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Sustainability in the Supply Chain

Sustainability

 Meeting the needs of the present without compromising the ability of future generations to
meet their needs
 Includes employees, customers, community, and company reputation
 More than “going green”
Green Logic vs Sustainable Logic
While going green looks at only the environmental aspect of it, being sustainable is equivalent to
taking into account the social, economical and environmental impact of that particular product or
organization.
Triple Bottom Line
Consider the systems necessary to support the three Ps: people, planet, and profit

People
Decisions affect people
Globalization and outsourcing complicate the task
Supplier selection and performance criteria are important
Materials must be safe and environmentally responsible
Walmart’s Objectives
1. Improving livelihoods through the creation of productive, healthy, and safe workplaces
2. Building strong communities through access to affordable, high-quality services
3. Preventing exposure to substances that are considered harmful or toxic
4. Promoting health and wellness
Planet
The planet’s environment
Look for ways to reduce the environmental impact of operations
Overarching objective is to conserve scarce resources
Carbon footprint and greenhouse gas (G H G) emissions
Carbon Footprint
34.5-gram Bag of Frito-Lay Chips

Profit
Social and environmental sustainability do not exist without economic sustainability
Staying in business requires making a profit
Alternate measures of success include risk profile, intellectual property, employee morale, and
company valuation
Corporate Social Responsibility

 How products and services affect people and the environment

 Stakeholders have strong opinions about environmental, social, and ethical issues
 Doing what’s right can be beneficial to all stakeholders
Corporate Social Responsibility is operating a company in a manner that meets or exceeds the ethical,
legal, commercial and public expectations that society has of business” (NEPALI 2008).
CSRs are often broken into four categories:

 environmental impacts
 ethical responsibility
 philanthropic endeavors
 financial responsibilities
• Shared value suggests finding policies and practices that enhance the organization’s
competitiveness while simultaneously advancing the economic and social conditions in the
communities in which it operates.
 • What types of businesses can focus on creating shared value?
Manufacturing and Consumer Goods: Businesses in this category can improve their supply chains for
efficiency and sustainability, develop products that address societal needs, and adopt environmentally
friendly production processes. Nestlé’s training programs for farmers and Unilever’s Sustainable
Living Plan. Automakers Tesla, Toyota, and Nissan find shared value in low-emission vehicles
Technology and Software: Tech companies can create shared value by developing products that
improve access to information, boost education, or help small businesses thrive. Google’s free suite of
tools, including Google Search, Google Maps, and Google Classroom.
Financial Services: Banks and financial institutions can create shared value by offering financial
products and services tailored to underserved communities or small businesses. For example,
providing microfinance loans to entrepreneurs in developing countries or developing financial literacy
programs.
Healthcare: Healthcare companies can create shared value by improving access to medical treatments,
promoting preventive care, or working to address public health crises. Novo Nordisk’s efforts to
improve diabetes care exemplify CSV in the healthcare sector.
Agriculture and Food Production: Companies can help small farmers improve their yields, develop
more sustainable farming methods, and improve access to nutritious food. An example is Nestlé’s
work with coffee farmers.
Sustainable Product Design
Design decisions affect materials, quality, cost, processes, related packaging and logistics, and how the
product will be processed when discarded
Incorporate systems view to lower environmental impact
Alternative materials
Sustainable Production Process
Reduce the amount of resources in the production process

 Energy
 Water
 Environmental contamination
Reduce cost and environmental concerns
Sustainable Logistics
• Reduce costs by achieving efficient route and delivery networks
1. Getting shipments to customers promptly
2. Keeping trucks busy
3. Buying inexpensive fuel
Design and Production for Sustainability
Life cycle assessment evaluates the environmental impact of a product, from raw material and energy
inputs all the way to the disposal of the product at its end of life
The life cycle of a T-shirt
End-of-Life Phase
• What happens at the end-of-life stage?
• Closed-loop supply chains or circular economy
• Initial design incorporates disassembly, recycling, and reuse
Circular Economy
• Circular economy – The circular economy is a model of production and consumption, which
involves sharing, leasing, reusing, repairing, refurbishing and recycling existing materials and
products as long as possible.
• In this way, the life cycle of products is extended.
• In practice, it implies reducing waste to a minimum.
Life Cycle Ownership Costs

Total life Life cycle

cycle = Cost of + Life cycle + operating
cost vehicle cost of fuel cost

Ford TriVan
  miles 
Total life   22,000 year 
cycle  $28,000 +   ($4.25 / gallon )(8 years )
cost  24 miles 
 gallon 
 miles 
+  22,000 ($.20 / mile)(8 years )
 gallon 
= $28,000 + $31,167 + $35,200 = $94,367
Honda CityVan

Crossover point in miles

Total cost for Ford TriVan  Total cost for Honda CityVan
 $   $ 
 4.25 gallon $   4.25
gallon $ 
$28,000 +   .20  (M miles )  $32,000    .22  ( M miles )
 24 miles mile   37 miles mile 
 gallon   gallon 

 $   $ 
$28,000 +  .3770  (M )  $32,000 +  .3349 (M )
 mile   mile 

Crossover point in years

Crossover point  (95,012 miles  22,000 (miles  year ))

 4.32 years
International Environmental Policies and Standards
• Organizations and governments guiding businesses
 – U.N. Framework Convention on Climate Change (U N F C C C)
– International Organization for Standardization (I S O)
– Elimination of greenhouse gas (G H G) emissions
European Union Emissions Trading System (E U E T S)
• To combat climate change
• Reduce industrial G H G emissions
• “Cap-and-trade” principle
I S O 14001 and 50001
Environmental management standards
1. Environmental management
2. Auditing
3. Performance evaluation
4. Labeling
5. Life cycle assessment
Advantages

 Positive public image, reduced liability

 Good systematic approach to pollution prevention
 Compliance with regulatory requirements, opportunities for competitive advantage
Implemented by more than 200,000 organizations in 155 countries
Environmental and economic benefits

 Reduced materials/resource usage

 Reduced energy consumption
 Lower distribution costs
 Improved image
 Improved process efficiency
 Reduced waste and disposal costs
 Better utilization of recoverable resources

Chapter 7s Capacity and Constraint Management

Capacity
The throughput, or the number of units a facility can hold, receive, store, or produce in a period of
time
Determines fixed costs
Determines if demand will be satisfied
Planning Over a Time Horizon
Long Description:
The chart lists options for adjusting capacity within three time horizons (“Long-range planning”,
“Intermediate-range planning”, and “Short-range planning”), which are categorized either under
“Modify capacity” or “Use capacity”, as summarized below.
•Long-range planning:
◦Modify capacity:
▪Design new production processes
▪Add (or sell existing) long-lead-time equipment
▪Acquire or sell facilities
▪Acquire competitors
◦Use capacity: Difficult to adjust capacity, as limited options exist
•Intermediate-range planning (aggregate planning):
◦Modify capacity:
▪Subcontract.
▪Add or sell equipment
▪Add or reduce shifts
◦Use capacity:
▪Build or use inventory
▪More or improved training
▪Add or reduce personnel
•Short-range planning (scheduling):
◦Modify capacity: Difficult to adjust capacity, as limited options exist
◦Use capacity:
▪Schedule jobs.
▪Schedule personnel.
▪Allocate machinery
▪Reduce changeover time
Design and Effective Capacity (1 of 4)
Design capacity is the maximum theoretical output of a system.
Normally expressed as a rate.
Effective capacity is the capacity a firm expects to achieve given current operating constraints.
Often lower than design capacity.

Utilization and Efficiency

Utilization is the percentage of design capacity actually achieved.
Utilization = Actual output / Design capacity
Efficiency is the percentage of effective capacity actually achieved.
Effiency = Actual output / Effectice capacity
Bakery Example (1 of 7)
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Capacity Considerations
Capacity decisions must be integrated into the organization’s mission and strategy
1. Forecast demand accurately
2. Match technology increments and sales volume
3. Find the optimum operating size (volume)
4. Build for change
Managing Demand
Demand exceeds capacity= Curtail demand by raising prices, scheduling longer lead times,
discouraging marginally profitable business, Long-term solution is to increase capacity.
Capacity exceeds demand= Stimulate market, Product changes.
Adjusting to seasonal demands= Produce products with complementary demand patterns.
Complementary Demand Patterns

Long Description:
The line graph compares “Sales in units” on the vertical axis over “Time” (in months over 2 years) on
the horizontal axis, for three sets of data, as summarized below.
•Jet ski engine sales: fluctuates from near 1,000 during the winter months to near 2,000 during the
summer months.
•Snowmobile motor sales: fluctuates from near 3,000 during the winter months to near 2,000 during
the summer months.
•Combining the two demand patterns reduces the variation: fluctuates slightly around 4,000.
Bottleneck Analysis
Each work area can have its own unique capacity
Capacity analysis determines the throughput capacity of workstations in a system
A bottleneck is a limiting factor or constraint
A bottleneck has the lowest effective capacity in a system
The time to produce a unit or a specified batch size is the process time

Bottleneck Analysis and the Theory of Constraints (continued)

The bottleneck time is the time of the slowest workstation (the one that takes the longest) in a
production system (4min)
The throughput time is the time it takes a unit to go through production from start to end, with no
waiting (9min)

Long Description:
Stations “A”, “B”, and “C” are denoted by rectangular boxes in series. The boxes represent operations.
Between two stations, is a triangle that represents inventory. Arrows represent precedence
relationships and are drawn from “A” to “B” and “B” to “C”. The time taken is mentioned below each
station, as summarized below:
•Station A: 2 minutes per unit •Station B: 4 minutes per unit •Station C: 3 minutes per unit
Capacity Analysis Ex.
Howard Kraye’s sandwich shop provides healthy sandwiches for customers. Howard has two identical
sandwich assembly lines.
1. A customer first places an order, which takes 30 seconds. The order is then sent to one of the
two assembly lines. Each assembly line has two workers and three operations:
2. assembly worker 1 retrieves and cuts the bread (15 seconds/sandwich),
3. assembly worker 2 adds ingredients and places the sandwich onto the toaster conveyor belt
(20 seconds/sandwich), and the toaster heats the sandwich (40 seconds/sandwich).
4. Finally, another employee wraps the heated sandwich coming out of the toaster and delivers it
to the customer (37.5 seconds/sandwich).
A flowchart of the process is shown below. Howard wants to determine the bottleneck time and
throughput time of this process.
Long Description:
The chart is summarized in order below.
Order (30 seconds sandwich) branches out into “First assembly line” and “Second assembly line.” The
processes that follow thereon are:
•Bread (first and second assembly lines, each 15 seconds per sandwich).
•Fill (first and second assembly lines, each 20 seconds per sandwich).
•Toaster (first and second assembly lines20 seconds per sandwich).
Both assembly lines culminate in:
Wrap/Deliver (37.5 second per sandwich).