Admittedly, the consciousness of environment has increased for last some decades. More people know about environmental problems in the world, such as global warming, use of toxic substance, and decreasing in non-replenish resources.
Furthermore, the government has let out campaigns to advance this problem on people. Applying the green principles to their company, such as use of environmental friendly raw materials, reducing use of the oil petroleum power, and using recycle papers for packaging. Green principles have been expanded to many departments within the organization, including system of deliveries.
As we know, the Green Supply Chain Management (GSCM) has appeared in the last some years. This idea covers each stage in manufacturing in front to last stage of lifecycle, for example: from the product design to recycle. Not only manufacturing, but also and GSCM can get used also to the other industry sectors, such as a government, education moreover services.
Srivastara (2007) defined GSCM as association of the environment thinking in management by system of deliveries, including the product design, a material sourcing and a choice, productions, delivery of an end- product to consumers, and management the end of a life of a product after its term of useful use.
According to that explanation, GSCM relates to a wide- range of manufacture from product design to reprocess or destroy. This principal is similar to lifecycle of the manufactured goods. The product lifecycle is the idea that goods bypass through the lifecycle, similar to the human, a birth, a maturity, a death.
Moreover, product lifecycle provides degree of structure to life of goods and in that way provides direction for diverse functional efforts required to create and deliver product or service offerings (Magnon, Fawcett, & Birou, 1998). Many studies concentrate on the manufactured goods lifecycle along with system of deliveries or GSCM, for example, (Liao & Stonebraker, 2006) discussed it, the stage lifecycle variables is connected with various measurements of integration of supply chain.
GREEN SUPPLY CHAIN
According to Sean Gilbert (2001), greening the supply chain is the process of incorporating environmental criteria or concerns into organizational purchasing decisions and long-term relationships with suppliers.
Indeed, there are three approaches involved to GSC: environment, strategy and logistics. And, the concept of green productivity (GP) illustrates that for any development approach to be sustainable it needs to have a focus on environment, quality, and profitability, which form triple focus of GP (HWA, 2001).
Working with GSC means to work in the interface of those areas because the GSC is totally linked to environmental protection, which is the main objective of it; strategy because it is formulated long-term decisions and logistics because it approaches procurement, material handling, distribution, storage, material recovery and disposition.
Figure 1: Approaches of Green Supply Chain.
Though some companies did not note the benefits from environmental management systems (EMS); the market will push them to improve their environmental performance. (Sarkis, 2003) says that private organizations such as Hewlett-Packard, IBM, Xerox, and Digital Equipment Corporation have introduced some form of initiative for greening their supply chains including the integration of suppliers, distributors, and reclamation facilities. Organizations are including environmental issues in their negotiation with suppliers to maintain their market share and sometimes to even just to survive (HWA, 2001).
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(Gilbert, 2001) supports the idea of two types of categories of initiatives to stimulate the greening supply chain. The first involves improving coordination with supplier on environmental efforts to facilitate the development of greener or more environmentally friendly products. The second type is demanding improved environmental performance at supplier’s operating facilities, such as requiring supplier to obtain ISO 14000 certification or achieve a set standard of performance.
Finally, it is very likely that one producer, which one might be the end producer, in a supply chain starts to require better environmental performance of its suppliers to attend its customer’s desires through the supply chain that it is inserted.
The end producer has usually higher profit margin in the supply chain, so it is frequently certified firstly. The other point that indicates the desire of the end producer to start a GSC is because of its direct contact with customers. Other small and medium companies that make part of the supply chain do have only an indirect contact, and then they do suffer less pressure for good environmental performance from public opinion. In the same level, raw material enterprises do not act as early as the end producers.
For Gilbert (2001), supply chain greening initiatives have benefits on the level of the individual firm as well as on the national level, because for individual firms, supply chain greening programs bring distinct competitive advantages in terms of lower costs, greener products, and better integration with suppliers.
Beyond that, on the national level, greening of supply chain can stimulate markets for green products, while also creating incentives for small and medium sized-enterprises (SMEs) to adopt better environmental practices. In addition to lowering costs, Gilbert (2001) still cites that the GSC can also open new markets for companies.
Problems for greening supply chains are the reduction of flexibility by the use of fewer suppliers and organization’s culture. The former is not exactly a GSC problem. It is a market phenomenon to simplify the supply chain management.
The latter is more complex because GSC involves the transference of knowledge, technology and environmental practices through the supply chain. It is necessary to choose a supplier and involve it into a program with training and integrate the same environmental philosophy in the whole chain.
Green Supply Chain Framework
Diamond Management & Technology Consultants developed a useful framework 23 that provides a structured approach that includes several of the necessary dimensions to plan and implement a successful green supply chain agenda.
Figure 2: Green Supply Chain.
In this framework, key to extracting business value lies within establishing the long-term green supply chain plan that aligned with corporate strategy and approached top-down with strong sponsorship. It also requires a strong business case for the green supply chain that highlights a prioritized catalog of targeted opportunities and a phased adoption roadmap. Finally, the initiatives need to be incorporated with other company wide projects to ensure that one does not compromise another.
In order to effectively implement a Green Supply Chain, the strategy should be embedded in the company’s Supply Chain and Operations organization, as well as part of Marketing and Sales. Corporate Communications have to connected with sustainability initiatives to guarantee, that initiative influence is informed clients, shareholders, and general public.
WHY CHANGE TO GREEN SUPPLY CHAIN MANAGEMENT?
There are various factors of motivation for the companies to switch on “green” in their supply chain. Although some of the motivators are quite unclear, Wu and Dunn (1995) suggests that some organizations are simply doing this because it is the correct thing to do for the environment.
Perhaps some are more radical to environmental change, but others may not (Wu & Dunn, 1995). Studies, however, have shown that profitability and cost reduction are some of the main motivators for businesses to become “green” in the supply chain (Srivastava & Srivastava, 2006; Srivastava, 2007; Darnall et al., 2008).
Johnson (1998) argues that reverse logistics were motivated primarily by economic factors and does not concern about protecting the eco-system. Tibben- Lembke (2002) and Van Hock and Erasmus (2000) suggest that reverse logistics can only bring about profitability, reduction of waste and, advertising. Zhu and Sarkis (2004) took this idea further and argued that majority of the companies participated in the GSCM, and all agreed that GSCM practices are only about win-win relationships on environmental and economic performance.
The companies, however, need to acknowledge that there are hidden values to reverse logistics (Mollenkopf & Closs, 2005). Jayaraman and Luo (2007) claims that customers, on average, return approximately 6% of the products which they buy. These products can be from plastic bottles to boxes. The organizations are able to cost-save if they can capture this 6% return from the consumers. Doing this, however, still remains in question.
Furthermore, Srivastava and Srivastava (2006) suggested a model to manage product returns. The study utilized average-life cycle of product data; past sales forecast demands to support their analysis. Semi-structured interviews to 84 stakeholders were used to triangulate the findings of the model.
Obviously, the findings shows that reverse logistics can cost-save only if done correctly. Saying this means that organizations must have a core vision to encourage Environmental Management before going any further to green logistics.
BENEFITS OF THE GREEN SUPPLY CHAIN MANAGEMENT (GSCM)
Speaking of greening the supply chain, it would be possible to think; only forbidding poisonous uses of chemical substance or reducing issue or waste to environment. However, it is much more than only simple reducing use and pollution.
Consequently, benefits are not limited only less poisonous consumption or less waste. Principles of the GSCM are able to be applied to all sectors in the organization. GSCM’s effects extend to all area, both tangibly and intangibly.
Although, some researches mentioned the benefits of adopting the GSCM, such as (Stevels, 2002). He explained the GSCM’s benefits in different roles of distribution, consist of environment and a society in terms of various categories: material, immaterial, and emotion.
For material the GSCM assists lower environmental load used for environment, lower rate prices for the supplier to price for the producer lower, lower cost of ownership for client, and less consumption of resources for the humanity.
In terms of unimportant, GSCM assists overcoming prejudice also cynicism for the environment, less rejects for provider, simpler to manufacture for producer, convenience and an entertainment for the clients, and the best consent for a society.
In Duber-Smith (2005), he defined ten explanations that the company must agree to accept the green: sustainability of resources, target marketing, ethical imperative, competitive and supply chain pressures, product differentiation and competitive advantage, return on investment, adapting to regulation and reducing risk, brand reputation, employee morale, and the lowered costs/increased efficiency.
THE BASIC CONTENT OF GREEN SUPPLY CHAIN MANAGEMENT (GSCM)
So, the content of the green supply chain management is very rich, involving various segments of the supply chain. Its contents include: green design, green materials, evaluation and selection of the green suppliers, green production, green logistics, green packaging, green marketing, and green recycling.
The purpose of “Green” covers the entire product life cycle, rather than partial stages. That includes not only production but also and the delivery of raw materials, product sale, product use, and waste disposal and so on. It requires, that any aspect in a cycle of a life of a product guaranteed them “the green nature”, otherwise, nobody can guarantee, that end-products – environment friendly products.
The Green design is defined, that influence of products on resources and environment, has given complete examination, optimizing design factors, considering in general function of products, quality, a cycle of development and cost to achieve resource consumption at least and the highest environmental friendliness in all aspects of the product life cycle.
Selection of green materials
Green materials – materials with good work of use, consumption of energy, low resource consumption rate, a re- use and not- polluting on the environment throughout the product life cycle. The main concept of green materials includes the advanced nature of a material directly, safety of process of production, and reasonableness of the materials use.
Selection of green suppliers
The main factors of choosing suppliers are: product quality, price, delivery time, volume flexibility, species diversity and environment-friendly and so on. Active suppliers focus on the improvement of environmental processes, green requirements of the supplier’s products. The purpose is to reduce material use and minimize waste production.
In accordance with reality of the manufacturing system, green production plan and adopt the production technology program and process route with fewer resources and energy consumption, little environmental pollution as far as possible. The standards to reach green manufacturing include no potential safety problems, no health threats on the operators and product users, not the environmental pollution, waste recycling, waste disposal during the production process as much as possible.
Green logistics is defined as assessment of the negative impact on environment in the process of transport, storage, handling, packaging, distribution processing. Evaluation indicators are as follows:
Transportation negative impact on the environment is mainly expressed in transport fuel consumption, harmful gases emissions and others.
In the process of storage, whether it causes pollution and destruction for the surrounding environment.
Whether there is noise pollution such as removal process.
After consumers bought products, their packages are not generally useful. If arbitrary discarded, that causes both the environment pollution and waste of packaging material. Green packaging is mainly the implementation of green packaging design, optimization of the packaging structure, and reduction of packaging materials, packaging materials recycling, treatment and recycling and so on.
Green management is implemented during the product marketing. And it requires enterprises safeguard the ecological balance and take the green philosophy of environmental protection as guide throughout the marketing process from market research, product development, and product pricing to promotional activities, which make the development of enterprises in line with consumers’ benefits, social benefits.
Green recycling is an important part of the green supply chain management. After the end of product life cycle, if there is no the recovery treatment, it will be resources waste and lead to environmental pollution. After the end of product life cycle, there have a wide variety of treatment programs. The cost of various treatment programs and the value of recovery are different.
WHAT DRIVE COMPANY TO ADOPT GSCM?
Actually, there is a considerable quantity of the government agencies operating a line of the guide in the world, regulation and the law. Some agencies are federal the government while some consult only in local area. These agencies and the organizations are responsible either for similar or for various problems, such as pollution, a product material, and the chemical waste.
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Consequently, different manufacturing may be controlled by special regulation depended on the industry characteristics with resources needed. One example of the government agency is Environmental Protection Agency (EPA). The EPA is a government organization established to protect human health and the environment. One of their duties is to develop and enforce regulations that implement environmental laws enacted by Congress (U.S. Environmental Protection Agency, 2007). EPA was a main agency referred in most study related to environment.
An example of environmental guide line is International Organization on Standardization (ISO) 1400 series. The ISO 14000 was formally adopted in 1996 by the ISO. It represents a new standard and approach to improved environmental performance (Montabon, Melnyk, Sroufe, & Calantone, 2000). Results from their study showed that the ISO 14000 series can positively impact both performance of the environmental management system and overall corporate performance. It ensures that the company is well organized in the environmental field. However, ISO 14000 certification is no guarantee that such improvements are really delivered (Stevels, 2002).
Market and Competitor
In today’s business world, the competitive among company is very high. To make customer impress, the company needs to make themselves standing out from others. Being environmental friendly is one way to differentiate them from the competitors.
Furthermore, when competitors have already accepted GSCM, company receives the pressure instead. Therefore, it is good ideas to carry out GSCM irrespective of, competitors have accepted it or not. Not only competitors, but also do affect of clients to the company decision to accept GSCM. In many cases clients were that who demands special processing or special products.
As a result, the company needs to make changes to make them satisfy and stay with them. Some papers studied about the relationship between applying GSCM with customer’s requirement such as (Simpson, Power, & Samson, 2007). In this research they investigated the reduced influence of relations between clients both its suppliers and efficiency of ecological requirements of clients.
Also, there are other reasons, such as efficiency of increase, eliminate expenditure and pollution, and make reputation of mark. In terms of human resources, in Duber- Smith (2005), he mentioned, that more stability increases morals of the employee from some green programs, such as programs of good health, ergonomic environment of work.
Moreover, there are some studies about factors or benefits which force the company to apply GSCM. In the Chinese industry, (Zhu & Sarkis, The Moderating Effects of Institutional Pressures on Emergent Green Supply Chain Practices and a Performance, 2007) developed the review to 341 Chinese manufacturer to investigate relations between practice GSCM, environmental and economic concert, including 3 decreased markets of factors regulating, and the competitive established pressure.
Evidently, results have shown that they have tested increasing environmental pressure to carry out methods GSCM. The market and the governmental pressure through regulation influenced them to improve environmental performance. Other research of this kind of study (Hu and Hsu, 2006). They develop a number of critical factors of methods GSCM which could be used by managers.
Implementation of Green
From a product lifecycle the concept, a cycle begins at product designing. According to (Srivastara, 2007), the literatures related with the green design; underline both environmentally conscious project and the analysis of a cycle of a life.
In designing of a product the designing group can change raw materials or the substances used during producing to be less poisonous, more ecological friendly. Some terminology is connected to plan for green, such as the plan for environment or EcoDesign. As an example of a green product – the hybrid car.
Because of the increasing requirement and reducing amount of petroleum, automobile manufacturers should redesign the engine which does not consume any or less gas. The hybrid cars have been developing from day to day. One article about the automobile design (McAuley, 2003), the author discussed the green plan of the car which tend to change on the advanced easy materials and less materials in the vehicle design.
In designing of a product the firm- manufacturer requires high level of cooperation with their suppliers. As an example for research concerning cooperation of the supplier- manufacturer in EcoDesign (Stevels, 2002). He also has presented two examples of the successful green supply agenda between the manufacturer and suppliers.
In production, the company can address green via several methods to reduce consumption of a resource and energy. It is where a reuse and recycling are carried. Some papers have provided green methods such as (Duber-Smith, 2005). He has offered some methods, including reduction of consumption of energy, to process and a reuse, using biodegradable and nontoxic materials, to minimize harmful emissions, and to minimize or eliminate waste. In the Chinese sugar manufacturer Group Guitang can reduce spending and improve their financial work at use of waste from upstream as raw materials for located downstream manufacture.
As mentioned earlier, not only the manufacturer, other roles of system of deliveries has received influence from GSCM also. For the greatest retail seller in the USA at Wal-Mart there is an interesting history of acceptance GSCM to their organization. In October 2005, president Wal-Mart has transferred the company to 3 purposes: to be delivered 100 % through renewable energy; to produce zero waste; and to sell products which support Wal-Mart resources and the environment, and Wal-Mart started business strategy of sustainability to reduce dramatically company influence by global environment and to become “the most competitive and innovative company in the world (Plambeck, 2007).
Obviously, there are four basic steps to apply green supply chain. The following model – the structure of decision-making offered (EPA, 2000), and it is based on the best methods of the several companies which have successfully begun and have implemented environmental practice of the accounting. Ideally, the companies will adjust this approach that is better to satisfy to their own organizational requirements and culture. Four steps: (1) Identify expenses, (2) Determine opportunities, (3) Calculate the benefits, and (4) Decide, implement and monitor.
- Identify Costs
- Determine Opportunities
- Decide, Implement and Monitor
- Calculate Benefits
Figure 3: Four Basic Steps to implement a Green Supply Chain (EPA, 2000)
- First Step: Identify Costs. This is essential the regular review of facility or processes are conducted to determine and where important environmental costs occur. The examination enables team to later focus where the probability for significant development is greatest.
- Second step: Determine Opportunities. The next step is to determine which areas offer the greatest opportunities for improvement and then develop specific solution that reduces costs and negative impacts.
- Third Step: Calculating Benefits. The analytical exercise of calculating the costs and benefits of the various options begins. One approach to the calculation process is to conduct quantitative evaluations, which rely on empirical data, such as: Internal Rate of Return (IRR) and Economic Order Quantity calculations.
- Forth Step: Decide, Implement and monitor. The 4th and final step is to make a decision implement the changes, and monitor progress.
At present, the environmental problems in our world have become major social and economic problems; building the green supply chain system is demand of the sustainable development of human society, and is of great social benefits. Implementation of green supply chain management performance evaluation maximizes resource utilization and reduces resource consumption, lower manufacturing costs; this is not only an environmental benefit significant act but also an effective means to gain social and economic benefits for suppliers.
Clearly, greening the supply chain has a great importance in environmental and financial performance, due to the influences of the natural environment organizational decisions will not only effect the organization that makes the decision, but its customers and suppliers, as well. If the green supply chain is correctly implemented the benefits will become visible either in a short and long term.
Traditionally, companies most often appeared to undertake environmental initiatives to improve their corporate image and to “do the right thing.” However, adopting environmentally sustainable business practices also yields measurable financial benefits. Becoming green is no longer an end in and of itself, but the byproduct of optimizing a supply chain. Transitioning to a Green Supply Chain while also maximizing efficiency is not a clear cut process, and opportunities to implement green initiatives require a comprehensive understanding of the entire supply chain. Ultimately, each green opportunity should positively contribute to the value of the firm and environment.
While the process of implementing green initiatives into supply chains continues to evolve, one thing is clear: a Green Supply Chain presents opportunities for creating shareholder value; it is more than simply good corporate citizenship. The idea is beginning to build momentum and if you answered “no” to one or more of the questions above, chances are that one or more of your competitors would answer differently.
Finally, the increasing awareness on this issue, coupled with constantly changing legislation, has created a landscape that is ideal for taking action. By acting now, with a holistic green strategy backed by strong business case and execution governance, a company will help blaze the trail that leads to sustainable, bottom-line benefits along with eco-compliance.
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