ISL455U-SUPPLY CHAIN MANAGEMENT
Chapter 8: Sustainability in Supply Chains
Sustainability and Climate Change
The definition of sustainability does not only covers the environmental (or green) issues but also the social impacts of the facilities of a firm. This perspective is called Triple Bottom Line accounting which means that the businesses should take into consideration of three dimensions; economic impact (profit), the environmental impact (planet) and the social impact (people). This accounting system is also referred to as PPP (short for profit-planet- people). Note that the three criteria above do not necessarily conflict with each other. Though not all environmentally-focused initiative is profitable, there may be opportunities that could be win-win-win across the three dimensions for a firm.
In today’s competitive marketplace, a company has to be associated with a vast supply network to be successful; it has multiple echelons of suppliers upstream, each with its own supply chain network, and multiple echelons of intermediaries or buyers downstream until it reaches the end- customer. Thus, it is a challenge to evaluate a firm’s responsibility for the environmental consequences (e.g., greenhouse gas emissions, air pollution, water use, and etc.) associated with a final product or service. So, a company’s sustainability performance and motivation for sustainable practices cannot be decoupled from its supply chain. Thus, sustainability must be discussed in a supply chain context.
Currently, the “most urgent” environmental issue that requires efforts at individual, corporation, and national levels is the climate change. This issue is also referred to as “global warming.” It involves phenomena such as melting of ice caps, rising sea levels, change in rainfall patterns, severe droughts, floods, hurricanes, and new pathways of disease.
The main reason for climate change is the rising concentration levels of greenhouse gases (GHG) in the atmosphere. Global GHG emissions have been increasing due to industrialization and changes in agriculture and land use. More than 70% of the GHG concentration in the atmosphere is CO2, and it has risen substantially along with other primary gases like CH4 and N2O, due to human activities that involve fossil fuel use, agriculture, livestock, and landfills.
Measuring Sustainability in Supply Chains
ISO 14040 defines Life Cycle Assessment (LCA) as a “technique for assessing the environmental aspects and potential impacts associated with a product by compiling an inventory of relevant inputs and outputs of a product system; evaluating the potential environmental impacts associated with those inputs and outputs; interpreting the results of the inventory analysis and impact assessment phases in relation to the objectives of the study.” LCA has four steps;
1. Goal and scope definition: In this phase, the purpose of the study is clearly specified. The
environmental impact areas of concern are listed. The scope of the study is determined (in terms of the extent of the processes in the life cycle to be considered). 2. Inventory analysis: ISO defines this step as “phase of life cycle assessment involving the compilation and quantification of inputs and outputs for a product throughout its life cycle.” Basically, all the relevant inputs and outputs (emissions) throughout the life cycle of the product system (based on the scope determined in step 1) are quantified and listed. In this step, one needs to make sure that all quantities are consistent in terms of the output quantity needed. 3. Impact Assessment: ISO defines this step as “phase of life cycle assessment aimed at understanding and evaluating the magnitude and significance of the potential environmental impacts for a product system throughout the life cycle of the product.” In this step, one basically converts the quantified input/output data from the previous step to relevant environmental category impact assessments. 4. Interpretation: In this step, the findings from the previous phase are evaluated with respect to the specified goal of the study in order to reach conclusions and deliver recommendations. This step also involves sensitivity and uncertainty analysis to check the robustness of the results arrived.
When we evaluate the climate change impact category using a complete life cycle approach for a product or service, we find the carbon footprint of that product/service.
Carbon foot printing is the activity of measuring greenhouse gas emissions. There are three types of carbon foot printing that differ by scope.
• Organizational: Emissions from all activities across an organization (including building energy use, industrial processes, and the company’s vehicles) are taken into account. • Value chain: It is not limited to an organization’s own operations; it includes the whole supply chain (i.e., emissions from both suppliers and consumers, including product use and end-of-life emissions). • Product footprint: It entails the emissions over the whole life cycle of a given unit of product or service, from the extraction of raw materials and manufacturing to its use and final reuse, recycling, or disposal.
A business may do carbon foot printing due to various reasons:
a. Managing GHG risks and identifying reduction opportunities.
b. Public reporting and participation in voluntary GHG programs. c. Public reporting and participation in voluntary GHG programs.
To do organizational carbon foot printing, a business needs to first define its organizational boundary. To determine the organizational boundary, three different approaches may be used:
1. Equity share approach: In this approach, a business is liable for the GHG emissions from operations in proportion of its share of equity in the operation. 2. Control approach: Based on this framework, all operations the firm has control over lies inside the organizational boundary, and 100% of GHG emissions from these operations are accounted for.
After determining the organizational boundary, a firm needs to classify its GHG emissions with respect to operational boundaries in its reports. A firm classifies its GHG emissions in three groups:
• Scope 1: These are direct GHG emissions from sources that are owned or controlled by the company. • Scope 2: These are the emissions from the generation of purchased electricity or heat consumed by the company. • Scope 3: These are indirect emissions related with the activities of the company. These emissions are consequences of the activities of the focal firm, but occur at sources not owned or controlled by the company.
GHG emissions may be calculated with two different methods depending on the activity that produces the emissions and availability of data.
Energy-based calculations: These calculations determine GHG emissions based on mass balance or theoretical combustion specific to a facility or process. This method may be preferred when there is fuel consumption, either at production sites or in transportation.
Activity-based calculations: These calculations determine GHG emissions from standardized activity information by using conversion factors. These factors are calculated ratios relating GHG emissions to a proxy measure of activity at an emissions source. This method makes use of calculation parameters readily available from sources like GHG Protocol, EPA, and etc.
Operational Aspects of Sustainable Supply Chains
Firms with voluntary commitments to reduce their environmental impact generally adopt green logistics and green inventory management.
Green Logistics
Logistics encompasses the operations/decisions in management of the flow of goods from points of origin to demand points. Green logistics refers to the measurement, analysis, and consequently mitigation of the environmental impact of logistics activities (Blanco & Sheffi, 2017). In some cases, logistics activities also include managing the reverse flow of (used) products to recover, reuse and/or recycle; and hence, are measured accordingly. The environmental issue of concern may be consumption of nonrenewable sources, air emissions, noise, GHG emissions, waste, and etc.
From the climate change perspective, there are five drivers that determine the environmental impact of a transportation activity:
1. Distance: As the total distance covered in transportation increases, associated GHG emissions increase as well. To restrain this factor, a firm may prefer “local” sourcing; i.e., working with suppliers closer in distance. 2. Mode: The mode of transportation is a critical factor that affects the emissions per tone-km. A firm may opt for greener transportation modes (e.g., rail and ocean) as opposed to road or air freight. 3. Equipment: The type of vehicle/equipment used in transportation affects the emission load as well. A firm may upgrade to high-technology equipment to reduce its total carbon emissions in transportation. 4. Load: The emissions generated per km increases with the load of a vehicle. However, emissions per unit product decreases as the utilization of the vehicle increases. A firm that does transportation by truck may reduce its GHG emissions if it avoids less- than-truckload (LTL) shipping and does full truckload shipping. 5. Operation: The logistics plan itself makes a big difference. The route taken in visiting the location(s) in terms of sequence and traffic congestion on-route and the vehicle speed affect the environmental performance.
Green Inventory Management
Green inventory management deals with not only from an economic perspective, but with consideration of the environmental impacts as well. Most common environmental issues of concern in green inventory management are emissions of greenhouse gases, other harmful gases, and particles.
GHG emissions associated with operating an inventory system may be classified into three groups: (1) emissions associated with holding/ storing items, (2) emissions associated with not satisfying customer demand on time, and (3) emissions associated with ordering (i.e., producing and transporting) items. The extent of these emissions
depends on the characteristics of the supply chain and the These are also followed by the goal of reducing the energy inventory system. intensity in the chain; i.e., reduce the total energy consumed over the life cycle of a product. Based on this, In terms of generalized recommendations, World one would expect closed-loop supply chains to perform Economic Forum (2009) highlighted three opportunities better from a climate change perspective as well. that offer the highest potential for GHG emission However, this conclusion is not so straightforward, and reduction in supply chains: CLSC operations need to be analyzed in detail. 1. Clean vehicle technologies: Upgrade to high- efficiency vehicles, switch to vehicles with alternative of hybrid fuel technology sources 2. Despeeding the supply chain: Decrease the speed in road vehicles and ships, opt for high vehicle utilization with less-responsive replenishment (relaxed time windows) 3. Optimized (supply chain) networks: Update the supply network nodes (production sources and distribution/storage points) and the transport flows between them.
In addition to these, the other major initiatives discussed include low-carbon sourcing (sourcing from a low-carbon manufacturer or supplier), switching to greener modes of transportation, converting to energy-efficient buildings, and reducing the weight and volume of packaging.
Closed-Loop Supply Chains and Sustainability
A closed-loop supply chain (CLSC) represents a series of processes and flows aimed at some form of reuse and recovery of products and materials. By definition, a closed-loop supply chain includes a reverse/reuse chain in addition to the typical forward supply chain. Figure 8.4 contains the diagram of a typical closed-loop supply chain.
Though 100% recovery is not feasible with the current technology, a closed-loop supply chain converts what was previously a stream of waste into profitable reuse. Thus, a CLSC perspective aims to maximize value creation over the entire life cycle of a product.
Products collected at a closed-loop supply chain offer different opportunities for recovery and reuse. One of them is recycling, which recovers value at the materials reprocessing phase and contributes value to earlier stages in the forward supply chain. The other opportunity is remanufacturing (or refurbishing), which recovers value at the component or product reprocessing phases. Remanufacturing is a comprehensive industrial process where a previously used, worn, or non-functional product or component is returned to a “like-new” condition to be resold. It entails disassembling the collected product, replacing any broken or unusable component and remaining defects, and repackaging the product for resale. The unused parts or components may still be routed to recycling.
Primary environmental motivations behind the transition to closed-loop supply chains are (1) preservation of natural material resources, and (2) removal of hazardous substances from landfills that may damage the environmental and human health (i.e., reduce toxicity).