SCM Chapter 17: Sustainability and the Supply Chain

Inventory

Most supply chains focus on raw materials, work in process, and finished goods inventory, as we have done in this text. Although this form of inventory is viewed as an asset and included in the financials, few firms even consider the inventory sitting in a typical landfill. When a firm's product is discarded in a landfill after use, the cost of this inventory is borne collectively by society. Chopra, Sunil; Meindl, Peter. Supply Chain Management: Strategy, Planning, and Operation (Page 501). Pearson Education. Kindle Edition.

Greenwashing

often used to refer to products and practices that seem green but fundamentally aim to grow profits. Chopra, Sunil; Meindl, Peter. Supply Chain Management: Strategy, Planning, and Operation (Page 500). Pearson Education. Kindle Edition.

Facilities

tend to be significant consumers of energy and water and emitters of waste and greenhouse gases and thus offer significant opportunities for profitable improvement. Chopra, Sunil; Meindl, Peter. Supply Chain Management: Strategy, Planning, and Operation (Page 501). Pearson Education. Kindle Edition.

The extent of recycling or remanufacturing depends on the following factors: Chopra, Sunil; Meindl, Peter. Supply Chain Management: Strategy, Planning, and Operation (Page 504). Pearson Education. Kindle Edition.

• The incentive to recycle or remanufacture • The cost to recycle or remanufacture Chopra, Sunil; Meindl, Peter. Supply Chain Management: Strategy, Planning, and Operation (Page 504). Pearson Education. Kindle Edition.

Polluter Pays Principal

To encourage the appropriate behavior in supply chains, it is important that the polluter pays the cost inflicted on society (referred to as the polluter pays principle). Policies that are consistent with this idea include take-back mandates, advance disposal fees, and deposit-refund programs. Chopra, Sunil; Meindl, Peter. Supply Chain Management: Strategy, Planning, and Operation (Page 504). Pearson Education. Kindle Edition.

Transportation

Transportation is another driver with which firms are likely to find several positive cash flow opportunities that improve environmental performance through resource as well as emission reduction. Chopra, Sunil; Meindl, Peter. Supply Chain Management: Strategy, Planning, and Operation (Page 502). Pearson Education. Kindle Edition.

Cap-and-trade

constrains the aggregate emissions by creating a limited number of tradable emission allowances that emission sources must secure and surrender in proportion to their emissions. Chopra, Sunil; Meindl, Peter. Supply Chain Management: Strategy, Planning, and Operation (Page 496). Pearson Education. Kindle Edition.

The Brundtland Commission of the United Nations defined sustainable development as Chopra, Sunil; Meindl, Peter. Supply Chain Management: Strategy, Planning, and Operation (Page 492). Pearson Education. Kindle Edition.

"development that meets the needs of the present without compromising the ability of future generations to meet their own needs." Chopra, Sunil; Meindl, Peter. Supply Chain Management: Strategy, Planning, and Operation (Page 492). Pearson Education. Kindle Edition.

Emission uncertainty

A cap-and-trade system caps the emissions (except when the ceiling price is hit), whereas a carbon tax can potentially have high emissions if the cost of reducing emissions is greater than the tax. Chopra, Sunil; Meindl, Peter. Supply Chain Management: Strategy, Planning, and Operation (Page 507). Pearson Education. Kindle Edition.

Industry competitiveness

A country or state that is further along on emission pricing can potentially hurt the competitiveness of its own emission intensive firms relative to firms operating outside its borders. Chopra, Sunil; Meindl, Peter. Supply Chain Management: Strategy, Planning, and Operation (Page 507). Pearson Education. Kindle Edition.

The environmental pillar measures a Chopra, Sunil; Meindl, Peter. Supply Chain Management: Strategy, Planning, and Operation (Page 499). Pearson Education. Kindle Edition.

firm's impact on the environment, including air, land, water, and ecosystems. Chopra, Sunil; Meindl, Peter. Supply Chain Management: Strategy, Planning, and Operation (Page 499). Pearson Education. Kindle Edition.

Pay as you throw (PAYT) model

in which the cost incurred is proportional to the amount of garbage thrown out, is likely to increase recycling. Chopra, Sunil; Meindl, Peter. Supply Chain Management: Strategy, Planning, and Operation (Page 505). Pearson Education. Kindle Edition.

Wealth transfer to energy-exporting countries

For a country that imports most of its energy supplies, a cap-and-trade system has the potential to shift wealth to energy exporting countries. Chopra, Sunil; Meindl, Peter. Supply Chain Management: Strategy, Planning, and Operation (Page 507). Pearson Education. Kindle Edition.

Sourcing

For most firms, the greatest social and environmental impact occurs in the extended supply chain outside their own enterprise. This impact has grown as firms have increased their global sourcing, especially from low-cost countries. Chopra, Sunil; Meindl, Peter. Supply Chain Management: Strategy, Planning, and Operation (Page 502). Pearson Education. Kindle Edition.

Information

Good information continues to be one of the biggest challenges to improved supply chain sustainability. The absence of standards for measurement and reporting has led to claims of improvement that are often not verifiable. Chopra, Sunil; Meindl, Peter. Supply Chain Management: Strategy, Planning, and Operation (Page 503). Pearson Education. Kindle Edition.

The factors driving an increased focus on supply chain sustainability can be divided into three distinct categories: Chopra, Sunil; Meindl, Peter. Supply Chain Management: Strategy, Planning, and Operation (Page 493). Pearson Education. Kindle Edition.

1. Reducing risk and improving the financial performance of the supply chain 2. Community pressures and government mandates 3. Attracting customers that value sustainability Chopra, Sunil; Meindl, Peter. Supply Chain Management: Strategy, Planning, and Operation (Page 493). Pearson Education. Kindle Edition.

Pricing

As discussed in Chapter 16, intelligent use of differential pricing can improve the utilization of assets, leading to resource reduction. Planes that are fuller through differential pricing improve airline profits while reducing the fuel consumption and emissions per passenger. This also delays the need for additional capacity in the form of new planes. Chopra, Sunil; Meindl, Peter. Supply Chain Management: Strategy, Planning, and Operation (Page 503). Pearson Education. Kindle Edition.

New information uncertainty

As new information becomes available about the costs and benefits of emission reduction (for example, with the introduction of new technology), the price of emissions should adjust accordingly. Chopra, Sunil; Meindl, Peter. Supply Chain Management: Strategy, Planning, and Operation (Page 507). Pearson Education. Kindle Edition.

Price volatility

Businesses tend to prefer low price volatility because it allows them to better plan their sustainability activities. Chopra, Sunil; Meindl, Peter. Supply Chain Management: Strategy, Planning, and Operation (Page 506). Pearson Education. Kindle Edition.

Three Pillars

Environmental, Economic, and Social sustainability

tragedy of the commons Chopra, Sunil; Meindl, Peter. Supply Chain Management: Strategy, Planning, and Operation (Page 494). Pearson Education. Kindle Edition.

Hardin (1968) described the tragedy of the commons as a dilemma arising when the common good does not align perfectly with the good of individual entities. Hardin then describes how the issue of environmental pollution is essentially the tragedy of the commons. Chopra, Sunil; Meindl, Peter. Supply Chain Management: Strategy, Planning, and Operation (Page 495). Pearson Education. Kindle Edition. Chopra, Sunil; Meindl, Peter. Supply Chain Management: Strategy, Planning, and Operation (Page 494). Pearson Education. Kindle Edition.

Mutual Coercion

Hardin introduces the idea of "mutual coercion," whereby social arrangements or mechanisms coerce all participants to behave in a way that helps the common good. Given that participants will not tend to the commons of their own free will, mutual coercion mechanisms that apply to all participants can encourage the appropriate behavior. Chopra, Sunil; Meindl, Peter. Supply Chain Management: Strategy, Planning, and Operation (Page 495). Pearson Education. Kindle Edition.

In the context of greenhouse gas emission, the Greenhouse Gas Protocol (GHG Protocol) initiative7 defines three scope levels. Chopra, Sunil; Meindl, Peter. Supply Chain Management: Strategy, Planning, and Operation (Page 498). Pearson Education. Kindle Edition.

Scope 1 refers to emissions from GHG sources that are owned or controlled by the reporting entity, also referred to as direct emissions. Scope 2 refers to the inclusion of indirect emissions from grid-sourced electricity and other utility services, including heat, steam, and cooling. Scope 3 refers to the inclusion of other indirect emissions coming from the production of purchased materials, outsourced activities, contractor-owned vehicles, waste disposal, and employee business travel. Chopra, Sunil; Meindl, Peter. Supply Chain Management: Strategy, Planning, and Operation (Page 498). Pearson Education. Kindle Edition.

Revenue Neutrality

Several studies have indicated that the costs of emission pricing policies are minimized if any government revenue from these policies (in the form of a tax or revenue from auctioning emission allowances) is returned to the consumers in the form of a reduction in the marginal rates of pre-existing income or sales taxes.

Cost of administration

The cost of administering an emissions pricing policy depends on the number of sources that need to be monitored. Chopra, Sunil; Meindl, Peter. Supply Chain Management: Strategy, Planning, and Operation (Page 506). Pearson Education. Kindle Edition.

Two fundamental challenges exist in a supply chain in the measurement and reporting of the social and environmental pillars.

The first challenge relates to the scope over which a category is measured. The second challenge in measurement and reporting relates to the use of absolute or relative measures of performance. An absolute measure reports the total amount of energy consumption, whereas a relative measure may report the energy consumed per unit of output.

The social pillar measures Chopra, Sunil; Meindl, Peter. Supply Chain Management: Strategy, Planning, and Operation (Page 498). Pearson Education. Kindle Edition.

a firm's ability to address issues that are important for its workforce, customers, and society. Chopra, Sunil; Meindl, Peter. Supply Chain Management: Strategy, Planning, and Operation (Page 498). Pearson Education. Kindle Edition.