8.2.1: Green supply chain management
Green supply chain management (GrSCM) is modeled on traditional supply chain management practices, but integrating environmental criteria and concerns into all organizational processes and decisions. A GrSCM aims to minimize wastes within a system to conserve energy and prevent the dissipation of dangerous materials into the environment. It recognizes the disproportionate environmental impact of supply chain processes to product outputs within a company’s operational processes. By integrating environmental thinking into supply chain management, these companies have the opportunity to optimize information and material flows within their value chains while minimizing costs. The diagram below illustrates a model of a green organizational supply chain.
Traditional and green supply chains differ in several ways. Traditional chains focus on economic objectives and values, while green chains consider ecological values alongside a company’s business objectives. When a traditional supply chain takes ecological standards into account, it is often limited in its scope. For example, traditional chains actively consider human toxicological impacts, while leaving out the impacts on the environment. They also often tend to focus more on the control of the final product, rather than on negative effects within the entire supply chain.
Green supply chains, however, extend the scope of sustainability beyond human toxicological effects, to consider the full environmental impacts alongside economic objectives. The summary table below highlights the differences between the features of traditional and green supply chains.
|
Characteristics |
Traditional Supply Chains |
Green Supply Chains |
| Objectives and Values | Economic | Economic and Ecological |
| Ecological Optimization | High ecological impacts |
Integrated approach Low/Minimal Ecological Impacts |
| Supplier Selection Criteria |
Suppliers selected on price Short-term monetary based relationships |
Suppliers selected on environmental performance and price Long term mutually supportive relationships |
| Cost Pressure and Prices |
High cost pressure Low Prices |
High cost pressure Moderate – High Prices |
| Speed and Flexibility | High | Low |
8.2.2: Roadmap for green supply chain management (GrSCM)
Greening the supply is more than just looking at negative environmental impacts along each stage of production of a good or service. It starts with green design, and uses product life cycle analysis to consider all aspects of the supply chain from the extraction of raw materials, to the various manufacturing stages of the product, as well as its distribution patterns across the globe. At the end of the supply chain comes product recovery and reintegration into the chain. Green design functions as the core around which most green strategies and green supply chains are developed.
In implementing a green or sustainable supply chain, companies must consider several planning techniques, including the life cycle and how this is engineered, as well as demand and supply panning. Companies need to consider how they procure their materials, the various partnerships they’ve developed to do so, and how suppliers can be incentivized and trained. Finally, companies must consider the logistics such as transporting, storing, and packaging the entire production the good or service, and how to manage its footprint. The figure below shows the elements and processes within a green supply chain.
The vision of ‘sustainable supply chains’ is to do more with less: to ensure that growth, competitiveness, innovation and industrial leadership does not take place at the cost of environmental sustainability in supply chains. The roadmap below visualizes operational practices and parameters, contributory green strategy elements, and theoretical principles of logistics and supply chain management which serve as key mechanisms in: reducing dependence on non-renewable energy resources (i.e. oil), minimizing emission of greenhouse gasses, advancing re-use of products and materials, optimizing transport and logistic flows, and transforming supply chains towards a low-carbon economy. In “greening the supply chain” the organization can seek to balance both financial and ecological benefits.
Focus box: The value of impactsMany companies do not have a full understanding of the (negative environmental) impacts of their supply chain. An initial step to “greening the supply chain” starts with developing a systematic understanding of the processes and impacts of the supply chain. By mapping the supply chain, companies can identify the most biggest environmental challenges they face, and prioritize efforts with suppliers and logistics providers to address these effectively.  Using this approach, CH2M HILL established a supply chain sustainability strategy for evaluation and procurement of materials, complete with procedures, tools, communications, training and reporting metrics. Since 2010, CH2M HILL has identified suppliers with strategic or preferred status based on volume and business impact. Suppliers are classified into four groups of environmental performance, with each incorporating specific key performance indicators (KPIs). Tier 1 and Tier 2 suppliers are required to provide information about their sustainability programs and demonstrate continuous improvement. CH2M HILL’s direct procurement department then began incorporating sustainability into the design, procurement and construction of projects by promoting the selection of suppliers and subcontractors that value sustainability. |
8.2.3: Strategies for green supply chain management
Risk-based Strategies – The simplest strategy of GrSCM is one of risk minimization. Firms adopt this strategy mainly in response to stakeholder demands. This strategy works for organizations that have few environmental management resources, or that have only recently introduced a supply chain greening program. It is based on minimal inter-organizational engagement. Efforts might involve the inclusion of basic clauses in procurement contracts that require suppliers to meet all relevant regulatory requirements. Most often this approach adopts established international standards such as ISO 14001 (Environmental Management) to guide operational processes.
From a competitive advantage perspective, the benefits of this strategy are limited because such strategies are easy to implement, lack uniqueness, and are easily replicated by others. It is possible to minimize risk using this strategy, and even enhance reputation, but innovation or other complementary benefits are unlikely.
Green ProcurementGreen procurement stems from environmental damage prevention, waste minimization, resource efficient principles and activities. Also known as environmental purchasing, green procurement compares price, technology, quality and the environmental impact of the product, service or contract. Green procurement programs may be as simple as purchasing renewable energy or choosing recycled office paper over virgin paper. Or, they can be more involved, such as setting environmental requirements for supplier and contractor compliance. Before a green procurement program can be implemented, current purchasing practices and policies must be reviewed and assessed. A life cycle assessment of the environmental impacts of products or services is required along with the establishment of environmental criteria on which purchase and contract decisions are to be made. The outcome is a regularly reviewed green purchasing policy that is integrated into other organizational plans, programs, and policies. Green procurement policies and programs can reduce expenditure and waste; increase resource efficiency; and, influence production, markets, prices, available services and organizational behavior. They can also assist countries in meeting multi-lateral requirements such as the Kyoto Protocol and Rotterdam Convention. International Standards Organization and other bodies have established guidelines for green procurement programs. |
(Eco)Efficiency-based Strategies - Efficiency-based strategies tie environmental performance to operational processes within the supply chain. These strategies improve supply chain efficiency, maximize economic performance, and enhance the environmental performance benefits achieved through resource and waste reductions. It exceeds mere regulatory compliance and is achieved by encouraging higher levels of engagement between consumers and suppliers, and by requiring suppliers to meet operations-based efficiency targets.
The success of efficiency-based strategies hinges on the communication and cooperation of supply chain partners to improve environmental performance of all parties. For example, collaboration are usually aimed at improving context-specific, complex problems such as waste reduction and recycling.
From a competitive advantage perspective, this strategy provides a cost-reduction benefits to the supply chain and readily fits with pre-existing organizational goals of optimization. However, it has limited potential to support more knowledge-intensive environmental management activities such as product design, material substitution, or innovation.
Supplier score-cards for sustainability
Supplier sustainability scorecards are a way for companies to systematically measure the environmental outlook and sustainability operations of their various suppliers. The scorecards generally measure energy and water use, recyclable materials, waste, and greenhouse gas emissions of the supplier’s operations. This allows companies to view the impacts of their entire supply chain and accurately determine environmental footprints. By assessing their suppliers actively, companies can develop more transparent green supply chains, drive the adoption of best practices, accelerate product innovation, and provide customers with necessary information to help them make sustainable choices.
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Innovation-based Strategies – Innovation-based GrSCM strategies vary from efficiency-based approaches because of its environmental focus and specific objectives for supply chain performance. Increased environmental compliance regulations, resource scarcity, and general environmental awareness have encouraged organizations to consider life-cycle aspects of products and guarantee the sustainability of the life cycle to consumers. This change has encouraged organizations to implement specialized processes, technologies, and enforce complex performance standards for suppliers that have enhanced supply chain knowledge exchange and improved relationships and investments.
Moving towards innovation-based strategies requires the commitment of dedicated resources and specialized personnel to improve integration of environmental performance into supply chains and product design, ensure compliance with environmental legislation changes, and educate suppliers on environmental performance updates. Firms develop capabilities and skills that can be used to incorporate innovative environmental planning into specific product designs, characteristics, functionality, or life-cycle related activities (e.g., service, repair, and recycling). Firms can also develop process capabilities to develop environmentally robust methods and systems for the production, distribution, and the use of products.
Closed-loop Strategies – Closed-loop approaches represent the most complex and collaborative form of GrSCM strategy. Closing the loop involves the capture and recovery of materials for either re-manufacture (high value) or recycling (low value). These materials can be recovered during production, as returned goods, post-use, and at end-of life. The closed-loop strategy present an approach that seamlessly integrates issues of economic, operational, and environmental performance across the whole supply chain. Refer to Section 3.4 and Section 7.2 for more details on “closing the loop” and closed loop production.
Designing and implementing a closed-loop strategy is one of the most complex endeavors an organization can undertake with its supply chain. Organizations considering implementation of a closed loop supply chain require high levels of control over the capture and return of used materials. Goods need to be managed for quality. The aggregation of collection and sorting activities allows economies of scale to be created. Such a high level of integration, coordination across partners, and socially complex knowledge requires years of development effort. Socially complex, collaborative relationships provide the basic foundation for a closed-loop supply chain strategy.
Supplementary Resources