Green Supply Chain Management at PT. Biomethagreen

Transcription

1 Available at The 3rd International Conference on Technology and Operations Management Sustaining Competitiveness through Green Technology Management Bandung Indonesia, July 4-6, 2012 Green Supply Chain Management at PT. Biomethagreen Winda Haryati Utami 1,*, Ina Primiana 1, Budi Harsanto 1 1 Faculty of Management and Business - Universitas Padjadjaran (Unpad), Jl. Dipati Ukur no.35, Bandung 40132, Indonesia Abstract. Every industry s business process would have environmental impacts. One of environmental impact that we can see is the disposal of the final product that has been used by consumers such as packaging, or the product itself which we call the garbage or solid waste. With the application of green supply chain, companies can reduce resource use in the production process, especially in the procurement of raw materials The purpose of this study is to determine the impact of the implementation of green supply chain to the company s performance in terms of time and cost. In this study, researchers used a qualitative descriptive research method to create a description in systematic, factual and accurate information about the facts, properties and relationships among phenomena investigated. This study using tools in the form of SCOR (Supply Chain Operating Reference) level one to assess green supply chain performance is applied by the company. The result is that the performance of PT Biomethagreen is on the average, so as to achieve best in class is like, needs to improve performance on some aspects. Keywords: Supply chain management (SCM), green SCM, SCOR, logistics, environment 1. Introduction In this era, international businesses are growing rapidly. This condition made such a tough competition. Everything should be done by companies in order to have take advantages in efficient and effective way. In order to achieve efficiency and competitive advantages, one of the most important thing is to develop a proper supply chain in a business process. In thi globalization era, the number of industry is growing higher. Every industry do the business which have environmental impacts. We can see some of environmental impact as the disposal of the final product that has been used by consumer such as packaging. The product it self, we call it garbage or solid waste. In response engaging to this matter, companies must be proactive in order to keep the environment. Company need to reduce the pollution and do the business processes in efficient way. The concept of green supply chain management is presented as a manifestation of the world worrying about the environmental pollution issue which is mostly done by the industry. By applying this concept, companies have to reduce and eliminate such production waste as a result of the production process. (Kushwaha, 201, p.2) * Corresponding author. address: windaharyatiutami@yahoo.com

2 208 W.H. Utami, I. Primiana, and B. Harsanto Green Supply Chain Management at... The application proccess of the concept green supply chain management is to reduce environmental pollution base on the concept of zero waste and might be able to increase the efficiency of the company in the supply chain (Kuswaha, 2011, p.3). With the method of green supply chain, companies could reduce the uses of resource in the production process, especially in the procurement of raw materials. This can be done because procurement of raw materials derived from recycled of finish good which are marketed to consumers. Certainly, in the long run, this will increase the company s profit either directly or indirectly because of the cost of procurement of raw materials can be minimized. In addition, the application of this concept will result a great image for companies. PT Biomethagreen is one of the companies that applied the concept of green supply chain management on their operation. This company used organic waste (solid waste) as the main raw material in the production process. Besides, the company does not produce any waste in the production process and use environmentally friendly packaging that can be refilled as efforts to reduce environmental impact. Based on that background, this paper will examine and measure the performance of the implementation of green supply chain management which has been done over a year period backward. Assessment of green supply chain performance is seen through the company performance in general. The Performance Analysis Tool used to determine the performance of green supply chain in PT Biomethagreen is called SCOR level Literature Review 2.1. Definition of Green Supply Chain Management According to Alan McKinnon, et al. (2010), the definition of green supply chain is: The alignment and integration of environmental management within supply chain management. Another concept of green supply chain management (Srivasta, 2007, p.5) is a concept that integrates environmental thought into supply chain management, which includes production design, procurement and selection of raw materials, manufacturing processes, deliver of the final product to the consumer, even manage the product which had been used by consumers Model of Green Supply Chain Management Green supply chain is based on green innovation process which is applied throughout the supply chain, which is also based on two stages in organization, design and realization. The following is an overview of the concept of green supply chain management. Picture 1. Green Supply Chain Management Model Souces: Hervani, Helms, Sarkis, 2005

3 W.H. Utami, I. Primiana, and B. Harsanto Green Supply Chain Management at Fig. 1 shows a difference betwen the concept of the green supply chain management and supply chain management. In the above model of green supply chain, the selection of resources determined by three sources such raw materials, supporting materials, and recycled materials. The difference is that company also used resources from the final product that has been consumed by the consumers. Besides, other features is in production process is a close-loop method so that no waste during the production process (the concept of zero waste), because the production process has a cycle form. Last, one of the most important features is the concept of reverse logistics, that the material flow coming from the consumer. In this case, a residual material consumption which then being circulated back to the company s supply chain to then be reused in the process production. 3. Methodhology 3.1. SCOR (Supply-Chain Operating Reference) SCOR is a global measurement method which can be understood by almost every language. Every type of company SCOR can be implemented and used as a reference. SCOR combines elements of business processes, benchmarking and application in a single frame work. SCOR divides the process of supply chain into five core processes such plan, make, deliver and return SCOR Process SCOR consists of 4 levels of processing. This paper uses SCOR in level 1. Level 1 is the top level that consists of 5 key processes are plan, source, make, deliver and return SCOR Metrics Table 1. Metrics SCOR measurement

4 210 W.H. Utami, I. Primiana, and B. Harsanto Green Supply Chain Management at Result and Discussion 4.1. Company Over View PT. Biomethagreen was built on December 8, 2009, but the company recently began operation in early February The new company established less than 2 years is engaged in natural fertilizers and industrial waste management services. Biomethagreen concept was born from a strong desire in tackling the waste problem with the process, especially when issues of this waste, started sticking in Bandung late In addition, the concept is also directed to another advantage is generate new sources of energy in the form of biogas and also deal with the availability of fertilizer Implementation of Green Supply Chain Management PT Biomethagreen has applied the concept of green supply chain business processes. Application of the principles of green supply chain management is especially seen in the procurement of raw materials, production processes and the use of packaging which can be recharged. The company uses raw materials that are organic wastes obtained from the public. As noted earlier, the uniqueness of this production process is to use recycled raw material is public waste. The company also improves production efficiency so that no waste is generated in the production process meaning that all the results in the production process can be utilized. In addition, the packaging used can be recharged thereby minimizing the use of excessive packaging. Here s more detailed picture of the implementation of green supply chain at all stages of business. Picture 2. Flowchart of green supply chain management at PT Biomethagreen Sources: Interview and observation at PT Biomethagreen 4.3. Raw Material Procurement To produce liquid fertilizer Biomethagreen, the company uses main raw materials, mid raw material and auxiliary materials and also packaging that used in production processes Main raw Material Procurement Raw material for this fertilizer is in the form or organic waste, animal or human feces. Organic waste is obtained by sorting the result performed by employees of PT Biomethagreen, but form some target areas, waste is divides by each community based on organic or inorganic. For once the digester production capacity of 200 kg of organic waste takes 95 % of the total production of materials that will go into digester Mid-raw Material Procurement Procurement of raw materials obtained from partners companies who have been doing PT Biomethagreen digester installation at certain location so as to produce slurry (mid materials).

5 W.H. Utami, I. Primiana, and B. Harsanto Green Supply Chain Management at Auxiliary Material Procurement Procurement of auxiliary materials (starter) was also carried out by PT Biomethagreen before making the production process. Among these auxiliary, urea and sugar are used to support production of fertilizer. Starter that is required is 5% of the total capacity of the material that goes into the digester Production After conducting the procurement process both the procurement of raw materials, auxiliary materials and packaging, of course, the company will conduct the production process. In the production process, the company uses 2 (two) ways, namely by producing of raw materials and the manufacture of mid-raw materials. The terms of the raw material here is the process of making fertilizer Biomethagreen starting from organic waste processing and auxiliary materials into the digester, after 30 days or 1 (one) month, 60% of the total input will be output, called slurry. This slurry can then be processed in the final stages of along process Fertilizer Biomethagreen with ± 60 days/2 (two) months. While the mid-raw materials are semi-finished materials produced by an external company in terms of PT. Biomethagreen is a companion, but for the final stage of the production process be submitted to PT. Biomethagreen Distribution After Biomethagreen fertilizers are produced in the factory PT Biomethagreen, subsequent processes or stages that are not less important is the distribution of fertilizer to the company warehouse to consumer / authorized agent. PT Biomethagreen has 5 (five) agents spread across multiple locations around Bandung and Sumedang. These five agents do Biomethagreen fertilizer distribution to local farmers Reverse Logistics Reverse Logistics that applied PT Biomethagreen are returning empty containers which have been used by consumers, so PT Biomethagreen can recycle packaging to be reused for Biomethagreen fertilizer. Consumers who have used Biomethagreen Fertilizers, can refill Biomethagreen fertilizer with lower prices in a way to exchange empty packaging with new packaging that has been filled by Biomethagreen fertilizer. This concept is a manifestation of the implementation of green supply chain management at PT Biomethagreen business processes. With this concept, the company helped reduce waste from the product packaging SCOR Measurement SCOR measurement is used to determine the performance of the implementation of green supply chain management that has been implemented by PT Biomethagreen for one year backward. SCOR (supply chain operating reference) are assessed at level 1 is the metric measurement of performance which refers to the literature book entitled Handbook for Dramatic Improvement Using SCOR Model (Rosenbaum, 2003, p.78). In that book shown all metrics for determine performance that classified by supply chain reliability, supply chain flexibility, supply chain responsiveness and supply chain cost. The Benchamrking or the default value of each metric is derived from the average performance of similar companies and the company's best in class performance at similar companies. Categorizing the performance of PT Biomethagreen is obtained by comparing PT Biomethagreen performance with an average value at similar companies. Data in the Table 2 shows values for PT. Biomethagreen SCOR each metric along with its category. Below is an explanation for those values based on SCOR level 1 metrics. a. Delivery Perfomance Delivery performance is one of the metrics which include the supply chain reliability. Delivery performance is a value that indicates the percentage of orders delivered in accordance with the schedule required/ specified by the customer or company. To get the value of the Delivery Performance, authors should obtain all the data records of shipments of goods. Based on the delivery of data records is got amount of delivery order amount that on schedule and the total order of each month that incoming or the number of overall shipments each month. According to the table 2, the delivery performance of PT Biomethagren about the delivery of fertilizer to the agents officially is 84%. When compared with the delivery performance in best in class which is 93% and the average category which is 69% then the companies is categorized in the average class. So in order to achieve best in class company needs to improve corporate performance. b. Fill rates Fill rates also one of the supply chain metrics in supply chain reliability. Fill rates indicate the percentage of orders delivered on schedule without waiting for each type of product. This metric is similar to delivery

6 212 W.H. Utami, I. Primiana, and B. Harsanto Green Supply Chain Management at... performance, the difference is when delivery orders are calculated according to the schedule as a whole or in varying product dimensions, then fill rates specific of each type of product. In this study assessed only 1 (one) type of product that Biomethagreen Fertilizer. So, delivery performance and fill rates have the same value. But because of the standard value for best in class and average class of fill rates different from delivery performance, so, the comparation value is different to. Base on table 2, indicate that PT Biomethagreen neither in best in class or average class category. So in order to achieve average class, company has to improve their performance about 4 % and for achieve best in class about 13 %. c. Perfect Order Fulfillment Perfect order-fulfilment also one of metrics which include supply chain reliability. Perfect order fulfillment is a metric that indicates the percentage of orders delivered complete and on schedule. On this calculation, the company is more rigorous in assessing the performance delivery of goods. This means that the order is sent no less and no defects, both in terms of quantity and quality of goods Table 2 shows that the perfect order fulfillment PT. Fertilizer Biomethagreen for delivery to the official agencies was 74%. This percentage is certainly lower than the performance delivery and fills rates. When compared with the value of perfect order fulfillment in the category best in class in the amount of 92.4% and the category average of 65.7%, the companies included in the average category. So as to achieve best in class needs to improve corporate performance. d. Order Fulfillment Lead Time Order fulfillment lead time is one of the metrics which include the supply chain responsiveness. Order fulfillment lead time is a metric that indicates the time between customer order until the order they are received, with units of days or months. In order to get the fulfillment order lead time, the difference between the time when the order form is received and the time when the order is delivered to consumers must be known. Based on Table 2, order fulfillment values obtained for 3 days. When compared with the fulfillment order lead time in the category that best in class for 2-7 days and the category average of 8-21 days the company is included in the category of best in class. This occurs due to the location of delivery of orders that are still within reach of the company so it does not find a significant constraint on the delivery of goods. e. Production Flexibility Production flexibility is the metrics of supply chain flexibility. Production flexibility shows number of days to obtain a 20% increase or decrease unplanned orders. Thus, this factor indicates the number of days required by the company to meet demand if there is an unexpected increase in demand of 20% of the estimated number of previous requests. For the case of PT. Biomethagreen to produce biomethagreen fertilizer, have not found any surge in demand by 20% from the previous estimate. That s why increase in demand can be met from inventory by the company. However, based on interviews, the company estimates that the Production Flexibility to meet the demand for Biomethagreen fertilizer is worth the time required in the production process that is ± 90 days/ 3 (three) months. When compared with the Production Flexibility on the category average of 1-2 weeks, the company that is well below the category average. So as to achieve the performance according to the grade average required increase in corporate management. The length of time it takes the company to meet demand if there is an unexpected increase in demand by 20% from previous estimates of demand due to several factors related to company operations. f. Total Supply chain Management Cost Total supply chain cost management is one of the metrics used to measure supply chain costs or expenses, Relating to the supply chain. Total supply chain cost management is the direct and indirect costs used in the plan, source, and delivery of goods or services each company has different considerations for determining the budget cost for supply chain management business processes. In the case of PT. Biomethagreen, the calculation of total supply chain cost management based on the costs incurred in order to improve the performance of supply chain companies in order to meet consumer demand. Data obtained through interviews, observation and examination of company documents during the production period. Based on Table 2 is seen that the total supply chain cost management biomethagreen fertilizer was 18.7%. When compared with the total supply chain cost management in the average category that is 23-29%, the

7 W.H. Utami, I. Primiana, and B. Harsanto Green Supply Chain Management at companies included in the category of best in class. It is enough to prove that the implementation of green supply-chain management in a company is able to minimize costs. Table 2. Recapitulation of SCOR measurement at PT Biomethagreen

8 214 W.H. Utami, I. Primiana, and B. Harsanto Green Supply Chain Management at... g. SG & A Cost SG & A Cost is one metric used to measure supply chain costs or expenses relating to the supply chain. SG & A cost is the cost of marketing, administrative and general expenses used to support the production of a good or service. Every company has a standard for determine each budget of sales, general and administrative (SG & A cost). In the case of fertilizer production biomethagreen, this budget fluctuates depending on the needs and conditions of the company each month. Based on the Table 2, it was found that the average SG & A costs to support fertilizer production activities at PT. Biomethagreen amounted to 20% of the production budget. When compared with the SG & A cost in the category Best in Class at 15% and the category average is 29% of the companies included in the average category. So as to achieve best in class category PT.Biomethagreen need to cut the costs associated with selling, administrative and general expenses incurred as a result of fertilizer production activities. h. Waranty Cost as % of Revenue Cost warranty is also one of the metrics used to measure supply chain costs or expenses relating to the supply chain. Warranty cost is the percentage of expenditure for the warranty to the value of sales (turnover). Warranty cost is incurred as a result of defective products returned by consumer to the company, so the company must pay to replace the defective product. In the case of PT. Biomethagreen, warranty costs incurred as a result of a defective product returns by customers due to the quality of products that do not fit the specifications or damaged packaging. Incurred cost warranty each month varies depending on the number of defective products which must be replaced by the company Based on table2 the average values obtained warranty cost for the period November 2010 to July 2011 is 3%. When compared with the warranty Cost in the category best in class in the amount of 1.2% and the category average is 2.94%, the company cannot be categorized either average class or best in class. So in order to achieve the average category and best in class, companies need to improve the performance of quality control and lower the defect rate of products so that cost can be lowered warranty. i. Inventory days of Supply Inventory days of supply are on the classification of assets, supply chain management efficiency inventory days of supply measures the adequacy of supply to the units of time (days). Thus, inventory days of supply is the average duration (in days) of a company can survive with the amount of inventory on hand (if there is no further supply) Supply chain performance said to be good if the asset is able to play fast (in other words have a high asset turnover). Thus, the shorter the inventory days of supply, the better the performance of a supply chain assets To be able to calculate or know Inventory days of supply required data on the average inventory, and demand components per year. For the case of PT Biomethagreen, the data required is the average number of available inventory in the warehouse company and fertilizer requirements Biomethagreen per year. After making observations and interviews to the PT Biomethagreen, author got the data as follows: 1. The average company save Biomethagreen fertilizer in warehouse is (Σ final inventory / 10 months) = 6591 units 2. Needs of Biomethagreen fertilizer per year is pcs 3. Amount of workdays per year is 250 days 4. So, (71910 / 250) = So, inventory days of supply (6591 / 288) = 23 days Based on the above calculation obtained inventory days of supply that is 23 days. When compared with the value of inventory days of supply in the category that best in class for 55 days and the category average is 84 days, the company included in the category of best in class. So the company is considered to have reasonably good performance. So it is not necessary to have any improvement for this category.

9 W.H. Utami, I. Primiana, and B. Harsanto Green Supply Chain Management at j. Cash to Cash Cycle Time Cash to cash cycle time is the time between the companies to pay material suppliers and receive payments from customers for products made from these materials. This metric measures the speed of changing the supply chain inventory into cash. The shorter the time required, the better the supply chain. Good companies normally have the cash to cash cycle short There are 3 (three) components in the calculation of cash to cash cycle time, namely: The average accounts receivable (in days) which is a measure of how quickly customers pay for goods already received. Average account payable (in days) that measures the speed of the company to pay to the supplier for material component accepted. The average inventory (in days, the inventory days of supply). Formula to measure cash to cash cycle time is: Cash to cash Cycle time = inv tory of supply + avg of accounts receivable avg of accounts payable [days] In the case of Biomethagreen fertilizer, based on interview and observation in field, obtained the data as follows: 1. Company inventory days of supply = 23 days 2. Average days of account receivable = 90 days 3. Average days of account payable = 60 days So, cash to cash cycle time Biomethagreen fertilizer is = = 53 days Based on these values, if compared with the cash to cash cycle time in the category best in class in the amount of 35.6 days and the category average of 99.4 days, the company is included in the average category. So as to arrive at the class best in class, companies need to improve corporate performance, particularly in attracting funds in the consumer. k. Asset Turns Asset turns is a metric that there is also the category of asset management supply chain efficiency. Asset turn is how many times assets can be used to obtain revenue and profit. To obtain the value of the asset turn required data about the current amount of assets owned by the company and the revenue obtained by the company for one year Value of the assets turn for PT. Biomethagreen is 24 times, if compared with the value of assets turns on the category that best in class 4.7 times and category of the average at 1.7 times then the companies included in the category of best in class. So companies only have to maintain its performance. Value of assets turn is higher than average because of the company, implementing the green supply chain management, which is use of raw materials which are recycled materials, so the efficiency is very high and the company's profit is high enough. References [1] Bolstorff, P. and Rosenbaum, R Supply Chain Excellence: A handbook for Dramatic Improvement Using the SCOR Model. Amacom: New York. [2] Chopra, S., and Meindl, P Supply Chain Management. 4th Edition. New Jersey: Pearson. [3] Cohen, S., and Rousseel, J Supply Chain Management The 5 Disciplines For Top Performance. New York: McGraw-Hill. [4] Creswell, J Research Design: Qualitative and Quantitative Approaches. Sage Publications: California. [5] Fortes, J Green Supply Chain Management: A Literature Review. Otagon Management Graduate Review. [6] Ho, J., Shalishali, M., Tseng, Tzu-Liang., and Ang, D Opportunities in Green Supply Chain Management. The Coastal Business Journal, p. 12. [7] Irfan, D., Xiaofei, X., and Chun, D.S A SCOR Model of the Supply Chain Management System in an Enterprise. The International Arab Journal of Information Technology, p [8] Kushwaha, G Sustainable Development through Strategic Green Supply Chain Management. International Journal of Engineering and Management Sciences. [9] Mahendrawathi, P Supply Chain Management. Surabaya: GunaWidya.

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