Green
Supply Chain Strategy to spearhead tomorrow’s Growth
Abstract:
Green Power in Supply Chain
Management has been increasing in consciousness of the environment in the last
few decades. More people are aware of the world’s environmental problems
such as global warming, toxic substance usage, and decreasing in non-replenish
resources. GSCM (Green Supply Chain Management) is gaining attention among
supply chain researchers and practitioners driven mainly by deteriorating
environment. The applications are beneficial to organizations environmental and
Financial functions.
GSCM initiatives ranges from reactive to proactive
practices implemented through various Re’s…..!! (Reduce, Reuse, Rework,
Refurbish, Reclaim, Recycle, Remanufacture, Reverse logistics etc.) Not only
manufacturing, but GSCM can also be used to other business sectors such as
government, education and services.
Market forces like scare resources, bottom line
improvement needs are driving firm’s new focus on greening their supply chain. Stricter
European Environmental Regulations (RoHS, WEEE, REACH) have influenced other
governments to pass similar laws.
This paper describes the various strategies to
implement of GSCM to various areas with some examples of its application.
1.1 Introduction to Green Supply Chain
Management:
An integrating environment thinking into supply
chain management , including product design, material sourcing and selection
and manufacturing processes, delivery of the final product to the customer and
end-of-life management of the product after its useful life. (Srivastara,
2007)
According to this definition, GSCM relates to a wide-range
of production from product design to recycle or destroy, or from cradle to
grave. This principal is similar to lifecycle of product.
Product lifecycle is an idea that products pass through a cycle of life,
similar to human, birth, maturity, death. The product lifecycle provides
a degree of structure to the life of products and thereby provides direction
for the diverse functional efforts required to produce and deliver
product/service offerings (Birou, Fawcett, & Magnon, 1998).
Many studies addressed product lifecycle along with supply chain or GSCM,
for example, (Stonebraker & Liao, 2006) discussed that the stage of
lifecycle variables is associated with the various dimensions of supply chain
integration.
According to (Boks & Stevels, 2007), they
categorized “green” into 3 types depended on the different perceptions of the
environment among different stakeholders involved: scientific green, government
green, and customer green. In scientific green, life cycle assessment
(LCA) was used to determine the environmental impact of products, processes,
and systems. However, it concerned only the emissions, not other
aspects. In government green, several factors were involved such as
population density, geographical position, and the availability of energy
sources. These factors affected the government agenda to maintain or
improve quality of life. For customer green, the perceptions of green
were strongly linked to emotions that were directly impacted to people,
especially health and safety, than resources or emissions.
GSCM recognizes the disproportionate environmental
impact of supply chain processes and offers an expanded way to think about Cost
reduction and profit improvement. It is much more than just a mere reducing
usage and pollution. Consequently, the benefits are not limited only less toxic
consuming or less waste. The GSCM principle can be applied to all
departments in the organization. The effects of GSCM expand to all area,
both tangibly and intangibly.
Some studies mentioned benefits of adopting GSCM,
such as (Stevels, 2002). He demonstrated the benefits of GSCM to
different roles of supply chain including environment and society in terms of
different categories: material, immaterial, and emotion. For material,
GSCM helps lower environmental load for environment, lower cost prices for
supplier, lower cost for producer, lower cost of ownership for customer, and
less consumption of resources for society. In terms of immaterial, GSCM
helps overcoming prejudice and cynicism for environment, less rejects for
supplier, easier to manufacture for producer, convenience and fun for customer,
and better compliance for society. For emotion, GSCM helps motivation of
stakeholder for environment, better image for supplier and producer, feel good
and quality of life for customer, and make industry on the right track for
society. He also provided examples of company that were successfully
adopted GSCM.
1.1.1 Drivers:
- Scare
resources and unstable prices means competitive advantages from better resource
use and efficiency.
- International
customer pressure and competitive advantage for supplier
- Consumers
are environmentally conscious and apply institutional pressure.
- Government
introduction of stricter domestic and international regulations.
- Employee
moral and Ethical imperative.
1.1.2 Inhibitors:
Insufficient
management commitment and supply chain partner support.
Insufficient
green SCM knowledge.
Fear
of high upfront costs and long payback period.
Inconsistent
government regulations across different countries.
2.1GSCM best Practices:
Approximately 50-60 % of the carbon footprint
exists within the organization’s supply chain. The low risk, Lost Cost Tactical
Approach to a Green Supply Chain Management is to implement a Pilot Green
Supply Chain Management project.
The first step might be to implement a pilot
project with a customer and a supplier, such as implementing a green energy and
carbon emission reduction mandate, a recycling or a GSCM scorecard system. In
all cases, a well-documented roadmap allows businesses to gain the support and
involvement of all stakeholders for the implementation of their GSCM action
plan.
2.1.1 Implementing Best
Practices:
Key
Components to a pilot green supply chain project: Plan, Measure, Implement,
Monitor and Control
Plan: Common sustainability strategy, Align
existing and Planned priorities, Secure Buy-In forms from EHS, CPO, CFO,
Marketing, Supply chain, Legal.
Measure:
Measure energy demand, Standardize UOM for each energy demand category, utilize
low cost automated tools.
Implement:
Define risk for not performing, Define supplier performance risk, understand
Branding potential, understand supplier cost potentials, Align functional area
goals.
Monitoring and Control:
Contract compliance, Carbon footprint implementation results data and
reporting, pilot program supplier scorecard, continued strategic alignment.
3.1 GSCM strategies according to different critical
factors (Dayna Simpson):
3.1.1 Risk
Based strategy: This
strategy is based on minimal inter organizational investment engagement. Such
efforts might involve the inclusion of basic clauses in purchasing contracts
for suppliers to meet all relevant regulatory requirements. Mostly this
involves cascading of international standards such as ISo14001. The end result
is minimized risk and reputation enhancement without additional innovation and
economic benefits.
3.1.2 Efficiency
based strategy: This
strategy derives environmental benefits for supply chain beyond regulatory
compliance through operations based efficiency targets. Much of the benefit
arises from manufacturing practices that have been found to give secondary
environmental benefits. It has dual economic and environmental benefits and
requires the higher levels of engagement from between customers and suppliers.
But it lacks the more knowledge intensive environmental activities like product
design, innovation or material substitution.
3.1.3 Innovation
based strategy: Once
supply chain begins to consider specialized processes, technologies or complex
performance standards, the level of knowledge exchange and investments changes
and requires specialized environmental resources. These resources could be used
to incorporate innovative environmental planning into specific product designs,
characteristics, functionality or life cycle related activities.
3.1.4 Closed
Loop Strategy:
This is more recent strategy which represents more complex and collaborative
form of activities. It involves ‘Reverse Logistics’ e.g. capture and recovery
of material for re-manufacture or recycling. This strategy tries to integrate
environmental performance to the whole supply chain by seamlessly integrating
issues of economic, operational and environmental performance.
3.2 GSCM Strategies
according to Supply Chain Areas:
3.2.1 Technology: In our age of technology, here is a disconcerting thought: more
than half of the warehouses in the world still rely on paper rather than an
automated system. Essentially, companies lack inventory visibility,
suffer operating inefficiencies and waste resources within the supply
chain. Leaders in manufacturing and logistics industries should consider
an environmentally responsible strategy which not only offers the universal
benefits we’re familiar with, but also financial ones that strengthen their
profit margins.
Top green SCM best practices include leveraging the
tools that you already have, using technology for communication between
stakeholders and suppliers, avoiding unnecessary and wasteful activities and
encouraging customers to also go green through their purchases.
The most beneficial green supply chain technology
creates sustainable environmental benefits as well as improves company bottom
lines. That's why, across industries, companies are extending CSR and green
activities to their suppliers. Manufacturers have a variety of choices when it
comes to applying green SCM, including packaging engineering and redesign,
materials substitution, certification and logistics optimization.
3.2.2
Design: From product lifecycle concept, the cycle starts
at the designing of product. According to (Srivastara, 2007), literatures
related to green design emphasize both environmentally conscious design and
life cycle assessment/analysis. In designing a product, the designing
team can change the raw materials or substances used during the manufacturing
to be less toxic, more environmental friendly. Some terminologies are
related to design for green such as design for environment or EcoDesign.
An example of green product is hybrid car. Due to the increasing demand
and decreasing amount of petroleum, automobile manufacturers needed to redesign
the engine that consumes no or less gas. Hybrid car has been developing
from day to day. One article about automobile design is (McAuley, 2003),
he discussed the green design of automobile, which tend to change to advanced
lightweight materials and fewer materials in vehicle design. In designing
a product, the manufacturing company needs a high level of cooperation with
their suppliers. An example for the research on supplier-manufacturer
cooperation in EcoDesign is (Stevels, 2002). He also presented two
examples of successful green supply agenda between manufacturer and suppliers.
3.2.3 Manufacturing
Processes:
GSCM
initiatives ranges from reactive to proactive practices implemented through
various Re’s…..!! (Reduce, Reuse, Rework, Refurbish, Reclaim,Recycle,
Remanufacture, Reverse logistics etc.). In manufacturing process, the company
can apply green by several methods to reduce the energy and resource
consumption. This is where reuse and recycling are referred.
Several papers provided green practices such as (Duber-Smith, 2005). He
suggested some practices including reducing energy consumption, recycle and
reuse, using biodegradable and non-toxic materials, minimize harmful emissions,
and minimize or eliminate waste. In a Chinese sugar manufacturer, Guitang
Group can reduce the wastes and improve their financial performance by using
waste from the upstream as raw materials for downstream production (Zhu & Cote,
Integrating Green Supply Chain into An Embryonic Eco-Industril Development: A
Case Study of the Guitang Group, 2004).
While
transportation carriers are sensitive to energy prices, manufacturers face
energy surcharges. This uncertainty along with current economic
conditions affects the growth of inventory. The consequences are far
reaching since shippers will carry extra inventory or safety stock, and order
less frequently, adopting a cost-reducing strategy to select a cheaper, slower
mode of transportation.
Companies like Sharp Electronics are
shifting their final assembly closer to point of sale, a return to the
practices of the 1980’s and 90’s prior to off-shoring becoming a no-choice
option for manufacturers to survive.
3.2.4 Distribution
and Transportation:
The
rising energy prices and limited supply furthers our efforts to adopt
alternative solutions. Much talk centers on the expense and complexity of
adopting green initiatives, but green business and revenue growth are not
mutually exclusive of each other.
The
most commonly used GSCM transportation practices (such as load maximization)
are low-risk and require minimal capital investment. Applying several
transportation GSCM practices in multiple areas can benefit firms and their
supply chain partners even. Air and truck transportation are the most agile
modes but emit the highest level of CO2 emissions per ton of goods moved per
KM.
Sophisticated
technology boosted supply operations such that Wal-Mart’s efficient retail stores
has become the manifestation of a fast and flawless distribution business. It
has adapted the strategy of how to be the low cost operator and low cost leader
by focusing on logistics and distribution. It moves the product faster and
efficiently and maximizes the use of suppliers and internal distribution lines
ensuring that they meet social and environmental standards. E.g improving fuel mileage
efficiency in trucking fleet, Recyclable or Biodegradable packaging, Green
colored shelf tags etc.
3.2.5 Suppliers: Further than design
and manufacturing, other departments in an organization are involved with the
green. Purchasing could become an important agent for change regarding
environmental initiatives in the supply chain (Preuss, 2001). In (Walton,
1998) article, he conducted a qualitative study to explore the primary areas
for change to increase purchasing’s impact on environment.
Escalating
labor costs and ever-increasing government regulation are creating reverse
globalization. As the world becomes smaller, moving offshore isn’t a
cost-effective way to outsource. Instead, companies view outsourcing from
a more strategic perspective with a deeper understanding for what the business
demands. Pull-based supply chains are again becoming popular, displacing
push-based initiatives that encouraged off-shoring manufacturing and other
long-lead, long-life transit time strategies to market.
Increasingly,
companies are asking suppliers to green not just their products but themselves.
Volvo, for example, has mandated that its suppliers to go through ISO 14000 or
equivalent certification by the year 2000. Few other companies have taken that
route so far. Most efforts to improve suppliers' overall eco-performance center
around encouraging compliance with voluntary industry standards, or on
participation in such government voluntary programs as the EPA's Green Lights.
3.2.6 Customers: Market demands to
improve performance while simultaneously reducing costs is changing the playing
field, and highlights the need for technology to support both the agile,
energy-efficient supply chain as well as for socially responsible green
initiatives.
While
educating corporate buyers will help, the key to success will come from
educating sellers. "The challenge is to make the case that there is a
business for the environment," says Bill Shapiro, Volvo's director of
environmental affairs. "That is what we need to convince our suppliers of.
It is a continuous challenge to educate the business community about our
philosophy and what we expect of them."
(Ref.:IMEC
2010, Ninlawan C., Saksen P., Tossopal K., Pilada W.)
4.1 Examples
of GSCM:
The
Chinese sugar refinery and Indian paper firm case studies brilliantly apply the
green ‘3R’ s principle of ‘Reduce, Reuse and Recycle’; with both firms
diversified into related industries like sugar, paper, alcohol, cement and
ethanol etc. and utilize the waste products of other industries as raw material
or for power generation.
Case
studies also highlight the importance of building effective incentives with
external parties (suppliers, competitors, customers and government) to improve
the robustness of the supply chain systems on all levels; Local, National and International.
The
Japanese IT Multinational case study illustrates the benefits of
centralization, sharing infrastructure and route optimization in local context
that can result in relatively large efficiency improvements and cost reduction.
For
a largest retailer in the U.S., Wal-Mart has an interesting story of adopting
GSCM to their organization. In October 2005, Wal-Mart CEO committed the
company to 3 goals: to be supplied 100% by renewable energy; to create zero
waste; and to sell products that sustain Wal-Mart’s resources and the
environment, and Wal-Mart was launching a business sustainability strategy to
dramatically reduce the company's impact on the global environment and become "the
most competitive and innovative company in the world (Plambeck, 2007). In
this study, she provided 8 practices engaged with 14 network partners.
5.1 Future
Trends:
A green strategy
provides prudent business processes. Successful Green supply chain will feature
cross functional collaboration, emphasize innovation, and stay tune to the
strategic focus of supply chain and enterprise as a whole. Such a framework
emphasizes network redesign, packaging changes and business collaboration that
promote a smaller carbon footprint and generates cost savings.
6.1 Rethinking Supply
Chain:
The
most strategic way is also the most fundamental—improve supply chain
“visibility” and tactical knowledge, to help close the gap between the time you
learn about something with significant impact and when you can actually do
something about it.
One
of the biggest shortcomings in the industry is the lack of communication and
accessibility to information. We need to look at our supply chain networks
with a sense of urgency which means developing an understanding of future
economic conditions.
Unlike other trends
that become fads, adopting a green strategy provides long-term benefits.
The green movement may seem daunting to many companies, but more resources are
becoming available every day. While the challenges may change, the
fundamentals of good business remain the same.
*This blog is based on my paper published in World BPR Conference (2010)
