GREEN SUPPLY CHAIN Pallavi Arunika Saurabh Mallik
Presentation Overview What is a Supply Chain Management? SCOR Model Why think Green SCM? What is Greening the Supply Chain? Green Supply Chain Principles GSC as a strategic tool Trends in Green SCM Examples of cleaner technology LEED Global Eco-labelling Network Environmentally Preferable Purchasing (EPP) Carbon Footprint Green Sourcing Stanford Case study – “The Greening of Wal-Mart
Definition of supply chain management (SCM) Product assembly Material production Component manufacture Mining, drilling and harvesting Sale and delivery Planning Sourcing Production Inventory Logistics Supply Chain Management is aboutmanaging business activities and relationships internally within an organization, with immediate suppliers, with first- and second-tier suppliers and customers along the supply chain, and with the entire supply chain. SCM has two dimensions:
Coordinating the various business activities within a supply chain agent
Coordinating the business activities between various supply chain agents
Helps break down complex business processes & its functionalities to better understanding of business. 5 Management processes in SCOR Plan, Source, Make, Deliver & Return SCOR deals with important factors of a business such as Customer interaction from order entry to invoicing All products & transactions from end to end supplies, suppliers and equipment Understanding demands and supplying goods 6 SCOR – Process Modeling
SCOR drives an end-to-end view of supply chain performance
Why think Green ? Why think Green ? - Eco-efficiency saves money
Delivery of the final product to the consumers
End-of-life management of the product after its useful life.
Green Supply Chain Management (GSCM) is defined as "the process of using environmentally friendly inputs and transforming these inputs into outputs that can be reclaimed and re-used at the end of their lifecycle thus, creating a sustainable supply chain”. From cost compliance to value creation
Green SCM integrates environmental and supply chain management. Environmental Management Green SCOR Model SCOR Model
GreenSCOR modifies the existing SCOR structure to include environmental processes, metrics, and best practices.
GreenSCOR maintains the integrity of the current SCOR model by adding to the existing elements.
The GreenSCOR model enables organizations to more effectively integrate environmental management with supply chain management.
Capabilities of GreenSCOR GreenSCOR incorporates industry best practices for making the supply chain more environment friendly, such as collaborating with partners on environmental issues, reducing fuel and energy consumption, and minimizing and reusing packaging materials. Metrics to measure the effects of greening, including carbon and the environmental footprint, emission costs per unit, energy costs as a percent of production costs, waste produced as a percent of production, and returned products disposed of versus remanufactured. Processes to address waste management, such as how to collect and manage waste produced during production and testing (including scrap metal and nonconforming product).
Lessening Environmental Impact Through GreenSCOR, industry can:
Learning to Think Differently From “problems” and “risk factors”…..…..to opportunities for efficiency and growth…from short term to long term… Sources of Profitability Cost reductions Improved asset utilization• Higher levels of customer service Increased revenues Focus of sustainability is to find the balance between sound ecological decisions and profitable operations
Green SCM leverages the role of the environment in SC value creation. Tangible Outcomes Green Supply Chain Programs Profitability Supply Chain Value Asset Utilization Service Level Employee Satisfaction Customer Environmental Sustainability Reputation Continuity Community of Quality of Life Alliance Technology Stakeholders Interest Intangible Value Drivers Source: Forging New Links, GEMI, 2004
Commercial firms have had early success using Green SCM principles
Not everyone's as enthusiastic though... Despite high profile initiatives from firms such as Wal-Mart and HP to limit the environmental impact of their supply chains, the majority of large firms still have no green supply chain policy in place.
Conclusion of a major new survey from management consultancy Bearing Point found that almost two thirds of firms had taken no action to cut the environmental impact of their supply chain.
Survey of over 600 directors at companies with turnovers in excess of $100m found that just 35 per cent had an explicit green supply chain strategy, although 83 per cent claimed to factor environmental factors into decisions.
A lack of information about green supply chain best practices and regulations was identified as the main reason for the relatively low adoption of green supply chain policies.
GSCM & ‘AAA’ Improves Agility—Green supply chain management help mitigate risks and speed innovations. Increases Adaptability—Green supply chain analysis often lead to innovative processes and continuous improvements. Promotes Alignment—Green supply chain management involves negotiating policies with suppliers and customers, which results in better alignment of business processes and principles.
Three Competitive Edges of Firms Operational Excellence Reducing carbon footprints Implementing cleaner technology Green logistics Supplier Audits Product Leadership CustomerIntimacy Working with suppliers Supplier Engagement Defining and implementing Environmentally Preferable Purchasing Green building Standards Standards & Eco labels
– Use more environmentally friendly materials – Design more efficient product – Plan in recycling of product at end of life – Consider environmental impact of product
Choice of Suppliers
– Review supplier environmental data – Consider supplier source of raw materials/components – Partner with suppliers to improve environmental performance – Consider energy‐efficient practices (“green” manufacturing facilites, hybriddeliveryvehicles, etc.) Trends in Green Supply Chain
Greening the Process Manufacturing – Use more efficient processes – Institute pollution/emission controls – Plan waste management – Implement quality control Packaging/Shipping – Use environmentally friendly/recyclable packaging – Plan for reuse of packaging materials – Ship in hybrid/efficient vehicles – Ship directly to customers
End Product End Product – Deliver efficiently to end user • Use recyclable/reusable packaging • Deliver in hybrid/efficient delivery vehicles • Consolidate shipments – Plan for recycling/reuse of product/components at end of life – Educate customer on recycle/reuse policy Cost savings – Efficient design saves waste – Environmentally friendly sourcing saves disposal costs – Pollution/emissions control saves cleanup costs – Compliance with environmental regulations
Principles and Procedures for Type I Ecolabels
Global Ecolabelling Network (GEN) membership criteria GEN Internationally Coordinated Ecolabelling System (GENICES, evaluation for conformance with ISO 14024) ANSI-accredited standards developer EPA Guidelines for Third-Party Certifiers Consumers Union criteria for “What makes a good eco-label?” Standards and Eco Labels
Standards and Eco Labels Eco labels are a method of assessing environmental performance .The EU has developed a label which is for accommodation.
Environmental Performance Certification for Products
Identifies products that meet specific environmental criteria
Labels exist for electronics and many other products
A third-party identifies criteria and verifies adherence to criteria
Different from “green” symbol or claim made by manufacturers on product.
The Global Ecolabelling Network (GEN)founded 1994, currently 26 member programs
Types of Eco-Labels Based on ISO Identification Type I
Voluntary, Multiple Criteria Based, that awards the use of a label on a product that indicates overall Environmental preferability based on life-cycle
Informative environmental self-declaration claims
Voluntary program that provides quantified environmental data of a product set by a qualified third party, based on LCA and verified by a third party.
What is EPP? EPP is the process of selecting products and services whose environmental impacts have been considered and found to be preferable to those of comparable alternatives. EPP is a way for purchasers to implement their values and goals as they relate to environment, health, and safety. EPP takes into consideration performance, availability, and price.
Recycled Content Remanufactured Recyclable: System in place Reusable Extended Producer Responsibility EPP Terms
Clean Production cycle is different to current linear production systems
Extended Producer Responsibility (EPR) is one strategy to push CP It is a product policy; not a waste policy It enacts the ‘polluter pays principle’ and attempts to internalize true cost into the product price It makes the producer financially and/or physically responsible for all stages of a product’s life cycle, including end of life
GREEN SOURCING Sustainability - Meeting current needs without hindering future needs in terms of economic, environmental & social challenges The Institute for Supply Management defines green sourcing as – “Making environmentally conscious decisions throughout the purchasing process, beginning with product and process design, and through product disposal” (also termed “sustainable procurement”)
Carbon Emissions – a Global Challenge With global warming being recognised as one of the largest challenges of this century, carbon emissions are increasingly becoming the centre of attention
Global warming is the result of increasing CO2 concentration in the atmosphere
Global warming is and will be one of the largest challenges of this century
Transportation activities are one of the main contributors to global warming
Carbon Trust defines carbon footprint of a supply chain as follows: “The carbon footprint of a product is the carbon dioxide emitted across the supply chain for a single unit of that product”.
Widening the Scope of Reporting! “Our analysis suggests that for consumer goods makers, high tech players, and other manufacturers, between 40 and 60 percent of a company’s carbon footprint resides upstream in its supply chain— from raw materials, transport, and packaging to the energy consumed in manufacturing processes. For retailers, the figure can be 80 percent.“ - McKinsey Source : World Resource Institute
Carbon Footprint Carbon Trust defines carbon footprint of a supply chain as follows: “The carbon footprint of a product is the carbon dioxide emitted across the supply chain for a single unit of that product”. For example, the carbon footprint of a can of food is the total amount of carbon emissions from production, transportation, consumption, and disposal of the single can of food. Carbon Trust is a private company setup by the United Kingdom Government to develop business solutions to transition to a low carbon economy.
Digging into a supply chain’s carbon footprint
Supply Chain Carbon Check - a Standardised approach4-step methodology based on internationally recognized emission standards
World Business Council for sustainable development (WBCSD)Impact Framework
Integrating Green Standards into SCOR
Examples of Green SCM Performance Indicators Prepared by Raghav Ravishankar-Mgt 395 Final Presentation 67
Examples of Green SCM Performance Indicators 68
Triple Bottom Line (TBL) originally coined by John Elkington to describe corporations moving beyond reporting only on their financial “bottom line” to assessing and reporting on the three spheres of sustainability: economic, social and environmental. Triple Bottom Line can be seen as a mere reporting device (e.g. information presented in annual reports) and/or an approach to improving decision-making and the fundamental functions of organizations (e.g. the provision of tools and frameworks for considering the economic, environmental and social implications of decisions, products, operations or future plans). TBL provides a framework for measuring and reporting corporate performance against economic, social and environmental benchmarks. Reporting on TBL makes transparent the organization's decisions that explicitly take into consideration impacts on the environment and people, as well as on financial capital. It can reduce risk, assist in delivering better outcomes for employees, shareholders, customers and clients, and enhance reputation. Triple bottom line accounting – Sustainability performance measure – Integrating Green SCOR 69
Triple bottom line accounting – Sustainability performance measure– Integrating Green SCOR Companies are increasingly choosing ‘Ecological Footprint’ or ‘carbon footprint’ as possible indicators of their environmental impacts. While use of Ecological Footprint for business has been considered for some time (Holland, 2003), carbon footprint assessments in particular have gained enormous popularity in 2006 & 2007 only with several high-profile reports, conferences or private & public initiatives dealing with this subject. Both indicators, Ecological Footprint (EF) and carbon footprint (CF), can be incorporated into a TBL reporting scheme. An organization's financial accounts, together with on-site impact data, act as input. Software outputs include aggregate figures, detailed breakdowns and rankings of EF, CF & other economic, social and environmental indicators. Sector benchmarking, structural path analysis (upstream supply chain analysis) and production layer decomposition are available for all indicators. Quantification of ‘shared responsibility’ is realized by delineating impacts into mutually exclusive & collectively exhaustive portions of responsibility to be shared by all agents along a supply chain). Reporting on the Ecological Footprint as well as triple bottom line can deliver full benefits of reporting, including: ability to make comparisons within & between organizations; completely transparent communication to all stakeholders; & detailed information across the whole supply chain as a basis for strategic decision making. 70
WBCSD Framework – Integrated with environmental, social and health impact assessments (ESHIAs) – Integrating Green SCOR 71
WBCSD Framework STEP 1 – SET BOUNDARIES “Define your business” Determine the scope and depth of the overall assessment in terms of geographical boundary and types of business activities to be assessed.
Collect development context information for the assessment area
Select the business activities to be assessed
STEP 2 – MEASURE DIRECT AND INDIRECT IMPACTS “Measure your company footprint” Identify and measure direct and indirect impacts, mapping out what is within the company’s control & what it can influence through its business activities.
Identify the sources of impact for each business activity
Identify relevant indicators for direct and indirect impacts
WBCSD Framework STEP 3 – ASSESS CONTRIBUTION TO DEVELOPMENT “Understand your footprint in the development context” Assess what the company’s direct and indirect impacts contribute to the development issues/priorities in the assessment area.
Determine the level of stakeholder engagement
Engage with stakeholders to prioritize the development issues (optional)
Build hypothesis of the business contribution to development
Test hypothesis with stakeholders and refine the overall assessment (optional)
STEP 4 – PRIORITIZE MANAGEMENT RESPONSE “Make better-informed decisions” Extract the key risks and opportunities relative to the company’s societal impact and based on this, develop the management response.
Identify priority areas for action
Consider possible management responses and prepare recommendations for management
Capitalism is a central feature of modern industrial societies; the larger retailers, & many of the not-so-large, are in continuous competition to find new ways of making profits. That said, over the past few years, one has seen that investing in sustainable & green supply chains can have enormous long term cost benefits while reducing the damage on the environment.
Firms, as a part of their social and environmental responsibility policies should work towards sharing best practices after achieving operational excellence & help other organizations become more efficient to reduce their footprints on the environment. This may be a great way for organizations to get visibility to consumers as being a leader in Environmental innovation thereby improving their brand name & therefore increasing sales.
Integrating Green Standards into SCOR 76
Case Study & Analysis: A green SCM story “The Greening of Wal-Mart : by Erica L. Plambeck and Lyn Denend”. Stanford Case study Analysis of the case on SCM Review
The story October 2005, Wal-Mart CEO Lee Scott committed the company to three ambitious goals:
To be supplied 100 percent by renewable energy
To create zero waste and to sell products that sustain Wal-Mart's resources and the environment.
To meet those goals, Wal-Mart would seek to transform its supply chain, in cooperation with suppliers and environmental nonprofit organizations.
Significant Initiatives Hired Blu Skye Sustainability Consulting to help identify the categories of Wal-Mart's products and processes that had the greatest environmental impact. Wal-Mart/Blu Skye team multiplied sales data with environmental impact factors from the Union of Concerned Scientists, and identified 14 focal areas, bundled into three broad categories:
For each focal area, an executive sponsor and a network captain took charge of building a sustainable value network of Wal-Mart employees and representatives from government, academia, environmental nonprofits, suppliers, and other stakeholders. The goal was to reduce environmental impacts and derive profit from that positive change. Network captains were typically senior managers from Sam's Club or Wal-Mart who were considered to be among the company's top performers.
Engaged external organizations into the loop, to create a “sustainable value network”
Concrete Steps Based on “The Greening of Walmart's Supply Chain” - SCMR 2007, Dr. Erica Plambeck, Stanford University 1. Identify Goals, Metrics and New technologies -- Beginning in 2008, Wal-Mart formally planned to use a system to "measure and recognize its entire supply chain based upon each company's ability to use less packaging, utilize more effective materials in packaging, and source these materials more efficiently relative to other suppliers." --The scorecard is an important enabler for Wal-Mart to achieve its public goal of reducing the packaging used by all of its suppliers by 5 percent between 2008 and 2013. -- If achieved, this five-year program is expected to generate $3.4 billion in savings. In the first month, 2,268 vendors have logged onto the packaging scorecard site and 117 products have been entered into the system.
2. Certify Environmentally Sustainable products -- According to an international study released in 2006, all species of wild seafood are greatly depleted and predicted to collapse within 50 years. -- Within this ominous business environment, Wal-Mart sourced approximately $750 million in seafood in 2006, and the company's volume of seafood business is growing at roughly 25 percent a year. -- The Marine Stewardship Council (MSC), established by Unilever and the World Wildlife Fund (WWF) in 1997, has defined standards for certification as a sustainable fishery, based on the United Nations' Code of Conduct for Responsible Fishing and on input from fishermen, retailers, government, nonprofits, and other stakeholders. -- The MSC certifies third parties to audit and certify fishery and processor compliance throughout the supply chain, from "boat to plate." -- Walmart sources only MSC certified fish, lately!
3.Providing Network partner assistance to suppliers Wal-Mart is able to provide suppliers with valuable knowledge and process assistance through its strong relationships with the environmental nonprofits in its networks. Eg: when the Chinese government threatened to shut down a number of textile dye houses, including one of Wal-Mart's suppliers, in order to reduce pollution in Beijing ahead of the 2008 Olympics, Wal-Mart immediately took action - put the dye house in touch with one of the NGOs in their network, which helped it formulate a more environmentally friendly process that reduced its toxic output very quickly.
-- However, to meet organic standards, a farm needed to remain free of non-organic pesticides or similar materials for a period of three years prior to the harvest of any organic crop. To increase and secure its supply of organic cotton, -- Wal-Mart made a five-year verbal commitment to buy organic cotton from farmers. "It gives them confidence and stability -- Wal-Mart (which became the world's largest purchaser of organic cotton in 2006) also agreed to purchase the organic cotton farmers' alternate crops.
4. Committing to larger volumes of environmentally sustainable products -- By making a commitment to buy a specified quantity of each product certified as environmentally friendly, Wal-Mart gives its suppliers an incentive to develop and produce that product. -- In its textiles network, Walmart learned that, along with the cost of certification, farmers faced a near-term reduction in yields with organic cotton farming, as well as the need to diversify crops. This forced farmers to alternate the planting of cotton with legumes, vegetables, or other cover crops to rejuvenate the soil. 5.Cutting out middlemen An immediate but unanticipated benefit of MSC certification in the seafood network—and of organic cotton certification in the textile network—was full visibility of the chain of custody, and hence the opportunity to eliminate intermediaries. By simplifying its supply chain, Wal-Mart reduced the frequency of seafood stock-outs, improved the quality of the fish it was receiving, reduced paperwork and transaction costs, and reduced the costs and environmental impacts of transportation.
6. Consolidating direct suppliers Over the short term, Wal-Mart has had many diverse relationships with many factories, often working with a supplier one purchase order at a time or one season at a time. Says sustainability vice president Ruben: "Right now we account for two percent of a lot of people's business, especially overseas. We know that needs to be a lot larger—maybe 50 or 60 percent." 7. Restructuring the buyer role To better manage relationships with suppliers, the textiles network implemented a major organizational change: It redesigned the role of its buyers. In the past, textiles buyers had been generalists, handling a wide variety of responsibilities (as buyers did in other product categories).
8. Licensing environmental innovations If one factory is significantly more energy-efficient than others, it's got an advantage. If it shares that information, the competition might gain a much better understanding of its production costs and therefore its profit margins." "Information about how much energy a product consumes is not particularly sensitive."
Example of Greening decisions: Conclusion from the Case study
Buying diesel-electric and refrigerated trucks with a power unit that could keep cargo cold without the engine running saving nearly $75 million in fuel costs and eliminating an estimated 400,000 tons of CO2 pollution in one year alone.
• Making a five-year verbal commitment to buy only organically grown cotton from farmers, and to buy alternate crops those farmers need to grow between cotton harvests. Last year, the company became the world's largest buyer of organic cotton. • Promising by 2011 to only carry seafood certified wild by the Marine Stewardship Council, a group dedicated to preventing the depletion of ocean life from overfishing. • Buying (and selling) 12 weeks' worth of Restrictions on Hazardous Substances (RoHS)-compliant computers from Toshiba.