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Case Study

EMMA Safety Footwear (B): Implementing the Circular Business

https://www.emmasafetyfootwear.com/home-fr

03/2021-6501 This case study was written by Luk Van Wassenhove, Emeritus Professor of Technology and Operations Management, The Henry Ford Chaired Professor of Manufacturing and Director of INSEAD Humanitarian Research Group, and Anne Nai-tien Huang, INSEAD MBA ‘19D. It is intended to be used as a basis for class discussion rather than to illustrate either effective or ineffective handling of an administrative situation. Extra teaching materials are available at https://publishing.insead.edu/case/emma-safety-footwear Copyright © 2021 INSEAD COPIES MAY NOT BE MADE WITHOUT PERMISSION. NO PART OF THIS PUBLICATION MAY BE COPIED, STORED, TRANSMITTED, TRANSLATED, REPRODUCED OR DISTRIBUTED IN ANY FORM OR MEDIUM WHATSOEVER WITHOUT THE PERMISSION OF THE COPYRIGHT OWNER.

This document is authorized for use only by Palistha Shakya in AMP 2021 taught by Stephan Billinger, University of Southern Denmark from Aug 2021 to Feb 2022.

For the exclusive use of P. Shakya, 2021.

Introduction September 26, 2019 was a big day for EMMA – the inauguration of its new production site at Kerkrade, with the entire EMMA family and 180 customers from the Netherlands and Belgium. After a tour of the new site, various programmes had been organised on key topics like sustainability, the circular economy, and the presentation of its newest line of ‘circular’ shoes (see Exhibit 1). 1 Since acquiring the company with three other investors in 2013, Tom Hermans had been determined to differentiate EMMA from the traditional safety footwear market, leveraging its long history of corporate social responsibility. The next step – embarking on a journey to embrace the circular economy 2 – would involve transforming every function: the business model, internal operations, sales and marketing, product design, global supply chain and reverse logistics. EMMA, he realized, had to lead the change for the entire sector, getting customers, dealers, business partners and even competitors on board. That was easier said than done in a conservative industry.

100% Circular Shoes Despite the challenges encountered in making its shoes adhere to circular economy principles, the firm achieved 100% circularity by the end of 2019. This meant that all materials used in its shoes were catalogued and registered as suitable for recycling and next-use application. Inspired by Cradle to Cradle® design principles, and aided by FBBasic, its circular economy consulting partner,3 its shoes were redesigned with recyclable and/or environmentally friendly materials only. 4 The upstream production process was also screened. For example, 100% of the leather used in EMMA shoes came from tanneries rated ‘gold’ by the Leather Working Group (LWG) 5 for their water, energy, chemicals and waste management practices. In 2019, EMMA saved 27,478 kgs of residues from the moulding of the shoe soles by re-purposing the material for second use – building insulation.6

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EMMA Sustainability Report 2019 Refer to case study EMMA Safety Footwear (A): Designing a Circular Shoe FBBasic is a Netherlands-based company which calls itself the urban mining company. It supports companies, government bodies and institutions to turn their linear production and consumption system into a circular system through regenerating raw materials. https://fbbasic.com/en/ Refer to Research into the Circular Shoe section and Exhibit 9 in case study EMMA – Designing a Circular Shoe (08/20206501-Ed) Leather Working Group (LWG) is a not-for-profit membership organisation for stakeholders across the leather supply chain. LWG aims to promote sustainable business practices and create alignment on environmental priorities throughout its membership and the industry. It has developed audit protocols designed to certify leather manufacturers according to environmental compliance and performance capabilities based on these sustainability aims. For more information, see https://www.leatherworkinggroup.com/ EMMA Sustainability Report 2019

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This document is authorized for use only by Palistha Shakya in AMP 2021 taught by Stephan Billinger, University of Southern Denmark from Aug 2021 to Feb 2022.

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The Circular Business Journey Hultafors Group AB Acquisition At the beginning of 2020, a press release announced that Swedish company Hultafors group had acquired 80% of the shares from Tom and the three other investors, with a view to accumulating 100% by 2023. Tom stepped down as General Manager but remained as a part-time advisor. Hultafors Group had a portfolio of brands in the field of safety and protection wear: Snickers Workwear, Solid Gear, Toe Guard, Hultafors, Wibe Ladders, Dunderdon, and Hellberg (Exhibit 2). The group had an annual turnover of €275 million, with over 800 employees and 40,000 points of sale in Europe, the US and Canada. In the joint press release, the two firms described how their complementary skills would help them achieve greater impact. Ole Kristian Jødahl, CEO of Hultafors Group AB, said: We believe that EMMA comes from a different perspective, therefore a perfect match with our existing safety shoe brands. We are also very enthusiastic about the sustainability program that EMMA has realized through the circular material concept and the recycling system for used shoes. Tom added: Hultafors Group will be an excellent company for EMMA to partner with given its strong presence across Europe and North America that will serve as a perfect foundation in taking the current business of EMMA to the next level. The acquisition was part of Hultafors’ strategy to strengthen its position in the domain of personal protective equipment (PPE) in Europe and North America. It hoped to become the industry leader in safety shoes by adding supply chain capabilities and manufacturing facilities from EMMA, and bringing production closer to consumers in Europe. 7,8 Although production in Asia was cheaper, logistics and just-in-time flexibility were harder to handle. Arguably, EMMA’s circular shoe knowhow made it stand out as a candidate for acquisition thanks to its goal of converting to more sustainable materials. EMMA would gradually start manufacturing for Solid Gear and Toe Guard, two other brands within the Hultafors Group. Production output was projected to grow from 350,000 at pre-acquisition level to more than one million pairs of shoes per year. EMMA would also tap into Hultafors’ B2C sales network and sales force to expand its market reach.9

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EMMA press release https://www.emmasafetyfootwear.com/news/p-2118553-en Hultafors Group press release http://www.hultaforsgroup.com/en/news/2020/januari/emma-safety-footwear--3563 Interview notes with Iris van Wanrooij, Sustainability Programme Manager at EMMA.

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This document is authorized for use only by Palistha Shakya in AMP 2021 taught by Stephan Billinger, University of Southern Denmark from Aug 2021 to Feb 2022.

For the exclusive use of P. Shakya, 2021.

Circular Footwear Alliance (CFA) When designing the reverse logistics for recycling old shoes, EMMA and FBBasic found that a major obstacle to profitability was the volume of recycled shoes. Small margins on shoe recycling required call for economies of scale to drive costs down. To generate scale, EMMA, FBBasic, and Allshoes Safety Footwear10, another footwear company in the Dutch market, formed the Circular Footwear Alliance (CFA). Horizontal collaboration of this kind was unprecedented in the sector. Allshoes was one of its main rivals but they united for a higher goal: together they could generate a greater volume of used shoes for recycling. Tom hoped to convince other players in the sector to join the Alliance so as to collect and dismantle more shoes: It is time for scale-up. If we want to make a positive impact, we need to step over our shadow. With CFA, we want to inspire others to do the same, both inside and outside the industry. Frans Beckers, CEO of FBBasic, added: The scale at which this is going to happen for safety shoes is amazing. This is the beginning of something really big.11 EMMA was still investigating the best approach to reverse logistics. Depending on the volume of used shoes it could recycle, it would either invest in a dismantling machine or subcontract the work (buying hours of shredding and sorting).

EMMA Shoes-as-a-Service Currently, regardless of account size or volume, EMMA sold to a network of dealers who had direct connections to clients. The current sales model meant that EMMA missed the opportunity to build a direct supply chain relationship with large clients and in turn gain access to detailed user data for developing specific tailor-made service packages, as well as information on the shoe takeback process and the actual used shoes for recycling. EMMA began exploring new business models that would turn the company into a service provider. One idea was to have a multi-year “leasing” contract with corporate users, where EMMA would provide a client’s employee with a pair of safety shoes every 12 months. Employees would be free to choose from EMMA’s 90-strong collection, and add socks and a maintenance kit to the package if needed.12 EMMA would then guarantee the collection of used shoes for recycling after 12 months, feeding into the volume needed to make recycling profitable. Although establishing a direct relationship with large clients had been debated for years, EMMA still found the dealers indispensable. Under the leasing model, dealers would still be critical for

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Allshoes Safety Footwear is a Netherlands-based safety shoe distributor who owns the brands Grisport, Vismo and private labels Redbrick and Mr. Miles. It has been part of British international distributor Bunzl plc since 2004. https://www.allshoes.eu/ EMMA press release https://www.emmasafetyfootwear.com/news/circular-footwear-alliance-en Internal sales presentation

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This document is authorized for use only by Palistha Shakya in AMP 2021 taught by Stephan Billinger, University of Southern Denmark from Aug 2021 to Feb 2022.

For the exclusive use of P. Shakya, 2021.

reaching the end-users given the benefits they brought to the table. 13 The dealer network for the PPE sector in the Netherlands and Belgium was seen as unshakable. EMMA had started running a few pilot programs with large end-clients to see how well the model was received. It had also deployed innovative tools to enhance traceability. A QR code inside each pair of shoes allowed users to scan and access a ‘material passport’ online (Exhibit 4). It planned to include usage data accessible via the same QR code, and perhaps sensors in the shoes for accurate usage tracking down the line. EMMA also hoped to offer refurbishment services in the near future, notably for clients with temporary staff on short contracts. Further potential to expand to new customers and markets would come from Hultafors Group’s sales force, and perhaps the chance to establish direct relationships with large clients without going through dealers. Hultafors took a more B2C approach and was strong in North America, while EMMA sold mainly to other businesses in Europe. Early efforts to train Hultafors sales teams on the circularity of its shoe offerings had been positive.

Cultural Shift Making EMMA 100% circular was Tom’s idea. At first it proved challenging to push for multiple changes simultaneously – moving to the new factory, aiming for zero waste, energy efficiency, and going circular – but attitudes gradually changed, as Iris van Wanrooij, Sustainability Programme Manager, described: I think that now EMMA employees are generally proud of the new factory and the company’s accomplishments. But you see that sustainability awareness still takes time, and turning the awareness into actions will take even longer. Once the principles had been embedded internally, the next challenge would be convincing EMMA’s external stakeholders – the rest of the Hultafors Group, peers in the safety shoe sector, the dealers and end-users. Despite all the changes in 2020, its hiring philosophy remained unchanged. The tradition of employing people with disabilities (who were often excluded from the job market) was continued by the new factory in Kerkrade. Tailor-made solutions were implemented to help workers travel to the new factory, a practice that would be expanded as it started production and manufacturing for Solid Gear and Toe Guard (Hultafors brands).

A 100% Circular Shoe… and the Journey Goes On Floating around EMMA’s inauguration celebration at Kerkrade, Tom hoped that EMMA would continue its circular economy journey despite having reached 100% circular at the end of 2019. There were many remaining challenges in the business model, the recycling logistics, supply chain management, and the internal culture that required fine-tuning, experimentation, and innovation.

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Refer to Business Model section in case study EMMA – Designing a Circular Shoe (08/2020-6501-Ed)

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This document is authorized for use only by Palistha Shakya in AMP 2021 taught by Stephan Billinger, University of Southern Denmark from Aug 2021 to Feb 2022.

For the exclusive use of P. Shakya, 2021.

Above all he needed to ‘point all the noses in the same direction’ – bring procurement, design, manufacturing, sales and marketing and all other business functions into alignment. The events of 2020 were just the beginning of its transformation to a truly circular business. Externally, could EMMA revolutionize the sector, changing the traditional way it did business with dealers, business partners, and customers? Could EMMA convince more peers in the safety footwear and safety gear sector to join CFA? Could it increase its impact by manufacturing for more brands owned by Hultafors Group and leverage the latter’s sales team to expand to new markets? Could it launch shoes-as-a-service with major end-clients? The road to the circular economy was certain to be long and winding. The steps required were bold, but they would have to tread carefully.

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This document is authorized for use only by Palistha Shakya in AMP 2021 taught by Stephan Billinger, University of Southern Denmark from Aug 2021 to Feb 2022.

For the exclusive use of P. Shakya, 2021.

Exhibit 1 Opening of the New EMMA Site at Kerkrade

Source: EMMA Sustainability Report 2019

Exhibit 2 Hultafors Group Portfolio

Source: EMMA Safety Footwear

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This document is authorized for use only by Palistha Shakya in AMP 2021 taught by Stephan Billinger, University of Southern Denmark from Aug 2021 to Feb 2022.

For the exclusive use of P. Shakya, 2021.

Exhibit 3 Circular Footwear Alliance (CFA) Flyer

Source: cfalliance.eu

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For the exclusive use of P. Shakya, 2021.

Exhibit 4 Material Tracking through QR Code

Source: EMMA Sustainability Report 2019

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This document is authorized for use only by Palistha Shakya in AMP 2021 taught by Stephan Billinger, University of Southern Denmark from Aug 2021 to Feb 2022....