Green Supply Chain Strategy to spearhead tomorrow’s Growth

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)