27

Sustainability Practices and ‘Greening’ of SC

“Fortune favors the prepared mind

 

—Louis Pasteur”

INTRODUCTION

The term ‘greening the supply chain’ describes a wide variety of actions that companies are presently conducting to reduce bad impact on the environment. Greening the supply chain initiatives are aimed at achieving improved environmental, health and safety performance. Greening supply chain helps increase efficiencies in the use of energy, water or other natural resources or raw materials; reducing the environmental and societal impact of business operations upon people around and the biosphere. It is only aft er the Second World War that business organizations felt the pinch of material shortages and started showing concern for the environment. Organizations then started recycling materials for reuse and also reduced the wastages in operations. Consequently, the environmental concerns had led to the development of environment-friendly practices. Corporations today feel that Chapter by adopting environment-friendly practices, they can become competitive and improve the financial performance by reducing cost of wastages. Public awareness about environment forced the governments of many countries to regulate operations/practices of business organizations to adopt ’greening’ more seriously.

Today, the government regulations towards controlling the environmental pollutions are becoming harsher. In developed counties like the United States, government imposes huge fines on producers of substances responsible for depletion of ozone layer. Governments have also introduced a law for recycling contents in the products. In Europe, laws are quite strict for solid wastages because of limited land availability for dumping solid wastes. In addition, shortages of raw materials are forcing manufacturers to recycle the scarce raw materials. The pressure from the consumer groups for greener environment compels the manufacturers to look into their supply chain practices and to be in line with the need of the hour. The product design decisions, cost control, manufacturing, planning and control, and distribution have a major effect on the environmental performance of an organization. In short, green supply chain takes a serious call for environmental impact by the supply chain processes and practices of business organizations.

CORPORATE SOCIAL RESPONSIBILITY

Corporate social responsibility (CSR) is a theme that engages business, academics, social and environmental activism, politics and media and increasing awareness about social and environmental inequities. An understanding of CSR suggests that business organizations should be responsive to social and environmental issues. Many organizations active in propagating CSR have tied CSR to sustainable development suggesting companies to contribute to securing sustainable development. In general, following are the elements of CSR:

• Management
  • Corporate governance
  • Compliance

• Product Responsibility
  • Supply chain management
  • Quality

• Employees
  • Diversity
  • Work-life balance

• Environment
  • Climate change
  • Take-back and recycle
  • Hazardous substance

In a bid to address the issues of CSR, many leading companies are taking the route of greening the supply chain. The micro level initiatives by business corporations will largely mitigate the environmental issues at a macro level.

SUPPLY CHAIN RESPONSIBILITY

It is likely that the company at the end of the chain (retail outlet) will feel more compelled to fulfil its responsibility in the supply chain. A manufacturing company in the middle of the chain is very concerned with its supply chain responsibility if it is involved with product stewardship. This company finds it difficult to fulfil its responsibility since its products (semi-finished products) are used for many different consumer products. For this company, it is almost impossible to control all life stages after delivery.

In the food sector, supply chain responsibility is more critical due to consumer protection. This is due to increased requirements of large retail chains in the field of food safety. In the agricultural sector, where labour conditions and environmental issues in India give rise to CSR awareness, there seems to be little attention from Indian companies for CSR in the supply chain. Most of these companies work through a middleman who has actual contact with the farmers. The companies do not instruct middleman on CSR and consider CSR to be the concern of the middlemen and the farmers. They consider their own responsibility to be very limited.

The supply chain responsibility of a bank is quite different than that of manufacturing companies. For example, in chemical industry the companies look into CSR issues relevant to its own sector. However, banks have very broader CSR responsibility as they are involved with many different sectors and diverse CSR aspects due to their financing activities. Thus, financing institutions consider CSR as their largest challenge, since their financing activities and the supply chains behind that can yield much more CSR benefit than in-house measures.

Consumer attention can also influence small companies. Even the companies which do not have an explicit CSR policy or no measures taken with respect to supply chain responsibility, make one exception, that is, they do not engage child labour. Some companies ensured CSR in its supply chain by paying their suppliers well. They have clear terms and conditions for their suppliers. These companies perform audits on vendors with regard to pension fund, safety measures, hygiene, wages, and has a check on its dealers on corruption and pricing.

The research shows that the attitude of MNCs towards their business partners and suppliers is quite ambiguous. On one hand, they incorporate CSR standards in the contract or attach their code of conduct to the contract. On the other hand, they consider it to be the primary responsibility of their business partners to solve their own CSR dilemmas. This implies that these contracts do not provide a guarantee for supply chain responsibility. SMEs do not incorporate CSR requirements in their contracts with their suppliers. Other methods to promote CSR in the supply chain could be by providing information on the CSR policy to suppliers and subcontractors, for example, by providing documentation or information on the Web site, by providing training, etc. Some companies (with no formal CSR policy) take into account ethical considerations in the selection of business partners. This is done in two ways: discussions with potential partners and inquiring with other companies and governments.

With the concerns ot environmental issues and global warming, consumers demand more explanation about the products they are purchasing. Companies will have to answer questions about how green their supply chain processes are, their carbon footprint and how they recycle. However, the leading business firms have seen this as an opportunity to convert public's interest in all things green into increased profits. The manufacturing companies have found that there is a link between improved environmental performance and financial gains. For example, General Motors reduced disposal costs substantially establishing a reusable container programme with their suppliers. By these cost reductions they have identified and complemented the company's commitment to the environment. Thus, by redesigning the firm's supply chain—from purchasing, planning and managing the use of materials to shipping and distributing final products—savings are identified resulting into indirectly implementing green policies.

GREEN SUPPLY CHAIN MANAGEMENT

Green supply chain management (GSCM) has emerged as a key approach for enterprises seeking to become environmentally sustainable. The notion of GSCM implies the insertion of environmental decisions within the traditional concept of supply chain management.

’Greening’ the supply chain means integrating environment thinking into supply chain process, including product design, material sourcing and selection, manufacturing processes, delivery of the final product to the consumers, and end-of-life management of the product after its useful life. In green supply chain design, the green process improvement approach (as shown in Figure 27.1) is normally adopted. It addresses the following five fundamental areas of the supply chain: upstream, downstream, within the organization and logistics.

 

 

• Procurement activities of the organization include evaluation criteria of suppliers’ environmental performance.
• Distribution activities, usually comprises those activities related to the disposal and sale of excess stock, including recovery and recycling opportunities.
• Design activities include involvement with ’design for the environment’ with suppliers.
• Manufacturing activities include green production causing no pollution and wastages.
• Logistics activities such as just-in-time or quality management intertwine with environmental criteria.

Green supply chain accrues the following benefits to the organization:

Judicious utilization of resources   GSCM helps in efficient and cost-effective utilization of available resources of the organizations. Organizations will purchase ‘green’ input resources for environment-friendly production process to produce desired outputs.

Cost reduction   Green practices reduce transaction costs and promote recycling and reuse of raw materials. The generation of waste and hazardous by-products is reduced or eliminated, helping the firms complying with the regulations. Consequently, the relevant handling and operational cost involved can be further reduced and, in the mean time, the efficiency of using resources can be enhanced.

Gaining competitive advantage   As the issue of environmental concern is addressed successfully, differential positioning of its product in market is possible. Besides attracting new profitable customers for organization, it will give competitive edge in the marketplace. It will strengthen the brand image and reputation in the marketplace.

Risk mitigation   Organizations adopting GSCM practices can reduce the chances of being prosecuted for anti-environmental and unethical practices.

Ease in product adoption   Environment-friendly products are adopted without any hesitations by the consumers. This will enhance the brand image and brand reputation in customers’ minds.

Logistics is the integrated management of all the activities required to move products through the supply chain. For a typical product, this supply chain extends from a raw material source through the production and distribution system to the point of consumption. The logistics is also used for reverse flow of material from customers to manufacturers. While moving the inventory across the supply chain, logistical activities comprise freight transport, storage, inventory management, materials handling and all the related information processing. The main objective of logistics is to coordinate these activities in a way that meets customer requirements at minimum cost. In the past, this cost has been defined in purely monetary terms. As concern for the environment rises, companies must take more account of the external costs of logistics associated mainly with climate change, air pollution, noise, vibration, fuel/energy consumption and accidents.

In logistics, shippers need to seek out carbon-efficient carriers. Two of the biggest sources of CO₂ emissions can be found during the manufacturing and transporting process. If companies can openly share information, the logistics service provider can analyse existing practices and make proposals to optimize the supply chain and reduce both CO₂ emissions and costs. The green practice include better stuffing practices which means better container utilization, converting to different modes of transport, especially to sea from air, and to rail from road, and shipping with a more CO₂-efficient ocean carrier. Hence, for ‘greening’, supply chain logistics should achieve a more sustainable balance between economic, environmental and social objectives. The green supply chain best practices can be best summaried as follows:

• Align supply chain goals with business goals.
• Evaluate supply chain as single life cycle stream.
• Use green supply chain analysis as catalyst for innovation.
• Focus on source reduction to minimize waste.

Thus, green supply chain management takes into account all suppliers in various stages of the manufacturing process, transportation of finished goods and services, and the integration of reverse logistics. A green supply chain utilizes recyclable material, streamlines distribution processes, reduces redundancies, minimizes waste to provide cost benefit to society, people, nature, business and economy ensuring pollution reduction, environmental stewardship, reduced operational costs, streamlined processes and better supplier relationships.

COMPETITIVE SUSTAINABILITY

In green supply chain initiative the firm would use environment-friendly inputs to transforming input products which can be recycled to conserve scarce resources and reduce the environmental pollution. The output of process used would be reclaimed and reused at the end of life cycle of the product. The sustainable supply chain aims at reducing the cost of operation and keeps the environment pollution free.

There are many facets of the sustainable supply chain. The starting point is product design and process of manufacturing which needs to be focused and addressed properly for making the product and process environment-friendly with reduction in cost. On the other hand, many companies are also focusing on packaging and transportation to reduce environmental issues. For example, by proper designing of packaging, the amount of cardboard or filler material used can be reduced for it and will help to reduce the loading (volume) on the truck. Agarwal Packers and Movers have modified their trucks body to increase the loading capacity by 30–40 per cent. This helped in reducing the unit freight cost and also the unit fuel consumption for the goods transported.

As shown in Figure 27.2, organizations are adopting a variety of tools, both tactical and strategic in nature, with short-and long-term perspectives. With these tools in mind, corporations plan and deploy various programmes to gain competitive advantage. General Electric deployed an ’Ecomagination’ programme to have revenue stream of $20 billion by 2010 from environment-friendly products. This shows that they recognized the opportunity associated with saving the environment.

 

 

The United States Environmental Protection Agency (EPA) published a written guideline called the ‘The Lean and Green Supply Chain’. It is a practical guide for materials managers and supply chain managers to reduce costs and improve environmental performance. It is a four-step decision-making process for greening supply chain:

• The first step is to identify environmental costs within a company's process.
• The second step is to find opportunities for reducing environmental impact.
• The third step to calculate the benefits of proposed alternatives.
• The fourth step is to decide, implement and monitor solutions.

The benefit of implementing a green sustainable supply chain is that profitability of a company can be improved and it helps to keep the environment green. Thus, towards a environment-friendly supply chain practice, the following are identified as potential areas:

• Product design, packaging and labeling.
• Transportation of hazardous raw material.
• Manufacturing processes for waste reduction/elimination.
• Supplier selection.
• Waste/scrap disposal.

GREEN PROCUREMENT

The awareness about the protection of the global environment is growing stronger in people across the globe. Hence, companies are promoting environmental measures in all phases of product development and activities in its factories and work sites. In order to make these activities more effective, companies must reduce environmental burdens and avoid environmental risks by reinforcing protection activities. Companies should work together with their business partners in the purchase of materials that impose minimum environmental loads. For example, the RoHS (European standard for hazardous substances) directive restricting the use of certain hazardous substances in electrical and electronic equipment came into effect in February 2003 in the EU (European Union). RoHS prohibits the use of 6 substances, are lead, mercury, cadmium, hexavalent chromium, polybrominated biphenyl (PBB), and polybrominated diphenyl ether (PBDE) after July 2006.

In line with environmental policies established under the basic environmental philosophy, the Sharp Group (Japan) has framed its ’Charter of Corporate Behavior’ and the ‘sharp Code of Conduct’ accordingly. Sharp is pursuing the reduction activities of environmental loads in all aspects of its business activities. Similarly, Konica Minolta Group offers products with low environmental impact. They believe that in order to achieve this goal, it is necessary to develop and design environmentally conscious products, while at the same time procuring materials, parts, and components with low environmental impact. For the Konica Minolta Group, green procurement is reducing environmental impact. They have added a category of the ecology to their traditional evaluations criteria (quality, cost and delivery) of suppliers, in order to give preference to procuring parts, materials, and so on with low environmental impact, from suppliers with active commitments to the environment.

In short, to ensure the greening of supply chain the following practices are adopted by corporations with regards to procurement:

• Suppliers’ participation on industry-wide environmental panel.
• Environmental risk assessment.
• Judicious resource management.
• Usage of reusable packaging and shipping material.
• Disclosure of the composition of material used on the label.
• Careful analysis of material impact on environment before its usage.
• Reclaim hazardous material.

In the chemical industry, environmental aspect of supplier evaluation is very important. For example, at Dow Corning of Midland Michigan, the following criteria are used to address environmental issues to decide upon the suppliers:

• How the cost of operations of supplier is compared with his competitors?
• What are the past records of supplier on environmental mess ups?
• Has the supplier ever violated environmental regulations?
• What is the degree of employee exposure to safety?

The important criteria in chemical company are supplier selection by understanding and assessing the environmental risk associated with the chemicals to be purchased from the supplier.

GREEN MANUFACTURING: A STRATEGIC PRIORITY

Green manufacturing cuts across every aspect of manufacturing, including information decisions, process technologies, energy consumption, material selection and material flow. A lot of the decisions manufacturers make are related to cost, function and quality. Now they are adding another dimension, which is environment.

Many large, multinational companies are aware of environmental regulations in developed countries and growing consumer demand for a new generation of environment-friendly products. To answer this, they have embraced the notion that green products and production techniques are a competitive weapon.

In California, most automobile companies are complaining about meeting new clean air emission limits. Yet, Honda and Toyota have developed and produce new engines to meet and exceed requirements. For many of these companies, it is part of their business strategy. May be auto companies across the globe will have to adopt manufacturing process to comply their products to ’EURO III’ or ’Bharat III’ emission standards (for Indian companies).

MNCs like General Electric, DuPont and Toyota have adopted green practices since long. These companies work with the government to help develop this policy. The manufacturers who have foresight of environmental regulations improve their chances of producing compliant, cost-effective products that meet customer demands. They are proactive to regulatory framework with local and national policy makers. For example, Toyota for material handling in October 2006, introduced a new line of lift trucks that not only surpasses 2007 federal emission standards but also meets California's stricter 2010 standards.

GREEN MARKETING

On the distribution side, there are many marketing activities of a firm that are intended to create a positive impact or to lessen the negative impact of a product on the environment. These activities will answer consumers’ concerns about environmental issues. The activities cover everything from design to using recycled material in making a product to claim in advertising or on package labels. Environment-friendly distribution attempts to respond to the criticisms about pollution and waste. To counter to the environmental regulatory and consumer pressures, the firms have started the ’cradle-to-grave’, that is, life cycle approach to its products. The life cycle of the product typically include the following:

• Stage I: Process of product development which includes design, acquisition of raw materials, components and consumable materials from the suppliers including ‘green practices’, etc.
• Stage II: Product manufacturing with reduced wastages, minimum environmental pollution, safety to workers with reduced health hazards, minimum consumption of energy during manufacturing, etc.
• Stage III: Consumption stage includes minimum packaging, recyclables packaging and minimum energy consumption during product usage and maintenance friendly.
• Stage IV: This is the last stage which covers ease in disposal, recycling, reuse or re-manufacturing.

The recent example of products under fire was ’Aseptic boxes’, which were introduced in the 1980s. It was called as the most significant food-science innovation in 50 years. It is made of multiple layers of plastic, paper, and foil. Nearly 3 billion of the boxes are purchased every year in the United States. They consume less energy and raw materials to produce, fill, and ship, than any other ready-to-drink package. Aseptic boxes are ‘shelf-stable, which means they are able to maintain a drink's freshness for a long time without refrigeration. They are safer than glass, and they keep their content cool for hours after refrigeration. A typical aseptic box is 96 per cent beverage and 4 per cent package, creating one-twelfth the waste of a glass container. Despite all of these features they are not environment-friendly. Their multiple-layer construction makes them more difficult to recycle than ‘single material’ packaging such as glass or aluminium. These boxes were subsequently banned through legislation in the United States.

Sometime back disposable diapers have become the topic for debate. A large portion of disposable diaper is plastic, which is not bio-degradable. Over 20 states in the United States have considered legislation banning or placing special taxes on disposable diapers. The alternative is cloth diapers, which can be washed and reused. However, when the entire life cycles (from manufacturing to disposal) of cloth diapers and disposables are compared, it is not clear which does the least damage to the environment. Two major manufacturers of disposable diapers, Kimberly-Clark and Proctor & Gamble, have found ways to reduce the bulk of diapers and their packaging by as much as 50 per cent through recycling.

Due to pressure from consumers and thereafter from the U.S. government, McDonald's replaced its clam shell packaging with waxed paper because of concern relating to polystyrene production and ozone depletion. ×erox introduced a ’high-quality’ recycled photocopier paper in an attempt to satisfy the demands of the firms for less environmentally harmful products.

Bubble or blister plastic packaging is standard in health-and-beauty aids, hardware, electronics components and cosmetics. However, as they accounted for nearly 1 per cent of all solid waste, blister packs have been targeted by environmentalists as unnecessary and wasteful. An advantage of blister packs is that they are strong enough to protect a product while still allowing the customer to see it. A major criticism is the size of many packages.

Many companies for conforming to environmental regulation adapt products and/or packages to make them more environmentally sound. This green marketing strategy requires more substantive effort. A firm might replace an offensive ingredient with a more acceptable one, change production or distribution methods to reduce pollutants and waste, or design a product for easier recycling, closable, zip-lock bag that consumers can reuse when the popcorn is gone. For example, Johnson and Johnson packages shampoo in a pouch that is made from 80 per cent less plastic than a conventional shampoo bottle. Other firms have gone beyond packaging. Marcal Paper Mills in New Jersey takes tonnes of undelivered third-class mail from all 18 Long Island post offices and recycles it into toilet paper.

Indraprasta Gas Ltd., a New Delhi-based company, launched CNG, a clean fuel for automobiles towards forcing the petroleum companies to launch a clean fuel that is lead-free and has low sulphur content.

To appeal to environmentally conscious consumers or respond to legal mandates ’Estee Lauder’ has developed a line of cosmetics called ’Origins’ that is made entirely from flower and plant essences. In other case, ’Chemlawn’, a lawn-care company, has formed a special unit that markets to homeowners, who want less hazardous materials, used on their lawns. In response to government regulations that ban the use of CFCs as a refrigerant by 1995, refrigerator manufacturers have developed a substitute, which is less an ozone-depleting substance. Dow Chemicals, U.S.-based chemical giant developed special chemical carriers on roads to minimize fumes contamination to environment

Green marketing is not limited to manufacturers. Loblaw, a Canadian supermarket chain with 340 stores, has introduced a line of what it calls ’environment-friendly’ products under the ’Green’ brand name. The line consists of products, which include:

• Disposable diapers made from non-chlorine-bleached pulp.
• Phosphate-free detergents.
• Alar-free apple juice.
• Recycled motor oil.
• Rechargeable batteries.
• High-efficiency light bulbs.

Wal-Mart has also adopted a green marketing strategy. The chain puts special green tags on items it deems environment-friendly. In addition, it has set up recycling centres in the parking lots of its 1,500 stores and encourages recycling in its TV commercials. BMW has put up used car dismantling plant to address the environmental concern. The dismantle parts are either sent for recycling or upgrading and finally reuse.

Green marketing as a strategy will work only it enough consumers find it appealing. The factors which are responsible for making green marketing so important are as follows:

• Government pressure to produce better society and consumers.
• Pressure from consumer groups.
• Competitive pressure for differentiation leading to competitive edge.
• Sense of social responsibility amongst the corporates.
• Opportunities to reduce cost.

Consumers can affect the environment at two points, by either buying or rejecting environmentally unsound products, and by recycling products or discarding them in the garbage. Right now, recycling is the more common pro-environmental behaviour. If green marketing is legislated as in the case of CFCs, all firms in an industry will be forced to conform to a standard. As a result, it cannot be considered strategic. However, if a firm voluntarily chooses to implement a particular green marketing programme, it may serve as a basis for an appeal to customers for product differentiation. As described earlier, the strategy may entail everything from a statement on a label to a new line of products.

Towards the greening ot supply chain, DHL has extended the carbon-neutral Go Green logistics service in Asia. Under this system, a shipper can choose to ship the cargo/shipments under go green by paying a 3 per cent premium charge over the usual charge; in return DHL undertakes carbon reduction projects in its system: better trucks, hybrid trucks, route mapping and so on; the core idea being to reduce DHL's carbon footprint and users get that much carbon credit which in turn can be used in their reporting and such like. DHL offered to ferry all materials and equipments using its go green service and also put two biogas powered vehicles for use by people there. In India, DHL is using CNG vehicles, which come under this go green initiative as well.

Another option is to make it easy tor consumers to behave in an environmentally responsible way. Many companies are trying to make them environmentally responsible through green certification mark. ’Green seal’ may act as certification to ensure environmental standard products and create trust in the mind of the customers. If a company's product meets the standard, it can use the green seal of approval on its packaging and in its advertising. An indicator of environmental concern like the green seal may make it easier for consumers to act on their beliefs.

REVIEW QUESTIONS

1. What are the drivers of ’greening’ supply chain initiatives in large companies?
2. How green supply chain has an implication on sustainable practices of the firm?
3. What dimensions of an internal and external environment might be affected by green supply chain initiatives?
4. How would strategic marketing planning apply to green supply chain initiatives?
5. Explain ‘cradle-to-grave’ and ‘cradle-to-cradle’ concepts in green supply chain.

INTERNET EXERCISE

Log on to the following websites and find out various initiatives corporations should take towards greening the supply chain of their organizations

1. http://www.greensupplychain.org
2. http://www.environment-agency.gov
3. http://www.greenscn.com/

PROJECT ASSIGNMENTS

1. Visit a large size chemical company in your area to study their supply chain and find out their ‘green’ practices. Also suggest the areas where further improvements are possible.
2. Many good companies are practising a concept of ‘Cradle-to-Grave’ management for their hazardous products. Find out how an automotive battery manufacturing company (Excide) is practising this concept in this supply chain operation.

VIDEO LINKS

1. Greening the supply chain http://www.youtube.com/watch?v=pOjdJr0NHPQ
2. Challenges of sustainable SC http://www.supplychainbrain.com/content/videos/2011-videos/scl-summit/challenges-of-a-sustainable-supply-chain/