The downturn in the economy is forcing companies to make hard choices about whether or not to maintain existing or create new supply chain management initiatives and programs. When the economy was strong, companies were more open to new initiatives and investments in supply chain technologies, processes and relationships that showed the promise of long-term returns. Now that the economy is in a downward tail spin, companies are less willing to commit increasingly scarce resources on projects that are either too expensive to implement or are not perceived as having a more immediate return to the bottom line. As a result, supply chain management strategies are being implemented to help keep companies afloat long enough to survive the current economic climate.
"Green" initiatives in supply chain management often are subject to this measured "wait-and-see" approach. According to several industry experts, many firms see the economic downturn as a time to cut back on green supply chain projects. However, in spite of tough economic times, both immediate and long-term benefits are still possible by implementing or sustaining green initiatives. What follows is a list of five ideas companies may want to consider.
1. Weigh the risks. Consumers today are increasingly aware of health and safety issues posed by products and processes. Public backlash against companies whose supply chains are revealed to have poor environmental records have forced firms to initiate costly public relations campaigns. This reaction can surface during, and perhaps because of, a negative economic climate. Product recalls involving supplier products that may pose a hazard to consumers have created significant financial hardship for the companies involved. Green initiatives in the supply chain can help to mitigate this risk. Controls in product design and manufacturing processes can reduce the risk of supplier error or quality issues. Strengthened supplier selection criteria and site auditing can help with supplier oversight and compliance with environmental mandates from the buying firm. In addition, control of the environmental performance of supply chains can help firms create and maintain an environmentally responsible image among the public at large. In turn, this can create stronger customer loyalty and brand equity.
2. Regulatory issues should be considered. Government environmental regulations are expected to increase over the next several years regardless of broader economic conditions. Many of these regulations could affect the supply chain's logistics, purchasing, and operations functions by adding additional rules and guidelines that firms must follow to be in compliance with the law. Firms that proactively pursue environmental initiatives and strategies in their supply chains will find themselves in a position to more easily comply with regulation compared to firms that do not have such strategies in place. This proactive approach can help the firm in several ways:
- Give the firm a potential competitive advantage
- Lower the cost of compliance
- Avoid the costs and oversight of non-compliance violations
- Enhance company relationship with regulatory bodies
3. Consider efficiency. Efficient supply chain operations can translate to less waste and lower costs. As far back as the 1990s, academics, consultants and industry experts have exposed that pollution and waste generated from the firm's supply chain is inefficient and therefore a drain on a firm's resources. By promoting and investing in processes that target the reduction of significant sources of waste and materials, firms can improve their bottom line. One company I have dealt with implemented a global returnable packaging program that saved the company hundreds of thousands of dollars within the first year and almost immediately reduced their packaging waste stream to a trickle.
4. Realistically assess the investment. Initiatives in green supply chain projects do not necessarily require significant capital or human resource investments. Recently, Wal-Mart announced an initiative to require all fleet trucks to maintain the maximum air pressure allowed in their tires. This is an example of a simple, low-cost, yet effective process that not only extends the life of the truck tires, but saves the company millions of dollars each year in fuel costs. Burning less fuel reduces resource consumption and results in fewer emissions. With creative brainstorming, other types of "low-hanging-fruit" projects might be in reach that can yield significant cost savings for most companies operating on a reduced budget.
5. Be mindful of supplier relationships. Strengthening supplier relationships can be a low-cost way of leveraging supplier knowledge and technology in environmentally friendly processes to improve the overall environmental performance of the supply chain. For example, Anheuser-Busch recently encouraged suppliers to help with the redesign of their cans, saving an estimated 12 million pounds and improving the company's bottom line. Companies that can harness their supplier's strengths in this area may also gain the advantage of stronger supplier compliance with environmental regulation and company environmental mandates.
In sum, green initiatives in the supply chain can help the bottom line without necessarily being exceedingly risky or incurring exorbitant costs. Even in tough economic times, green supply chain initiatives can still add value to the firm.
Jon Kirchoff is a Ph.D. candidate in the Department of Marketing and Logistics at the University of Tennessee. Before returning to academia to earn his doctorate, he worked for 14 years in logistics, purchasing, and supply chain management both in the U.S. and in Europe.
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.http://TheCenter.utk.edu.
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