green supply chain management1

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Best Practices in Implementing Green Supply Chains

April 5, 2005


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P A G E 2

2005 LMI

Environmental Management SystemISO 14000


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P A G E 3

2005 LMI

Supply Chain Management


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P A G E 4

2005 LMI

Green SCM integrates envi ronmentaland supply chainmanagement.

Green SCM recognizes the

disproportionate environmentalimpact of supply chain processesin an organization.

Green Supply Chain Management

EnvironmentalManagement

Supply ChainManagement

Green Supply Chain Management


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P A G E 5

2005 LMI

Contents

What is Green Supply Chain Management? Green Supply Chain Management Principles

Green Supply Chain Management Best Practices

Implementing Best Practices

Summary


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P A G E 6

2005 LMI

Green SCM leverages the role of theenvironment in SC value creation.

Green SupplyChain Programs

EmployeeSatisfaction

EnvironmentalSustainability

CommunityQuality of Life

Profitability

Asset Utilization

Service Level

Customer

Reputation

Continuity

Alliances

Technology

Supply ChainValue

StakeholderInterests

Tangible Outcomes

Intangible Value Drivers

Source: Forging New Links, GEMI, 2004

Environmental Value Drivers


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P A G E 7

2005 LMI

Commercial firms have had earlysuccess using Green SCM principles.

Texas Instruments: Saves $8million each year by reducing itstransit packaging budget for its

semiconductor business throughsource reduction, recycling, and

use of reusable packaging

systems (20% annual savings).

Pepsi-Cola: Saved $44 million byswitching from corrugated to

reusable plastic shipping

containers for one liter and 20-ounce bottles, conserving 196million pounds of corrugated

material.

Commonwealth Edison: Produced$50 million in financial benefitsfrom managing materials and

equipment with a life-cyclemanagement approach.

Dow Corning: Saved $2.3 millionby using reconditioned steel drums

in 1995. Also conserved 7.8million pounds of steel.


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P A G E 8

2005 LMI

Green Supply Chain improves operationsby employing an envi ronmental solut ion.

Improves AgilityGreen supply chain management helpmitigate risks and speed innovations.

Increases AdaptabilityGreen supply chain analysis often leadto innovative processes and continuous improvements.

Promotes AlignmentGreen supply chain management

involves negotiating policies with suppliers and customers,which results in better alignment of business processes andprinciples.

Source: The Triple-A Supply Chain, Lee, Harvard Business Review, October 2004

Environmental Supply Chain Management, Carter and Narasimhan, CAPS

Research, 1998


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2005 LMI

Contents




Summary


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P A G E 10

2005 LMI

The product life cycle is the basis ofgreen supply chain management.

Supply Chain in the Environmental Life Cycle

RawMaterial

Extraction

Transport Manufacture TransportRetail/

ConsumerUse

Transport DisposalDesignConcept

Typical Supply Chain Scope

Designing the supply chainconcurrently with the product is asupp ly chain managementbestpractice.


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P A G E 11

2005 LMI

The environmental impacts of each LCstage are examined for reduction.

Environmental Life Cycle

RawMaterial

Extraction


ConsumerUse

Transport Disposal

Air

Water

Waste

Air

Air

Water

Waste

Air

Air

Water

Waste

Air

Air

Water

Waste

Stage

Impacts

Water

EnergyInputs

Water

Energy

DesignConcept


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P A G E 12

2005 LMI

Historically, GSC management focusedon the upstream supply chain.

Manufacturer encouragessuppliers to adopt green

practices, environmentalmanagement systems, etc.

Focus is on the materialcontent and environmentalpractices of suppliers.

Typical Green Supply Chain Analysis

Manufacturer

Supplier

Supplier

Supplier


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P A G E 13

2005 LMI

Now, GSC programs are moving fromcompliance to value creation.


Traditional

CostAvoidance

Emerging

ValueCreation

Environmental, Safety, and Health Business Contributions

Protect the Environment

Maintain Health

Minimize Risk

Assure Compliance

Enable Growth

Support Innovation

Enhance Relations

Raise Productivity


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P A G E 14

2005 LMI

Companies are starting to view GSC asa strategic analysis tool.

Source Reduction

Recycle/Reuse

ControlTechnology

Disposal

Pollution Prevention Hierarchy

Strategic

Tactical

LongTerm

ShortTerm

The Pollution

PreventionHierarchy gaugesthe value ofenvironmentalprograms.

Source: U.S. Environmental Protection Agency


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P A G E 15

2005 LMI

Contents




Summary


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P A G E 16

2005 LMI

Green supply chain best practices focuson the business results first.

Align green supply chain goals withbusiness goals

Evaluate the supply chain as a singlelife cycle system

Use green supply chain analysis as acatalyst for innovation

Focus on source reduction to reducewaste

Green Supply Chain Best Practices


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P A G E 17

2005 LMI

Aligning GSC improvements with yourbusiness 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 tocorporate goals, successes become leading indicators ofbusiness success.

Environmental indicators on the Balanced Scorecard

Greater drive for innovation Stakeholder support

Source: Bringing the Environment Down to Earth, Reinhardt, HBR, July-August 1999Environmental Supply Chain Management, Carter and Narasimhan, CAPSResearch, 1998


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P A G E 18

2005 LMI

Evaluating the supply chain as a systemleads to life cycle optimization.

System View of Environmental Life Cycle

RawMaterial

Extraction

Transport Manufacture Transport Retail/ConsumerUse

Transport Disposal

Product $Waste

Stage

Outputs

Raw MaterialInputs Energy

DesignConcept

$

Maximize thegood outputs.

Minimize thebad inputs

and outputs.


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P A G E 19

2005 LMI

Green supply chain management is adriver 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 reviewprocesses, materials, and operational concepts.

As with continuous improvement programs, green supply chainanalysis targets:

Wasted material

Wasted energy or effort

Under-utilized resources

Source: Green and Competitive, Proter and van der Linfde, HBR, Sept.-Oct. 1995Environmental Supply Chain Management, Carter and Narasimhan, CAPSResearch, 1998

Identify thewaste streams

Measure oridentify theopportunitycost of the

waste

Createinnovation vs.treatment biastoward waste

reduction

Green Process Improvement Approach


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P A G E 20

2005 LMI

Focusing on source reduction programsdrives higher value improvements.

Waste Reduction Opportunities in the Life Cycle

RawMaterial

Extraction


ConsumerUse

Transport DisposalDesignConcept

Reduce Reuse/Recycle DisposeControlTechnology

Low

High

Potential for lifecycle cost savings

Cumulative lifecycle costs


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P A G E 21

2005 LMI

The Army looked to using hybridHMMWVs to reduce the fuel SC footprint.

Army reviewed acquisition, maintenance, and fuel costsassociated 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 greatermaintenance requirements.

However, hybrid platforms can also serve as powergenerators in theater and can offer some operatingadvantages (e.g., silent operation).

DomesticFuel Storage

TransportationInto Theater

TransportationWithin Theater

TheaterFuel Storage

Theater FuelDistribution

Hybrid HMMWV

HMMWV Fuel Supply Chain

Source: Economics of Hybrid Electric Technology: Military Vehicles, 2002, LMIResource Costs of Supplying Power to a Battlefield, 2004, LMI Research Institute


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P A G E 22

2005 LMI

USPS worked with direct mail vendorsto reduce supply chain cost and waste.

DirectMailer

PostOffice

SortingFacility

PostOffice Customer Waste

UndeliverableItems

Direct Mail Supply Chain

Estimated savings (USPS) = $500 Million (1997)

Problem: Excessive

direct mail wasteand cost

Target mailings

to generate lesswaste

Recycleundeliverable

mail

Ensure changesdo not affectsorting capability

Ensureproperaddressing

Direct

Mailersrealizehigher

response

rates andlower

operatingcosts

Target recycledcontent andrecyclablematerials

Source: Greening the Mail, 1999, LMI


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P A G E 23

2005 LMI

The Dutch flower industry greeneditsproduction to increase throughput.

Netherlands produces 65% of the worlds cut flowers, yet has

limited land. Mass cultivation in a confined area resulted in

fertilizer, herbicide, and pesticide contamination.

To correct the problem, growing was shifted torock wool and water vs. soil.

Fertilizer in the water is recycled through thesystem to reduce waste.

Water based growth also reduces the risk ofinfestation by weeds and pests, reducing theneed for chemical treatments.

The new system also greatly reduced variations

in growth conditions, greatly improving thepredictability of output.

Producers were able to increase output per space and furtherinnovate to reduce costs (e.g., new harvesting methods).

Source: Green and Competitive, Porter and van der Linde, HBR, Sept.-Oct. 1995


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2005 LMI

Xerox implemented a take-back programredefined customers expectations.

In early 1990s Xerox launched a new initiative to take back usedcopiers as a source of material for new machines.

Customers like the program because they no longer worry aboutmachine disposal.

Xerox estimates several hundred million dollar savings annually.

Source: Bringing the Environment Down to Earth, Reinhardt, HBR, July-August 1999Environment, 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)


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G l h i ff t d t i


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P A G E 26

2005 LMI

Green supply chain efforts need to riseabove the cost centerview.

Green supply chain projects need to be clearly defined in terms

of the businessvalue 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 inbusiness terms lowers their profile.

Many executives have misconceptions of how green supply chainefforts will impact their operations.

Without a clear business value proposition, it is difficult to getexecutive support for projects.


C id th i ti b i d l


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P A G E 27

2005 LMI

Consider the existing business modelwhen 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 operationsresistance to change

Focus on short term goals and short term results

Limited partnership experienceespecially in the environmentaloffice.

To be successful, the project manager needs to understand theorganization 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 doesnt exist.



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G SCOR i difi ti f th SCOR


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P A G E 29

2005 LMI

GreenSCOR is a modification of the SCORmodelthat includes environmental elements.

SCOR Model

EnvironmentalManagement

GreenSCOR Model

GreenSCOR modifiesthe existing SCORstructure to includeenvironmentalprocesses, metrics,and best practices.

GreenSCORmaintains the integrityof the current SCORmodelby adding tothe existing elements.

GreenSCOR Content


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Contents




Summary

I l ti G l h i


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P A G E 31

2005 LMI

Implementing Green supply chainproperly will drive realbusiness value.

Green supply chain concepts manage environmental impactswhere they occurideally before they occur.

Best practices focus on the business, not social, value thatgreen supply chain management creates.

Align green supply chain goals with business goals

Evaluate the supply chain as a single life cycle system Use environmental analysis as a catalyst for innovation

Focus on source reduction to reduce waste

Successful implementation requires raising the profile andperceived value of environmental projects.

Articulate project value in terms of business value Create the project to work within the organizational culture

Use effective tools (e.g., GreenSCOR) to enable project execution


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P A G E 32

THE OPPORTUNITY TO MAKE A DIFFERENCE HAS NEVER BEEN GREATER

ACQUISITION FACILITIES & ASSET MANAGEMENT FINANCIAL MANAGEMENT

INFORMATION & TECHNOLOGY LOGISTICS ORGANIZATIONS & HUMAN CAPITAL

Taylor Wilkerson

[email protected]

green supply chain management1

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