Green Supply Chainadmin / January 30, 2019
Global warming and other ills that have threatened our environment have put many consumers on alert. It is increasingly becoming more common for consumers to begin questioning whether they are contributing to the sustainability of a green environment.
By so doing, more and more consumers are purchasing products from manufacturers who have lowered emissions and have a ‘green’ policy. Green supply chain management is one way of reducing a company’s carbon footprint and enabling it to lower its harmful impact on the environment (Thayer, 1998).
It involves evaluation of the purchasing, planning, shipping and distribution of the company’s products in a manner that is environmentally friendly. Though most executives may frown on the idea that they have to depart from the norm, green supply chain is increasingly being shown to actually lower costs and improve the company’s profits (Murray, 2010).
Green supply chain management has come out as a forerunner in the new styles of environmental-friendly management. It has now been shown that companies that have adopted the practice are enjoying cost savings through reduction of the environmental impact of their operational processes. These savings are coming mostly from the use of greener raw materials and recycled products in manufacturing which are actually cheaper than the ordinary materials (Murray, 2010).
However, there has been sluggishness by many business executives to act on the environment even with the public’s focus on environmental conservation.
Quite clearly, the benefits of reducing a company’s environmental impact have not reached these company executives. Most of America’s executives are still in the dark on the fact that improved environmental performance leads to lower waste-disposal and other training costs, fewer environmental licensing (permitting) fees, and reduced materials costs due to recycling (Mc Daniel et al. 2000).
With more public pressure on these corporations and the branding of consumer goods that are environmental friendly, business executives will have to eventually open up to green supply chain management. This is not only good for their firms but also good for the world upon which they owe certain responsibilities to.
Success stories from firms that have already embraced green chain management will also boost confidence in this style of management. However, consumers have to be on the lookout for greenwashing which is the false exaggeration of a company’s green environment policy so as to attract publicity (Murray, 2010).
Overview of Green supply chain management, cost and benefits
It is become common for companies to change their supply chains and how they are managed. This practice is leading to better customer-supplier alliances that are improving trade techniques. Now we are seeing suppliers who are directly replenishing most of their customer’s inventory.
This form of directness in supply chains is enabling companies to beat transaction costs, decrease the levels of product obsolescence, reduce unnecessary bulk inventory levels, trigger quicker market reaction and increase sensitivity to customer needs and preferences (McDaniel et al, 2000).
Materials management, which refers to the overall management of processes through which raw materials are purchased, produced at factory level, shipped, warehoused and eventually distributed as finished goods, is becoming the key concern in supply chain management. This is because it is only through the monitoring of these processes that a company can properly ascertain its carbon footprint and level of greenhouse gas emissions. It thus goes without saying that materials management is a key component in green supply chain management.
McDaniel et al, (2000) state that there are various ways through which managers can improve materials management so as to achieve a green and effective supply chain. However, they must first understand how most of their decisions impact the processes of purchasing, handling, storage and recovery of assets.
The second part involves logistics which refers to the totality of activities from the acquisition of raw materials to the final distribution of products to their retail points within required time and in the required specifications.
Managers can improve greatly their performance by cooperating with the suppliers, shipping lines, distributors and finally consumers so as to achieve efficiency in supply chain management. Increasingly, companies are assessing their environmental impact and reducing emissions through careful evaluation of the supply chain.
In turn, they have become competitive, reduced product obsolescence, improved waste maintenance, repaired and operated more efficiently on materials through better inventory management, lowered training costs, decreased overall material costs and improved safety through reduced use of hazardous components (Murray, 2010).
Companies that have incorporated green supply chain and realized better financial results include;
General Motors which saved $ 12 million through a reusable container system in their production
The electric company Commonwealth Edison which made $ 25 million extra through improved resource utilization
Andersen Corporation which realized a 50% increase in returns through improved waste management systems
The Public Service, Electric & Gas Company that saved $ 2 million through better inventory management leading to avoidance of product obsolescence (McDaniel et al, 2000).
The above are just but a few of the many success stories in green supply chain management. Other huge benefits are being realized by companies that deal in hazardous chemicals. These companies are now implementing what are known as chemical service programs where they are outsourcing responsibilities such as chemical waste management, inventory management and training of hazardous chemical handlers (Votta, et al. 1998).
The benefits of these programs are gargantuan as the costs of chemical handling usually goes as high as 1500% of the cost of purchase. We can therefore see that green supply chain management is a win-win for every company (Bierma, & Waterstraat, 1997).
The four step approach
This approach fronted by McDaniel et al (2000) involves the four stages in green supply chain management which include; identifying costs, determining opportunities, calculating benefits and finally implementation and monitoring. The approach is adopted from the various companies that have realized success in improved environmental accountability. It involves;
1. Identifying Costs
The pressure being piled on a company to be environmental conscious is huge. This pressure is affecting company executives regardless of industry and is mainly from competitors, customers, and other financial stakeholders.
The first step to bring about efficiency improvements is to initially review the firm’s materials management practices so as to identify activities that bring about the most environmental costs. These kinds of evaluations shape the course of future company decisions help in ensuring that company resources are well utilized.
The business organization is then supposed to study its waste streams since this is an area that brings about huge environmental costs. Any findings should lead to the organization attaching costs to these wastes and activities. The most common approaches in the identifying of environmental costs are materials tracking and Environmental health and safety (EH&S) reviews.
Materials’ tracking refers to the assessment of the quantity, location and reasons for the use of a certain product or its incorporation in the production process and its channeling into the company’s waste streams.
Process maps are the most common application that accompanies materials tracking. Process mapping is an exercise whereby the production steps that are closely associated with or often required by a specific materials management process are put into visual diagrams. An example is where a materials tracking team analyzes the steps necessary in the reception, storage, handling and disposal of a specified volume of a regulated material used in production. Materials tracking have been shown to highlight enormous material losses and to unravel unexpected waste streams.
EH&S reviews are another way of identifying environmental costs of processes that lead to waste and pollution thus posing health and safety risks. These reviews involve the interviewing of operations personnel, thorough observation of the day-to-day operational practices and finally the assessment of available accounting and manufacturing records of the company.
After identifying costs through materials tracking, EH&S reviews or any other ascertained method, the next step involves the conducting of an activity-based type of costing analysis so as to apportion revealed costs to their causative activities. This is done by creating a list of already associated environmental costs for each of the activities. This way, a visual diagram is plotted that depicts the various activities that are producing a negative environmental impact.
2. Determine Opportunities
Once a firm has identified the various activities bringing about negative environmental results, the next part in the four-stage approach is to attempt to identify the areas that have the highest priority in terms of need for improvement. Since at this stage an evaluation has been done, the challenge that remains is to discern the highest value opportunities from the information collected.
There are two procedures that enable the firm’s managers to analyze the costs and activities from information obtained in the identification stage.
The first is the use of Pareto diagrams and bar charts so as to depict environmental costs from the supply chain activity and to classify areas with opportunity by value realized if implemented. The second method involves the identification of root causes of waste through the construction of cause and effect diagrams or by questioning the efficacy of certain procedures.
Upon the completion of these procedures, solutions to the problems found sometimes become apparent. However, where this is not the case, other methods for identifying applicable solutions include; Interviewing operations staff so as to understand the potential opportunities or likely barriers to change, Approaching the suppliers of the main raw materials and requesting their support in the lowering of costs to reduce negative environmental impacts (this might help because some suppliers may have already developed supply chain expertise internally), Reviewing other successful companies in the industry to see the measures they adopted and finally, Adopting the recommended practices of the various public institutions and trade associations.
3. Calculating benefits
At this stage, some high-priority alternatives have been established, the exercise of computing benefits likely to accrue from the various options is the next step.
A good approach to this calculation process is the conducting of several quantitative evaluations based on empirical data. Most firms opt for two specific approaches; the Internal Rate of Return (IRR) and the Economic Order Quantity computation.
Another approach is a qualitative analysis usually based on judgment and observation of the manager. These kinds of evaluations give valuable insights especially when reliable data is not available and the quantification technique would be time and resource consuming.
However, most firms opt for both qualitative and quantitative analyses. Thus, environmental costs are quantified within a projected budget where possible and qualitatively evaluated otherwise.
4. Implementation and monitoring
Upon the estimation of the required environmental improvements, it becomes necessary to implement changes and monitor the progress at which the said changes add value to the firm. The making of the decision to approach a certain aspect of management is perhaps the most important stage and the approach to such a decision often varies from company to company. A good decision is one that would improve performance while bringing in superb benefits and cost reductions.
Once the decision is made by the relevant authority, it logical that implementation has to follow. Usually, this is the most effective part of any plan but it is also where most plans fail.
Implementation needs the dedication of all managers and employees. It might also be crucial to involve suppliers and consumers so as to uplift the company’s profile. Good implementation also involves constant monitoring of progress so as to find out whether the plans are achieving intended results.
It is quite clear that applying green supply chain management has no negative results except the usual glitches that come with change. Other hidden benefits may be unlocked such as improved employee morale due to working in safer conditions and profits from public endorsements.
All in all, benefits or no benefits, the need for companies to take up responsibility for the environment is mandatory. This is because the same companies are the top producers of greenhouse gases and other poisonous emissions. With continued pressure from consumers and competitors, more and more companies will have to adopt this kind of management so as to keep afloat.
Bierma, T.J & Waterstraat, F.L (1997). Chemical Management: Reducing Waste and Cost through Innovative Chemical Supply Strategies. New York: John Wiley & Sons, Inc
Mc Daniel, J.S., Fiksel, J. & McLaughlin, S. (2000). The Lean and Green Supply Chain: A Practical Guide for Materials Managers and Supply Chain Managers to Reduce Costs and Improve Environmental Performance. New York: Environmental Protection Agency.
Murray, M (2010). Green Supply Chain. Retrieved on 18 October, 2010, from:
Thayer, A. (1998). “Supply-Chain Management,” Chemical &Engineering News. Washington DC: CEN Ed.
Votta, T., Broe, R., Kauffman, J., Jill, A. &White A. (1998). “Using Environmental Accounting to Green Chemical Supplier Contracts,” Pollution Prevention Review. Chicago: Chandler House