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Supply Chain Performance in a Green ContextIFC Event – Can Green & Lean Go Together?Washington, DC – December 13th, 2010

IFC Event {Can Green & Lean Go Together} – December 13th, 20102

Agenda

Framing the Challenge

The Green Context of Supply Chain Operations

How New SCM Practices Can Enable the Green Trend

1

2

3

Framing a Comprehensive Green SCM Strategy4

IFC Event {Can Green & Lean Go Together} – December 13th, 20103

First off, The Field of SCM is Highly Difficult to OptimizeThe Uncanny Resemblance with Chaos Theory

1. Complex systems consist of a large number of elements.2. The elements have to interact and this interaction must

be dynamic. 3. The Interaction is fairly rich, i.e. any element in the system

influences, and is influenced by, quite a few other ones.

4. Firstly, the interactions are non-linear. 5. The interactions usually have a fairly short range, i.e.

information is received primarily from immediate neighbours.

6. There are loops in the interaction.7. Complex systems are usually open systems, i.e. they interact

with their environment.

8. Complex system operate under conditions far from equilibrium.

9. Complex systems have a history. Not only do they evolve through time, but their past is co-responsible for their present behaviour.

10. Each element in the system is ignorant of the behaviour of the system as a whole.

IFC Event {Can Green & Lean Go Together} – December 13th, 20104

… and In addition to Its Inherent ComplexityOptimizing SCM requires Collaboration; Are We Wired for It?

The Idea: Unlike ants and bees, humans aren't hard-wired for cooperation; we tend to act out of self-interest. That inclination repeatedly draws us into "social dilemmas" where, in an attempt to gain more for ourselves, we ultimately fare worse than we would have by cooperating.

The evidence: The trick is to establish an agreement where everyone's self-interest is best served by cooperating. That means removing incentives to violate the agreement.

The Conclusion: Businesses are nothing but federations of human beings. We think we’re different and unique and we behave in ways that protect and promote that uniqueness. We need to overcome some innate apprehensions to build a winning green value proposition for key supply chain partners

http://www.newsweek.com/id/170380

IFC Event {Can Green & Lean Go Together} – December 13th, 20105

Why is Supply Chain Management a Good Starting Point?

Source – http://www.eia.doe.gov/emeu/aer/pdf/aer.pdf

60%

IFC Event {Can Green & Lean Go Together} – December 13th, 20106

… and yet, the Green SCM Revolution Remains Elusive

Fortune 500 22

# of Fortune 500 companies that have initiated some Green

SCM strategy

# of Fortune 500 companies that have approached this with their trading partners

0

JANUARY 2010

IFC Event {Can Green & Lean Go Together} – December 13th, 20107

There Are Some Good Signs, Though…

IFC Event {Can Green & Lean Go Together} – December 13th, 20108

Achieving this Paradigm ShiftRequires a Perception Change of CO2 as a Decision Variable

Defects Inventory Waiting Excess Motion

Over Production

Over Processing

Transportation

CO2 / GHG

1 2 3 4

5 6 7 8

Carbon in the Business Environment Needs to be De-Mystified

Introducing Carbon as the 8th Muda

IFC Event {Can Green & Lean Go Together} – December 13th, 20109

Agenda

Framing the Challenge

The Green Context of Supply Chain Operations

How New SCM Practices Can Enable the Green Trend

1

2

3

Framing a Comprehensive Green SCM Strategy4

IFC Event {Can Green & Lean Go Together} – December 13th, 201010

Where is the Carbon in the Supply Chain?Everywhere! Supply Chain activities create significant carbon emissions,

making supply chain an important focus for clients seeking to reduce their carbon footprint

Suppliers & Manufacturers

Customers & Channels

• Design for the Environment

• Carbon footprint thinking throughout product lifecycle design

• How can the total network be optimized considering service, cost, “green” tradeoffs

• What CO2 impact is there from various inventory concepts & planning methodologies

• How can we best measure a supplier’s carbon impact (product, packaging, upstream logistics) and ultimately compliance with carbon reduction requirement?

• How should we evaluate carbon offsets?

• What operations strategy (facility location, operating model) provides the best trade-off between cost, service, carbon?

• Is there a role for sustainable factory / facility mgmt?

• What distribution network strategy (facility locations, sizes, transport modes) provides the best tradeoff of cost, service and carbon?

• How can packaging be reduced and recycled?

• How can field service operations reduce carbon footprint with better routing and parts inventory tracking?

• Feedback loop to engineering to reduce impact

• Various strategies to reduce impact throughout lifecycle

Flows: Product, Process, Information, Cash

SC Strategy Procurement LogisticsIntegrated Ops Integrated Ops

Plan Source Make DeliverDesign Service & End-of-Life

Asset Management

Finance

Sustainable facilities management: Green building & renewable energy; carbon footprint asset management; Asset utilization (Real-time data on energy usage; Carbon dashboard)

Paperwork Reduction; Environmental Cost Accounting; Environmental Tax Benefits Tracking

PLM

IFC Event {Can Green & Lean Go Together} – December 13th, 201011

On the Need to Embed CO2 as a New Operational Variable Exhibit 1 – Procurement Strategy Scenario

Volume

DistanceCarbon Impact

Unit Cost

Mexico

China

As-Is

To-Be

New “Green” Value Equation = Actual Cost (Production + Transportation) + Corresponding Carbon Cost

ABC, Inc

Classic Value Equation = Least Production Cost despite the Transportation Cost

ABC

ABC

IFC Event {Can Green & Lean Go Together} – December 13th, 201012

On the Need to Embed CO2 as a New Operational Variable Exhibit 2 – BOM and Routing in a CO2-Constrained SC

IFC Event {Can Green & Lean Go Together} – December 13th, 201013

On the Need to Embed CO2 as a New Operational Variable Exhibit 3 – Planning ‘Noise’ & GHG Responsibility

A Value Chain Network View

PrevailingView

Our View

Leverage +–

What is a fabless company Carbon Footprint?What is its environmental responsibility?

IFC Event {Can Green & Lean Go Together} – December 13th, 201014

Noise in the Supply Chain is Neither Lean nor GreenThe Carbon Reverse Bullwhip Effect

Extended Supply Chain ViewEnd Custom

ers

Suppliers RetailersPlants

Caron Buildup Process

Classic Bullwhip

Effect

True Customer Demand

InventoryProduced

Amount of Inventory

Inefficiencies

CarbonProduced

Amount of Carbon

Inefficiencies

IFC Event {Can Green & Lean Go Together} – December 13th, 201015

On the Need to Embed CO2 as a New Operational Variable Exhibit 4 – The Elusive SCM Cost Breakdown

Labor Cost

Su

pp

ly C

hai

n C

ost

Dri

vers

The “Fictitious” Border between

Tangible & Intangible Costs

Cost Drivers

Material Cost

Manufacturing Costs

Logistics Costs

Tang

ible

Cos

tsIn

tang

ible

Cos

ts

Obsolescence Exposure

Quality Costs

Green Cost

Hypothetic Dependency of Network Structure, Logistics Cots & Oil Price

Source – Gross, W. and Hayden, C. – Oil Price Impact on Logistics Network Structure – a Model-Based ApproachProceedings of the International Workshop on Applied Modeling & Simulation

May 5-7, 2010 – Buzios, Rio de Janeiro, Brazil

IFC Event {Can Green & Lean Go Together} – December 13th, 201016

Observation # 1

• Local and Regional Models need to be encouraged (less carbon footprint and less inventory as a result of reduced lead times)

Local Model

RegionalModel

GlobalModel

Which Leads Us to Some Interesting Observations

CCX

ECX

AP

OCE

Observation # 2

• Proliferation of CO2 trading platforms will delay properly tackling the problem

• Carbon trading should be approached as a global commodity

IFC Event {Can Green & Lean Go Together} – December 13th, 201017

Agenda

Framing the Challenge

The Green Context of Supply Chain Operations

How New SCM Practices Can Enable the Green Trend

1

2

3

Framing a Comprehensive Green SCM Strategy4

IFC Event {Can Green & Lean Go Together} – December 13th, 201018

Green Supply Chain ManagementValue of a Network Approach

BOM Analysis Tier2+ Partner Selection

Channel / Distribution

Reverse Operations

Supply• Substitutable

components• Sourcing choices• Location choices

Inventory policy• Safety stocks• Lot sizes• Replenishment

VMI/VMR

Packaging• Package size

options• Package recycling

options• Corrugated box

Energy• Embodied Energy• GHG Regulatory $

Impact

Transportation• Modes• Shipment

frequency• Load consolidation• Carrier routing

Processing• Manufacturing

process• Quality control

Processing• Repair /

refurbishment process

• Shipment process• Quality control

Processing• Order fulfillment• Shipment process• QC process• Organizational

management process

IFC Event {Can Green & Lean Go Together} – December 13th, 201019

Green Supply Chain ManagementImplementing a Network Approach

Provide performance KPI’s to customers

Associate compliance to Orders & Inventory

Automate Compliance Data Collection

Sustainability & SC Integration

19

IFC Event {Can Green & Lean Go Together} – December 13th, 201020

Agenda

Framing the Challenge

The Green Context of Supply Chain Operations

How New SCM Practices Can Enable the Green Trend

1

2

3

Framing a Comprehensive Green SCM Strategy4

IFC Event {Can Green & Lean Go Together} – December 13th, 201021

12 Ideas to Make Your Supply Chain Greener

IFC Event {Can Green & Lean Go Together} – December 13th, 201022

Exploring the Ideas

Redesign the product Reconfigure Manufacturing Shift to Green Suppliers

Shorten Distances Alter service-level agreements Shrink packaging

IFC Event {Can Green & Lean Go Together} – December 13th, 201023

Exploring the Ideas (continued)

Plan for reverse supply chain activity Consolidate shipments Plan smaller routes

Start now: define a green strategyTake a life-cycle viewCoordinate with partners