Thoughts on Carbon as the New Muda

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Agenda

1 2 3
4

Framing the Challenge The Green Context of Supply Chain Operations How New SCM Practices Can Enable the Green Trend Framing a Comprehensive Green SCM Strategy

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The Need for a Paradigm Shift

And Why It Has Not Taken Place Yet! The Imperative The Reality

The Question / Dilemma

Can Green & Lean Co-Exist?

Tell Me How Youll Measure Me, I Will Tell You How I Will Behave!
3

The Interpretation

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Why is Supply Chain Management a Good Starting Point?

60%

Source http://www.eia.doe.gov/emeu/aer/pdf/aer.pdf

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 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

JANUARY 2010

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Achieving this Paradigm Shift

Requires a Perception Change of CO2 as a Decision Variable

Carbon in the Business Environment Needs to be De-Mystified

Introducing Carbon as the 8th Muda

1
Defects

2
Inventory

3
Waiting

4
Excess Motion

5
Over Production

6
Over Processing

7
Transportation

8
CO2 / GHG

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There Are Some Good Signs

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Agenda

1 2 3
4

Framing the Challenge The Green Context of Supply Chain Operations How New SCM Practices Can Enable the Green Trend Framing a Comprehensive Green SCM Strategy

Copyright E2open, Inc. 2010

Where is the Carbon in the Supply Chain?

Suppliers & Manufacturers

Everywhere! Supply Chain activities create significant carbon emissions, making supply chain an important focus for clients seeking to reduce their carbon footprint

Customers & Channels

Flows: Product, Process, Information, Cash Design

PLM
Design for the Environment Carbon footprint thinking throughout product lifecycle design

Plan
SC Strategy
How can the total network be optimized considering service, cost, green tradeoffs What CO2 impact is there from various inventory concepts & planning methodologies

Source
Procurement
How can we best measure a suppliers carbon impact (product, packaging, upstream logistics) and ultimately compliance with carbon reduction requirement? How should we evaluate carbon offsets?

Make
Integrated Ops
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?

Deliver
Logistics
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?

Service & End-of-Life

Integrated Ops
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

Asset Management
Sustainable facilities management: Green building & renewable energy; carbon footprint asset management; Asset utilization (Real-time data on energy usage; Carbon dashboard)

Finance
Paperwork Reduction; Environmental Cost Accounting; Environmental Tax Benefits Tracking

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Carbon Distribution Model

Carbon Analysis needs to be seen from a total Product Lifecycle View
SCM Carbon Distribution Model
Phased Product Lifecycle View

Our goal can be formulated rather simply: Lower the Outer Edge

Time

Design & Sourcing

Inbound Logistics

Internal Operations

Outbound Logistics

Service and Use

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10

On the Need to Embed CO2 as a New Operational Variable

Exhibit 1 Procurement Strategy Scenario

As-Is

ABC

ABC, Inc
Classic Value Equation = Least Production Cost despite the Transportation Cost

Mexico China

To-Be

ABC

Unit Cost

Volume

Carbon Impact

Distance
New Green Value Equation = Actual Cost (Production + Transportation) + Corresponding Carbon Cost

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11

On the Need to Embed CO2 as a New Operational Variable

Exhibit 2 BOM and Routing in a CO2-Constrained SC

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On the Need to Embed CO2 as a New Operational Variable

Exhibit 3 Planning Noise & GHG Responsibility

A Value Chain Network View
Leverage +

Prevailing View

Our View

What is a fabless company Carbon Footprint? What is its environmental responsibility?

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13

Noise in the Supply Chain is Neither Lean nor Green

The Carbon Reverse Bullwhip Effect

Extended Supply Chain View

Inventory Produced

Suppliers

Plants

Retailers

Carbon Produced

Classic Bullwhip Effect Amount of Inventory Inefficiencies Amount of Carbon Inefficiencies

Caron Buildup Process

End Customers
True Customer Demand

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14

The 3 Primary Supply Chain Variables

taken from a Green Perspective

I
Inventory
John D.C. Little Institute Professor

L
Lead-Time
OEMs / Brand Owners

T
Throughput

Your Company

Customers

Suppliers

Raw Materials

Component Suppliers

EMS Partners

Warehouse(s) Retailers

Lead Time
Observations
Cost and Environmental concerns are likely to create a trend for supply chain collapsing / localization Incentives need to be put in place to encourage creation of local and sustainable supply chain networks

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Which Leads Us to Some Interesting Observations

Observation # 1
Local Model Regional Model Global Model

Local and Regional Models need to be encouraged (less carbon footprint and less inventory as a result of reduced lead times)

ECX

Observation # 2
AP

CCX

Proliferation of CO2 trading platforms will delay properly tackling the problem Carbon trading should be approached as a global commodity
OCE

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Agenda

1 2 3
4

Framing the Challenge The Green Context of Supply Chain Operations How New SCM Practices Can Enable the Green Trend Framing a Comprehensive Green SCM Strategy

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17

A Green Supply Chain Requires a Holistic View

Some Emerging Best Practices

Command Center
Customer Satisfaction

N-Tier Rapid Planning

Supply Chain Visibility

N-Tier Shortage Management

VMI Hubs 3PLs Retailers

Cost Reduction

Inventory Reduction

Component Suppliers EMS/CM/ODM Partners Distributors

Customers

Lead Time Reduction

Supply Chain Velocity

Supplier VMI

Metrics Alignment

Multi-Tier Costing

Supply Chain Segmentation

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Green Supply Chain Management

Value of a Network Approach
BOM AnalysisTier2+ Partner Selection
Reverse Operations

Channel / Distribution

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

Processing

Order fulfillment Manufacturing process Repair / refurbishment process process Shipment Quality control QC process Shipment process Organizational Quality control management process

Transportation
Modes Shipment frequency Load consolidation Carrier routing

Energy
Embodied Energy GHG Regulatory $ Impact

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Green Supply Chain Management

Implementing a Network Approach

Sustainability & SC Integration

Automate Compliance Data Collection

Associate compliance to Orders & Inventory

Provide performance KPIs to customers

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Disseminating the Message

Sample Supply Chain Maturity Framework

The Orchestrators Quadrant

Companies in this zone clearly understand the need to reach across their supply chain spectrum to optimize their operations leveraging advanced optimization and business intelligence for superior performance

The Overachievers Quadrant

Companies in this zone have managed to leverage their size or anchor position to build a multi-tier planning model that still lacks advanced analytics to handle complexity and provide visibility and responsiveness

The Underachievers Quadrant

Companies in this zone have heavily invested in enterprise automation and planning solutions but yet to reap any significant benefits because of lack of leverage or reluctance to embrace the required mindset shift

The Basic Quadrant

Companies in this zone have neither the supply chain reach nor the advanced planning capabilities to turn SCM into a competitive differentiator. Many companies from emerging markets fall in this category

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Applying the Supply Chain Maturity Framework

The Tale of Two Leading Companies

Ideal State

Ideal State

Phase I Start

Phase I

Start

Company A

Company B

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An End-to-End Supply Chain Command Center

and the potential to leverage for GHG tracking

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Agenda

1 2 3
4

Framing the Challenge The Green Context of Supply Chain Operations How New SCM Practices Can Enable the Green Trend Framing a Comprehensive Green SCM Strategy

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12 Ideas to Make Your Supply Chain Greener

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Exploring the Ideas

Redesign the product

Reconfigure Manufacturing

Shift to Green Suppliers

Shorten Distances
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Alter service-level agreements

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Shrink packaging

Exploring the Ideas (continued)

Plan for reverse supply chain activity

Consolidate shipments

Plan smaller routes

Coordinate with partners

Take a life-cycle view

Start now: define a green strategy

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