Sustainability in Supply Chains

A firm that strives to be sustainable also considers its environmental and social impact when making decisions. This perspective is referred to as Triple Bottom-Line accounting (TBL, 3BL). This system urges businesses to track “gains & losses” along the three dimensions: economic impact (profit), environmental impact (planet), and social impact (people), and jointly maximizes them. This accounting system is also referred to as PPP (short for profit-planet-people).

• Market forces or opportunities. This group refers to cases where businesses pursue sustainable practices to improve or sustain their economic performance under changing market conditions.
• Risk of regulation and exposure. In this group, companies proactively improve their environmental or social performances to avoid regulation or exposure risk, which may result in significant costs financially.

These performance measures may be utilized in making critical decisions regarding the supply chain, such as supplier selection, sourcing/process decisions (e.g., whether to outsource a component production or not), and design of the supply chain/product (e.g., product components, the supplier network to be utilized, warehouses and stocking points).

Environmental performance of a supply chain may be analyzed and communicated in different ways depending on the environmental issue of concern.

This issue is also referred to as “global warming.” However, it is not a mere increase in the temperature, it entails the change and/or disruption of climate globally. It involves phenomena such as melting of ice caps, rising sea levels, change in rainfall patterns, severe droughts, floods, hurricanes, and new pathways of disease. In a nutshell, it is the biggest threat to the habitability of the planet.

The main reason for climate change is the rising concentration levels of greenhouse gases (GHG) in the atmosphere. These gases (carbon dioxide, methane, nitrous oxide, water vapor, ozone, chlorofluorocarbons, perfluorocarbons, and sulfur hexafluoride) trap the heat that would otherwise bounce off the surface of the Earth. This effect, also referred to as the greenhouse gas effect, is the primary reason for Earth to be habitable (reach reasonable temperatures).

The most commonly used types of regulations are (1) carbon tax, (2) carbon cap, (3) cap-and-trade systems.

Carbon tax is a type of tax charged per unit GHG emissions produced. This tax may be enforced on the individual consumer (e.g., carbon tax per lt/gallon of gasoline purchased); or may be enforced on businesses based on their organizational GHG emissions. Carbon tax is a monetary instrument to restrain activities that are involved with GHG emissions, and hence reduce the total GHG emissions.

Some regulations do not involve a monetary penalty but only enforce a cap (i.e., a strict limit) on the GHG emissions of a company. In cap-and-trade systems, firms are subject to carbon caps but are rewarded (penalized) for emitting less (more) than their caps through selling (purchasing) carbon credits. Availability and pricing of emission credits in these markets are determined by a carbon exchange market.

ISO 14040 defines Life Cycle Assessment (LCA) as a “technique for assessing the environmental aspects and potential impacts associated with a product by compiling an inventory of relevant inputs and outputs of a product system; evaluating the potential environmental impacts associated with those inputs and outputs; interpreting the results of the inventory analysis and impact assessment phases in relation to the objectives of the study.”

1. Goal and scope definition

Carbon footprinting is the activity of measuring greenhouse gas emissions.

There are three types of carbon footprinting that differ by scope:

Organizational: Emissions from all activities across an organization (including building energy use, industrial processes, and the company’s vehicles) are taken into account.

Value chain: It is not limited to an organization’s own operations; it includes the whole supply chain (i.e., emissions from both suppliers and consumers, including product use and end-of-life emissions).

Product footprint: It entails the emissions over the whole life cycle of a given unit of product or service, from the extraction of raw materials and manufacturing to its use and final reuse, recycling, or disposal.

A business may do carbon footprinting due to various reasons:

1. Managing GHG risks and identifying reduction opportunities: A business may do carbon footprinting to identify cost effective reduction opportunities, and be prepared for GHG limitations or regulations in the future.

2. Public reporting and participation in voluntary GHG programs: A business may voluntarily share its GHG emission performance with stakeholders such as the government and various non-governmental organizations (NGOs). It may publicly declare and register these measures for eco-labeling its products/services, GHG certification, and for recognition of early voluntary action.

3. Participating in mandatory reporting programs: A business may face a regulation regarding GHG emissions, and may need to report and reduce its GHG emission performance accordingly. The regulation may be at international, national, or regional level.

• Equity share approach: In this approach, a business is liable for the GHG emissions from operations in proportion of its share of equity in the operation.

Scope 1: These are direct GHG emissions from sources that are owned or controlled by the company.

These calculations determine GHG emissions based on mass balance or theoretical combustion specific to a facility or process. This method may be preferred when there is fuel consumption, either at production sites or in transportation. The general formula used in this calculation is

GHG Emissions = Fuel Consumed (gallon or LT) * Fuel Emission Factor (kg CO2-eq per gallon or LT)

These calculations determine GHG emissions from standardized activity information by using conversion factors. These factors are calculated ratios relating GHG emissions to a proxy measure of activity at an emissions source.

Green logistics refers to the measurement, analysis, and consequently mitigation of the environmental impact of logistics activities.

GHG emissions associated with operating an inventory system may be classified into three groups: (1) emissions associated with holding/ storing items, (2) emissions associated with not satisfying customer demand on time, and (3) emissions associated with ordering (i.e., producing and transporting) items.

In terms of generalized recommendations, World Economic Forum (2009) highlighted three opportunities that offer the highest potential for GHG emission reduction in supply chains:

1. Clean vehicle technologies: Upgrade to high- efficiency vehicles, switch to vehicles with alternative of hybrid fuel technology sources

2. Despeeding the supply chain: Decrease the speed in road vehicles and ships, opt for high vehicle utilization with less-responsive replenishment (relaxed time windows)

3. Optimized (supply chain) networks: Update the supply network nodes (production sources and distribution/storage points) and the transport flows between them.

A closed-loop supply chain (CLSC) represents a series of processes and flows aimed at some form of reuse and recovery of products and materials. By definition, a closed-loop supply chain includes a reverse/reuse chain in addition to the typical forward supply chain. 

Remanufacturing (or refurbishing) is a comprehensive industrial process where a previously used, worn, or non-functional product or component is returned to a “like-new” condition to be resold. It entails disassembling the collected product, replacing any broken or unusable component and remaining defects, and repackaging the product for resale.

Primary environmental motivations behind the transition to closed-loop supply chains are (1) preservation of natural material resources, and (2) removal of hazardous substances from landfills that may damage the environmental and human health (i.e., reduce toxicity). These are also followed by the goal of reducing the energy intensity in the chain; i.e., reduce the total energy consumed over the life cycle of a product.