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Environmental Supply Chain Optimization
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Environmental Supply Chain Optimization


An innovative presentation demonstrating the value of greening the supply chain.

An innovative presentation demonstrating the value of greening the supply chain.

Published in Business , Technology
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  • 1. Competitive Advantage: Using EHS In Value Chains NAEM 10th Annual Environmental Management Forum October 17, 2002 Lawrence M. Heim, Senior Vice President, Marsh Environmental Business Consulting
  • 2. What is the Value Chain?
    • Integration of supply chains and demand chains
      • Supply Chain: Movement of materials/services from origin to user
        • You in the role of customer
      • Demand Chain: Movement of information from user to origin
        • You in the role of supplier
    • Your company as the linkage
    • If you provide products/services to customers, the Value Chain applies to you
  • 3. What is the Value Chain? Marsh Your Company Customer Supplier Manufacture Product Attributes Production Attributes Package Transport Purchasing Specs Inventory/ Sales Consumer Demand/Use Movement of materials/services Movement of information Conversion of materials, services and information into needed product Material Extraction Process Package/ Transport/ Sale
  • 4. Value Chain Impact on Shareholders
    • Study of 861 public companies showed once a supply chain malfunction is announced, stock prices drop as much as 12% and shareholder wealth decreases at least $120 million.
      • Vinod Singhal, Georgia Institute of Technology and Kevin Hendricks, University of Western Ontario, “How Supply Chain Glitches Torpedo Shareholder Value”, Supply Chain Management Review , January/February 2002.
  • 5. Value Chain Impact on Strategy
    • Strategies based on advantages related to
      • Inputs (source, proximity, cost, control, attributes)
      • Manufacturing (efficiency, cost, attributes)
      • Meeting customer needs (customization, cost, customer service)
      • Market share (barriers to entry, brand, penetration)
    • Value Chain integral to advantages
      • Raw material availability/source
      • Response to market signals
      • Product availability/distribution
  • 6. Value Chain Impact on Strategy
    • Execution of strategy is paramount
      • 53% of M & A deals exceeding $1B failed to meet expectations after two years due to poor execution of touted strategy.
          • Booz-Allen & Hamilton, 2001.
      • “ The most important non-financial driver of a company’s value … was a company’s ability to execute its strategy. [This] may simply reflect how few managements are actually capable of carrying out their strategies in this fast, hypercompetitive coevolving economy.”
        • Invisible Advantage: How Intangibles are Driving Business Performance, Jonathan Low and Pam Cohen Kalafut, 2002.
  • 7. Potential for Competitive Advantage
    • What is the opportunity?
      • Little Competition: Almost 80% of companies’ efforts are focused internally; only 15% of supply chain initiatives include demand chain (the Value Chain).
        • Phillipe Haugel and Nick Jackson, Bain & Company, “Outward-Looking Supply Chain Strategy”, European Business Forum , September 2001.
      • Commodity Differentiator : For commodity/mature industries, where lasting differentiation is thought impossible to achieve, customer integration can lead to sustainable competitive advantage.
        • Marc Fischer, et al., “Serving Your Customer’s Customer: A Strategy for Mature Industries”, The McKinsey Quarterly , 1997, No. 2.
  • 8. EHS Relevance to Your Supply Chain
    • Supplier EHS impacts on your business
      • Direct: Process wastes, employee H&S, chemical content, consumer exposure, packaging
        • Impact of bulk v. packaged materials, Alar apples, PVC in toys
      • Indirect: Compliance time/effort, permitting, inspections
      • Intangible: Raw materials from extractive industries
        • Timber, oil, minerals, metals, electricity
  • 9. EHS Relevance to Customer Demand Chain
    • Your EHS impacts on customers and your customers’ customers
      • “ Environmental Burden”
        • Non-core materials: Packaging, process wastes
        • Compliance time/effort: SARA, DMRs, inspections, permitting
        • Recycling/Reuse: Viability, availability, effort required
      • Conflict with procurement/sustainability/responsibility guidelines
      • Consumer concerns of raw material origins
        • Extractive industries, electricity
  • 10.
    • Adapted from Mercer Management Consulting © 2002
    EHS as Competitive Advantage in Value Chain Marsh Degree of Traditional EHS Effort Required High Low Supply Chain Integration (Supplier Management Only) Basic Compliance (Facility EHS Management) Integrated Value Chain (Engaging Suppliers and Customers)
    • Manage Supplier Costs for Your Company
    • Manage Wastes and Regulatory Requirements for Your Company
    • Waste Reduction for Your Company
    • Reduced Regulatory Requirements for Your Company
    • Consumption Management for Your Company
    • Reduced Employee Exposure for Your Company
    • Waste Reduction for All
    • Reduced Regulatory Requirements for All
    • Reduced Employee Exposure for All
    • First-Mover Advantage for Your Company
    • Alliances / Risk Sharing
    • Long Term, Trust-Based Relationships for All
    • Consumption Management for All
    • Support Strategy Execution for All
    • Reduced Customer Exposure for All
    Degree of EHS Impact and Cost High Low Increasing strategic advantage and cost saving potential Strategic and Savings Drivers
  • 11. Example: EHS Value Chain Opportunity
    • Supplier business pressures
      • Uncertain future due to customer loss and high costs
        • Inconsistent use of accounting system for environmental costs
      • Plating operation costliest environmental aspect
        • Primary costs: sludge disposal, WWT chemicals, water/ wastewater costs
        • Secondary costs: regulatory reporting, analytical costs, regulatory fees, legacy costs
  • 12. Example: EHS Value Chain Opportunity
    • Customer business pressures
      • Relocating manufacturing outside U.S. due to costs
      • Wall Street perception: loss of product focus and leadership
      • Established Corporate Responsibility Programs and Vendor Guidelines, but implementation lagging
  • 13. Example: EHS Value Chain Opportunity
    • Solution: Real savings over $750,000/year
      • Improve cost accounting system to identify all EHS costs
      • Initiate discussions with customer about plating aspect
        • Eliminate plating from product, reduce costs, conform to vendor guidelines, help customer develop vendor guidelines further
        • OR
        • Dis-integrate manufacturing and purchase pre-plated stock
      • Expand scope of “ Buyer” to include environmental and corporate responsibility functions
  • 14. Keys to Success
    • Learn how Value Chain impacts strategy execution, then use EHS to
      • Minimize business interruption related to
        • Raw material toxicity/sourcing/acquisition
        • Fuel use/type/source
        • Wastes/emissions/discharges
        • Packaging use/materials
        • Reuse/recycling/disposal
        • Company growth/mergers and acquisitions
  • 15. Keys to Success
    • Learn how Value Chain impacts strategy execution, then use EHS to
      • Find new business opportunities (innovate)
        • Solvent substitutes
        • Refrigerants
        • Renewable energy and green tickets
        • Fuel cells
        • Treated lumber
    • First-Movers define the rules of competition!
  • 16. Keys to Success
    • “ Product buyer” and “EHS value buyer” may be different
      • EHS issue MUST be business-relevant as a Key Buying Criterion to the product buyer
      • Identify Key Buying Criteria - beyond price - for the EHS value buyer
        • Product Performance: Quality/return metrics, safety impact
        • Customer Service: Support customer EHS/sustainability metrics, reduced regulatory burden, alliance with customer
        • Perception: Branding for consumer products, sourcing
  • 17. Keys to Success
    • Go outside EHS box
      • Customers, sales, marketing, distribution, branding, quality
      • Expand internal “buyers” for EHS and communicate business value
      • Learn a new language
        • Business lexicon, not EHS jargon
    • Use EHS as a customer relationship tool
      • Can form the basis for long-term strategic partnerships