accessed 22 May 2018.

Medium value products such as plastic bags are difficult to recycle since they often get stuck in recycling equipment and jam the machinery. They are also infrequently collected by waste pickers because of their low density and weight, meaning that pickers have to collect significantly more pieces of waste for the same return (see Exhibit 7). Low value films and composites are complicated and costly to recycle due to difficulties separating them into their source materials.33

Exhibit 7 Overview of Informal Waste Picker Market Dynamics

Source: www.oceanconservancy.org/wp-content/uploads/2017/04/full-report-stemming-the.pdf. Accessed 22 May 2018. vi For more information, see: www.bureo.co 7

Dell Dives into Ocean Plastics

The notion of incorporating ocean plastics into Dell’s packaging grew out of conversations between its Corporate Social Responsibility and Communications teams and Dell’s social good advocate, actor Adrian Grenier. As founder of Lonely Whale and champion of efforts such as the Strawless Ocean Initiative, Grenier was a longtime ocean health activist. In 2015, Dell partnered with Grenier and UN Environment to educate companies and consumers on the dangers of ocean plastics through the Lonely Whale VR Experience. vii,34 The experience traveled with the UN around the globe as part of its Clean Seas campaign, and encouraged over 50 countries to make commitments to ocean health. It was during this partnership that the notion of incorporating ocean plastics into Dell’s products or packaging arose. The idea was brought to Oliver Campbell, Dell’s director of worldwide packaging engineering, whose team was behind many of the aforementioned packaging innovations. Campbell was immediately hooked on the concept, seeing it as an opportunity to continue Dell’s legacy of packaging innovation, leverage Dell’s strength in supply chain management, and make a meaningful impact on a significant environmental problem.

After some initial research, Campbell proposed the idea to his boss, Bhargava, who first responded with skepticism. Bhargava, a skilled supply chain practitioner, struggled with how to prioritize Dell’s efforts on ocean health against other initiatives within the team. Moreover, the idea of using ocean plastics in packaging seemed costly and fraught with risk regarding manufacturing, continuity of supply, and social responsibility.

Discouraged but not dissuaded, Campbell refused to abandon the notion, instead building the case that ocean plastics was a natural extension of Dell’s progressive social and environmental leadership. Bhargava agreed that Dell could bring supply chain expertise, technology, and scale to bear on the issue, but the real breakthrough came when Campbell gained the backing of an unexpected ally—Bhargava’s teenage daughter, Saanya, who was interning at Dell when Campbell enlisted her help in researching the ocean plastics problem. An environmental activist in her own right, Saanya became increasingly aware of the devastating impact of plastic pollution and was convinced that something had to be done about it. As Bhargava put it, “the conversation started making its way to the dinner table. If ocean plastics is a problem, what was our responsibility to address it? And leading companies like Dell need to play a role in solving this environmental problem”. Bhargava considered his daughter the voice of the next generation, one who felt businesses had a duty to more than just the bottom line. Bhargava was moved. He sponsored a pilot to test the material viability with funding from within his own organization and put Campbell in charge. Campbell brought in one of his trusted global commodity managers, Adam Bushong, to head the project, and with that, the Ocean Plastics Initiative was born.

Dell’s Approach to the Ocean Plastics Initiative

Dell developed a methodology based on four progressive phases: (1) initial assessment, (2) Haiti pilot supply chain, (3) Asia-based supply chain, and (4) scaling. The Ocean Plastics Initiative was led jointly by the packaging engineering and procurement departments with a core team of Bhargava, Campbell, and Bushong, as well as representatives from the social environmental responsibility, legal, regulatory, and logistics departments. The team from the Tauber Institute for Global Operations entered the project as part of phase 3 to help develop the Asia-based supply chain architecture.

vii For more information, see: vr.delltechnologies.com 8

1. Initial Assessment (2015) The Ocean Plastics Initiative officially started in 2015 with an initial assessment of the availability of ocean plastics as a packaging material. Advanced analytical tools were used to locate sites around the globe with a high concentration of ocean plastics from which to draw samples. This stage included geographic information system (GIS) studies, a satellite imagery analysis, and consultation with Dr. Jenna Jambeck, a leading researcher on ocean plastics at the University of Georgia and lead author of the 2015 Science magazine article that drew attention to the scale of the ocean plastics problem.

This research led Dell to recognize that harvesting from the ocean would be too difficult, and that a sourcing strategy that focused on collecting plastic waste early in its life-cycle, before it reached the ocean, was more feasible. An analogy used by Jambeck was that if your bathtub is overflowing with water, the first thing you would do is to turn off the faucet, not start scooping out water. The same could be applied for ocean plastics waste, where Dell’s strategy became to intercept it in high risk areas within 50 kilometers of the shore. This strategy made sense from a number of perspectives, two of which were paramount. First, collecting plastic waste from the water would be exceedingly expensive, inefficient, and unreliable. Second, once exposed to salt water and UV radiation, the plastic material quickly degraded, losing its residual value. This assessment led to the conclusion that ocean plastics early in its life-cycle—while it was still on land but likely to end up at sea due to its proximity to waterways and overall mismanagement—offered the best combination of large-scale impact, material viability, and economic feasibility. Dell published these results in a White Paper, “Identifying Sources of Ocean Plastics: A Methodology for Supply Chains,” to share the developed methodology and results.35

2. Haiti Pilot Supply Chain (2016) In 2016, Dell transitioned into the technical test phase and conducted a pilot supply chain out of Port-au-Prince, Haiti. This location was chosen due to its high concentration of mismanaged plastic waste and its proximity to Austin, Texas, in case the Dell team needed to travel to the collection site to assist with any issues. Dell succeeded in sourcing an initial 16,000 pounds of HDPE from Haiti by partnering with a US-based company, Envision, that facilitated the waste collection and processing. The raw materials, mostly consumer products packaging, were shipped to Envision’s processing facility in North Carolina, where the plastic was washed and processed into plastic resin (small flakes or pellets). The processed resin was then shipped to Dell’s manufacturing facilities in Kunshan, China, where it was mixed with post-consumer recycled plastic and formed into the gift box tray used in Dell’s XPS 13 notebook line (see Exhibit 8). The complete Dell process is shown in Exhibit 9.

Dell learned many valuable lessons about raw material quality and processing from the Haiti pilot. For example, there were initial issues with contaminated resin containing sticks, stones, and shards of aluminum that clogged extruders during manufacturing. In addition, Dell gained an initial understanding of how a country with little-to-no formal waste management system collects plastic. For waste management, many countries rely almost exclusively on the informal sector. The Haiti pilot proved successful in creating a template supply chain for ocean plastics.

The pilot study received huge external visibility for its unique approach to the problem. In less than a year, the project received over 2 billion media impressions, with hundreds of articles published, and many other companies expressing interest in joining the initiative.36 During the initial stages of the Ocean Plastics Initiative, Dell received praise from numerous non-governmental organizations (NGOs) for its ambitious strategy of developing a supply chain to source ocean plastics as a feedstock for packaging. However, some NGOs were quick to point out that Dell’s efforts focused on a portion of the ocean plastics waste problem, namely HDPE (and later PET), that was already being gathered by informal waste collectors because of its 9

high residual value.37 Numerous other forms of plastic waste were still entering oceans, such as straws, bags, and films, that were considered to be of little to no value since technologies had not been developed to recycle them into usable products in a cost-effective manner.

Exhibit 8 Gift Box Tray for Dell XPS 13 Notebook, Featuring 25% Ocean Plastics

The ocean plastics tray is the base on which the XPS-13 and its owner’s manual rests within a larger gift box. It features the images of two whales to highlight Dell’s commitments to ocean health and the Lonely Whale Foundation. It also highlights the percent of ocean plastic used in making the tray, which was 25% at the time this case was written. Source: www.packworld.com/sites/default/files/field/image/img_6175.jpg. Accessed 11 June 2018.

After the Haiti pilot, Dell made public its commitment to tackling the ocean plastics problem. At the UN’s Ocean Conference in New York in June 2017, Bhargava delivered Dell’s commitment to increase its use of ocean plastics ten-fold (to 160,000 pounds) by 2025, as compared to the Haiti pilot baseline. Further, Dell committed to open-sourcing its supply chain, inviting any interested parties to follow suit in sourcing ocean plastics, while also convening a cross-industry consortium of like-minded companies to develop best practices and leverage higher demand for ocean plastics.38

3. Asia-Based Supply Chain (2017) After the Haiti pilot proved the technical viability of an ocean plastics supply chain, Dell investigated the feasibility of moving the ocean plastics supply chain to South Asia. The reason for this was two-fold. First, it would significantly shorten Dell’s supply chain by removing the stop in North Carolina and placing the raw material sourcing closer to Dell’s packaging and product manufacturing sites in China, thereby reducing lead time and logistics costs and, by extension, improving the cost-effectiveness of ocean plastics (see Exhibit 10). Second, it targeted areas of highest mismanaged waste, such as South Asia, where 60% of the world’s ocean plastics originated.39

Many of the areas that Dell was considering to source ocean plastics had robust informal waste collection economies including Indonesia, the Philippines, China, India, and Vietnam. In fact, in some parts of Indonesia it was estimated that as many as one out of every 1,000 people worked in this informal economy, which in some instances collected as much as 13% of the waste produced in the region.40 Tapping into this system seemed like a logical approach because similar efforts in Chennai, India, found that improving and leveraging the informal economy led to dramatic diversions of waste from dumpsites into recycling streams.41 10

Exhibit 9 How Dell Collects and Recycles Plastics 42

See Appendix D for more on the raw material collection to manufacturing value chain for Haiti-sourced material. Source: www.dell.com/learn/us/en/uscorp1/corp-comm/ocean- plastics. Accessed 22 May 2018.

During the summer of 2017, the Tauber intern team developed an Asian-based ocean plastics supply chain that fit this criteria. They recommended a sourcing strategy that targeted Indonesia and India and identified suppliers through a rigorous cost-benefit analysis. Key motivations for the recommended supply chain were cost-effectiveness, scalability, and the ability to deliver additionality—which for Dell meant demonstrating a meaningful divergence of plastic from the oceans by targeting aspects of mismanagement and inefficiency in existing informal economies. At the time, Dell had not yet considered the impact its Ocean Plastics Initiative would have on its carbon footprint.

Technical and Operational Components Overall, the technical processing components for ocean plastics were the same as standard, post- consumer recycling (PCR) or post-industrial recycling (PIR); however, a key difference was the informality of initial waste management in India and Indonesia, two of the top sourcing locations being considered. First, pickers collected plastic of value from public areas, dumps, and residential and commercial areas. Collection of material at this stage would contain plastic that was not ocean-bound, but still considered to be mismanaged waste. Typically pickers covered specific areas, went door-to-door, or worked as security or cleaning personnel and collected plastic from their workplaces. Once sufficient volume was collected, pickers typically sold the plastic to a local aggregator, who conducted minimal sorting before selling the material to a more formal collection center. Once at the collection center, plastics were sorted by type and color, and prepared for delivery to recycling centers. The recycling center then did additional sorting based on plastic quality before grinding the material into flakes. Washed flakes could then be mixed with

additives such as color, binders, and impact modifiers to obtain the desired consistency. This mixture was then extruded and pelletized to create a final resin that was shipped to China for thermoformingviii into a final packaging unit.

Exhibit 10 Visualization of Asia-Based Supply Chain Compared to Haiti Pilot with US Processing

Source: 2017 Tauber Project and Dell internal information.

Projected Cost Savings The landed material costix (including shipping to the China thermoformer) of HDPE ocean plastics from the Haiti supply chain was $1.00/pound. About a quarter of this $1 landed cost was due to transportation and the tax costs associated with shipping the material from the United States to Kunshan, China. Switching HDPE sourcing to suppliers in India or Indonesia could reduce landed raw material costs per pound to $0.70 and $0.34, respectively. However, the most cost-effective raw material identified was mixed color polyethylene terephthalate (PET) from Indonesia at $0.27/pound.

In the Haiti pilot, the final packaging tray product (seeExhibit 8) consisted of 25% ocean plastics at $1.00/pound and 75% China PCR HDPE at $0.50/pound. The China post-consumer recycled HDPE price was used as a benchmark along with the average price of China virgin HDPE at $0.41/pound.x The Indonesian suppliers’ ocean plastics raw material costs were below that of the PCR and virgin benchmarks, which gave Dell the ability to demonstrate that ocean plastics efforts could result in cost savings (see Exhibit 11).

The Indian supplier had a price above both the PCR and virgin material benchmarks; however, it was anticipated that its price would decrease over time for two reasons. First, the supplier’s collection network was just beginning to develop in the region and an initial learning curve and setup cost was incorporated into its quotes. Second, the Indian supplier incorporated an expected 20–25% loss of yield for collected viii In thermoforming, plastic is heated into a molded form and then the excess is trimmed, creating a usable product. ix This includes the purchase price, transportation, taxes, duties, and other costs up to the port of destination. x Virgin plastic prices vary with type, demand, and the price of oil; prices listed represent those incurred by Dell in mid-2017. See Appendix E for additional details on plastics pricing variability. 12

material due to a variety of factors, including the initial growing pains in Dell’s target region and poor- quality material and contaminants which were incidentally collected and purchased in the aggregation process. Over time it was expected that the yield would increase, thereby reducing raw material costs enough to be competitive with PCR prices in China.

Exhibit 11 Landed Material Cost of Pelletized Ocean Plastics in August 2017, Compared With PCR and Virgin Plastics

Source: 2017 Tauber Project and Dell internal information

A cost analysis showed that an Asia-based ocean plastics supply chain reduced landed material costs by ~70% when compared to the Haiti pilot. More importantly, raw material costs were reduced by ~50% and ~35% against current PCR and virgin plastic prices, respectively. This proved that the sourcing locations were cost-effective and that ocean plastics could be at cost-parity with or below other substitutes.

Risks and Uncertainty The recommended ocean plastics supply chain delivered on cost, scalability, and additionality; however, other implications needed to be taken into consideration. Many factors of the supply chain were new to Dell, and with that came uncertainties around working with new suppliers in unfamiliar locations.

There were operational and supply continuity concerns about the ocean plastics supply chain. The estimated lead times for collection and processing of raw material from suppliers varied greatly depending on their familiarity with the sourcing location, weather patterns, and local economic factors. These factors greatly influenced collection of raw material with regard to the type, amount, and quality of plastics available, as well as the suppliers’ ability to work with the informal waste collection system to obtain the plastics.

Beyond operational concerns, an Asian-based ocean plastics supply chain presented other potential risks. Dell’s social and environmental responsibility department was especially concerned with issues of child

labor at the picker level and of recycling processor working conditions. Moreover, small-scale processors aligned with the informal economy often had poor wastewater and byproduct disposal practices.

There were numerous nonprofits working in the ocean plastics space, and not all of them agreed with Dell’s strategy or even its definition of ocean plastics. Parley for the Oceans, for instance, took more of a cleanup approach and focused on plastics already in the water or washed up on beaches. Parley and similar organizations did not consider waste still on land to be true ocean plastics, and pointed to the inability to determine that any particular piece of plastic would actually end up at sea.

4. Scale for Consortium Use (2018) Prior efforts to target ocean plastics primarily included beach cleanups from companies such as Adidas and Method, which incorporated ocean plastics into new product offerings (see Appendix F). Dell’s initiative would add to these efforts by creating a commoditized market for ocean plastics, and generating demand and value for material that would otherwise end up in the ocean by targeting it early in the life-cycle. Dell’s strategy was to leverage its strengths in innovation and supply chain to create a commercially viable solution. This included creating a cost-effective and scalable supply chain that allowed Dell to bring to bear its demand for plastic against land-based sources of mismanaged waste.

Dell planned to lead a collaborative effort with like-minded companies to create a working group, or consortium, to address the ocean plastics problem by sparking demand and increasing ocean plastics usage across a variety of industries. With this commitment publicly stated, the pressure on Dell to deliver was enormous.

Three Decision Points

Three decision points lay ahead for Bhargava: delivering additionality, developing future use cases, and creating the consortium.

1. Delivering Additionality Bhargava flipped through his presentation again, coming to a stop at his additionality slide (see Exhibit 12). On it was a diagram depicting a holistic way to address additionality that the Tauber interns had created. It incorporated improvements to the existing informal waste-collection economy through fair wages and improved working conditions with increased demand for lower-value plastics by region. The breadth of Dell and the consortium’s plastic use meant that the supply chain could take advantage of market dynamics for reclaimed plastics by region. For instance, in Indonesia the high demand for recycled PET used in the clothing industry meant that HDPE often went uncollected, whereas in India the opposite was true. The technology was still lacking to reclaim the more insidious plastics, such as low density polyethylene— e.g., plastic bags or polystyrene (Styrofoam)—in a manner that made economic sense for both waste pickers and Dell. Nevertheless, this regional demand approach meant that Dell could both diversify its use and supply while creating a market for lower-value plastics.

Rounding out the holistic approach to additionality, Dell would also lead local beach cleanups to increase ocean plastics awareness as Adidas and others had done. It would circularly include its own plastic manufacturing waste in the recycling value stream where appropriate,xi and develop community outreach and education programs on waste management and recycling.

xi In cases where Dell manufacturing facilities were co-located with collection areas, such as in Chennai, India. 14

Exhibit 12 shows that in addition to generating demand for lower-value plastics and providing improvements to the informal collection economy, Dell planned to incorporate education and awareness programs into its additionality strategy. Where appropriate, Dell hoped to also direct some of its own industrial plastic waste into the supply chain to smooth variability in ocean plastics collection yields and to ensure that Dell’s own manufacturing byproducts did not enter waste streams that were at risk of leaking into the ocean. The overall net goal of this strategy was to move the bar from mismanaged waste to managed material in at-risk areas.

Exhibit 12 Overview of Dell’s Holistic Strategy for Delivering Additionality

Source: 2017 Tauber Project and Dell internal information.

In Bhargava’s mind, this diversified approach made perfect sense: Dell’s definition of plastic incorporated the whole life-cycle, and the most economic and efficient way to target the problem was early in that life- cycle, while the material was still on land. Moreover, Dell’s definition of ocean plastics was mismanaged waste within a 50-kilometer inclusion of the shore, so it made sense that addressing the causes of mismanagement was the most effective strategy to address the problem—to stop the flow. But he wondered if this would be enough. After all, the plastic Dell was using was still on land, not in the ocean. It would be impossible to prove definitively that any one bottle would end up at sea without Dell’s intervention. It might be possible to demonstrate a certain percentage of the plastic would end up at sea, but what percentage was needed to claim additionality? There were also questions surrounding what this material should called, especially from a public relations perspective. Dell was considering the term “ocean-bound plastic” to better communicate its early interception strategy, and to avoid the misunderstanding that Dell was sourcing from the ocean gyres, which at this point lacked the properties to be a usable material for Dell.xii

Dell’s approach also relied heavily on informal economies in underdeveloped areas: a strategy that entailed significant risk. Not only did relying on informal waste pickers limit Dell’s control over the quality xii In the fall of 2017 (subsequent to the setting of this case), Dell decided to use the term “ocean-bound plastic” over ocean plastics. 15

of the material collected, it also meant that there was potentially limited insight into where the plastic was collected and who was collecting it. Frequent audits and heavy oversight would be costly and would cut into the cost-effectiveness of Dell’s strategy. It was also unclear how potential consortium members would approach this risk, and the degree to which they would want to impose their own mitigation strategy.

2. Developing Future Use Cases One final consideration Bhargava pondered was broader uses for the ocean plastics. The pilot project had used ocean plastics in a gift box tray for the XPS 13 notebook; however incorporating ocean plastics into additional products would be needed to ensure the project gained traction. As he was mulling over potential end uses, Bhargava considered that the Tauber study had shown that all potential packaging options, including cushions, trays, straps, and slip sheets, could possibly scale to 1.1 million pounds per year with a 25% ocean plastics blend (see Exhibit 13). Additionally, many of these packaging products could be utilized by other consortium members, increasing the scale of their impact on ocean plastics levels. However, packaging was hardly front and center to the customer experience. The more sustainable solution would be to integrate the plastics into core products, facilities and manufacturing processes.

This made Bhargava wonder if Dell should start incorporating ocean plastics directly into its computers and peripherals. Such an end use would be much more visible and could incentivize sustainability-minded shoppers to buy a Dell product. Furthermore, it would increase the demand for ocean plastics, helping with scalability and additionality. Bhargava knew that he would need to make a decision as to the future use cases and his plan for rolling them out as Dell’s use of ocean plastics scaled up.

Exhibit 13 Overview of Future Use Cases for Ocean Plastics Identified by Dell

Available raw material capacity of Indonesian and Indian suppliers was estimated at 380 million pounds per year. Dell use cases were estimated to total a possible 1.1 million pounds per year, or 0.29% of capacity. Source: 2017 Tauber Project and Dell internal information.

3. Creating the Consortium The issue of ocean plastics is a global humanitarian and environmental crisis, and one Bhargava knew Dell could not solve alone. Dell’s efforts in a supply chain sourcing strategy would help address the mismanaged waste issues in specific locations, but Dell’s volumes would be almost insignificant against the overall global issue. Even on a local level, industry cooperation would be necessary to scale the Ocean Plastics Initiative into an impactful solution. The Haiti pilot was successful in creating awareness and sourcing 16,000 pounds of plastics, but a larger initiative needed to take place in order to deliver the level of additionality that Dell desired and publicly promised.

The plastics collection program Dell developed for the supply chain was different than other companies’ ocean plastics programs, since it addressed multiple layers of additionality beyond just collecting waste. It was also a model that could be expanded and replicated to grow and maintain competitiveness. The concept of a consortium collaborating to commoditize ocean plastics was a clever way to deliver scale, environmental, and social benefits beyond what any individual company could do alone. Prior organizations developed small-scale versions of an ocean plastics supply chain, but often charged a steep premium for the resin. This was due, in part, to the organizations’ size, but also because of a consumer push toward sustainable products and willingness to pay the higher price tag. A consortium of companies, on the other hand, could create meaningful demand for ocean plastics, drive scale for collection and processing operations, and lower cost premiums, creating more of a commodity for ocean plastics than a premium product.

The consortium was the missing piece from prior efforts that could not scale beyond limited-edition products (products using a limited amount of ocean plastics for a short time period). What was needed, Bhargava knew, were like-minded and environmentally conscious companies big enough to have the resources to devote to the project, but not so large that they overwhelmed the production capabilities in the early stages. Recalling that HP, one of Dell’s main competitors, had recently launched an ink cartridge line with ocean plastics out of Haiti,43 Bhargava wondered if having competitors in the same industry would drive the consortium forward or inhibit progress.

Bhargava imagined ocean plastics developing into a commodity and brand image, similar to that of free trade coffee. But that could invite scrutiny by regulators and consortium members over issues such as working conditions, contaminants, and additionality. By definition, developing ocean plastics into a commodity meant there would not be a single body within the consortium setting prices, creating rules, etc.; however, strong leadership would be pivotal during the early stages of the consortium’s formation. Dell performed the proof of concept by incorporating ocean plastics into its packaging, laid the initial groundwork for a supply chain, and was the innovator behind the idea of a consortium. As an early stage leader, Dell received great publicity for the project, along with numerous learning opportunities and challenges. Since the birth of its Ocean Plastics Initiative in 2015, Dell had devoted significant resources to the project, totaling upward of $450,000.44 Bhargava wanted Dell to maintain its leadership position in the ocean plastics market and among the consortium, but doing so would be walking a fine line. Benefits of a leadership position included decision-making authority and the potential to capitalize on some of the initial financial investments Dell made into research and testing of material viability, and the development of the initial Asia-based supply chain and consortium structure. On the other hand, if Dell stepped back and let other members take on larger roles, that could free up resources within Dell as well as allow Dell to be more flexible and react faster to decisions.

Choosing the initial consortium members was just the beginning. The organization and communication structure would also have to be determined. Dell would likely start off as the leader, but then hoped to relieve itself of some responsibilities while still maintaining some form of leadership position.

A Way Forward Bhargava leaned back in his seat and reflected on all the progress he and his team had made since 2015. Over that time, he had gone from being a skeptic of incorporating ocean plastics into Dell’s value stream to personally announcing the company’s commitment to it at the United Nations’ Ocean Conference. It all seemed like a whirlwind. Now it was time to ensure Dell’s Ocean Plastics Initiative lived up to these commitments. Bhargava turned his attention back to the slide deck he would present at the end of the week and considered his recommendations going forward. It certainly wouldn’t be easy, he thought, but nothing worth doing ever is.

Appendices

Appendix A PC Vendor Market Share (Q1, 2017)

Source: www.idc.com/getdoc.jsp?containerId=prUS42464617. Accessed 8 June 2018.

Appendices

Appendix B Market Share (%) by Revenue Share in Dell’s Operating Spaces (2017 data unless otherwise noted; Dell ranked first unless otherwise noted)

Source: www.delltechnologies.com/content/dam/delltechnologies/assets/press/resources/Dell_Technologies_Key_Facts_2018.pdf. Accessed 22 May 2018.

Appendices (cont.)

Appendix C Effects of Plastics in the Ocean Entanglement The risks of entanglement for marine animals are especially salient for species such as seals, sea turtles, seabirds, and fish. For example, 40,000 seals are estimated to die annually in the Bering Sea due to entanglement. But such estimates may be artificially low, as the victims often die offshore or are scavenged before they can be recorded.45

Ingestion Ingestion affects upwards of 267 marine species.46 This includes 86% of sea turtle species and 44% of seabird species. Ingestion occurs throughout all levels of the food chain, with plastics being found in tiny crustaceans, worms, barnacles, clams, and other smaller creatures. Ingestion at lower food chain levels can, of course, lead to plastic in larger predator species. Data from the Scripps Institution of Oceanography indicates that between 12,000 and 24,000 tons of plastic are consumed by fish in the northern Pacific alone each year.47 Ingestion can kill marine life directly by blocking their digestive tract or taking the place of real food—causing starvation.

Chemical Exposure Plastics can pose a threat through chemical exposure. Many plastics contain bisphenol A (BPA), which is not bound to the plastic matrix itself and can leach into the surroundings. BPA was created as a synthetic form of estrogen, and lab tests have shown that BPA exposure disrupts hormone systems. In addition to leaching components such as BPA, plastics can serve as aggregators for persistent organic pollutants (POPs), which include polychlorinated biphenyls (PCBs), pesticides, and heavy metals. While the type and amount of POPs contaminating pieces of plastic debris depend on the waters they are exposed to, the pieces act as concentrators of these pollutants, binding them to the plastic surface. Scientists have recorded levels of POPs in plastic debris up to a million times higher than the surrounding water. Because BPA leaches from plastic at a higher rate as surface area increases, and POPs bond to the surface of plastic, microplastic is especially prone to chemical dispersion, as it has lots of surface area. Some studies have shown that microplastic can be spread up the food chain, and that chemicals can be leached into a predator’s flesh at levels that can disrupt bodily functions.48 A study conducted by researchers at UC Davis and Hasanuddin University in Indonesia found that over 25% of fish sampled in an Indonesian market contained plastic in their digestive tract, and similar percentages of fish in a California market were found to have ingested marine debris.49 Other research has found that certain chemicals, including PCBs, are absorbed into the flesh of fish that eat them, raising the possibility of human contamination.50

Invasive Species and Diseases Plastic debris has been shown to act as a carrier for invasive species and diseases. While animals have been hitching rides on floating debris in the oceans for millennia, the advent of plastic debris has resulted in a rapid expansion in travel by marine organisms hitching rides due to the fact that plastic has much more longevity in seawater than wood or other organic materials that rot over time. One study found that travel by marine hitchhikers has doubled in the tropics and tripled in higher latitudes.51 This can facilitate the introduction of non-native species, which can overwhelm ecosystems as they have no natural predators or checks on their populations. In addition to spreading invasive organisms, plastic debris can spread diseases. A study of coral reefs conducted in the Pacific in 2011–2014 concluded that plastic contamination of reefs increases the likelihood of disease infection by a factor of 20.52 Disease from plastic contamination presents another dire threat to the health of coral reefs, already suffering from global warming and bleaching events.

Appendices (cont.)

Appendix D Overview of Haiti Pilot Value Chain, from Raw Material Collection to Manufacturing

Source: 2017 Tauber Project and Dell Internal Information. 22

Appendices (cont.)

Appendix D (cont.) Overview of Haiti Pilot Value Chain, from Raw Material Collection to Manufacturing

Source: 2017 Tauber Project and Dell Internal Information. 23

Appendices (cont.)

Appendix D (cont.) Overview of Haiti Pilot Value Chain, from Raw Material Collection to Manufacturing

Source: 2017 Tauber Project and Dell Internal Information.

Appendices (cont.)

Appendix E Prices of Virgin Society of Plastic Industry (SPI) Code 1–6 Plastics in the United States in 2002-2017

Source: Rahimi, Alireza, and Jeannette M. García. “Chemical Recycling of Waste Plastics for New Materials Production.” Nature Reviews Chemistry, vol. 1, no. 6, July 2017, p. 0046., doi:10.1038/s41570-017-0046. Accessed 16 March 2018.

Appendices (cont.)

Appendix F Ocean Plastics Ads for Adidas, Method, and Dell Adidas/Parley:

Source: www.parley.tv/updates/2017/10/12/adidas-originals-x-parley. Accessed 19 March 2018.

Method:

Source: www.methodhome.com/blog/worlds-first-ocean-plastic-bottle/. Accessed 19 March 2018. Dell:

Source: www.dell.com/learn/us/en/uscorp1/campaigns/ces-dell-product-awards. Accessed 19 March 2018.

Endnotes

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Notes

The Erb Institute is committed to creating a socially and environmentally sustainable society through the power of business. Building on nearly two decades of research, teaching, and direct engagement, the Institute has become one of the world’s leading sources of innovative knowledge on the culture, technologies, operations and governance of business in a changing world. http://erb.umich.edu

Established at the University of Michigan in 1992, the William Davidson Institute (WDI) is an independent, non-proﬁt research and educational organization focused on providing private-sector solutions in emerging markets. Through a unique structure that integrates research, ﬁeld-based collaborations, education/training, publishing, and University of Michigan student opportunities, WDI creates long-term value for academic institutions, partner organizations, and donor agencies active in emerging markets. WDI also provides a forum for academics, policy makers, business leaders, and development experts to enhance their understanding of these economies. WDI is one of the few institutions of higher learning in the United States that is fully dedicated to understanding, testing, and implementing actionable, private-sector business models addressing the challenges and opportunities in emerging markets.

This document is authorized for use only by Ezekiel Atolagbe in OPMT 620 Winter 2019 taught by LARRY EARNHART, University Canada West from Dec 2018 to Jun 2019.