Green Journey Needs a Roadmap
By Noha Tohamy -- Supply Chain Management Review, 1/1/2009
An integral part of sustainability initiatives at global organizations is the close examination of their supply chain environmental footprints. Some companies have embarked on fragmented initiatives to minimize their transportation carbon footprint or make their manufacturing plants more eco-friendly. But greening the supply chain must be founded on coherent strategies that examine the tradeoffs between environmental initiatives, profitability, and efficiency across the integrated supply chain.
What is the Green Supply Chain?
To date, there is no industry-accepted definition of a green supply chain. What most practitioners would agree on is that greening a supply chain is a continuous quest, similar to concepts like kaizen or lean. In that sense, companies strive to green their supply chains or make them greener.
A company that is working on greening its supply chain seeks to minimize the environmental footprint of the supply chain, while accounting for the tradeoffs between sustainability goals and other business objectives like efficiency, profitability, or improved customer service. It's essential for companies to orchestrate their greening efforts across all supply chain processes, starting with product development, sourcing, manufacturing, packaging, transportation, demand fulfillment, and end-of-life management.
With that said, greening cannot happen independently of all the advancements we have accomplished in building and managing optimized supply chains. Greening becomes another goal—at times aligned and at times in conflict—with the more traditional supply chain goals of building efficiency, continuous improvement, and profitability.
Current Endeavors Are Fragmented
Greening a supply chain is a daunting, long-term commitment. To start with a more manageable goal, most companies choose to focus their greening efforts initially on one or two processes. For example, a company might decide to do the following:
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Reduce energy consumption through plant redesign and machine preventative maintenance.
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Measure and minimize its transportation carbon footprint in the distribution network.
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Work with its suppliers to minimize excess packaging.
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Audit and make its MRO (Maintenance, Repair and Operating) inventory more eco-friendly.
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Incorporate product reuse and recycling into its product development initiatives.
Managing the transportation carbon footprint is probably one of the more discussed greening efforts in supply chain management. One reason for this is its synergy with retailers' push to make product footprinting information available to consumers at the store shelves. Another reason is its alignment with transportation efficiency and rising transportation costs. Minimizing deadhead miles, shifting to intermodal capacity, and improving capacity utilization through consolidation will concurrently reduce energy consumption and transportation costs and carbon emissions.
To reduce carbon footprints, companies can view carbon emissions as an additional cost when optimizing transportation networks. So far, most efforts have focused on Scope 1 and 2 emissions—that is, greenhouse gas (GHG) emissions a company produces or buys directly. The bigger challenge is to gauge the Scope 3 footprint—emissions caused by suppliers and trading partners in the extended supply chain.
Besides transportation, other supply chain processes are more challenging to green. For example, consider inventory management. How can we go about greening it? Minimizing the environmental footprint of inventory can be in direct conflict with the more accepted goal of reducing working capital by keeping the minimum level of inventory across all echelons of the supply chain. To add to the challenge in greening inventory management, a company must consider the ramifications of decisions on efficiency, customer service, flexibility, and greening goals not only for inventory, but also for transportation, customer fulfillment, and production. This is certainly a tall order from an organizational alignment, process definition, and technology standpoint.
Inventory is an illustrative example of the bigger issue where, in an integrated supply chain, just as with efficiency and profitability, any decision you make in one link—sourcing, manufacturing, transportation, inventory, demand fulfillment, and aftermarket services—will have a direct effect on its performance across others. This means any greening exercise must take a network-wide view to ensure improvements in one area are not causing negative effects on another. Focusing on minimizing the transportation carbon footprint is helpful, so long as the effects of this initiative on other supply chain areas, like inventory management and demand fulfillment, are understood and measured.
Where to Start
As with other transformative initiatives, companies must focus on three prongs when embarking on greening the supply chain: organization, process, and technology. Most don't have organizational structures or processes that enable an end-to-end view of their environmental footprints across their supply chains. Companies are still aligned across siloed manufacturing, sourcing, transportation, and other groups, making it difficult to embark on a green strategy or begin an initiative that will simultaneously manage green across all these functions.
Technology must follow the organizational and process realignment. Diving into a technology investment without understanding how it aligns with an overall company strategy is always a bad idea. When a company is ready for a green SCM technology investment, what they'll realize is that the market currently mirrors the fragmentation of initiatives. Available tools typically focus on one aspect of supply chain, like transportation or manufacturing. The market has yet to produce tools that manage and optimize green supply chain performance across multiple conflicting goals as well as areas like inventory and transportation.
There is near consensus that, in the next few years, sustainability and green will become a major driver in how companies build and manage their supply chains. Providers are flocking to this space in hopes of gaining a first-mover advantage in a market that has potential to be highly lucrative. Case studies and success stories are still few and far between, reflecting the immaturity of the products as well as the lack of readiness of user companies to fund and embark on green supply chain initiatives.
Many service providers, including Capgemini and Accenture, are investing in sustainability and green supply chain practices. Some of their engagements are strategic in nature: working with their clients to chart the organizational and process realignment necessary to build a green supply chain. Additionally, providers such as IBM Global Business Services offer technology-enabled services to measure and minimize the carbon footprint across supply chain processes.
Software vendors like LLamasoft, ILOG's LogicTools, ProfitPoint, and Infor are extending existing software tools to measure and optimize areas like transportation and inventory management, with explicit consideration for greening the supply chain.
If your company is embarking on a journey to green its supply chain, investigate these services and tools. But before pulling the trigger on any specific initiative, ensure it will fit within a more holistic green supply chain strategy.
A foundational step companies can undertake is to start collecting the necessary data on their current environmental footprints. A focus on performance management across the supply chain as it pertains to the environmental footprint is essential.
Regardless of whether more green supply chain initiatives will be driven by more regulations or market dynamics, a focus on building environmental visibility across the network and auditing greenhouse gas emissions within your factories, across your transportation network, among your suppliers, and in your packaging, demand fulfillment, and disposal will certainly be a worthwhile investment. It's also a requirement for any green organizational, process, or technology initiatives.
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