No class next Monday April 6

1
No class next Monday (April 6) Make-up class on
Tuesday, 21 April, 1230-145, BH1424
Reading for Wednesday, 8 April EPA (2000) The
Lean and Green Supply Chain Posted on course
website as EPA 2000.
2
Q Is the Tahoe Hybrid green?
A1 Depends on your benchmark.
A2 Depends on the definition of
green. Greenness is multi-dimensional.
Note Need for benchmark and multi-dimensionality
are fundamental differences between
environmental and economic performance assessments
3
Jackson Clift 1998
Q What does industrial ecology (IE) require?
A Theory of agency (who are the actors, what
motivates their actions).
Q Is there a theory of agency in IE?
A At best implicitly (economic agents, profit
maximization).
Q Is there evidence for profitable pollution
prevention?
A Plenty.
Q What are the mechanisms mentioned in the paper?
A Disposal costs, environmental penalties,
liability insurance, public image, input costs.
Q What do Jackson Clift mean by exporting
pollution?
A Outsourcing resource extraction and primary
processing.
Q How does the profit motive hinder
dematerialization?
A By encouraging to increase output.
Q Why do the authors mention US toxics use
reduction legislation?
A Example of conflicting motives between
producers and users of toxic substances.
Q What is the main idea behind the EU discussion
on ecological tax reform?
A Tax resource inputs instead of labor.
4
Two challenges of industrial ecology
1) How to coordinate the agents?
2nd tier supplier
1st tiersupplier
Manufacturer
Customer
Supply Chain Management
2) How to generate double dividends, or win-win
scenarios
Environmentallife cycle performance
Economic performance of agent
Green Supply Chain Management
5
Traditional definition of a supply chain
Raw materials mining
Primary materials production
Component manufacture
Final product assembly
Product sale and delivery
a network of facilities that procure raw
materials, transform them into intermediary goods
and then final products, and deliver the products
to customers through a distribution system. Lee
H, Billington C (1995) The Evolution of
Supply-Chain Management Models and Practice at
Hewlett-Packard, Interfaces 25 (5), pp 42-63,
Sept/Oct 1995   a network of facilities and
distribution options that performs the functions
of procurement of materials, transformation of
these materials into intermediate and finished
products, and the distribution of these finished
products to customers. Ganeshan R, Harrison T P
(1995) An Introduction to Supply Chain
Management, Penn State University   the
total chain of exchange from original source of
raw material, through the various firms involved
in extracting and processing raw materials,
manufacturing, assembling, distributing and
retailing to ultimate end customers. Saunders M
J (1997) Strategic Purchasing and Supply Chain
Management, Pitman, London
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Definition of supply chain management (SCM)

• managing business activities and
  relationships
• internally within an organization,
• with immediate suppliers,
• with first- and second-tier suppliers and
  customers along the supply chain, and
• with the entire supply chain.
• Harland C M (1996) Supply chain management
  relationships, chains and networks, British
  Academy of Management 7
• (Special Issue), pp S63-S80
• SCM has two dimensions
• Coordinating the various business activities
  within a supply chain agent
• Coordinating the business activities between
  various supply chain agents
• SCM is about integrating supply chain activities
  and agents.
• Systems theory Optimizing system
  components or sub-systems in isolation rarely
  optimizes the system as a whole.

7
Measuring supply chain performance / efficiency
Inputscosts
Outputs revenues
Processescosts
SCM is regarded as part of production and
operations management, which in turn is part of
management science. Management science is
typically guided by profit-maximization. (see
e.g. Tirole J (1988) The Theory of Industrial
Organization, MIT Press, Cambridge, MA)
Supply chain performance is therefore typically
related to profits profits revenues - costs

• Many different variables are used to measure SC
  performance, but they are all related to
  profitability
• The ultimate aim of traditional SCM is therefore
  to increase revenues and / or reduce costs
• In SCM the structures and patterns of product
  demand are typically taken as a given

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Supply chain improvements
Supply chain improvements are changes in the
organization, management or physical structure
of supply chains which increase expected profits
? expected profits ?(expected revenues
expected costs) gt 0
Supply chain costs

• product design, research development
• purchasing
• production
• inventory
• handling
• warehousing
• transportation
• etc.

Revenues
? (price x quantity) for all final products
Concepts and tools to improve supply chain
performance include Lean production or
just-in-time (JIT) (e.g. Toyota), build to order
vs. build to stock, outsourcing vs. vertical
integration (e.g. Flextronics), postponement,
concurrent design, enterprise resource planning
(ERP), electronic data interchange (EDI), etc.
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Example of traditional supply chain management
Economic order quantity (EOQ) See EPA (2000) The
Lean and Green Supply Chain, page 26-27
Variables D Annual demand (in of units) c
Unit production cost (in /unit) S Procurement /
setup costs per order / lot (in per order /
lot) h Inventory holding cost (in /unit and
year) Q Order quantity or lot size (decision
variable)
Total annual cost
Q
Calculating annual holding cost
time
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Example of traditional supply chain management
Economic order quantity (EOQ) See EPA (2000) The
Lean and Green Supply Chain, page 26-27
Total annual cost
Optimal order quantity / lot size
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Enter Green Supply Chain Management
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Claim Many win-win opportunities
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GSCM uses a life cycle perspective
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GSCM even seems to use LCA
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Time to take a systematic look a double dividends
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Opportunities for win-win scenarios

• Cost savings (e.g. ARM, 3P, WRAP, SMART)
• - Reducing waste
• - Saving energy
• - Product take-back

• Environmental risk management (Union Carbide,
  Exxon, Shell)
• - Industrial accident
• - Consumer boycott
• - Environmental lawsuit

• Product differentiation (e.g. organic produce,
  FSC, HEVs)
• - Customer willing to pay more for
  environmental benefits
• - Environmental benefits are credible
• - Protection from imitators

• Managing the competition (e.g. DuPont)
• - Private regulatory programs
• - Government regulation

• Redefining markets (e.g. Xerox, Interface,
  Mobility, StattAuto)
• - Products into services
• - Product innovations

(Source F L Reinhardt, HBS)