Logistic and Supply Chain Management - Research Paper Example

1. Introduction to Sustainable Green Supply Chain Management Sustainable or green supply chain management can be defined as the management of all activities right from the purchase from suppliers to taking back the disposed product from the customers with a special focus on improving the social and environmental impacts of those activities (Business Guide, 2003). The conventional supply chain management focused only on the activities till delivery of manufactured products or services to the customers. However Green supply chain management recognizes the significance of appropriate disposal and also asserts that the disposal of used products is the responsibility of the manufacturer. Therefore there has been a shift of Figure 1.1: Green Supply Chain Block Diagram Source: Otago Management Graduate Review, Volume 7, 2009 environmental responsibility from the consumer to the manufacturer. Also the retailers have become more dominant as compared to manufacturers in the supply chain relationship and they are generally the drivers of a sustainable and green supply chain (Business Guide, 2003). A block diagram of a green supply chain is shown in Figure 1.1(Fortes, 2009). 2. Key drivers for sustainable supply chain management There are several drivers for a sustainable supply chain management primarily because of the related benefits to various stakeholders. These are mentioned below. 2.1. Government Regulations The government owns the primary responsibility to influence supply chain sustainability. Government can achieve progress on this by effective use of bans, subsidies and incentives. The government can come up with measures such as environmental labels, licenses and product design guidelines (Business Guide, pp. 42). There are already a number of regulations in place for sustainability. These include U.S. Farm security and rural investment act (2002), European Union’s Restriction of Hazardous Substances (RoHS), China ROHS, E.U. Cosmetics directive, E.U. Packaging Directive, Waste Electrical and Electronic Equipment (WEEE) and REACH. In addition there are International Standards such as WRAP, FLA, ICTI CARE, ISO 14000 and ISO 26000 for addressing environmental causes (Business for Social Responsibility, 2007). 2.2. Market forces The relationship between brand owners and retailers is changing. Big retailers such as Walmart have a huge clout over the manufacturers and control the types of products they want to keep on their shelves. In addition, the retailers and brand owners are also under tremendous pressure from NGOs and other organizations working for environmental causes. This pressure comes from the opportunity cost due to a risk of reputation loss among the stakeholders. Some of the well known non-profit organizations working in collaboration with companies for environmental sustainability are Carbon Trust, Ceres, Clinton Climate Initiative, Conservation International and Earth share (Tilde, 2010). 2.3. Customers There is a long way to go before the customer become mature enough to buy only environment friendly products. However, the shift has already begun and the customers are willing to spend a few extra bucks to promote or support green supply chain initiatives. WholeFoods charges higher prices for its products than a retailer such as Wal-Mart but is still acceptable to customers because of the sustainable practices being followed in the manufacturing of those products. 2.4. Investors There are several socially responsible investors such as Sustainable Asset Management (SAM), Calvert and Domini who take their investment decisions based on overall performance of the company on economic, social and environmental development which in other words is called as Triple bottom line. In addition, the various investment firms and rating agencies have come up with indices or ratings to account for sustainability. A few of these are Goldman Sachs Sustain, Dow Jones Sustainability Index and Financial Times/London Stock Exchange (FTSE4Good). These ratings have an impact on the decisions of firms (Business for Social Responsibility). 2.5. Employees Employees especially the top level executives have become aware of sustainability in supply chains. They prefer to work in such organizations as they also see their personal growth in these companies. 3. Carbon emissions in product life cycle & Decarbonization Significant carbon emissions are done at every stage of a product lifecycle. Of the world’s total 50,000 mega-tonnes of annual carbon dioxide greenhouse gas emissions, 2800 mega-tones are due to logistics and transportation. Road freight forms the largest component of this carbon footprint while minerals and food sectors are the largest sectors by product category (World Economic Forum, 2009). The major factors which are likely to impact Decarbonization are government regulations, fuel prices and consumer awareness. Several initiatives have already been taken on this account. EU ETS was introduced a few years ago for penalizing heavily polluting industries in EU where heavy polluters would have to effectively pay 5-16% of actual prices for fuels (World Economic Forum, 2009). There are a number of opportunities to enable Decarbonization. One of these is in improving vehicle manufacturing technologies and making them cleaner. Sourcing goods from efficient suppliers and outsourcing tasks to nearby locations can also help in achieving the objectives of Decarbonization. Focus also needs to be laid on proper recycling of used goods. Energy efficient buildings, better packaging & design and effective training and communication programmes are some of the initiatives which can help make a quick progress on Decarbonization. 4. Implementation Steps to achieve sustainable SCM For successfully realizing a sustainable supply chain, an organization needs to go through the following steps. 4.1. Business Case Development / Commitment The foremost step in implementing a programme for supply chain sustainability is to develop a business case. This can be done by looking at the external environment and study case studies of companies which have done so successfully in the past. An analysis should be done of the differences before and after this implementation (United Nations Global Compact, 2000). These initiatives have to be driven by the top management. After this study a commitment has to be made by the board members to work on the same. 4.2. Risk, Gap and Scope assessment Such an initiative has a number of risks which could in terms of short term impact on finances or new operational bottlenecks. These risks have to be listed and mitigation plans have to be developed. A gap analysis between the current state and future state is required so that efforts could be made to bridge the gap. It is also essential to decide the scope of the initiative at this stage in line with organizational strategies and priorities (United Nations Global Compact, 2000). 4.3. Supply chain identification Many organizations are unaware of the length and width of their supply chains especially in case of complex supply chains. Therefore, an internal assessment is required. It needs to be assessed where the company’s supply chain holds a position within other supply chains (Business Guide, pp.15). 4.4. Implementation In this step, the expectations of the organization are communicated to suppliers, distributors and all other partners in the upstream and downstream supply chains. Internal operations are realigned to adjust to the new priorities. The organizations try to build strategic partnerships if required to realize its goals. These may include partnerships with third party logistic providers, IT outsourcing firms, consultants and so on (Nunes et. al., 2004). 4.5. Measurement New metrics have to be introduced to track performance on sustainability. Therefore, traditional scorecards need to be replaced by balanced scorecards and new versions of SCOR Model. An absolute transparency is required in tracking performance against goals 4.6. Communication of sustainable development as a part of business strategy After the new order has been established, it is very important to communicate the same to all business partners especially employees and customers. This would ensure seriousness on the issue as well as help in efficient change management. Training and counseling sessions need to be arranged for the same. 5. Ways to achieve Supply Chain Sustainability in various areas 5.1. Supplier engagement For achieving sustainability in this area, a code of conduct for the suppliers must be created. For this a core team has to be established consisting of a board member, members from purchasing, quality & HR and major suppliers. After this, a list of major global and domestic suppliers has to be prepared. The risks are assessed and priorities are decided. After this the actual code of conduct is prepared. The suppliers are given audit tools and acceptance criteria are decided. Continuous monitoring and evaluation is done to ensure quality. Levis Strauss & Co. was the first multinational company to establish global sourcing and operating guidelines (United Nations Global Compact, 2010). 5.2. Internal Operations & Logistics The internal operations which may include manufacturing, warehousing and logistics have to be optimized. Reverse logistics is generally one of the most neglected areas but can go a long way in determining the sustainability of a supply chain. Proper recycling of wastes in another area of concern. Also efforts should be made to make strategic partnerships with Third Party and Fourth Party Logistic providers to realize economies of scale and minimize costs. 5.3. Product development This is the most critical part of the supply chain. Organizations must adopt a ‘cradle to grave approach’ in product design and movement within the supply chain. Nokia is one of the few companies which are very conscious in this regard. Vodafone has also launched a mobile recycling campaign in conjunction with Nokia for proper recycling of mobile phones. 6. Measurement of sustainability using Green SCOR Model The conventional tools or frameworks being used for measuring the performance of a supply chain don’t account for green measures or sustainability. SCOR model is the best known model for supply chain performance measurement. The SCOR model includes best practices from a number of industries and business areas. It includes 5 process from end to end which are Plan, Source, Make, Deliver and Return. In Green SCOR model, the environmental metrics and best practices were included (Green SCOR Model, 2003; Best practices in implementing green supply chains, 2005). A typical Green SCOR model is shown in Figure 10.1 Figure 10.1: Green SCOR Model Source: LMI, Supply Chain World North America, 2003 7. Case Studies & Innovations in Green Supply Chain Management This section deals with several case studies of organizations which have taken successful initiatives in ensuring green supply chains. 7.1. IKEA IKEA deals in low price home furnishing products. The organizational direction is provided by its vision which states ‘To create a better everyday life for the many people’. IKEA keeps its prices low and affordable. However, it is not ready to compromise its sustainable business practices in order to achieve low prices. Its fundamental is ‘Low price but not any price’. IKEA works in close relationship with its core suppliers to ensure that sustainable practices are being followed in their generation. IKEA has more than 1300 suppliers in 50 countries. IKEA uses a toll called ‘ e-Wheel’ in order to measure and control the environmental impact of the products produced. This tool helps IKEA in the product life cycle analysis of its products and monitoring the impacts at various stages. IKEA makes use of wood, fibres, recycled plastic, waste material clippings and other waste raw materials for its products. It has a code of conduct for its suppliers which is called as ‘IKEA way of Purchasing Home Furnishing Products (IWAY). IKEA makes use of hollow furniture legs or honey comb paper filling to save resources. It carries out IWAY audit on a regular basis. IKEA discourages child labor and has collaboration with UNICEF and World Wildlife Fund to prevent child labor and save natural resources. IKEA has an organizational goal to recycle 90% of its products. All these initiatives have helped IKEA differentiate from its competitors and win consumer trust (The Times 100). 7.2. Sony Electronics and Waste Management Inc. Waste Management Inc. (WMI) is one of the world’s largest solid waste handlers. WMI has opened about 75 recycling centers in U.S. till date. WMI believes that there is a significant economic value in e-waste especially in electronics industry due to the high value of metals being used. Therefore, it is looking forward to build strategic partnerships with electronics manufacturers. Sony was one of the first partners of WMI. Generally, WMI charges fee to the customers who drop their e-wastes at WMI’s facilities for disposal. However, with partners such as Sony the payment is based on weight/volume. This fee turns out to be very small for Sony in comparison with the profits due to positive response from the customers (PriceWaterHouseCoopers, 2008). 7.3. L’Oreal L’Oreal is a French cosmetics company which has adopted sustainable supply chain practices. It has a condition for the suppliers to be audited by signing an Ethical Commitment Letter. All subcontractors, suppliers of raw materials, packaging, security and cafeterias are audited by L’Oreal according to SA8000 standard. The audits are done by third parties without notice. L’Oreal’s vision statement reflects its concern for green measures. It goes as “We are committed to building strong and lasting relationships with our customers and our suppliers, founded on trust and mutual benefit. We do business with integrity: we respect laws of the countries in which we operate and adhere to good corporate governance practices. We are mindful of our impact on the natural environment..We are committed to the respect of human rights…” 7.4. Alcatel-Lucent Alcatel-Lucent is a French Telecommunications company which developed an assessment methodology to evaluate the performance of suppliers’ performance management systems. The company in collaboration with EcoVadis developed a web collaborative platform based on UN Global Compact, Global Reporting Initiative Indicators and ISO 26000. The scorecard developed combined outputs from suppliers, audits and multiple stakeholders and yielded very beneficial results for the company. 8. Major challenges to realizing a sustainable supply chain Having discussed the issues, drivers, implementation steps and a few case studies, the benefits of a sustainable supply chain seem very obvious. However there are many challenges in achieving significant progress on the same. Some of these are mentioned below: 8.1. Lack of supplier information There are very few organizations which have accurate information of their suppliers. Either the information is limited to functional silos or there are just not enough efficient information systems to get real time information. The situation has improved with the emergence of ERP and SCM systems. However, there is a lack of central compliance and CSR repository which can capture information on social and environmental performance of the suppliers (Business for Social Responsibility, 2007). 8.2. Communication Gap The organizations and suppliers do not have a proper understanding of what information needs to be shared. Many times the suppliers are very small to invest in IT infrastructure and communication. Also third parties for logistics, data cleansing and audits are generally not well integrated into organizational systems (Business for Social Responsibility, 2007). 8.3. Non alignment of training programs and monitoring Training programs are arranged generally by independent departments and are carried out by external trainers who are unaware of organizational objectives. Similarly monitoring and compliance activities are carried out independently in many companies (Business for Social Responsibility, 2007). 9. Conclusion The literature review on sustainable supply chain management reveals that early steps have already been taken by several organizations to make their supply chains green and environment friendly. However, a lot more work needs to be done. Sustainability is not a short term fad. Sooner than later, the companies around the world will realize its economic value along with social and environmental value and incorporate sustainable ideas in their supply chains. 10. 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