Supply Chain Sustainability

Supply Chain Sustainability: Business Processes for the Carbon Footprint Raymond Boykin Brian Hider Greg Turcotte California State University, Chico Abstract In order to make superior business decisions in the area of sustainability, one must have real time data on the critical parameters. In this paper, our goal is to define business processes to assist in development of a methodology to calculate the CO2e (carbon dioxide equivalent) footprint over the entire supply chain of a food production process (field to table). The process of defining these business processes is directly transferable to other industries as they attempt to measure sustainability parameters for their supply chains.

I. Introduction The topics of sustainability and global warming are considered by many to be critical issues needing immediate attention. This has led to calls for numerous rules and regulations to reduce our carbon footprint. In addition to the regulatory environment, we are currently inundated with advertising campaigns on who has the “greenest” product. This has created concerns among some that these claims of being green may be more sizzle than substance. A research project was launched through a partnership of SAP Research and California State University, Chico College of Business to investigate the potential of developing software involving integration of sustainable business processes into the SAP ERP software suite. SAP is the world’s largest business software company and the third largest independent software supplier with annual sales over $15 billion in 2007. The primary goal of this research project was to first define the processes in the supply chain of a food producer (rice) and then development a methodology to measure the CO2e footprint of these processes. From this point our research will move into the integration of this methodology into the use of enterprise software to automate the calculation of the CO2e for a product. Initial results of the second goal will be included at the end of this paper. This research project focused on the emerging trend across industries to study, track and manage environmental parameters of the entire lifespan of goods and service

across the entire supply chain. UK based retailer Tesco announced in early 2007 that it plans to put carbon labels on all its 70,000 food lines (http://www.tesco.com/greenerliving). Tesco is using a methodology called Life Cycle Analysis, putting a greenhouse gas cost on every element of a product’s move from farm to plate. Wal-Mart announced that it will assess and manage the energy footprint of its suppliers (http://www.cdproject.net/wal-mart-case-study.asp). It will be assisted by UK based Carbon Disclosure Project (CDP). As these companies found out, tracking carbon footprint information across the entire supply and delivery chain is a task of enormous complexity. The motivation of this project was to start on smaller scale with the expectation that the results can be applicable to more complex environments. Our research project investigated the tracking and managing of environmental parameters (not only the carbon footprint) across the entire lifespan of products including farming, production, transportation, distribution, retail and recycling. We gave specific attention to the best practices as developed by the commercial partners. The investigation was based on the Carbon Trust’s “Carbon Footprint Measurement Methodology” (http:// www.carbon-label.co.uk/pdf/methodology_full.pdf ). Based on the Carbon Trust “Carbon Footprint Measurement Methodology,” and the Carnegie Mellon Green Design Institute “Input/Ouput Environmental Model” business process maps were developed for a large portion of the supply chain. These

maps and models were then used to calculate the carbon equivalent footprint for a food products manufacturer. II. Literature Survey The definition of sustainability or sustainable development is often attributed to the Brundtland Commission (UN, 1987). The definition adopted by the United Nations reads, "Sustainable development is development that meets the needs of the present without compromising the ability of future generations to meet their own needs." The research in this paper focuses primarily on the carbon footprint of the supply chain. Recent research has indicated that a majority of the carbon footprint of a product is caused by indirect emissions, outside the supply chain processes controlled by the organization, so that understanding the total supply chain carbon footprint of a product is very important (Matthews et al, 2008). The role of supply chain optimization is also important in reducing the carbon footprint of products and services (Udell, 2006). There are a very limited number of articles on the calculation of the carbon footprint for a product’s supply chain (Rowzie, 2008; Karabell, 2008; Matthews et al, 2008). However, none of these articles suggest the use of enterprise software as a means of automating the calculation of the supply chain carbon footprint. The number of articles on the topic of sustainability or sustainable development exceeds 50,000 (Litton et al, 2007). However, the number of articles related to supply chain sustainability is much smaller, less than 200 published papers from 1994 to 2007

(Seuring and Muller, 2008). A majority of the papers published on supply chain sustainability focus more on the environmental issues with very few papers examining the social or triple bottom line. The first question that needs to be answered is whether the concept of supply chain sustainability is mature enough to allow for the development of models and assessment methodologies. One issue that often arises concerns media-hype versus science (Wildavsky, 1995). However, with the Dow Jones launching a sustainability index in 1999, this seems to validate of the reality of this issue (http://www.sustainability-index.com, 2008). There are a very limited number of articles addressing the “triple bottom line” definition of sustainability. Some research has been done in the areas of operations and sustainability (Kleindorfer et al, 2005). Also, there are some cases dealing with supply chain sustainability (Diniz and Fabbe-Costes, 2007; Koplin et al, 2007; Matos and Hall, 2007; Roberts, 2003; Yakoleva, 2007). These cases include both food, energy and manufactured products. III. Methodology Review The methodology employed on this project involved using the Carbon Trust model in conjunction with the Carnegie Mellon EIO-LCA Model (Economic Input- Output Life Cycle Assessment) (http://www.carbontrust.co.uk, 2008; http://www.eiolca.net, 2008). The Carbon Trust model has been adopted by many companies and is seen as the industry standard leader (Prickett, 2008).

Carbon Trust Model The supply chain carbon assessment model developed by the Carbon Trust involves five steps (http://www.carbontrust.co.uk, 2008). • Analyze internal product data • Build supply chain process map • Define boundary conditions and identify data requirements • Collect primary and secondary data • Calculate carbon emissions by supply chain process steps The Carbon Trust model encompasses the entire life cycle and supply chain of a product. Model framework, boundaries, and scope are well defined. The Carbon Trust is working with several international standard organizations in an attempt to have their model become the standard for supply chain carbon foot printing of a product. Economic Input-Output Life Cycle Assessment (EIO-LCA) In 1995 researchers at Carnegie Mellon University adapted the work of Nobel Economist Wassily Leontief on economic input-output models to estimate the environmental emissions from a product or service over the supply chain (.http://www.eiolca.net, 2008). The models developed by the Green Design Institute of Carnegie Mellon University are available online for free non-commercial use. Through the use of EIO-LCA models, one can assess the resource and emissions impact over the entire supply chain (from raw material to finished product). These

models allow for a much more efficient process of analysis and calculations as compared to an approach where the business process must be assessed at each step and all connecting processes to that step. For example, the production of a pencil requires the assessment of the pencil production process, the wood component production process, and all the processes associated with obtaining the pencil lead, and so on. This would be a very complex and time consuming assessment, but the EIO-LCA models handle this for us. IV. Process Maps and CO2e Calculations Process Maps To calculate the carbon footprint for the entire supply chain a process map of the supply chain needs to be developed. An example of a supply chain for the manufacturing of milled rice is provided here for discussion purposes (Figure 1). The research study was focused on food production and a product was selected that was expected to have a simple supply chain process.

Figure 1 Milled Rice Supply Chain CO2e Calculations The data analysis was done using the EIO-LCA model from Carnegie Mellon. The approach applied on this project involved separating the manufacturing processes from the direct emissions resulting from electricity and fuel consumption. A four step process was applied that (1) quantified the energy consumption and/or greenhouse gas released during a process step, (2) converted energy use and/or greenhouse gases into CO2e using emission coefficients, (3) calculated using the EIO-LCA model the amount of CO2e resulting from the extraction, refining and distribution of the different energy sources and raw materials, and (4) sum the results from steps 2 and 3 to give a total CO2e for the given process.

The aggregate production process is broken into three major components and sub components under each of the three major process steps. The major components are (1) raw materials, (2) manufacturing, and (3) distribution. The production process for the rice cakes is provided in Figure 2. The data collection and analysis was performed at each sub component level using the 4 step process described previously. Raw Materials Manufacturing Distribution Fertilizer Initial Processing Shipping Farming Operations Milling Energy Rice Cake Manufacturing Plant Respiration Packaging Storage Figure 2 Rice Cake Production Process In order to assess possible differences in the EIO-LCA model and actual farming operations for paddy rice a direct data collection of CO2e emissions was also performed using both primary operations data and secondary source data (i.e., industry standards).

V. Results and Conclusions Using the EIO-LCA model for grain farming the results indicate the farming operations by far are the biggest contributor to CO2e emissions. However, a majority of these emissions are part of the natural process of growing grain. When the data from actual rice growing operations is used, the results are very similar to the EIO-LCA model. The biggest difference is that growing paddy rice in flooded fields increases the amount of methane released to the atmosphere. Table 1 provides the comparison between the EIO-LCA model for generic grain farming and the calculated values from an actual paddy rice operation in California. Fertilizer and Energy - Energy - Plant Respiration Equipment Operations Generic Grain 88% 3% 9% Farming Paddy Rice 97% 2% 1% Table 1 – CO2e Emissions (Farming Operations) The key contributors to the carbon footprint for rice cake production are the natural processes involved in growing the rice. However, the manufacturing process for rice cakes does increase the percentage of non-natural emissions when compared to the farming and processing of paddy rice (primary ingredient in rice cakes). The milled rice CO2e component is included in the rice cake CO2e calculations. The reason for a smaller growing CO2e number is that the rice is popped in the rice caking manufacturing process, thereby using less poundage of milled rice.

The following tables (Table 2 and 3) provide the summary results of paddy rice and rice cake carbon footprint estimates. Growing Manufacturing Packaging Distribution Milled Rice 1925g CO2e 52g CO2e 114g CO2e (per pound) Rice Cakes 1164g CO2e 188g CO2e 180 CO2e 88g CO2e (per pound) Table 2 – Total Carbon Footprint Breakdown These results give a total CO2e for milled rice of 2091g per pound of rice and a total CO2e of 1620g per pound of rice cakes. Of this total CO2e for milled rice 92% is from the farming process which is primarily natural emissions. When we remove the natural occurring emissions from the growing operation the carbon footprint is very different (Table 3). Growing Manufacturing Packaging Distribution Milled Rice 60g CO2e 52g CO2e 114g CO2e (per pound) Rice Cakes 36g CO2e 188g CO2e 180 CO2e 88g CO2e (per pound) Table 3 – Carbon Footprint Breakdown without Natural Processes The results here show a carbon footprint of only 226g CO2e for a pound of milled rice and 492c CO2e for a pound of rice cakes. This is a significant difference from the

total carbon footprint, 89% reduction for milled rice and a 70% reduction for rice cakes. This raises the question as to which number should be reported if a product were to have a carbon footprint label. Future Research and Issues This paper has presented the first phase of a multi-phased research product involving the development of methodologies for the estimation of the carbon footprint of a product across the entire supply chain. Through this project phase the estimation of the carbon footprint of a product was completed. These estimations were performed using both the EIO-LCA model from Carnegie Mellon and direct calculations from a rice farming operation in California. Comparison of the results showed that the EIO-LCA model did provide a good generic estimate, but the factors of individual operations need to be considered. However, the results of this research may raise more questions than it answered. • How do we integrate natural processes into the estimation of carbon footprint over a product’s supply chain? • Will the inclusion of CO2e emissions for natural processes bias the analysis when it comes to food products, especially organic food products? • How can an automated approach be implemented that will calculate a products carbon footprint efficiently and accurately?

The first two questions will need to be addressed by policy makers, hopefully with the input of experts in this field. The last question provided the motivation for phase 2 of this project. In the next phase of this project, the use of enterprise systems in the calculation and tracking of CO2e for a product across the entire supply chain will be studied. The initial results of phase 2 of this project indicate that through the use of SAP ERP software, the CO2e calculations can be performed. The initial process proposed for doing this involves creating a material master for CO2e and attaching CO2e values through the production planning and order steps. CO2e would be included as a component in the bill of materials and summed throughout the internal supply chain. Preliminary tests of this business process indicate that CO2e can be tracked as an inventory item and CO2e amounts can be assigned at the individual product level.

VI. References http://www.carbontrust.co.uk http://www.cdproject.net/wal-mart-case-study.asp http://www.eiolca.net/index.html http://www.sustainability-index.com/ http://www.tesco.com/greenerliving/what_we_are_doing/carbon_labelling.page? Diniz, J. and N. Fabbe-Costes, “Supply Chain Management and Supply Chain Orientation: Key Factors for Sustainable Development Projects is Developing Countries?” International Journal of Logistics: Research and Applications, Vol. 10 (3), 2007, 235-250. Karabell, Z., “Green Really Means Business; Any company with an extensive supply chain has to reduce its carbon footprint. In an era of high oil prices, doing good now means doing well at the same time,” Newsweek, Vol. 152 (12), 2008. Kleindorfer, P., K. Singhal, and L. van Wassenhove, “Sustainable Operations Management,” Production and Operations Management, Vol. 14 (4), 2005, 482-492. Koplin, J., S. Seuring, and M. Mesterharm, “Incorporating Sustainability into Supply Chain Management in the Automotive Industry: The Case of the Volkswagen AG,” Journal of Cleaner Production, Vol. 15 (11-12), 2007, 1053-1062. Litton, J., R. Klassen, and V. Jayareman, “Sustainable Supply Chains: An Introduction,” Journal of Operations Management, Vol. 25, 2007, 1075-1082. Matos, S. and J. Hall, “Integrating Sustainable Development in the Supply Chain: The Case of Life Cycle Assessment in the Oil and Gas and Agricultural Bio-Technology,” Journal of Operations Management, Vol. 25 (6), 2007, 1083-1102. Matthews, H., C. Hendrickson, and C. Weber, “The Importance of Carbon Footprint Estimation Boundaries,” Environmental Science & Technology, Vol. 42 (16), 2008, 5839-5842. Prickett, R., “Green Growth,” Financial Management, November 2008, 28-31. Roberts, S., “Supply Chain Specific? Understanding the Patchy Success of Ethical Sourcing Initiatives,” Journal of Business Ethics, Vol. 44 (2), 2003, 159-170. Rowzie, K., “Driving Sustainability Throughout the Supply Chain,” Pulp and Paper, Vol 82 (10), 2008, 21-23.

Seuring, S. and M. Müller, “From a Literature Review to a Conceptual Framework for Sustainable Supply Chain Management,” Journal of Cleaner Production, Vol. 16 (15), 2008, 1699-1710. Udell, J., “Your Carbon Footprint,” InfoWorld, Vol. 28 (48), 2006, 34. United Nations, Report of the World Commission on Environment and Development, General Assembly Resolution 42/187, 11 December 1987. Wildavsky, A., But is it True? A Citizen’s Guide to Environmental Health and Safety Issues, Harvard University Press, Cambridge, MA, 1995. Yakoleva, N., “Measuring the Sustainability of the Food Supply Chain: A Case Study of the UK,” Journal of Environmental Policy & Planning, Vol. 9 (1), 2007, 75-100.

Supply Chain Sustainability

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