Discussion 6

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Sustainability and the Supply Chain

PowerPoint presentation to accompany

Chopra and Meindl Supply Chain Management, 5e

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https://video-alexanderstreet-com.ezproxy.libproxy.db.erau.edu/watch/environmental-sustainability-in-business

Learning Objectives

Understand the importance of sustainability in a supply chain

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

Describe key metrics that can be used to measure sustainability for a supply chain

Identify opportunities for improved sustainability in various supply chain drivers

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The Role of Sustainability in a Supply Chain

The health and survival of every supply chain and every individual depends on the health of the surrounding world

Expand the goal of a supply chain to others that may be affected by supply chain decision

Factors driving focus on sustainability

Reducing risk and improving the financial performance of the supply chain

Attracting customers who value sustainability

Making the world more sustainable

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The Tragedy of the Commons

Dilemma arising when the common good does not align perfectly with the good of individual entities

Getting any agreement on action is difficult because the optimal joint action is not individually optimal

Need for intervention but considerable disagreement on the required form of intervention

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What Are Some Solutions to This “Tragedy”?

No solution without taking away some of the freedom that participants

Need to choose from options that are unlikely to be supported by all of their own free will

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What Are Some Solutions to This “Tragedy”?

Mutual coercion – social arrangements or mechanisms coerce all participants to behave in a way that helps the common good

Command-and-control approach

Market mechanisms

Cap-and-trade

Proportional tax

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Key Metrics for Sustainability

Energy consumption

Water consumption

Greenhouse gas emissions

Waste generation

Challenges with scope

Absolute or relative measures of performance

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Sustainability and Supply Chain Drivers

Opportunities identified by matching the four categories with supply chain drivers

Facilities

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

Separate the improvement opportunities into those that generate positive cash flows and those that do not

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Sustainability and Supply Chain Drivers

Inventory

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

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

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

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Sustainability and Supply Chain Drivers

Transportation

Lower transportation costs also tends to reduce emissions and waste

Product design a significant role in reducing transportation cost and emissions

Reducing packaging and allowing greater density during transportation

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Sustainability and Supply Chain Drivers

Sourcing

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

Extended supply chain and work with their suppliers to improve performance

Verifying and tracking supplier performance on sustainability is a major challenge

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Sustainability and Supply Chain Drivers

Information

Good information is a big challenge

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

Leads to company-specific standards and an explosion of certifications and certifying agencies

Use of consistent measures within a supply chain

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Sustainability and Supply Chain Drivers

Pricing

Consumption visibility and differential pricing by load or time of day may make a significant difference in the usage of energy

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

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

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Closed-Loop Supply Chains

Supply chains cause significant harm to the environment when their output ends up in a landfill

Improve sustainability by designing products that can be reused and recycled

Must be supported by a supply chain that ensures recycling

Economic interests of all the parties must be understood and aligned for the activities to be performed

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Summary of Learning Objectives

Understand the importance of sustainability in a supply chain

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

Describe key metrics that can be used to measure sustainability for a supply chain

Identify opportunities for improved sustainability in various supply chain drivers

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Printed in the United States of America.

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