Green Supply Chain Management much more than questionnaires and IS

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1 Green Supply Chain Management much more than questionnaires and IS Ab Stevels Design for sustainability Programme Faculty OCP, Delft University of Technology Jaffalaan 9, Delft, The Netherlands Abstract Green supply chain management goes clearly beyond substance questionnaires and IS In this paper it is demonstrated that supplier-producer cooperation in the fields of EcoDesign (Design for the Environment) and in benchmarking of manufacturing processes can yield impressive ecological and economic gains. Examples are shown in the fields of energy consumption of products, application of recycled material, take back and recycling and use of utilities in production. In all these fields it shows that what is measured is better managed. Keywords Green supply chain 51 INTRODUCTION Ecodesign (Design for Environment) is gaining momentum; it is becoming rewarding to be environmentally proactive. In the ten years of its existence it has developed from a design-rule and compliance oriented technical activity into business-integrated and crossfunctional management of green creativity processes (see ref.1). Currently this approach is consolidated in Product Environmental Care systems (see ref. 2 and 3) and the first steps have been set to come to further intemational standardisation (see the draft IS Technical Report). With EcoDesign and Product Environmental Care now in the process of being well established among producers the basis bas been created to expand the concepts among the Value Chain. Downstream this means better exploitation of the results in the market. First studies for electronic products (see ref. 4 and 5) indicate that green and such does not sell, but when combined with other benefits of the products on offer it can be a strong enhancer of the business. On the upstream site, that is addressing suppliers of materials, components and subassemblies for better environmental performance, activities should attribute to lower the life cycle impact of goods brought to the market. So far, activities have been focussing on two items: IS certification of suppliers. This is to make sure that they are well organised in the environmental field. Although continuous improvement in one of the elements of IS , certification is no guarantee that such improvements are really delivered. Making sure that supplied articles do not contain banned substances. Often substance checklists and supplier certification to be free of banned substances has to do with legal requirements and as such can he characterised as being defensive rather than contributing to environmental progress. A substantial widening of joint supplier-producer environmental activities is however justified by the mere fact that it is estimated that for electronic products suppliers activities contribute 60-70% of the total environmental load (and value) in the production - with the current trend of increased outsourcing of production of finished products this percentage will go up in the near future to even higher figures. This figure is getting even more stature if it is realized that a majority of the suppliers has sofar little ambition in the environmental field and does not see the green opportunity as part of their strategy. For instance study of a couple of years ago (see ref. 6) showed that in Westem Europe 70% of the suppliers of a leading electronic company did not have well established and implemented environmental policies. In the present paper it will he explored what can be done to improve the situation as sketched above. Too a large extent this will draw on experience inside the intemal value chain of companies. In 52 it will he explored how the driver and benefit concept can be extended. In 53 joint roadmapping will be sketched as the key to success. In 94 and $5 examples of successful supplier-producer of finished products will he given. Also at the Ennvironmental Competence Centre, Philips Consumer Electronics Eindhoven X/02/$ IEEE 96

2 92 THE DRIVER AND THE BENEFITS CONCEPTS Understanding the drivers and benefits of green supplier-producer relationships a process which should be the basis for working together. A primary driver for such cooperation is the supply chain concept which is included in the five ecomanagement principles (see ref.3). Here the concept means that the parties involved - through collaboration - enable each other to improve overall environmental performance of the supply chain. The other four ecomanagement principles, that is thinking in terms of functionality instead of embodiments, hgalness (do more with less), life cycle thinlung and paradigm shift (asking why are things as they are ) can be operated independently and separately by each part of the value chain, but it will be clear that when operated jointly this will be add greatly to the results. When having grasped the ecomanagement principles it is important to understand the potential benefits for joint activity. This is particularly important because currently joint environmental improvement is mostly not identified upfront with lower costs which currently is dominating strongly supplier relationships. On the contrary, there is still widespread fear and prejudice that environmental activities will add cost, in spite of the fact that it has demonstrated that in the electronic industry a lot of activities actually bring money (see ref. 7). Benefits of cooperating can go wider than just lowering cost. Also quality increase (less rejects) and better image in the outside world should be considered as well. External drivers to stimulate greening of the supply chain final customer requirements and (draft) legislation. As things stand now these are still underdeveloped andor immature. A good example of this is the draft Directive on Environmental Conformity of Electronic and Electrical Equipment (EEE) of the European Union. Amidst a lot of other essential requirements - most of which are very ill defined - it is asked that producers collect life cycle data from suppliers. As such there is nothing against it- what is measured is better managed. From the language in the EEE draft is it becoming clear however that the collection of the data is not meant for management purposes but to allow detailed life cycle analysis. As will be shown in $3 this is not the beginning of joint processes but rather the end. The absence of clear requirements of customers of final products and by legislation does not mean that these stakeholders group should be neglected. Benefits of supplier-producer cooperation should be delivered, either materially, immaterially of emotionally. In analogy to the EcoDesign Matrix as discussed in ref. 1, following Supply Chain Matrix is proposed to evaluate and prioritise proposals for joint environmental improvement. Table 1. The Benefit matrix for green supply chain cooperation Producer Customer Society I category Material Lower Environmental I Lower cost price I load Immaterial Overcoming prejudice Less rejects and cynicism Emotion Motivation of Better image I stockholders I I This table shows that a multitude of aspects is to be considered. This multitude (and the - limited - experience so far) makes that it is advised to start the process in meetings which are separate from the usual supplier - producer contacts although the key persons from the sales department of the supplier and the purchasing department from the producers should remain the same. Environmental specialists should support the processes where ever they can but the very integration of environment into the business (see ref. 1) require that they do not take the lead. ownership I life Less consumption of resources Better compliance Industry in on the right (green) track 93 DEVELOPING THE GREEN SUPPLY CHAIN AGENDA In order to develop an adequate green supply chain agenda it is crucial that the producer has an environmental vision and has environmental policies and roadmaps in place. In particular the roadmap which describes in detail where the organisation stands, where it wants to go in a few years time and who is the owner of the roadmap items. Due to their very tangible nature, environmental roadmaps transform all defined concepts as doing good for the 97

3 environment and contributing to sustainahility into targets and processes, which can be managed and monitored. Joint roadmap items could include the following: 1. Organisational items I. 1 Joint programmes (content) 1.2 Defining responsibilities 1.3 Deployment and managing the common processes 1.4 Monitoring and corrective actions 2. Delivering performance 2.1 Performance indicators 2.2 Ensuring compliance 2.3 Rewards and penalties 2.4 Contracts 3. Enabling better product design 3.1 Energy consumption (of final product) 3.2 Material application (id) 3.3 Chemical content and substances (id) 3.4 Take back and recyclability 4. Manufacturing at suppliers 4.1 Benchmarking and data acquisition 4.2 Use of auxiliaries 4.3 Use ofutilities - Energy - Water - Other 4.4 Waste, emissions 4.5 Packaging and transport The chapter 1 and 2 closely relate to usual management practices (he it that the wording environmental or preen ) has been added and need no further elaboration. For the product design items (chapter 3) the enabling nature is the prominent feature. In the field of energy consumption (3.1), aligning of componenti subassembly development with printed wiring boardproduct development is the key element in the competence of the supplier is a success factor. In the materials department (3.2), application of recycled material plays an important role, here, the producer has to adapt product designs to enable the supplier to incorporate such material. Chemical content and substances items (3.3) concerted transformation is crucial both in terms of the logistics of change as of absorbing the extra cost involved in this. The take back and recycle item includes that the supplier is prepared to take back and upgrade materials originating ffom product defects from products discarded by consumers after use. For the chapter 4, Manufacturing at suppliers, a benchmarking activity is of key importance. Benchmarking means that at different suppliers (of the same material, component or subassembly) physical parameters of environmental interest (like kwh, kg, % etc) are measured on a scale that is related to the net amount of articles delivered. These measurements allow to identify best practices and to make these best practices communicable. This approach contrasts to a Lifecycle Analysis approach, which is taking a holistic, specific environmental perspective and uses absolute ( environmental profiles ) instead of relative tem. Apart from its complexity its uses language, which is difficult to understand by the non-experts and as such violates the principle that environment should be integrated into day.to.day practices. 54 EXAMPLES OF SUCCESSFUL GREEN SUPPLY AGENDAS 1. ENABLING BETTER PRODUCT DESIGN Most examples give below relate to experiences by the author in his capacity as Senior Advisor of Philips Consumer Electronics. In the fields of energy consumdtion, the ambition to be among the best among global producers led to a close alignment of the roadmap targets with the use of the IC suppliers. This has resulted in the following scores with respect to competitors products with similar functionality and features. Table 2. Energy consumdtion of Droduct where joint supplier-producer road aps for IC s were implementt I Audio System Portable radio n, 1 Operatianal energy (W) Standbyenergy(W Portable Dhone Use itau;merfl (W) Standby energy (W L3; Recvcled material is now applied for several years for interior parts of TV s. In order to allow for this, the design of the parts had to he adapted to the slightly inferior mechanical properties when applying such material. Also the moulding procedure at the supplier had to be adapted. Application of recycled material for outer parts like housings tumed out to be feasible when similar adaptations were applied. This effect did not work out in practice however because customer acceptation (quality perception) turned out to be low ( negative immaterial benefit, see $2). Joint efforts in the field of chemical content and substances focus on the following items: 98

4 Lowering of the size of printed wiring boards and of the number of components on the pwb s by joint planning of more integrated IC s, see for details for instance ref. 1. Transformation from halogen-containing pwb materials to halogen-free. In high end applications in TV s and monitors, transformation cost could be absorbed since the replacement materials were cheaper than the halogen containing ones. In lowend applications there are opportunities as well but much will depend on economies of scale and negotiation skills. Introduction of lead-free solders. Technically this is possible and the current roadmap plans complete elimination of lead containing solder by the end of the year However there is still a lot of hesitation particularly because environmental benefits are unclear and the outcome of studies on the subject is diverging (depending whether emissions, resources or potential toxicity is considered to be most important). In the field of take-back and recvclabilitv, take back in turn items play a major role. This means that producers when they buy certain amounts of materials or components, they are entitled to give back to the supplier a proportion of such amounts as a secondary stream. Such stream arise after treatment of factory rejects, transport damages or from products discarded by the consumer for which legislation makes the producer responsible. Currently the take back in turn issue is hotly debated for Cathode Ray Tube Glass (TV s, monitors), engineering plastics like high impact Polystyrene and Polycarbonates. It also could in the near future for components like electrolytic capacitors and Liquid Crystal Displays. 95 EXAMPLES OF SUCCESSFUL GREEN SUPPLY AGENDAS II. MANUFACTURING AT S U PPLl E RS Assuming the environment quality at suppliers has been pioneered by Lucent Technologies. Full details of the methodology applied are given in ref. 6, specific parts are addressed in refs. 7 and 8. The basis idea in this approach is to benchmark suppliers as regards their performance in the following fields: 1. Material use ( substances which are potentially toxic) 2. Use of auxiliary materials 3. Water use 4. Energyuse 5. Emission to air, water 6. Waste 7. Packaging In all cases scores are related to the output (weight or number of products produced). Where relevant, ratio s are multiplied by quality ratio which represents specific items (for instance use of lead, bromides, nickel, and organic solvents in lacquers in 1, use of ozone depleting chemical, organic solvents, water purification chemicals in 2 etc.). In this paper two examples are cited from the references given above. The first one is about the comparison of the four topranking suppliers of finished printed wiring board materials. In the table below their scores in the seven departments are given. Table 3: Relative Environmental performance of four suppliers of finished printing wring board materials (1 00 = best) 2. Use of auxiliary material 3. Water use Energv use I 5. Emissions to I 100 I 67 I <1 I 39 air 6. Waste < Packaging I 14 I 4 I 16 I 100 This table shows first of all that here are big differences among the suppliers- the application of the quality constants make this very visible. No supplier scores consistently best allowing to indicate to each of them what the most urgent area of improvement from a competition should be. The underlying effect of collecting data to calculate performance was in all four cases that enormous awareness was created. On top of that the principle of what is measured is better managed fully applied - even without having data of the competition available improvement actions started. Since in all seven categories, environmental improvements almost correspond to cost reductions, the other managerial effect turned out to be that suppliers discovered a new and effective tool for cost reduction. Application of environmental benchmarking to a broader range of suppliers of printed wring board materials yielded even more managerial insight. Out of 25 suppliers invited to respond 4 were not prepared or incapable to provide the required information which was a starter to review the supply relationship in its totality. In 7 cases the materials balances constructed from the answers were way off balance showing serious flows in data control. Remediation of this has resulted (or will result) in substantial improvements including environmental ones. 99

5 In a further 5 cases some unlikely high of unlikely low answers (when compared with average scores) were obtained. In this category the same items apply as for the mass-balance category. In only 9 of the cases full satisfactory answers were obtained and similar processes could be started as in the case of the four printed wring board materials suppliers selected earlier. This example of the printed boards suppliers shows that an approach which is primarily aiming at environmental improvement can have a much wider significance. 56 CONCLUSIONS This study shows that widening and intensifying green supplier - producer relationship can be beneficial for the environment but also can contribute to better management practices in general. This conclusion both refers to Product Design (EcoDesigd Design for Environment) and to Manufacturing. Cornerstones underlying the yield of a variety benefits are developing a common understanding of the drivers and issues, developing common product design roadmaps and programmes and environmental benchmarking of manufacturing operations. 57 REFERENCES [l] Applied EcoDesign (Design for Environment), 10 years of dynamic development, A. Stevels, Proc EcoDesign 2001 conference, Tokyo Dec 2001, to be published. [2] Product Environmental Care, a Praxis-based system uniting IS , IS , IPP, EEE and Ecolabels. A. Stevels, Proc Int. Symposium on Electronics and Environment, Denver, May 2001, pp ISBN NR [3] Towards a Model for Product - Oriented Environmental Management Systems. H. Brezet and C. Rocha in Sustainable Solutions, M. Charter and U Fiscbner Eds. pp Greenleaf Publishers 2001, ISBN [4] Green Marketing of Consumer Electronics I. A. Stevels, Proc Electronics goes Green Conference, Berlin Sept 2000, pp , ISBN X [5] Green Marketing of Consumer Electronics 11. A. [6j Stevels, Proc EcoDesign 2001 Conference, Tokyo Dec 2001, to be published. Environmental Quality in the Supply Chain of an Original Equipment Manufacturer in the Electronics Industry. M.H. Nagel, Ph. D. Dissertation, Delft university of technology, Sept [7] Environmental-Economic Assessment Models in the Supply Chain Management Approach of an Original Equipment Manufacturer of Telecommunication Products, an Overview, M.H. Nagel, Proceedings of Electronics goes green 2000+, Berlin Sept 2000, pp , ISBN X. [8j Environmental Supply-Chain Management Versus Life Cycle Analysis (LCA) Method EcoIndicator 95, a relative business perspective, M.H. Nagel, Proc Int. Symposium on Electronics and Environment, San Francisco May 2000, pp