Green Supply Chains: An Action Manifesto

By Stuart Emmett and Vivek Sood

Stuart Emmett and Vivek Sood's book provides a clear strategic overview and actionable plan for the implementation of green supply chains. For anyone grappling with the elements required to change an organization's supply chain strategy in a 'green' direction, this book is a must read.

"Having worked with Stuart Emmett on other ground breaking books, I can empathically say that this book written with Vivek Sood is another one in the same mould. This enjoyable book not only covers a topic that is critically relevant for every individual, but also provides a practical road map for a green supply chain strategy. Strongly recommended, it is a book of it time."
—Barry Crocker, Author and MSC Program Leader, University of Salford

"After co-creating the supply chain management methodology in 1979, I have remained at the forefront of this field for the last 30 years by continually pushing the boundaries of thoughts and applications in Supply Chain Management. But, during all this time, nothing has excited me as much as our current endeavor on Green Supply Chains. It is the need of the moment, resonating in all directions. What is more important, it makes perfect commercial sense. This book by Vivek Sood and Stuart Emmett is a big step in furthering that discussion. It should be on the bookshelf of every progressive manager."
—Dr Wolfgang Partsch, Global Supply Chain Group, Munich, Germany

"…As supply chains have become more visible to people around the world, and at the same time more global, questions about their impact on the environment and global sustainability have increased. People who care about our Planet often wonder what are the adverse impacts of transporting goods thousands of miles...goods that are often produced in manufacturing plants that are not environmentally friendly...and then packaged in what becomes waste. So, companies and governments worldwide have begun to address the questions. The authors have addressed the questions in an insightful manner. They have analyzed the supply chain processes, presented new ideas, and have backed these up with solid case examples from leading companies. The book is a must read for anyone who manages a supply chain, cares about the environment, and seeks actionable ideas for 'going green'."
—Gene Tyndall, Executive Vice President, Global Tompkins International

"This book treats the 'Next Generation' Supply Chain in a phenomenal way. It is an emerging topic, a paradigm shifting approach for companies on their radical cost saving waves, and an absolutely necessary component of the sustainability for our Planet."
—Ahmet Yalçın Managing Partner at Stars of Europeand Chairman of the Board of the German Solar Energy company Green Enesys Group

• Language: English
• Publisher: Wiley
• Release date: Mar 16, 2010
• ISBN: 9780470662335

Book preview

PART 1

Introduction

1

Introduction to Green Supply Chains

Arguably, since the wide recognition of Supply Chain Management (SCM) in the late seventies, nothing in SCM has captured the imagination of the public, corporate management, and policy makers as much as the recent concept of Green Supply Chains. This is driven by a multitude of reasons which appeal to all these constituencies in different ways.

Green Supply Chain Management (GSCM) has emerged as a key approach for enterprises seeking to make their businesses environmentally sustainable. The notion of GSCM implies the insertion of environmental criteria within the decision-making context of the traditional supply chain management.

At our current place in history, Green Supply Chain Management has become a key strategic issue for organizations of all sizes and types rather than just a talking point for idealists and hobbyist do-gooders. For example, the idea of Corporate Social Responsibility (CSR) is now fully incorporated in many legal and ethical frameworks governing how organizations function within society. Society now fully expects organizations to be responsible for all direct and indirect impacts of their actions, and those of their suppliers, employees, directors, and even customers.

For the CEOs, the boards, and the senior executive teams, Green Supply Chain Management offers a systematic way to comprehensively manage their entire business in a manner that meets their CSR obligations and profitability targets.

Demographics, information explosion, and past environmental degradation are creating organizational pressures and market opportunities for more and more Green products and services. Public activism is forcing policy makers and organizations to accept that sustainability is more than just a buzzword. Key decision makers in organizations are now expected to consider the social and environmental impacts of their current activities. Indeed, the more strategic the view of environment-related CSR activities is within a supply chain, the more benefit to the organization. Environmental considerations are now key centre points of the decision-making process rather than an unpalatable afterthought to the decision.

Our Green Supply Chain Planning framework also introduces a systematic way to win in this new game of putting environmental considerations in the centre of decision making, whilst still being the most profitable.

Green Supply Chain Management will therefore fully integrate environmental considerations into traditional supply chain management. This covers all aspects of supply chain management including product design, procurement, sourcing and supplier selection, manufacturing and production processes, logistics and the delivery of the final product to the consumers, along with the end-of-life management of the product. Therefore the total or the end-to-end supply chain can be covered (for example see Part 8, Case Study 1 that shows how this has been tackled by one organization).

Green Supply Chains therefore address four interrelated areas of the supply chains: upstream, downstream, within the organization, and the connecting logistics process:

• Upstream activities of a manufacturing product organization include the Green Design, Green Procurement, and evaluation of suppliers’ environmental performance.

• Downstream activities usually comprise those activities related to the usage of the products till it is finally consumed. This includes any recovery and recycling opportunities after it has provided its utility and also the disposal and sale of excess stocks.

• Within the organization, Green Supply Chain Management includes those activities related to Green Design, Green Packaging, and Green Production.

• In logistics, activities such as just-in-time, fulfillment, lot size management, and quality management all have clear connections to environmental criteria.

As consumers have become more aware of environmental issues, such as global warming, they have now started asking questions about the products they are purchasing. Nowadays, organizations routinely face queries about how Green their manufacturing processes and supply chain are, how wide the carbon footprint is, how wasteful their packaging is, and how they will recycle.

Some organizations have been able to convert the public’s interest in Green issues into increased profits. A number of projects within organizations have shown that there is a clear link between improved environmental performance and financial gains. Organizations that have looked to their supply chain have discovered areas where operational and environmental improvements can produce profits.

For example, General Motors was reported to reduce disposal costs by $12 million by establishing a reusable container programme with their suppliers. While the motivation for this project may have been a desire to reduce costs, GM found that the environmental cleanup that resulted was actually a very marketable message for the public and policy makers.

Numerous such projects remain deeply buried in many organizations despite their best intentions and attempts to flush them to the surface. A systematic approach is therefore very clearly required.

Similarly, cost savings can also result from reducing the environmental impact of the organization’s processes. By re-evaluating the organization’s supply chain, from purchasing, planning, and managing the flow of materials through the entire supply chain, savings are often additionally identified as a benefit of implementing Green policies.

Despite the public’s focus on the environment, benefits attributed to reducing an organization’s environmental impact are not in the forefront of many supply chain executives’ minds. It appears that many executives are still unaware that improved environmental performance means lower waste disposal, lower training costs, and often, reduced materials costs. For this reason Green Supply Chain Management is a cause for the boards and the CEOs, as well as the senior executive teams of organizations.

1.1 Benefits of Green Supply Chains

Organizations can enjoy several benefits by greening their supply chain and the following are some of the key benefits.

1.1.1 Positive Impact on Financial Performance

Despite ample evidence to the contrary, there persists a myth that going Green involves additional expense. Some of the factors responsible for persistence of this myth are inertia, the lack of a systematic approach, and an unwillingness to engage in sustained and changed thinking that is necessary to create a Green Supply Chain.

However, the most fundamental benefit of Green Supply Chains is a positive long-term net impact on the financial performance of the organization. This has been proven by both analysis and empirical evidence.

1.1.2 Sustainability of Resources

Green Supply Chains sponsor the effective utilization of all of the available productive resources of organizations. By incorporating Green Supply Chain Management thinking through their entire business decision-making process, organizations may now purchase Green input resources that will flow through an environmentally friendly production process to produce the desired Green outputs.

1.1.3 Lowered Costs/Increased Efficiency

At the core of Green Supply Chain Management is the principle of reducing waste by increasing efficiencies. Effective management of resources and suppliers can reduce production costs, promote recycling and also the reuse of raw materials. Also, the production of hazardous substances can be reduced, thereby preventing organizations from being fined as a result of violating environmental regulations.

Consequently, the relevant operational costs are reduced whilst the efficiency of using resources is improved.

1.1.4 Product Differentiation and Competitive Advantage

It helps an organization to position itself and its products as environmentally friendly in the customers’ perception. Besides attracting new profitable customers for organizations, it will give a competitive edge in the market place. It will also strengthen the brand image and reputation in the market place.

1.1.5 Adapting to Regulation and Reducing Risk

Organizations adopting Green Supply Chain practices can reduce the risk of being prosecuted for anti-environmental and unethical practices. A demonstrated effort towards creating an effective Green Supply Chain through the sustained dedication of resources, activity, measurement, and management protocol will be highly regarded in the event that any questions arise.

1.1.6 Improved Quality and Products

Organizations that produce products which are technologically advanced and environmentally friendly will find that this will enhance the brand image and brand reputation in customers’ minds.

Besides the above six benefits, there are additional advantages that can be generated by GSCM:

• effective management of suppliers;

• dissemination of technology, advanced techniques, capital, and knowledge among the supply chain partners;

• transparency of the supply chain;

• large investments and risks are shared among partners in the supply chain;

• better control of product safety and quality; increased sales and revenue;

• beneficial uses for waste.

Benefits of Green Supply Chain are further described in Table 1.1.

Table 1.1: Benefits of Green Supply Chains

1.2 Traditional and Green Supply Chains

In a traditional supply chain, the flow of materials and information is linear and from one end to the other. There is a limited collaboration and visibility. Each supply chain partner has limited information regarding, for example, the carbon footprint and greenhouse gas emission of the other partners. Hence, each player may be concerned about his own footprint and may try to reduce this, irrespective of the impact on upstream and downstream supply chain. There may be some focus on end-to-end supply chain costs but due to limitations of information sharing, the costs are far from optimized in most cases.

An example follows in Figure 1.1.

In contrast, Green Supply Chains consider the environmental effects of all processes of supply chain from the extraction of raw materials to the final disposal of goods. Within the Green Supply Chain (see Figure 1.2), each player motivates other players to go Green and provides the necessary information, support, and guidance, for example, through suppliers’ development programmes or customer support. Environment objectives and performance measurement are then integrated with financial and operational objectives.

With this integration, the Green Supply Chains then will strive to achieve what any individual organization on its own could not possibly achieve: minimized waste, minimized environmental impact while assuring maximized consumer satisfaction, and healthy profits.

Figure 1.1: Traditional supply chain

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Figure 1.2: Green Supply Chains

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Some of the key differentiators of Green Supply Chains are:

• The top management commitment to a culture of continuous improvement and the ongoing collaborative innovation towards Greener supply chains.

• Allowing all of the supply chain partners a role in creating specifications, options, and examining alternatives during the product design phase itself.

• The efficient use of technology to capture data, run scenarios, communicate information, and to make decisions.

• The removing and getting out of a traditional strategic stage gate sourcing mentality that creates rigid parameters on information dissemination, collection, and analysis.

• Making sustainability a cost issue, as well as a CSR issue.

1.3 Green Supply Chains and Corporate Social Responsibility (CSR)

One of the best definitions of Corporate Social Responsibility is perhaps provided by Archbishop Desmond Tutu’s The Benchmark Foundation. It states:

Corporate Social Responsibility (CSR) is the decision-making and implementation process that guides all company activities in the protection and promotion of international human rights, labor and environmental standards and compliance with legal requirements within its operations and in its relations to the societies and communities where it operates. CSR involves a commitment to contribute to the economic, environmental and social sustainability of communities through the on-going engagement of stakeholders, the active participation of communities impacted by company activities and the public reporting of company policies and performance in the economic, environmental and social arenas.

There is a strong connection between Corporate Social Responsibility and Green Supply Chains. One of the most effective tools to achieve Green transformations in the corporate world is Green Supply Chain Management. It focuses on sustainable design that increases environmental and social awareness across the supply chain. Sustainable design involves re-engineering of design processes to meet current and future human needs without compromising the environment. The basic objectives of sustainability are to reduce consumption of non-renewable resources, minimize waste and create healthy, productive environments through:

• using fewer materials; avoiding toxic substances and choosing renewable or recyclable substances; designing for disassembly;

• minimizing energy use, moving to the use of renewable energy, and extracting energy from waste in some cases;

• keeping a product or its parts or materials in productive use for their optimal lifespan, so slowing or preventing the linear flow of materials from extraction and processing to disposal.

Despite an area of significant overlap, GSCM is however not a subset of CSR. While CSR focuses on areas under the direct control of a particular organization, Green Supply Chain thinking goes beyond that to recognize that in today’s corporate world, the area of influence of an organization persists far beyond its boundaries. Hence GSCM calls on all partners of a particular supply chain to collaborate to create an end-to-end Green Supply Chain to assure a sustainable and prosperous future.

1.4 Drivers of Green Supply Chain

There are five types of environmental stakeholder group who drive Green initiatives within an organization (see Figure 1.3):

1. Regulatory stakeholders, who either set regulations or have the ability to convince governments to set standards.

2. Consumers, who seek emotional resonance alongside the cost and convenience factors of where and when they buy a particular product.

3. Organizational stakeholders, who are directly related to an organization and can have a direct financial impact on the organization.

4. Community groups, environmental organizations, and all those other potential lobbies, who can mobilize public opinion in favour of, or against, an organization’s environmental policies.

5. Media, who have the ability to influence society’s perceptions.

Based on the roles of each player in the supply chain there are different incentives to migrate towards Green Supply Chains and briefly these are as follows:

• Factors that drive manufacturers towards Green Design and Green Production include:

• Legislation

• Corporate customer requirements

Figure 1.3: Drivers of Green Supply Chain

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• Competitor standards

• Voluntary agreements

• Maximizing product understandings

• Environmental drivers of suppliers include:

• Customers requirements

• Consumers

• Legislation

• Consumer organizations and NGOs

• Logistics providers are implementing Green practices due to government regulations and customer expectations and agreements.

1.5 Green Supply Chain Framework

At this stage, we introduce our Green Supply Chain Framework which forms the foundation of our action manifesto towards Green Supply Chains and will be used throughout this book

This framework broadly divides the movement towards Green Supply Chains into the following seven key areas of interest:

• Green Supply Chain Planning

• Green Procurement and Sourcing

• Green Supply Chain Execution

• Carbon Management

• Green Supply Chain Migration Strategy

• Green Supply Chain Continual Improvement

• Green Supply Chain Performance Evaluation.

This book will be organized around these key areas:

• Green Supply Chain Planning is covered in Chapter 3.

• Green Procurement and Sourcing are covered in Chapter 4.

• Green Supply Chain Execution is covered in Chapters 5 to 9.

• Chapter 10 covers Carbon Management.

• Chapter 11 covers Migration Strategy and our implementation blueprint.

• Chapter 12 covers Continuous Improvement.

• Finally, Chapter 13 covers Green Performance Evaluation.

Figure 1.4: Green Supply Chain Framework

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The simplified framework in Figure 1.4 is based on the detailed framework explaining each of the parameters and processes of Green Supply Chains which is reproduced above. This detailed framework summarizes various processes of Green Supply Chains and provides an overview of the migration strategy and continuous improvement. This can serve as a roadmap and a guide in readers’ journey towards Green Supply Chains (see Figure 1.5).

Figure 1.5: Green Supply Chain — Detailed Roadmap

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2

Impact on Bottom Line through Green Supply Chains

It’s a common belief among many organizations that moving towards environmentally friendly practices can have a negative impact on an organization’s bottom line. Commonly, in forums, workshops, and conferences we are asked the question ‘Would customers pay the extra costs associated with going Green?’ However, the analysis we have conducted shows that efficient and effective implementation of Green practices can have a significant positive impact on the bottom line profits. This applies to most organizations, in most industries, irrespective of size or location. (For our methodology on this analysis please see the Appendix at the end of this chapter.)

It often surprises people to consider the possibility of there being a positive increase in profits. However, as enumerated in several case studies in this book, many have found profitability gains. This has also been revealed when we have worked with many organizations that had taken steps towards having Green Supply Chains. Our modelling across a wide cross-section of industries and countries gives consistent estimates of an overall net positive impact on the bottom line (see Figure 2.1).

2.1 Key Contributors to the Profitability of Green Supply Chains

Industry-wise profitability assessments show a much clearer picture of the factors that contribute to increased profitability when going Green.

Figure 2.1: Estimated by country the profitability enhancement from Green Supply Chains

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Figure 2.2: Estimated by industry the profitability enhancement from Green Supply Chains

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Different industries were analysed on the basis of the profitability of various parameters from the procurement of raw materials to the recycling of end-of-life products. Contribution of various parameters to the bottom line of organizations is tabulated in Figure 2.2 and Table 2.1.

We now will briefly examine what can be done in these industries so that they can gain from proven Green Supply Chain Management applications.

Table 2.1: Factors responsible for Green Supply Chain profitability

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2.2 Construction Industry

Nowhere in the business world is the cost-benefit ratio of going Green virtually totally underestimated as it is in the construction industries. For some time now the world has been focusing on the concept of Green Buildings. As per one recent estimate, the total greenhouse gases emitted by all the buildings in the world were a startling 40% of the world’s total greenhouse gas emissions (World Business Council for Sustainable Development Report, 2007). In a survey of key members in the industry, the average surveyed estimate of this number was 19%.

While one may not expect construction professionals to necessarily know the actual greenhouse gas savings from Green Buildings, one would, however, expect the majority of them to know the additional costs incurred for Green Buildings. But their estimates were more than triple the actual additional costs at an estimate of 17% against an actual of 5%.

Meanwhile, savings from Green Buildings over their lifetime from Green Design and the increased energy efficiency can reduce heating costs by up to 80% in an average building.

It is estimated that by adopting Green Supply Chain principles for their end-to-end supply chains, the construction industry can increase its profitability by up to 10%. The additional costs of Green Design, substitution of inputs, and Green Processes would be more than offset by cost savings and additional revenues from Green Procurement and energy efficiencies.

2.3 Logistics Industry

Going Green can bring a gain in profits by as much as 10% when compared to a traditional supply chain in logistics industries. Some key logistics activities that have potential to reduce greenhouse gas emissions are:

• newer fuel-efficient vehicles against older end-of-life vehicles;

• truckload and vehicle fill optimization;

• fleet management;

• route optimization;

• waste recollection and reverse logistics;

• waste treatment;

• change management and continuous improvement.

Of the above factors, many will require new and additional investments, like new vehicles, waste recollection, and change management; however, these are offset by the reduced number of vehicle trips with more fuel-efficient vehicles and by enhanced recycling. Investment on R&D activities for optimizing truckloads and the usage of alternate fuels is similarly compensated through reduction in the number of vehicle trips. Meanwhile, any additional trips made to recollect waste is compensated through the increase in recycling and reduced procurement.

2.4 Automobile Industry

Green Supply Chains in the automobile industry can increase profitability by up to 6%. Key contributing factors towards profits are:

• design for disassembly;

• reduced procurement costs and increased recycling of material;

• reduced costs of disposal of unrecyclable waste due to minimal or no use of hazardous material;

• effective maintenance of vehicles requires lower maintenance costs.

Additional investment in activities to enhance fuel efficiency and design for disassembly is offset by increased recycling and lesser maintenance cost. Higher fuel efficiency will also result in increased acceptance of the vehicle, potentially at a higher price.

2.5 FMCG Industry

Profitability can be improved up to 4% by implementing Green Supply Chains in the consumer goods industry. This change can be an important factor considering the lower margins and excessive competition in this industry. Key additional investments required while going Green are:

• retooling plants and change in packaging material;

• supplement for hazardous material;

• analysis and change management.

These factors are primarily offset through an increased consumer base as eco-friendly consumer goods can be targeted to specific market segments as such consumers are willing to pay more for environmentally friendly products. Additionally, effective packaging can reduce packaging costs