Best Practices In Green Supply Chain Management FINAL

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Best Practices in Implementing Green Supply ChainsApril 5, 2005

Green SCM integrates environmentaland supply chain management.Green Supply Chain ManagementPlanP1 Plan Supply ChainSourceS1 Source Stocked ProductsS2 Source MTO ProductsS3 Source ETO ProductsP4 Plan DeliverP3 Plan MakeMakeM1 Make-to-StockM2 Make-to-OrderM3 Engineer-to-OrderDeliverD1 Deliver Stocked ProductsD2 Deliver MTO ProductsD3 Deliver ETO gementP5 Plan ReturnsCustomersSuppliersP2 Plan SourceEnableSupply ChainManagementGreen Supply Chain hedisproportionatedisproportionate environmentalenvironmentalimpactimpact ofof supplysupply chainchain n.PAGE 2 2005 LMI

Contents What is Green Supply Chain Management? Green Supply Chain Management Principles Green Supply Chain Management Best Practices Implementing Best Practices SummaryPAGE 3 2005 LMI

Green SCM leverages the role of theenvironment in SC value creation.Environmental Value DriversTangible ogramsProfitabilityProfitabilityAssetAsset UtilizationUtilizationServiceService lity ofof liancesAlliancesTechnologyTechnologyIntangible Value DriversSource: Forging New Links, GEMI, 2004PAGE 4 2005 LMI

Commercial firms have had earlysuccess using Green SCM principles.TexasTexas Instruments:Instruments: SavesSaves 8 8millionmillion eacheach yearyear byby reducingreducing itsitstransittransit packagingpackaging budgetbudget forfor itsitssemiconductorsemiconductor businessbusiness throughthroughsourcesource reduction,reduction, recycling,recycling, andanduseuse ofof reusablereusable packagingpackagingsystemssystems (20%(20% annualannual savings).savings).CommonwealthCommonwealth Edison:Edison: ProducedProduced 50 50 millionmillion inin financialfinancial benefitsbenefitsfromfrom managingmanaging materialsmaterials andandequipmentequipment withwith aa life-cyclelife-cyclemanagementmanagement approach.approach.Pepsi-Cola:Pepsi-Cola: SavedSaved 44 44 millionmillion bybyswitchingswitching fromfrom corrugatedcorrugated totoreusablereusable plasticplastic shippingshippingcontainerscontainers forfor oneone literliter andand 2020ounceounce bottles,bottles, conservingconserving 196196millionmillion poundspounds ofof corrugatedcorrugatedmaterial.material.DowDow Corning:Corning: SavedSaved 2.3 2.3 millionmillionbyby usingusing reconditionedreconditioned steelsteeldrumsdrums inin 1995.1995. AlsoAlso conservedconserved7.87.8 millionmillion poundspounds ofof steel.steel.PAGE 5 2005 LMI

Green Supply Chain improves operationsby employing an environmental solution. Improves Agility—Green supply chain management helpmitigate risks and speed innovations. Increases Adaptability—Green supply chain analysis often leadto innovative processes and continuous improvements. Promotes Alignment—Green supply chain managementinvolves negotiating policies with suppliers and customers,which results in better alignment of business processes andprinciples.Source: The Triple-A Supply Chain, Lee, Harvard Business Review, October 2004Environmental Supply Chain Management, Carter and Narasimhan, CAPSResearch, 1998 2005 LMIPAGE 6

Contents What is Green Supply Chain Management? Green Supply Chain Management Principles Green Supply Chain Management Best Practices Implementing Best Practices SummaryPAGE 7 2005 LMI

The product life cycle is the basis ofgreen supply chain management.Supply Chain in the Environmental Life CycleDesigning the supply chainconcurrently with the product is asupply chain management actureTransportMaterialConsumer Transport DisposalExtractionUseTypical Supply Chain ScopePAGE 8 2005 LMI

The environmental impacts of each LCstage are examined for reduction.Environmental Life nsumer Transport erWasteAirAirAirWaterWastePAGE 9 2005 LMIAirWaterWaste

Historically, GSC management focusedon the upstream supply chain.Typical Green Supply Chain AnalysisSupplierSupplierManufacturer Manufacturer encouragessuppliers to adopt greenpractices, environmentalmanagement systems, etc. Focus is on the materialcontent and environmentalpractices of suppliers.SupplierP A G E 10 2005 LMI

Now, GSC programs are moving fromcompliance to value creation.Environmental, Safety, and Health Business ContributionsAssure ComplianceRaise ProductivityMinimize RiskEnhance RelationsMaintain HealthSupport InnovationProtect the EnvironmentEnable nSource: Forging New Links, GEMI, 2004P A G E 11 2005 LMI

Companies are starting to view GSC asa strategic analysis tool.Pollution Prevention HierarchyLongTermStrategicSource e value ce: U.S. Environmental Protection AgencyP A G E 12 2005 LMI

Contents What is Green Supply Chain Management? Green Supply Chain Management Principles Green Supply Chain Management Best Practices Implementing Best Practices SummaryP A G E 13 2005 LMI

Green supply chain best practices focuson the business results first.Green Supply Chain Best Practices AlignAlign greengreen supplysupply chainchain goalsgoals withwithbusinessbusiness goalsgoals EvaluateEvaluate thethe supplysupply chainchain asas aa singlesinglelifelife cyclecycle systemsystem UseUse greengreen supplysupply chainchain analysisanalysis asas aacatalystcatalyst forfor innovationinnovation FocusFocus onon sourcesource reductionreduction toto reducereducewastewasteP A G E 14 2005 LMI

Aligning GSC improvements with yourbusiness goals creates strategic value. Before embarking on green supply chain improvements, youneed 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 tocorporate goals, successes become leading indicators ofbusiness success.– Environmental indicators on the Balanced Scorecard– Greater drive for innovation– Stakeholder supportSource: Bringing the Environment Down to Earth, Reinhardt, HBR, July-August 1999Environmental Supply Chain Management, Carter and Narasimhan, CAPSResearch, 1998 2005 LMIP A G E 15

Evaluating the supply chain as a systemleads to life cycle optimization.System View of Environmental Life CycleInputsRaw MaterialEnergy ctureTransportMaterialConsumer Transport DisposalExtractionUseProductMaximizeMaximize thethe“good”“good” outputs.outputs.Waste MinimizeMinimize thethe“bad”“bad” inputsinputsandand outputs.outputs.P A G E 16 2005 LMI

Green supply chain management is adriver 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 reviewprocesses, materials, and operational concepts. As with continuous improvement programs, green supply chainanalysis targets:– Wasted material– Wasted energy or effort– Under-utilized resourcesGreen Process Improvement ApproachIdentify thewaste streamsMeasure oridentify theopportunitycost of thewasteCreateinnovation vs.treatment biastoward wastereductionSource: Green and Competitive, Proter and van der Linfde, HBR, Sept.-Oct. 1995Environmental Supply Chain Management, Carter and Narasimhan, CAPSResearch, 1998 2005 LMIP A G E 17

Focusing on source reduction programsdrives higher value improvements.Waste Reduction Opportunities in the Life tureTransportMaterialConsumer Transport yDisposeHighPotential for lifecycle cost savingsCumulative lifecycle costsLowP A G E 18 2005 LMI

The Army looked to using hybridHMMWVs to reduce the fuel SC footprint.HMMWV Fuel Supply Chain Army reviewed acquisition, maintenance, and fuel costsassociated with conventional and hybrid HMMWV.– Fuel costs included cost of supply chain.– Evaluation based on military operations. Costs are break even for the two platformsHybrid HMMWV– Hybrid technology lowers fuel cost but has greatermaintenance requirements.– However, hybrid platforms can also serve as powergenerators in theater and can offer some operatingadvantages (e.g., silent operation).DomesticFuel StorageTransportationInto TheaterTransportationWithin TheaterTheaterFuel StorageSource: Economics of Hybrid Electric Technology: Military Vehicles, 2002, LMIResource Costs of Supplying Power to a Battlefield, 2004, LMI Research Institute 2005 LMITheater FuelDistributionP A G E 19

USPS worked with direct mail vendorsto reduce supply chain cost and erhigherresponseresponseratesrates andandlowerloweroperatingoperatingcostscostsDirect Mail Supply ChainEnsureEnsure changesproperdo not affectaddressingsorting lemailSortingFacilityTarget mailingsto generate lesswastePostOfficeCustomerWasteProblem: Excessivedirect mail wasteand costTarget recycledUndeliverablecontent andItemsrecyclableEstimated savingssavings (USPS)(USPS) 500 500 MillionMillion (1997)(1997)materials EstimatedSource: Greening the Mail, 1999, LMIP A G E 20 2005 LMI

The Dutch flower industry greened itsproduction to increase throughput. Netherlands produces 65% of the worlds cut flowers, yet haslimited land.– Mass cultivation in a confined area resulted infertilizer, herbicide, and pesticide contamination. To correct the problem, growing was shifted torock wool and water vs. soil.– Fertilizer in the water is recycled through thesystem to reduce waste.– Water based growth also reduces the risk ofinfestation by weeds and pests, reducing theneed for chemical treatments.– The new system also greatly reduced variationsin growth conditions, greatly improving thepredictability of output. Producers were able to increase output per space and furtherinnovate to reduce costs (e.g., new harvesting methods).Source: Green and Competitive, Porter and van der Linde, HBR, Sept.-Oct. 1995P A G E 21 2005 LMI

Xerox implemented a take-back programredefined customer’s expectations.Xerox Copier Take-back Program esreusedreused omfromlandfillslandfills(2003)(2003) 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 aboutmachine 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 2005 LMIP A G E 22

Contents What is Green Supply Chain Management? Green Supply Chain Management Principles Green Supply Chain Management Best Practices Implementing Best Practices SummaryP A G E 23 2005 LMI

Green supply chain efforts need to riseabove the cost center view. Green supply chain projects need to be clearly defined in termsof 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 scarcein 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 inbusiness terms lowers their profile.– Many executives have misconceptions of how green supply chainefforts will impact their operations.– Without a clear business value proposition, it is difficult to getexecutive support for projects.Source: Forging New Links, GEMI, 2004P A G E 24 2005 LMI

Consider the existing business modelwhen planning GSC projects. Many businesses have internal hurdles that must be overcomefor 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 environmentaloffice. To be successful, the project manager needs to understand theorganization 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.Source: Forging New Links, GEMI, 2004P A G E 25 2005 LMI

Use tools such as GreenSCOR to helpdefine and analyze GSC problems.GreenSCOR ConceptEnvironmentalManagementManaging theenvironmentalimpacts ofoperations,includingcompliance,emissions, andremediationSupply ChainManagementGreenSCOR ModelManaging the flow ofmaterial fromsupplier to endcustomer, ement, andproductionP A G E 26 2005 LMI

GreenSCOR is a modification of the SCORmodel that includes environmental elements.GreenSCOR ContentPlanP1 Plan Supply ChainSourceS1 Source Stocked ProductsS2 Source MTO ProductsS3 Source ETO ProductsP4 Plan DeliverP3 Plan MakeMakeM1 Make-to-StockM2 Make-to-OrderM3 Engineer-to-OrderD2 Deliver MTO ProductsD3 Deliver ETO ProductsEnableSCOR ModelPlanP1 Plan Supply ChainSourceS1 Source Stocked ProductsS2 Source MTO ProductsS3 Source ETO ProductsP3 Plan MakeP4 Plan DeliverMakeM1 Make-to-StockM2 Make-to-OrderM3 Engineer-to-OrderP5 Plan ReturnsDeliverD1 Deliver Stocked ProductsD2 Deliver MTO ProductsD3 Deliver ETO ProductsReturnDeliverReturnSourceCustomersP2 Plan SourceSuppliersGreenSCOR modifiesthe existing SCORstructure to includeenvironmentalprocesses, metrics,and best practices.DeliverD1 Deliver Stocked gementP5 Plan ReturnsCustomersSuppliersP2 Plan SourceGreenSCORmaintains the integrityof the current SCORmodel by adding tothe existing elements.EnableGreenSCOR ModelP A G E 27 2005 LMI

Contents What is Green Supply Chain Management? Green Supply Chain Management Principles Green Supply Chain Management Best Practices Implementing Best Practices SummaryP A G E 28 2005 LMI

Implementing Green supply chainproperly will drive real business value. Green supply chain concepts manage environmental impactswhere they occur—ideally before they occur. Best practices focus on the business, not social, value thatgreen supply chain management creates.–––– Align green supply chain goals with business goalsEvaluate the supply chain as a single life cycle systemUse environmental analysis as a catalyst for innovationFocus on source reduction to reduce wasteSuccessful implementation requires raising the profile andperceived 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 executionP A G E 29 2005 LMI


green supply chain management. Supply Chain in the Environmental Life Cycle Raw Material Extraction Transport ManufactureTransport Retail/ Consumer Use Transport Disposal Concept Design Typical Supply Chain Scope Designing the supply chain concurrently with the product is a supply chain management best practice.

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