A sustainable supply chain? Finding a balance between costs, sustainability, and service
July 28, 2015
A green supply chain does not necessarily increase costs, but by looking at the triangle of costs, service, and sustainability, companies can find the right balance. Thus says Associate Professor Tarkan Tan. He gives lectures in the “Green Supply Chain” module of the TIAS Master of Operations and Supply Chain Excellence.
Image: © Nationale Beeldbank
“Sustainability is first and foremost an important issue in conserving the planet on which we live. But there are also other reasons for companies to engage with sustainability in the supply chain,” says the associate professor in response to the question why sustainability is an important theme in logistics. First of all, there is a lot of pressure on companies to be sustainable in the logistics chain. Not only from consumers, but also B-to-B. “Just look at a company like Walmart, they screen their suppliers in the area of sustainability. When a company cannot fulfill the conditions, it might mean the end of the cooperation.” Moreover, there are rules and regulations that many companies must meet, such as the EU Emissions Trading System (EU ETS). “This ensures that the emission of carbon actually costs money.” And then there is the pressure from environmental groups. “Initiatives such as the Carbon Disclosure Project (CDP) are gaining more attention and support all over the world.”
Do you want to learn more about the “Green Supply Chain” module,which is part of the TIAS Master of Operations and Supply Chain Excellence. Download the brochure.
The power of lobbying
Although since 1997 there has been more focus on sustainability because of the Kyoto Protocol, this focus has diminished in recent years, says the professor. “The global crisis in 2008 has ensured that we are again looking at costs. Because of the power of lobbying, the Protocol has become less stringent. That is unfortunate, because the costs of carbon emissions is actually too low now.”
Because many companies have to pay for carbon emissions, a sustainable supply chain may be cheaper. But a green supply chain does not always bring in money, says Tan. “Although the first steps a company takes are often also cost effective. A different product design that uses less material which is also better for the environment or that opts for a company with a slower transport mode that is also cheaper. Every company must make its own decision on that.” That can be done on the basis of the triangle of costs, service, and durability, Tan teaches the participants of his lectures. “By looking at sustainability in a quantitative way, companies can properly assess the impact on the supply chain and make better decisions.”
In his lectures Tan discusses the various issues surrounding green supply chains such as, for example, responsible purchasing, resource scarcity, green logistics, life cycle assessment, closed-loop supply chains, impacts of environmental regulations, and carbon leakage. Tan: “In the latter case, for example, companies choose to manufacture a product in a different place, because local carbon emission regulations makes this more attractive. “When the production is moved from a controlled area to an uncontrolled area, emissions can increase because the energy or manufacturing procedures in the unregulated area have weaker legal requirements or use less up-to-date technology. And there are also additional emissions from the transportation. The result is that the emissions from offshore production may result in increased overall net emissions.”
Do you also want a Green Supply Chain?
The “Green Supply Chain” module is part of the TIAS Master of Operations and Supply Chain Excellence. Download the brochure for more information about this program.