1
“Best Practice for Efficiency in
Logistics & Supply Chain. Role of
Green & Sustainable Practices in
Supply Chain”
Ms Rhena Tan (President, SIMM)
Singapore Institute of Materials Management
PISM- Supply Link Conference
Billions of dollars of waste???
2
P A G E 3 © 2005 LMI
The Butterfly Effect
• Indirect Land Use Emission (ILUE)
• Discussion of using biodiesel? Is Biodiesel the answer to fossil fuels?
1.Using soya beans, 2.Using sugar cane, 3.Using plants for running cars?
Would millions of area of deforestation
impact upon the environment?
• https://www.youtube.com/watch?v=lmrOOG-IYQ0
P A G E 4 © 2005 LMI
Supply Chain Management
3
P A G E 5 © 2005 LMI
Green SCM integrates environmental
and supply chain management.
Green SCM recognizes the disproportionate environmental impact of supply chain processes in an organization.
Green Supply Chain Management
Environmental
Management
Supply Chain
Management
Green Supply Chain Management
Source: LMI Government Consulting
P A G E 6 © 2005 LMI
Green SCM leverages the role of the
environment in SC value creation.
Green Supply
Chain Programs
Employee
Satisfaction
Environmental
Sustainability
Community
Quality of Life
Profitability
Asset Utilization
Service Level
Customer
Reputation
Continuity
Alliances
Technology
Supply Chain
Value
Stakeholder
Interests
Tangible Outcomes
Intangible Value Drivers
Source: Forging New EMI, 2004
Environmental Value Drivers
4
P A G E 7 © 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).
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.
Dow Corning: Saved $2.3 million
by using reconditioned steel drums
in 1995. Also conserved 7.8
million pounds of steel.
Source: Prof Lenny Koh, University of Shieffield (SCMIS)
P A G E 8 © 2005 LMI
Green Supply Chain improves operations
by employing an environmental solution.
• Improves Agility—Green supply chain management help mitigate risks and speed innovations.
• Increases Adaptability—Green supply chain analysis often lead to innovative processes and continuous improvements.
• Promotes Alignment—Green supply chain management involves negotiating policies with suppliers and customers, which results in better alignment of business processes and principles.
• Source: Prof Lenny Koh, University of Shieffield (SCMIS)
Source: The Triple-A Supply Chain, Lee, Harvard Business Review, October 2004
Environmental Supply Chain Management, Carter and Narasimhan, CAPS
Research, 1998
5
P A G E 9 © 2005 LMI
The product life cycle is the basis of
green supply chain management.
Supply Chain in the Environmental Life Cycle
Raw
Material
Extraction
Transport Manufacture Transport Retail/
Consumer
Use
Transport Disposal Design Concept
Typical Supply Chain Scope
Designing the supply chain
concurrently with the product is a
supply chain management best
practice.
Source: Prof Lenny Koh, University of Shieffield (SCMIS)
P A G E 10 © 2005 LMI
The environmental impacts of each LC
stage are examined for reduction.
Environmental Life Cycle
Raw
Material
Extraction
Transport Manufacture Transport Retail/
Consumer
Use
Transport Disposal
Air
Water
Waste
Air
Air
Water
Waste
Air
Air
Water
Waste
Air
Air
Water
Waste
Stage
Impacts
Water
Energy Inputs
Water
Energy
Design Concept
Source: Prof Lenny Koh, University of Shieffield (SCMIS)
6
P A G E 11 © 2005 LMI
Nespresso Environmental Issues
P A G E 12 © 2005 LMI
Nespresso
Nespresso sales have been growing 30 % per year
No of capsules: 20 billion capsules
Nespresso annual sales of US$ 4.5 billion in 2013
Capsules difficult recycled :mixture of plastic and aluminium
One capsule = 1 gram of aluminum
https://www.youtube.com/watch?v=3Ex3R7ePmMc
7
P A G E 13 © 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
Source: Prof Lenny Koh, University of Shieffield (SCMIS)
P A G E 14 © 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
Source: Prof Lenny Koh, University of Shieffield (SCMIS)
8
P A G E 15 © 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.
Source: U.S. Environmental Protection Agency
P A G E 16 © 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
Green Supply Chain Best Practices
9
P A G E 17 © 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 1999
Environmental Supply Chain Management, Carter and Narasimhan, CAPS
Research, 1998
Source: LMI Government Consulting
P A G E 18 © 2005 LMI
Evaluating the supply chain as a system
leads to life cycle optimization.
System View of Environmental Life Cycle
Raw
Material
Extraction
Transport Manufacture Transport Retail/
Consumer
Use
Transport Disposal
Product $ Waste
Stage
Outputs
Raw Material Inputs
Energy
Design Concept
$
Maximize the
“good” outputs.
Minimize the
“bad” inputs
and outputs.
Source: LMI Government Consulting
10
P A G E 19 © 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. 1995
Environmental 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
Source: LMI Government Consulting
P A G E 20 © 2005 LMI
Focusing on source reduction programs
drives higher value improvements.
Waste Reduction Opportunities in the Life Cycle
Raw
Material
Extraction
Transport Manufacture Transport Retail/
Consumer
Use
Transport Disposal Design Concept
Reduce Reuse/Recycle Dispose Control
Technology
Low
High
Potential for life
cycle cost savings
Cumulative life
cycle costs
Source: LMI Government Consulting
11
P A G E 21 © 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).
Domestic
Fuel Storage
Transportation
Into Theater
Transportation
Within Theater
Theater
Fuel Storage
Theater Fuel
Distribution
Hybrid HMMWV
HMMWV Fuel Supply Chain
Source: Economics of Hybrid Electric Technology: Military Vehicles, 2002, LMI
Resource Costs of Supplying Power to a Battlefield, 2004, LMI Research Institute Source: LMI Government Consulting
P A G E 22 © 2005 LMI
USPS worked with direct mail vendors
to reduce supply chain cost and waste.
Direct
Mailer
Post
Office
Sorting
Facility
Post
Office Customer Waste
Undeliverable
Items
Direct Mail Supply Chain
Estimated savings (USPS) = $500 Million (1997)
Problem: Excessive
direct mail waste
and cost
Target mailings
to generate less
waste
Recycle
undeliverable
Ensure changes
do not affect
sorting capability
Ensure
proper
addressing
Direct
Mailers
realize
higher
response
rates and
lower
operating
costs
Target recycled
content and
recyclable
materials
Source: Greening the Mail, 1999, LMI
Source: LMI Government Consulting
12
P A G E 23 © 2005 LMI
Xerox implemented a take-back program
redefined customer’s expectations.
• In early 1990s Xerox launched a new initiative to take back used copiers 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 1999
Environment, 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)
Source: LMI Government Consulting
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.
Source: Forging New Links, GEMI, 2004
13
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.
Source: Forging New Links, GEMI, 2004
A wider agenda…
14
P A G E 27 © 2005 LMI
Estimated global mean temperature over the past 100,000 years
Source: Australian Government, Bureau of Meteorology, 2008
P A G E 28 © 2005 LMI
15
P A G E 29 © 2005 LMI Source: Australian Government, Bureau of Meteorology, 2008
P A G E 30 © 2005 LMI
Forward and reverse SCs
Raw material
suppliers
Parts or
components
suppliers
Product
manufacturers
Distribution
channelsEnd users
Recycling Remanufacturing Repair Reuse
End-of-life
products
Divergent flows
Landfill
Convergent flows
Forward supply chain
Reverse supply chain
Interfaces between downstream flows and upstream material flows
Source: Koh, S.C.L., Gunasekaran, A., Tseng, C.S., 2008
16
P A G E 31 © 2005 LMI
Top 10 SC leaders
1. Apple
2. Nokia
3. Dell
4. P&G
5. IBM
6. Wal-Mart
7. Toyota
8. Cisco Systems
9. Samsung Electronics
10. Anheuser-Busch
1. Apple: Digital SC – Sensing demand and changing their SC
2. The end of mass customisation? – Dell’s model. Truncating BTO and shifting to MTS and contract manufacturing (Back to the future)
3. Toyota: lean system, waste minimisation, TPS
4. Wal-Mart turning back from RFID, instead focusing on greening their SC
Sources: AMR Research Supply Chain Top 25, 2008
P A G E 32 © 2005 LMI
Reality check
• Most companies green supply chain strategies are rhetoric and outpacing real action.
• Fewer than 25% say their companies always or frequently take climate change into consideration in making supply chain decisions.
• Only 21% thought the opportunities for new product/market far outweighed the risks.
• For consumer goods makers, high-tech players, and other manufacturers, 40-60% of carbon footprint resides upstream in the supply chain—from raw materials, transport, and packaging to the energy consumed in manufacturing processes. For retailers, the figure can be 80% or more.
Source: McKinsey Study, 2008
17
P A G E 33 © 2005 LMI
Insufficient comparable basis
• Traditional process life cycle assessment and supply chain analysis have some serious limitations. – They suffer from severe truncation error arising
from the need to limit the study system to make process based studies feasible. Evidence shows that the cut-off criteria used in life cycle studies rarely leads to comparable systems.
– Process life cycle inventory databases as crucial sources of secondary data for life cycle assessment are far from complete.
Source: Stockholm Environment Institute, 2008
P A G E 34 © 2005 LMI
. • 1. Increase fuel efficiency in Wal-Mart’s truck fleet by 25
percent over three years and doubling it within 10 years
• 2. Reduce greenhouse gases by 20 percent in 7 years
• 3. Reduce energy use at stores by 30 percent in 7 years
• 4. Cut solid waste from U.S. stores and Sam’s Clubs by 25 percent in three years.
• 5. Buying diesel-electric and refrigerated trucks with a power unit that could keep cargo cold without the engine running, saving nearly $75 million in fuel costs and eliminating an estimated 400,000 tons of CO2 pollution in one year alone
Source:LMI Government Consulting
Wal-Mart Initiatives
18
P A G E 35 © 2005 LMI
• 6. Making a five-year verbal commitment to buy only organically grown cotton from farmers, and to buy alternate crops those farmers need to grow between cotton harvests. The company became the world's largest buyer of organic cotton
• 7. Promising by 2011 to only carry seafood
certified wild by the Marine Stewardship Council, a group dedicated to preventing the depletion of ocean life from overfishing.
• 8. Buying (and selling) 12 weeks' worth of
Restrictions on Hazardous Substances (RoHS) compliant computers from Toshiba
Source:LMI Government Consulting
Wal-Mart Initiatives
P A G E 36 © 2005 LMI
.
Eco-production
Eco-procurement
Eco-logistics
Leadership
Eco-resources
Policy
Eco-design
Directive
Standard
Green Supply
Chain
Source:LMI Government Consulting
The 5ecos PDSL model
19
P A G E 37 © 2005 LMI
The complete supply chain
Raw material
suppliers
Parts or
components
suppliers
Product
manufacturers
Distribution
channelsEnd users
Recycling Remanufacturing Repair Reuse
End-of-life
products
Divergent flows
Landfill
Convergent flows
Forward supply chain
Reverse supply chain
Interfaces between downstream flows and upstream material flows
E1: Eco-
resources
E2: Eco-design
E3: Eco-procurement
E4: Eco-
production
E5: Eco-logistics
Policy
Directive
Standard
Leadership
E1
E2
E3
E4
E5
PDSL
E1
E2
E3
E4
E5
PDSL
E1
E2
E3
E4
E5
PDSL
E1
E3
E5
PDL
E1
E3
E5
PL
Greening a SC
P A G E 38 © 2005 LMI
From local to global supply chains
• A typical supply chain for a branded company includes Asian-based companies that serve as Original Equipment Manufacturers (OEMs) or Original Design Manufacturers (ODMs) for the branded company.
• In order to deliver quality products to the branded companies, the OEMs/ODMs cannot ignore the impact caused by environmental directives and standards (Karakavali et al, 2007)
• This applies to companies in a whole range of industry sectors.
• This provides a framework to link domestic manufacturers to the international supply chains.
Source:LMI Government Consulting
20
P A G E 39 © 2005 LMI
Product/Proces
s Design
Raw and
Virgin
Material
New
Componen
ts and
Parts
Recycled,
Reused
Material
and Parts
Vendors
Selection
External
Transportatio
n
Storage
Inventory
Managemen
t
Internal
Transportation
Fabrication
Assembly
Closed-Loop
Manufacturing,
Demanufacturing,
Source Reduction
TQEM
Storage
Distribution,
Forward
Logistics
USE
Purchasing,
Materials
Management,
Inbound
Logistics
Production
Outbound
Logistics
Disposal
Reverse Logistics
Waste Waste Waste
Energy Energy Energy
Energy
Reusable,
Remanufacturable,
Recyclable
Materials and
Components
Location Analysis,
Inventory Management,
Warehousing
Transportation
Packaging
Marketing Engineering
Customer Relationships
Green Marketing
Product Stewardship
Waste Source: Dr P Chandiran, Centre for Logistics and SCM, Loyola, Institute of Business
P A G E 40 © 2005 LMI
Supply Chain Practices
Build environmental considerations into product design
• Jointly develop cleaner technology with suppliers
• Conduct life cycle analysis in cooperation with suppliers
• Engage suppliers in design for environment (DFE) product innovation
• Coordinate minimization of environmental impact in the extended supply
chain
• Develop tools that assist in the DFE effort
Cooperate with suppliers to deal with end-of-pipe environmental issues
• Reduce packaging waste at the customer/supplier interface
• Reuse/recycle materials in cooperation with the supplier
• Launch reuse initiatives (including buy backs and leasing)
Reverse logistics
• Give supplier an incentive to reduce the customer’s environmental load
21
P A G E 41 © 2005 LMI
Some More Supply Chain Practices
Influence legislation to facilitate better SCEM policies
• In cooperation with suppliers, lobby to strengthen environmental regulation
• Lobby on behalf of SCEM initiatives
Work with industry peers to standardize requirements
• Create interfirm procurement group to collaborate on environmental issues
• Standardize supplier questionnaires
Inform suppliers of corporate environmental concerns
• Issue statements of EHS priorities to suppliers
• Draft and distribute comprehensive SCEM policy
Promote exchange of information and ideas
• Sponsor events to facilitate discussions between customers and suppliers on environmental issues
• Host training and mentoring programs.
Source:LMI Government Consulting
P A G E 42 © 2005 LMI
Why Do it? (Benefits)
USAEP, 2001, USAEP, (2001), “Greening the Supply Chain”, U.S. – Asia Environmental
Program, http://www.usaep.org/ctem/greening.htm.
• Economic benefits from increased efficiency. By reducing wastes, companies decrease handling expenses, fines, and even costly inputs. Supplier's savings may be passed along to buyer companies.
• Competitive advantage through innovation. Efficient production is enhanced through the use of cleaner technologies, process innovation, and waste reduction. Reduction in wastes equals dollars earned.
• Improved product quality. Supply chain partnerships help maintain relationships between buyers and suppliers leading to increased control over product quality.
• Consistent corporate environmental goals. In an era of multi-faceted, non-vertical manufacturing, companies include supplier outreach to address corporate environmental goals.
• Improved public image. Consumers, investors, and employees respond positively to companies with a reputation for good environmental performance.
22
Thank You.
