Sustainable Supply Chain Strategy SCM6001 With SCMPC Malaysia Mr. Nachiappan Suppiah Email: [email protected] H/P No.: 019-2141097Contents Our first session... Meet the Tutors Motivation Introduction to the Module Lecture 1: Introduction to Sustainable Supply Chain Strategy Case Study #1 SCM Professional Centre Sdn. Bhd. 2Mr. Nachiappan Suppiah Tn. Hj. Nor Azmi bin Ramli Supply Chain Management Professional Centre [email protected] SCM Professional Centre Sdn. Bhd. 3 Meet the Tutors Supply Chain Management Professional Centre [email protected] your tutors Telephone Skype E-mail: always use your Bolton e-mail address – it proves who you are. Key points: Please ask your questions on the forums in Moodle, because other students may already know the answer... or may also need to know the answer. Having problems? Let us know before the deadline for a piece of work. SCM Professional Centre Sdn. Bhd. 4Each 20 credit module = 200 hours’ study SCM Professional Centre Sdn. Bhd. 5Introduction to the Module Learning Outcomes A look at Moodle, and the Module Guide Assessment Recommended reading Accessing library resources SCM Professional Centre Sdn. Bhd. 6Learning Outcomes Discuss and evaluate the internal and external influences on a business that affect its position in the supply chain Deploy appropriate formulation methods for strategic supply chain decision making Apply appropriate methodologies to formulate long term capacity, facilities and distribution plans. Place the supply chain management task into longer term strategic supply chain development SCM Professional Centre Sdn. Bhd. 7Assessment Coursework: Strategy Development (your choice of business) 50% weighting Report format 2,500 words Coursework: HG Ceramics case study and recommendations 50% weighting Report format 2,000 words, plus 10 Powerpoint slides SCM Professional Centre Sdn. Bhd. 8Recommended Reading Slack, N., Chambers, S., Harland, C., Harrison, A., and Johnston, R., (2010), Operations Management, 6th ed. Harlow: Financial times, Prentice Hall. Frazelle, E. (2007) Supply Chain Strategy: The Logistics of Supply Chain Management. New York: McGraw-Hill Professional Harrison, A. and van Hoek, R. (2008) Logistics management and strategy: competing through the supply chain, 3rd ed. Harlow: Financial Times Prentice Hall SCM Professional Centre Sdn. Bhd. 9Recommended Reading ...additional sources Christopher, M. (2011) Logistics and supply chain management: strategies for reducing cost and improving service,4th ed. Harlow: Pearson Education Limited Berger, A. J. (2001) Supply Chain Cybermastery: Building High Performance Supply Chains of the Future. Aldershot: Gower Booth, C. (2010) Strategic Procurement : Organising Suppliers and Supply Chains for Competitive Advantage. London: Kogan Page Derek, W. & Hampson, K. (2003) Procurement strategies: a relationship based approach. London: Blackwell Science Hines, P. (2008) Value Stream Management: Strategy and Excellence in the Supply Chain. Harlow: Financial Times/Prentice Hall SCM Professional Centre Sdn. Bhd. 10Recommended Reading ...periodicals Supply chain management review The journal of supply chain management The international journal of logistics management International journal of logistics Logistics management Purchasing and supply management University of Bolton students can access most of the books and journals free, in electronic form. Sign in to your account at http://www.bolton.ac.uk/library SCM Professional Centre Sdn. Bhd. 11SCM Professional Centre Sdn. Bhd. 12Supply Chain... What do we mean by “supply chain”? SCM Professional Centre Sdn. Bhd. 13Definitions Supply Chain “Clearly, the term ‘chain’ is a simplification of the complex web of suppliers, subassemblers, manufacturers, distributors and logistics providers who are the primary actors in managing the physical flows from womb to tomb.” – McFarlane & Sheffi (2003) The impact of automatic identification on supply chain operations. International Journal of Logistics Management, Vol. 14, No.1, p.1–17. SCM Professional Centre Sdn. Bhd. 14Definitions Supply Chain Management “The management of upstream and downstream relationships with suppliers and customers in order to deliver superior customer value at less cost to the supply chain as a whole.” – Christopher, M. (2011) Logistics and supply chain management: strategies for reducing cost and improving service, 4th ed. Harlow: Pearson Education Limited SCM Professional Centre Sdn. Bhd. 15Definitions Supply Chain Strategy We know what supply chain management is. Now, what is meant by supply chain strategy? Dictionary definitions of strategy: A plan of action designed to achieve a major or overall aim. The art of planning and directing overall military operations and movements in a war or battle. Often contrasted with tactics. ...so what is Supply Chain Strategy? SCM Professional Centre Sdn. Bhd. 16Definitions Supply Chain Strategy “The design and planning of the end-to-end chain to maximise the potential to meet customer demand at the lowest possible cost.” – LCP Consulting “The goal of the integrated supply chain strategy is to create manufacturing processes and logistics functions seamlessly across the supply chain as an effective competitive weapon that cannot be easily duplicated by competitors.” – Tan, K.C. (2001) A framework of supply chain management literature. European Journal of Purchasing & Supply Management 7, 39–48. SCM Professional Centre Sdn. Bhd. 17Sourcing products or services. Managing buyer- supplier relationships. Processing contracts. Managing orders and schedules of delivery. Managing the update and booking-in of delivery information. SCM Professional Centre Sdn. Bhd. 18 Supply Chain ManagementSupply Chain Strategy Positioning the organisation in the supply chain, and make-or- buy decisions. Initial setup of buyersupplier relationships. Negotiating & writing contracts. Determining delivery policies and timings. Determining and defining the best IT systems to manage the supply chain. SCM Professional Centre Sdn. Bhd. 19Supply Chain Management Sourcing products or services. Managing buyer- supplier relationships. Processing contracts. Managing orders and schedules of delivery. Managing the update and booking-in of delivery information. Supply Chain Strategy SCM Professional Centre Sdn. Bhd. 20 Supply Chain Tasks Positioning the organisation in the supply chain, and make-or- buy decisions. Initial setup of buyersupplier relationships. Negotiating & writing contracts. Determining delivery policies and timings. Determining and defining the best IT systems to manage the supply chain.Public Sector versus Private Sector Supply Chains Do these definitions of supply chain strategy apply to the public sector? To the private sector? To both? SCM Professional Centre Sdn. Bhd. 21 Public sector: the part of an economy that is controlled by the government. Private sector: the part of the national economy that is not under direct government controlYour Supply Chain Strategy: Three Elements Each organisation will have its own strategy, based on its own supply network context. It will address the three elements of procurement and sourcing, operations and distribution. Key issues are network configuration, information systems, and organisational structure. SCM Professional Centre Sdn. Bhd. 22Procurement and Sourcing Strategy Locking in key sources of supply (and locking competitors out). e-Sourcing and tendering. Multiple sourcing. Exchange rate mitigation. Selection of distributors and stockists. Contract formulation. Supplier relationship management. Others? SCM Professional Centre Sdn. Bhd. 23Operations Strategy “Operations strategy is the total pattern of decisions which shape the long-term capabilities of any type of operations and their contribution to the overall strategy, through the reconciliation of market requirements with operations resources.” – Slack, N. & Lewis, M. (2002) Operations Strategy. Financial Times/Prentice Hall. SCM Professional Centre Sdn. Bhd. 24Operations Strategy The Operations Strategy will be a compromise, reflecting the need to satisfy competing goals: Quality Cost Lead time Flexibility ...others? Different companies choose different bases for competition. SCM Professional Centre Sdn. Bhd. 25Operations Strategy SCM Professional Centre Sdn. Bhd. 26Distribution Strategy Centralised or decentralised? Push (forecast driven) or pull (demand driven)? Direct shipment, or warehousing? (Or crossdocking?) Use of technology for tracking. Determining inventory levels, based upon a desired service level. Making informed decisions on the basis of inventory holding versus shipping costs. SCM Professional Centre Sdn. Bhd. 27Conceptual Distribution Network SCM Professional Centre Sdn. Bhd. 28 [Image: MIT Open Courseware]How many companies have a Supply Chain Strategy? Cohen and Rousell suggested only around 10-15% Why so low? Perhaps because strategy emerges and evolves; strategic projects take place independent of each other and of any central thinking... ...but it doesn’t make the logic presented in this module any the less valid. – Cohen, S. & Roussel, J. (2005) Strategic Supply Chain Management. New York: McGraw-Hill SCM Professional Centre Sdn. Bhd. 29Two key issues How do we formulate a strategy? What should go into the strategy? SCM Professional Centre Sdn. Bhd. 30Put simply... What is it that we need our supply chain to be good at? What must the supply chain do, to win orders and remain competitive? At what level do we need to perform relative to our competitors? Supply Chain Strategy is about putting the supply chain resources in place to achieve these things. Some companies often held up as good examples include Dell, Toyota, Tesco, Ikea and Eli Lilly SCM Professional Centre Sdn. Bhd. 31View your Supply Chain as a Strategic Asset “…Market leaders such as Walmart and Dell understand that the supply chain can be a strategic differentiator…” “…Michael Dell is a visionary in supply chain management … sell direct, build to order, and ship direct...” “…Walmart’s legendary partnership with Procter and Gamble to replenish inventory automatically showed the power of integrating key suppliers. Also buying direct from manufacturers rather than distributors…” – Cohen, S. & Roussel, J. (2005) Strategic Supply Chain Management. New York: McGraw-Hill SCM Professional Centre Sdn. Bhd. 32Summing up We established, with quotes, some key definitions relating to the supply chain. We looked at the differences between supply chain management and strategy. We discussed the differences between the public and private sectors. You can now identify three distinct components that make up a supply chain strategy. As we continue, you will learn more about the process of formulating a supply chain strategy. Next: our first case study. SCM Professional Centre Sdn. Bhd. 33First Case Study In groups, read the case and discuss the questions. Each group will be asked to lead the feedback for one of the questions. SCM Professional Centre Sdn. Bhd. 34Feeding back... Discussion Questions What were the objectives for the overhaul of the supply chain – why did MFI undertake such a reorganisation? Which major event in MFI’s history preceded the overhaul of its supply chain? Under what circumstances might a company decide to reorganise their supply chain? Summarise the changes that were made. Which changes have acted to improve customer service, and which were designed to remove cost? SCM Professional Centre Sdn. Bhd. 35Approximate Geography SCM Professional Centre Sdn. Bhd. 36Strategy Formulation SCM Professional Centre Sdn. Bhd. 37Contents Lecture two... A Framework for Strategy Formulation Understanding Competition A ‘toolbox’ of techniques to understand: Competitor actions The business environment The market Our strengths Sample strategy content SCM Professional Centre Sdn. Bhd. 38Recap: We know that a supply chain strategy will consist of three components: Procurement and sourcing strategy. Operations strategy. Distribution strategy. We still need to formulate a specific strategy for any company (or public sector organisation) that we study. What is it that we need our supply chain to be good at? On what bases do we intend to compete? Our supply chain strategy is a roadmap, leading to that position. SCM Professional Centre Sdn. Bhd. 39Recap: Strategy Formulation Reconciling the requirements of the market and the capabilities of the supply chain. Addressing three strategic elements: procurement and sourcing, operations and distribution. Key issues are network configuration, information systems, and organisational structure. SCM Professional Centre Sdn. Bhd. 40Strategy Formulation Two aspects: The process of formulating a supply chain strategy (we will look at these next), and The content of the supply chain strategy, e.g. Inventory, capacity, relationships and collaborations in the supply chain, information systems, transportation, outsourcing, etc… How these factors will be used strategically to deliver competitive edge. SCM Professional Centre Sdn. Bhd. 41General Strategy Formulation Sense signals. Interpret relevance. Map to scenarios – how should we change in response to the signals? Adjust strategy. Manage cycles. SCM Professional Centre Sdn. Bhd. 42 Morden, T. (2006) Principles of Strategic Management, Ashgate, TeesideStrategy Formulation Adapt to Survive Some researchers have drawn and analogy between Charles Darwin’s Theory of Evolution, and organisational strategy. SENSE changes in environment (e.g. Climate, food sources, predators) REACT to triggers ADAPT and evolve to suit the new environment. Your strategy will change over time. SCM Professional Centre Sdn. Bhd. 43SCM Professional Centre Sdn. Bhd. 44 Levels of Strategy Johnson & Scholes (2008) Exploring Corporate Strategy, 8th Ed, FTRecognise what the supply chain needs to be good at; define the goals, and organise the supply chain to achieve those goals. How does the supply chain help the organisation to compete? SCM Professional Centre Sdn. Bhd. 45SCM Professional Centre Sdn. Bhd. 46 How do we Create a Strategy?What is Competition? Sport: Testing the strength, speed or some other ability of two or more people. Business: A rivalry of two or more businesses that target the same customers. Business competition tends to result in increased efficiency as firms attempt to reduce costs. Ecology: Interaction between organisms, populations, or species, in which birth, growth and death depend on gaining a share of a limited environmental resource. SCM Professional Centre Sdn. Bhd. 47Who’s competing how? Four main ways to compete: Quality Cost Lead time Flexibility ... maybe some others? How do these well-known companies compete? SCM Professional Centre Sdn. Bhd. 4849 Next ‘9pm’ CampaignA ‘Toolbox’ of Techniques External Environment PESTLE Porter’s Five Forces Market Requirements Order winners and qualifiers Competition Porter’s Value Chain Hill’s Nine-point scale SCM Professional Centre Sdn. Bhd. 50The business environment: PESTLE Analysis A tool for understanding your market and business position by describing the situation in terms of a six-part framework, namely: Political – legislation, restrictions, tariffs, incentives. Economic – inflation, interest rates, growth. Social – demographics, health, culture. Technical – innovations affecting quality, cost, etc. Legal – how law affects the operations of a business. Environmental – weather, climate change, image. SCM Professional Centre Sdn. Bhd. 51Porter’s Five Forces Porter identified the relevant variables and the questions that one must answer in order to develop a strategy tailored to a particular company’s situation. The five forces... SCM Professional Centre Sdn. Bhd. 52Porter’s Five Forces A supplier (for example, somebody upstream in your supply chain) has power if... Few good alternative sources of supply exist. They own a patent on something that you need. Suppliers have solidarity (e.g. OPEC) – strongest when they are few in number, and highly concentrated. The cost of switching supplier is high. SCM Professional Centre Sdn. Bhd. 53Porter’s Five Forces A customer (for example, somebody downstream in your supply chain) has power if... The product is a standard, largely undifferentiated type. The customer’s business represents a major proportion of the supplier’s total revenue. The buyer has access to lots of information about alternatives (e.g. Internet access). There is a substitute product that might meet the customer’s needs. SCM Professional Centre Sdn. Bhd. 54Porter’s Five Forces A substitute product or service is more of a threat when... Consumer’s switching costs are low. The relative price of the substitute is low. The substitute is being marketed aggressively. SCM Professional Centre Sdn. Bhd. 55Porter’s Five Forces New entrants are unlikely when there are barriers to market entry, such as... Large capital requirements, or the need to achieve economies of scale quickly. Strong customer loyalty, or brand preferences. Lack of adequate distribution channels. Lack of access to raw materials. SCM Professional Centre Sdn. Bhd. 56Porter’s Five Forces Internal competition is highest when... There are a lot of competing companies. Growth slows, or demand for the industry’s products declines. Fixed costs are high. Barriers to leaving the industry are high. SCM Professional Centre Sdn. Bhd. 57Order Winners and Qualifiers How do products and services win orders? SCM Professional Centre Sdn. Bhd. 58Price Quality Delivery speed Delivery dependability Product/ service range Product/ service design Brand image Service Innovation SCM Professional Centre Sdn. Bhd. 59 Order Winners and Qualifiers Order winning factors contribute directly and significantly to winning business. They are regarded by customers as key reasons for purchasing the product or service. Raising performance in an order-winning factor improves the chances of gaining more business. Order qualifying factors are not the major competitive determinants of success, but are important, just to be considered by a customer. Below a certain, ‘qualifying’ level the company probably won’t even be considered by many customers.Porter’s Value Chain A sequence of activities, seen at the business unit level, that each increase the product’s value. – Porter, M.E. (1998) Competitive Advantage: Creating and Sustaining Superior Performance. New York: Simon & Schuster SCM Professional Centre Sdn. Bhd. 60Understanding the Value Chain Primary (value adding) and ‘support’ activities. SCM Professional Centre Sdn. Bhd. 61Applying Porter’s Value Chain Each business unit can be considered to have a value chain of its own. Which parts of the supply chain do you need to do yourselves? Which must you control, and how much? Make or buy? Products pass through each primary stage in order, and each one should add some value... SCM Professional Centre Sdn. Bhd. 62Hill’s Nine-point Scale Actually consists of two scales: Importance to customers, and Performance relative to competitors – Hill, T. (1993) Manufacturing Strategy: The Strategic Management of the Manufacturing Function (2nd ed.). London: Macmillan SCM Professional Centre Sdn. Bhd. 63SCM Professional Centre Sdn. Bhd.SCM Professional Centre Sdn. Bhd. 65The Nine-Point Importance Scale SCM Professional Centre Sdn. Bhd. 66 Order-winning objectives 1.Provide a crucial advantage with customers 2.Provide an important advantage with most customers 3.Provide a useful advantage with most customers Qualifying objectives 4.Need to be at least up to good industry standard 5.Need to be around the median industry standard 6.Need to be within close range of the rest of the industry Less important objectives 7.Not usually important, but could become so in the future 8.Very rarely come into customers consideration 9.Never come into consideration by customersThe Nine-Point Performance Scale 1. Consistently considerably better than nearest competitor 2. Consistently clearly better than our nearest competitor 3. Consistently marginally better than our nearest competitor 4. Sometimes marginally better than most competitors 5. About the same as most competitors 6. Often close to the main competitor 7. Usually marginally worse than main competitors 8. Usually worse than most competitors 9. Consistently worse than most competitors SCM Professional Centre Sdn. Bhd. 67Importance to Customers in Winning Orders SCM Professional Centre Sdn. Bhd. 68 1 2 3 4 5 6 7 8 9 Price X Quality X Delivery Speed X Delivery Dependability X Availability X Product/service range X Product/service design X Brand Image X After-sales service XPerformance and Importance Mapping SCM Professional Centre Sdn. Bhd. 69Performance and Importance Explained SCM Professional Centre Sdn. Bhd. 70The Future of Competition? There is a widely-held belief that competition will increasingly occur not between companies, but between supply chains. What do you think? SCM Professional Centre Sdn. Bhd. 71Competition Conceptual Supply Chain SCM Professional Centre Sdn. Bhd.Competition doesn’t just mean competing for customers SCM Professional Centre Sdn. Bhd. 73Conceptual Supply Network for Orange Juice SCM Professional Centre Sdn. Bhd. 74Our ‘Toolbox’ of Techniques, Reviewed SCM Professional Centre Sdn. Bhd. 75 PESTLE Five forces 9-point OW & OQ Value Chain SWOTContent of your Supply Chain Strategy You strategy might mention any or all of the following... Processes Information systems Contractual arrangements Supply chain relationships – partnerships, trust and ‘softer issues’ People, skills and knowledge Physical resources – capacity and location Operational management Others? SCM Professional Centre Sdn. Bhd. 76Summing up Making a strategy is an iterative process... just like life! Strategy can be seen to exist at three levels: corporate, business and functional. Companies need to make strategic decisions, to get the most from their supply network. Relationships between businesses operating in supply networks are complex! A set of techniques were presented, as ways to structure the decision-making processes. The methods given here assist with the analysis; you will still need to be creative, to formulate a competitive strategy for your business. SCM Professional Centre Sdn. Bhd. 77Strategy Content SCM Professional Centre Sdn. Bhd. 78Content Supply Chain Positioning Make or Buy? Outsourcing Supply chain uncertainties SCM Professional Centre Sdn. Bhd. 79Supply Chain Positioning What parts of the the value addition process is it most appropriate for our company to... Have control over (“value positioning”) Perform ourselves (“make vs buy”) Think about the supply chain for a car. When it is completed and delivered, its value is at 100%... but how is that value distributed along the supply chain? SCM Professional Centre Sdn. Bhd. 80“Vertical Integration” SCM Professional Centre Sdn. Bhd. 81“Vertical Integration” SCM Professional Centre Sdn. Bhd. 82SCM Professional Centre Sdn. Bhd. Ford Motor Company in the 1920’sOwnership of... Car assembly plants Design offices Coal mines Iron ore mines Timber forests Rubber plantations A railway network Freighters SCM Professional Centre Sdn. Bhd. 84 Ford Motor Company in the 1920’s Sawmills Blast furnaces A glassworks... etc.Ford’s Vertical Integration Ford had a supply network that wasn’t growing fast enough to keep pace. Raw materials were in short supply after the First World War. Inventory costs were too high to permit the holding of safety stocks for every material. Henry Ford’s strategy of vertical integration was very successful... although it isn’t fashionable nowadays: Anti-competitive. Not concentrating on core competencies. SCM Professional Centre Sdn. Bhd. 85Supply Chain for Books What space do Amazon.com now occupy? What is the motivation: what has driven them to occupy that space? SCM Professional Centre Sdn. Bhd. 86Automotive Seat Example SCM Professional Centre Sdn. Bhd. 87 Jaguar building their own seats, to order Nissan taking delivery of complete seatsTwo very different propositions... SCM Professional Centre Sdn. Bhd. 88 Jaguar X-type Nissan Primera/Almera/ Micra Order winners Specification and design Price Order qualifiers Price Specification, quality, reliability Volume 60,000 per year (2002) 310,000 per year (2002) Variety Very high, ‘personal’ LowerPosition in the Value Chain The position and structure of the two supply chains is very different. Nissan’s demand for Just-In-Time delivery means the seat manufacturer (JCI) had to be much more vertically integrated, and co-located. There is a trend in industry for powerful customers to insist that their suppliers take more of the risks... and hopefully more of the rewards! Further reading... SCM Professional Centre Sdn. Bhd. 89 http://www.themanufacturer.com /articles/seat-of-learning/Make vs Buy What advantage would it be for Jaguar to buy a fully- assembled seat set (and possibly also other interior parts such as the headlining, carpets, etc.) from a single “Tier 1” supplier? Are there any advantages for a supplier that seeks to become an ‘integrator’? SCM Professional Centre Sdn. Bhd. 90Decisions in Outsourcing How do you decide what to make and what to buy? Is it only cost ? What about outsourcing infrastructure and processes? The Japanese are more likely to outsource product, but less likely to outsource manufacturing system design than Western manufacturers. SCM Professional Centre Sdn. Bhd. 91Reasons to make Lower cost to produce Unsuitable suppliers Poor quality Price too high Not available Utilise surplus labour Protect proprietary design Increase or maintain the size of the company Reasons to buy Lower cost to buy Preserve supplier commitment Inadequate capacity Item is protected by a patent or trade secret Free up management to concentrate on the primary business Obtain or nurture capability SCM Professional Centre Sdn. Bhd. 92 Make or Buy?Outsourcing A key incentive for global companies and governments is to improve the efficiency of their value chains. By using outsourcing as a means to focus on core competencies where their company has a comparative advantage, companies tend to reduce their exposure to inefficiencies in areas where they do not need to be best in class. In non-essential business areas, this could lead to mutual gains for outsourcing companies and the contractors for whom the outsourced activity is core. SCM Professional Centre Sdn. Bhd. 93Some key Definitions Offshoring is the relocation of business processes (production, distribution, business services, or core activities like R&D) to lowcost locations outside national borders. Onshoring is just the opposite; bringing an activity into the country in order to improve logistics, or to gain ore control. Nearshoring is as term used to denote that a selected location is close to the country of origin (Poland or Hungary for Germany; Mexico for the U.S.) SCM Professional Centre Sdn. Bhd. 94Supply Chain Uncertainties Demand uncertainty – seasonal or cyclic demand patterns, fashion influences, technology cycle, speculation, etc. Lead time uncertainty – when will a key supplier be able to complete the order? Capacity – will each part of the supply network be able to keep up with demand? Yield uncertainty – scrap rates in manufacturing. Resource depletion – increasing scarcity of materials. Logistic uncertainty – accidents, and transportation options changing due to nature, technology, etc. Political issues – new legislation or intervention. SCM Professional Centre Sdn. Bhd. 95Coping with Uncertainty Multiple customers (try not to make more than 20% of your business depend upon a single customer). Multiple sources of supply (so you can still do business if one supplier fails, and to “keep them honest”). Surplus capacity (in manufacturing and transportation, to cope with peak demand periods). Safety stocks (... but keep in mind that this is the opposite of going ‘lean’). Carefully negotiated contracts (who pays when things don’t go as planned?). ...others? SCM Professional Centre Sdn. Bhd. 96Summing Up Choosing what to do – and what to let others do – is a key component of supply chain strategy. Understand where in the supply chain the value is created. When you share work with your suppliers, make sure you share the risks as well. Think about potential problems before they happen – and have plans in place. SCM Professional Centre Sdn. Bhd. 97The Sustainable Supply Chain SCM Professional Centre Sdn. Bhd. 98Sustainable? Sustainability: “Meeting the needs of the present without compromising the ability of future generations to meet their own needs” – World Council on Economic Development, 1987 SCM Professional Centre Sdn. Bhd. 99Sustainable Supply Chain Choice of materials used. Choice of production methods. Choice of transportation methods, including the choice of packaging used. Specification of ‘green’ products. Remember that even if you don’t want to do anything about unfair social or environmental issues, somebody further down the supply chain might insist. (Doing a ‘carbon audit’ is increasingly seen as an order qualifier.) SCM Professional Centre Sdn. Bhd. 100Sustainable Materials Use renewable materials (things that grow or are refreshed by natural processes) where possible. Choose durable materials that will last longer, or will have value for somebody else at the end-of-life. Choose ethically-sourced materials. Choose materials with a “low ecological rucksack factor”. (Ecological rucksack is a crude measure of the kilograms of material that must be ‘disturbed’ to obtain one kilogram of the refined material.) SCM Professional Centre Sdn. Bhd. 101Sample rucksack factors (complete) Gold? Rubber? Copper? Logs? Aluminium? Recycled Aluminium? Diamond? Typical plastic? Steel? SCM Professional Centre Sdn. Bhd. 102Sustainable Logistics Transportation usually measured in Freight Tonne Kilometres. The mode of transport influences time taken, but also the environmental impact: Air freight Road transport (large trucks are better than cars and vans, if they are full) Marine transport Rail (electric trains are better than diesel) Bicycle (!) SCM Professional Centre Sdn. Bhd. 103Sustainable Materials: Role of the ICMM The International Council on Mining and Metals was established in 2001 to “act as a catalyst for performance improvement”. 18 mining and metals companies. 30 national and regional mining associations, and global commodity associations. Recognises that extractive industries need to maintain a good image, if they are to continue to have access to the resources they need. Ten key principles... SCM Professional Centre Sdn. Bhd. 104ICMM ten principles (1 – 5) Implement and maintain ethical business practices and sound systems of corporate governance. Integrate sustainable development considerations within the corporate decision-making process. Uphold fundamental human rights and respect cultures, customs and values in dealings with employees and others who are affected by our activities. Implement risk management strategies based on valid data and sound science. Seek continual improvement of our health and safety performance. SCM Professional Centre Sdn. Bhd. 105ICMM ten principles (6-10) Seek continual improvement of environmental performance. Contribute to conservation of biodiversity and integrated approaches to land use planning. Facilitate and encourage responsible product design, use, re-use, recycling and disposal of our products. Contribute to the social, economic and institutional development of the communities in which we operate. Implement effective and transparent engagement, communication and independently verified reporting arrangements with our stakeholders. SCM Professional Centre Sdn. Bhd. 106The need to maintain good relations... The Mine at Kiruna, Sweden SCM Professional Centre Sdn. Bhd. 107Green Procurement, Logistics & Packaging You may be able to specify bulk quantities and forms of packaging that avoid a lot of waste. What issues would you need to consider, before deciding to order in bulk? SCM Professional Centre Sdn. Bhd. 108Reuse is better than recycling. Try to specify and order products that have an ‘extra life’ when their first use ends. You save on waste disposal fees, as well. 109 ‘Green’ designSumming up: Sustainable Supply Chain You have the opportunity to make your supply chain more sustainable, through procurement, operational and logistics decisions. Being interested in sustainability doesn’t have to be a “full stomach phenomenon” Being ‘green’ may well be an order qualifier, but it can be a significant source of competitive advantage. SCM Professional Centre Sdn. Bhd. 110.