Benefits of a Green Supply Chain
“Man has lost the capacity to foresee and to forestall. He will end by destroying the earth. ” ~Albert Schweitzer Currently, our world is experiencing radical changes in the earth’s ecosystems due to man’s misuse and neglect. Human beings have disrupted the balance between the energy systems and all living species. Therefore, our entire global ecosystem is deeply flawed and unbalanced.
Al Gore believes, “The emergent power and accelerating momentum of Earth Inc. the rapid growth of destructive resource-consumption patterns, the absence of global leadership, and the dysfunctional governance in the community of nations have all combined to produce flows of pollution that are seriously damaging the integrity of the planetary climate balance that is essential to the survival of civilization” (Gore, 2013, p. 280). Part of the solution to the problem will be to integrate a plan for a company’s supply chain operation to become more “green” to help in “attracting customers who value sustainability and making the world more sustainable” (Chopra & Meindl, 2013, p. 01).
Green Supply Chain Management (GSCM) may help companies achieve several benefits in their bottom lines: economic, environmental and social. GSCM is defined as “an increasingly widely-diffused practice among companies that are seeking to improve their environmental performance. The motivation for the introduction of GSCM may be ethical (e. g. reflecting the values of managers) and/or commercial (e. g. gaining a competitive advantage by signaling environmental concern)” (Testa & Iraldo, 2010, p. 53).
There are two basic factors which determine why a company adopts a green supply chain. External factors are “mostly linked to stake-holder’s pressure” and internal factors “are a specific business-led strategic process. ” (Testa & Iraldo, 2010, p. 954). External factors may be influenced by three institutional mechanisms: “normative, coercive and mimetic” (p. 954). A normative mechanism may include new customer requirements.
A coercive mechanism may be the cause of an enforced environmental regulation or pressure from an environmental interest group. The “imitation-led” or mimetic mechanism occurs “when external factors become so strong that they induce the adoption of GSCM” (Testa & Iraldo, 2010, p. 954). GSCM practices may be a result of a combination of these external/internal factors. There are some negative implications which may result from GSCM practices. First of all, GSCM is an expensive approach and the benefits may not be seen in the short run.
Secondly, “GSCM cannot support competitiveness in the short run as it should be seen as a long term process” (Testa & Iraldo, 2010, p. 962). Thirdly, successful GSCM practices entail the requirement of involvement of business partners in collaboration. A study indicates in order to produce environmental improvement results: “The more a company is able to involve its business partners in the development of co-operative environmental plans, the more it is able to achieve the expected results and improve its performance.
The most significant consequence concerning green management strategies seems to be that a real “environmental quality” of a product or service cannot be guaranteed to the customer or to the final consumer if a company does not make efforts to stimulate and involve its suppliers (and partners in other phases of the product life cycle) in its improvement actions” (Testa & Iraldo, 2010. para 8). It is essential for a supply chain to evaluate the possible negative repercussions of GSCM practices.
The world we live in is interconnected through products, services and distribution which increase the demands for companies to develop closer relationships between one another. From an economic perspective, a company will want to find their “sustainable sweet spot”. “The sweet spot embodies the literal meaning of “sustainability,” making your company viable for the long term by managing according to principles that will strengthen rather than undermine the company’s roots in the environment, the social fabric, and the economy.
A business that occupies the sustainability sweet spot should have real long-term advantages over its rivals” (Savitz, 2006, p. 26). For example, PepsiCo was able to accomplish a “cost reduction overlap with a series of environmental improvements to reduce energy, waste and packaging. It’s goal of risk reduction overlaps with steps to address long-term water supply and quality concerns for communities in which plants are located and for its crucial suppliers. ” (Savitz, 2006 p. 25). Therefore, PepsiCo simultaneously improved the environment and their economic sustainability.
In 2005, Walmart introduced a new business sustainability strategy which consisted of the utilization of renewable energies, reduction of waste and selling products that sustain people and the environment. According to Erica Plambeck and Lyn Denend (2011), “Perhaps the greatest benefit to Walmart’s going green has been a boost in public relations, which helps the company secure permission to open new stores and increase sales in its existing locations. ” (p. 17). In addition, Walmart actually found a new source of revenue by reducing waste in their supply chain.
For example, while the company used to spend $16 million a year to haul plastic waste from its stores to landfills, it now pelletizes and sells the plastic to its packaging suppliers, which adds $28 million a year to its bottom line” (Plambeck & Denend, 2011, p. 17). Furthermore, Walmart has committed to eliminating “20 million metric tons of greenhouse gas (GHG) emissions from the company’s global supply chain by the end of 2015” (Plambeck & Denend, 2011, p. 18). Walmart continues to be progressive in their attempts to identify and implement measures to address environmental issues.
There are several sustainability opportunities in the operations of a green supply chain. Some of these opportunities may appear less obvious: “For example, the opportunity to reduce costs by trimming waste or to create revenue by turning your waste into someone else’s source material; the opportunity to expand into new markets by redesigning, repacking, or repurposing products; or the opportunity to hire talented and committed employees who are attracted to an organization devoted to sustainability” (Savitz, 2006, p. 73).
Starbucks is a great example because the entire organization has achieved several of these opportunities. Starbucks is a company that has reaped several benefits by taking progressive steps to decrease their impact on the environment. Howard Schultz, CEO of Starbucks incorporated significant sustainability tactics into their overall business plan. These tactics included: “Be a leader in ethical sourcing and environmental impact. Starbucks has led the way in treating farmers with respect and dignity, working directly with organizations such as Fairtrade and Conservation International” (Schultz, 2011, p. 07).
One vision of Starbucks is summarized by Howard Schultz, “Deliver a sustainable economic model. It was imperative that as we refocused on our customers and our core, we also improved upon how we operated our business by reducing costs and building a world-class supply chain, as well as creating a culture that drove quality and speed and managed expenses on an ongoing basis” (Schultz, 2011, p. 108).
Starbucks redesigned their overall image around these creative words: “Sustainability. Green. Organic. Recycled. Repurposed. Local. Community. And of course, coffee” (Schultz, 2011, p. 278). It has been a success, as Starbucks is a global leader in delivering a sustainable economic model. According to Fr. William Byron, the highest achievable ethical level in business is referred to as “discretionary” or “philanthropic responsibility. ” “The corporation goes beyond not only what is legally required but also what it judges as a strictly ethical obligation” (Byron, 2006, p. xi). In 2008, Starbucks reported sales of over $10. 3 billion and employed 176,000 workers worldwide. Corporate Philanthropy Report, 2009, p. 5).
At the same time Starbucks has given $22 million back to communities around the world since 1997. Another area of giving is the Ethos Water Fund. Through this fund, children around the world get clean water and raise awareness of the world water crisis. This has impacted 420,000 people in water-stressed countries. Gulf Coast Recovery was implemented after hurricanes Rita and Katrina. Starbucks gave $5 million to help in this recovery process. Starbucks continues to reach out to people in need.
Starbucks is an organization striving to be socially and environmentally responsible. Consumers are starting to become more aware of companies that produce pro-environmental products which may influence their purchase decision. Josephine Baker and Ritsuko Ozaki (2008) performed a study which consisted of an environmental consumer product survey. The questions on the survey, “related to environmental beliefs, environmental behavior, and marketing and branding issues concerning attitude to green products” (Baker & Ozaki, 2008, p. 292).
The main conclusion from the study suggested, “An emphasis on how the product can meet both subjective and environmental needs can pay dividends. For example, consumers are likely to be attracted to products that can simultaneously save money, be safer for children while further demonstrating the sustainable actions of the individual concerned” (Baker & Ozaki, 2008, p. 293). This can be a benefit for the company, the consumer and ultimately the environment. All companies will need to be cognizant that consumers may make purchase decisions due to “greener” product selections.
This in turn will affect supply chain management operations. J. M. Cruz and D. Matsypura (2009) completed a study with a focus on social responsibility and environmental decisions. The model used in this experiment consisted of “multicriteria decision-making behavior of the various decision-makers, which includes: the maximimization of net profit, emission minimization, and the minimization of risk. The decision-makers consist of: the manufacturers, the retailers, as well as the consumers associated with the demand markets. (p. 622).
Three assumptions were required for this study. First, “If the levels of social responsibility activities increase, the transaction cost may be expected to decrease…. Second, we also assumed that the emission function depends on the volume of transactions between a particular pair via a particular mode, and on the levels of social responsibility activities between decision-makers…Third, lower cost, lower risk and an increase in sales, companies become more profitable” (Cruz & Matsypura, 2009, p. 643-644).
The conclusions from this study indicate that customer-supplier relationships facilitate an environmental innovation in the manufacturing practice. However, there is a possibility as a company increases social responsibility activities within the company, “the percentage increase of the return on investment will be smaller” (Cruz & Matsypura, 2009, p. 645). Social responsibility involves an obligation to society as a whole. Howard Schultz’s overall management view is simple, “Management must take good care of the people who do the work and show concern for the communities where they live” (Schultz, 1997, p. 292).
A great influential move for social responsibility was Starbucks decision to become one of the first American importing agricultural product companies to establish a framework for a conduct of ethics for suppliers. Schulz defines the framework as, “A specific work plan for educating suppliers about our mission and values, communicating our goals to the coffee industry as a whole, and gathering further information during visits to selected origin countries. Our aim was to do our part in ways that we believed could have measureable effects, and for which we could be held accountable” (Schultz, 1997, p. 299). Fr.
William Byron points out another important principle in our daily lives which is human dignity. He defines human dignity, “acknowledges a person’s inherent worth” (Byron, 2006, p. 6). Starbucks has developed alliances with their suppliers. This alliance between the coffee growers and Starbucks is both an economic and social benefit. Denise Kleinrichert (2008) views Starbucks whole investment as, “by not only paying premium prices for and preferential purchasing of coffee beans grown by community-based farmers, but also investing in housing, health clinics, schools, and other projects in coffee-growing communities” (p. 82).
These alliances have greatly impacted third world countries. Schulz made several trips to Africa. He believes in treating all farmers with respect and dignity as they are “at the heart of what we do” (Schultz, 2011, p. 238). Starbucks partners are the primary focus of the business. Furthermore, Schultz aspires to treat all of the partners with human dignity, “Every one of them is an individual who needs both a sense of self-worth and the financial means to provide for personal and family needs” (Schultz, 1997, p. 138).
My hope is other companies will follow in Starbucks footprints to impact society in positive ways. Many corporations are following and using the “Global Reporting Initiative” (GRI) to help monitor and report corporate sustainability efforts. GRI emissions are included under the environmental category in this framework. Accountability and accuracy are important for this type of reporting. Transparency is an important key for all functions in a company. In the long run, it will be beneficial to report carbon emissions and climate-change-mitigation strategies as the government will be intervening to ensure compliance.
Government intervention can be beneficial for companies to follow regulations and standards. I am in agreement with Andrew Savitz, “One of the best ways to improve your company’s image and its credibility among activist stakeholders and the public is to publicize your mistakes and failures-along with the corrective steps you are taking, of course” (Savitz, 2006, p. 221). There is a strong relationship between Lean and Green practices. “In a synergy, all partners have to influence each other in a positive way, increasing the greater benefits of the relationship.
A synergy is often described with the equation 1 + 1 = 3. Thus, in synergy of the Lean and Green paradigms, Lean has to be driving forward and enhancing Green practices while at the same time Green has to be synergistic for Lean” (Dues, Tan & Lim, 2011, p. 93). In a Lean practice, it is emphasized the entire supply chain should be optimized. A Green supply chain should “not just be a practice for manufacturing but should rather be incorporated already further upstream in the supply chain, i. e. in the product design phase” (Dues, Tan & Lim, 2011, p. 94).
There s evidence that Lean practices are beneficial for Green practices. An overlap of positive attributes exists between Lean and Green paradigms. These include the following: “waste reduction techniques, people and organization, lead time reduction, supply chain relationship, KPI: service level and tools/practices. ” (Fig 1. Dues, Tan & Lim, 2011, p. 97). First of all, the combination of Lean and Green paradigms for waste reduction causes even less waste in the supply chain. Secondly, both Lean and Green practices require a high level of employee involvement.
Third, “When it comes to a supply chain relationship, both paradigms rely on close collaboration with supply chain partners. Collaboration enables information and best practices sharing across the chain and serves the goal of an integrated supply chain (Dues, Tan & Lim, 2011, p. 97). In addition, Key Performance Indicator (KPI) is important for both practices. Green products will allow a company to differentiate their products from the competitor while Lean practices will increase value delivery to customers. Last, both paradigms share certain tools.
An example is “value stream mapping (SVSM) which is used to map all processes of a supply chain” (Dues, Tan & Lim, 2011, p. 98). One can see that a Lean environment serves as a link to facilitate Green practices. The integration of Lean and Green practices in a supply chain can produce significant benefits for the company. In summation, it is imperative for supply chains to develop innovative concepts such as sustainability into their operations. Our environmental concerns reveal the need for immediate sustainable measures. Supply chain operations should efficiently utilize resources and minimize their carbon footprint on the environment.
Furthermore, by the implementation of (GSCM) supply chains have the ability to achieve economic, social and environmental success. I end with a poignant quote: “We stand now where two roads diverge. But unlike the roads in Robert Frost’s familiar poem, they are not equally fair. The road we have long been traveling is deceptively easy, a smooth superhighway on which we progress with great speed, but at its end lies disaster. The other fork of the road- the one “less traveled by”-offers our last, our only chance to reach a destination that assures the preservation of our earth. ”