26. January 2010 by Steven.

Is your supply chain green?

Starting from your own organization’s view of Green Procurement and Green Purchasing, we can begin to answer this question.  Assume your Buyers are trained to ask questions of suppliers and make some choices regarding placing purchase orders so that more green choices are made.  Let’s assume also that your purchasing group has a green strategy that requires a self assessment, recycling of scrap materials, remediation of waste streams and an assessment of suppliers that is currently being implemented for your top spend suppliers.  In sum, you are comfortable that your organization is becoming green if not actually already there.  As such, you, more or less, believe the question resides more so with your supply chain.

For your organization’s top spend suppliers, you have collected and verified about 50% of the green assessments.  Of the 50% collected, the majority of the suppliers pass your organization’s benchmark for being considered green.  Therefore, if you top spend suppliers account for 80% of your spend and at least 50% of them are considered green for a total contribution of 40% [80 x 50 = 40].  Your organization is also green contributing and contributed another 20% for a total of 60% that can be easily defined.  The result, the majority of your supply chain is green – right?  Or is it?

For now, the issue of what is the green measure is still being assumed so the 60% green score is truly a 60% assessment.  However, it is an assessment that may be flawed for right now, it is only an assessment of your ‘green-ness’ and the relative ‘green-ness’ of your direct supply base.  Arguably, it is not an assessment of the supply chain.  For it to truly be an assessment of the supply chain, the measure would, necessarily, cover other items such as:

• Sub-supplier assessments;
• Transportation suppliers, costs and assessments;
• Total ‘green cost’ of the supply chain;
• An evaluation of your total delivered package.

Total delivered package is meant to be the finished product in its box.  What form of packaging does your organization use?  Does your organization have an active program to return old products?

Sub-supplier assessments and transportation assessment can be thought of as nearly the same.  Is every organization in the entire supply chain working to be green?  Have the each achieved some level of being green?  When the cost of transportation, or of direct production, is considered, the most obvious answer is that, ‘Yes, the cost of transportation is accounted for and managed and the total cost of production is constantly monitored and managed for efficiency.’  That is the normal response and the one so many people, including procurement professionals, make their living on.  Cost efficiency.  The profit motive.

However, and this is probably one the largest environmental arguments held out today, what is the true cost of having a supply chain that spans most of the world for s relatively simple product?  Sure, your organization’s product can be argued to be green because it is solar powered and your production efforts are assessed to be 60% green, but what about the hidden cost of pollution and CO2 emissions from all of that transportation?  Would it not be more green, it would be argued, to consolidate all of the production into one geographic area and eliminate all of the transportation between supply chain links? 

Unfortunately for your organization, the answer is probably a ‘Yes.’  It would be more green to consolidate into one geographic region and that region may not be the place your organization would prefer to relocate.  Why is the answer likely to be ‘Yes?’  Because low cost countries, like China and India, effectively subsidize the cost of transportation.  Think about it, metal costs and petroleum costs are initially the same, or near the same, for many companies worldwide.  It is the cost of capital and labor that allows one company to compete on costs for an item that should be considered a commodity-like item [such as plastic knobs].  If the cost to purchase those knobs in another country, depending on the lot size, etc., is much cheaper than the additional cost to ship to your plant, the profit motive drives your organization to source from the other country despite the additional fuel costs to get the product.  It is cheaper in your currency but not cheaper by the effort exerted.  Said another way, with exceptions, is will be almost always true to state that going Green will also be patriotic [or nationalistic pending your vocabulary] as being green will require less exertion.  Purchase from the plastics company in the next town and not across the next ocean. 

The other element that is being missed in the quick assessment of our green supply chain are other attributes that may be relevant.  As you may recall, your organization sent an assessment to the top suppliers that represent 80% of the spend.  Is that the correct criteria to use?  Does a dollar spent for sub-item equate to the same dollar spent on another sub-item?  Obviously, if one dollar purchases something from China for assembly in the USA and the same dollar purchases something else in the USA, then, based on the discussion of transportation, the items are not the same.  But, beyond that concept, there is more.  For example:

• Are the plastic knobs made from recyclable plastic;
• What is the weight of items being shipped;
• Are metals parts sourced from reclaims metals or mined ore;
• What is the proportion of your final product, by cost, that is green;
• What is the proportion of your final product, by weight, that is green;
• What is the proportion of your final product, by added value, that is green?

Each question listed above is a legitimate question to ask.  Any single question may fail your organization for being considered green.  If we move from the initial view that your organization’s production efforts are at least 60% green to ask about weight, you may score a 35%.  By value-add an 80%.  By re-use of materials a 10%.  Is it correct to ask all of these questions?  Is it right to take a simple mathematic average of these different scores and consider that score as your green score?  What happens if oe of your suppliers actually contributes a negative score?

Right now, in today’s current environment, the answer is an unequivocal, ‘It depends.’  As stated as something avoided in this blog edition, the issue of what is green, or green enough, is a moving target.  There is not adequate definition and when asked, the answer will vary from group to group.  In a defensive way, it is suggested that your organization collect as many parameters as it can to determine various green scores.  They will all likely be needed.  However, such takes effort and corporate will power that is not always present.  So, ultimately, some answer is better than no answer.  Further, depending on the location of your plants, your organization may already becoming compliant to some definition of green. 

At the time of the writing of this blog edition, the concept, in a general sense, of going green has gone from a fringe concept extolled by hippies and environmentalists to being mainstream.  More so, the concept of Green Procurement, Purchase or a Green Supply Chain, are nascent.  They are in their infancy.  No consensus has been built on the popular trend of green let alone a subset such as purchasing and procurement – no matter how fundamentally import they are to whole.  This is why the next blog edition is about the definition of green. 

www.recyclechain.com

© 2010

Posted in Green Procurement | Print | No Comments »

6. January 2010 by Steven.

In the past two editions of this Green Procurement blog, the tactical issues of Green Purchasing and the strategic issues of Green Procurement have been highlighted and interrelated.  Not discussed at length is the concept of the Green Supply Chain.  As a purchasing professional you already are aware of the term ‘supply chain.’  The problem is that there are, too often times, different interpretations of the term.

From experience, I have seen many intelligent, educated, articulate and otherwise knowledgeable people use the term supply chain to basically mean the company’s supply base.  That is, to mean the company’s suppliers.  No chain.  No interlinking of different organizations adding value in different ways.  Just the plain rote concept of your organization’s direct suppliers.  By know, you are aware that the author does not define a supply chain to be the same as your base of suppliers.  It is much more and is something that, in some ways, may not be definable.

My first real introduction to the concept of a supply chain came from workshop at the Santa F Institute in the mid-1990s.  The Santa Fe Institute is a non-profit research and education center whose efforts focus on complex adaptive systems.  The workshop included people from the Institute as well as professionals from various multi-national corporations.  In this workshop, I was introduced to such terms as ‘bullwhip’ and ‘demand signals.’  The idea of looking past your immediate supply base into the cascading count of suppliers and how the demand signal was managed from interaction-to-interaction was discussed and theorized as to how to improve.  It was a fascinating discussion and it truly jaded my opinion of what is meant by the term: supply chain.  For the purposes of this blog, we will go with the above concept.  A supply chain is the interlinked network of organizations that buy and sell value-added good or services to each other to provide final products to an end user [e.g., the consumer].

Given this definition of supply chain.  What makes it Green?  More so, what make one supply chain green and another not when the two supply chains may have many of the same organizations involved.  Does it matter?

In the very next edition of this blog, the concept of ‘Green’ is explored.  What does it mean to be green?  Who sets the standard?  At this time of this writing, the answer is a variable.  To be ‘green’ is just not well defined.  Then, how, can there be this concept of a Green Supply Chain?  For the purposes of this blog edition, the concept of green will be limited to an organization acting, in some manner, to be an environmental steward.  In other words, each organization gets an “A” for effort and not necessarily for results.

The supply chain of interest is your organization’s supply chain.  For now, supply chain is limited to those that supply your organization and not your organization’s role in the greater supply chain.  In fact, in may be best, for example purposes, just to assume that the supply chain, your sample company, is a consumer-facing company making some product with many inputs such as a battery and solar-powered AM/FM radio.  To further the example, the Bill of Materials for your radio is comprised of:

• Speaker [sourced from Mexico];
• Solar cell [sourced from China];
• Wiring [sourced in the USA];
• Antenna [sourced in the USA];
• Analog read out [sourced from India];
• Plastic knobs [sourced from the EU];
• Plastic shells [sourced from South Korea];
• Printed circuit board [sourced from China];
• Internal Dial Sub-Assembly [sourced from Russia].

There are other various parts that are all sourced in-country at your sub-assembly plant in Mexico.  At that site, the pieces are all brought together and made into three final sub-assemblies: 

• Power sub-assembly;
• Tuning sub-assembly;
• Electronics sub-assembly.

The final assembly of your company’s radio is done at a small plant in south Texas near Houston.  There the three sub-assemblies are brought together and encased in the plastic shells. 

Your company’s market are outdoor enthusiasts including hunters and campers.  Over 60% of you company sales are from the United States and Canada.  Another 30% comes from European countries and the remaining 10% come from various other countries including Australia.  Your company does not sell directly to the consumer.  Instead it sells to retailers but you support your retailers with some customer assistance via an Internet site and a telephone help line. 

See the Second Part of the Blog Next Week

Green Procurement at www.recyclechain.com

© 2010

Posted in Green Procurement | Print | No Comments »