Unilever 2010 Annual Report Download - page 39

36 Unilever Annual Report and Accounts 2010
Report of the Directors About Unilever
Outlook and risks continued
Description of risk What we are doing to manage the risk
Consumer safety and sustainability
• Maintaining high social and environmental standards
• Designing and producing products that are safe
for consumers
• Building a sustainable business
Unilever has developed a strong corporate reputation over many years
for its focus on social and environmental issues, including promoting
sustainable renewable resources.
The Unilever brand logo is now displayed on all our products, and
increasingly displayed in our advertising, increasing our external
exposure. In 2010 we launched the Unilever Sustainable Living Plan
that sets out our social and environmental ambitions for the
comingdecade.
The environmental measures that we regard as most significant are
those relating to CO2 from energy that we use, the water we
consume as part of our production processes and the amount of
waste that we generate for disposal (see page 2). Failure to design
products with a lower environmental footprint could damage our
reputation and hence long-term cash flow, turnover, profits and/or
profit margins.
Should we fail to meet high product safety, social, environmental
and ethical standards across all our products and in all our operations
and activities it could impact our reputation, leading to the rejection
of products by consumers, damage to our brands including growth
and profitability, and diversion of management time into rebuilding
our reputation.
Our Code of Business Principles, Supplier Code and other operational
and business policies are designed to ensure that we consistently
maintain high social and environmental standards, and we have
established processes to track performance in these areas. The
Unilever Sustainable Living Plan benefits from the insights of the
Unilever Sustainable Development Group, comprising five external
specialists in corporate responsibility and sustainability, that guide
and critique the development of our strategy.
Progress against the ambitions in the Sustainable Living Plan will
bemonitored by the Unilever Executive and Board and progress
publishedannually.
Detailed operational policies and procedures ensure that quality and
safety are built in to the design, manufacture and distribution of all
of our products. Procedures are also in place to respond quickly to
consumer safety and quality incidents including provision to initiate
product recalls where necessary.
Operations
• Securing raw materials and key third-party services
• Maintaining safe, secure and operational production
anddistribution capability
• Maintaining a competitive cost structure
• Handling major incidents and crises
Our ability to make products is dependent on securing timely and
cost-effective supplies of production materials, some of which are
globally traded commodities. The price of commodities and other key
materials, labour, warehousing and distribution fluctuates according
to global economic conditions, which can have a significant impact
on our product costs. We saw commodity prices rise during the
second half of 2010 and this looks set to continue in 2011. If we are
unable to increase prices to compensate for higher input costs, this
could reduce our cash flow, profits and/or profit margins. If we
increase prices more than our competitors, this could undermine our
competitiveness and hence market shares.
Further, two-thirds of the raw materials that we buy come from
agriculture. Changing weather patterns, water scarcity and
unsustainable farming practices threaten the long-term viability
ofagricultural production. A reduction in agricultural production
maylimit our ability to manufacture products in the long term.
We are dependent on regional and global supply chains for the
supply of raw materials and services and for the manufacture,
distribution and delivery of our products. We may be unable to
respond to adverse events occurring in any part of this supply
chainsuch as changes in local legal and regulatory schemes, labour
shortages and disruptions, environmental and industrial accidents,
bankruptcy of a key supplier or failure to deliver supplies on time
andin full, which could impact our ability to deliver orders to our
customers. Any of the foregoing could adversely impact our cash
flow, turnover, profits and/or profit margins and harm our reputation
and our brands.
We have processes in place to monitor short- and long-term raw
material demand forecasts. These are used to determine future
production requirements and facilitate the forward-buying of traded
commodities to reduce future volatility of commodity costs.
We have contingency plans to enable us to secure alternative
keymaterial supplies at short notice, to transfer/share production
between manufacturing sites and to use substitute materials in
ourproduct formulations and recipes.
We have programmes of regular preventative maintenance for key
lines and production sites. We have in place mandatory occupational
health and safety policies to ensure the well-being and safety of our
employees, including procedures for regular self-certification.
We regularly undertake value improvement programmes to identify
cost/value opportunities in direct and indirect costs. We benchmark
internal product and service costs against external providers and we
regularly model our production, distribution and warehousing
capability to optimise capacity utilisation and cost.
We routinely assess potential threats to our operations that could, if
they materialise, give rise to a major incident or crisis. We review the
appropriateness of our incident response, business continuity and
disaster recovery plans taking into account external developments.