129873843-Chapter-18

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i i g g h h t t © © 2 2 0 0 1 1 3 3 D D o o r r l l i i n n g g K K i i n n d d e e r r s s l l e e y y ( ( I I n n d d i i a a ) ) P P v v t t . . L L t t d d . .

Chapter 18

Chapter 18 Sustainability and the Supply Chain

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C C o o p p y y r r i i g g h h t t © © 2 2 0 0 1 1 3 3 D D o o r r l l i i n n g g K K i i n n d d e e r r s s l l e e y y ( ( I I n n d d i i a a ) ) P P v v t t . . L L t t d d . .

Learning Objectives

•

• Understand the importance of sustainabiliUnderstand the importance of sustainability in a ty in a supply chainsupply chain

•

• Discuss the challenge to sustainability posed by the tragedy of Discuss the challenge to sustainability posed by the tragedy of

the commons the commons

•

• Describe key metrics that can be used to measure sustainabilityDescribe key metrics that can be used to measure sustainability

for a supply chain for a supply chain

•

• Identify opportunities for improved sustainability in variousIdentify opportunities for improved sustainability in various

supply chain drivers supply chain drivers

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The Role of Sustainability

in a Supply Chain

•

• The health and survival of every supply chain and everyThe health and survival of every supply chain and every

individual depends on the

individual depends on the health of the surrounding worldhealth of the surrounding world

•

• Expand the goal of a supply chain to others that may be affectedExpand the goal of a supply chain to others that may be affected

by supply chain decision by supply chain decision

•

• Factors driving focus on sustainabilityFactors driving focus on sustainability

Reducing risk and improving the financial performance of the Reducing risk and improving the financial performance of the supply chain

supply chain

Attracting customers who

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o o p p y y r r i i g g h h t t © © 2 2 0 0 1 1 3 3 D D o o r r l l i i n n g g K K i i n n d d e e r r s s l l e e y y ( ( I I n n d d i i a a ) ) P P v v t t . . L L t t d d . .

The Tragedy of the Commons

•

• Dilemma arising when the common good does not align perfectlyDilemma arising when the common good does not align perfectly

with the good of individual entities with the good of individual entities

•

• Getting any agreement on action is difficult because the optimalGetting any agreement on action is difficult because the optimal

joint acti

joint action is not on is not individually optiindividually optimalmal

•

• Need for intervention but considerable disagreement on theNeed for intervention but considerable disagreement on the

required form of

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What are Some Solutions

to this

“Tragedy”?

•

• No solution without taking away some of the freedom thatNo solution without taking away some of the freedom that

participants participants

•

• Need to choose from options that are unlikely to be supported byNeed to choose from options that are unlikely to be supported by

all of their own free will all of their own free will

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What are Some Solutions

to this

“Tragedy”?

•

• Mutual coercionMutual coercion –– social arrangements or mechanisms coerce allsocial arrangements or mechanisms coerce all

participants to behave in a way that helps the common good participants to behave in a way that helps the common good

Command-and-con

Command-and-control trol approachapproach Market mechanisms

Market mechanisms



 Cap-and-tradeCap-and-trade 

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Key Metrics for Sustainability

•

• Energy consumptionEnergy consumption

•

• Water consumptionWater consumption

•

• Greenhouse gas emissionsGreenhouse gas emissions

•

• Waste generationWaste generation

Challenges with scope Challenges with scope

Absolute or relative measures of

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Sustainability and Supply Chain Drivers

•

• Opportunities identified by matching the four categories withOpportunities identified by matching the four categories with

•

• FacilitiesFacilities

Significant consumers of energy and water and emitters of Significant consumers of energy and water and emitters of waste and

waste and greenhouse gasesgreenhouse gases

Separate the improvement opportunities into those that Separate the improvement opportunities into those that generate positive cash flows and those that do

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Sustainability and Supply Chain Drivers

•

• InventoryInventory

Raw materials, work in process, finished goods and inventory Raw materials, work in process, finished goods and inventory sitting in typical landfill

sitting in typical landfill

Life cycle assessment (LCA) can be used to assess a

Life cycle assessment (LCA) can be used to assess a product’sproduct’s

environmenta

environmental l impactsimpacts

Goal is to reduce harmful inventory and unlock the unused Goal is to reduce harmful inventory and unlock the unused value in products when they are

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Sustainability and Supply Chain Drivers

•

• TransportationTransportation

Lower transportation costs also tends to reduce emissions and Lower transportation costs also tends to reduce emissions and waste

waste

Product design a significant role in reducing transportation cost Product design a significant role in reducing transportation cost and emissions

and emissions

Reducing packaging and allowing greater density during Reducing packaging and allowing greater density during transportation

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Sustainability and Supply Chain Drivers

•

• SourcingSourcing

Majority of energy and water use and waste and emissions Majority of energy and water use and waste and emissions occurs in extended supply chain outside the enterprise

occurs in extended supply chain outside the enterprise

Extended supply chain and work with their suppliers to improve Extended supply chain and work with their suppliers to improve performance

performance

Verifying and tracking supplier performance on sustainability is Verifying and tracking supplier performance on sustainability is a major challenge

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Sustainability and Supply Chain Drivers

•

• InformationInformation

Good information is a big

Good information is a big challengechallenge

Absence of standards leads to claims of improvement that are Absence of standards leads to claims of improvement that are not verifiable

not verifiable

Leads to company-specific standards and an explosion of Leads to company-specific standards and an explosion of certificatio

certifications and ns and certifying agenciescertifying agencies

Use of consistent measures within a supply chain Use of consistent measures within a supply chain

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Sustainability and Supply Chain Drivers

•

• PricingPricing

Consumption visibility and differential pricing by load or time of Consumption visibility and differential pricing by load or time of day may make a

day may make a significant differensignificant difference in the usage of energyce in the usage of energy Change

Change customer’scustomer’s willingness to pay for a product that iswillingness to pay for a product that is produced and distributed in a more sustainable manner but produced and distributed in a more sustainable manner but costs more

costs more

Sustainability cannot be improved simply by focusing on Sustainability cannot be improved simply by focusing on reducing costs or the use of

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Closed-Loop Supply Chains

•

• Supply chains cause significant harm to the environment whenSupply chains cause significant harm to the environment when

their output ends up in a landfill their output ends up in a landfill

•

• Improve sustainability by designing products that can be reusedImprove sustainability by designing products that can be reused

and recycled and recycled

•

• Must be supported by Must be supported by a supply chain that ensures recyclinga supply chain that ensures recycling

•

• Economic interests of all the parties must be understood andEconomic interests of all the parties must be understood and

aligned for the activities to be

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Sustainability of Indian Supply Chains

•

• How will Indian supply chains adapt and reshape themselves in anHow will Indian supply chains adapt and reshape themselves in an

energy constrained, low-carbon global

energy constrained, low-carbon global environmentenvironment??

•

• How will the above constraints impactHow will the above constraints impact India’sIndia’s hopes of becominghopes of becoming

the second

the second most preferred most preferred manufacturmanufacturing outsourcing destination?ing outsourcing destination?

•

• Identify some of the service industries in which the strategy of co-Identify some of the service industries in which the strategy of

co-opetition can be gainfully employed in

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Summary of Learning Objectives

•

• Understand the importance of sustainabiliUnderstand the importance of sustainability in a ty in a supply chainsupply chain

•

• Discuss the challenge to sustainability posed by the tragedy of Discuss the challenge to sustainability posed by the tragedy of

the commons the commons

•

• Describe key metrics that can be used to measure sustainabilityDescribe key metrics that can be used to measure sustainability

for a supply chain for a supply chain

•

• Identify opportunities for improved sustainability in variousIdentify opportunities for improved sustainability in various