Benefits of Green Supply Chain Management

Consciousness about the environment has been on the increase in the past few decades. World’s environmental problems such as global warming, toxic substance usage, and decrease in non-replenishable resources has caught up amongst the people now. The Governments around the world are releasing campaigns to take this problem to people. Quite a few organizations have responded by using ecological principles to their business, such as reducing the energy use of oil, using environmentally friendly material first, and using recycled paper for packaging. Ecological principles have been extended to many departments within the organization, including the supply chain. environmental management of the supply chain (GSCM) made its appearance in recent years. This concept encompasses all steps in the manufacture of the first to the last stage of the lifecycle, from product design to recycling. Green Supply Chain Management can also be used for other economic sectors like government, education and services apart from manufacturing.

The aim of this paper is to express the impact of green in the management of the supply chain. It starts with the basics of Supply Chain Management of the company at different levels. Then he covers the chronology and the benefits of Green Supply Chain Management. What factors influence society to adopt the Green Supply Chain?These factors can be classified according to different players such as government, whole of market, industry, competitors, and society. Since Green Supply Chain Management can be applied to various areas within the company, this document also addresses the implementation of Green Supply Chain Management in several areas.In addition, a few examples of Green Supply Chain Management application is also demonstrated to support the concept.

Table of Contents (jump to)

• Introduction
• Basics of supply chain management
• Supply Chain Integration
• Chronology of GSCM
• Objectives of GSCM
• Listening to Environmentally Aware Consumers
• Profiting from Being Green
• Unawareness of Potential Benefits
• Green Design
• Green Operations
• The Case of Kodak: Green Technological Advancement
• Why Change to Green Supply Chain Management?
• Conclusion

Introduction

Supply chain management has been viewed conventionally as a process in which the raw materials are converted into finished products, and are then provided to the end-customer. This whole course of action requires extraction and exploitation of various natural resources. The point to be noted here is that however, we live in an era where environmental sustainability has become an important concern to business practices. Manufacturers for a very long time now have been facing the pressure to concentrate on Environmental Management (EM) in their supply chains. However it is not at all an easy task to perform. The blending of the ‘green’ concept to the ‘supply chain’ concept affixes a new concept where the supply chain will bear a straight relation to the environment. This fact is interesting because both these paradigms were contradictory in the past. Supply chains, from an operational point of view, are all about mining and exploiting the raw materials from the environment.

This paper will present a general idea about the Green Supply Chain Management (GSCM) literature. Knowledge of the broader outlook of the Green supply chain is the most important step in getting an insight about the branch of environmental sustainability. There is a vast span of literature available on the subject of green supply chain management, especially from 1990’s to the present. But the key arguments that were drawn out of the Green supply chain Management literature over the last almost two decades are the concepts of green design, green operations, green manufacturing, waste management and reverse logistics. The purpose of this paper, however, is to provide insights on some of these topics and present an overview of the academic standpoint of the Green Supply Chain Management literature. This paper will begin with discussing the traditional supply chain management and will then proceed by moving on to chronology of the Green Supply Chain Management. This paper will then further move on to talk about the idea of Green Design and Green Operations. At the end, this paper contains a brief talk about “why organisations go for a Green supply chain”?

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Basics of Supply Chain Management

The term ‘supply chain’ originated around the mid 1970’s. ‘Supply chain’ was used as a term for transferring on electricity towards the final customer. However the term “supply chain management” came into the picture not until the late 1980’s. The potential benefits of integrating the various internal business functions which included purchasing, manufacturing, sales and distribution into one interrelated framework were discussed. Since then supply chain management has been defined as “the integration of business functions involving the flow of materials and information from inbound to outbound ends of the business”. Twofold or party relationships between the suppliers are becoming a part of the supply chain process. Here the formulation of a supply chain framework in terms of establishing contracts between firms can be seen. The opportunity to either vertically integrate or market their products in connection with other partners has been given to the organisations.

Supply Chain Integration

The concept of Supply chain management evolved dramatically around the early 1990’s.It turned out to be so due the increasing importance of the relationship of the firm with other suppliers. One of the possible reason for this was the emergence of a globalised marketplace. The firms needed to become more integrative amongst other firms to reduce the susceptibility of its supply chain. There are various examples and case studies where the firms have become or are becoming more integrative to their supply chain partners. A few good examples can be 1.) the Japanese automotive industry and

• the Italian craft-based industry.

The operational processes of the supply chain are enhanced by the help of the added factors such as Lean and Just-In-Time (JIT) Management. The requirement of the organisations to become dynamically quick to respond to the needs of customers has become increasingly important.The contributing factors that would make firms more competitive are:

• speed (delivering customer demand quickly),
• agility (responsiveness to customer demand) and
• leanness (doing more with less)

The Chronology of Green Supply Chain Management (GSCM)

An emerging field that fibres out of the traditional supply chain perspective is Green supply chain management (GSCM). Businesses have been sparked to become more environmentally conscious by the “quality revolution in the late 1980’s and the supply chain revolution in the early 1990’s”. Green Supply Chain Management has gained popularity in both academics and professionals to intend in reducing waste and safeguarding the quality of product-life and the natural resources. Now the important assets to achieve best and state of art practices are Eco-efficiency and remanufacturing processes. The demand of the Global markets and pressures from governments are forcing businesses to become more sustainable. In my personal opinion, “increase in government regulation and stronger public mandates for environmental responsibility have brought these issues onto strategic planning agendas, and into the executive suites”. The key argument that came out in the literature over the last two decades are the concepts of: green design, green operations, reverse logistics, waste management and green manufacturing . The very first green supply chain came into existence in 1989. It was the first of its kind literature that developed a finest forecasting system for organisations to use and to forecast products that can potentially be reused/recycled. This forecasting system, however, was exceedingly controversial as individuals returning containers is not typically known with confidence, so therefore, the findings were somewhat unintelligible.

The first green design literature came into context in 1991 with the aim of considering the need for a green design to reduce the impact of product waste. Further Life-cycle analysis was an example of a structure that came out of green design.

Green Operations in terms of reverse logistics was an important concept that came out of the Green Supply Chain Management concept. The use of plastics and bottle recycling came up by late 1990’s and early 2000. Waste management is another topic that came out of the Green Supply Chain Management literature. Green Manufacturing, on the other hand, was not conceptualised until 1993.

Objectives of Green Supply Chain Management (GSCM)

The purpose of the whole supply chain must be green to help the company achieve its environmental objectives. To facilitate this, employees must learn strategies on green procurement, understand business practices, corporate social responsibility strategies define, develop logistics processes more efficiently, and learn about the alignment of the chain supply to meet the goals of corporate sustainability.

Every company that manufactures and sells products uses packaging materials every day. Packaging is used everywhere starting from moving raw material to a manufacturer followed by bulk finished goods to a distribution centre and in the end the final product to the customer. The packaging material executes a number of tasks; protects the objects from damage, from the ecological circumstances, and also make the objects easier to transportation and to make the item eye-catching to the customer. However, as the public’s opinion about the environment is changing, companies are looking at how they can shift to greener packaging alternatives. A few of the suggested alternatives are:

• Recycled Content

In packaging materials from recycled materials is available, including corrugated cardboard, molded pulp, cardboard, steel, newsprint, aluminum, glass and some but not all plastics. It is common practice to include some level of recycled content for certain packaging materials.

• Post-Consumer And Pre-Consumer Content

The term “post-consumer shows the finished products that were used by the consumer, then removed from waste for recycling. Materials recycled by households and non-residential users such as offices, manufacturers and retailers are included in the post-consumer materials. Examples of post-consumer materials include foam block, newspapers, glass and aluminum containers, and corrugated cartons.

Pre-consumer content is different from post-consumer in that it includes the waste left by the methods of processing and printing, rejected by the manufacturer before it is used by the consumer. Either total recycled content by combining the totals for the period before post-consumer and / or the post-consumer recycled content is provided by the manufacturers. The environmental benefits are provided by both pre-consumer and post-consumer recycled materials. The use of recycled materials supply market with post-consumer items that are sorted to be recycled by consumers.

• Paperboard Packaging

Cardboard is used for packaging materials in a variety of industries because of its cost, versatility and low durability. Increasing amounts of cardboard with post-consumer recycled materials are used by businesses because of its quality, cost advantage and a reduced impact on the environment.

Companies have adopted the use of recycled cardboard in products reaching the consumer in mind to improve the quality, variety and availability of recycled cardboard. Various studies around the world today show that over 50% of products on supermarket shelves are packed in recycled cardboard.

According to a survey conducted by the Alliance of recycled cardboard, 61% of consumers are more likely to buy a company that uses recycled cardboard packaging. The study also revealed that 77% of consumers felt better about a company that uses recycled cardboard and 80% said “do something good for the environment” when they buy products with recycled cardboard packaging. This suggests that the growing awareness of environmental issues by customers and the efforts that manufacturers regarding the use of recycled packaging does not go unnoticed.

As companies move towards policies more friendly environment, a change effort that can be made throughout the supply chain that should not increase the overall cost is to improve the use of recycled packaging. Products such as recycled cardboard, which are now available are of high quality, low cost and are a major concern for consumers.

Listening to Environmentally Aware Consumers

As the community becomes more and more aware of the issues regarding the environment and global warming, consumers will be bound to ask more questions about the products they are purchasing. Some of the questions that the companies face today are:

• how green their manufacturing processes and supply chain are?
• How much is their carbon footprint? and
• How they recycle?

Profiting from Being Green

The myth that going green will result in lower profits and increased operational costs has disappeared as many companies now have realised that its not a bad thing and have been able to satisfy the customers desires to incorporate green initiatives in their supply chain processes and also convert it into increased profits. A number of companies have established the fact that there is a link between improved environmental performance and financial gains. Companies have had an insight into their supply chains and found out areas where improvements in the way they operate can result into increased profits.

Just for an example General Motors condensed their clearance costs by $12 million by setting up a reusable container program with their suppliers. In a desperate attempt to reduce the costs throughout their supply chain, General Motors derived that the cost reductions they realised match the company’s commitment to the environment, maybe General Motors may have been less concerned about the green issues if they were making record profits.

Unawareness of Potential Benefits

By reducing the environmental impact of their business processes, companies can find cost savings. Savings are often seen as an advantage to implement environmental policies, by re-examine the supply chain business, procurement, planning and management of material consumption for dispatch and delivery of finished products. Benefits attributed to reducing the environmental impact of a company are not in the minds of the executives of the supply chain despite the public emphasis on the environment. It shows that many executives are still unaware that improving the environmental performance of waste disposal and resulting low training costs, less the costs of environmental permitting, and often, reduced material costs. The expectation of an interest in environmental issues and environmental concerns by the community will not diminish as economic issues become more important because of the faltering economy..

Green Design

Green design is a vital sub-theme to Green supply chain management. It encourages environmental awareness about designing a product or a service. Organisations have specific prospective to become eco-friendly in the direction of product re-manufacturing. Heavy industries that have intricate supply chains must take into concern the benefits of reverse logistics (RL). ISO14000 was introduced as a result of the Rio Summit on the Environment in 1992. The pressure groups calling for firms to encourage greening of their supply chains are growing. In 1998 a two-level location model is proposed on product recovery with the support of the Dutch government. The role of purchasing in reverse logistics system and design was examined. All the manufacturing plants that participated in the above mentioned model concluded that all of them were in favour of reverse logistics without government legislation having been imposed.

• Life-cycle Analysis

Life-cycle analysis is an imperative part of Green Design. To measure environmental and resource related products to the production process life-cycle analysis was introduced. This measurement involves everything that comes in stages starting from extraction of raw materials, production, distribution, and remanufacturing, recycling and final disposal. Life cycle analysis “scrutinize and enumerate the energy and materials used and wasted and measures the impact of the product on the environment.” Government policies are also an additional feature for organisations to work in the direction of life-cycle analysis.

Green Operations

• Reverse logistics

Reverse Logistics (RL) is the contrary of traditional or forward logistics. A process where a manufacturer accepts previously shipped products from the point for consumption for possible recycling and re-manufacturing is reverse logistics. Various studies report that reverse logistics have been extensively used in automobile industries such as BMW and General Motors. Other companies such as Hewlett Packard, Storage Tek and TRW are also using reverse logistics as a supply chain process. Following reverse logistics would sooner or later help firms become more aggressive and competitive in their own industry.

First stage in the recovery process is the Collection stage. For remanufacturing products are selected, collected and transported to facilities. To begin the converging process, the used products came from different sources and should be brought to product recovery facility. When sorting reusable products Sorting and Recycling are also an important mechanism. The collection schemes should be classified according to materials whether separated by the consumer (separation at source) or centralised (mixed waste). The end objective is to arrange products that can be reused to trim down costs of making new products.

Implementation of GSCM to various areas

Companies are investigating all aspects of their supply chain to reduce costs.A key element of any program of cost reduction is implemented waste reduction. There are a number of processes that can be used to reduce waste in the supply chain of a business.

• Design of product

To identify where the use of raw materials can be reduced or high-priced materials be replaced, many companies are probing the design of their products. Indeed many businesses are reviewing each component to identify whether it can be manufactured or purchased at a lower price. Companies are examining cheaper and less wasteful materials when designing product packaging options.

• Raw material Management

Every production process should be investigated to reduce the waste of raw materials. Waste material that cannot be recycled or reused must be redesigned in manufacturing operations processes. Even in processes that do produce waste that can be recycled should be examined due to the costs in recycling processes.

• Using Scrap Material

The use reuse of waste material can be stretched out as well as minimizing the waste of raw materials in manufacturing processes. Improvements in the technology of reclaiming waste material means that companies that formerly discarded waste products now have the capability to reuse that material. The costs will inevitably fall helping more businesses with waste issues as the recycling technology becomes more available.

• Quality improvement

Quality control is present in all manufacturing processes but usually aims on the finished product rather than reducing waste. Minimizing the waste of raw materials as well as producing a quality product should be the goal of quality management. Improving the overall quality of a company’s manufacturing process will reduce waste overall as it will increase the quantity of finished goods that pass quality inspection.

The Case of Kodak: Green Technological Advancement

Since the early 1990’s, the need for technological advancement to Green Operations is becoming more popular. The ‘new economy’ has encouraged firms to be more environmentally sustainable and eco-efficient. Kodak is an example of a company that has a remanufacturing line to the supply chain. It is reported that 310 million single-use cameras have been returned since 1990. Although the timing of returns of singleuse cameras is unknown, Kodak has managed to allocate 310 million singleuse cameras back into their production line. The reason for this success came from its own product design. Kodak’s single-use cameras are simple, reusable and easy to recycle, and because of this, Kodak has managed to reuse their products and save costs. Xerox Europe, US Naval Aviation are also good examples of Green Operations. Companies are encouraged to have Green Logistics due to various legislations.

Producer responsibility has always been, and is still, a growing concern. This concern is important because organisations are now beginning to become more rational in preserving the natural resources and the environment.

Why Change to Green Supply Chain Management?

There are different thrusts for companies to change to a ‘greener’ supply chain than the existing one. Some organisations are simply doing this because it is the right thing to do for the environment even though some of the motivators are quite unclear. Maybe some are more fundamental to environmental change, but others may not. Studies, however, reveal that profitability and cost reduction are some of the main motivators for businesses to become ‘green’ in the supply chain. Reverse logistics were motivated primarily by economic factors and not concerns about protecting the eco-system. The reverse logistics can only bring about profitability and reduction of waste. Advertising took this idea further and argued that Green Supply Chain Management practices are only about ‘win-win relationships on environmental and economic performance’. There are hidden values to reverse logistics and the companies need to admit it.. The customers, on average, return about 6% of the products they buy. These products can be from plastic bottles to boxes. If organizations can capture this 6% return from the consumers,they will be able to cost-save.

Doing this, however, still remains an issue. Reverse logistics can cost-save only if done precisely. Saying this means that before going any further to green logistics, organisations must have a core vision to promote Environmental Management.

Conclusion

The intention of this paper is to briefly provide an outline of the Green supply chain literature. This paper argues that the ecological impacts of industrial activity has been reduced by the help of Green Supply Chain Management.. Key academics have argued different angles to Green Supply Chain Management.

The concepts of green design, green operations, reverse logistics, waste management and green manufacturing are the key themes that came out of the Green Supply Chain Management literature over the last two decades. This paper, however, briefly discussed some of these issues and, first of all, a brief introduction to conventional supply chain management was provided, then a discussion to the chronology of Green Supply Chain Management and green supply chain as a discipline. Green design and green operations were briefly discussed next. The motive for organisations to go towards green operations was dealt in the last part of this paper. Even though Green Supply Chain Management has been scrupulously reviewed, there are areas around Green supply chain that still require further study. One is a gap in the literature in terms of the stakeholder’s views towards green supply chain.

Stakeholders views can sometimes be contradictory to the company’s point of view. Normally, when the word ‘natural environment’ and ‘sustainability’ comes into the picture, this is seen as a restriction to the organisation’s generation of profits by most operation managers and stakeholders. Some stakeholders would go against green supply chain management and some would not. This paper recommends that researchers should focus more towards qualitative study such as interviews in understanding the variation in different stakeholder views towards green supply chain management to depict the varied views about the concept and how this, in the end, implicates management decisions.