Green Supply Chains E-Book

Stuart Emmett

• Herausgeber: John Wiley & Sons
• Kategorie: Fachliteratur
• Sprache: Englisch

Seitenzahl: 375

Veröffentlichungsjahr: 2010

Beschreibung

This book answers the following five fundamental questions: * What are the tangible and intangible benefits of moving towards a green supply chain? * What are the costs, both direct and indirect? * What influence do we have over our suppliers, their suppliers and our customers that would allow us to jointly work together and move the supply chain towards a green supply chain? * How will we communicate and measure our progress towards the green supply chain to the key stakeholders? How will we engage them? * What barriers to green supply chains can be expected and how can these be overcome? For all those responsible for steering supply chain decisions this book will be an invaluable asset, particularly as the 'greening of business' grows ever important.

Leseprobe

Table of Contents

Title Page

Copyright Page

Foreword

Preface

Five fundamental questions that every environmentally aware CEO needs to ask ...

About this Book

About the Authors

Stuart Emmett

Vivek Sood

PART 1 - Introduction

Chapter 1 - Introduction to Green Supply Chains

1.1 Benefits of Green Supply Chains

1.2 Traditional and Green Supply Chains

1.3 Green Supply Chains and Corporate Social Responsibility (CSR)

1.4 Drivers of Green Supply Chain

1.5 Green Supply Chain Framework

Chapter 2 - Impact on Bottom Line through Green Supply Chains

2.1 Key Contributors to the Profitability of Green Supply Chains

2.2 Construction Industry

2.3 Logistics Industry

2.4 Automobile Industry

2.5 FMCG Industry

2.6 Chemical Industry

2.7 Electronics Industry

2.8. Conclusion

Appendix: Analytical Methodology and Details for Cost-Benefit Analysis from ...

PART 2 - Green Supply Chain Planning

Chapter 3 - Green Supply Chain Planning

3.1 Life Cycle Management

3.2 Benefits of Life Cycle Management

3.3 Goals of Life Cycle Management

3.4 Green Sales and Operations Planning (S&OP)

PART 3 - Green Procurement and Sourcing

Chapter 4 - Green Procurement

4.1 Procurement Definitions, Aims, and Scope

4.2 Benefits of Green Procurement

4.3 Drivers of Green Procurement

4.4 Challenges

4.5 Factors Affecting Green Procurement

4.6 Moving towards Green Procurement

4.7 Reflections on Green Procurement: Joined-up Thinking

PART 4 - Green Supply Chain Execution

Chapter 5 - Green Production

5.1 Benefits of Green Production

5.2 Drivers of Green Production

5.3 Challenges of Green Production

Chapter 6 - Green Logistics

6.1 Drivers of Green Logistics

6.2 Benefits of Green Logistics

6.3 Challenges in Green Logistics

6.4 Moving towards Green Logistics

Chapter 7 - Green Packaging

7.1 Benefits of Green Packaging

7.2 Drivers of Green Packaging

7.3 Getting Started with Green Packaging

Chapter 8 - Green Marketing

8.1 Importance of Green Marketing

8.2 Drivers of Green Marketing

8.3 Challenges in Green Marketing

8.4 Elements of Green Marketing

Chapter 9 - Supply Loops

9.1 Examples of Supply Loops

9.2 Components of Supply Loops

9.3 Drivers of Supply Loops

9.4 Benefits of Supply Loops

9.5 Moving towards Supply Loops

PART 5 - Carbon Management

Chapter 10 - Carbon Footprint Minimization across the Supply Chain

10.1 Carbon Measurement

10.2 Carbon Minimization

10.3 Carbon Monitoring

10.4 Carbon Reporting

PART 6 - Migration Strategy

Chapter 11 - Green Supply Chain Migration Strategy

11.1 Phase I, Detailed Analysis

11.2 Phase II, Design and Implementation

11.3 Phase III, Organizational Change Management

PART 7 - Continuous Improvement and Performance Evaluation

Chapter 12 - Green Supply Chain Continuous Improvement

12.1 Benefits of Continuous Improvement in Green Supply Chains

12.2 Prerequisites of Continuous Improvement

12.3 Methodology of Continuous Improvement

12.4 Green Supply Chain Benchmarking

12.5 Pareto Analysis

Chapter 13 - Green Supply Chain Performance Evaluation

13.1 Benefits of Performance Evaluation

13.2 Performance Evaluation Methodology

13.3 Presenting Finding of Performance Evaluation

13.4 Using Information from Performance Evaluation for Making Decisions

13.5 Measurement Toolkit

PART 8

References and Bibliography

Index

This edition first published in 2010

Copyright © 2010 Stuart Emmett and Vivek Sood

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Foreword

The time for action on greening supply chains has come. Daily headlines report food shortages and concerns about energy security and dangerous climate change. Current forecasts suggest that by 2050 the human population will grow to around 9 billion, and that per capita consumption of hard and soft commodities is set to increase. An incredible challenge lies ahead of us: already the production, extraction, and consumption of basic commodities are contributing to humanity’s unsustainable ecological footprint.

But it’s not just the challenge of meeting rising global demand for food, fibre, fuel, and hard commodities in a resource constrained world. It is also the impact of how global industries obtain these commodities: for example, biodiversity is being lost, illegal logging continues to plague the forest sector, and three-quarters of all global fisheries are fished at, or beyond, capacity.

Effective national regulation provides a basis for managing the impacts of these changes, but increasingly important are voluntary approaches that use market dynamics to reward producers for moving ahead of regulation and enable buyers to manage supply chain risks associated with the extraction or use of natural resources.

The Forest Stewardship Council (FSC) is the prime example of such a voluntary approach which is now being emulated across a range of commodities that span marine fish, agriculture, aquaculture, and minerals. The FSC is a certification scheme for forest products backed by major global companies, NGOs, and governments.

Yet our experience has shown that a certification scheme is not enough by itself. Companies throughout the supply chain need a comprehensive methodology, and a toolkit, to guide them on implementation. That is why over 10 years ago WWF created the Global Forest and Trade Network (GFTN). Over time the GFTN has evolved such that it now provides structured support, and a framework that provides confidence and encouragement for both suppliers and buyers to take the necessary steps to green their operations and the supply chain that connects them.

The GFTN today works with over 350 companies across the world, linking together sawmilling companies in places as far apart as Peru, Malaysia, and Sweden, with furniture manufacturers, construction companies, and retailers in the major global markets such as the US, China, and the EU.

It is clear that access to resources will be a major strategic corporate issue in the coming decades. WWF is now using the experience gained with GFTN to work on similar initiatives with other commodities.

We are convinced that the winners will be those companies that are able to demonstrate that their supply chains are clean and Green.

Duncan Pollard Director, Conservation Practice & Policy WWF International

Preface

Five fundamental questions that every environmentally aware CEO needs to ask about their supply chains.

It is generally accepted that environmental consciousness is now changing to environmental proactiveness as organizations are discovering that it makes good commercial sense. Boards are asking the management to review their policies related to environmental norms, not only to bolster their corporate social responsibility aims, but also because consumers are asking for this. It is widely agreed that consumers will increasingly prefer to buy more - and even pay more for - products or services provided in an environmentally sound manner.

Our recent analysis has, however, revealed four key additional points:

• Companies are still primarily focused on environmentally conscious internal production. Any company can become totally carbon neutral by outsourcing all its production. Shifting the carbon producing activity up or down the supply chains does nothing more than hide the dirt under someone else’s carpet. A holistic approach to carbon management is required, and this is provided by adoption of Green Supply Chain methodology.

• Environmental proactivism is generally assumed to come at an additional cost to the corporations. It is widely thought that going Green is expensive. On the contrary, our modelling indicates that adoption of Green Supply Chain methodology should result in overall cost reduction providing this is done in a thorough and logical manner.

• Most business models are focused on growing the volume of their current offerings of goods or services to increase profits. A change in this focus towards providing customer end outcomes will not only reduce the impact on the environment, but also secure and/or increase market share whilst improving profitability.

• Well beyond mainstream business thinking on the environmental impact of technology, our discussions with Professor Ernst von Weizsacker (co-author of the book Factor Four;Doubling Wealth,HalvingResource Use (1998) with Amory and Hunter Lovins) highlight a radical concept aimed at doubling wealth, whilst concurrently halving resource consumption through innovative technological push. The implications for Green Supply Chains, and for business performance more generally, are staggering. However, in the rest of this book, our conclusions are based on current technological limitations whilst noting that the “Factor 4” thinking and its associated technological push would actually multiply the benefits significantly, if brought into practice.

So it is clear that a move to Green Supply Chains is not only necessary for sound environmental management, but it is also profitable and provides sound financial management.

How can companies start making the move? From our research and practical work in this area, we believe the following five fundamental questions really help to focus the discussion and crystallize action plans:

1. What are the tangible and intangible benefits of moving towards a Green Supply Chain? In our experience these benefits are frequently neither fully explored, nor adequately quantified. Even where a robust analysis is carried out, analysts tend to either ignore some of the potential benefits, or find it hard to analyse their full impact on the business. As a result, the overall benefits do not get adequate attention at the board level and therefore do not generate enough interest to release the necessary finance to create the transformation.

In one company we know (a large global industrial and building products company with revenues in excess of $5 billion) the task of exploring opportunities in Green Supply Chains was handed over to a senior executive as an additional job over and above his regular job, without any funding, clear direction, or expectations. In a situation like this (which is very common), all the potential benefits cannot be fully understood and agreed by the key stakeholders, resulting in understaffed projects and poor implementation.

Our analysis has also found that without any new technologies being utilized, just a move to a Green Supply Chain can reduce costs by 5-20%. The adoption of new technologies, however, can take cost reductions to a whole new level.

In addition, by raising their Green credentials amongst customers, employees, government authorities, and other stakeholders, companies also move rapidly towards ensuring a sustainable and successful future.

2. What are the costs, both direct and indirect? This is the flip side of the question above. For the same reasons, while companies have vague ideas of the costs, these are rarely fully explored and analysed. In our experience, these are also frequently exaggerated because of uncertainty surrounding many of the costs. While all future costs have a certain amount of uncertainty, and there is a general tendency to allow a buffer, our analysis finds that the costs of going Green are generally more uncertain, but the buffers allowed are disproportionately higher.

The indirect costs are generally the source of most complications. It is really hard to estimate costs of process changes, disassembly lines planning and set up, waste collection and recycling modelling, additional research and development, inventory reduction, and Green Supply Chain modelling etc. Once each one of these systems is fully functional, the costs will follow a predictable experience or learning curve pattern, but it is difficult to predict the transitional costs, and these make the analysis complicated and perhaps insurmountable for many project teams.

Our research indicates that direct and indirect costs associated with Green Supply Chains are substantial but can be fully funded and more than offset by the benefits they generate.

3. What influence do we have over our suppliers, their suppliers, and our customers (especially the party with the most power in the supply chain) that would allow us to jointly work together and move the supply chain towards a Green Supply Chain? This question is easier to answer as most pragmatic managers have a good idea of the relative power balance in their customer-supplier relationships. While occasionally the influence is underestimated or overestimated, in general we found that just asking this question helps to focus action in the right direction. Some organizations have broken the intra-organizational silos and started thinking in terms of end-to-end supply chains. However there are still many more organizations that need to do this. Thinking holistically outside the boundaries of the organization, when applied to Green Supply Chain methodology, can yield some outstanding results. Under this primary question, a few additional secondary questions will help sharpen the focus even further to create the clarity, impetus, and momentum towards positive plan and action.

Clearly, the organization which has the most influence over an end-to-end supply chain is best positioned to create the clarity and impetus towards the Green Supply Chains. For example, in the retail supply chains, most retailers such as Tesco (UK) or Wal-Mart (USA) are best positioned to exercise this type of influence. However with the automobile supply chains, retailers have far less influence than the manufacturers.

In each supply chain, the entity which has the most influence needs to be encouraged to think holistically, in the interest of all parties that form part of that supply chain. It is perhaps also clear why this crucial third question can only be answered after we answer the first two questions. Once the benefits, costs, and influences are clearly expressed, defined, and analysed, then it is much easier to have an informed discussion with the party that “controls” the supply chain.

A corollary to this discussion is then going to be just how to distribute the costs and benefits of movements towards Green Supply Chains. Unless all the incentives are properly aligned, some parts of the supply chain may well end up sabotaging the overall Green Supply Chain project.

4. How will we communicate and measure our progress towards the Green Supply Chain to the key stakeholders? How will we engage them? A new road needs new milestones. Traditional supply chain or financial measurements will not suffice in this case. We found several organizations which have started to make some progress towards vague environmental goals and have defined this in terms of carbon impact reduction but without any clear definition of the four or five key measurements that relate to supply chains at all levels. Not only were the measurements not clearly defined, but even the traditional key performance indicators (KPIs) adapted for the purpose could not be uniformly and easily accessed by the key personnel who needed the information.

A typical Green Supply Chain project has far more stakeholders than any other transformational projects inside an organization. Besides internal staff, key suppliers, customers, and even the public, media, regulators, and government are also stakeholders in a Green Supply Chain transformation. Therefore, a well thought out stakeholder engagement strategy, diligently executed, that includes clear and regular communication, is essential to success.

5. What barriers to Green Supply Chains can be expected and how can these be overcome? There are several categories of barriers to Green Supply Chains and these include legislation conflicts, inadequate or misaligned stakeholder incentives, lack of environmental norms and tools, lack of resources, and high costs of implementation and technology.

Within each of these categories are several specific components, making the total number of potential barriers quite formidable and daunting.

Like in any other change initiative, barriers can be overcome through a properly structured, comprehensive, and phased migration strategy. A “Big-Bang” approach is not to be recommended.

Rather, each major project stream is dealt with by a series of phases that cover detailed analysis, design and implementation, and organization change management. Time and care should be taken on the first phase to ensure its success and the ability to leverage subsequent phases.

In summary, all of the leading organizations that have started Green Supply Chain projects ask some fundamental questions.

The answers are then found to be illuminating their way towards innovation, profitability, and sustainability. As is the case in all ground-breaking endeavours, the first mover advantage is enormous, as are the challenges.

About this Book

In writing this book, we have made best-efforts endeavours not to include anything that, if used, would be injurious or cause financial loss to the user. The user is, however, strongly recommended before applying or using any of the contents to check and verify their own company policy/ requirements.

No liability will be accepted by the authors for the use of any of the contents.

It can also happen in a lifetime of learning and meeting people that the original source of an idea or information has been forgotten. If we have actually omitted in this book to give anyone credit they are due, we apologize and hope they will make contact so we can correct the omission in future editions.

About the Authors

Stuart Emmett

My own journey to “today”, whilst an individual one, does not happen, thankfully, without other people’s involvement. I smile when I remember so many helpful people. So to anyone who has ever had contact with me, please be assured you will have contributed to my own learning, growing, and developing.

After spending over 30 years in commercial private sector service industries, working in the UK and in Nigeria, I then moved into Training. This was associated with the, then, Institute of Logistics and Distribution Management (now the Chartered Institute of Logistics and Transport).

After being a Director of Training for nine years, I then chose to become a freelance independent mentor/coach, trainer, and consultant. This built on my past operational and strategic experience and my particular interest in the “people issues” of management processes.

Trading under the name of Learn and Change Limited, I now enjoy working all over the UK and on five other continents, principally in Africa and the Middle East, but also in the Far East and North and South America.

Additionally to undertaking training, I also am involved with one-to-one coaching/mentoring, consulting, writing, assessing, and examining for professional institutes’ qualifications. This has included being Chief Examiner on the Graduate Diploma of the Chartered Institute of Procurement and Supply and as an external university examiner for a Masters Degree in Procurement and Logistics.

My previous publications include, as co-author with Barry Crocker, TheRelationship Driven Supply Chain (2006), Excellence in Procurement (2008), and Excellence in Supplier Management (2009). Other titles include, Improving Learning & for Individuals & Organizations (2002), Supply Chain in 90 Minutes (2005), Excellence in Warehouse Management (2005), Logistics Freight Transport — nationalandinternational (2006), Excellence in Inventory Management (2007, co-written with David Granville), Excellence in Supply Chain Management (2008), Excellence inFreightTransport (2009), and a series of seven Business ImprovementToolkits (2008) with individual titles on motivation, learning, personal development, customer service, communications, systems thinking, and teams. Whilst these toolkits are written for a general audience, the case studies and examples have many supply chain applications.

I can be contacted at [email protected] or by visiting www.learnandchange.com. I welcome any comments.

Vivek Sood

My life’s journey has neither been straightforward, nor easy. However, one thing which has made it immensely enjoyable so far has been my passion for all things that move. That is what has led me to specialize in Supply Chains, and further into Green Supply Chains.

I started my career as a deck cadet on a merchant ship and sailed around the world many times till I became a master mariner. Deciding that I needed some shore legs, I did an MBA with full intentions of returning to general management in the shipping field after that. However, post my MBA, I was advised to join a reputed strategy consulting company for a few years to complete my ‘education’ and for ‘branding’. This started my passion for Supply Chains and led me to co-found in January 2000 Global Supply Chain Group, a boutique strategy consulting group specializing in supply chain strategies.

Now I provide strategic operations and supply chain advice to boards and senior management of global corporations, private equity groups, and other stakeholders in a range of industries including FMCG, food, shipping, logistics, manufacturing, chemicals, mining, agribusiness, construction materials, explosives, airlines, and electricity utilities.

I have served dozens of worldwide corporations in nearly 80 small and large projects on all continents with a variety of clients in many different industries. Most of these projects have involved diagnostics, conceptualization, and transformation of supply chains — releasing a significant amount of value for the business. I estimate that my project work in supply chain management has added cumulative value in excess of $500 m incorporating projects in major supply chain infrastructure investment decisions, profitable growth driven by global supply chain realignment, supply chain systems, negotiations, and all other aspects of global supply chains.

I continue to write articles and commentaries that are published in several respected journals and magazines. I also speak at numerous supply chain conferences, forums, and workshops in various parts of the world and lecture at reputed MBA schools occasionally. In addition, I also conduct strategic workshops on various aspects of supply chain management with a passion for Green Supply Chains.

I can be contacted at [email protected] or by visiting www.globalscgroup.com. I look forward to hearing from you.

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 ofGreenSupplyChains

BenefitsEnvironmentalIntegrated environmental considerations and supply chain management process reduces emission of greenhouse gases by recognizing that supply chains consist of discrete decisions, each of which has environmental impactsReduction in waste, pollution, and environmental degradationTechnologicalCreates a platform for further technological advancement by identifying areas where they would have maximum impact on reducing environmental degradationProvides a systematic process whereby greening opportunities can be identified throughout a supply chainDedicated technologies can be developed for the processes having greening opportunityEnables more efficient use of resourcesIncreased visibility of the financial and operational benefitsEconomicalIncreased organizational profitability due to positive net financial impact of Green Supply Chain projectsReduced procurement costs from more efficient energy and materials useReduced compliance and disposal costs from decreased waste generation and use of hazardous materialsSignificant new organization because of customer-related environmental initiativesIncreased benefits by merging supply chain optimization efforts and environmental management effortsRegulatoryKeeps the organization well ahead of the regulatory wave, creating an impetus for innovation, organizational learning, and changeAddresses the issue of global warming which is one of the most important concerns of environment experts and policy makers across the worldAddresses public and regulatory hostility towards environmentally harmful organizationsSocialPositive word-of-mouth, viral marketing opportunities, and recognition as one of the leadersIncreased sales for environmentally preferable products result in clean neighbourhoodSafer workplace and clean working environmentBetter health, reduced occupational health and safety costs, and manpower costs

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

Figure 1.2:Green Supply Chains

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

• 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

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

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

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

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

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 which also contributes significantly to overall cost reduction of the product. Increased recycling and waste minimization will reduce the cost further and result in increased profitability.

2.6 Chemical Industry

Green practices can result in overall profitability enhancement of up to 3% in chemical industries. Key factors that increase costs when compared with traditional supply chains are as follows:

• risk management for efficient product handling;

• substitution of hazardous materials;

• treatment of hazardous waste;

• retooling plants and new manufacturing techniques.