Green and Sustainable Supply Chain Management PracticesA Study of Wal-Mart Saurav Negi1, Neeraj Anand2 Doctoral Research Fellow, University of Petroleum and Energy Studies, Dehradun 2 Professor and Head-LSCM and Operations, University of Petroleum & Energy Studies, Dehradun 1
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[email protected] Abstract Supply Chain Management has emerged as one of the major key area for companies to gain competitive advantage in the market. It has been identified to have a significant impact on the natural environment and has resulted in a growing need for integrating environmental thinking into supply chain management and its processes, hence the companies are getting more attention as a sustainable development mode for modern enterprises, increasingly a part of Corporate Social Responsibility (CSR) initiatives and investing to achieve greener supply chain which can be waste eliminating, productivity improving and resource saving. This paper study the Green supply chain practices and green initiatives by an American multinational retailer Wal-Mart (World’s largest public corporation & retailer in the world), who has strengthened their supply chain management and coordination across the supply chain elements such as strategic sourcing, logistics management, supply chain information systems, and relationship management through “Green” initiatives. The organization used this initiative as competitive weapons to gain advantages over peers and also decreases its environmental footprint and increases profitability.
Keywords: Green Supply Chain, Best practices and Challenges.
Important Note: This Paper has been published in an Edited Book and should be cited as following for future references: Negi, S., & Anand, N. (2014). Green and Sustainable Supply Chain Management Practices- A Study of WalMart. In A. D. Dubey (IIM Calcutta), Emerging Business Sustainability (pp. 141-157). New Delhi, India: Research India Publication.
INTRODUCTION
Supply chain management has traditionally been viewed as a process where in raw materials are converted into final products, and then delivered to the end-consumer (Beamon, 1999).This process involves extraction and exploitation of the natural resources (Srivastava, 2007). All stages of a product’s life cycle will influence a supply chain’s environment burden, from resource extraction, to manufacturing, use and reuse, final recycling, or disposal management (Zhu et al., 2007). Environmental sustainability is one of the defining issues of this, and future decades. The below mention quote from Gordon Brown clearly demonstrates the same point in his speech delivered to the UN Ambassadors on April 20, 2006: “Environmental sustainability is not an option – it is a necessity. For economics to flourish, for global poverty to be banished, for the well being of the world’s people to be enhanced - not just in this generation but in succeeding generations - we have a compelling and ever more urgent duty of stewardship to take care of the natural environment and resources on which our economic activity and social fabric depend”. In today’s scenario the supply chain has been identified to have a significant impact on the natural environment which has resulted in a growing need for integrating environmentally thinking into supply chain management and its processes. The companies are getting more attention as a sustainable development mode for modern enterprises and increasingly a part of Corporate Social Responsibility (CSR) initiatives and are deeply trying to green their operations & supply chain by introducing green strategies in their organizations and its whole operations. Green Supply Chain Management (GSCM) has emerged as an important new innovation that helps organizations to develop “win-win” strategies results to achieve higher profit and market share improvement by lowering their environmental risks and impacts, while raising their ecological efficiency (Hervani et al., 2005). As the public becomes more aware of environmental issues and global warming, consumers will be asking more questions about the sustainability of the products they are purchasing (Murray, 2012). Customers are increasingly demanding to know how green the product are, where it comes from, how they are manufactured and distributed and what impact future environmental legislations will have on the products they buy. Consumers are increasingly preferred to purchase products that are free of toxins, produced with a minimum of pollution
and with a minimal environmental impact (Broek, 2010). Today, Customers are making decisions to favour companies and products that have minimal impact on the environments as well as they are socially responsible to their surroundings. Companies will have to expect questions about how green their operation processes and supply chain are, their carbon footprint and how they recycle the materials or returned products. Companies that have successfully adopted a ‘green’ policy can generate profits, provide positive social impact, and reduce environmental impact (Broek, 2010). In today’s competitive world, it is not only about being environment friendly but also about better business sense and profits. In fact, it is a business value driver and not a cost centre (Wilkerson, 2005). Greening the supply chain operations have numerous benefits to an organization, ranging from cost reduction to integrating suppliers in a participative decision-making process that promotes environmental innovation (Bowen et al., 2001). Paxton (2008) discusses in his study that 87 percent of Fortune 1000 CEOs believe sustainability as an important tool to enhance company’s profits and 73 percent of CEOs believe it affords them cost savings. With increased consumer interest in environmental impacts, GSCM is becoming increasingly important for retail chains and consumer product goods business partners (Droitdauteur, 2009). With increasing concern for Green business and sustainability in today’s competitive world, this paper study about Green Supply Chain & its best practices and also discuss the WalMart’s Green initiatives in its supply chain operations i.e. sourcing, transportation, packaging etc.
REVIEW OF LITERATURE
According to Zhu et al., (2005), GSCM has emerged as a key approach for enterprises seeking to become environmentally sustainable. Authors evaluate and describe GSCM drivers, practices and performance among various Chinese manufacturing organizations. Chinese enterprises have increased their environmental awareness due to regulatory, competitive, and marketing pressures and drivers. However, this awareness has not been translated into strong GSCM practice adoption, let alone into improvements in some areas of performance, where it was expected. The investigation and its findings are still relatively exploratory. According to Ho et al., (2009), Green supply chain aims at confining the wastes within the industrial system so as to conserve energy and prevent the dissipation of harmful materials
into the environment. Authors compared and contrasted the traditional and green supply chains and discussed several important opportunities in GSCM in depth, including those in manufacturing, bio-waste, construction, and packaging. Doherty and Hoyle (2009) examines the role that the logistics and transport sector plays in reducing emissions, both in its own operations and by influencing shippers and buyers to undertake broader supply chain improvements. Researchers highlighted that logistics and transportation activities contribute approximately 5 percent of the 50,000 mega-tonnes of carbon-dioxide emissions generated by all human activity annually. Report reviews 13 commercially viable opportunities for reducing supply chain carbon emissions—within the logistics and transport sector as well as across the extended supply chain—and assesses them according to carbon-dioxide abatement potential and feasibility to implement. Seuring (2008) assess the current practice in research on supply chain management applying a case study method. Two particular research fields, namely sustainable supply chain management (SustSCM) and performance supply chain management (PerformSCM), are used as examples. Two major findings were: first, supply chain researchers have to make a greater effort to collect data from supply chains (i.e. at least two, or better, three or more stages of the supply chains). Second, the research process needs to be more comprehensively documented in related peer-reviewed journal publications. This way, the value of case study based research might be appreciated more, as well enabling stronger conclusions to be drawn on the individual piece of research. Ninlawan et al., (2010) surveyed current green activities in computer parts’ manufacturers in Thailand and evaluated GSCM. In-depth interview about green procurement, green manufacturing, green distribution, and/or reverse logistics has been taken. To evaluate GSCM, the questionnaire related to investigate GSCM practices, measure GSCM performance, and explore GSCM pressure/ driver within Thai electronics industry was used to obtain survey results. Then suggestions were given to develop GSCM in electronics industry. GREEN SUPPLY CHAIN MANAGEMENT – WHAT IS IT?
Green supply refers to the way in which innovations in supply chain management and industrial purchasing may be considered in the context of the environment (Green, et al, 1998).
Srivastava (2007) defines it as “Integrating environmental thinking into a supply chain management, including product design, material resourcing and selection, manufacturing processes, delivery of the final product to the consumer as well as end-of-life management of the product after its useful life” GSCM has been taken so much importance in today’s scenario because of escalating deterioration of environment, the high level of pollution, increasing consumer pressure, diminishing raw material, increasing waste, legal regulations and environmental standards.
Green Supply Chain - Best Practices
The trend towards Greening the supply chain is gaining popularity among the organizations to gain competitive advantage and sustainable supply chain. Many companies have been successfully implemented green supply chain practices and some think their biggest challenges in going green are ‘don’t know where to start ’and how this can be achieved. Wilkerson (2005) identified four best practices in green supply chain implementation which are as follows: 1. Align green supply chain goals with business goals. 2. Evaluate the supply chain as a single life cycle system. 3. Use green supply chain analysis as a catalyst for innovation. 4. Focus on source reduction to reduce waste.
1. Align green supply chain goals with business goals A Green supply chain that has only limited to do with the business will never help any company to achieve its objectives and success. Many companies used to define the goal of its business and green supply chain separately which don’t add value. Companies need to determine the role of environment in their business and according to that align their green supply chain goal with their goal to create a strategic value and does not lead to confusion and contradictory. Business goal of any company should be supported by Green supply chain goal. A company should look at its overall business goal and identify how green supply chain can help to attain those goals (Mazumder and Chatterjee, 2010).
2. Evaluate the supply chain as a single life cycle system A Supply Chain has a number of business operations & all are linked with each other to form a network, with process leading to another process forming a system. System looks at the
supply chain as being composed of activities that have outputs serving as inputs to other activities (Prugsamatz, 2010).
Figure 1: Environmental life cycle Source: Wilkerson, T., (2005) From extraction of raw material to the disposal of material, all stages of business process include costs. Full visibility across every stage in the supply chain is very essential. In the whole supply chain of a company, it is very important to understand end-to-end impact of Green supply chain programme. In this way, it will easier to identify opportunities for the program to deliver business value such as lower costs or improved competitive advantage (GXS, 2011). By evaluating whole supply chain as a system company can optimize the lifecycle (Wilkerson, 2005).
3. Use green supply chain analysis as a catalyst for innovation Analysis of Green Supply Chain provides an opportunity to the company to review its process, materials, and operational cost. As with continuous improvement program, Green Supply Chain analysis targets wasted energy or effort, wasted materials and resources which are under-utilized (Wilkerson, 2005). To develop a greener supply chain, companies should review all their supply chain processes to identify the area where adopting a greener initiative can add value and actually improve their business (Mazumder and Chatterjee, 2010). They should review each process along the supply chain to identify a greener approach or an environmental approach that can help to reduce several inefficiencies which may occurs in any stage of the supply chain. Murray (2011) stated that the companies that have been through this exercise has identified various processes where proper utilization of resources
was not done, raw materials were wasted and more energy was used due to inefficient equipments.
Figure 2: Green Process Improvement Approach Source: Porter, M.E. and van der Linde, C., (1995) There is an unacceptable level of waste within almost every supply chain and generally ineffective, incomplete, or inefficient use of raw material represents waste and pollution (Wilkerson, 2005). Many waste reduction initiatives focus on reducing waste at source and identifying where waste can be recycled or re-deployed into innovative product solutions (GXS, 2011). 4. Focus on source reduction to reduce waste The re-use waste management program and recycling programs focuses on waste management after it has been created. On other hand source reduction focuses on reduction of wastage and prevention during the time of production rather than managing it after it has been generated (Kangangi, 2011). Source reduction’s aim is to optimize and utilize the resources in a properly manner and its fullest by examining how materials are used, how products are purchased and how business is conducted. Focusing on source reduction programs drives higher value improvements in every stage of business process.
Figure 3: Source Reduction Source: Kangangi, M.T (2011) Companies should look into the return process also so the material can be properly recycled, refurbished and disposed. Such Measures help in source reduction. Reusable item can be used
instead of disposable materials, equipment maintenance and repairs, elimination of certain items; recyclable product can be used, using durable products. Source reduction produces many benefits such as increase efficiency, cost savings, environmentally sustainability; recycled product markets (Cohen, 2005).When reviewing procurement process companies’ aim should be reduction in sourcing for transition to green supply chain and find the supplier who can meet their demand by maintaining the quality of the material and also minimize their environmental impact.
WAL-MART and Their GSCM initiatives Wal-Mart is an American multinational retailer corporation that runs chains of large discount departmental store and warehouse stores. It is the world’s largest public corporation and retailer and also the biggest private employer in the world with over two million employees. Wal-Mart remains a family-owned business, as the company is controlled by the Walton family who own a 48% stake in Wal-Mart. It is also one of the world's most valuable companies. At 10,130 retail units in 27 countries Wal-Mart serves customer more than 200 million times per week. Green Initiative Sustainability and Green business process is making Wal-mart a better company by reducing waste, lowering cost and driving innovation. It also helps in fulfilling the company’s mission to save people money to so they can live better (Wal-Mart, 2012). New environmental measures were taken in October 2005 by Wal-Mart to increase energy efficiency and to become a Greener retailer. As part of its aspiration goals, Wal-Mart aim is to be supplied 100 % by renewable energy, zero waste, and sell products that sustain nature as well as the environment. To achieve these goals, Wal-Mart started variety of initiatives in every process of their supply chain such as sourcing, logistics, and packaging to make it green (Wal-Mart, 2011). Sourcing Sourcing is the most important process and plays a very vital role in the supply chain. If any company is focusing on green supply chain so it is very necessary for the company to know from where the material and component is coming, its manufacturing process, practices, wastage it creates, energy consumption and how much sustainable it is, as consumer also wants to know the entire life cycle of the product. Wal-Mart developed Sustainability index so the suppliers can know their own sustainability and the transparency in the supply chain can be enhanced. It also helps customers to get more information and sustainability about the
product which they want to buy. Sustainability index focused on four areas: Energy and Climate, Material Efficiency, Nature and Resources, People and Community (Sarah, 2010); so they can know how much green their suppliers are. Benefits of taking actions are as: Reduction in energy cost and green house gas emission Reduction in waste and enhance quality which can save money by reduce resources and logistics cost Improvement in quality and ensures materials are sourced and produced sustainably that can help to identify supply chain efficiency Productive workplace and community, creating opportunities to improve the quality of life, health and communities Know more about location where the products are produced and what are the practices for production.
Wal-Mart works closely with their suppliers to find more ways to increase fuel/energy efficiency and utilization of renewable energy in the operations and throughout the whole supply chain from raw material extraction to consumer use and end-of-life. These not reduce only greenhouse gas emission, but also maintain the system of climate and save the customers money (Wal-Mart, 2009). Wal-Mart also focuses on proper maximum utilization of all materials and waste minimization which helps to cut unnecessary cost, save energy and drive demand for recycling the product. They also advise their suppliers on what measures they should take to ensure that the products are environmentally sound. Logistics Wal-Mart U.S. Logistics is an industry leader in testing and development of advanced and new technologies to improve the efficiency and performance of heavy-duty trucks that helps to save money on fuel, energy, reduce air pollutants in the communities they serve and help customers to live better in a healthy and clean environment. Wal-Mart uses improved technologies and energy efficient truck fleets for the distribution of goods with the minimum impact on the environment. Wal-Mart is moving towards the goal of doubling the efficiency of its fleet by using technologies for innovative operational initiatives. Wal-Mart conducts trials for their transportation systems with alternative fuel sources including CNG and identifies
opportunities to reduce cost of fuel and carbon impact on environment. Some best examples of Green initiatives in their logistics are as: i.
They use shipper boxes in India to transport perishable or frozen goods to delivery stores of long-distances. These innovative boxes/containers utilize dry ice to maintain the temperature and to keep products frozen. In past they used cooling blankets which were effective on only shorter routes. Shipper boxes have the potential to expand the reach of Wal-Mart’s cold supply chain by bringing frozen food to more customers without the use of refrigerated trucks, which consumes considerably more energy. This initiative translates into a wider variety of refrigerated products for the customers and the cleaner environment for everyone.
ii.
In Mexico, Wal-Mart uses packing devices and roll containers that use dry ice or other cooling technology, rather than electricity or diesel, to keep product refrigerated. These methods have the potential to reduce the number of outbound trucks, while lowering transportation cost by 25 percent. In 2011 their backhauls practices (picking up a load from a vendor and delivering to the Distribution Centers, rather than running empty truck between the store and DC) saved more than 56,000 trips. Combined with other initiatives across the transportation department, they saved more than 86,000 trips and nearly 3.2 million miles, while avoiding 4,878 tons of CO2 emissions.
iii.
In 2011, Wal-Mart achieved almost 69 percent improvements in fleet efficiency over the baseline of 2005. Throughout the network, they delivered 65 million more cases, while driving 28 million fewer miles, by increasing number of pallets in trailer and managing the routes in a better way. Network efficiency improvements of Wal-Mart equates to avoiding nearly 41,000 metric tons of CO2 emissions which is equivalent of taking out about 7,900 cars off the road (Wal-Mart, 2012).
GSCM encompasses potential to make cost saving transportation it not only affect the fuel consumption, maintenance and repairing cost, but also through these variables affect transportation cost indirectly (Saridogan Mehmet, 2012).
Figure 4: Impact of Green Supply Chain Management (GSCM) in Transportation Cost Reduction Source: Saridogan, M., (2012) Packaging Packaging is very important for both manufacturer and the retailers. On one hand, reduction in product pack size helps manufacturer to save the cost of transportation, environmental and packaging and on the other hand it is beneficial and helpful for the retailers to save the cost of storage and handling (Swami and Shah, 2011). In addition to preserving precious natural resources and positively impacting greenhouse gas emissions, effective reduction in packaging also generates saving across the distribution network which passes on to customers so they can able to buy the products in low and best prices (Wal-Mart, 2012). Wal-Mart focuses in helping suppliers to develop sustainable solutions for smart product packaging so they can align this initiative with the corporate goal. With the help of sustainable packaging score cards and methodologies, Wal-Mart also measure progress towards packaging reduction by 5 percent in the supply chain. They also proved that reduction in the packaging size and reusable packaging saves cost and also makes the product easier to store. Small packaging allows them to ship more products which reduce the number of carriers and saves transportation and energy/fuel costs. Development of smaller and reusable packaging enables supplier to ship 1,040 more pounds of deli meat per truck load. The improved packaging keeps meat fresher and easier to store and it also eliminates 24.1 tons of corrugate from landfills annually (Wal-Mart, 2012).
Waste Management One of the primary sustainability goals of Wal-Mart is to create zero waste in their supply chain. Wal-Mart has taken varieties of initiative for waste elimination. For waste management company’s goals are to eliminate landfill waste, reduce global plastic shopping bag waste. For their waste management Wal-Mart focuses on three “R’s” -reduce, reuse, and recycle. By close working with their suppliers, they recycled nearly 1.2 million pound of recovered cooking oil into biodiesel, soap or a supplement for cattle feed, which were collected from 690 restaurants and stores in Mexico (Wal-Mart, 2012). Wal-Mart cuts global plastic bag waste globally by 35 percent per store compared to 2007 baseline (Wal-Mart, 2012). Varieties of initiatives have been taken by Wal-mart to reduce food waste and no food waste sends to landfills. If the quality of food is quiet good and safe to consume they sent it to the charities or either sent to ASDA centers where they can recycle (Wal-Mart, 2012). By this initiative they are saving the food and also fulfilling the basic requirements of food to the needy. They also provide tips and recipes to the customers on how they can keep and store food in a safe and healthy manner so it can be consumed for a long period of time. They also achieved 100 percent zero waste at more than 100 stores. This has the potential to prevent more than 11.8 million metric tons of CO2 annually, which is equivalent to take more than 2 million cars off the road.
Challenges in Green Supply Chain for Wal-Mart One of the greatest challenges faced by Wal-Mart is developing a consistent and transparent approach to procuring and accounting for renewable energy in a global marketplace where local regulations and laws vary significantly. Such differences in regulations sometimes result in vastly different market incentives, not only for renewable energy, but also for the accompanying greenhouse gas credits, renewable or green energy credits and other non power attributes. To find and fund low carbon technologies sometimes get very difficult for the company to meet the requirement for Return on Investment (Wal-Mart, 2011) and ensure everyday low prices for the customer. Some challenges the company is facing in creating zero waste are Lack of infrastructure for recycling facilities in the rural markets. Mostly standards are local-region specific and it is very difficult for Wal-Mart to manage different standards across 10,000 retail locations (WalMart, 2011).
FUTURE RESEARCH DIRECTIONS The Green Supply Chain Practices initiated by Wal-mart can be also applied in other retail organizations and various other industries like food processing, FMCG goods, Food Retail sector etc. Further researches can be carried out to overcome the challenges in various supply chain processes like sourcing, transportation, packaging etc which are hindering them to make green. GSCM Models can be developed on the basis of best practices which can be applied to the various sectors to develop Green Supply Chain.
CONCLUSION
Green Supply Chain Management is an emerging area and companies are focusing on to gain competitive advantage over others. As the awareness among customer is increasing towards the environmental issues and they are demanding to know about the whole business process/supply chain of the product, companies are focusing on the transparency and sustainability of the supply chain. It has been seen that GSCM is mainly focused by manufacturing industries but it is very important for the retail industry also (who are the first face to the customer) to adopt green practices to take into account their customer’s green desires and look for innovative ideas to cut cost and increase the number of footfalls of the customer in the stores and size of their purchases. The Green initiatives adopted by Wal-mart can also be applied to various industries and sectors to save our nature and environment, and also to sustain long business with maximum profit share and customer satisfaction.
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