Evaluating Green Supply Chain Management (GSCM) with KPFs using an Analytical Hierarchy Process
In the last decade there has been a growing awareness of the disastrous effects of environmental pollution on the planet. The need to adopt green manufacturing and green supply chains in industry is therefore not just recommended but is mandatory. Several laws are being enforced and there are now policies designed to reduce the carbon footprint of industries. This has prompted the management of most industries to develop manufacturing and supply chain practices which incorporate environmentally friendly strategies. (Srivastava, 2007). The most important question for industry is how to evaluate and decrease the environmental impact of their manufacturing processes and supply chains, while maintaining high standards of performance as well as revenue (Rao, P & Holt, 2005).
The supply chain includes all the processes related to manufacturing, from obtaining raw materials to transferring the final product to the consumer. In order to be compliant with new environmental legislation, which has a direct effect on manufacturing and transportation, most industries have started to focus on the research and development of policies for the environmental management of their supply chains. The emphasis is now on the use of green supply chain management (GSCM), which will, as far as possible, control industrial waste and reduce energy consumption and the release of toxic waste into the environment (Humphreys, Wong & Chan, 2003).
Many benefits of a green or sustainable manufacturing strategy would appear to be easily translated into economic and process-based gains over time. The primary factor in any manufacturing operation that will enable it to be green and attain its sustainability objectives is the level of adherence, compliance and coordination of its supply chain (Markley, Davis, 2007). When the entire value chain of an organisation is taken into account, Key Performance Factors (KPF) are more easily monitored, measured and evaluated in the correct context (Chae, 2009). The extent to which an organisation can create process-based links between its supply chains, manufacturing, logistics, PLM and services systems is the extent to which it can quickly ascertain the level of adherence to green or sustainable objectives as well. The key to competitive advantage over the long-term is to create such an advantage from the compliance initiatives that many manufacturers are being obliged to conform to, including the Restriction on Hazardous Substances (Smock, 2004) and European Waste Electrical and Electronic Equipment (Kunert, 2005) programmes.
Literature Review of Green Supply Chain Management (GSCM )
Srivastava (2007) defined GSCM as ‘integrating environment thinking into supply chain management’. In order to make the manufacturing process green, a company can reduce its use of energy and resources by reusing and recycling, using eco-friendly and non-hazardous material, reducing emissions and waste or eliminating them.
To demonstrate the best green manufacturing and green supply chain practices, several research studies have been carried out using specific case studies from industries that are engaged in green manufacturing (Ho, 2009). Hendrickson published a very useful paper on the framework and issues which should be considered when ‘green design’ is being developed to promote environmentally benign products and manufacturing processes. It mentions the primary objectives of green design, development of green supply chain processes and products while considering both cost as well as environmental performance. The author mentions specific techniques like environmental life-cycle assessment (LCA) and material flows and cycles to revamp systems thinking in green designs (Hendrickson, 2010).
In the next step, green operations which include green manufacturing and remanufacturing, utilisation, handling, transportation and waste management, is done. Green manufacturing uses suitable materials to reduce the ecological load; remanufacturing uses worn out and exhausted products to refurbish and renovate them for use as a new product (Lund 1984).
Businesses are being compelled to adopt environmentally sustainable actions and methods by increased pressure from the government as well as the demands of the global market (Srivastava, 1998; Gungor 1999). This is why efficient ecological practices and remanufacturing procedures have been designated as important tools to attain best practice. Thus, GSCM focuses on improving the product life, utilising the natural resources better and decreasing waste (Ashley, 1993).
GSCM has other advantages. These include decreasing costs and risk, increasing productivity, developing a positive public image and creating healthier environments. Further, there is an increase in supply chain efficiency and flexibility, a reduction in the amount of waste generated by the supply chain and the rising worth of goods. All of these create the motivation for SMEs to implement the green actions better (Nikbakhsh, p199, 2009).
Classification Based on GSCM Context
Srivastava (2007) believes GSCM is supply chain management that incorporates environmental issues with consideration of product design, obtaining raw materials from the supplier, production processes, distribution and delivery to the customer and reverse logistics. Sarkis says the supply chain consists of different aspects including purchasing, manufacturing, distribution and reverse logistics. It also involves total quality management and considers the development of product quality, decreasing defects to zero, customer satisfaction and training, etc., It is incorporated with total quality environmental management which leads companies to reduce the use of hazardous resources and materials and moves them towards better environmental performance, competitive advantages and reputation.
This study considers the definition of GSCM which is classified into seven parts as follows:
- Greening the suppliers
- Green procurement
- Green design
- Internal environmental management
- Green manufacturing
- Green distribution
- Reverse logistics.
Although there are many KPFs that can be identified and evaluated, there is as yet no universal agreement on any set of performance factors which can be applied to all industries. This may be due to the fact that available studies are related to particular industries or geographical areas, making it difficult to generalise the application of results and evaluation tools used.
Data collection and processing
To evaluate GSCM , a questionnaire was used to measure GSCM practices and performance. Microsoft Excel was applied to calculate and analyse AHP parameters, using data obtained from questionnaires.
First, an email was sent to companies to explain the purpose of this study and ask whether they would be prepared to complete the questionnaire. If a positive answer was received, the questionnaire, which consisted of 43 questions, was emailed to them.
The questionnaire consisted of questions about the products and main manufacturing activities of the company, number of employees, whether it has ISO9000/14001 certification, GSCM practices and performance, environmental actions adopted, specific benefits achieved by implementing environmental actions and so on. Managers who had at least four years of experience in their jobs were required to fill in the questionnaire. A ‘Yes’ or ‘No’ option was used for some of the questions and for others, a five-point scale was used. These questions used integer values from one to five, where one was the minimum value and five was the maximum value assigned for evaluating the parameters.
The GSCM practices and performance of these companies were influenced by the relative weights assigned to different criteria and parameters to evaluate them.
In all of following companies, the most common activities related to GSC have to do with distribution which involves transportation and packaging, both local and global. These activities require good planning to deliver the products and reduce the number of transportations. Planning is also required to improve packaging by using reusable materials in order to reduce the use of fuel and energy, reduce landfill and reduce the impact on environment.
Generally, these companies were interested in green initiatives only if their financial costs would decrease and, at the same time, they would achieved better customer satisfaction. The companies being considered can improve their products and services with more environmentally friendly practices and materials. There are those customers who tend to pay more for green products but most of the customers don’t have any inclination to pay more for green content, particularly for products.
Of course, the results of providing for sustainability and a green supply chain can lead to considerable costs savings in an organisation and cause it to move towards cost efficiency. This would open up new opportunities in the market and lead to competitive advantage and customer satisfaction. By implementing decisions to improve the GSC, the goal is to reduce the total costs of the supply chain as well as a reduction of carbon emissions and lessen energy and water usage.
This company is in charge of the engineering, quality control, parts supply, logistics, managing sales policies as well as marketing and customer services for Renault products. It is a joint venture, 51 per cent of which belongs to Renault of France. The main activities of this company are as follows:
- Intention of purchasing raw materials from suppliers with a sustainable programme.
- Logistics and Transportation to be 20 per cent more efficient.
- Fuel use in transport fleets.
- Make a ten per cent improvement in energy efficiency by 2012 and 15 per cent by 2013.
- In addition to the company’s carbon-neutral goals, this company is helping its suppliers along the supply chain to improve their carbon footprint. Within the next five years, it would like 25 per cent of the parts sold in its store to be supplied by factories demonstrating at least a 20 per cent energy reduction.
- Use more environmentally friendly logistics providers.
- Utilise fuel-efficient tools and machines
- Localise sourcing for JIT to reduce the raw material inventory.
- Provide waste management and reduce solid waste.
- Reduce energy use at stores by 30 per cent in seven years
This company is the contractor for structural and industrial projects with more than half a century of experience in executing structural and industrial and plants projects, cooperation in establishing heavy industries, etc.
This company applies the necessary plans for the development of intended projects according to the requirements of the company. It also suggests improvements by the exploitation of machinery, equipment, facilities, capacities and available capabilities.
- A 15 per cent reduction in energy use in the buildings (stores, warehouses and offices);
- To make a ten per cent improvement in energy efficiency by 2011 and 20 per cent by 2012.
- Reduce waste of empty trailer space.
- Utilise fuel-efficient tools and machines.
The third company, which was established in 1965 as a private company, produces 2 000,000 units of refrigerators, freezers and washing machines at this time.
- A 20 per cent reduction in energy use in the buildings.
- Reduce the energy use of new refrigerators and freezers by up to ten per cent by 2013
- Reduce the energy use of top-loading washing machines by ten per cent and water use by five percent by 2014.
- Use the maximum capacity of trailer space.
- Use more environmentally friendly logistics providers.
- Improve factory layout and recycle materials. To optimise production movements and improve fuel efficiency.
- Improve warehouse layout.
- Localise sourcing for JIT to reduce the raw material inventory
This company was established in 1968. It produces plastic goods and parts for major industries in the country and also exports its products abroad. By producing 2600 different plastic parts it has taken great strides in helping national industries to become self-sufficient and has helped them immensely in their lines of production. This factory manufactures its entire range according to international standards and collaborates with the automobile, refrigeration, sanitary goods and electrical appliances sectors. It is also involved with manufacturing industries such as soft drinks and with commercial ventures that have to do with pasteurized milk and other dairy products, agricultural, livestock breeding and poultry products.
- Ten per cent reduction in energy use in the buildings (stores, warehouses and offices);
- Use the maximum capacity of trailer space.
- Utilise fuel-efficient tools and machines
- TO achieve total cost and improve efficiency and productivity and improve fuel productivity.
- Provide waste management to reduce solid waste.
- Reduce energy use at stores by 20 per cent in seven years.
The fifth company, established in 1954, is a well-known manufacturer in the textile industry. It has the reputation of being the most reliable supplier in the textile market and became the fourth largest exporter of grey fabric in Italy between 1997 and 1999. Amongst textile manufacturers, it has been elected as the best exporter four times.
- Try to purchase raw materials from a source on a sustainability programme.
- A 15 per cent reduction in energy use in the buildings (stores, warehouses and offices).
- Use the maximum capacity of trailer space.
- Use a more environmentally friendly logistics provider.
- Improve warehouse layout.
- Provide waste management and then reduce solid waste.
- Logistics and transportation to be 20 per cent more efficient.
- Make a ten per cent improvement in energy efficiency by 2011 and 15 per cent by 2012.
- In addition to the company’s carbon-neutral goals, it is helping its suppliers along the supply chain to improve their carbon footprint.
These are the highlights of the objectives that these five companies have defined as their goals and aim of this research is to compare their real performance in GSC by using the AHP method.
Applying AHP with research methodology
AHP, which is a powerful method of assessment, is used when situations are hard to quantify and there is uncertainty in decision-making and evaluation, as is the case in this study. Following the AHP method, the object of this project was to consider the GSCM aspects to find the best KPFs and practices in implementing GSCM which would have an effect on the organisations to make them greener. To reach to this goal, the organisations were assessed by the AHP method according to seven main criteria. The main criteria and secondary criteria were established by risk factors which were assessed for five potential alternatives. Paired comparisons were made and these rates entered in Microsoft Excel. The eigen values, new vectors and the estimate for λmax were calculated by the formulas written in Excel and the consistency factors were computed to make sure the conclusions were fair.
To find the best practices for a company to have a greener supply chain, the GSCM of different organisations should be determined and compared to each other. AHP in considering their KPFs should be used. Selecting the best company with the best performance and priority techniques for implementing GSCM was the goal of calculations made by the AHP. Furthermore, analysing the data to understand why some companies were weaker than others in their GSCM performance and what their weaknesses were will be discussed. They will be given useful practical suggestions to improve their performances and become greener. The final result will be that the business is conducted to achieve better financial, environmental and operational performances and getting more market share and competitiveness.
The results show that Company 2’s approach is the best in GSCM and Company 3’s is the worst. The question arises about why Company 2, which does not have ISO14001certification, has a better ranking on GSCM than the others who do have ISO14001certification. Of course, Company 2, because it has HSE certification, has a managerial system for implementing environmental activities and could reach to this ranking.
The most important factor that can be an encouragement to the companies is the reduction of energy usage and there is less motivation for competition between companies to be greener. Among manufacturing companies, except for Company 1and Company 5, both of which have ISO14000 certification and pay attention to environmental emissions with long-term plans, they all have short-term plans for environmental management systems.
As these are no compulsory environmental regulations set by the government, the companies do not consider green initiatives to be important. Maybe in future, exporter companies like Company 4 and Company 5 will have to move towards green plans and improve their GSCM. International regulations may oblige them to change their managerial policies and practical and organisational performance in order to maintain a competitive market. After discussion with the companies’ managers, it was found that their motivation for performing GSCM was due to reducing energy costs and the rate for scraps.
This survey can be used as an initial approach for improving the GSCM of an organisation. Greening the organisation of SCM practices and performance would make a significant improvement to a company’s capabilities and its environmental impact. The results reveal that the operational and financial advantages to organisations lead to increased competitiveness, more profit due to decreasing costs, less pollution, better inventory levels and fewer environmentally harmful waste materials and products. It also leads to improved customer satisfaction, resource utilisation and an improvement in economic achievement.
Bridging the gaps between the KPFs of firms and GSCM practices and performance by giving suggestions on important issues, helps the companies find their weaknesses and their need to improve. The companies which cope with these gaps need a structured approach to help them reach their goals in adapting to green initiatives and the relevant decision-making.
With reference to the questionnaire and the results obtained from using the AHP method in this study, companies may need to make changes to their operational practices and their capabilities. This will have an impact on resource utilisation, inventory levels, environmental management systems, policies for coping with suppliers in encouraging the use of environmentally friendly materials, designing the products with a focus on life-cycle analysis, packaging and distribution actions and lead-time deliveries. It also involves using materials and products that can be reused and recycled and executing policies like using the waste of other companies.
These results show if there were compulsory environmental regulations by the government, the companies would have to consider and implement more environmentally friendly actions and improve their performance. Companies who do more exporting and international companies need to improve their environmental practices, update their objectives and plans with corrective operational plans to reduce costs and the risk factors. Lack of training in environmental practices for experts and employees is the cause of poor GSCM performance of a company. A company’s GSCM will not improve unless there is consideration given to recycling and reusing materials. Reverse logistics needs to be implemented and steps taken to using cleaner technology processes to reduce energy and water consumption and decrease waste. It is important to recover companies’ end-of-life products and improve environmental compliance. Further, companies must concentrate on reducing the transition of finished goods and using less contaminating transportation, otherwise it will be impossible to attain clean air.
Furthermore, choosing to have a green supplier will play an important role in encouraging a company to use environmentally friendly raw materials which will affect the final product. Choosing suppliers according to environmental criteria involves urging them to take environmental actions, auditing their internal management, cooperating with the supplier to reach environmental objectives and helping them to identify their problems. Besides, giving funds to suppliers to purchase cleaner technologies and equipment for pollution prevention, will impact on companies’ products and performance.
Using green materials for products and distribution packaging, training in reuse and recycling, giving such instructions for products and distribution packaging, encouraging buyers to use returnable packaging, collecting end-of-life products and customers’ returned products for recycling/reusing or remanufacturing and providing recycling schemes for products and packaging not only leads to preservation of the environment from emissions of waste, but also reduces the costs of manufacturing to a company.
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