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[email protected] Greening the Supply Chain 20-FEBRUARY-2014. VERSION 1.0. PRASHANT KUMAR AND SUBHASH WAGLE 2. Greening the Supply Chain 2 CONTENTS WHAT IS A GREEN SUPPLY CHAIN?...............................................................................................................3 WHY ARE SUPPLY CHAINS GOING GREEN?...................................................................................................3 CRITICAL ISSUES AND CHALLENGES IN GREENING THE SUPPLY CHAIN........................................................4 CURRENT BEST PRACTICES............................................................................................................................4 GREENING THE INBOUND PHASE OF THE SUPPLY CHAIN ........................................................................5 GREENING THE INTERNAL SUPPLY CHAIN/ MANUFACTURING PHASE.....................................................7 GREENING THE OUTBOUND PHASE OF SUPPLY CHAIN ............................................................................9 REVERSE LOGISTICS AND CLOSED LOOP SUPPLY CHAIN.........................................................................12 CHALLENGES INVOLVED IN REVERSE LOGISTICS.................................................................................12 CLOSED LOOP SUPPLY CHAIN – BEST PRACTICES ...............................................................................13 GREENING THE SUPPLY CHAIN – WHERE TO BEGIN...................................................................................15 CONCLUSION...............................................................................................................................................16 REFERENCES................................................................................................................................................16 3. Greening the Supply Chain 3 WHAT IS A GREEN SUPPLY CHAIN? As the new breed of companies – Environmentally Sustainable Companies – is emerging world over, companies realize that their greatest challenges and opportunities in becoming environmentally sustainable lie beyond their own premises and manufacturing plants. To truly inculcate the green culture in the DNA of companies, efforts are taken to green the whole supply chain. It starts with the green design of products, and goes through green purchasing, green manufacturing, green distribution/marketing and reverse logistics. As against the traditional supply chain with discrete start and end points this is a closed loop supply chain where a lot of importance is given to the reverse logistics. This initiative serves to strengthen and streamline the co-ordination among different phases of the supply chain, which eventually results in improved customer satisfaction and better competitive edge. Fig 1: Four Phases in a Typical Pharmaceutical Supply Chain The above figure shows the four important phases in the supply chain for a typical pharmaceutical industry. This whitepaper discusses the best practices adopted globally to green each phase of the supply chain across industries. WHY ARE SUPPLY CHAINS GOING GREEN? • To improve satisfaction of customers (including B2B) who prefer to do business with companies having an environment friendly reputation • To comply with ever increasing demands of environmental regulations • To improve asset utilization by increasing environmental awareness into transportation and inventory practices • To improve operating efficiencies and reduce operating costs, thus increasing profitability • To reduce all types of wastes – especially hazardous • To reduce the impacts of production and service activities on the environment • To promote alignment across the supply chain by working out business sustainability practices with suppliers, vendors, contractors and customers • To ensure the well being of everyone related to the supply chain – employees and the workforce, suppliers, customers and the end users • To have product differentiation in the market, by having distinctly unique environmentally sustainable supply chain practices, including innovative product designs 4. Greening the Supply Chain 4 • To gain a competitive advantage CRITICAL ISSUES AND CHALLENGES IN GREENING THE SUPPLY CHAIN Contradictory objectives: Traditionally companies chose between what is good for the environment and what is good for the bottom line. But in the contemporary world, as General Electric (GE) believes, this is a false choice and companies can do both. By establishing a reusable container program with their suppliers, General Motors (GM) reduced disposal costs by US $ 12 million. Perhaps GM may not have been so interested in green issues if they were not making great profits, but in their endeavor to reduce costs in their supply chain, GM found that these cost reductions complemented the company’s pledge to the environment. Trade-off between green and lean: On one hand green and lean practices are compatible with each other as both involve reduction of waste. Like green processes which focus on reduction in inventories (especially of hazardous materials), lean processes also focus on reduction in inventory levels thus minimizing the adverse environmental effects. On the other hand, the Just-In-Time (JIT) delivery concept employed by lean strategies may involve increased transportation, packaging and handling, which increase emissions contrary to the green approach. Lack of hand shake between good supply chain processes and appropriate technology: Green supply chain cannot work unless good supply chain business processes are already in place. Technology can help in providing efficient solutions that can have a positive impact on the environment. It can help in reducing resource requirements by enabling more effective supply chain planning, execution and collaboration between various units. This will in turn help in making the supply chain greener. However, for a technology to be effective there is a need to have business processes which help in providing appropriate data inputs. Integration of supply chain optimization with green practices: Most companies implementing green supply chain do not integrate environmental considerations into the supply chain improvement processes. Environmental aspects are often not considered when executives, reviewing the overall business’s supply chain performance, make modifications to the supply chain. Their approach is driven usually by the need to green a particular business process or a particular segment of the chain. Thus the opportunity to green the supply chain emerges only after the environmental impacts of the existing supply chain process are revealed. Awareness and compliance to multiple standards: The most confusing aspect for strategic sourcing supply chain professionals is compliance to multiple standards or rules. Some of the major ones include the U.S. Greenhouse Gas Protocol, ISO standards, ISO 14065, Security Exchange Commission (S.E.C.) Climate Change Interpretive Guidance (CCIG), Environmental Protection Agency (EPA) Greenhouse Gas Reporting Rule, Wal-Mart Sustainability Index and the Dow Jones Sustainability Index (DJSI). The challenge is to have all the suppliers, manufacturers, retailers and supply chain professionals aware of these standards and to have clarity among them as to which one to go after. CURRENT BEST PRACTICES To successfully implement green supply chain, a company should align its supply chain goals with business goals. A company should look at its overall business objectives and figure out how the transition to a green supply chain can help achieve those objectives. For example, if a business wants to trim down its energy costs it should review the consumption to see if a cutback can be made by using more energy efficient and greener equipments. On the contrary, creating a green supply chain that has little to do with business, will not help a company achieve its business objectives. Greening the entire supply chain involves looking into each phase of the supply chain – inbound phase, manufacturing phase, outbound phase and reverse logistics, to the extent possible. It involves considering all the 5. Greening the Supply Chain 5 activities involved, the primary and secondary materials flowing in and out of the supply chain, monitoring the usage of energy, water and other environmentally critical resources. For each of the above activities the company needs to assess the environmental aspects and the impact of its operations as regards air/water pollution, generation of solid/ liquid waste, land contamination, use and disposal of hazardous elements, emission of toxic gases which cause health hazards, safety concerns, global warming, depletion of ozone layer, acid rain and other environmental concerns. GREENING THE INBOUND PHASE OF THE SUPPLY CHAIN Greening this phase involves green sourcing, environment friendly purchasing and greening suppliers, contractors and vendors, without whose co-operation the greening program of a company cannot progress. The initiatives widely adopted in this phase include choosing right inputs, making green purchasing a policy, exploring green options for packaging of input materials, choosing suppliers and vendors based on environmental performance, enforcing a ripple effect asking suppliers to deliver only environment-friendly products, which further increases demand for green products across the supply chain. 1. Holding Environment Awareness Seminars for Suppliers This initiative involves inviting suppliers to come together and hold environment awareness seminars. Environment experts from the companies address suppliers on global environment related problems and the related role of the industry. They speak about air pollution caused by emissions from different manufacturing processes, water and land contamination caused by discharge of environmentally hazardous waste into water and land fill, waste management issues, emission of gases causing global warming, ozone layer depletion due to the Chloro-Fluoro Carbon (CFC) used in various manufacturing processes/ products, and so on. Once enough awareness is created among the supplier representatives about all of the above issues, the seminar can talk about Environment Management Systems (EMS) and ISO 14001 standards, which are the systems for continuous improvements in environmental performance. The seminars also emphasize the benefits the suppliers will achieve upon implementing EMS and ISO environmental standards. The objective is to positively influence the thinking of supplier representatives towards greening of processes, so that on returning to their companies, they discuss this with their top management and convince them to implement these practices and systems in their own companies. Although Nestlé, the world leading nutrition, health and wellness company has been able to achieve good performance in terms of risk reduction and tangible savings within its manufacturing premises, its top management always believes that “one is not really there until one’s business partners are also there”. Hence the company’s then CEO, Juan Santos invited about 42 key suppliers’ CEOs/GMs for a dinner in August 2000, and launched a project called -Greening the supply chain. Post this session Nestlé conducted 5 batches of free seminar workshops with key business partners on EMS in collaboration with United States – Asia Environmental Partnership (US-AEP). 2. Helping Suppliers Establish their Own Environmental Programs As organizing awareness seminars may not go a long way in greening the suppliers, companies go one step further in helping the suppliers establish their own environmental programs. The environmental experts from the companies conduct plant visits to inspect various processes of the suppliers and to address their environmental concerns. Upon examining their operations they identify the potential impact of each process on the environment. They inspect the processes from mass balance framework perspective, which means in a production process the amount of raw materials used and amount of output plus the amount of waste generated should balance out. Once the environmental impacts are identified, the auditors recommend appropriate plans of action of Environment Management Plans (EMPs) to tackle these concerns. Recognition schemes are also held to motivate the business partners who have put in significant efforts in implementing these environment management initiatives. 6. Greening the Supply Chain 6 The lead company also helps the business partners to conduct environmental seminars at their own premises. A number of other business partners are also invited to these seminars. They are further trained and encouraged to conduct the seminar in their own geographical areas. 3. Arranging for Funds to Help Suppliers for their Environment Programs Sometimes suppliers do not have enough funds to kick off the environmental initiatives. Many companies are trying to help suppliers get access to funds by trying to establish their links with the local banks who lend loans for environmental projects at low rates of interest. For instance, Landbank of the Philippines (LBP) gives out loans for environmental projects like phasing out of CFCs and projects aimed at reducing emissions. The environmental unit of this bank not only gives credit but also gives recommendations for such projects. Ministry of Environment in some countries also helps small and medium enterprises arrange funds for their environmental requirements. 4. Involving Suppliers in the Design of New Products With the advancing technology, life cycles of products have shortened, and thus companies are always on the lookout for new product and process development. As research shows, raw material cost accounts to nearly 50 percent of the cost of goods sold. Thus a lot of new product development cost, quality and time can be improved if a company effectively collaborates with its suppliers. There have been a number of reported instances of these improvements. In order to achieve this collaboration many companies are actively involved in aligning the production processes of the suppliers with their own operations. Also, suppliers are incentivized and encouraged to participate more and more at the very early stages of new product design, so that hazardous materials can be avoided right in the design phase of the products. Many companies believe that this is the starting point of their green supply chains. 5. Choose the Right Suppliers by Environment Criteria Traditionally companies chose suppliers mainly based on the factors like quality and price. Some of the Key Performance Indicators (KPIs) for choosing the suppliers were non-conforming Parts Per Million (PPM), order fulfillment rate, non-conforming to the schedule provided. However with the environmental regulations getting stricter, the KPIs for choosing the suppliers have been shifting towards environmental factors such as amounts of toxic and hazardous materials used, toxic waste generated, conformance to the local government regulations, percentage of recyclable and reusable components, to name a few. Thus the companies are now looking at choosing suppliers who provide good quality raw materials and are also more environment friendly. The companies make use of environmental vendor rating system for vendor consolidation. This is done using a supplier environmental review questionnaire. This questionnaire focuses on suppliers’ continuous environmental improvement and performance on the environmental compliance front. It also focuses on the risk assessment for suppliers. This can be done right from the Request for Proposal (RFP) stage where companies can ask information like “What’s your carbon-neutral strategy?” to “We’re looking to lower our carbon footprint in transportation. What tools can you provide us?” One approach could be to opt for suppliers who have been certified by leading Green Rating agencies. Beginning at RFP stage would inculcate a sense of responsibility to incorporate green strategies throughout the supply chain stages. 6. Collaborate with Suppliers (Partnership Model rather than Arms Length Model) Suppliers all over the world are not really happy when the lead company imposes something on them. Rather than imposing something if the lead company suggests the same improvement through a partnership kind of a model – showing equal commitment and interest in implementing the same improvement, the suppliers are more willing and more likely to consider doing the change. Many companies integrate their greening processes with their suppliers’ processes. GE and IBM, for instance, are addressing environmental challenges by collaborating with their supply chain partners to come up 7. Greening the Supply Chain 7 with environmental guidelines and innovative processes and methodologies. Toyota Motor Corporation (Toyota), Japan has always used a partnership model, wherein its suppliers were always ready to invest in a relationship to enhance quality, productivity and performance improvements, as they were long term suppliers and were assured of future business with Toyota. Efficient packaging of Apple Inc. products, Nestlé’s suppliers in Punjab using biogas for production, increasing usage of biodegradable material for packaging purposes, cargo planes and ships powered by bio-fuels – are some of the developments over the last few years that highlight the importance of increasing awareness. Another example of collaboration with suppliers for greening is displayed by Amazon.com, who works with its suppliers to improve the packaging designs of the suppliers’ products ordered through Amazon.com, one example being its working with Koninklijke Philips N.V. (Philips) to reduce and improve the packaging of Philips’ products. Other forms of collaboration include sharing costs incurred on Research and Development of green practices and procedures and so forth. London based Carbon Disclosure Project (CDP) is a non-profit organization which aims at reducing carbon emissions by companies across the globe. It urges companies and its suppliers to maintain documentation on how much carbon they emit. Wal-Mart Stores, Inc. (Wal-Mart), as a part of its supplier sustainability assessment requests its 100 thousand suppliers worldwide to maintain reporting for CDP, and then gives them a score. CDP questionnaire involves questions which ask suppliers about their emissions in metric tons, carbon dioxide emissions per unit currency total revenue, emission reduction targets and initiatives, if their business strategies are related to climate change, and if they have identified any climate change risks which may impact their business. Though the survey is voluntary, as per Wal-Mart’s management this score may impact a vendor’s standing as a Wal-Mart’s supplier. GREENING THE INTERNAL SUPPLY CHAIN/ MANUFACTURING PHASE Greening this phase involves incorporating closed loop manufacturing, design for demanufacturing and remanufacturing, to obtain a reduction in waste and land fill. This phase also involves reduction in pollution and air emissions through a shift towards cleaner production techniques, worker involvement, supplier integration and leaning the processes. 1. Design for Environment (DFE) Design for Environment is a concept in which environmental factors are considered while designing a new product. Suppliers are involved right in the design phase of the products in order to result in smarter green products. DFE involves avoiding environmental hazards during manufacturing and designing the products and processes in such as way that energy consumption is reduced. It also involves reducing the product’s end-of-life impact on the environment by focusing on recyclable and reusable components. Some companies like Intel Corporation have gone a step further and are using Design for Environment, Health and Safety (DFEHS). Applied Materials has displayed a notable example in the DFE space. This company supplies process equipment for making semiconductor chips to companies all over the world. For over 3 decades, it used aluminum as the chief wiring material in semiconductor chips. But as the technology is shifting towards copper for wiring, it results in generation of fluid waste stream with copper content. Being a heavy metal copper is a serious environmental concern. Applied Materials came up with an innovative method of closed-loop water recycling in its facility. The major motivating factor apart from the obvious environmental damage in the company’s premises was that this method was of immense help to the company’s customers as they also used copper for wiring. The closed-loop water recycling system ensured substantially reduced water requirement, which helped because most of the facilities are in the areas where there is water shortage. Another major benefit achieved was zero discharge, which was achieved as heavy metals were removed from water through this system. Unlike the sludge that was produced 8. Greening the Supply Chain 8 earlier with low metal content and was a hazardous waste, this system produced solids with high metal contents from which metal could be recycled. Another example in DFE space is set by PPG Industries, an American global supplier of paints, coatings, optical products, specialty materials, chemicals, glass, and fiberglass. PPG was one of the first manufacturers to use Oxygen-fuel furnace technology on a float glass production line. This move reduced fuel consumption by 15 percent, green house gas emissions by 10 percent, and nitrogen oxides emission by 50 percent. This technology helped PPG to successfully reduce their Energy Intensity per ton output by six percent. They have leveraged the success by licensing this technology to several other glass manufacturers. Recently launched Mahindra E20 by Mahindra & Mahindra Ltd. – among the advertised USPs of this electric car, the fact that its manufacturing is done in a fully green manufacturing plant at Bengaluru is highlighted the most. The launch ceremony and subsequent marketing campaign of this car also emphasizes the Green Manufacturing processes that go into manufacturing this car which is specially designed as a zero emission vehicle. This is an indication of the future where products become more environment-friendly and the Green Supply chain associated with them is used to position them uniquely. 2. Remanufacturing Remanufacturing or Design-for-Remanufacturing concept entails creating the products which can be put back into the manufacturing process and reused. For effective remanufacturing, companies should effectively collaborate with the suppliers in order to design greener or smarter products right in the initial phases of the product life cycle. Companies may have to incorporate the below points to effectively carry out remanufacturing: Need to redesign processes to handle remanufacturing and might have to come up with an entirely new set of products Design for Disassembly is an integral part of Design for Remanufacturing as the products should be easily disassembled Products should have fewer parts in order to have effective disassembly Products must have new parts that can be used over and over again without compromising the overall product quality Xerox Corporation has affected a fundamental shift in how products can be conceived, designed and produced with an extensive focus on remanufacturing. Ergo, the Lakes Machines is a perfect example in which remanufacturing possibilities have been incorporated right from the product conception stage. The product has been designed in such a way that it can be completely disassembled, reused and recycled at the end of its use. At the time of product conception suppliers were invited and explained the remanufacturing philosophy, they were encouraged to implement new technology to clean, re-qualify the previously used parts and test them to perform as good as new parts. Many of the suppliers agreed to go with the new philosophy adopted by Xerox. Although these suppliers now supply fewer parts they have gained more competitiveness in the market due to the used of advanced technology. This leads them to supply to more and more remanufacturing companies now. Through this strong collaboration Xerox has been able to achieve the same level of customer satisfaction as it achieved with all-new products. Remanufacturing has helped Xerox achieve enormous savings although the initial setup cost was high. The component procurement costs have gone down drastically due to the reuse of remanufactured parts from the old machines. Old machines which were liabilities are now assets and additional savings have been generated through low landfill costs. 3. Lean Production 9. Greening the Supply Chain 9 Lean production concept involves cutting down waste at every stage in a production process. Along with huge improvements in productivity, it results in cutting down waste of all types including the environmentally hazardous waste. Lean framework has a simple checklist which can be easily implemented by small and medium enterprises as well. The group elimination of Non-Value Adding Activities, aims at trimming all those activities which do not add any value to the product/ service offered. Hence it results in reducing generation of pollution and cutting the generation of waste of every kind in the production process, thus improving environmental performance. The Just-in-time group of lean manufacturing concept aims at delivering the exact quantities required by manufacturing, thus reducing all types of inventories. This helps in reducing the inventories of hazardous raw materials. The other group of indicator referring to supplier integration emphasizes on strong collaboration with the suppliers which is very beneficial to the environmental performance of the firm as seen in the DFE and Remanufacturing sections. Toyota and many other Japanese manufacturers have shown progressive environmental benefits by implementing the lean concept. 4. Using Cleaner Sources of Energy in the Production Process The product process, the central component of the supply, uses fuel of various kinds like wood, coal, oil, natural gas, LPG, diesel and electricity. The use of fuels like coal generates emissions of carbon dioxide, methane, carbon monoxide, harmful oxides of sulphur and nitrogen, CFC and others. These gas emissions lead to adverse impacts on environment including climate change. Thus, it is very important that manufacturing facilities start using cleaner fuels which generate minimal emissions. Although the use of cleaner fuel has not really gained steam among the manufacturing facilities, the effort to move towards them has started in a big way. Clean energy forms towards which industries are trying to move, include generation of electricity from renewable sources such as solar energy, wind energy, biomass generated energy, hydroelectric energy and geothermal energy. Many vendors are starting to provide these forms of energy in affordable units. Although the above forms of renewable energy may not be available in abundance in every part of the world, the best practices that have succeeded in the global context do provide deep insights to the companies all over the world. Wal-Mart’s 22 percent of energy comes from renewable sources, 4 percent at its own facilities and 18 percent sourced from outside. 5. Improvements in Processes within the Plant Improvements in the process to comply with emission and effluent standards Improvements to reduce the generation of waste, air emissions and reduce vibration and noise Reduction in water and electricity usage by using these resources responsibly Use of less material or dematerialization, without impacting the overall quantity Improved housekeeping in the production area Improvement in the process to use environment friendly materials as substitutes for the materials which are not environment friendly. For example IBM’s disk drive factory along with circuit card suppliers jointly developed a water-based alternative to a CFC based chemical. GREENING THE OUTBOUND PHASE OF SUPPLY CHAIN This phase focuses on transportation, packaging design, warehousing, delivery and waste disposal practices. Greening here involves addressing customer relationship issues such as green marketing, product stewardship, distribution, minimizing the impact on environment after the product is delivered to the end user and disposal. 1. Green Marketing Green or environmental marketing involves a company taking proactive role to understand the green consumer behavior, whether the customers would be interested to buy a green product and also the compromise a customer may go through in order to buy a green product over a non-green product, which might be cheaper. It involves a company communicating about a green product or package 10. Greening the Supply Chain 10 differentiation, and also educating the consumer about how their purchase of green products would go a long way in contributing to environmental sustainability. Green marketing is a response of companies towards the greening trend that the consumer has shown in recent years. A green customer can be an individual customer/household, organized retailers, government and other companies. If an organization has shown a poor environmental performance, a green customer, who is environmentally and socially responsible, may not wish to purchase a product from them. Such a green customer would avoid products which are likely to cause a lot of packaging waste, involve cruelty to animals and are likely to endanger the health of people using those products. This kind of behavior has led companies to produce CFC free refrigerators, environment friendly electronics with power saving star – five stars being the best environmental performer, notebooks made out of recycled paper, Printed Circuit Board (PCB) free transformers and more innovatively marketed products. Suppliers and service providers play a great role in green marketing. 2. Environment Friendly Packaging Product packaging which may be in the form of plastic, metal, glass or paper contributes to the solid waste that is generated. Some of them are hazardous as it causes generation of green house gases and other harmful emissions, while others are non-hazardous but still cause a lot of problem to the environment by filling up the waste disposal facilities. In order to address these packaging disposal problems many countries are coming up with programs and regulations to minimize the amount of packaging entering the waste stream. Recycling and reusing can help in minimizing the packaging waste to a large extent. Another aspect of green packaging is to use biodegradable materials for packaging – these cause least harm to the environment. However, to successfully implement the above green packaging options, suppliers need to be convinced to use environment friendly packaging. Glass bottles are widely used for packaging, not only soft drinks but also for various other types of products. They are not only non-hazardous and environment friendly but they also help in short term storage of food and beverages without any refrigeration. These glass bottles are all collected by the distributors, cleaned and put back into use as done by PepsiCo Inc. and The Coca-Cola Company for several decades. Even if some bottles break during or after use, they can be melted and recycled into new bottles as done by San Miguel Corporation. Another revolutionary material used widely for packaging by Tropicana Products, Inc., Real Fruit Juice and many other beverage manufacturers is Tetra Pak®. This material causes minimal impact on the environment. It is made up of paper board sandwiched between layers of polythene and a thin layer of aluminum foil. This is much more convenient for use as compared to glass bottles and even when disposed takes limited space in the land-fills as it is flattened. The Coca Cola Company impressed environmentalists when they launched the new PlantBottle. This is a bottle which is made in part from sugarcane and molasses based material, which form 30 percent of the constituent of the bottle. This environment friendly material is used along with the traditionally used Polyethylene Terephthalate (PET). This is used for packaging carbonated drinks as well for drinking water. Over 15 billion drinks across 25 counties had been sold in PlantBottle by May 2013. 3. Environmentally Friendly Transportation Every supply chain involves a lot of transportation. Although transportation is involved in the procurement of raw materials, goods movement within production facilities, employee commute to company premises; the major contributor is distribution which involves outbound logistics from the 11. Greening the Supply Chain 11 manufacturing facilities to the depots, distributors, retailers and sometime to end customers. Transportation involves use of vehicles such as trucks, trains, vessels and aircraft; and energy sources such as diesel, LPG, coal and electricity. Some of these sources of energy are less hazardous than others. The organizations have to decide on initiatives to have transportation system which helps in energy conservation and simultaneously help in reduction of emissions. They have to choose vehicles for transportation which use cleaner fuels like CNG, unleaded gasoline and electricity though it has not picked up much. Also companies have to choose vehicles which have equipments to prevent emissions. For the companies which transport hazardous materials, the best practice involves vehicles posting Hazardous Material labels on their front/side. The drivers of such vehicles are equipped with protective equipments and equipments to prevent spillage and leakage accident. The drivers are also trained and certified in a program that teaches them how to handle hazardous material leakage and accident prevention. Seagate Technology LLC for instance is using the 4 points mentioned above in their Thailand operations. Eco-efficient transportation trend is picking up internationally. Following this trend, many companies have shown an effort towards using emission free vehicles. They are phasing out the use of leaded gasoline which had been used regularly for several decades, and encouraging the use of CNG and electricity to fuel their vehicles. United Parcel Service of America, Inc. (UPS), the American Global Package Delivery company recently announced that the 700 class 8 vehicles which it has ordered to carry out delivery in the second half of 2013 and in 2014, will run on Liquefied Natural Gas (LNG). Clean Energy Fuels has a route plan to form America’s Natural Gas Highway which has a number of LNG fuelling stations planned to be setup across the US. This initiative will help in reducing vehicle emissions to a great extent. 4. Environment Friendly Waste Management Concerns As landfills, the areas used to dump waste are decreasing due to various factors; many companies face the problem of waste disposal. They have to come up with varied and innovative approaches to address this waste disposal concern. Some companies setup waste treatment facilities, wherein if not all some type of waste can be recycled. Some companies sell their waste to other players in the supply chain who might be able to use this waste. In some parts of the world the concept of industrial ecosystem is also picking up. This concept is similar to natural ecosystem where the output of one player is consumed as a precious input by some other player, thus reducing the overall waste in the system significantly. It is a closed loop system in which materials as well as energy is reused. For this system to be successful, a company should have strong co-ordination between its suppliers, business partners as well as its customers. Another upcoming concept is waste management service providers – popularly known as waste suppliers. These are the vendors who collect the toxic and hazardous waste from the company premises, bring it to their own waste neutralization facilities, and treat it at temperatures above 1200 degrees which does not lead to generation of toxic emissions. Industrial Waste Exchange Program (IWEP) implemented in many countries, runs on the concept that waste material from one industry could be used as a raw material in some other industry, leading to a win-win situation in which both industries are benefited. For instance, two companies matched through IWEP were Peter Paul Philippine Corporation (producing quality coconut products) and Chia Meei International Food Company Ltd. (producing coconut based drink). Peter Paul generates 80,000 liters of coconut water per day as a by-product of the production process. Coconut water is of no use to this company and is a waste. However, the second company Chia Meei needs to process 40,000 litres of 12. Greening the Supply Chain 12 coconut water per day in order to produce the coconut based drink. IWEP helped to establish a match between these two companies and Chia Meei now gets its raw material at 50 percent of its original price from Peter Paul. The result of this relationship is a significant gain to the waste generator, waste consumer and the environment. Consumer Package giant Unilever has been able to achieve Zero waste to Landfill (ZLF) for its production facilities across some of big countries like the US, Canada, the UK, the Netherlands, France, Germany and Japan. In order to achieve this, Unilever’s focus is on redesigning the processes and products, engineering out waste to the extent possible, and on the reuse and recycle of any waste that cannot be engineered out. The company is using Design Once and Deploy Everywhere philosophy to implement best practices all over the world. By implementing waste reduction efforts the company has saved 70 million Euros so far. By 2015 they target to achieve ZFL in all its 252 factories across 70 countries. REVERSE LOGISTICS AND CLOSED LOOP SUPPLY CHAIN This is an important phase in greening of a supply chain which involves collection and reprocessing of used products, the return of components and parts which can be reused, bringing the reusable waste back into the supply chain to the extent possible. Closed loop supply chain includes collecting products from the end user after use, reverse logistics which helps in collecting these products from point of use and bringing them back to the point of recycling, testing and sorting to determine the condition of the products brought back, refurbishing the process which includes remanufacturing and recycling of these products and also the disposition of the waste. Closed loop supply chain also entails marketing and distribution of refurbished products. Fig 2: A Typical Reverse Logistics Network Structure CHALLENGES INVOLVED IN REVERSE LOGISTICS 1. How to collect the used products from end users? This challenge varies with the type of product a company deals with and its penetration in the supply chain. The used products need to be collected from every echelon of the supply chain. The products 13. Greening the Supply Chain 13 which have greater penetration are the most difficult to collect in reverse logistics. Some companies collect the used products through the existing distributor networks, through special schemes or incentives for the end user to return the used product, while some collect through third party vendors who collect scrap. However capturing complete benefit of the immense potential in the return process still remains a challenge. 2. Which products to put back into the reverse supply chain? The used products may be at different stages of its life cycle. Some of the products are just returned by the customers at the retailer point as they either do not like it or the product is slightly defective. These products may be put back into use with minor reprocessing. Some other products may only be of limited use as only a few or no components may be disassembled and reused. Thus while considering the products for reverse logistics, the company has to do a good analysis of the costs incurred in reverse transportation and usefulness of the products brought back. 3. At which point in the supply chain to test the condition of the collected products? Companies need to evaluate the condition of the products and their grades, so as to identify which products should be reused, which to be recycled to extract useful components and which ones to be scrapped. Since this decision needs to be taken as close to the collecting points as possible, this raises a challenge as the distributors or the retailers collecting the used products are not technically capable of doing the evaluation. 4. Where to reprocess them? As supply chains for many of the products are global, the manufacturing facilities are located in the countries where maximum cost advantage is obtained. However, the markets are also global and thus it is not feasible to transport the products all the way back to the manufacturing facilities for refurbishing. To address this challenge companies also explore subcontracting options to the third party recycling vendors at the point of use. This concept is also picking up as they can gain from the economies of scale by recycling products for multiple customers. 5. How to put the refurbished products in the market? People always prefer to buy something new. This poses a challenge in distribution and marketing of refurbished products. Also there is a perception that the refurbished products might not last a long time, which imposes challenges. Thus, companies need to smartly market these products and make the consumer aware that by purchasing these refurbished products they are contributing towards sustainable environmental performance. Though the trend is changing with consumers becoming environmentally aware and buying the products carrying labels of refurbishment, this segment is small. CLOSED LOOP SUPPLY CHAIN – BEST PRACTICES 1. Lead Acid Battery Recycling Lead-acid batteries may cause serious environmental hazards if they are disposed off in landfills. They contain hazardous substances which need to be handled responsibly by the companies producing them or by the end users. These companies understood the potential impacts of this disposal on the environment, and took over the responsibility of collecting batteries at the end of their useful life from the customers by adopting reverse logistics, reprocessing them in an environment friendly system and putting them back to use in the regular supply chain. To attain this, companies started educating the end users about the adverse impacts of disposing batteries in the open. They started collecting used batteries from the individual owners and drivers through the dealer network, with dealers giving them special discounts if they returned their used batteries. They also approached large bus fleet companies to collect the 14. Greening the Supply Chain 14 batteries. The companies also organized battery collection teams who collect used batteries from various disposal units. The batteries are then brought to the plants where they are recycled. They are washed, crushed, lead and acid are separated and then reprocessed into lead-acid batteries. The whole process happens in an environment friendly manner where emissions are less and there is little liquid waste discharge. The batteries, with proper packaging are then sent back into the market. 2. Dream Machines to Collect Used Beverage Bottles PepsiCo in collaboration with Waste Management developed a Dream Machine recycling initiative to increase recycle rate of the beverage containers from 34 percent to 50 percent by 2018. Since the launch of these machines, PepsiCo has formed numerous partnerships that will make kiosks available in highly trafficked public locations across the US. The plan is to deploy these dream machines in both permanent locations such as convenience stores and sidewalks in cities, and also in temporary locations such as large concerts and public events. These machines accept plastic and aluminum containers, with monetary and psychological rewards to the volunteers who participate. These machines can be used by anyone and everyone, but those who sign up for the Dream Machine Program can earn points which they can redeem later. 3. Recycled Fabric Used to Make Car Seats As claimed by Ford Motor Company, Fusion is the first vehicle sold over the world to use recycled material in the fabric used for its seats. Currently Ford’s mandate for its supplier is to use at least 25 percent of the recycled fabric in the seats. The amount of recycled fabric in fusion varies depending on the region – from 100 percent in North America to 25 percent in developing countries. Plastics recycled from about 40 PET bottles goes in one vehicle. Though the supply chain for Green Seats at Ford is very complex it leads to a number of benefits to Ford, to its suppliers and to the environment. Research shows that recycling 1 ton of plastic saves more than 5 mega watt hours of electric energy which would have gone in the production of the same amount of plastic anew. Apart from this, recycling plastic results in reduction in landfill waste. Besides PET bottles, other recycled materials in Fusion include recycled car battery casings and old denims which are used to produce sound absorption materials. The supply chain of this recycled fabric used in Fusion, starts from a company called Unifi Inc., which has developed its own brand of recycled fabric materials called Repreve. This fabric is made by chopping, grinding, melting the plastic derived from PET bottles, pouring this molten plastic in tiny holes to obtain yarn like threads when cooled. Unifi supplies this fabric to another supplier which weaves the fabric. This manufacturer supplies this recycled fabric to a Ford’s supplier, Lear. Lear manufactures seats using this fabric and supplies them to Ford to be directly fitted into Fusion. To have significant cost reductions, Ford has taken an initiative to collect PET bottles from its employees to be supplied as raw material in the production of Repreve. 4. Retaining Ownership of the Products Sold to Re-use the Materials They Contain It has been observed that the new generation of customer that is emerging, seems to prefer access over ownership. This can be seen through the increase in initiatives like car pooling, sharing of machinery, 15. Greening the Supply Chain 15 spaces and even articles of daily use. With this trend emerging and also with the world running into constraints on the availability of natural resources and other raw materials, organizations have started rethinking about the traditional model of Take-Make-Dispose. They have started taking into account product restoration right in the design phase, rather than just product consumption as done traditionally. The aim is to design waste out. Experts believe that the trends are hinting at companies retaining the ownership of the products sold in order to harvest and to re-use the materials they contain. This may even go further so that the consumers lease the products from the companies and then have legal obligations to return them to the companies at the end of their use. GREENING THE SUPPLY CHAIN – WHERE TO BEGIN A beginning can be made from the basic level by eliminating paper work and reducing on energy requirements in various business processes, before taking an overhaul of the complete supply chain process by upgrading infrastructure and upgrading manufacturing processes. Businesses should gradually build up a culture that would focus on designing environment friendly practices. Slowly but steadily this will lead to the generation of DNA leading to the design of all processes keeping the objective of greening in mind. The table below demonstrates all the ways in which B2B and automated/electronic supply chain initiatives can help companies reduce their environmental impact. Reference: http://www.greensupplychain.com/burton riding_the_green_supply_chain_wave.html 16. Greening the Supply Chain Partner with Bristlecone to optimize your supply chain investment and implement quick time-to-value solutions. To set up a discussion with our team, please send your inquiry to
[email protected] Corporate Headquarters Silicon Valley 488 Ellis Street Mountain View, CA 94043 T (650) 386 4000 F (650) 961 2369 www.bcone.com ©2014 Bristlecone Ltd. Bristlecone Managed Services is part of Bristlecone’s services. Bristlecone believes the information in this publication is accurate as of its publication date. The information is subject to change without notice. Bristlecone acknowledges the proprietary rights of the trademarks and product names of all companies mentioned in this document. CONCLUSION The trend of developing green supply and demand chains is now gaining wide popularity. However, most companies are still figuring out as to how they can achieve this and where do they start. For over a decade businesses have been concentrating on improving supply chain visibility, increasing efficiency and trimming down their costs. Although the focus is on moving towards a green supply chain the goals of visibility, efficiency and cost reduction cannot be compromised. Green is the future and the day will come sooner than expected, when one of the key differentiators will be products procured, assembled and manufactured using green technologies, not polluting the supply chain, using recyclable packaging materials and so on. Also, with the passage of time this will be a cost effective and sustainable production methodology. REFERENCES 1. http://knowledge.wharton.upenn.edu/category.cfm?cid=13 2. http://www.cisco.com/web/about/ac227/ac333/the-environment/supply-chain.html 3. http://venturebeat.com/2012/12/19/greening-the-supply-chain/ 4. http://www.greentechmedia.com 5. http://www.environmentalleader.com/category/sustainable-supply-chain/ 6. http://www.worldwatch.org/node/6268 7. http://www.thegreensupplychain.com 8. http://www.scdigest.com/index.php 9. Greening the Supply Chain – Guide for Asian Managers by Purba Rao 10. Supply Chain Management: Sunil Chopra, Peter Meindl