Why Companies Should Green Their Supply Chain Management - Research Paper Example

?Why Companies Should Green Their Supply Chain Management Introduction Increasing cross-border transactions in supply chain is a phenomenon closely associated with the liberalization and globalization of economies. The intense competition drives the manufacturers to keep the cost of raw materials and labor low. Sourcing of raw materials with right quality and lower price necessitated movement of materials across the continents. On the other hand, shifting of production facilities to the places where the cost of labor is cheap is also considered by the companies. These twin strategies result into movement of raw materials and finished products from place to place cutting across the borders of the nations. The increase in the level of activity in the flow of the movement of goods over the period of time necessitated revisiting of the strategies by the corporate companies in respect of supply chain management with a view to reduce cost. However, the developments that have been taking place in the environmental front warrant corporate social responsibility (CSR) in view of atmospheric pollution which leads to global warming, water pollution, human rights issues involved, and extinction of animal and plant species. Judicious use of natural resources in the process is very important for maintaining ecological balance and the welfare and rights of the future generations. Also, growth at the current level with the accelerated use of natural resources is not sustainable in the long run. The management of various activities such as procurement of raw materials from different countries across the globe and movement of finished goods from the factories to distributors and dealers for final consumption by the end customer through different chains of distributions involve export, transportation, warehousing and retailing. Therefore, management of demand and supply for ensuring right product, at the right time, at the right place and at the right price to the consumers hinges on effective supply chain management. The developments in the field of technology, telecommunications and social network in the recent years have increased the awareness among the consumers and the companies need to take note of these changes in the society and revise their strategies for sustainable growth and development. Green supply chain management Parry, P., Martha, J. & Grenon, G. (2007) state “the supply chain is the production and distribution network that encompasses the sourcing, manufacturing, transportation, commercialization, distribution, consumption, and disposal of goods, from the ore mine to the trash can”. Primarily, the uninhibited consumption of energy at various levels leads to inflation in the energy prices. The cascading effect of the increasing fuel prices results into inflation in food prices and becomes a threat to food security. The impact of greenhouse gas emissions is considered to be very serious as the damage to the environment could be irreversible. Supply chain management needs to play an important role in reduction in the consumption of energy in an organization. This could be achieved through a comprehensive corporate strategy which encompasses conservation of energy on voluntary basis, compliance with the regulations as a good corporate citizen, savings in cost by reducing emissions, adoption of standards issued by various agencies and environmental auditing, water and effluents treatment, recycling, waste disposal and renewable energy. For instance, according to a study by Canning, P. et al. (2010) food processing showed the largest growth in energy use. Recycling of packing materials, generation of electricity from waste and avoiding use of environmentally unfriendly packing materials in the industry would not only be beneficial to the environment and the society but also results into cost saving. According to Bruntland report “Development that meets the needs of the present without compromising the ability of future generations to meet their own needs” (The World Bank Group, 2001). Emission of greenhouse gases, polluting ground water and water ways with industrial effluents, causing depletion of water table, deforestation and extinction of species which result into imbalances in ecosystem needs to be addressed by the industries as they have been primarily responsible for the degradation of the environment from the initial days of industrial revolution. Green supply chain management enhances the reputation of the company and resulting into economic benefits useful for the growth and sustainable development in the long run. Paradigm shift in consumer psychology Charles, A. (2010) states “Many of today's entrepreneurs are building their businesses based on the idea of fulfilling a new kind of social contract, one in which organizations voluntarily take responsibility for the "triple bottom line": people, planet, and profits”. The advent of internet and social networks have created awareness among the public which guides them in dealing with the companies based on their values and commitment to corporate social responsibility. They would like to patronize the companies which adopt environment friendly strategies in their businesses. The companies need to green their supply chain management to make positive impact on the environment, thereby the society as a whole, keeping in mind that they are also part of the society, and their continued existence depends on their values as perceived by the society. According to Marilena (2008, p. 2), the corporate companies are under pressure from their stakeholders for sustainable development in its three dimensions: “economical development, that generates profits and jobs; social development, as a guarantee for the well-being and for the compliance to human rights; environmental development, which must ensure the preservation of natural resources and the ability of the ecosystem to absorb and tolerate pollution”. The economic growth needs to be balanced with the ecology right from the planning process, properly recognizing the stake of the future generations and in respect of supply chain management focusing on eco-friendly processes and judicious utilization of scarce natural resources at all levels. The changes in the society have become more perceptible in the recent years with the people’s view on issues like organic food, carbon labeling, green consciousness, child labor, use of pesticides, etc. reflect radical in their preferences, tastes and fashions. It is in this backdrop that this paper seeks to address the question, ‘Why Companies Should Green Their Supply Chain Management?’ Advantages of a green supply chain management Procurement Green procurement aims to buy environment friendly products which are less harmful in consumption. Green procurement is an integral process of the green supply chain management in the improvement of the environmental performance of the operations and products. When all the companies in the industries follow standard practices, the benefits would percolate down to the entire society as the practice encourages procuring eco-labeled products and services. Prevention of waste and pollution are given priority in green procurement. This process makes positive environmental impact as the strategy includes recycled products, energy efficient products, fuel efficiency in the processes, bio-based products and products made of less harmful chemicals/pesticides and environment friendly processes. Green procurement reduces waste, high cost of waste disposal, prevents health hazards in handling, reduces risk of liabilities on account of health and safety, facilitates easier compliance with environmental regulations, and results into overall reduction in cost. This also leads to innovations in processing, improves employee morale, and increases stakeholder value and reputation of the organizations. For example, the Body Shop Stakeholder Panel Review, 31st August 2008 states: “In 2007 the main achievements of The Body Shop included: - Sourcing sustainable palm oil for use in soaps. Manufacturing all soap from sustainable palm oil during 2008 - Further increasing the use of Forest Stewardship Council (FSC) wood across accessory and gift ranges - Introducing the first 100% recycled PET bottle” Greenhouse gas emission Reduction in carbon footprint, that is, greenhouse gases used in manufacturing a product, and food miles in transportation will reduce the cost. Parry, P., Martha, J. & Grenon, G. (2007) state “Marks and Spencer, for example, has a specific initiative under way to reduce “food miles,” sourcing its wares from nearby locales… Other initiatives will increase transportation efficiencies: A truck that once carried 150 items will now carry 300, or carry the same volume of goods with less fuel which will increase transportation efficiencies.” Planning for reduction in carbon gas emissions in supply chain as an environmental protection measure also results in cost savings. The Corporate Responsibility Report of TESCO states that new stores built between 2007 and 2020 to emit half the CO2 of a 2006 new store and reduce emissions per case delivered by 50% by 2012, and plan for zero carbon by 2050. Carbon footprint Reduction in carbon footprint reduces the cost of production and consequently sale price apart from the environmentally beneficial outcome from the processes. The calculation of carbon involved in various activities in the business is based on the consumption of fuels. For example, for each (UK) liter of Diesel consumed, 2.7 kg carbon dioxide (CO2) is emitted, and for each liter of heating oil, it works out to 3.0 kg. The activities such as travel by train or bus (public transportation) for a distance of 10 to 12 km or by plane for 2.2 km, operation of computer for 32 hours (60 Watt), production of 5 plastic bags or 2 plastic bottles each would add approximately 1 kg of CO2 in the calculation of footprint. The CO2 is called as greenhouse gas, and the carbon footprint could also be calculated and stated in terms of kilograms by multiplying CO2 with the factor of 0.27. For example 100 kgs of CO2 is equivalent to 27 kgs of carbon. (Time for change) It could be observed that the green supply chain management calls for careful analysis of the various activities and its impact on the consumption of various types of fuel. For instance by recycling plastic bags and plastic bottles, the business reduces carbon footprint as well as cost. Using public transport (train or bus) reduces carbon footprint as well as overheads in the business. Recycling Consumption of precious natural resources could be minimized through recycling which leads to savings in cost and environmental benefits. Presten (2010) reports “Ford adds cotton to the list of recycled materials used in vehicle manufacture. This development could spark further innovations in waste / recycling partnerships, both in the automotive sector and across other manufacturing industries”. Eco labeling Eco labeling of consumer products is considered very important as the people are willing to pay premium for these products. European Commission (2010) states “Products and services awarded the Ecolabel carry the flower logo, allowing consumers - including public and private purchasers - to identify them easily. Today the EU Ecolabel covers a wide range of products and services…” The UK Government encourages branding of the products as ‘Approved Carbon Offsetting’ though Quality Assurance Scheme (QAS), which enable the discerned consumers to make their decisions with comfortable feeling, which is advantageous from marketing perspective. Waste disposal and electricity generation The Secretary of state Caroline Spelman has commented that “Defra [Dept. for environment food and rural affairs] is specifically charged with working towards a zero waste economy, encouraging paying people to recycle and working to reduce littering.” (letsrecycle.com) At a time when the cost of energy is relentlessly rising, generation of electricity from waste would be a profitable proposition to the companies. Also, the cost involved in land filling is avoided. McDermott (2009) states that UK supermarket chain Tesco can stick a feather in its waste-reduction cap: Its 2,300-odd stores have managed to divert 100% of their waste going into landfills nearly six months ahead of schedule -- a decidedly good thing. Other benefits When CSR is considered as an integral part of the of the business processes imbibing positive environmental attitude, it will enhance the competitiveness of the business from various angles with benefits for all the stakeholders. The company’s standing in the society ensures loyalty of the consumers. The existing employees identifies themselves with the mission of the organization in terms of environmental protection keeps the labor turnover at the minimum level. The company is in a position to attract new talents with its reputation for social welfare and environmental protection in the industry. The environment friendly companies enjoy preferential status accorded by the suppliers, and the enhanced customer satisfaction could be exploited through brand extensions, because launch of new products will be well accepted by the consumers. Access to capital becomes easier, since there are several institutions which earmark funds for investment in environment friendly companies. The environmental measures taken by the company reduces governmental interferences in the day-to-day business activities. Social Investment Forum Foundation (2007, p. 6) states “Study after study has shown that socially screened portfolios have provided returns comparable to unscreened peers, with no necessary additional cost in performance… The Dow Jones Sustainability Index (DJSI) World, for example, has outperformed its unscreened benchmark, the MSCI World, by more than three percent in backtracking calculations since 1993 and by more than 150 basis points over the last year”. Statutory Compliance Post Kyoto protocol, all the countries of the world, especially the developed countries are under tremendous pressure to reduce greenhouse gas emissions. Carbon footprint (2011) states “The CRC is targeting large non-energy intensive private and public sector organisations within the UK, whose combined electricity use through half hourly metering exceeds 6,000 MWh per year”. Going forward, the businesses would face stiffer regulations with regard to greenhouse gas emissions, waste disposal and use of energy. Therefore, the companies need to formulate their strategies for green supply chain management well in advance. Finamore (2009) states “a carbon intensity target will require each province and major enterprise to measure, report and reduce their CO2 emissions and energy consumption, year-on-year, acting as a driver for greater efficiency and renewable”. It is pertinent to note here that UK is committed to 80% reduction in CO2 emissions by 2050 at the recent Copenhagen Climate Change Summit in December 2009 which in turn means severe austerity measures on the part of the companies with regard to energy consumption.   Critical Areas The cost of implementation in the initial stages could be prohibitive in certain cases due to lack of suppliers, non-availability of the environment friendly materials, absence of technical know-how available, volume considerations, quality, shelf life, capital investment and resistance from the dealers, though not necessarily from the consumers. There is shortage of trained professionals as the technology is evolving. The organizations need to establish facilities for training the employees in all the areas of supply chain management and formulate strategy for educating the suppliers, dealers and consumers about the advantages of the green products. Measuring and reporting the results in various industries should be planned through networking with the government initiating actions to establish standards at all levels for meaningful comparison. Hidden costs involved in procuring and processing may outweigh the savings. It may result into misinformation and disinformation due to lack of common definitions. Also, misunderstanding by the environmental groups and lack of understanding on the part of the consumers need to be overcome by the companies. Defining quality, environmental attributes of the products and dissemination of information with regard to the benefits to consumers involves understanding, active participation and support of the procurement, production, sales and marketing staff. There is a need to introduce new courses in the colleges and universities with the aim of accumulating and disseminating information about new technologies, methods and its benefits to the consumers. Research and development in this area should be promoted by the companies and the educational institutions. Use of outdated technology and machineries especially in the third world countries are not environment friendly. In an era of globalization, for achieving the purpose underlying the green supply chain management relating to environmental protection, the developed countries need to assist the poor countries by providing technology and capital for switching over to the environment friendly processes. Conclusion Reinhardt (2005) states “Taxonomies of the ways in which it pays to be green, or the ways in which it might pay to be green, are numerous. At the most fundamental level, however, one might note that in order to provide benefits to shareholders, any investment, environmental or other, must increase customers' willingness to pay or reduce costs in some state of the world”. However, the study reveals that the advantages of green supply chain management outweigh the disadvantages which are temporary in nature. Training to the supply chain staff, proper dissemination of information to the suppliers, dealers and consumers through the channels such as news papers and internet is bound to clear the misgivings, if any, in this respect. In fact, this could act as a fillip to marketing of the new environment friendly product as it ensures loyalty of the existing consumers and attract new consumers. References Canning, P. et al. (2010), Energy Use in the U.S. Food System, Economic Research Service, U.S. Department of Agriculture, ERS Report Summary, http://www.ers.usda.gov/Publications/ERR94/ERR94_ReportSummary.pdf Carbon footprint (2011), Carbon Reduction Commitment (CRC), http://www.carbonfootprint.com/carbonreductioncommitment.html Charles, A. (2010), Opinion: Traditional Philanthropy Gives Way to a New Power, Business Ethics, http://business-ethics.com/2010/10/15/1544-traditional-philanthropy-gives-way-to-a-new-kind-of-power/ European Commission, What is Ecolabel, http://ec.europa.eu/environment/ecolabel/about_ecolabel/what_is_ecolabel_en.htm Finamore, B., 2009. Natural Resources Defense Council, 27 November 2009, Greening China, Solving Global Warming, http://switchboard.nrdc.org/blogs/bfinamore/chinas_carbon_intensity_target.html Letsrecycle.com (2010), Policy, http://www.letsrecycle.com/energy/policy Marilena, M. (2008), Social Responsibility and Environmental Ethics - Elements of the Ecological Culture in 21st Century Organizations: A study on Romanian companies, MRPA, http://mpra.ub.uni-muenchen.de/9423/ McDermott, M. (2009), Tesco Diverts 100% of Its Waste From the Landfill... By Turning Meat into Electricity! Treehugger, 8 July 2009. http://www.treehugger.com/files/2009/08/tesco-diverts-all-waste-from-landfill-by-turning-meat-into-electricity.php Parry, P., Martha, J. & Grenon, G. (2007), The Energy-Efficient Supply Chain, Strategy+Business, May 29, 2007, Summer 2007 / Issue 47, p. 12.http://www.strategy-business.com/article/07213?gko=dae5c Preston, S. (2010), Ford adds cotton to the list of recycled materials used in vehicle manufacture, guardian.co.uk, 8 December 2010, http://www.guardian.co.uk/sustainable-business/ford-recycled-cotton-vehicle-manufacture Reinhardt, F. L. (2005), Corporate Responsibility and the Environment: What is the Right Thing To Do? Working Knowledge, Harvard Business School, http://hbswk.hbs.edu/item/5036.html Social Investment Forum Foundation (2007), The Mission in the Marketplace: How Responsible Investing Can Strengthen the Fiduciary Oversight of Foundation Endowments and Enhance Philanthropic Missions, Read More