BASIC CONCEPTS OF GREEN

SUPPLY CHAIN MANAGEMENT

External Forces for Adopting Corporate Greening
 Science on environmental damages caused
by industry has improved
 Communication is easier than ever before
 Change is faster
 The costs are higher and the impact is
greater than in times past
 Stakeholders have a louder voice
 Environmental Concerns
 Global Problems
Global warming/climate change
Ozone depletion
Species decimation
 Regional Problems
Deforestation
Acid rain
Water pollution—rivers, lakes
 Local Problems
Pesticides—hazardous materials
Waste disposal
From Linear Supply Chains to Closing the Loop
 Corporate Environmental Management
• Environmental Management Systems

• Life Cycle Analysis (LCA)

• Eco-design (also known as design for

environment)
 Environmental Management Systems (ISO 14001)
The ISO 14000 series of standards includes elements of organization evaluation and
product/process evaluation.
It also includes descriptions of EMS, environmental performance evaluation, and
environmental auditing.
The substantive requirements of ISO 14001 document include:
• Environmental Policy
• Planning
• Implementation and Operation
• Checking and Corrective Action
• Management Review
The ISO 14001 EMS requirements embody the PDCA (plan-do-check-act) cycle of
continuous improvement.
In the PDCA cycle, an organization plans a change aimed at improvement (plan),
implements the change (do), evaluates the results (check), and finally institutionalizes
the change (act).
 Life Cycle Analysis
• Life cycle analysis (LCA) is a systemic process used to
evaluate the environmental burdens associated with
a product or process. It identifies energy and
materials used and the wastes or emissions released
to the environment.
An LCA could include three separate but interrelated components:

• INVENTORY ANALYSIS - quantifies energy and raw materials

requirements, air emissions, waterborne effluents, solid waste,
and other environmental releases incurred throughout the life
cycle of a product, process, or activity.
• IMPACT ANALYSIS - an evaluative process of assessing the
effects of the environmental findings identified in the inventory
component for all inputs and outputs throughout the activities
of an organization or supply chain
• IMPROVEMENT ANALYSIS - a continuous improvement
process. LCIA conducts an improvement analysis to determine
how the product, service, or utility influences the environment.
Design for the Environment and Eco-Design
-The term ‘Design For the Environment (DFE)’ or ‘Eco-
Design’ refers to environmental design of a product
and/or a process. It focuses on reducing (preventing) the
environmental effects of a product before it is produced,
distributed, and used.
-Eco-design examines the disassembly of products at the
end of life and reveals the associated cost benefits and
environmental impact of revision, reuse, and recycling.
-DFE is the ultimate pollution prevention tool.
 Green Supply Chain Definition
Green Supply Chain is integrating supply chain elements with corporate
environmental management.
Early established green supply chain literature has provided various definitions,
including:
• Green supply refers to the way in which innovations in supply chain management
and industrial purchasing may be considered in the context of the environment.
(Green et al., 1996, p. 188)
• Environmental supply chain management consists of the purchasing function’s
involvement in activities that include reduction, recycling, reuse and the
substitution of materials.
(Narasimhan and Carter, 1998, p. 6)
• The practice of monitoring and improving environmental performance in the supply
chain.
(Godfrey, 1998, p. 244)
 GSCM Practices
• Eco-Design
• Green Purchasing
• Internal Environmental Management
• Customer Cooperation With Environmental Concerns
• Investment Recovery Practices
 Eco-Design
• Eco-design includes product design for reduced
consumption of material/energy; designing for reuse,
recycling, recovery of material, and component parts;
design of products to avoid or reduce the use of
hazardous products; and/or their manufacturing
process.
 Green Purchasing (GP)
• Green purchasing of lead firms relates to the process
and the product/service.

• The GP products and services dimension refers to the

purchasing of environmentally labelled
components/raw materials, less hazardous materials,
and recyclable/reusable/remanufactured
components/raw materials.
Internal Environmental Management (IEM)
IEM can be further grouped into three subgroups:

• Environmental Management System

• Resource Consumption Reduction

• Pollutant Emissions Reduction

 Customer Cooperation with Environmental
Concerns (CC)
• The Carbon Disclosure Project (CDP) Supply Chain Report
2013–2014 shows that 56 percent of the surveyed companies
regarded consumer behavior as the biggest driver of
sustainable practices.
• For example, Maersk proposed a monthly customer scorecard
called CO2 Dial, which can enable each customer to access its
footprint when doing business with Maersk Line versus other
companies (Leach, 2010).

• CC includes cooperation with customers for eco-design, for

cleaner production, and for green packaging.
 Investment Recovery (IR)
• Both the traditional 3Rs (reduce, reuse, recycle) and
the new 3Rs (recover, redesign, remanufacture)
(Badurdeen et al., 2009) have been applied in lead
firms.
• IR includes the sale of excess inventories/materials,
the sale of scrap and used materials, and the sale of
excess capital equipment.
 Drivers and Barriers of GSCM
Internal Drivers - include the values of the founder/owner, the
desire to reduce costs and improve quality, and investor pressure.
• Ownership and top management values are major leading
drivers for supply chain environmental responsibility.
• Middle management and employees can be valuable advocates
for proactive environmental management practices (Buhl et al.,
2016).
A GSCM program must accommodate the multiple concerns not
only of departments, such as quality control, purchasing,
production, environmental protection, and marketing, but also
across organizations.
 Drivers and Barriers of GSCM
External GSCM drivers - regulators, supply chain partners, competitors, and the market
(consumers and customers).
• External regulation and legislation appears to be a strong driver for GSCM programs.
• Global regulations such as RoHS (Restriction of Hazardous Substances Directive
2002/95/EC) and REACH (Registration, Evaluation, Authorization and Restriction of
Chemicals)
• Suppliers
• Consumer pressures and drivers. (Ex. The Timberland Company sells products to
outdoor enthusiasts, a customer segment that is traditionally environmentally
conscious. As a result, the environmental impacts of their products and processes
are integral to their organizational strategy.
• Nongovernment organizational (NGO) drivers, usually representing communities,
also put various pressures on organizations to green their products and supply
chains.)
 Barriers to GSCM adoption
GSCM programs may require significant organizational changes and
substantial initial investments in:
• Technology
• employee development
• or supplier identification and development.

Examples of barriers to implementing GSCM:

• Supplier non-cooperation
• the lack of expertise
• the lack of top management support
• market prospect uncertainties
Overcoming these and many other barriers related to knowledge, technology,
process, and cooperation requires robust business reasons for organizations
to implement GSCM solutions.
 Making the Business Case for GSCM
Greening the supply chain can greatly reduce the environmental burdens of
organizations and their supply chains.
What are the business reasons for adopting and implementing a relatively complex
system?
Major business reasons for greening supply chains:
• cost reduction
• revenue generation
• supply chain resiliency,
• the license to operate, and
• image and reputation.

Some of these factors are more direct, short term, easy to measure, and tangible.
Other business factors might be indirect, longer term, difficult to measure, and
intangible.
 Cost Reduction
• Costs reduction may occur through the elimination of wastes or by making processes more
efficient.
• Eliminating waste streams will therefore help reduce costs, both very tangible costs such as
waste disposal costs and intangible costs such as the quality of life of its employees.
• Indirect costs to society, which may be internalized through taxes, fines, and penalties, would
also be lessened by GSCM.
• Cost–eco-efficient solutions do not necessarily require large investments in technology.
Example:
• General Motors was able to save over $15 million just by changing over some of its material-
handling activities to reusable containers.
• 3M Manufacturing Company’s Pollution Prevention Pays program, begun in 1975, has
prevented over 2.9 billion pounds of pollutants and has saved more than $1.2 billion
worldwide over the 30 years of the program’s life.
 Revenue Generation
• A major method for extra revenue generation is finding alternative uses for by-products and
former waste products.

• Closed-loop manufacturing and supply chains provide significant opportunities for achieving
greater and unexpected revenues.

• Example: The attempt by Xerox Corporation to develop a “green” line of copiers based on the
utilization of recycled material. Instead of disposing of old equipment, the reuse and
remanufacture of equipment generate new revenues.

• Take advantage of market based mechanisms to help reduce wastes.

Example : Cap-and trade systems for greenhouse gases.

• Carbon insetting can be defined as: a partnership/investment in an emission reducing activity

within the sphere of influence or interest of a company, whereby the GHG reductions are
acknowledged to be created through partnership and where mutual benefit is derived.
 Supply Chain Resilience
The combination of continuity and resilience means having the resources for operations to
continue.

If organizational supply chains are unsustainable, scarce resources and materials will become
depleted and less likely to be available, or costs can dramatically increase, causing a market
disadvantage as consumers seek substitutes.

Example: Sustainable forestry and sustainable fisheries

The possibility that some suppliers might cease operations due to poor environmental
performance.

From a broader national economy perspective, there is China’s circular economy concept (Geng et
al., 2013).

 The circular economy requires that resources be managed in a sustainable way

 Maintaining the License to Operate
• Industries or companies that are viewed as environmentally irresponsible will
face greater barriers and difficulty when attempting to conduct their business
activities in various regions
• In a February 18, 2002 press release, Sony Corporation alluded to difficulty in
one of its products’ accessories in October 2001. Dutch authorities determined
that some peripherals supplied for use with the Sony PlayStation console
contained cadmium levels above the limit allowed under Dutch regulations.
Sony initiated a supply chain plan to rectify this situation. The Dutch authorities
gave the company until the end of March 2002 to fully complete the compliance
process. Unfortunately for Sony, this event occurred just before the busy
Christmas season in Europe. The business losses have been estimated to be in
the $100 million range.
• The license to operate is essentially a market barrier that might exist when a
supply chain and the resulting products are not green.
 Image and Reputation
• The social cost of poor environmental performance that an organization does not
internalize is intangible.
• The business value of functioning as a good corporate citizen, providing social
benefits, is also intangible but can have economic value.
• Organizations are capable of assigning some level of value to intangible assets,
which may include items such as brand equity, goodwill, and social capital.

• Good image and reputation also attract more highly qualified workers and improve
morale, contributing to long-term earnings and organizational performance.

• For example, if a company is not performing well in labor relations, it may wish to
improve its greening performance, which could save money, increase revenue,
lower risk, and improve image.