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by Glenn Milano Inigo Ahedo
Table of Contents
Executive Summary ........................................................................................................... 1 Building a GSC—the Fundamentals .................................................................................... 1 GSC Pulse Check—Laying the Foundation for Improvement .................................................. 2 Green Procurement ........................................................................................................... 3 Carbon Footprint Modeling and Simulation .......................................................................... 6 Conclusion ........................................................................................................................ 7 About the Authors .............................................................................................................. 8 About Booz Allen ................................................................................................................ 9 Principal Offices ............................................................................................................... 10
The Green Supply Chain
Emerging best practices in Green Supply Chain (GSC) management can help government organizations comply with environmental mandates while boosting efficiency.
The Green Supply Chain is a key element of an enterprisewide green management strategy. Our experience working with commercial and government clients shows that a GSC can help agencies comply with new federal guidelines while achieving a wide range of economic, social, national security, and environmental goals.
When President George W. Bush issued Executive Order 13423 in 2007 to strengthen federal energy and environmental management, the need for such action was clear. Reducing U.S. dependence on foreign oil would improve national security and dampen rising fuel costs. Promoting alternative energies while tackling greenhouse gases (GHG) and other pollutants would address pressing environmental challenges, most notably global warming. The Administration of President Barack Obama has also made energy and environmental sustainability a priority. President Obama’s New Energy for America plan, which calls for investing $150 billion in clean energy over the next 10 years, lays out an ambitious plan for promoting green environmental stewardship. Among its goals, the plan would generate 25 percent of U.S. electricity from renewable sources by 2025 and reduce GHG emissions 80 percent by 2050. In Booz Allen’s experience, the majority of federal leaders take seriously their responsibilities as environmental stewards. They want to comply with government regulations and mandates requiring greener operations, and they want to demonstrate their commitment to green technologies and practices, especially those that reduce dependence on foreign energy sources. Meaningful change, however, will be difficult if environmental initiatives increase costs and drain resources from critical mission activities. The key challenge facing agency leaders is this: How can we adopt green programs that actually improve, rather than undermine, mission performance and resource efficiencies?
Building a GSC—the Fundamentals
One of the most profitable areas for strengthening both operational efficiencies and environmental stewardship is an organization’s supply chain. The supply chain has significant potential for energy and resource conservation, from the sourcing of products and raw materials to product transportation, manufacture, and storage; product use; and waste disposal and recycling. A GSC approach applies an environmental lifecycle perspective to the product lifecycle. Its goal is to effectively manage an organization’s environmental footprint (carbon footprint, energy consumption, waste generation) through an end-to-end review of the supply chain. Each activity along the supply chain is ripe with opportunities for improving operational and mission performance while also addressing environmental and energy goals. In recent years, a growing body of best practices has emerged from the experiences of commercial and government organizations that have attacked carbon emissions and energy consumption in their supply chains. These best practices can be implemented as three separate but complementary programs—the GSC Pulse Check, Carbon Footprint Modeling and Simulation, and Green Procurement—that provide a foundation for building the organizational culture, processes, and tools to support a GSC. Our experience providing supply chain services to government and commercial customers has demonstrated the long-term value of a GSC. The most successful organizations follow an identifiable set of best practices for GSC management, which we have
Exhibit 1 | Booz Allen GSC Offerings
GSC Pulse Check
Benchmark existing green supply chain practices and operations against best-in-class Identify products and services that reduce environmental impact and energy use Measure existing operationsrelated energy consumption and emissions
Highlights critical weaknesses and establish a clear path for continuous improvement Facilitates increased collaboration with an organization’s suppliers to spur ef cient design and usage of products and recycling of waste Shows how an organization can optimize its supply chain emissions footprint by modeling new strategies, assessing the savings opportunities, and validating outcomes
Carbon Footprint Modeling and Simulation
incorporated in three related programs or services (see Exhibit 1). Organizations do not have to own the extended supply chain to benefit from these programs and associated tools. As large, high-volume purchasing organizations, government agencies can wield considerable influence by collaborating with suppliers to find alternatives that reduce costs while greening the supply chain. The most fruitful opportunities are not always the most obvious. These best practices and programs provide systematic assessments that can help decision makers determine where to focus their efforts. Agencies can undertake each program on its own to improve GSC practices. Together, the programs provide a comprehensive framework for building a GSC that will strengthen an organization’s “triple bottom line,” not only adding economic value but also promoting the organization’s social goals and bolstering its environmental stewardship.
GSC Pulse Check—Laying the Foundation for Improvement
We recommend organizations begin by assessing the current state of their supply chain organization and their compliance with best practices and government environmental requirements. Do they have a strategic plan that articulates their vision and goals for creating a GSC? Have they implemented policies and procedures to support green practices? Have they established metrics and reporting mechanisms to measure progress? Have they applied these elements to all aspects of the supply chain? Booz Allen’s GSC Pulse Check provides a rigorous assessment that measures the extent to which green practices are ingrained in an organization. Using a set of questions tailored to the organization’s specific requirements, the GSC Pulse Check assesses the current supply chain practices at a strategic level, examining the organization’s vision, policies, processes, goals, metrics, and training. It also assesses supply chain practices at the tactical level, evaluating the processes through the product lifecycle from product design to disposal. Exhibit 2 shows the 11 assessment areas of the GSC Pulse Check.
Exhibit 2 | GSC Pulse Check Components
1. Strategic Vision 2. Goals and Metrics 3. Policies and Procedures 4. Training and Development 5. Measurement and Reporting
6. Design 10. Operations and Support 7. Demand Management 11. Recycle and Dispose 8. Procurement 9. Transportation and Warehousing
Based on the data collected and the responses received from key personnel in the organization, Booz Allen will determine the level of compliance for each evaluation area against best practices. The maturity levels range from best-in-class (5) to minimal capability (1). The following are detailed descriptions of the maturity levels: • Best-in-class (5): Fully complies with and/or exceeds environmental best practices in that dimension • Advanced participant (4): Significantly complies with best practices • Qualified participant (3): Complies with best practices at some level • Marginal performer (2): Does not comply with best practices, but has some basic processes and procedures in pursuit of improved environmental performance • Minimal capability (1): Displays no indication of processes or procedures to improve the environmental performance of the organization. Exhibit 3 displays an example of an organization’s gap analysis across the major greening areas. Once an organization understands its maturity level—and compares its scores with best-in-class
organizations—it can evaluate which actions will have the biggest impact on reducing the waste and energy demand of the organization’s supply chain. Booz Allen has helped numerous public and private sector organizations implement Environmental Management Systems to improve environmental practices throughout the enterprise. The GSC Pulse Check focuses exclusively on the supply chain, an area rich in opportunities for both efficiency and environmental gains. By measuring an organization’s current practices against environmental best practices, the GSC Pulse Check enables organizations to identify and then tackle supply chain activities that promise the greatest return on investment.
Green Procurement seeks to increase collaboration within the supply base to reduce the environmental footprint associated with the various stages of the product lifecycle. This approach involves more than simply purchasing green products and doing business with environmentally aware suppliers. Exhibit 4 illustrates the Green Procurement activities that each stage of a hypothetical supply chain might encompass.
Exhibit 3 | GSC Pulse Check: Identifies and Prioritizes Capability Gaps
Best in Class
5 4 3 2 1
on es ng gn en en en ng ric or r ti ur si pm em em et De ou pp ed po ag ur lo eh Su M gic oc Re De ve 6. d oc an W ar an Pr d te nd an ra d an M Pr d ec yc le Di sp Vi os si si al s t t t t 11 .R
Quali ed Participant
• Design: Work with product designers to incorporate more environmentally friendly materials, reduce hazardous materials, promote the ability to recycle a product, and promote products and parts that can be remanufactured. Booz Allen is currently working with several U.S. government agencies to eliminate hazardous chemicals from the supply by identifying environmentally friendly and safer alternatives. The impact is fewer hazards to the environment and lower waste management costs.
• Demand management: Identify ways to improve forecasting, minimize inventory on hand, and reduce the need for financial and physical resources during the order fulfillment lifecycle. The impact is reduced inventory carrying costs, fewer expired products, and fewer resources dedicated to managing the order fulfillment process. • Procurement: Conduct a spend analysis and identify which product categories hold the largest potential impact; then, identify alternative products to replace
Exhibit 4 | Green Procurement Spans All Functional Components of the Supply Base
Design for the environment
Buy only what is needed, when needed
Procure green products and services
Transportation and Warehousing
Optimize logistics and warehouses
Operations and Support
Maintain using green products and services
Recycle and Disposal
Reduce the waste stream
them. One opportunity includes procuring more environmentally friendly packing materials to reduce the level of CH4 (methane) generated by landfills. Other opportunities include identifying reductions in refrigerated trucks/train cars’ refrigerant use (Class I/II, HFC/PFC) as a result of changes in logistics, as well as reductions in N2O (nitrous oxide)/CH4 as a result of reduced electricity and fuel consumption in vehicles and facilities. • Transportation and warehousing: Seek opportunities to consolidate shipments, utilize a more fuel-efficient distribution networks, and ship via transportation modes that are less fuel intensive. These changes are possible through network optimization, service-level requirements analysis, and simulation of alternatives. • Operations and support: Create incentives for staff and partners to be more environmentally conscious, and make decisions that support your organization's green goals. • Recycling and disposal: Review all supply chain wastes and identify opportunities to recycle, resell, and dispose more efficiently with less environmental impact. As is the case with traditional strategic sourcing, green sourcing should seek to leverage demand, supply, and process opportunities. For example, organizations should develop a full value-chain perspective on products and services by examining the entire lifecycle of supply chain costs, including recycling and disposal. They should ask questions such as— • Is this the right product, specification, or quantity? • Is this the right supplier or the right price? • Are these the right processes and policies? The Green Procurement approach will enable organizations to uncover greener sourcing alternatives, such as adopting alternative fuel vehicles or renewable energy, increasing paperless transactions through e-procurement and web-based services, or using local vendors to minimize transportation.
Project Spotlight: GSC for the Veteran's Health Administration (VHA) Hospital System
Challenge: The VHA wanted to develop a comprehensive “cradle to grave” strategy for managing the pharmaceutical waste generated throughout its nationwide network of medical centers and other care facilities. Approach: The three-phase approach began with a benchmark analysis of the VHA’s pharmaceutical supply chain lifecycle, including the development of a capability protocol based on federal regulations, industry best practices, and VHA policies. The second phase was an evaluation of VHA’s processes against the protocol through a series of interviews and site visits. The effort concluded with the creation of a “cradle to grave” strategy for managing pharmaceutical waste. Results: The results included recommendations for improved pharmaceutical supply chain sustainability from initial product and system design to reverse distribution and disposal. The expected impact is increased compliance with all federal regulations, fully updated policies and procedures for end-to-end supply chain management, and improved processes to minimize and better manage pharmaceutical waste. Additionally, organizations must collaborate with vendors to ensure the component elements and vendors are also green. Organizations should work closely with vendors to identify innovative demand- and process-side opportunities for GHG reductions. At the same time, organizations should evaluate and select vendors based on their environmental footprint and establish performance- or incentive-based contracts to align goals with suppliers. Finally, to successfully implement green sourcing, organizations must implement a key set of capabilities linked to the overall business strategy (see Exhibit 5).
Exhibit 5 | Base Carbon Footprint by Operation
35 30 25 20 15 10 5 0
SC nd se s tio un ou tb rs e ou bo uc To t al n d
In the first step, we calculate the current footprint for CO2 emissions and other GHGs, such as N20, CH4, and HFC/PFCs, or energy consumption across the entire supply chain, including inbound supplies and services, manufacturing and operations, warehouses, outbound distribution, product use, and reverse logistics. We consider a wide variety of variables, such as emissions by fuel type, average fuel efficiency values, and electricity consumption by building characteristic. We compile the data to create a baseline map of total supply chain emissions and composition from both direct and indirect sources. The baseline footprint provides a consolidated snapshot of the carbon emissions at each stage for each product, highlighting the most carbon-intensive stages in the supply chain. We then analyze the baseline numbers to pinpoint the main drivers behind the carbon emissions footprint, identifying emissions points and values, consumption points and values, and dependent and interdependent relationships. In the next step, we use our baseline analysis to identify opportunities for reducing carbon output. This step includes evaluating the cost-benefit of alternatives and measuring their potential risks, such as the impact on suppliers or the legal ramifications. We then devise our strategies for reducing the organization’s carbon footprint. In the final step, we use network optimization tools to model the planned strategies, assess the potential savings—in both reduced costs and carbon output— and validate the outcomes (see Exhibit 6). Government agencies typically do not have the same level of experience tracking supply chain carbon
As organizations conduct their lifecycle analyses and collaborate with vendors, they will find it beneficial to weigh the social and environmental impacts of the alternatives they examine. For example, will their carbon reduction efforts generate valuable goodwill with customers and citizens or enable compliance with community environmental goals or government mandates? In this way, Green Procurement initiatives will produce triple bottom line—economic, environmental, and social—payoffs.
Carbon Footprint Modeling and Simulation
After organizations assess their organizational maturity level, we recommend that they undertake a carbon footprint analysis as an important next step in creating a GSC. The analysis usually includes three basic steps, which we have worked through with a number of clients over the years.
Exhibit 6 | Carbon Footprint Modeling and Simulation Can Model New Strategies, Assess Savings Opportunities, and Validate Outcomes
of – – – – – –
Scenario analysis: Modeling the impact
operational shifts including: Transportation mode shift Equipment change Facility location Routing and lane optimization Shipment pro le Facility-level improvement
Carbon Footprint Optimized
emissions or energy consumption as do private sector organizations. New metrics for tracking and calculating the carbon emissions and energy footprints of government suppliers can present challenges. Agencies must measure variables such as the fuel efficiency of suppliers’ vehicles, miles driven, and warehouse square footage. We have found that many public sector organizations need help gathering this information from their suppliers. Again, it is important to note that an agency does not have to own the supply chain to exert influence. Government organizations can realize significant gains—in both cost efficiencies and environmental impacts—when they work with suppliers to measure the overall supply chain carbon and energy footprint and then implement solutions to reduce that footprint.
Thus, a true GSC does not simply identify opportunities for short-term gains. It also provides a foundation for continuous improvement. A GSC is characterized by a green vision that permeates the organization and guides a long-term strategy for reducing GHG emissions, energy consumption, water consumption, and waste—with a net result of reducing both supply chain costs and environmental impact. Booz Allen clients who are building GSCs include— • Office of the Secretary of Defense (OSD) Installations and Environment/Environmental Management Office: Developed a bio-based product showcase to facilitate the sharing of best practices; encouraged pilot projects to expand the use of bio-based products at military installations • National Institutes of Health (NIH) Department of Environmental Protection: Introduced new processes and tools to support the procurement of green products • Department of Energy (DOE) Oak Ridge National Laboratory: Conducted a comprehensive assessment of electric and hybrid vehicle technology that led to the successful purchase of 500 vehicles at 27 sites throughout the nation • Federal Aviation Administration (FAA): Performed a chemical inventory of all products managed by the FAA’s logistics depot and used throughout the National Airspace System to identify green product alternatives to replace hazardous products • Veteran’s Administration (VA) Green Environmental Management Systems: Evaluating the hospital supply chain system for waste reduction and regulatory compliance • Department of Defense (DoD) Deputy Under Secretary of Defense: Developing a GHG emissions inventory and climate change policy.
There are many compelling reasons to implement a Green Supply Chain. Among its benefits, a GSC reduces an organization’s dependence on foreign energy sources and minimizes exposure to volatile energy markets. It enables agencies to comply with current government regulations and mandates requiring improved environmental practices. It also positions agencies to comply with future environmental laws and regulations, and it demonstrates a commitment to green products and services. Just as important, the supply chain itself presents organizations with numerous opportunities to streamline processes, modernize tools, and reduce costs while strengthening environmental practices. Agencies can achieve many of these benefits through best practices, such as the GSC Pulse Check, Carbon Footprint Modeling and Simulation, and Green Procurement. These approaches are comprehensive, systematic methods for implementing GSCs. Too often, agencies take a piecemeal approach that targets narrow goals, such as cutting fuel costs, switching to fluorescent lights, or recycling paper. These ideas are all good, but their impact is limited if they are not part of a coordinated, long-term strategic plan that embeds green practices and processes throughout the enterprise.
About the Authors
Glenn Milano is an Associate in Booz Allen Hamilton’s McLean, Virginia, office. He specializes in pharmaceutical and food supply chain management, focusing on green supply chain, demand and fulfillment planning, and supply chain strategy. Mr. Milano has worked with major federal government and international development clients. He can be reached at (703) 377-1260 or by e-mail at email@example.com. Inigo Ahedo is an Associate in Booz Allen Hamilton’s McLean, Virginia, office. He specializes in life-cycle logistics and design for affordability for DoD programs. He also specializes in supply chain sustainability and resilience for the federal government. Mr. Ahedo has worked with Navy programs and defense contractors in improving their logistics services from an efficiency and cost standpoint. Mr. Ahedo is a Six Sigma Blackbelt and is also certified in CSCP and PMP. He can be reached at (703) 902-5331 or by e-mail at firstname.lastname@example.org. Marcus Spranger is a Senior Consultant in Booz Allen Hamilton’s McLean, Virginia, office. Mr. Spranger has extensive supply chain experience in the retail and chemicals industries—specifically in the areas of strategic sourcing, global shipping, and transportation contract management. He can be reached at (703) 377-5063 or by e-mail at email@example.com.
Contact Information: Glenn Milano Associate firstname.lastname@example.org 703/377-1260
Inigo Ahedo Associate email@example.com 703/902-5331
Marcus Spranger Senior Consultant firstname.lastname@example.org 703/377-5063
About Booz Allen
Booz Allen Hamilton has been at the forefront of strategy and technology consulting for 95 years. Every day, government agencies, institutions, corporations, and not-for-profit organizations rely on the firm’s expertise and objectivity, and on the combined capabilities and dedication of our exceptional people to find solutions and seize opportunities. We combine a consultant’s unique problem-solving orientation with deep technical knowledge and strong execution to help clients achieve success in their most critical missions. Providing a broad range of services in strategy, operations, organization and change, information technology, systems engineering, and program management, Booz Allen is committed to delivering results that endure. With more than 22,000 people and $4.5 billion in annual revenue, Booz Allen is continually recognized for its quality work and corporate culture. In 2009, for the fifth consecutive year, Fortune magazine named Booz Allen one of “The 100 Best Companies to Work For,” and Working Mother magazine has ranked the firm among its “100 Best Companies for Working Mothers” annually since 1999.
To learn more about the firm and to download digital versions of this article and other Booz Allen Hamilton publications, visit www.boozallen.com.
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©2009 Booz Allen Hamilton Inc.
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