Making the Business Case for Environmentally Responsible Supply Chain Management Diane A. Mollenkopf Associate Professor of Logistics University of Tennessee February 19, 2009
Being Green.Corporate Citizenship Many terms to describe green Stakeholder Theory Corporate Accountability Corporate Social Responsibility Sustainability (Sustainable Development)
Should Your Supply Chain Go Green? Are environmental strategies appropriate for your business and supply chain?
Should Your Supply Chain Go Green? Are environmental strategies appropriate for your business and supply chain? Increasingly, the answer is YES
Should Your Supply Chain Go Green? Are environmental strategies appropriate for your business and supply chain? Green and profits are not either/or options Increasingly, the answer is YES
Should Your Supply Chain Go Green? Are environmental strategies appropriate for your business and supply chain? Green and profits are not either/or options Increasingly, the answer is YES How can you still be profitable? How do you create an environmentally sustainable supply chain?
New Challenges Arising Economic Crisis A New Regulatory Era E-waste take-back laws (yellow = pending in 2009)
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
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
Creating a Sustainable SC Competitive Environment Upstream Suppliers Market Environment Product Development and Stewardship Internal Operations Regulatory Environment Downstream Customers Internal Environment
Creating a Sustainable SC Product Development and Stewardship Design for Environment Lifecycle analysis Packaging Minimization Product reacquisition and disposal (cradle to grave)
Creating a Sustainable SC Product Development and Stewardship Downstream Customers Upstream Suppliers Customer/Supplier requirements Code of conduct Traceability and chain of command/ custody Returns management/ policies
Creating a Sustainable SC Product Development and Stewardship Downstream Customers Upstream Suppliers Internal Operations Transformation Logistics (transport, facilities mgmt, warehousing Scrap &packaging recovery, recycling Reverse logistics Remanufacturing
Assessing Value of Green Initiatives Sales ROA Net Profit Margin Asset Turnover Net Profit Sales Total Assets Gross Margin Total Expenses Current Assets Fixed Assets COGS Variable Expenses Fixed Expenses Inventory A/R Other Curr. Assets
Assessing Value of Green Initiatives Sales ROA Net Profit Margin Asset Turnover Net Profit Sales Total Assets Gross Margin Total Expenses Current Assets Fixed Assets COGS Variable Expenses Fixed Expenses Inventory A/R Other Curr. Assets
Understanding Tradeoffs Consider TOTAL COSTS/REVENUE streams Total cost vs environmental impact Timeframe short term vs long term? Source: EPA website
Understanding Tradeoffs Consider TOTAL COSTS/REVENUE streams Total cost vs environmental impact Timeframe short term vs long term? Source green? Local? Offshore? High cost upfront, but are there downstream payoffs? Less waste? Reduced carbon footprint? Market for green products?
Understanding Tradeoffs Consider TOTAL COSTS/REVENUE streams Total cost vs environmental impact Timeframe short term vs long term? Optimize Distribution Network? Cost? Service? Carbon Footprint?
Understanding Tradeoffs Consider TOTAL COSTS/REVENUE streams Total cost vs environmental impact Timeframe short term vs long term? Life cycle management End of use End of life Many products have multiple lives
Some Examples of Value Creation Through Sustainability Company: Computer Mfr Revenue enhancement Goodwill equity Reduced COGS and/or operating expenses Improved Asset turnover
Some Examples of Value Creation Through Sustainability Company: Computer Mfr Focus on Asset Recovery 2nd channel sales Reduced COGS Revenue enhancement Goodwill equity Reduced COGS and/or operating expenses Improved Asset turnover Reduced procurement costs through reuse of parts Reduced cost of service parts and last-time buys Environmental behavior enhances brand equity
Some Examples of Value Creation Through Sustainability Company: Carpet Mfr Revenue enhancement Goodwill equity Reduced COGS and/or operating expenses Improved Asset turnover
Some Examples of Value Creation Through Sustainability Company: Carpet Mfr Revenue enhancement Goodwill equity Reduced COGS and/or operating expenses Focus on Carpet Recycling Improved Asset turnover Recycling = basis of competitive advantage (End-of-life is part of value offering). 2nd channel sales for recycled product Strong involvement in industry leadership regarding sustainability.
Some Examples of Value Creation Through Sustainability Company: Book Publisher Revenue enhancement Goodwill equity Reduced COGS and/or operating expenses Improved Asset turnover
Some Examples of Value Creation Through Sustainability Company: Book Publisher Redesigned supply chain to better integrate demand & supply Revenue enhancement Goodwill equity Reduced COGS and/or operating expenses Improved Asset turnover Reduced returns, reduced waste, improved profits Improved relationships with major customers
Some Examples of Value Creation Through Sustainability Company: Appliance Mfr Revenue enhancement Goodwill equity Reduced COGS and/or operating expenses Improved Asset turnover
Some Examples of Value Creation Through Sustainability Company: Appliance Mfr Sell right, not more to better integrate demand and supply Revenue enhancement Goodwill equity Reduced COGS and/or operating expenses Improved Asset turnover Avoiding unnecessary returns Improving collaborative relationship with key customers
Conclusions Environmental objectives and economic objectives are interdependent You may already being doing green things.learn to think differently! Integration is key operational & strategic Environmental sustainability is a journey