Green Supply Chain Management Analytical framework

1
Green Supply Chain Management Analytical
framework
Environmental dimension
Input
Process
(process inventory or environmental impact
indicator of process)
Output
2
Green Supply Chain Management Analytical
framework
Economic dimension
Input
Process
Output
value added
3
Supplier Customer Relationship Industrial
Ecology Perspective

• Suppliers are providers of
• Direct materials
• Indirect material
• Low-entropy energy

• Customers are users of
• Direct materials
• Indirect material
• Low-entropy energy

Production process
Direct materials
Economic output
Indirect materials
Wastes emissions
Low-entropy energy
High-entropy energy
4
Supplier contracts and input productivity
Producer of yConsumer of x
Output quantity y
Input quantity x
(e.g. doors)
(e.g. paint)
Input productivity

• Supplier contract
• Specifies how consumer of x (customer) pays
  producer of x (supplier).
• Contracts can be based on a variety of criteria
• Volume unit price of paint x volume of paint
• Service unit service fee x amount of service
• Volume and service (mixed contract) unit
  service fee x amount of service unit paint
  fee x volume of paint

5

• Reiskin et al (2000) Reducing chemical
  throughput through servicizing
• 2 key preconditions
• Function-to-volume ratio (productivity) of
  material is not constant
• Supplier able to change business model from
  selling material into selling service

• Motivation for supplier
• Building stronger relationship with customer
• Knowledge about the needs of the customer gives
  competitive advantage

• Motivation for customer
• Cost of chemical use typically far exceeds
  purchase cost (large savings potential)
• Direct access to expertise of the chemical
  producer
• Less resources diverted from core competencies

6
Volume-based contract and constant input
productivity
Input quantity x
Output quantity y
(e.g. doors)
(e.g. paint)
Input productivity
Supplier profits
Customer profits
Sell more
Incentives aligned!
Economic driver regarding input x
Use more
7
Volume-based contract and constant input
productivity

• Paint/door example
• Supplier paid per gallon of paint
• Input productivity fixed (constant amount of
  paint per door)
• The economic incentives of supplier and customer
  are aligned
• Customer Sell more doors, i.e. use more paint
• Supplier Sell more paint
• Other examples
• Manufacturer and wholesaler
• Wholesaler and retailer

8
Volume-based contract and variable input
productivity
Input quantity x
Output quantity y
(e.g. doors)
(e.g. paint)
y is not a function of x
Supplier profits
Customer profits
Sell more
Conflicting incentives!
Economic driver regarding input x
Use less
9
Volume-based contract and variable input
productivity

• Paint/door example
• Supplier paid per gallon of paint
• Paint required to paint door is variable
• The economic incentives of supplier and customer
  are conflicting
• Customer Sell more doors using less paint
• Supplier Sell more paint
• Other examples
• Direct materials Manufacturing yield of
  materials (prompt scrap)
• Indirect materials Solvents, lubricants,
  cleaning agents, packaging
• This is the standard situation for direct and
  indirect material suppliers

10
Service-based contract and variable input
productivity
Input quantity x
Output quantity y
(e.g. doors)
(e.g. paint)
y is not a function of x
Supplier profits
Customer profits
Use less
Incentives stillnot aligned!
Economic driver regarding input x
Indifferent
11
Mixed contract and variable input productivity
Input quantity x
Output quantity y
(e.g. doors)
(e.g. paint)
y is not a function of x
Supplier profits
Customer profits
Use less
Economic driver regarding input x
Incentives aligned!
Use less
12
Service-based contract and variable input
productivity

• Paint/door example
• Supplier paid per painted door
• Paint required to paint door is variable
• The economic incentives of supplier and customer
  are not quite aligned
• Customer Customer is indifferent with respect
  to paint use
• Supplier Use less paint per painted door

Mixed contract and variable input productivity

• Paint/door example
• Supplier paid per painted door and gallon of
  paint
• Paint required to paint door is variable
• The economic incentives of supplier and customer
  are now aligned
• Customer Use less paint per painted door
• Supplier Use less paint per painted door

13

• Reiskin et al (2000) Reducing chemical
  throughput through servicizing
• Challenges
• Difficulty of transferring such a complex task
  as chemicals management to a supplier
• Individual and organizational resistance to
  change
• Increase in interdependency between supplier and
  customer
• May be regarded as outsourcing (including job
  losses etc.)

Summary

• Goal of servicizing Increase productivity of
  material inputs (direct or indirect)
• Obstacle Supplier usually have incentive to
  sell more (volume-based contract)
• Response Supplier contract based on service
• Danger That customer looses incentive to reduce
  material inputs
• Solution Find contracts and business models
  that align supplier and customer
  incentives in the best possible way

14
Reading for Monday, April 16 Chouinard Y,
Brown M (1997) Going Organic Converting
Patagonias Product Line, Journal of Industrial
Ecology 1(1) pp 117 - 130 Posted on course
website. Speaker for Monday Michael Brown,
Environmental Consultant, Santa Barbara