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Supplier selection is an important criterion for any industry which is operating either as medium scale or large scale. Supplier is an entity which provides raw materials, semi-finished or even finished goods to an industry for carrying out further operations and assembling the final product. For example: in the case of a cement industry they will have suppliers for raw materials such as lime stone etc., and in the case of a car manufacturing company they will have Original equipment manufacturers as their suppliers. This supplier selection is a part of the supply chain management. The supply chain management is nothing but the management of all the movements and storage of raw materials, semi-finished goods and finished goods starting from the suppliers to the end customers.
2. Supplier selection
Supplier selection is the process of selecting the right supplier to deal with the company or organisation. The quality of the end product depends also on the quality in which the supplier delivers it. Hence the supplier also has an important role in adding value to the supply chain. This is why the companies are more focussed on their supplier selection based on their core process requirement and pre-established set of standard criteria. Maintaining good supplier relationship is another focus area. The trend in this area is the supplier partnership which increases the loyalty of the suppliers and also gives a sense of belongingness to the suppliers with the company.
2.1 Traditional supplier selection criteria
Any company will desire to work with a continuously improving supplier who has strong manufacturing processes and effective development program for their workforce. Some fundamental criteria for supplier selection are:
Particular process capabilities
Strong safety process
Continuous quality improvement
Financially sound organisation
2.2 New trends in supplier selection
Today the business processes and companies are becoming more dynamic. The stakeholders for any company include government, customers, suppliers and competitors. These stakeholders are increasingly showing more concern towards technology, public and environment.
Tendency of organization to integrate their supply chains in an attempt to reduce costs and be able to better serve their customers and changes in environmental requirements and public pressure on organizations have become a new trends in the business world. These trends together provide an opportunity to exceed environmental expectation of governments and customers through supply chain collaboration; these include an ability to see supply chain members' commitment to Environmental Friendly Practices. (Walton 1998)
There has been an increasing concern for sustainable economic development all over the world. Governments are trying to adjust legislations and social pressure through individual activists, nongovernmental organizations, and international institutions is also growing to express public mandate against the negative impacts of business activities on environment. Internally, the need to improve organizational efficiency, reduce waste, overcome supply chain risk, and achieve competitive position has made companies to start considering environmental issues from a competitive view point. (Humphreys 2003)
3. Green trends in supplier selection
As the importance for environmental concerns are increasing in the world, the companies are trying to reduce their negative impact on the ecological system. They are taking initiatives from all the spheres of the business organisation to position them as a greener organisation in the competitive business arena. Green supplier selection is one among those initiatives.
3.1 Reactive and proactive approach
The green supplier selection is integrating environmental criteria in the process of supplier selection. The companies may be either proactive or active to this green trend. Companies with reactive responses tend to incline towards the green trends only when there is some compulsion from government and also to avoid penalties. Whereas companies with proactive responses basically believe that concern for environment goes hand in hand with the company's quality and sustainability. Hence only those companies with the proactive response can be more innovative in implementing green trends. Also, the more engaged the parties in the supply chain are the bigger is the range and quality of environmental performance outcomes; organizations that are closely collaborating can make the most from a proactive approach to environmental management.
Techniques followed by a company with reactive response:
Reduction of pollutants emitted into the air instead of pollutant produced.
Inclusion of basic environmental clauses into purchasing contracts to seek compliance to regulations.
Use of established international environmental standards like ISO 14001.
Techniques followed by a company with proactive response:
Closed loop supply chain
Total Quality Environment Management in planning and operations and Product Life Cycle Cost Analysis
Total Quality Environment Management is applied for both products and for processes
4. Impact of purchasing
Purchasing can impact many areas including Materials used in product design, Product design processes, Supplier processes, Supplier evaluation and selection, Materials delivery. Having seen the significance of collaborative supply chain and centralized purchasing in environmental management performance it is now obvious that deciding which suppliers to collaborate with and how to select suppliers is a very crucial decision for the organization performance. Incorporation of objective environmental criteria in the evaluation systems will ensure higher environmental performance in the collaborative supply chains. (Humphreys 2003)
5. Green supplier selection criteria
Green supplier selection criteria may be developed with intent of focusing on meeting government regulations, focusing on process improvement, and focusing on buying company's environmental policy. P.K Humphreys has categorized the green criteria into two groups of Qualitative and Quantitative Criteria. Depending on whether an organization is using a reactive or proactive environmental management strategy, one or both groups of criteria may be used at the same time.
5.1 Quantitative environmental criteria:
These criteria are based on the cost in monetary terms. A potential supplier may incur costs investing in environmental management of its processes or it may be a source of environmental costs because of its destructive processes.
• Pollutant costs/effects: Representing environmental costs caused by a potential supplier.
• Improvement cost: Represent the degree of commitment the supplier has in environmental management.
5.2 Qualitative environmental criteria:
These are more subjective criteria and their application depends on the weight given to each one depending on its importance to the organization or industry and total points score obtained on the bases of the measured parameters.
• Management competences
• Green image
• Design for Environment (DFE)
• Environment Management Systems
• Environment competencies (Humphreys 2003)
6. Case study
6.1 Wal-mart stores packaging scorecard
Wal-Mart is an organisation which brought about awareness by establishing a goal to introduce green trends by reducing the packaging used by suppliers by about 5% by the year 2013. In order to achieve this goal, Wal-Mart Stores by the year 2006 announced that they will be following an innovative scorecard system for the suppliers to rank their use of packaging materials. (www.walmartstores.com n.d.)
Scores categories include:
Greenhouse gas emissions produced per ton of packaging,
Raw material use,
Material recovery value,
Renewable energy use,
The Wal-Mart is making purchasing decisions based on this scorecard's results starting from 2008.
Thus Wal-Mart is a perfect example for a proactive organisation with interest in going green. This has made them to integrate the green trends in their supply chain.
Green trends are the need of the hour to strike a balance in our ecological system. Every business organisation should be more proactive in implementing these environmental management techniques in each and every stage of their business process. The top management's commitment is what more important and essential in the implementation of green trends. The supply chain should be integrated with the environmental management techniques in order to move beyond environmental compliance to achieve a proactive environmentally-friendly supply chain.