LINKING GREEN SUPPLY CHAIN AND GREEN PROCUREMENT in. Abstract

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1 LINKING GREEN SUPPLY CHAIN AND GREEN PROCUREMENT in Hiroyuki SATO Secretary General, Green Purchasing Network (GPN) Jingumae, Shibuya-ku, Tokyo, Japan (Postal code: ) Tel: Facsimile: Abstract Green purchasing is the most effective driving force for businesses to promote the development of environmentally conscious products and services and to make green supply chain. In Japan, since the Green Purchasing Network (GPN) was established in 1996, the green purchasing movement has been greatly promoted among enterprises and governmental organizations. The Law on Promoting Green Purchasing enforced in 2001 has accelerated the establishment of the movement. As a result, the sales of environmentally conscious products have grown drastically over the past couple of years. This kind of movement should be promoted globally with international collaboration. Greening supply chain by green purchasing In the current free market system, the demand side has the most influential power on the supply side. If large purchasers demand environmental quality and environmentally sound management of suppliers as well as high quality, low cost, and short delivery time of goods and services, suppliers have to change their policies and behavior because they do not want to lose business opportunities. Green purchasing is therefore an effective market-oriented tool utilized by the demand side to promote the development of environmentally conscious products and services, and to make the supply chain green. It is also an effective measure to reduce energy consumption at the production stage and as well as to minimize waste generation at the disposal stage. As a means of supporting the development of environmentally conscious products, all purchasers should be encouraged to buy environmentally conscious products. As green purchasing proliferates and environmentally conscious products sell well in the market, producers will rush to develop and sell green products. This will accelerate environmentally conscious management as a matter of course. Buyers can be classified into the following two categories: individual consumers and institutional purchasers such as enterprises and governmental bodies. The latter can decide the 1

2 purchasing policy for special purposes and with special knowledge, and so they can implement green purchasing more easily than the former. Necessity of initiatives by the public sector In order to promote green purchasing activities and to make supply chain green, it is indispensable for the public sectors to take initiatives on implementing green purchasing at the initial stage because of the following reasons. First of all, governmental institutions are very large purchasers and have significant impacts on the market. According to some statistics, there is a data to show that purchases from the public institutions occupy about 20 % of the market in Japan. The fact that some green products are purchased by the public institutions helps to improve reliability of the products because of the size of their purchases. This bargaining power definitely promotes the development of suppliers green products. Secondly, by creating the critical amount of initial demand, public sectors can bring down the cost of green products that happen to be more expensive than conventional ones. This often removes the barrier of cost and promotes green purchasing by the private sector and consumers. Thirdly, there is an important role of local governments to expand availability of green products in local areas. For example, in the case of recycled paper, when are not sorted by local distributors or printing companies on regular basis, the cost can be higher and delivery time can be longer than when buying it at a spot. If local governments establish a policy to purchase recycled paper continuously, the local suppliers would plan for and supply the products on a regular basis and be able to have the products in stock. This also means that it would make it easier for private enterprises to purchase recycled paper. Finally, all governmental organizations are now expected to green themselves and to adopt in-house environmental management systems. In Japan about 400 governmental organizations have obtained certifications of ISO It is now indispensable for every staff member to have an environmental education and raise environmental awareness. Purchasing green products for the daily use such as office supplies, office automation equipments, computers and vehicles greatly contribute to staff s awareness improvement. Green Purchasing Network (GPN) and its leading roles In February 1996, by an initiative of the Environmental Agency of Japan, the Green Purchasing Network (GPN) was established to promote green purchasing among businesses, governmental organizations and individual consumers in Japan. The mission of the GPN is to spread the concept of green purchasing, and to provide guidelines and information necessary 2

3 for practicing green purchasing. Since then the GPN has taken a leading role to promote green purchasing in Japan. As of November 2002, it has more than 2,700 member organizations, including more than 2,000 enterprises, local governments, consumer groups, environmental NGOs, and cooperative associations. This organization is unique in having such a lot of participants from the various kinds of social sectors. The GPN is an independent non-profit organization. It is managed by an Executive Committee which consists of 35 members elected from the members of GPN, such as NEC, IBM Japan, Nippon Steel, Fuji Xerox, Matsushita Electric Industrial, Shiga prefecture, Sendai city, Nagoya city, WWF Japan and Japan Co-op Union. Its annual budget is total of about 700,000 USD, of which 50% comes from membership fees, 40% from project income and 10% from subsidies. The secretariat has six full time staff and four part time staff. GPN has been promoting the importance of the ideas and good practices of green purchasing by holding seminars throughout the country. More than 10,000 people have taken part in the seminars so far. In order to encourage excellence in the activities, we award commendations such as the Green Purchasing Award to organizations that have shown remarkable performance in implementing green purchasing. Through these we are spreading the concept of green purchasing and also introducing the success stories of the pioneers. In the past, corporations and organizations such Seiko Epson, NEC, Fuji Xerox, Sony, Matsushita Electric Industrial, Tokyo Gas, Cannon, Shiga Bank, Sendai city, Government of Shiga, Mie, and Kanagawa, and Sendai City received the green purchasing awards of GPN. Principles of Green Purchasing Soon after GPN was launched, it enacted the Principles of Green Purchasing which establishes the basic concept of green purchasing. The principles are actually adopted and used as the basis of green purchasing policies by many of GPN member companies and government bodies. The Principles have been revised in 2001, and now consist of 4 general principles. Principle 1: Deliberate the necessity before purchasing Principle 2: Consider the environmental impact of a product at all stages of its life cycle Principle 3: Assess suppliers environmental management and activities Principle 4: Gather environmental information on products and suppliers Principle 2 suggests that purchasers select products based on their environmental load from processing of raw materials to its ultimate disposal, while the principle 3 suggests that 3

4 purchasers look for suppliers that adopt environmental policies, have environmental management systems, are engaged in various environmental activities, and disclose environmental information. GPN s Purchasing Guidelines and Products Data Base Purchasing Guidelines GPN has also been drawing up product-specific Purchasing Guidelines, based on the general Principles listed above. So far the following Guidelines were completed, which recently have been expanded to service sectors. Last December we have finalized the Guidelines for Offset Printing Service, and are going to complete guidelines for Hotels and Lodges this December. Copying and printing paper Copiers, printers, facsimile machines Personal computers Stationery and office supplies Office furniture Toilet and tissue paper Lighting apparatus and lamps Motorcars Refrigerators Washing machines Air conditioners TV sets Uniform and working wear Offset printing service When starting to make these Guidelines, we recruited Task Group (TG) members to involve all interested stakeholders in the consensus building process. The purchasing guidelines list the important matters that should be taken into consideration when making purchases, and encourage buyers to select products with less environmental impact. For instance, the guidelines for "Copying machines" addresses energy consumption, two-sided copy functions, collection and recycling of used products and cartridges, the use of reusable parts and recycled materials, and avoiding the use of halogenated substances and heavy metals. Data Base and Data Book The GPN have been building product environmental information data base called "GPN Data Base for Green Purchasing", which provides purchasers with quantitative and qualitative environmental information on each product in accordance with the Purchasing Guidelines. This data base covers most major products of its kind in the current Japanese market which can be seen on the website. Now we have more than 9,000 products data on our data base, and we update them 4 times per year, while publishing data books twice a year. According to our information from relevant producers, GPN guidelines and Data Base has influenced the industries considerably. Many purchasers use our guidelines and data books for their decision making. Companies are compared with their competitors products from an 4

5 environmental point of view by a third-party organization. Guideline and Data Base on suppliers Recently the GPN Executive Committee decided to start to formulate a guideline on selecting suppliers of all kinds of goods and services, which are to be based on the Principle 3 mentioned above. The guideline is a checklist to suppliers regarding environmental management system (including ISO14001), activities on energy consumption, pollution prevention, reduction of chemical substances, green purchasing, avoidance of waste generation and recycling and information disclosure. Based on the expected guideline, we are considering launching a website data based on suppliers of all types of businesses including parts and material suppliers. This can be a clearinghouse for purchasers to get information on suppliers and select environmentally conscious companies. The Law on Promoting Green Purchasing Led by GPN and hundreds of pioneers initiatives among industry and local government, green purchasing became one of major environmental activities for businesses and public sectors. In order to enhance this movement, the Law on Promoting Green Purchasing was enacted in May 2000 by the central government and enforced in April This law obligates all of the government ministries and agencies to implement green purchasing policies. Each government organization must draw up and release its procurement policy including procurement targets every fiscal year, and based on that they shall practice green purchasing. They are required to report the procurement achievements to the Environmental Minister. In addition, all the local authorities across the country were required to demonstrate efforts to implement green purchasing. They are asked to make an effort to draw up green procurement policies every year and practicing the green purchasing activities based on the national regulation. The State Government adopts a basic policy at a Cabinet meeting under the enacted law every year including Designated procurement items with the criteria that have enormous impacts on the market. It is because all of the ministries and national institutions are obligated to implement green purchasing for the designated procurement items. When enforced the law in 2001, 101 items of following 14 categories were specified as designated procurement goods: Copying and printing paper, Stationery and office supplies, office furniture, electric appliance, office automation equipment, lighting apparatus and lamps, motorcars, uniforms and work wear, interior and building material of public projects. The 5

6 criteria of the items are mostly based on the Eco Mark criteria, GPN guidelines, and existing governmental regulations. This year (2002) the number of the items has increased to 152 with the extra building material and office supplies and some added services. Because of the enactment of this law, every national organization started to implement green purchasing almost all at once. The movement was also expanded to the local governments by the law. When GPN conducted a survey last fall, 18 % of local governments answered started green purchasing activities under the influence of the law. In addition, many of the municipalities that had already been practicing green purchasing expanded their activities based on national designated procurement items. Taking the lead of the national government, it became easier for local governments to implement green purchasing policies. It can be said that the green purchasing policy and practice became firmly established in the Japanese society because of the law. Current status of green purchasing activities and their market impact Annually GPN conducts a survey on green purchasing activities among industries and governments. This year we received answers from 802 companies and 508 governmental organizations, most of which are local governments. According to the findings, 92% of the respondents replied as practicing green purchasing. 51% of the responding companies answered as having written policies on green purchasing. 69% of listed companies at stock exchange have written polices, while 59% of the governmental organization have similar replies. The survey shows that most advanced areas are paper, office supplies, copiers and printers, computers, of which more than 50% of respondents systematically implement green purchasing. This is followed by office furniture, uniform and working wear, motorcars, and lightings. Regarding purchase of parts and materials, 36% of the companies (48% of listed companies) adopt green purchasing policies. The survey also showed that 52% of purchasers consider suppliers environmental managements and performances, while only 18% of governmental institutions do so. They primarily consider ISO14001 certification, other environmental management systems, and green purchasing initiatives of their suppliers. In the survey conducted last year we asked suppliers about current trends of sales of environmentally conscious products. 74% of the respondents indicated that sales of green products increased in the past couple of years in most enterprises such as office supplies, packaging, parts and materials, uniform and working wears, paper, motorcars, electric home appliances, and so on. Furthermore, in response to the market needs, 75% of the supply 6

7 companies have increased the numbers of their green products brands. It is obvious that expanding the green purchasing has had a great impact on manufacturers and distributors. Now, enterprises can no longer develop products without considering the movement of green purchasing in the Japanese market. Conclusion In conclusion, I would like to mention the necessity of international partnership in this field. Considering the increasing globalization in the market, it is vital to expand the green market on a global basis in collaboration with each other. Therefore it is important to share past experiences and information globally, stimulate and improve one another and to support the countries starting green purchasing now. Moreover, I believe the collaborative approach should be essential for products and materials usually traded internationally. In concrete terms, it must be effective in harmonizing purchasing criteria or guidelines, and to build a global database on products and materials. GPN is ready to support to establish organizations promoting green purchasing in Asian countries, to cooperate with any domestic and international organizations to promote it worldwide and as a result, create an international green purchasing network. 7