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Supply Chain Performance in a Green Context

Supply Chain Performance in a Green Context. IFC Event – Can Green & Lean Go Together? Washington, DC – December 13 th , 2010. Agenda. 1. Framing the Challenge. 2. The Green Context of Supply Chain Operations. 3. How New SCM Practices Can Enable the Green Trend. 4.

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Supply Chain Performance in a Green Context

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  1. Supply Chain Performance in a Green Context IFC Event – Can Green & Lean Go Together? Washington, DC – December 13th, 2010

  2. Agenda 1 Framing the Challenge 2 The Green Context of Supply Chain Operations 3 How New SCM Practices Can Enable the Green Trend 4 Framing a Comprehensive Green SCM Strategy

  3. First off, The Field of SCM is Highly Difficult to OptimizeThe Uncanny Resemblance with Chaos Theory Complex systems consist of a large number of elements. The elements have to interact and this interaction must be dynamic. The Interaction is fairly rich, i.e. any element in the system influences, and is influenced by, quite a few other ones. Firstly, the interactions are non-linear. The interactions usually have a fairly short range, i.e. information is received primarily from immediate neighbours. There are loops in the interaction. Complex systems are usually open systems, i.e. they interact with their environment. Complex system operate under conditions far from equilibrium. Complex systems have a history. Not only do they evolve through time, but their past is co-responsible for their present behaviour. Each element in the system is ignorant of the behaviour of the system as a whole.

  4. … and In addition to Its Inherent ComplexityOptimizing SCM requires Collaboration; Are We Wired for It? The Idea: Unlike ants and bees, humans aren't hard-wired for cooperation; we tend to act out of self-interest. That inclination repeatedly draws us into "social dilemmas" where, in an attempt to gain more for ourselves, we ultimately fare worse than we would have by cooperating. The evidence: The trick is to establish an agreement where everyone's self-interest is best served by cooperating. That means removing incentives to violate the agreement. The Conclusion: Businesses are nothing but federations of human beings. We think we’re different and unique and we behave in ways that protect and promote that uniqueness.We need to overcome some innate apprehensions to build a winning green value proposition for key supply chain partners http://www.newsweek.com/id/170380

  5. Why is Supply Chain Management a Good Starting Point? 60% Source – http://www.eia.doe.gov/emeu/aer/pdf/aer.pdf

  6. … and yet, the Green SCM Revolution Remains Elusive Fortune 500 0 22 # of Fortune 500 companies that have initiated some Green SCM strategy # of Fortune 500 companies that have approached this with their trading partners January2010

  7. There Are Some Good Signs, Though…

  8. Achieving this Paradigm ShiftRequires a Perception Change of CO2 as a Decision Variable Carbon in the Business Environment Needs to be De-Mystified Introducing Carbon as the 8th Muda 1 2 3 4 Defects Inventory Waiting Excess Motion 5 6 7 8 Over Production Over Processing Transportation CO2 / GHG

  9. Agenda 1 Framing the Challenge 2 The Green Context of Supply Chain Operations 3 How New SCM Practices Can Enable the Green Trend 4 Framing a Comprehensive Green SCM Strategy

  10. Where is the Carbon in the Supply Chain? Customers & Channels Everywhere! Supply Chain activities create significant carbon emissions, making supply chain an important focus for clients seeking to reduce their carbon footprint Suppliers & Manufacturers Flows: Product, Process, Information, Cash Design Plan Source Make Deliver Service & End-of-Life SC Strategy Procurement Integrated Ops Logistics Integrated Ops PLM • Design for the Environment • Carbon footprint thinking throughout product lifecycle design • How can the total network be optimized considering service, cost, “green” tradeoffs • What CO2 impact is there from various inventory concepts & planning methodologies • How can we best measure a supplier’s carbon impact (product, packaging, upstream logistics) and ultimately compliance with carbon reduction requirement? • How should we evaluate carbon offsets? • What operations strategy (facility location, operating model) provides the best trade-off between cost, service, carbon? • Is there a role for sustainable factory / facility mgmt? • What distribution network strategy (facility locations, sizes, transport modes) provides the best tradeoff of cost, service and carbon? • How can packaging be reduced and recycled? • How can field service operations reduce carbon footprint with better routing and parts inventory tracking? • Feedback loop to engineering to reduce impact • Various strategies to reduce impact throughout lifecycle Asset Management Sustainable facilities management: Green building & renewable energy; carbon footprint asset management; Asset utilization (Real-time data on energy usage; Carbon dashboard) Finance Paperwork Reduction; Environmental Cost Accounting; Environmental Tax Benefits Tracking

  11. $ ABC $ Classic Value Equation = Least Production Cost despite the Transportation Cost $ ABC $ $ On the Need to Embed CO2 as a New Operational VariableExhibit 1 – Procurement Strategy Scenario ABC, Inc Mexico China Unit Cost Volume Carbon Impact Distance New “Green” Value Equation = Actual Cost (Production + Transportation) + Corresponding Carbon Cost

  12. On the Need to Embed CO2 as a New Operational VariableExhibit 2 – BOM and Routing in a CO2-Constrained SC

  13. On the Need to Embed CO2 as a New Operational VariableExhibit 3 – Planning ‘Noise’ & GHG Responsibility A Value Chain Network View Leverage – + Prevailing View Our View What is a fabless company Carbon Footprint? What is its environmental responsibility?

  14. Noise in the Supply Chain is Neither Lean nor GreenThe Carbon Reverse Bullwhip Effect Extended Supply Chain View Suppliers Plants Retailers End Customers InventoryProduced Carbon Produced Caron Buildup Process Classic Bullwhip Effect Amount of Inventory Inefficiencies Amount of Carbon Inefficiencies True Customer Demand

  15. On the Need to Embed CO2 as a New Operational VariableExhibit 4 – The Elusive SCM Cost Breakdown Quality Costs Intangible Costs Obsolescence Exposure Green Cost The “Fictitious” Border between Tangible & Intangible Costs Logistics Costs Supply Chain Cost Drivers Manufacturing Costs Tangible Costs Material Cost Labor Cost Cost Drivers Hypothetic Dependency of Network Structure, Logistics Cots & Oil Price Source – Gross, W. and Hayden, C. – Oil Price Impact on Logistics Network Structure – a Model-Based Approach Proceedings of the International Workshop on Applied Modeling & Simulation May 5-7, 2010 – Buzios, Rio de Janeiro, Brazil

  16. Which Leads Us to Some Interesting Observations Observation # 1 • Local and Regional Models need to be encouraged (less carbon footprint and less inventory as a result of reduced lead times) Local Model Global Model Regional Model Observation # 2 ECX • Proliferation of CO2 trading platforms will delay properly tackling the problem • Carbon trading should be approached as a global commodity AP CCX OCE

  17. Agenda 1 Framing the Challenge 2 The Green Context of Supply Chain Operations 3 How New SCM Practices Can Enable the Green Trend 4 Framing a Comprehensive Green SCM Strategy

  18. Green Supply Chain ManagementValue of a Network Approach BOM Analysis Reverse Operations Tier2+ Partner Selection Channel / Distribution • Energy • Embodied Energy • GHG Regulatory $ Impact • Processing • Manufacturing process • Quality control • Processing • Repair / refurbishment process • Shipment process • Quality control • Processing • Order fulfillment • Shipment process • QC process • Organizational management process • Transportation • Modes • Shipment frequency • Load consolidation • Carrier routing • Supply • Substitutable components • Sourcing choices • Location choices • Packaging • Package size options • Package recycling options • Corrugated box • Inventory policy • Safety stocks • Lot sizes • Replenishment VMI/VMR

  19. Green Supply Chain ManagementImplementing a Network Approach Automate Compliance Data Collection Sustainability & SC Integration Associate compliance to Orders & Inventory Provide performance KPI’s to customers

  20. Agenda 1 Framing the Challenge 2 The Green Context of Supply Chain Operations 3 How New SCM Practices Can Enable the Green Trend 4 Framing a Comprehensive Green SCM Strategy

  21. 12 Ideas to Make Your Supply Chain Greener

  22. Exploring the Ideas Redesign the product Reconfigure Manufacturing Shift to Green Suppliers Shorten Distances Alter service-level agreements Shrink packaging

  23. Exploring the Ideas (continued) Plan for reverse supply chain activity Consolidate shipments Plan smaller routes Coordinate with partners Take a life-cycle view Start now: define a green strategy

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