Supply Chain Management

Green Supply Chain Management

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 Outline
The role of sustainability in the supply chain
Metrics for sustainability
Sustainability and the supply chain drivers
Design for sustainability
Returns and Reverse logistics

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 Sustainability in the Supply Chain

A focus on sustainability allows a supply chain to

better serve environmentally conscious customers and
improve supply chain performance
Three distinct factors driving an increased focus on
sustainability:
• Reducing risks and improving financial
• Attracting customers
• Making the world more sustainable
Most of the gains made in the first factor, with
customers not always consistent between wish for
sustainable practices and the resulting prices

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 Sustainability Examples
Firm Responses
Wal-Mart • Began sustainability investments as defensive move from
consumer activists
• Uses high efficiency light bulbs to reduce energy costs
• Reduced packaging to reduce transport and material costs
• Redesigned containers for improved shipping and handling
efficiencies
Starbucks • Future growth linked to artisanal coffee production
• Initiated equitable practices (CARE) to evaluate and certify
sustainable coffee production
• CARE suppliers have preferred supplier status and pricing
premium
• 84% of coffee sourced from certified CARE and Fairtrade
practices

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 Drivers of Competitive Strategy
Three main adoption drivers in terms of business strategy:
Legislation: product handling regulations extend producer
responsibilities, while energy consumption or waste
disposal regulation an guidelines have leading to the
adoption of more green supply chain practices
Economics: Direct gains from cost reduction, new
revenues and benefits on capital returns. Indirect gains
include competitive and market advantages such as
improved image and customer satisfaction with product
claims and services
Corporate Citizenship: Part of customer attraction and
role within society. Specific programs with community or
sustainability theme are public shows of a company’s
commitment to sustainability and pro-social values
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 Barriers to Sustainability
Business leaders identified:
• Insufficient return on investment
• Customer’s unwillingness to pay the green
premium
• Difficulty of identifying sustainability over a
product’s life cycle
These makes building sustainable supply chains much
harder
WATCH: Greening the supply Chain with UPS https://www.youtube.com/watch?v=GqU8Wng1K0Y

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 Sustainability Metrics
There are variations in how sustainability is measured and
reported
Recommended measures:
1. Energy consumption
2. Water consumption
3. Greenhouse gas emissions
4. Waste generation
Different industries will use different standards:
• Transportation – green house gas emissions, fuel consumption
and efficiency
• Pharmaceuticals – waste reductions and water consumption
To reduce contestability, sustainability metrics require
clear definitions of scope and performance definition:
absolute or relative
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Sustainability and the 6 SC Drivers
Driver Examples of Opportunities
Facilities Energy efficiency from low-power lights, sky-lighting, redirect waste
to recycling, smart appliances using off-peak energy, reuse heat from
production processes
Inventory Introduce life cycle assessment and design for environment to reduce
landfill volumes, harmful materials and eco-labelling
Transportation Reduce fuel consumption by efficient and correct loading, product
packing, efficient schedules and reverse logistics for recycling
Information More use of common standards would produce transparency across
supply chains, e.g. Starbucks’ CARE, LCA ISO14040, Wal-Mart
Sustainability Index Consortium labelling
Sourcing Question and select suppliers with sustainability goals and practices,
apply targets to monitor performance, cooperation and alignment
Pricing Reduce product costs, e.g. lower energy consumption , minimise
price gaps, take advantage of govt credit schemes
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 Sustainable Supply Chain Design
Introduces a second loop in the supply chain that
returns, recycles, refurbishes or reuses product
components Consumption

Recyclable design is not enough, the supply chain

must also have the capability to return products
Life Cycle Assessment and

Returned products can be:

Design for Environment

• Repaired and resold

• Remanufactured or used in other products
• Recycled with base materials reused

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 Group Discussion

What are some of the challenges that limit the

effort put in by supply chains to improve
sustainability?

What changes could a grocery store or

supermarket make to its supply chain drivers to
improve supply chain sustainability?

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 Group Discussion
 What are some of the challenges that limit the effort put in by supply
chains to improve sustainability?
 Insufficient return on investment, Customer’s unwillingness to pay,
Difficulty of identifying sustainability over a product’s life cycle
 What changes could a grocery store or supermarket make to its supply
chain drivers to improve supply chain sustainability?
 Facility - Energy consumption, through low energy appliances or bulbs.
Look to have more natural light and ventilation
 Inventory – Packaging changes can reduce plastic and cardboard wrapping,
sell to 3rd party for recycling
 Transportation- more efficient packing and vehicles will reduce CO2
emissions
 Suppliers – working in alliance to share sustainability values and activities
to reduce supply chain costs and to improve sustainability outcomes
 Information - seek better knowledge of life cycle issues and costs. Seek to
use sustainability standards to measure suppliers, transport options and
tracking energy use levels
 Pricing - understand who in the market will pay premium prices for
sustainable goods and target these people for behavioral change
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 Design for Sustainability
Life Cycle Assessment (LSA)
A process that
• Compiles energy input and release data
• Evaluates the impacts associated with these inputs and releases
• Analysis to rate or assess the overall impact over life cycle
Example: Wal-Mart Canada analysed transportation and
shifted to rail from road to reduce carbon emissions by
2,600 tons. Saved $4.5 million and 1,400 tons of waste by
changing from cardboard to durable plastic shipping crates
WATCH: Life Cycle Assessment https://www.youtube.com/watch?v=fGhoInz-VUs
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 Design for Sustainability
Design for Environment (DFE)
 DFE acknowledges that design influences how a product is
made, shipped, used and recovered.
A design process that aims to:
• Avoids the use of toxic materials,
• Minimises energy inputs, and
• Facilitates disassembly, repair and remanufacturing
Example: Hewlett Packard’s design processes identify,
prioritise, recommend environmental innovations and apply
features such as modular design, snap-in construction and
colored plastics to reduce need for glues, chemical adhesives
and paints
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 Return or Reverse Logistics Function

The logistic processes that

returns goods, packaging
material and transportation
equipment, or:
“An organization's management
of material resources obtained
from customers”
Returns or Reverse Logistics are
commercially orientated, while
Green logistics are primarily
motivated by environmental
considerations
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 Product Returns
Customers return products due to:
• Dis-satisfaction
• Installation or usage problems
• Warranty claims
• Faulty orders
• Retail overstock
• Manufacturer recall (product or part failure)
The supply chain must have the capacity to collect,
transport and address the reason for return
This may include replacement, resale, repair, recycling,
and remanufacturing of the product or parts
Some goods are considered hazardous and must be
disposed of or handled using special methods

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 Reverse Logistics

Green Logistics Reverse Logistics Processes

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 Return activities
WATCH: Reverse Logistics: Recycling and Remanufacturing - https://www.youtube.com/watch?v=tY1l-wCdSbQ

Activity Description
Resale Immediate selling of returned unused or near-new products such
as catalogue returns or customer lease to secondary markets
Repair Bringing damaged components back to a functional condition
Reuse Using good components from old used products (mostly spare
parts) for refurbish or remanufacture of products
Remanufacture or Restoring a product to a like-new condition by
refurbish reusing, reconditioning and replacing its parts
Recycle Taking component materials and processing them into useful
material
Scrap Disposal of products if no alternative course of action is
available

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 Five stages of returns
Stage Description
1. Receive Receiving products more complicated than forward supply, with
more packaging and transportation variation Cost reduction benefit
in making disposition decision as close to receiving as possible
2. Sort & Stage Arranging by product or recovery type and size, quick cycle times
less than 3 days
3. Process Correct classification or product numbers helps with unused
product returns, warranty and other procedures followed
4. Analyse Recovery option decision taken with different recovery options
having higher costs and lower financial return. E.g. fix for resale
provides more value than refurbish or remanufacture, scrap has
lowest values
5. Support Distribution for recovery options, to repair center or return to
manufacturer, with transportation adding to costs. Higher recovery
rates from repair and refurbishment compared with remanufactured
and recycled. Costs include transport, storage, handling and labor.
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 Returns Models
Closed loop: Materials or products returned to same
manufacturer as forward SC. Maintains control over
flows, retains IP control and warranty processing
Open loop: Return flow outsourced to third-level
provider (3PL), that may specialise in return
collection, transportation and processing using profit
sharing
Independent Operator: returns completely outside of
forward SC, is dependant on industry, product and
material value conisderations
WATCH: Ryder's Reverse Logistics Solution - https://www.youtube.com/watch?v=NRi6xXMcFII
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 Product Recovery Issues

Issue Description
Unorganised Few formal contracts, young developing industry with high
Sector volatility
Lack of Time consuming to gather information across products and designs
Information& affects retrieval decisions for low value products, with relatively
Skill highly skilled workforce required for some operations
Supply Driven Manufacturing demand driven recovery is supply driven
Manual % recovery steps largely manual processes making recovery slow,
Processes expensive, error-prone and inefficient
Low value and Recovery operates on low margins with time-sensitive items
Margins (become obsolete or “out of fashion” quickly e.g. consumer
electronics, clothing, books etc). Delays in returns and processing
cycle times affects value and margins.

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 Returns in different Industries
Returns infrastructures vary by industry
Some industries have end-of-life return regulations,
such as:
• Automotive
• Electronics
• Appliances
The automotive sector has the longest returns
tradition, due to the value of steel, aluminum and
mechanical components.
It has the most advanced recycling processes
compared with other industries
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 Improving Returns
 Returns infrastructures can be become more developed, faster,
more efficient and cist effective, by
• Design for disassembly
• Recycling more materials
• Increasing product life cycles
 Legislation and regulation can force firms to introduce some of
these measures
 Golden rules:
1. Returns are like perishables, the longer they are kept, the less
value they provide
2. Returns value chain partnership are vital
3. Returns processes provide valuable customer feedback, used
to adapt product design and distribution (forward and reverse)
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 Case study

In groups, read and discuss the case study of Comet

and Wincanton Recycling and answer the discussion
questions.

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 Case Feedback
1. This case is an example of the open loop business
model. Wincanton is the 3PL recycling provider for
Comet.
Comet

Comet
Comet
Sorting Comet
Comet

Comet

Wincanton Wincanton

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 Case Feedback
 2. Sustainability measures:
Energy consumption – reduce # of in-out trips, located recycle centers
closer to comet, 90% of the deliveries carry both ways
Greenhouse gas emissions – reduce carbon foot print
Waste generation – reduce waste by collecting old appliances,
refurbishment, repair and recycle
 3. Comet and Wincanton had to develop synergies aligning
their delivery and returns competencies. In transitions comet
were delivering goods, while Wincanton was collecting the
used appliance. Once integrated the companies then found
they needed to integrate closer facility location and schedule
information for more efficient handling of out and inbound
going deliveries to fit space restrictions. They had to develop
capabilities for sorting, distribution and reuse, resale and
recycling.

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 Summary
 What is driving sustainability in the supply chain?
 Reducing economic risks and improving financial performance,
Attracting customers, Making the world more sustainable,
Legislation and The rise of CSR
 What are key sustainability metrics?
 Sustainability metrics generally cover energy consumption, water
consumption, greenhouse gas emissions and waste generation
 What is reverse logistics?
 The receipt of products from the customer. These maybe unused
through defects, problems, end-of-life or due to economic and
environmental reasons. Reverse supply chains have more
commercial values, while green chains have a strong
environmental rationale. Reverse supply chains assist firms to
recover, reuse, resell, repair, remanufacture or refurbish, recycle
and scrap or safely dispose of products.
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 Videos
Greening the supply chain with UPS
https://www.youtube.com/watch?v=GqU8Wng1K0Y
Life Cycle Assessment
https://www.youtube.com/watch?v=fGhoInz-VUs
Ryders reverse supply chain
https://www.youtube.com/watch?v=NRi6xXMcFII
Reverse logistics – Recycing and remanufacturing
https://www.youtube.com/watch?v=tY1l-wCdSbQ
IKEA’s unique supply chain (no subtitles)
https://www.youtube.com/watch?v=DBrl356VhqQ
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