Sustainable Supply Chain Configuration: Proposing a Hot Spot Analysis Methodology

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1 Sustainable Supply Chain Configuration: Proposing a Hot Spot Analysis Methodology Yang Liu Centre for International Manufacturing, Institute for Manufacturing University of Cambridge Cambridge, UK yl415@cam.ac.uk Jagjit Singh Srai Centre for International Manufacturing, Institute for Manufacturing University of Cambridge Cambridge, UK jss46@cam.ac.uk Abstract Sustainable supply chain management (SSCM) has gone through dramatic development in recent years, however most approaches or methods still focus on part of supply chain, either supply side or downstream logistics, thus fail to take a holistic perspective. The aim of the study is to propose a holistic approach using Hot Spot Analysis to configure more environmentally sustainable supply chains, addressing the whole product life cycle and incorporating a broader consideration of different environmental dimensions. Keywords-component; Sustainable Supply Chain Management, Green Supply Chain Management, Hot Spot Analysis, Supply Chain Configuration I. INTRODUCTION Supply chain management (SCM) has been widely recognized by organizations as an effective approach to achieve competitive advantages and to satisfy customers [1]. As stated in [2], the competition among today s businesses has shifted from an inter-firm to an inter-supply-chain level. However, in the meantime, an individual firm s environmental impact (EI) has also extended beyond its corporate boundaries so that it must take environmental responsibilities for not only its internal operations but also its external supply chain (SC). Moreover, companies seeking to reap the greatest benefits from their environmental management processes must integrate other members of the supply chain into these processes [3]. Thus, sustainable supply chain management (SSCM) or green supply chain management (GSCM) has received great attention from both academics and practitioners in recent years. GSCM fully incorporates environmental standards and dimensions into the decision-making context of traditional SCM [4], and has emerged as a strategic and effective approach for organizations seeking to manage their business operations sustainably. Although extensive study exists in SSCM/GSCM research, there is a lack of a holistic approach focusing on the entire SC. It is argued that researchers should treat SC as one system and take a holistic view [5]. Furthermore, Nikbakhsh [6] suggests that companies must endeavor to leverage their competitive advantages across the entire SC. He asserts that the first and most important step in this endeavor is to analyze environmental impacts with a holistic approach, which includes the analysis of the product life cycle from the very beginning up to the very end of it. Following this perspective, especially on a strategic level, SSCM/GSCM has to analyze the SC as a whole and must not only concentrate on details or specific elements. The configuration approach is a method for realizing this [7], which takes a strategic management perspective on the optimal structuring SCs. The paper discusses the evolvement of supply chain configuration concept and proposes a novel Hot Spot Analysis methodology for sustainable supply chain configurations in support of a more holistic approach. II. LITERATURE REVIEW A. Configuration Concept Configuration concept originates in strategic management field, which has been defined as commonly occurring clusters of attributes of organizational strategy, structure, process and context [8][9][10][11][12]. The configurations are composed of tight constellations of mutually supportive elements [13]. Configurations are closely related to business strategies and environment, and there has been much debate in the strategy literature regarding the causal relationship between strategy and structural configurations [9][10][13][14]. In addition, Miller points out that configurations are particularly useful when the research aim is to determine dominant patterns in organizations, or when the relationships between individual variables are either ill-understood or too complex to be modeled using traditional approaches [15]. The work of Hayes and Wheelwright represents early efforts to develop configuration models addressing strategic fit in manufacturing [16]. Miller examines how the four strategic business dimensions that reflect important competitive strategies (i.e. differentiation, cost leadership, focus and asset parsimony) interact to produce effective configurations [13]. In addition, the impact of various configurations on organizational effectiveness and efficiency is analyzed in [17]. The result reveals that different configurations of organizational characteristics are associated with different performance outcomes. Adopting the configurational approach, Ward, Bickford and Leong synthesize manufacturing strategy with widely accepted views of competitive strategy, environment and structure, and suggest the predominant modes in which manufacturing

2 capabilities can be marshaled to strengthen the strategic position of the business unit [18]. However, selecting the right configuration is a complex balancing act, thus finding the appropriate degree of configuration is crucial [19]. B. Supply Chain Configuration An early research on the configurational approach in supply chain can be found in [20]. Based on the type of product and demand predictability, Fisher classifies products into functional products that have predictable demand and innovative products that have unpredictable demand. In his discussion, a SC configuration focusing on physically efficient processes is considered the most appropriate for functional products and a market-responsive-process SC configuration is most suitable for innovative products. Referring to [20], the market-responsive SC configuration is further divided into two dimensions: the customizable product type configuration and the innovative product type configuration [21]. In [22] and [23], the postponed strategies are integrated into the supply network configurations while taking into account customization and standardization as well as globalization and localization. Pagh and Cooper also adopt the concept of postponement and speculation (P/S) in their study, and develop generic SC (P/S) configurations [24]. Moreover, integrating modularization and postponement, four SC configurations have been proposed in [25]: Rigid, Postponed, Modularized and Flexible. Referring to Lean and Agile paradigms, Naylor, Naim and Berry argue that the use of either paradigm has to be combined with a total supply chain strategy particularly considering market knowledge and positioning of the decoupling point [26]. It is proposed that the lean paradigm can be applied to the supply chain upstream of the decoupling point as the demand is smooth and standard products flow through a number of value streams, whilst the agile paradigm must be applied downstream from the decoupling point as demand is variable and the product variety per value stream surges. Furthermore, referring to the decoupling point [27] and the postponement strategy, Mason-Jones, Naylor and Towill combine the lean process part before the decoupling point and the agile process part after the decoupling point into a Leagile SC configuration [28]. Christopher and Towill further elaborate on the concept and distinguished two types of SC configurations, the Agile SC and the Lean SC. They point out that Agility is needed in less predictable environments where demand is volatile and the requirement for variety is high. Lean works best in high volume, low variety and predictable environments [29]. As discussed in [30], most research in SC configuration considers only demand uncertainties; however, it is necessary to consider all uncertainties in the configuration of the right supply chain. Lee s configurations therefore combine the two dimensions of demand uncertainty and supply uncertainty, and distinguished them into four types of supply chains: Efficient, Responsive, Risk-hedging and Agile. Another significant configuration is proposed by Garavelli as in [31], in which the concept of flexibility is adopted (i.e. total flexibility, no flexibility, and limited flexibility). The findings suggest that SC configurations with limited flexibility of either suppliers or assemblers provide good performance, due to the trade-off between the capability of reacting to uncertainty and the limited increase of the material flow congestion. Klaas and Delfmann incorporate the cost and flexibility perspectives as well as the coordination mechanism into four types of SC configurations, i.e. Tight logistics, Agile logistics, Individual logistics, and Modular logistics [32]. The Tight logistics configuration is closely linked to the business strategy of cost leadership, which is designed to serve a stable demand pattern that makes cost efficient, yet is inflexible. Agile logistics configuration is suitable for firms that embark on the business strategy of differentiation in terms of quick and frequent product innovation. The Individual logistics configuration is designed to serve a highly customized, specialized and individual demand, which is highly flexible but also least cost efficient. Conversely, Modular logistics configuration is the counterpart of Individual logistics configuration coupled with pull control logic and postponement strategy. The supply network configuration perspectives are firstly adopted on international supply chain development as in [33]. In particular, a practical mapping tool for realizing the configurations is constructed. The authors define configuration in the supply network context as particular arrangement or permutation of the supply network s key elements including the network structure of the various operations within the supply network and their integrating mechanisms, the flow of materials and information between and within key unit operations, the role, inter-relationships, and governance between key network partners, and the value structure of the product or service delivered. In short, configuration concept is closely linked to business strategies and it assists in identifying dominant patterns along the whole SC. It offers researchers the ability to examine SCM from a more holistic perspective. However, it is found that majority of the proposed SC configurations focus only on forward flows neglecting the reverse flows. In addition, none of them have incorporated the newly emerged environmental dimensions into configuration considerations. For sustainable supply chain configurations, it is crucial to take a holistic approach and incorporate relevant environmental strategies into the configuration considerations. Adopting different environmental strategies in SSCM will consequently lead to different supply chain configurations. However, to achieve an optimal sustainable supply chain configuration that requires the least efforts and generates the greatest environmental benefits a more effective approach is needed. III. HOT SPOT ANALYSIS To realize a sustainable supply chain configuration, one must be able to identify those areas that have significant environmental impacts and the highest potentials for improvement especially when facing limited resource and financial constraints. Knowing which attributes are most important will help in investing scarce resources to improve

3 decision making and raise a firm s ROI [34]. In addition, as stated in [35], it is critical to balance priorities in decisionmaking in SSCM when dealing with strategic trade-offs. Therefore, an effective approach is needed to identify those Hot Spots in which there are significant environmental impacts and high Greenability the improvement potentials (to be more specific, we define Greenability as the focal firm s capability to green its SC for a particular product with respect to different environmental strategies). A. Redefining Hot Spot Concept The term Hot Spot is commonly used in crime mapping analysis, which refers to the points that have high concentrations of incidents within a limited geographical area that appear over time [36][37][38]. The term then firstly appeared in management research in [39]. By their definition, Hot Spots are fast-growing geographic clusters of competing firms. In recent years, Hot Spot has been used in environmental SCM research and has been defined as those "peaks" in consumption along the whole SC [40]. However, the term Hot Spot requires a novel definition which should not only addresses the perspective of consumption but also include the degree of improvement potentials- Greenability. Thus, a new definition for Hot Spot has been proposed: Hot Spot is the area in the whole supply chain where it has significant environmental impacts and in the meantime, has greater Greenabilities from a focal firm s point of view. To better illustrate the concept, a Hot Spot Matrix is provided in Fig. 1. The Matrix represents four areas: Hot Spot, Blind Spot, Hardcore and Softshell. Firstly, the Blind Spot refers to the point where both the EI and Greenability are low. Firms can neglect those Blind Spots in order to optimize resource allocation to achieve better outcomes. Hardcore refers to the area where the EI is high whilst the Greenability is low. In Hardcore, although there are significant environmental problems, they cannot be easily resolved due to the current available technologies, resources and capabilities, which require an industry-wide innovation and/or a radical change within a company. Hot Spot thus becomes a priority for companies to target on, where the EI is relatively high and improvement opportunities are quite obvious. Softshell however, refers to the point where the EI is low, but the Greenability is relatively high. The only problem associated with Softshell is that the environmental payoffs are comparably low although firms can pay significant efforts to target on such areas. For instance, a tinny component contributes only 0.1% of the total environmental impacts of a complete product along the whole SC. Although the firm has the capability and resource to improve it to a lower figure, the tradeoffs or efforts are not worthwhile. B. Hot Spot Analysis Developing a Hot Spot Analysis approach will assist in identifying those hot spots along the whole supply chain, for which a firm can prioritize and allocate its limited resource and time. By such approach, the improvement along the whole supply chain can be greatly achieved and a more sustainable supply chain configuration becomes viable. The objective of Hot Spot Analysis as stated in [40] is to identify central peaks of resource use or sustainability issues along the whole value chain quickly, reliably and life-cyclephase-specifically. However, their framework does not include the Greenability dimensions. For the proposed novel Hot Spot Analysis, the goal of it is to identify central peaks of EI and Greenability areas along the whole supply chain both forward and backward, thus incorporating a product lifecycle perspective into the analysis. The stages involved in the proposed Hot Spot Analysis are illustrated in Fig. 2. 1) Stage One: Select Key Environmental Dimensions Existing literatures on GSCM can be classified into four main streams in terms of their environmental focuses and dimensions: Reducing environmental impact by emphasizing on Energy (E) utilization (e.g. energy use reduction, energy efficiency, energy recovery, etc.) Reducing environmental impact by focusing on Resource (R) consumption (e.g. resource use reduction, resource efficiency, resource substitution and recovery) Reducing environmental impact by emphasizing on Waste (W) management (e.g. waste reduction, recycling, source reduction and control, pollution prevention, etc.) Reducing environmental impact by emphasizing on emissions reduction, especially on Carbon (C) emission reduction (e.g. reducing energy usage, resource usage, waste, improving energy efficiency, resource efficiency, reuse, recycle, etc.) For each of these four key environmental focuses, various techniques and strategies have been proposed in existing research. For instance, Product Recovery and Design for Remanufacturing strategies aim to reduce Resource utilization by disassembly, reuse, and recycling of end-of-life products [41][42]. Figure 1. Hot spot matrix

4 Figure 2. Four stages in hot spot analysis Tridech and Cheng [43] propose an ERWC framework, in which they argue that the reduction of carbon emission can be achieved through the management of energy consumption, resource utilization, and waste minimization. The ERWC framework can be expressed as E+R+W = C, which fully considers all the energy utilization, resource consumption and waste production of a firm, which have significant causal relationship with the generation of carbon emissions. Therefore, according to the existing research focuses in SSCM and the ERWC framework, E, R, W will be selected as key environmental dimensions for the proposed methodology. Through efficient and effective E utilization, R consumption and W management, not only can EIs be reduced along the whole SC, thus achieving a greener supply chain, but also can a low carbon supply network be achieved as an auxiliary gain. 2) Stage Two: Set Boundary Condition Determining boundary condition is vital in improving the feasibility of a particular research, for it not only reduces the research complexity but also helps to narrow down the research focus with a bounded context [44]. For the proposed Hot Spot Analysis, it is very crucial to define an appropriate boundary. There are several reasons for this. Firstly, a typical supply chain often involves multi-tiered suppliers. It is extremely difficult to study every single entity within the network and trace the material flows back to the very original point especially when a product structure is rather complex. Secondly, environmental responsibilities vary in accordance with the discrete roles of firms along the supply network. For example, focal firms normally have strong and direct relationship with tier-one and tier-two suppliers. They often urge their 1 st and 2 nd tiers to have certain environmental certifications and impose strong environmental requirements. In contrast, focal firms have a relative weak power influence over tier-three suppliers, thus entailing a relative weak responsibility too. Therefore, it is necessary to determine an appropriate number of tiers to be involved in the study. Third, the proposed Hot Spot Analysis methodology strives to incorporate a lifecycle perspective. Which stage in a product lifecycle should be included in the analysis must be carefully determined. For instance, the product-use phase is often neglected in most life cycle analysis. Lastly, the measurement of EI is based on the three E, R and W dimensions. The processes or activities included in the evaluation need to be decided by researchers, e.g. whether to measure the energy consumption as a result of human activities. In short, several considerations must be taken into account when setting boundary conditions for SSCM research, and researchers attempt to adopt the proposed Hot Spot Analysis methodology must determine study boundaries appropriately to make the research feasible and valid. 3) Stage Three: Determine Appropriate Criteria for Greenability Measurement Developing appropriate environmental measurement criteria helps evaluate the status quo of a firm s SSCM performance and identify potential improvement opportunities for reconfiguring its supply chain. The ERWC framework proposed in [43] categorizes the environmental strategies into the four respective E, R, W, C environmental dimensions. However, the primary focuses of it are on machine and factory level. There is a need to expand and extend the framework to a more holistic SC process level. SCM developed from the Port s Value Chain concept, is the integration and coordination of various business processes across the supply chain that creates value for the ultimate customers in an effective and efficient manner [45][46][47][48]. The important processes involved are: Product Design, Procurement, Inbound and Outbound Logistics (In/Out), Production, Customer Service and Reverse Logistics (RL). By consolidating the findings from a systematic review on 260 literatures in GSCM, relevant environmental strategies for different SC processes have been chosen with respect to each E, R and W dimension¹. In addition, a focus group discussion has been conducted with academics and practitioners to refine those environmental strategies in order to make the extended ERWC framework more viable. Table I represents the extended framework spanning the whole SC with respective environmental strategies, which can be used to measure Greenabilities of a focal firm. 4) Stage Four: Develop an Effective Approach to Realize Sustainable Configuration The approach as illustrated in Table II is an example of the ¹Detailed references are available upon request

5 (1) E (2) R TABLE I. EXTENDED ERWC FRAMEWORK Product Design Procurement Production Logistics (In/Out) Reverse Logistics (RL)ª Design for energy Design for simplicity Optimization of production process Supplier participation in design Design for longevity Design for alternative energy use Selection of low impact materials Design for material Design for recovery and reuse Design for durability Design for closed-loop recycling Design multifunctional products Supplier environmental certification Supplier performance on energy Supplier process improvement Collaboration with suppliers on energy Training and investment Supplier Auditing Supplier pre-processing of raw materials Supplier s rate of product recovery and reuse Supplier on resource Partnership with supplier on resource (training, investment, collaboration) Purchasing plan on material to be purchased proposed Hot Spot Analysis. A 1 to 5 scaling method has been adopted to indicate the level of respective EI (E, R, and W) of an individual component for a specific product. For instance, component α has the least EI (i.e. level 1) in terms of E utilization in its design process but has the highest EI level (i.e. level 5) during the production process along its supply chain (see Table II). For Greenability measurement, similar scaling method has been used; however, the measurement is more focused on a whole product level and from a focal firm s perspective because Greenability is defined as the focal firm s capability to green its supply chain for a particular product with respect to different environmental strategies. For example, the Greenability in waste generation for Product X during the logistical process is measured as level 4 (see Table II), which indicates a relative greater potential for the focal firm to minimize waste in its logistics process. For the Hot Spots identification, the scores of EI and Greenability are multiplied with regard to each SC process. For example, the scores of component α, i.e. E(1), R(2) and W(3) in the design process are multiplied with the respective Greenability scores, i.e. E(5), R(3) and W(5). The computation results are demonstrated in Table II. Hot Spots are the areas with high scores (i.e ) as highlighted using three different colours (Red: 20-25, Pink: and Yellow: 12-15). Energy use reduction Production process improvement Use renewable form of energy Coordinated inventory control Use of clean technologies Optimization of production planning and scheduling Integration of TQM and statistical process control Use remanufactured products Efficient material use and reduction Use of low impact materials Capacity planning for remanufacturing and CLSC Employee involvement and motivation In-plant recycling a. Customer service is included in Reverse logistics. The variations in colours indicate the degree of priority in sustainable supply chain configuration that a firm needs to address. For example, the red areas with the high scores of 20 to 25 suggest the highest priority for the firm to focus on. Hence, with limited resources and time the firm can concentrate on those areas where it will receive the greatest environmental benefits. In other words, the Hot Spot Analysis helps to identify the sustainable supply chain reconfiguration opportunities for achieving higher environmental performances along the whole SC. For instance, in the provided example, the Hot Spots identified for component α of Product X are W(15) in Design, E(16) in Procurement, E(15) and R(20) in Production, W(16) in Logistics, and E(12) and W(15) in Reverse Logistics. In order to reduce component α s environmental impacts along its supply chain more effectively and efficiently, the firm will need to take actions to target on these Hot Spots by reconfiguring its supply chain according to the respective Greenability strategies. IV. LIMITATIONS Energy reduction in distribution Energy reduction in warehousing Route optimization Transshipment and multi-mode transport Selection of cleaner transportation mode Optimization of inventory planning and control Fleet management Selection of responsible 3PL providers Shipment consolidation Recyclable or reusable packaging/containers Ecological materials for primary packaging Warehouse and facility location, layout & capacity optimization Efficient taken-back process Efficient disassembly process in product recovery Inventory planning for reverse material flows Energy recovery from waste disposal RL route optimization Percentage decrease in utility usage during recycling Efficient reverse channel structure Selection of responsible reverse 3PL providers Ratio of materials recycled to recyclable materials Material recovery time Capacity and location planning Green marketing and customer cooperation in returning end-of-life products Better use of product waste or material Open-loop recycling system Pollution prevention and monitoring in RL Communication and collaboration with RL partners Adoption effective disassembly technologies Design for ease of disassembly Design for source reduction Supplier waste reduction Supplier recycling and product recovery rate Supplier pollution Availability of process optimization for waste reduction and elimination Level of spillage, leakage Responsible disposal of waste and residues Efficient channel and procedure for hazardous Design for recyclability/ prevention system and pollution control waste disposal Remanufacturability Collaboration on waste Level of waste generated Capacity planning in (3) W Design for accident management and pollution during production waste management prevention prevention programs Investment in pollution Value-chain No. of supplier initiatives prevention technologies collaboration in waste Design for pollution in the recycling process Lean principles minimization prevention Design for by-product reduction (4) C (1)+(2)+(3) (1)+(2)+(3) (1)+(2)+(3) (1)+(2)+(3) (1)+(2)+(3) The proposed Hot Spot Analysis methodology offers a holistic and effective way to deal with the sustainable supply chain management problems. However, the methodology also

6 Hot Spots Greenability Environmental Impact TABLE II. HOT SPOT ANALYSIS EXAMPLE Product X presents several limitations. First of all, the environmental strategies identified in the extended ERWC framework for the measurement of Greenabilities have not been thoroughly tested across a wide range of industries. Therefore, for a particular industry, those strategies need to be further tested and refined in order to make the measurement more accurate and reflective. Secondly, the identification of Hot Spots is merely based on the multiplication results of respective EI and Greenability scores. It presents certain difficulties in differentiating between Hot Spot and Hardcore if a moderate result is derived. Thirdly, the rating system is based on a 1 to 5 scaling method. The appropriateness of such rating scale to the proposed Hot Spot Analysis requires further exploration. Last but not least, the development of the proposed Hot Spot Analysis is yet at its initial stage, which quires further testing and refinement to improve its applicability and robustness. V. CONCLUSION Supply Chain Process C=n Design Procurement Production Logistics RL E α R W E ß R W E ɤ R W E n R W α ß ɤ n E R W E R W E R W E R W E R W SSCM has gone through dramatic development in recent years. However, there is a lack of a holistic approach emphasizing on the whole supply chain. The configuration approach is an effective method to fill in the gap. Sustainable supply chain configuration addresses relevant key environmental strategies in the supply network. Adopting different environmental strategies in SSCM will lead to dissimilar supply chain configurations. The proposed Hot Spot Analysis can help a firm to identify the most appropriate strategies for realizing its sustainable supply chain configurations in a more effective and efficient manner. 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