Sustainable supply chain CH13

Sustainability Cost Assessment

Monetizing environmental and social effects helps firms "see" the cost of their actions Cost-of-Control - Cost of avoiding damages before they actually occur Damage Costing - Cost of damages as if they had actually occurred

Values in Sustainable SCM

Nonmarket benefits need to be considered: - Use Value - Benefit derived from utilization of a resource Option Value - Value of preserving a resource for future potential use Existence Value - Benefit from knowing a resource exists

Product Design

Product design changes affect: -Materials -Sourcing -Disposal Design considerations: -Awareness of harmful components -Modular designs

Sustainability in Practice

SCM changes can have a major impact Consider: -Product Design -Packaging -Sourcing -Process Design -Marketing Sustainability -Unintended Consequences

Why sustainability? LEGAL COMPLIANCE

Two sets of standards for polluters: -Design Standard -Specifies the type of technology necessary to be in compliance -Performance Standard -Specifies the amount of permissible pollution

Organizational - Sustainability payoff

- Employee satisfaction - Improved stakeholder relationships -Reduced regulatory intervention -Reduced risk -Increased organizational learning

Customer-related - Sustainability payoff

- Increased customer satisfaction - Product innovation - Market share increase - Improved reputation - New market opportunities

Operational - Sustainability payoff

- Process innovation - Productivity gains - Reduced cycle times - Improved resource yields - Waste minimization

Why sustainability? INCREASE REVENUE

-Financial value can be created: -Adoption of energy-efficient technology -Process improvements -Eliminating steps -Eliminating barriers to smooth processes

Social Sustainability

-Maintaining societies' long-term well-being -Economic issues -Population issues

Environmental Sustainability

-Preservation of diverse biological systems that remain productive over time -Pollution issues -Resource depletion issues

Financial - Sustainability payoff

-Reduced operating costs -Increased revenue -Lower administrative costs -Lower capital costs -Stock market premiums

Drivers of Sustainable Initiatives

1. Enforcement - Government agencies can enforce sustainable initiatives: -Official oversight -Sanctions for noncompliance -Environmental Protection Agency 2. Compliance - Voluntary participation in sustainable practices -Industry-Initiated Certification Programs -Advertising benefits -Membership benefits 3. Innovation enhance operations to satisfy environmental and social priorities - Voluntary - Internal to the company

9 Principles of sustainability

1. Ethics - Promoting a culture that fosters truthful and fair conduct between all stakeholders 2. Governance - Conscientious execution of duties held by corporate board members and managers 3. Transparency - Care about the information needs of others 4. Business Relationships - Treat all supply chain members fairly 5. Financial Return - Continue to create value, while balancing nonmonetary factors 6. Community & Economic Development - Improving the economic welfare of the community creates additional opportunities 7. Value of Products and Services- Clarify responsibilities to customers 8. Employment Practices - Diverse workforce, competitive wages, time off 9. Protection of the Environment - Comply with environmental laws -Cut waste, lower pollutants, consume fewer resources, recyclable materials

Sustainability payoffs- 4 types

1. Financial 2.Customer-related 3. Operational 4. Organizational

Marketing sustainability

Common to advertise "green" features: - recycled materials - biodegradable packaging - fair partnerships - no harmful ingredients - certifications by independent reviewers

Process design

Examples of process redesign for sustainability: -product disposal "take-back" procedures -find secondary markets for used equipment -promote social sustainability through donations

Why sustainability? POSITIVE COMMUNITY RELATIONS

Failure to operate sustainably: -Can stigmatize a company -Lead to loss of trust -Provide a negative reputation with stakeholders -Can cause consumers to cease purchasing

Product redesign for shipping/storage

IKEA changed its mug so that they could store more of them onto one crate, and mug sales remained the same, but shipping costs reduced by 60% New milk jugs, the new jugs are square so they can stack them and more fit into a truck which lowered shipping costs. And they are reusable

SCM sustainability process

Identify sustainability issues -Inputs: analyze resource consumption -Outputs: analyze pollutant emissions

SCSM Elements Part 1

Inputs -External context -Internal context -Business context -Human and financial resources Leadership -Factoring all inputs into management decisions Processes - Sustainable performance diffused within each company function - Proactive, reactive, internal, and external actions Sustainability Performance - Reflects all positive and negative impacts on stakeholders - Definition of stakeholders is critical

Reverse supply chains

Is the series of activities to get a product from a customer and to either dispose of it or reuse it - New products(returns) and used (recycling) Includes: 1. Product Acquisition: Obtain products from end-users (gatekeeping - Facilities sorting process) 2. Reverse Logistics: Move products from point of use to point of disposition 3. Testing, Sorting, Disposition: Determine product condition and most economically attractive re-use option 4. Refurbishing: Direct re-use, repair, remanufacture, recycle, disposal 5. Remarketing: Create and exploit markets for refurbished goods

Sourcing

Selecting suppliers -utilize sustainable resources -fair trade (cooperative farmer's associations) -mandate sustainable practices with contracts Monitoring Compliance -plant inspections -employee interviews -third-party audits -document reviews

Types of sustainability-related risks

Social Risks - Unmet community expectations Political Risks - Gov't influences compromise the co's economic value Environmental Risks - unpredictable risks from geological or meteorological activity

SCSM Elements Part 2

Stakeholders Reaction -Supply chains should consider impacts of their activities Financial Performance -Monetize the impact of activities to make a business case for sustainability Feedback -Enables leaders to translate data into improvements

Anti-Environmental Posture

Stems from two paradigms: 1. Crisis-Oriented Environmental Management -Managements purpose is to make more money -Uncooperative behavior with other agendas 2. Cost-Oriented Environmental Management -Environmental regulations are a cost of doing business -Pollute as necessary, then factor in sanctions as a cost

Unintended consequences

Sustainability initiatives should assess all foreseeable costs and benefits Good intentions can have unexpected and undesirable consequences - adequate analysis is required

What is sustainability?

Sustainable development is development that meets the needs of the present w/out messing up the future generations in order to meet their needs (like F.N. culture beliefs). 1. The concept of needs: is the essential needs of the world's poor, to which overriding priority should be given. 2. The idea of limitations imposed by the state of tech and social org's on the environment ability to meet present and future needs What does that mean in the present? Balance competing needs - utilizing a resource for one purpose, should not jeopardize the resource use elsewhere

Packaging

Sustainable packaging criteria: -GHG emissions from packaging production -Product-to-packaging ratio -Recycle packaging content -Emissions from transporting packaging

Costing systems

Systems to account for environmental costs: Activity based costing : Disaggregates costs to avoid lumping environmental costs w/ overhead Life-Cycle costing: Amortized annual cost of a product, discounted over the life cycle of the product Full cost accounting: incorporates external and future costs

Supply Chain Sustainability Model

The Supply Chain Sustainability Model (SCSM) integrates social and environmental impacts into a company's supply chain management strategy.

Why sustainability? SATISFY MORAL OBLIGATIONS

Three Frameworks: 1. Minimalist Ethic - Precautions worthwhile to avoid liability 2. Reasonable Care Ethic - Protect against foreseeable risks 3. Good Works Ethic - Take affirmative steps to discover hazards -Proactively safeguard against hazards

Reverse Supply Chains - Examples

Xerox: their products are made so they can easily be broken down and recycled, 90% of components are reused and 2% are sent to landfill UPS: at first and empty package was sent to the cusomer for them to return the product, then it was picked up and the replacement was sent to them. Now the driver delivers the replacement, helps them package the old good back to company.