Best Practices in Green Supply Chain Management FINAL · PDF file• Green supply chain...

Best Practices in Implementing Green Supply ChainsBest Practices in Implementing Green Supply Chains

April 5, 2005

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© 2005 LMI

Green SCM integrates environmentaland supply chain management.

Green SCM recognizes the disproportionate environmental impact of supply chain processes in an organization.

Green SCM recognizes the disproportionate environmental impact of supply chain processes in an organization.

Green Supply Chain ManagementEnvironmentalManagement

Supply ChainManagement

Green Supply Chain Management

Cus

tom

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Supp

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P1 Plan Supply ChainPlanPlan

P2 Plan Source P3 Plan Make P4 Plan Deliver

Source Make Deliver

S1 Source Stocked Products M1 Make-to-Stock

M2 Make-to-Order

M3 Engineer-to-Order

D1 Deliver Stocked Products

D2 Deliver MTO Products

D3 Deliver ETO Products

S2 Source MTO Products

S3 Source ETO Products

Return Source

P5 Plan Returns

Return Deliver

Enable

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© 2005 LMI

Contents

• What is Green Supply Chain Management?• Green Supply Chain Management Principles• Green Supply Chain Management Best Practices• Implementing Best Practices• Summary

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© 2005 LMI

Green SCM leverages the role of the environment in SC value creation.

Green Supply Chain ProgramsGreen Supply

Chain Programs

Employee SatisfactionEmployee

Satisfaction

Environmental Sustainability

Environmental Sustainability

Community Quality of LifeCommunity

Quality of Life

ProfitabilityProfitability

Asset UtilizationAsset Utilization

Service LevelService Level

CustomerCustomer

ReputationReputation

ContinuityContinuity

AlliancesAlliances

TechnologyTechnology

Supply Chain Value

Supply Chain Value

Stakeholder Interests

Tangible Outcomes

Intangible Value DriversSource: Forging New Links, GEMI, 2004

Environmental Value Drivers

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© 2005 LMI

Commercial firms have had early success using Green SCM principles.

Texas Instruments: Saves $8 million each year by reducing its transit packaging budget for its

semiconductor business through source reduction, recycling, and

use of reusable packaging systems (20% annual savings).

Texas Instruments: Saves $8 million each year by reducing its transit packaging budget for its

semiconductor business through source reduction, recycling, and

use of reusable packaging systems (20% annual savings).

Pepsi-Cola: Saved $44 million by switching from corrugated to

reusable plastic shipping containers for one liter and 20-ounce bottles, conserving 196 million pounds of corrugated

material.

Pepsi-Cola: Saved $44 million by switching from corrugated to

reusable plastic shipping containers for one liter and 20-ounce bottles, conserving 196 million pounds of corrugated

material.

Commonwealth Edison: Produced $50 million in financial benefits from managing materials and

equipment with a life-cycle management approach.

Commonwealth Edison: Produced $50 million in financial benefits from managing materials and

equipment with a life-cycle management approach.

Dow Corning: Saved $2.3 million by using reconditioned steel

drums in 1995. Also conserved 7.8 million pounds of steel.

Dow Corning: Saved $2.3 million by using reconditioned steel

drums in 1995. Also conserved 7.8 million pounds of steel.

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© 2005 LMI

Green Supply Chain improves operations by employing an environmental solution.

• Improves Agility—Green supply chain management help mitigate risks and speed innovations.

• Increases Adaptability—Green supply chain analysis often lead to innovative processes and continuous improvements.

• Promotes Alignment—Green supply chain management involves negotiating policies with suppliers and customers, which results in better alignment of business processes and principles.

Source: The Triple-A Supply Chain, Lee, Harvard Business Review, October 2004Environmental Supply Chain Management, Carter and Narasimhan, CAPS Research, 1998

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© 2005 LMI

Contents


P A G E 8

© 2005 LMI

The product life cycle is the basis of green supply chain management.

Supply Chain in the Environmental Life Cycle

RawMaterial

ExtractionTransport Manufacture Transport

Retail/Consumer

UseTransport Disposal

DesignConcept

Typical Supply Chain Scope

Designing the supply chain concurrently with the product is a supply chain management best practice.

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© 2005 LMI

The environmental impacts of each LC stage are examined for reduction.

Environmental Life Cycle

RawMaterial


Retail/Consumer


Air

Water

Waste

AirAir

Water

Waste

AirAir

Water

Waste

AirAir

Water

Waste

Stage

Impacts

Water

EnergyInputsWater

Energy

DesignConcept

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© 2005 LMI

Historically, GSC management focused on the upstream supply chain.

• Manufacturer encourages suppliers to adopt green practices, environmental management systems, etc.

• Focus is on the material content and environmental practices of suppliers.

Typical Green Supply Chain Analysis

Manufacturer

Supplier

Supplier

Supplier

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© 2005 LMI

Now, GSC programs are moving from compliance to value creation.

Source: Forging New Links, GEMI, 2004

Traditional Cost

Avoidance

Emerging Value

Creation

Environmental, Safety, and Health Business Contributions

Protect the Environment

Maintain Health

Minimize Risk

Assure Compliance

Enable Growth

Support Innovation

Enhance Relations

Raise Productivity

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© 2005 LMI

Companies are starting to view GSC as a strategic analysis tool.

Source Reduction

Recycle/Reuse

Control Technology

Disposal

Pollution Prevention Hierarchy

Strategic

Tactical

Long Term

Short Term

The Pollution Prevention Hierarchy gauges the value of environmental programs.

The Pollution Prevention Hierarchy gauges the value of environmental programs.

Source: U.S. Environmental Protection Agency

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Contents


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© 2005 LMI

Green supply chain best practices focus on the business results first.

• Align green supply chain goals with business goals

• Evaluate the supply chain as a single life cycle system

• Use green supply chain analysis as a catalyst for innovation

• Focus on source reduction to reduce waste

• Align green supply chain goals with business goals

• Evaluate the supply chain as a single life cycle system

• Use green supply chain analysis as a catalyst for innovation

• Focus on source reduction to reduce waste

Green Supply Chain Best Practices

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© 2005 LMI

Aligning GSC improvements with your business goals creates strategic value.

• Before embarking on green supply chain improvements, you need to determine the role of the environment in your business.– Product Differentiation?– Managing Competitors?– Cost Reduction?– Risk Management?– Redefining Markets?

• When green supply chain programs are properly aligned to corporate goals, successes become leading indicators of business success.– Environmental indicators on the Balanced Scorecard– Greater drive for innovation– Stakeholder support

Source: Bringing the Environment Down to Earth, Reinhardt, HBR, July-August 1999Environmental Supply Chain Management, Carter and Narasimhan, CAPS Research, 1998

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© 2005 LMI

Evaluating the supply chain as a system leads to life cycle optimization.

System View of Environmental Life Cycle

RawMaterial


Retail/Consumer


Product $Waste

Stage

Outputs

Raw MaterialInputs

Energy

DesignConcept

$

Maximize the “good” outputs.Maximize the

“good” outputs.Minimize the “bad” inputs and outputs.

Minimize the “bad” inputs and outputs.

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© 2005 LMI

Green supply chain management is a driver for process improvements.

• In general, pollution and waste represent incomplete, ineffective, or inefficient use of raw material.

• Green supply chain analysis provides an opportunity to review processes, materials, and operational concepts.

• As with continuous improvement programs, green supply chain analysis targets:– Wasted material– Wasted energy or effort– Under-utilized resources

Source: Green and Competitive, Proter and van der Linfde, HBR, Sept.-Oct. 1995Environmental Supply Chain Management, Carter and Narasimhan, CAPS Research, 1998

Identify the waste streams

Measure or identify the opportunity cost of the

waste

Create innovation vs. treatment bias toward waste

reduction

Green Process Improvement Approach

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© 2005 LMI

Focusing on source reduction programs drives higher value improvements.

Waste Reduction Opportunities in the Life Cycle

RawMaterial


Retail/Consumer


DesignConcept

Reduce Reuse/Recycle DisposeControl Technology

Low

HighPotential for life cycle cost savings

Cumulative life cycle costs

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© 2005 LMI

The Army looked to using hybrid HMMWVs to reduce the fuel SC footprint.

• Army reviewed acquisition, maintenance, and fuel costs associated with conventional and hybrid HMMWV.– Fuel costs included cost of supply chain.– Evaluation based on military operations.

• Costs are break even for the two platforms– Hybrid technology lowers fuel cost but has greater

maintenance requirements.– However, hybrid platforms can also serve as power

generators in theater and can offer some operating advantages (e.g., silent operation).

DomesticFuel Storage

TransportationInto Theater

TransportationWithin Theater

TheaterFuel Storage

Theater Fuel Distribution

Hybrid HMMWV

HMMWV Fuel Supply Chain

Source: Economics of Hybrid Electric Technology: Military Vehicles, 2002, LMIResource Costs of Supplying Power to a Battlefield, 2004, LMI Research Institute

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© 2005 LMI

USPS worked with direct mail vendors to reduce supply chain cost and waste.

DirectMailer

Post Office

SortingFacility

Post Office Customer Waste

UndeliverableItems

Direct Mail Supply Chain

Estimated savings (USPS) = $500 Million (1997)Estimated savings (USPS) = $500 Million (1997)

Problem: Excessive direct mail waste and cost

Target mailings to generate less waste

Recycle undeliverable mail

Ensure changes do not affect sorting capability

Ensure proper addressing

Direct Mailers realize higher

response rates and

lower operating

costs

Direct Mailers realize higher

response rates and

lower operating

costs

Target recycled content and recyclable materials

Source: Greening the Mail, 1999, LMI

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© 2005 LMI

The Dutch flower industry greened its production to increase throughput.

• Netherlands produces 65% of the worlds cut flowers, yet has limited land.– Mass cultivation in a confined area resulted in

fertilizer, herbicide, and pesticide contamination.

• To correct the problem, growing was shifted to rock wool and water vs. soil.– Fertilizer in the water is recycled through the

system to reduce waste.– Water based growth also reduces the risk of

infestation by weeds and pests, reducing the need for chemical treatments.

– The new system also greatly reduced variations in growth conditions, greatly improving the predictability of output.

• Producers were able to increase output per space and further innovate to reduce costs (e.g., new harvesting methods).

Source: Green and Competitive, Porter and van der Linde, HBR, Sept.-Oct. 1995

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© 2005 LMI

Xerox implemented a take-back program redefined customer’s expectations.

• In early 1990s Xerox launched a new initiative to take back usedcopiers as a source of material for new machines.

• Customers like the program because they no longer worry about machine disposal.

• Xerox estimates “several hundred million” dollar savings annually.

Source: Bringing the Environment Down to Earth, Reinhardt, HBR, July-August 1999Environment, Health, and Safety Progress Report: 2004, Xerox Corporation

Xerox Copier Take-back Program

• 70-90% (by weight) of machines reused

• 144 million pounds diverted from landfills (2003)

• 70-90% (by weight) of machines reused

• 144 million pounds diverted from landfills (2003)

P A G E 24

© 2005 LMI

Green supply chain efforts need to rise above the cost center view.• Green supply chain projects need to be clearly defined in terms

of the business value to the organization.– Clear value will gain senior management support.– Clear value will help secure buy-in from other organizations

• Environmental programs are viewed as business cost centers.– Environmental, safety, and health (ESH) resources are often scarce

in an organization.– ESH offices are targeted early during cost cutting programs.

• ESH offices have difficulty articulating their business value.– The inability to articulate the value of green supply chain effort in

business terms lowers their profile.– Many executives have misconceptions of how green supply chain

efforts will impact their operations.– Without a clear business value proposition, it is difficult to get

executive support for projects.


P A G E 25

© 2005 LMI

Consider the existing business model when planning GSC projects.

• Many businesses have internal hurdles that must be overcome for any improvement effort.– Inconsistency in supply chain operations (by unit, region, product,

etc.)– Business viewed through existing operations—resistance to change– Focus on short term goals and short term results– Limited partnership experience—especially in the environmental

office.

• To be successful, the project manager needs to understand the organization and plan for the applicable hurdles.– Develop communication/evangelization plan.– Build a project team with broad functional representation.– Clearly articulate project business value.– Use outside experts where in-house expertise doesn’t exist.


P A G E 26

© 2005 LMI

Use tools such as GreenSCOR to help define and analyze GSC problems.

GreenSCOR Model

GreenSCOR Concept

EnvironmentalManagement

Managing the environmental impacts of operations, including compliance, emissions, and remediation

Supply ChainManagement

Managing the flow of material from supplier to end customer, including procurement, transportation, inventory management, and production

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© 2005 LMI

GreenSCOR is a modification of the SCOR model that includes environmental elements.

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SCOR ModelEnvironmentalManagement

GreenSCOR ModelC

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GreenSCOR modifies the existing SCORstructure to include environmental processes, metrics, and best practices.

GreenSCOR maintains the integrity of the current SCOR model by adding to the existing elements.

GreenSCOR Content

P A G E 29

© 2005 LMI

Implementing Green supply chain properly will drive real business value.

• Green supply chain concepts manage environmental impacts where they occur—ideally before they occur.

• Best practices focus on the business, not social, value that green supply chain management creates.– Align green supply chain goals with business goals– Evaluate the supply chain as a single life cycle system– Use environmental analysis as a catalyst for innovation – Focus on source reduction to reduce waste

• Successful implementation requires raising the profile and perceived value of environmental projects.– Articulate project value in terms of business value– Create the project to work within the organizational culture– Use effective tools (e.g., GreenSCOR) to enable project execution

P A G E 30

© 2005 LMI

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