© 2010 e2open, inc. all rights reserved. supply chain performance in a green context ifc event –...
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© 2010 E2open, Inc. All rights reserved.
Supply Chain Performance in a Green ContextIFC Event – Can Green & Lean Go Together?Washington, DC – December 13th, 2010
IFC Event {Can Green & Lean Go Together} – December 13th, 20102
Agenda
Framing the Challenge
The Green Context of Supply Chain Operations
How New SCM Practices Can Enable the Green Trend
1
2
3
Framing a Comprehensive Green SCM Strategy4
IFC Event {Can Green & Lean Go Together} – December 13th, 20103
First off, The Field of SCM is Highly Difficult to OptimizeThe Uncanny Resemblance with Chaos Theory
1. Complex systems consist of a large number of elements.2. The elements have to interact and this interaction must
be dynamic. 3. The Interaction is fairly rich, i.e. any element in the system
influences, and is influenced by, quite a few other ones.
4. Firstly, the interactions are non-linear. 5. The interactions usually have a fairly short range, i.e.
information is received primarily from immediate neighbours.
6. There are loops in the interaction.7. Complex systems are usually open systems, i.e. they interact
with their environment.
8. Complex system operate under conditions far from equilibrium.
9. Complex systems have a history. Not only do they evolve through time, but their past is co-responsible for their present behaviour.
10. Each element in the system is ignorant of the behaviour of the system as a whole.
IFC Event {Can Green & Lean Go Together} – December 13th, 20104
… and In addition to Its Inherent ComplexityOptimizing SCM requires Collaboration; Are We Wired for It?
The Idea: Unlike ants and bees, humans aren't hard-wired for cooperation; we tend to act out of self-interest. That inclination repeatedly draws us into "social dilemmas" where, in an attempt to gain more for ourselves, we ultimately fare worse than we would have by cooperating.
The evidence: The trick is to establish an agreement where everyone's self-interest is best served by cooperating. That means removing incentives to violate the agreement.
The Conclusion: Businesses are nothing but federations of human beings. We think we’re different and unique and we behave in ways that protect and promote that uniqueness. We need to overcome some innate apprehensions to build a winning green value proposition for key supply chain partners
http://www.newsweek.com/id/170380
IFC Event {Can Green & Lean Go Together} – December 13th, 20105
Why is Supply Chain Management a Good Starting Point?
Source – http://www.eia.doe.gov/emeu/aer/pdf/aer.pdf
60%
IFC Event {Can Green & Lean Go Together} – December 13th, 20106
… and yet, the Green SCM Revolution Remains Elusive
Fortune 500 22
# of Fortune 500 companies that have initiated some Green
SCM strategy
# of Fortune 500 companies that have approached this with their trading partners
0
JANUARY 2010
IFC Event {Can Green & Lean Go Together} – December 13th, 20108
Achieving this Paradigm ShiftRequires a Perception Change of CO2 as a Decision Variable
Defects Inventory Waiting Excess Motion
Over Production
Over Processing
Transportation
CO2 / GHG
1 2 3 4
5 6 7 8
Carbon in the Business Environment Needs to be De-Mystified
Introducing Carbon as the 8th Muda
IFC Event {Can Green & Lean Go Together} – December 13th, 20109
Agenda
Framing the Challenge
The Green Context of Supply Chain Operations
How New SCM Practices Can Enable the Green Trend
1
2
3
Framing a Comprehensive Green SCM Strategy4
IFC Event {Can Green & Lean Go Together} – December 13th, 201010
Where is the Carbon in the Supply Chain?Everywhere! Supply Chain activities create significant carbon emissions,
making supply chain an important focus for clients seeking to reduce their carbon footprint
Suppliers & Manufacturers
Customers & Channels
• Design for the Environment
• Carbon footprint thinking throughout product lifecycle design
• How can the total network be optimized considering service, cost, “green” tradeoffs
• What CO2 impact is there from various inventory concepts & planning methodologies
• How can we best measure a supplier’s carbon impact (product, packaging, upstream logistics) and ultimately compliance with carbon reduction requirement?
• How should we evaluate carbon offsets?
• What operations strategy (facility location, operating model) provides the best trade-off between cost, service, carbon?
• Is there a role for sustainable factory / facility mgmt?
• What distribution network strategy (facility locations, sizes, transport modes) provides the best tradeoff of cost, service and carbon?
• How can packaging be reduced and recycled?
• How can field service operations reduce carbon footprint with better routing and parts inventory tracking?
• Feedback loop to engineering to reduce impact
• Various strategies to reduce impact throughout lifecycle
Flows: Product, Process, Information, Cash
SC Strategy Procurement LogisticsIntegrated Ops Integrated Ops
Plan Source Make DeliverDesign Service & End-of-Life
Asset Management
Finance
Sustainable facilities management: Green building & renewable energy; carbon footprint asset management; Asset utilization (Real-time data on energy usage; Carbon dashboard)
Paperwork Reduction; Environmental Cost Accounting; Environmental Tax Benefits Tracking
PLM
IFC Event {Can Green & Lean Go Together} – December 13th, 201011
On the Need to Embed CO2 as a New Operational Variable Exhibit 1 – Procurement Strategy Scenario
Volume
DistanceCarbon Impact
Unit Cost
Mexico
China
As-Is
To-Be
New “Green” Value Equation = Actual Cost (Production + Transportation) + Corresponding Carbon Cost
ABC, Inc
Classic Value Equation = Least Production Cost despite the Transportation Cost
ABC
ABC
IFC Event {Can Green & Lean Go Together} – December 13th, 201012
On the Need to Embed CO2 as a New Operational Variable Exhibit 2 – BOM and Routing in a CO2-Constrained SC
IFC Event {Can Green & Lean Go Together} – December 13th, 201013
On the Need to Embed CO2 as a New Operational Variable Exhibit 3 – Planning ‘Noise’ & GHG Responsibility
A Value Chain Network View
PrevailingView
Our View
Leverage +–
What is a fabless company Carbon Footprint?What is its environmental responsibility?
IFC Event {Can Green & Lean Go Together} – December 13th, 201014
Noise in the Supply Chain is Neither Lean nor GreenThe Carbon Reverse Bullwhip Effect
Extended Supply Chain ViewEnd Custom
ers
Suppliers RetailersPlants
Caron Buildup Process
Classic Bullwhip
Effect
True Customer Demand
InventoryProduced
Amount of Inventory
Inefficiencies
CarbonProduced
Amount of Carbon
Inefficiencies
IFC Event {Can Green & Lean Go Together} – December 13th, 201015
On the Need to Embed CO2 as a New Operational Variable Exhibit 4 – The Elusive SCM Cost Breakdown
Labor Cost
Su
pp
ly C
hai
n C
ost
Dri
vers
The “Fictitious” Border between
Tangible & Intangible Costs
Cost Drivers
Material Cost
Manufacturing Costs
Logistics Costs
Tang
ible
Cos
tsIn
tang
ible
Cos
ts
Obsolescence Exposure
Quality Costs
Green Cost
Hypothetic Dependency of Network Structure, Logistics Cots & Oil Price
Source – Gross, W. and Hayden, C. – Oil Price Impact on Logistics Network Structure – a Model-Based ApproachProceedings of the International Workshop on Applied Modeling & Simulation
May 5-7, 2010 – Buzios, Rio de Janeiro, Brazil
IFC Event {Can Green & Lean Go Together} – December 13th, 201016
Observation # 1
• Local and Regional Models need to be encouraged (less carbon footprint and less inventory as a result of reduced lead times)
Local Model
RegionalModel
GlobalModel
Which Leads Us to Some Interesting Observations
CCX
ECX
AP
OCE
Observation # 2
• Proliferation of CO2 trading platforms will delay properly tackling the problem
• Carbon trading should be approached as a global commodity
IFC Event {Can Green & Lean Go Together} – December 13th, 201017
Agenda
Framing the Challenge
The Green Context of Supply Chain Operations
How New SCM Practices Can Enable the Green Trend
1
2
3
Framing a Comprehensive Green SCM Strategy4
IFC Event {Can Green & Lean Go Together} – December 13th, 201018
Green Supply Chain ManagementValue of a Network Approach
BOM Analysis Tier2+ Partner Selection
Channel / Distribution
Reverse Operations
Supply• Substitutable
components• Sourcing choices• Location choices
Inventory policy• Safety stocks• Lot sizes• Replenishment
VMI/VMR
Packaging• Package size
options• Package recycling
options• Corrugated box
Energy• Embodied Energy• GHG Regulatory $
Impact
Transportation• Modes• Shipment
frequency• Load consolidation• Carrier routing
Processing• Manufacturing
process• Quality control
Processing• Repair /
refurbishment process
• Shipment process• Quality control
Processing• Order fulfillment• Shipment process• QC process• Organizational
management process
IFC Event {Can Green & Lean Go Together} – December 13th, 201019
Green Supply Chain ManagementImplementing a Network Approach
Provide performance KPI’s to customers
Associate compliance to Orders & Inventory
Automate Compliance Data Collection
Sustainability & SC Integration
19
IFC Event {Can Green & Lean Go Together} – December 13th, 201020
Agenda
Framing the Challenge
The Green Context of Supply Chain Operations
How New SCM Practices Can Enable the Green Trend
1
2
3
Framing a Comprehensive Green SCM Strategy4
IFC Event {Can Green & Lean Go Together} – December 13th, 201021
12 Ideas to Make Your Supply Chain Greener
IFC Event {Can Green & Lean Go Together} – December 13th, 201022
Exploring the Ideas
Redesign the product Reconfigure Manufacturing Shift to Green Suppliers
Shorten Distances Alter service-level agreements Shrink packaging