Greening Supply Chain for a Better Environmental Management

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1 Greening Supply Chain for a Better Environmental Management Shankar Murthy & Shirish Sangle National Institute of Industrial Engineering Vihar Lake, Powai, Mumbai , INDIA.

2 Flow of the presentation Introduction Traditional Supply chain Environmental impacts Green supply chain Benefits Conclusions

3 Introduction Concept of supply chain includes the flow of materials from source to the point of use For the last several years, productivity issues have received significant attention National concern about productivity management are brought about by the agenda of global competition: rate of growth in productivity always determines a nation s economic & social progress

4 Introduction Emphasis on total quality management, sustainability development, business process re-engineering, ISO etc Issues of productivity have undergone a paradigm shift & supply chain is no exception to this The shift is towards is having a Green Supply Chain, today, green supply chain is at the heart of concept of sustainable development

5 Definition 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 Patrick Penfield, Whiteman School of Management

6 Traditional Supply Chain The traditional supply chain is defined as an integrated manufacturing process wherein raw materials are manufactured into final products, then delivered to customers; distribution: via retail, or both Design, modeling, and analysis of the traditional supply chain has primarily focused on optimizing the procurement of raw materials from suppliers and the distribution of products to customers

7 Environmental Impacts The new environmental era represents a new challenge to manufacturing and production enterprises worldwide The challenge is to develop ways in which industrial development and environmental protection can symbiotically coexist The first step in meeting this challenge is to redefine the basic structure of the entire supply chain, by accommodating environmental concerns associated with waste and minimization of resource use

8 Environmental Impacts In a typical supply chain system, the resources in the form of materials, machine labour, information, space, energy, time, etc., are converted into outputs through the manufacturing process Resource productivity is fundamental in GSCM concept Increasingly, resource productivity will become an important yardstick against which stakeholders will measure company s performance Waste minimization is being considered as an important strategy towards attaining a green supply chain

9 Environmental Impacts As these wastage decreases the available machine capacity and labour time, as they act as negative contributor to the output from the system. Since productivity is defined as the ratio of output to the input, as wastivity increases, partial-factor productivity reduces The reduced output disturbs the plant s production target and in turn leads to poor delivery performance as due dates to the customers cannot be met This causes customer dissatisfaction resulting in the reduced market share and decreased profitability As the customer is an important entity in the supply chain, the above issue is of serious concern

10 Similarly due to wastes reflected in inventory at various levels of the supply chain, a large amount of money is blocked in working capital to goods inventory This also results in weakening the financial strength of the company, there by reducing the profitability Thus, the above cycle continues and the only way out for companies trapped in this vicious circle is to formulate and implement strategies for total minimization of wastes occurring in different forms, either in input, processes or outputs

11 The extended supply chain The ultimate objective of extending the traditional supply chain is to allow consideration of total immediate and eventual environmental effects of all products and processes: product & process stewardship The stewardship concept is based on the recognition that the environmental effects of an organization include the environmental impacts of goods and processes from the extraction of raw materials, to the use of goods produced, to the final disposal of those goods

12 Integrating environmental objectives within operational objectives Reduced product life cycle costs and increased profitability, results in avoidance of the following costs -purchasing hazardous materials as inputs, which reflect the internalized costs associated with environmental harm -storing, managing, and disposing process waste, particularly as waste disposal becomes increasingly expensive - market resistance to environmentally harmful products -public and regulatory hostility towards environmentally harmful organizations Reduced environmental and health risks, Reduced liability risks, Safer, cleaner industries

13 The fully integrated, extended supply chain contains all the elements of the traditional supply chain and extends the one-way chain to construct a semi-closed loop that includes product and packaging recycling, re-use, and/or remanufacturing operations

14

15 Strategies for Green Supply Chain 1. Use of Information Technology - Electronic Data Interchange: customers, suppliers, & departments can share & transmit information in real time - Lowers inventory, real time paper less transfer of information - Execute more efficient production & shipping schedules

16 Strategies for Green Supply Chain 2. Reverse Flow Logistics: material purchase & its impact, Recycling - Reuse: reuse of products/containers /packaging material - Renovise: Renovising the product; vending machine, computers, telephone Recycle: both products and packaging RFL requires serious management attention: developing a logistic network, establishing distinct inventory management & measuring impacts across the entire chain

17 Strategies for Green Supply Chain 2. Reduce material use: opportunities to reduce waste- excess trim waste in paper production, steel & aluminium, excess use of solvents to clean machines, discarding of partially used containers of materials - Increasing energy efficiency will considerably reduce waste

18 Strategies for Green Supply Chain 3. Waste Management - Waste I: The resource which can be used as an input to the system may lead to some wastage (faulty raw material) - Waste II: The resource is transported to point of use & stored till used (waste in electrical/heat energy) - Waste III: During the actual process, the inputs that are not converted to outputs, lead to certain amount of wastage (process rejection, loss of important data) - Waste IV: The product/service which is ready and is transported to & stored at the point of use, can lead to some wastage (deterioration of products due to limited shelf life, handling damages)

19 Waste Management Waste Reduction Waste Control Waste Avoidance Waste Prevention First two strategies: corrective initiatives based on proactive & reactive mode Last two: preventive strategies, thus eliminating waste

20 Classification Resource use Product recovery Remanufacturing Reuse Recycling Product characteristics Waste emissions Economic Performance measure Total energy consumed, Total material consumed Time required for product recovery Percentage recyclable/reusable materials available at the end of product life Percent product volume or weight recovered & reused Purity of recyclable materials recovered, Percent recycled material used as input to manufacturing, Percent product disposed or incinerated, Fraction of packaging or containers recycled, Material recovery rate, Ratio of virgin to recycled resource, Ratio of materials recycled to materials potentially recyclable, Materials productivity: economic output per unit of material input Useful product operating life, Total mass of product produced Total toxic or hazardous materials used/generated, Solid waste generated, Percent product disposed in landfills, Concentrations of hazardous materials in products & byproducts, Waste ratio: The ratio of waste to all outputs Av. Life-cycle cost incurred by the manufacturer, Purchase and operating cost incurred by the consumer, Av. total lifecycle cost savings associated with design improvements

21 Importance of GSCM The supply chain creates one of the biggest carbon footprints through the production, storage and transportation of goods Executives are subsequently being forced to examine and review their approaches and respond accordingly with pressures to reduce the carbon footprint within the supply chain coming from both internal and external sources Indeed, more and more consumers are willing to pay a higher price for greener more sustainable products while supply chain partners and even shareholders and employees are increasingly demanding more environmentally friendly supply chains Companies are moving beyond thinking about a green supply chain and are setting specific goals and investing in initiatives to improve supply chain operations with a more eco-conscious approach

22 Examples from Corporate world Dell saves over $20mn annually as a result of supply chain and packaging improvements McDonald's reduced the weight, volume, and environmental impact of its packaging materials and explores new packaging alternatives Texas Instruments: Saves $8 million each year by reducing its transit packaging budget for its semiconductor business through source reduction, recycling, and use of reusable packaging systems Dow Corning: Saved $2.3 million by using reconditioned steel drums in It also conserved 7.8 million pounds of steel

23 Case studies: Wal-Mart Wal-Mart has undergone many growth stages since Sam Walton first decided to be the best retailer in the world Lee Scott took over as President & CEO in 2000 to steer Wal-Mart towards sustainability: to strengthen SCM process by going green To become most competitive & innovative company in the world TT

24 Ambitious Goals Be supplied 100 percent by renewable energy in the very near future Create zero waste Sell products that sustain Wal-Mart s resources and the environment

25 Other Goals Increase fuel efficiency in Wal-Mart s truck fleet by 25 percent over three years and doubling it within 10 years Reduce greenhouse gases by 20 percent in 7 years Reduce energy use at stores by 30 percent in 7 years Cut solid waste from U.S. stores and Sam s Clubs by 25 percent in three years. 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 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.

26 Achievements Lee Scott stated in 2007: Tangible profits generated by Wal-Mart's sustainability strategy in the first year of implementation were roughly equivalent to the profits from several Wal-Mart Supercenters Intangible benefits, such as public goodwill and improved assurance of supply, are worth much more to the retailer than the profits generated in the first year of implementation

27 Packaging Scorecard: Wal-Mart One of the most famous companies mandating packaging changes is Wal-Mart. The company s Packaging Scorecard is a measurement tool that allows suppliers to evaluate their packaging against all the other packaging in a product segment Scores are calculated based on the following weights: 15% for greenhouse gas/carbon dioxide generation per ton of production; 15% for material value; 15% for product /package ratio; 15% for container cube utilization; 10% for transportation; 10% for recycled content; 10% for recovery value; 5% for renewable energy; and 5% for innovation

28 Renewable Innovation, 5 Energy, 5 Recovery value, 10 GHG/CO2, 15 Recycled Content, 10 Transportation, 10 Cube Utilization, 15 Material Value, 15 Prod/Pck Ratio, 15

29 Conclusions Green initiatives, if properly managed, can enable organizations to be responsible corporate citizens and also deliver higher profitability and competitive advantage more organizations are realizing that the benefits that come from sustainable business practices can boost the bottom line well beyond short-term results, which is the essence of sustainability

30 Conclusions By focusing on an appropriate set of these sources of competitive advantage, a company can use environmentally beneficial strategies selectively to become more competitive over the long run More organizations are realizing that the benefits that come from sustainable business practices can boost the bottom line well beyond short-term results, which is the essence of sustainability

31 Thank You

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