Going green in the supply chain

Going green is at the forefront of everyones mind and nowhere is this truer than in manufacturing and supply chains.

Increasing global environmental awareness, greater regulatory and governmental pressures in many countries have combined to provide large incentives to companies to reduce their carbon footprints. Green logistics, lowering the carbon footprint from supply chain and logistics operations, must now be considered one of the main priorities for supply chain executives.

The supply chain creates one of the biggest carbon footprints through the production, storage and transportation of goods. Executives are subsequently being forced to examine and review their approaches and respond accordingly with pressures to reduce the carbon footprint within the supply chain coming from both internal and external sources. Indeed, more and more consumers are willing to pay a higher price for greener more sustainable products while supply chain partners and even shareholders and employees are increasingly demanding more environmentally friendly supply chains. Long-term competitive strategy is a primary concern for supply chain executives and going green is now a crucial consideration towards achieving their goals.

According to an Eye for transport survey published in November 2007, green issues have already started to play an important role in companies overall business strategy. 67% of executives questioned in Europe believed that green issues are important to their companys strategy. And whilst Europe is generally leading the way in regards to championing the green approach to business, a significant proportion of executives in the United States, 59%, and Asia, 57%, viewed green as an integral part of their long-term strategy. 

Green legislation is clearly becoming a reality in Europe and beyond where external legislative pressures include financial incentives through tax breaks and of course the Kyoto Agreement.

The ability to determine the carbon footprint for the entire supply chain and make strategic decisions based not only on cost is an important  consideration in the current market environment. However, in order to competently recognise the problems and identify the set of actions that needs to be implemented, there are arguably three main challenges which the industry still needs to overcome if effective green logistics management is to become a reality.

The first of the challenges is the lack of appropriate technology in place to support companies and their efforts to go green. Secondly, companies typically lack the business processes required to capture the appropriate data in the supply chain and therefore utilise the technology effectively. Finally, there is the trade-off between green requirements and lean practices, which have underpinned the industry in recent times. By working in small batches, manufacturing and the supply chain become more efficient with a lean approach. This approach can however directly contradict green initiatives by resulting in more frequent transportation of shipments and product line switchovers, which in turn lead to higher emissions.

The same can be said for outsourcing, which often involves parts of the manufacturing process being transferred to plants on the other side of the world, only for the products to then have to be transported back for the next part of the supply chain process again at the detriment to a green supply chain.

Network design and planning systems, which incorporate carbon footprint consideration, are increasingly being sought out by companies in order to overcome green challenges. There are typically three main benefits to these solutions:

Firstly, the ability to incorporate standard data on carbon emissions provides the user with valuable resource data regarding the carbon emissions associated with various supply chain activities in plants, warehouses and various modes of transportation. This helps companies get a head start on their carbon footprint assessment, which is critical in order for companies to comply with regulatory caps, gain financial benefit through a carbon trading market and align with corporate environmental goals.

Secondly, reporting capabilities help users assess carbon emission levels associated with the various supply chain activities, enabling then to make more environmentally-sound decisions and comply with certain regulations that require carbon emissions inventory reporting, such as the Kyoto Protocol. In essence, users can easily evaluate trade-offs between cost and service levels and can better understand the environmental trade-offs as well.

And thirdly, the ability to set a cap on carbon emissions in the supply chain by forcing  a non-negotiable constraint on carbon footprint while evaluating logistics costs and service  trade-offs. This for example, allows users to optimise their logistics network by incorporating government-imposed caps on carbon dioxide, i.e., the Kyoto Protocol, or through supply chain partners scorecards. 

It is also pertinent to note that in addressing green logistics, executives can inadvertently tackle other notable industry issues such as end-to-end supply chain optimisation, rising energy costs and risk management policies. A trait of network optimisation is the many solutions around the optimal that are extremely close in total cost. Subsequently, this provides the opportunity to look at solutions that satisfy other criteria including providing redundancy for risk management and enabling a smaller carbon emission footprint. Decision makers can then truly appreciate the cost and impact of the options available to them when analysing their supply chain and putting their proposals forward. Thorough network optimisation allows supply chain executives to tackle risk management issues, such as redesigning a distribution strategy in the event of a port closing, fire in a plant or indeed supplier problems.

Going green in the supply chain is an industry issue that is only going to increase in stature. Supply chain executives who fail to review and react to carbon emissions as a result of their supply chains will undoubtedly find themselves answerable to both internal and external stakeholders. Technology, business process and lean versus green are some of the barriers that currently exist in evaluating the supply chain. Utilising network design, optimisation and planning systems, which incorporate carbon footprint consideration, will therefore be a crucial ally in environmentalising the supply chain and providing supply chain executives with a transparent view of their entire supply chain.

Given that the same technology can also be utilised to address industry issues such as end-to-end supply chain optimisation, rising energy costs and risk management, the case in point is a strong one. With industry issues converging, supply chain executives can inadvertently tackle four birds with one stone, addressing long-term competitive strategy and going green in the process.