Supply Chain - The Green way

Posted in Operations & IT Articles, Total Reads: 2998 , Published on 15 January 2013
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A supply chain is a conglomeration of multiple parties involved in fulfilling a customer order, decision making and management of information, resources and funds. The objective of a supply chain is to maximize the surplus – the difference between the revenue generated from a customer order and all the costs incurred by the supply chain while satisfying that customer order. A facility’s supply chain has a profound impact on the environment as a result of waste generated during products storage, transportation, processing, use or disposal.

 

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The global ecosystem is witnessing a rigorous challenge in terms of its energy generation and waste disposal capabilities. Therefore, environmentally responsible manufacturing is the need of the hour not just to achieve a competitive edge but also to increase the market share by curtailing the adverse environmental impact of products. As a more systematic and integrated strategy to achieve the dual objectives described, Green Supply Chain Management (GSCM) has emerged as an important new innovation that helps organizations develop ‘win-win’ strategies. GSCM is a holistic concept of green purchasing, green manufacturing and material management, green distribution and marketing, and finally reverse logistics. Thus, green supply chain encompasses components of environmental management as well as closed-loop supply chain, which integrates design, operations, and control of a system for maximizing value over life cycle of a product including value recovery from return at the end of its use. For instance, by employing efficient closed-loop supply chain, Xerox Corporation not only makes and sells new printer cartridges but also generates substantial revenue by re-manufacturing used cartridges collected from the users.

GSCM – the way ahead

Businesses that incorporate GSCM implement two important practices, one being the assessment of environmental performance of their suppliers and the other to collaborate with suppliers encouraging them to undertake measures that ensure the environmental quality of their products and processes. Organizations generally adopt green practices in their supply chain in order to comply with rules and regulations. However, there are several advantages for proactive firms that inculcate GSCM initiatives even before environmental regulations are in place. GSCM initiatives can help organizations develop a competitive advantage, enhance the brand value of the firm and create a positive impression about the firm in the minds of the stakeholders. For instance, Volvo planned proactively in anticipation of a Swedish law that made automakers responsible for disposal of used vehicles and eventually set up sophisticated operations for salvaging and dismantling vehicles that generated significant revenue.

Another critical aspect of a green supply chain is sustainable and environmentally friendly product and process design. Such an approach contributes significantly to the bottom line of the firm owing to increase in the number of environmentally conscious customers, who, in turn, serve as the primary driver in order to justify the implementation of green initiatives. In green product design, an analysis is carried out to assess the environmental impact of a product during its active lifecycle and beyond and attempts are made to minimize adverse effects. This includes elimination of waste and by-products during manufacturing, reuse of wasted energy, adherence to strict quality standards to reduce defects and adoption of lean principles to avoid excess usage.

Finally, return collection and recovery are an integral part of the green supply chain which adds significant value to it. While efficient return collection system saves logistics costs, easy and environmentally conscious return policy improves customer relationships, thereby benefiting not just the product manufacturer but all parties involved in the supply chain. The concept of Reverse Logistics is popular in this regard, the process of moving products from their typical final points of use for the purpose of proper disposal and/or value recovery through recycling or remanufacturing. Recycling is processing of a product after the end of its life cycle to prevent potential waste of useful materials. After recycling, the materials used in a product may be converted into some other materials or may be brought back to their original forms to be used again. On the other hand, remanufacturing is the process of replacing or repairing worn out or obsolete components or modules in a product and bringing back the product to like-new condition.

Implementation of GSCM cannot be initiated without a firm commitment from all the key partners. Since most GSCM initiatives involve the adoption of relatively newer technologies, a clear and defined framework of measures to assess project performance needs to be established. Moreover, GSCM initiatives may not be attractive in the short run but yield significant benefits in the long run. This requires intense and objective scrutiny of the GSCM implementation in the short run so that the right path is tread for significant long term initiatives. Hence, the framework of measures employed needs to be tailored to the individual firm or project level needs. Also, the set of metrics employed need to be constantly monitored and reworked so as to reflect maturity of the practices involved.

GSCM put into practice

As far as the implementation of GSCM is concerned, four critical stakeholder groups can be identified which are listed below:

  • Regulatory stakeholders who either set regulations or have the ability to convince governments to set standards
  • Organizational stakeholders who are directly related to an organization or can have a direct financial impact on the company
  • Community groups, environmental organizations and other potential lobbies who can mobilize public opinion in favor of or against a firm’s environmental policies
  • Media, which has the ability to influence society’s perception of a firm

The relative influence of each of the above four stakeholder groups determines the environmental strategy adopted by a firm for its environmental management initiative. Accordingly, four such strategies are identified:

  • Reactive: This is adopted for low levels of environmental responsiveness
  • Focused: Such a strategy is employed for high levels of environmental management wherein a firm is fully committed to the implementation of GSCM practices irrespective of its financial implications.
  • Opportunistic: A firm adopts such a strategy if it is financially beneficial in the long term
  • Proactive: Applied to the latest environmental practices, a firm adopting such a strategy has high standards of environmental performance set internally which may be quite advanced as compared to the current government or global standards.

The implementation of green supply chain is, in turn, driven by internal as well as external drivers. Internal drivers include the willingness within the organization to improve risk management and collaboration with suppliers to minimize environmental impact. External drivers include customers, investors and non-governmental organizations.

Figure 2: Green supply chain drivers [3]

It is important to assess the effects of green practices listed above on the supply chain performance of a firm and integrate them in a manner that makes it possible to control and supervise supply chain performance in operational, economic and environmental terms. Operations are the foundation of efficient distribution and manufacturing which in turn leads to financial returns. Economic performance is the most important driver for organizations which implement GSCM and is related to the effective use of various inputs in the production processes. Finally, as mentioned earlier, environmental performance is a concern for organizations for regulatory and contractual compliance, public perception and a competitive advantage.

Conclusion

The impact of supply chain on the environment is under increased scrutiny in current times with increased pressure from community and environmentally conscious customers. This has forced manufacturers to integrate environmental concerns in their management practices out of which GSCM has emerged as an important outcome. The drivers for the implementation of a green supply chain were highlighted along with the fact that a buy-in from all the key partners in a supply chain is imperative for the success of GSCM initiatives. Finally, implementation of GSCM practices can serve to create a competitive advantage for a firm and enhance its brand value apart from ensuring compliance with rules and regulations on a local as well as a global level.

This article has been authored by Rahul Ranganathan & Parthiban V from NITIE.

References

  1. Azevedo S.G., Carvalho H., Machado V.C., “The influence of green practices on supply chain performance: A case study approach”, Transportation Research Part E, 47(2011), p850-871
  2. Bose I., Pal R., “Do green supply chain management initiatives impact stock prices of firms?”, Decision Support Systems, 52(2012), p624-634
  3. Diabat A., Govindan K., “An analysis of drivers affecting the implementation of green supply chain management”, Resources, Conservation and Recycling, 55(2011), p659-667
  4. Hassini E., Surti C., Searcy C., “A literature review and a case study of sustainable supply chain with a focus on metrics”, Int. J. Production Economics, 140(2012), p69-82
  5. Olugu E.U., Wong K.Y., Shaharoun A.M., “Development of key performance measures for the automobile green supply chain”, Resources, Conservation and Recycling, 55(2011), p 567-579
  6. Zhu Q., Sarkis J., “An inter-sectoral comparison of green supply chain management in China: Drivers and practices”, Journal of Cleaner Production, 14(2006), p472-486

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