The current economic crisis is causing many firms to reassess their business practices. What made sense a year ago, doesn't seem so sound anymore. The economic crisis spans the globe, so what does that mean for firms operating global supply chains? Firms that have been considering 'greening' their operations may now be re-evaluating the cost effectiveness of such initiatives. Lean initiatives offer even more promise of eliminating non-value-adding costs, which may seem to be the only bright spot in supply chain operations this year.
But hold on. Now is the time to think about how your lean and green supply chain strategies can work synergistically throughout your global supply chain. Let's focus on the green issue first. 'Green' and 'sustainability' terms are often used interchangeably. 'Sustainability is a poorly defined buzzword meant to imply corporate social responsibility, which includes an environmental (green) focus. Sustainability is also used in the supply chain context to refer to continuity and avoidance of supply chain disruption. More broadly, sustainability now refers to the ability to stay in business.
Companies are understandably focused on sustaining profits by cutting costs and jobs. The push to implement environmentally driven processes and programs may be fading from your company's priorities in the quest for survival. However, consider the double entendre of 'green' -- environmentally responsible and cash are two colloquial meanings of the term 'green.' And there is opportunity for green (environmental) initiatives to lead to profitability (cash). This is where the idea of lean comes in. Business leaders that have large, extended supply chains can capitalize on cost savings and improved profitability by looking at the synergies involved in being green while operating in a manner that continues to stress leanness. Lean thinking helps firms focus on non-value adding activities, and strives to reduce waste. In this way, lean and green initiatives can help protect and sustain the natural environment, while protecting and sustaining the firm at the same time. Toyota is a prime example of a firm that has successfully integrated a green and lean supply chain strategy in a global setting. Toyota's commitment is evident through its ISO certifications and financial investment into quality and environmental research and development.
The global reality that will emerge from the current economic situation is still unknown. Yet, business will remain global in scope, environmental concerns are here to stay, and lean business practices continue to offer efficiency gains for many firms. In the emerging economy, firms will need to learn to balance their lean, green and global supply chain strategies. There are many synergies to be gained by an integrated approach to managing these three supply chain strategies, but there are also points of conflict that will need to be carefully managed to optimize the trade-offs. Bose, Kawasaki, and Ford have been successful at combining lean and global sourcing strategies through careful logistics planning, shipment consolidation, and single sourcing with multilingual personnel in key interface positions. They also create separate warehouses for inventory holding to create a JIT-type scenario, although a pure JIT system is difficult to achieve across a global supply chain. The key for each company has been to understand where to place the transition point from traditional push-inventory methods to the pull-oriented JIT approach.
Globalized business strategies allow access to both new supply and demand markets. Large untapped markets allow for increased revenue generation, in addition to available international suppliers that can often provide materials and inputs more efficiently than domestic sources. Globalization efforts have profound impacts on a firm's logistics and supply chain activities as goods and information must be moved longer distances across diverse infrastructures, cultural and political environments.
Simultaneously lean practices will continue to transform supply chain operations from traditional batch and queue mass production approaches to lean production and supply chain processes. However, lean practices become increasingly difficult to implement and sustain as pipelines become longer in more globalized supply chains.
In the wake of concerns regarding climate change, pollution, and non-renewable resource constraints, firms are heeding customer demands and governmental regulations regarding their corporate citizenship behavior and performance. A green focus in the supply chain context requires working with upstream suppliers and downstream customers, analysis of internal operations and processes, environmental considerations in the product development process, and extended stewardship across the multiple life-cycles of products. Caterpillar, for example, is working with a major mining customer to improve mine site productivity, efficiency, and overall environmental sustainability by developing an autonomous mining haulage system that will be tightly integrated with its customer's mining processes.
While lean and green are often seen as compatible initiatives due to each one's focus on waste reduction, lean strategies that require just-in-time delivery of small lot sizes require increased transportation, packaging, and handling that may contradict a green approach. Introducing global supply chain management into the green and lean equation increases the potential conflict between the green and lean initiatives. Part of this conflict is due to differences in the regulatory environments across the globe. Environmental regulations and growing external pressures are triggering the simultaneous pursuit of lean and environmental supply chain initiatives in global firms. As firms learn to balance these three strategies in complex supply chains, managers will need to find the synergies between the initiatives, and understand the various trade-offs required to address the points of conflict.
The forces that have driven companies to embrace green, lean and global supply chain strategies will not vanish because of the current economic situation. These forces may in fact continue to gain momentum and companies that continue to embrace green initiatives during this global crisis may find themselves poised on the leading edge of competitiveness when the global economy recovers.
Diane Mollenkopf is an associate professor of logistics at the University of Tennessee. Wendy L. Tate is an assistant professor of logistics and David Ecklund is a lecturer and director of UT's Global Supply Chain Executive MBA.
For over 30 years, University of Tennessee (UT) has played a major role in the areas of supply chain/logistics; supply chain certification; lean; process improvement; executive education; and leadership development -- conducting innovative research, publishing leading-edge findings, writing industry-standard textbooks, and creating benchmarks. For more information, please visit http://SupplyChain.utk.edu
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