A keynote address at: The 10th Cyberspace 2008: Cyber Security, Cyber Crime and Cyber Law The

9th International Conference on Information Management and New Technologies

The future of Supply chain Management: Interplay between the Digital and the Green Agenda
Professor SC Lenny Koh
Logistics and Supply Chain Management (LSCM) Research Group Supply Chain Management and Information Systems (SCMIS) Consortium

Digitalisation vs. Environmentalisation

Digitalisation
ERP and ERPII RFID Technology

Environmentalisation
Paperless Electricity/energy Transportation CO2 emission Carbon footprint 3Rs Renewable

Carbon Heat map (IBM)

A wider agenda

Estimated global mean temperature over the past 100,000 years

Source: Australian Government, Bureau of Meteorology, 2008

Development of climate models over the last 25 years

Source: Australian Government, Bureau of Meteorology, 2008

Source: Australian Government, Bureau of Meteorology, 2008

Impact
The European Union is very active in pursuing its own climate change policy responses, through regulation and policy related investment in research and development. It is very concerned that its objective of limiting the maximum increase in global mean temperature to a 2 degree centigrade warming by mid-century will be breached by the energy growth in the developing world and in North America. It is investing considerable resources, through bilateral arrangements, to analyse, mitigate and reduce GHGs in developing countries.

Source: Feickert, D., Koh, S.C.L., Wright, P.W., 2008

I am an admirer of the vision and determination that has been demonstrated in Sheffield to take this issue on. People from all walks of life have made this community stand out in the United Kingdom and among the communities throughout the world.

Al Gore discussing climate change at the University of Sheffield, 7th February 2007

Globalisation

Forward and reverse SCs

Divergent flows
Raw material suppliers Parts or components suppliers
Remanufacturing

Product manufacturers

Distribution channels

End users

Recycling

Repair

Reuse

End-of-life products
Forward supply chain Reverse supply chain Interfaces between downstream flows and upstream material flows

Landfill

Convergent flows
Source: Koh, S.C.L., Gunasekaran, A., Tseng, C.S., 2008

Top 10 SC leaders
1. 2. 3. 4. 5. 6. 7. 8. 9. 10. Apple Nokia Dell P&G IBM Wal-Mart Toyota Cisco Systems Samsung Electronics Anheuser-Busch 1. Apple: Digital SC Sensing demand and changing their SC 2. The end of mass customisation? Dells model. Truncating BTO and shifting to MTS and contract manufacturing (Back to the future) 3. Toyota: lean system, waste minimisation, TPS 4. Wal-Mart turning back from RFID, instead focusing on greening their SC

Sources: AMR Research Supply Chain Top 25, 2008

Reality check
Most companies green supply chain strategies are rhetoric and outpacing real action. Fewer than 25% say their companies always or frequently take climate change into consideration in making supply chain decisions. Only 21% thought the opportunities for new product/market far outweighed the risks. For consumer goods makers, high-tech players, and other manufacturers, 40-60% of carbon footprint resides upstream in the supply chainfrom raw materials, transport, and packaging to the energy consumed in manufacturing processes. For retailers, the figure can be 80% or more.
Source: McKinsey Study, 2008

Insufficient comparable basis

Traditional process life cycle assessment and supply chain analysis have some serious limitations.
They suffer from severe truncation error arising from the need to limit the study system to make process based studies feasible. Evidence shows that the cutoff criteria used in life cycle studies rarely leads to comparable systems. Process life cycle inventory databases as crucial sources of secondary data for life cycle assessment are far from complete.
Source: Stockholm Environment Institute, 2008

Fragmentation
The deployment of efforts such as clean energy technology tends to be compartmentalised focusing on specific segments of supply chains, e.g. transport. Developing a holistic view of the environmental impact of full supply chains could both improve the effectiveness of green investment and establish eco-partnerships in trade across international boundaries. The value of such an approach was recently demonstrated by the Oxford Institute for Energy Studies with respect to strawberries: although intuitively it might seem that it is environmentally inappropriate to fly in strawberries from Kenya, in fact it is not (Muller, 2007).
Source: Koh, S.C.L. and Wright, P.W, 2008

The emergence of GSCM

GSCM definitions1
Green supply chain is referred as the way in which innovations in supply chain management and industrial purchasing may be considered in the context of the environment (Green, et al, 1996). Environmental supply chain management consists of the purchasing functions involvement in activities that include reduction, recycling, reuse and the substitution of materials (Narasimhan and Carter, 1998) .

GSCM definitions2
GSCM is the inclusion of researching, developing, manufacturing, storing, transporting, using a product, and disposing the product waste in supply chain management (Messelbeck and Whaley, 1999). GSCM is the formal system that integrates strategic, functional and operational procedures and processes for employee training and for monitoring, summarising and reporting environmental supply chain management information to stakeholders of the firm. The documentation of this environmental information is primarily focused on supplier performance, audits, design, waste minimisation, training, reporting to top management and goal setting (Handfield et al, 2005).

Imbalance scenarios

Imbalance scenarios
Complexity and conflict Uncertainty and investment

Antecedent and decision

Attribute and performance

Partial and discrete

Complexity and conflict

Matos and Hall (2007) argued that sustainable development pressures have increased complexities and presented ambiguous challenges that many current environmental management techniques cannot adequately address. Zhu and Sarkis (2004) identified that GSCM practices tended to have win-win relationships in terms of environmental and economic performance but that JIT programs with internal environmental management practices may cause further degradation of environmental performance and care.

Uncertainty and investment1

Webster and Mitra (2007) examined the impacts of takeback laws and introduced the idea of competition within a manufacturer and remanufacturer framework but their quantitative model excludes the inter-organisational relationships and business uncertainty factors in greening a supply chain. Kocabasoglu et al. (2007) explored investment related to forward and reverse supply chains under the influence of business uncertainty and found that ongoing investment in the forward supply chain was significantly related to investment in recycling and waste management, but not to investment in reconditioning.

Uncertainty and investment2

Risk propensity has been found to mediate the relationship between the external business uncertainty and investment in the forward and reverse supply chain, in line with the previous studies which have observed that uncertainty has knock-on and compound effects on supply chain performance (Koh, 2004; Koh and Saad, 2006) An uncertainty diagnostics model has been developed to evaluate the impact of material shortages, labour shortages, machine capacity shortages, quality issues and delivery issues on supply chains performance (Koh and Saad, 2002), and the model gives a precursor to the identification of mediating factors such as supply uncertainty, technology uncertainty and demand uncertainty affecting energy efficiency in supply chains, and these uncertainties do appear to be problematic when implementing a green supply chain (Baldwin et al, 2005).

Antecedent and decision

Karakayali et al. (2007) modelled the optimal acquisition price of end-of-life products and the selling price of the remanufactured parts and found that OEMs would prefer a remanufacturer-driven channel under certain conditions. This finding suggests that the OEM must pay more attention to its outsourcing decision if the environmental regulations in effect specify target collection rates for individual quality groups. Sarkis (2002) developed a strategic decision framework for GSCM. The framework highlights the components and elements for GSCM and how they served as a foundation for decision framework. These can be inferred as the range of antecedents, enacting the importance of understanding the wider constituents for green supply chains.

Attribute and performance

Handfield et al. (1997) suggested several attributes for green value chain practices. These include shareholder value, regulatory climate, strategic manufacturing initiatives, product design, customer expectations, and environmental responsibility. Angell and Klassen (1999) noted that GSCM research remains in a pre-paradigmatic state. They suggest that much of the research to date has adopted a prescriptive tone, based on anecdotal evidence, which advises managers to consider the impact of environmental issues within a broad array of operating and performance choices and little attention has been given to environmental performance as a competitive dimension of operations. Since then, an increased research body has emerged suggesting various environmental KPIs, for example carbon footprint of a product, energy conservation of a company, etc.

Partial and discrete

Full range of environmental and external impacts of the use of freight transport have been studied, feeding into transport policy formulation and implementation, for example Department for Transport (DfT), London. Challenges in capturing full green supply chain mapping and analysis. Without a holistic understanding of the true impact of CO2 or green initiatives on the full supply chain, recommendations tend to be drawn based on limited analysis, thus resulting in non-systemic view and increasing the associated risk.

Full supply chains perspective

The rising interests on embedding environmental practices in operations management over the last few years have reshaped supply chain management research and practice onto a new landscape. Local optimisation of environmental factors is no longer adequate in addressing the enlarging issues. Considerations of the entire supply chain from energy production, sourcing, transport, production, consumption, customer service and post-disposal disposition of products should also be made.

The 5ecos PDSL model

Eco-logistics Eco-resources

Policy

Leadership

Green Supply Directive Chain Eco-design Standard

Eco-production

Eco-procurement

Greening a SC
E1 E1: Ecoresources E2: Eco-design E3: Ecoprocurement E4: Ecoproduction E5: Eco-logistics Policy Directive Standard Leadership
Forward supply chain Reverse supply chain Interfaces between downstream flows and upstream material flows

E1 E2

E1 E2

E1 E3 E5 PDL

E1 E3 E5 PL

E2

E3
E4 E5 PDSL
Raw material suppliers

E3
E4 E5 PDSL
Parts or components suppliers
Remanufacturing

E3
E4 E5 PDSL
Product manufacturers

Divergent flows
Distribution channels

End users

Recycling

Repair

Reuse

End-of-life products

Landfill

Convergent flows

Driving forces for research

Current understanding of the environmental impact of supply chains is limited, as is the availability of tools to develop and stimulate evidencebased practice and policy. The need for such understanding is widely recognised at company-level (e.g. Wal-Mart recently called a major conference of its suppliers in China in order to begin to address greening its supply chains), and at government and intergovernmental level (e.g. the European Union and China agreed at their 2005 Summit to establish a Partnership on Climate Change with a specific focus on the development and deployment of clean energy technology). It is also evident in the move towards branding products in terms of their carbon footprint or air miles travelled to market.

Driving forces for knowledge transfer

SMEs are not technologically equipped with the latest knowledge and innovation on how to reduce carbon footprint and improve energy efficiency (Shell Springboard and vivideconomics report, 2006). More companies view environmental performance as part of their basic corporate social responsibilities (Gray, 1996; Post et al, 1999; Zhu and Sarkis, 2004). According to Peattie and Ring (1993), more than 78% of Chief Executive Officers of the top 50 British companies considered green initiatives important for their businesses, and more than 82% thought green themes would play more active roles in the future. Melnyk et al (2003) found that firms having gone through environmental management standards (EMS) certification experience a greater impact on performance than do firms that have not.

Business benefits
By going green, best-in-class companies have managed to reduce*:
Transportation and logistics costs by 2% Energy costs by 6% Operation and facilities costs by 2% Supply costs by 2%

However, many practitioners leap into the green agenda without a clear understanding of the impact of the green initiatives from a full supply chain perspective.

*Source: Aberdeen Group A Harte-Hanks Company (2008) Building a green supply chain, March, pp. 1-29

Government and company initiatives

The European Union current and future legislation aims to integrate sustainability into business activities (European Commissions, 2007) Examples are Directive 2002/95/EC on Restriction of the use of certain Hazardous Substances (RoHS) in electrical and electronic equipment and Directive 2002/96/EC on Waste Electrical and Electronic Equipment (WEEE). These Directives are not simply to limit the use of harmful substances but also to have firms recycle at 70-80% of waste material. Chinese government policy-makers such as Premier Wen have indicated that all levels of government must fully realise the seriousness and urgency of achieving energy saving and emission reduction targets (Chatham House Report, 2007) Wal-Mart accounts for 30% of foreign buying in China and about a 1,000 Chinese companies are expected to attend its October conference on improving the environmental performance of its supply chains (Birchall, 2008)

WEEE and RoHS Directives

Direct and reverse influences of WEEE and RoHS on greening a SC

Reuse/ Product Recycle life cycle Service Use Sale Production Product design Supply chain

Directive WEEE
Pressure of WEEE

Su gg

WEEE

S ug

S ugge gest stion io n ODM/OEM

Brand company

Tier 2 supplier ODM/OEM Brand company

Brand company

n tio es

SCM

End users

Brand company
Brand company

ODM/OEM company (Tier 1)

Component supplier (Tier 2)

Brand company ODM/OEM RoH RoHS S

Material supplier (Tier 3)

RoHS

Brand company ODM/OEM

H Ro

Pressure of RoHS

direct influences the reverse influence of SCM

Tier 2 supplier

Directive RoHS

From local to global supply chains

A typical supply chain for a branded company includes Asian-based companies that serve as Original Equipment Manufacturers (OEMs) or Original Design Manufacturers (ODMs) for the branded company. In order to deliver quality products to the branded companies, the OEMs/ODMs cannot ignore the impact caused by environmental directives and standards (Karakavali et al, 2007) This applies to companies in a whole range of industry sectors. This provides a framework to link domestic manufacturers to the international supply chains.

Conclusion
GSC = lean SC + innovation (5ecos PDSL + balanced scenarios)

Logistics and Supply Chain Management (LSCM) Research Group

www.sheffield.ac.uk/lscm lscm@sheffield.ac.uk

International Network

Expertise
Supply chain modelling Reverse logistics Supply chain accounting Uncertainty diagnostics Enterprise Resource Planning (ERP) implementation and operation Operations management Knowledge management Sustainable development in supply chains

Industrial Collaboration (examples)

Advanced Manufacturing Research Centre (AMRC) Boeing Rolls-Royce Raytheon Tunewell Transformer Limited Beko, Turkey Rent-IT-systems CDC, Taiwan Halfords Entertainment UK UK Supermarkets National Health Service (NHS) Stradia SEAMS

Supply Chain Management and Information Systems (SCMIS) Consortium

www.scmis.com

International Annual SCMIS Conference Series

The 6th International Conference on Supply Chain Management and Information Systems (SCMIS2008) will be held in Tiruchirappalli, India, 8-10 December 2008. The SCMIS 2008 Website: http://www.scmis2008.org The 5th International Conference on Supply Chain Management and Information Systems (SCMIS2007), Melbourne, Australia, 9-12 December 2007. The SCMIS website: http://www.scmis2007.org The 4th International Conference on Supply Chain Management and Information Systems (SCMIS2006), 5-7 July 2006, in Taiwan. http://www.nchu.edu.tw/scmis2006 The 3rd International Workshop on Supply Chain Management and Information Systems (SCMIS2005), 6-8 July 2005, in Thessaloniki, Greece. More than 150 participants from over 25 different countries participated and over 80 papers were presented and published in the proceedings. http://www.seerc.info/scmis2005 The 2nd International Workshop on Supply Chain Management and Information Systems (SCMOS2004), 7-9 July 2004, in Hong Kong, PROC. http://www.ise.polyu.edu.hk/scmis2004 The 1st SCMIS2001, Hong Kong.

Research and KT agenda

LSCM Research Group and SCMIS Consortium
Regional studies International comparison Joint research projects and proposals Joint publications Editorships Special Interest Groups Joint PhD supervision and examination Collaborative research/work and links: universityindustry-government

Training and consultancy

Contact
Professor SC Lenny Koh Chair in Operations Management Director of Logistics and Supply Chain Management (LSCM) Research Group The University of Sheffield Management School 9 Mappin Street Sheffield S1 4 DT UK Tel: +44 (0)114 222 3395 Fax: +44 (0)114 222 3348 E-mail: S.C.L.Koh@sheffield.ac.uk www.sheffield.ac.uk/lscm www.scmis.com www.sheffield.ac.uk/emba

Thank You.