The Green Supply Chain Management Model
A growing trend in the realm of supply chain management (SCM) is the green supply chain management (GSCM) model. With the emergence of increasingly stringent environmental regulations, companies are striving to find environmentally-conscious vendors with whom to do business. Companies are also facing public pressure to go green; being environmentally friendly has become a way to gain a competitive advantage.
There are many benefits to building environmental sustainability into the way you do business, besides gaining a competitive advantage. When a business goes green, not only are they reducing their ecological footprint, they can also reduce costs. When environmental policies are adapted, they can be tested for results. Economic benefit is only one of many parameters which can improve through sustainable practices.
Green supply chain management is an emerging movement in technical operations, and will continue to become increasingly important as companies seek to gain a competitive advantage. Consumers want to do business with companies who reflect their values, and the environment is a high priority for Canadians.
Keywords-Supply Chain Management (SCM), Green Supply Chain Management (GSCM), Green Procurement, Lean Theory, Triple Bottom Approach, Coordination Theory
Green supply chain management (GSCM) integrates environmental thinking into supply chain management (SCM). It introduces innovative processes into material sourcing and selection and end-of-life product management (Government of Canada, 2019). GSCM is a way that companies can differentiate themselves and remain competitive. Applying these techniques will increase efficiency and decrease environmental impact.
Managing the supply chain is linked to sustainable development due to the nature of competition for scarce resources (Brown, Bessant, & Lamming, 2013). The mass production of materials has resulted in a need for sustainable SCM. Increasing importance is being given to sustainability in strategic operations management. GSCM can be used as a strategy for corporate social responsibility (Brown et al., 2013).
Environmental problems are affecting our climate and living conditions. Climate change is a very important issue to the public, so it is important for companies to incorporate green thinking into the way they do business. Increased customer awareness and stringent regulations are forcing companies to integrate environmentally friendly supply chains (Wang & Gupta, 2013). The following environmental problems are causing companies to reconsider their strategies:
- Ozone layer depletion
- Resource depletion
- Air pollution
- Water pollution
- GHG emissions
- Hazardous waste
- Fight for landfill space
- Desire for land conservation
The research conducted for this report sought to answer the following questions:
- What is GSCM?
- Why are companies adopting GSCM?
- What are the benefits of GSCM?
A literature review was conducted and information was collected from a variety of sources including peer-reviewed journal articles, government reports, and textbooks utilized in the MSTM 6031 Overview of Technical Operations course.
This report will give an overview of the various theories associated with GSCM, such as Lean Theory, Triple Bottom Approach, and Coordination Theory. These theories are given practical meaning in the discussion section. Concepts such as waste management and energy efficiency; green procurement and responsible purchasing; and life cycle thinking and green engineering are discussed. The section ends by providing companies with ways to build sustainability into their business strategy.
3.1 What is GSCM?
SCM covers planning and control activities related to trade and collaboration among suppliers and purchasers (Wang & Gupta, 2013). Increasing environmental awareness led to GSCM. To meet objectives of GSCM, companies set strategic goals, objectives, budgets, measure and report based on sustainability (Government of Newfoundland and Labrador, 2015). In order to see results, companies must have dedicated resources to support sustainability initiatives.
Many companies are not adopting more sustainable practices despite public pressure. Companies which adapt a GSCM model focus on ecological and sociological aspects when making managerial decisions (Kumar, Teichman, & Timpernagel, 2012). Kumar et al. (2012) suggests that there are simple models which can eliminate waste throughout the supply chain and make it more profitable, but it means using best practices to reduce waste.
There are many benefits to building sustainability into business planning. If sustainability is built into core values, the mission statement and vision, it will result in increased worker production, which will lower recruiting costs and attrition rates (Government of Newfoundland and Labrador, 2015). GSCM will especially benefit companies with emission and waste generating supply chains (Kumar et al., 2012). Other benefits include:
- Improved brand reputation;
- Meet regulatory requirements;
- Trust from external and internal stakeholders;
- Cost savings by tracking supply chain processes;
- Cost savings by measuring energy consumption;
- Cost savings by reducing waste;
- Access to new markets and clientele; and
- Mitigation of risk.
3.3 Lean Theory
The Lean Theory is incorporated into GSCM. Lean Theory has historically had proven success at improving SCM. Lean practices are practiced by best in class supply chains as they seek to eliminate waste (Brown et al., 2013). GSCM should start in the product design phase; this is where it can provide added value (Kumar et al., 2012).
A major source of waste is through transportation. All efforts should be taken to reduce product movement. Companies should choose ways to reduce transportation costs, which will also reduce fuel consumption, and hence reduce GHG emissions. Here are a few ways that companies can reduce waste from transportation (Kumar et al., 2012):
- Choose more efficient routes;
- Choose local vendors (who have good environmental track records);
- Use full truckloads; and
- Choose energy efficient technology.
3.4 Triple Bottom Approach
A recent survey of manufacturing companies found that 30 per cent are gaining new profits directly from sustainability initiatives (Blackhurst, Cantor, & O’Donnell, 2012). The triple bottom line approach builds sustainable practices into (1) financial, (2) social, and (3) environmental performance, as seen in Fig. 1 (Blackhurst et al., 2012).
Companies are not only using the triple bottom approach for financial reasons, they are being pressured to adopt sustainable practices from stakeholders, government, competitors, and customers. Sustainable practices results in a better chance for long-term success. Ignoring any of the three aspects of the triple bottom line can result in unsustainable practices (Brown et al., 2013).
Figure 1: The Triple Bottom Approach. (Blackhurst et al., 2012).
3.5 Coordination Theory
Zhu, Sarkis, & Lai (2012) examined several GSCM models to determine their impact on the supply chain. Coordination Theory was one of the models examined, which states that interdependencies exist among the supply chain and must be coordinated for maximum efficiency (Zhu et al., 2012). When internal and external drivers are managed, GSCM practices can improve performance and competitiveness.
No matter where in the product life cycle the product lies, most of the impact is locked in the product design phase when materials are selected, emphasizing the importance of green engineering (Zhu et al., 2012). According to Coordination Theory described by Zhu et al. (2012), to improve environmental performance, companies should incorporate the following practices, which work concurrently to produce positive results:
- Eco-design practices;
- Green purchasing;
- Internal financial incentive policies; and
- Build collaborative relationships with customers.
4.1 Waste Management and Energy Efficiency
A key feature of GSCM is eliminating excess waste. There can be simple solutions to increasing energy efficiency, with a low risk and high return (Kumar et al., 2012). Many GSCM practices require limited investment, are low-risk, and offer short-term return-on-investment periods, so businesses of all sizes are able to engage in these activities (Government of Canada, 2009).
The usage and disposal of resources consumes energy and produces waste. Energy is wasted from consuming water, electricity, heat, fuel, and paper. If energy efficiency is increased in these areas, it will cut costs, increasing profit, and improve environmental performance (Wang & Gupta, 2013). Energy efficiency can be improved with new technologies and improved processes.
Electronic waste (E-waste) is a major source of waste in this technology driven society. There are many ways in which E-waste can be managed in a more sustainable way. Between 20-50 million tonnes of E-waste is generated each year, with less than 20 per cent being captured by recycling (Kumar et al., 2012). Companies which manufacture and those which utilize electronics have a major opportunity to impact their supply chains.
4.2 Green Procurement and Responsible Purchasing
Procurement is a significant expenditure. The goods, services, and suppliers that a company chooses play a significant role in the message that is sent to consumers, employees and stakeholders. Green procurement means choosing suppliers who make the environment a priority, and purchasing products that are environmentally friendly (Government of Newfoundland and Labrador, 2015). The negative impact of unethically produced goods is greater than the positive impact of ethically produced goods (Blackhurst et al., 2012).
It is important for companies to have a green procurement policy in place. Supplier choice has an impact on the entire socio-ecological system (Blackhurst et al., 2012). Using local suppliers can also be beneficial in various ways, such as reducing transportation costs and supporting the local economy. Some examples of green procurement includes selecting:
- Green cleaning products;
- Energy star rated products;
- Energy efficient lighting;
- Energy efficient electronics, and
- Recycled paper.
Responsible purchasing means selecting environmentally friendly products and services. There are many benefits to being an environmentally responsible purchaser. It can result in reduced electricity costs and less exposure to chemicals in the case of using green cleaning products (Government of Newfoundland and Labrador, 2015). Your association with suppliers can put your business in a vulnerable position of they have a reputation for violating environmental laws. Companies can use purchasing power to get suppliers in compliance with its green supply chain practices (Kumar et al., 2012).
4.3 Life Cycle Thinking and Green Engineering
Determining the best option for end of life products is a problem faced by managers. Disposal should be the last option. Life cycle analysis is a method used for making process decisions from a product’s beginning to its end (Brown et al., 2013). The product life cycle approach is demonstrated in Fig. 2. Environmental impact, quality, legislative requirements and cost are all important considerations when choosing the best option (Wang & Gupta, 2013). Options for end of life products include:
Figure 2: The Product Life Cycle Approach.
Green engineering incorporates life cycle thinking into engineering design (Wang & Gupta, 2013). Environmentally conscious companies are manufacturing products with environmental impact in mind. Green engineering can have a tremendous ripple effect throughout the entire supply chain. The following are goals of green engineering (Wang & Gupta, 2013):
- Ensure construction materials are non-hazardous
- Prevent waste
- Design for ease of assembly
- Maximize efficiency
- Design for durability
- Minimize material diversity
- Design for afterlife
4.4 Building Sustainability Into Your Business Strategy
According to the Government of Canada (2009), sustainability in the supply chain is driven by the following business needs:
- Managing environmental, social and financial risks;
- Realizing efficiencies (such as reduction in cost for materials, labor, energy, and transportation); and
- Creating sustainable production (which can meet the needs of all stakeholders including government, customers, and suppliers).
GSCM is an important corporate strategy for the manufacturing industry. Small-to-Medium-Sized Manufacturers (SME’s) can create a positive impact on their supply chains by developing strong networks of supply chain partners and building cooperative relationships (Blackhurst et al., 2012). It is beneficial for SME’s to link sustainability to their corporate strategy and policies. Fig. 3 provides an example of how sustainability can be built into a company’s strategy.
Philips has developed a program for working with suppliers to foster sustainability (Brown et al., 2013). Please see the Appendix for a detailed case study on Philips’ sustainability strategy which affects suppliers and their supply chain. Philips works with suppliers in the following ways (Brown et al., 2013):
- Industry Collaboration;
- Training and Capacity Building;
- Audit Approach;
- Issue Resolution; and
- Supplier Ratings and Sourcing Decisions.
There are many benefits to GSCM. A sustainable supply chain is efficient and cost effective, and can mitigate risk against public scrutiny. GSCM can lead to the identification and creation of new business opportunities in cooperation with suppliers and customers. Sustainable practices such as GSCM should be incorporated into a company’s strategic plan.
There is a wealth of information available to companies who wish to incorporate the GSCM model. Various industry practices such as Lean Theory and Triple Bottom Approach can be applied to help supply chains become more sustainable. Green engineering is an important consideration which begins in the product design phase. The life cycle approach considers the impacts that a product or service may have from inception to disposal. The entire supply chain offers opportunities for more sustainable business, which will lead to a more profitable future.
Blackhurst, J., Cantor, D., & O’Donnell, M. (2012). Sustainable supply chains: A guide for small-to-medium-sized manufacturers. Iowa State University College of Engineering.
Brown, S., Bessant, J., & Lamming, R. (2013). Strategic operations management. (3rd ed.). New York; NY: Routledge.
Government of Canada (2019). Green supply chain management: Manufacturing-a Canadian perspective.Industry Canada.
Government of Newfoundland & Labrador (2015). NL Green Economy. Department of Innovation, Business, and Rural Development. Retrieved from: http://www.nlgreeneconomy.ca/
Kumar, S., Teichman, S., & Timpernagel, T. (2012). A green supply chain is a requirement for profitability. International Journal of Production Research, 50(5), 1278-1296. doi: 10.1080/00207543.2011.571924
Wang, H.F. & Gupta, S.M. (2013). Green supply chain management: Product life cycle approach. New York: McGraw-Hill.
Zhu, Q., Sarkis, J., & Lai, K. (2012). Examining the effects of green supply chain management practices and their mediations on performance improvements. International Journal of Production Research, (50)5, 1377-1394. doi: 10.1080/00207543.2011.571937