11/07/2016
As the world’s economy is now transforming into a green economy, the Green Supply Chain (GSC) could become a novel approach for enterprises to improve their competitiveness and reputations.
GSC and its advantages
A supply chain involves enterprises that directly and indirectly meet customer demands by showing the process to deliver materials to the end customer from the initial supplier. A supply chain includes not only producers and suppliers but also transport companies, warehouses, retailers and customers.
A supply chain involves enterprises that directly and indirectly meet customer demands through a process to deliver materials to the end customer from the initial supplier. A supply chain includes not only producers and suppliers but also transport companies, warehouses, retailers and customers.
In the early 1990s, producers encountered environmental issues in their supply chains. GSC is defined as a method that minimises the impact of a product or service on the environment, including all stages of a product’s lifecycle, such as importing raw materials, designing, producing, delivering the product to the end customers and managing how the product is consumed.
The management of GSC involves combining environmental issues with the management of the supply chain stages, such as designing the product, seeking out and selecting raw materials, producing and delivering the product to customers and managing the product during its usage. The management of GSC also involves managing the traditional supply chain, which is now integrated with environmental standards, organised purchase decisions and long-term relationships with suppliers. GSC management is associated with managing the chains, including green design, green operation, green purchasing and green input and output logistics, as well as waste management and green production.
Today, GSC and GSC management are considered an effective method of resolving environmental issues that arise from the global supply chain, helping to reduce pollution, protect people’s health and efficiently utilise natural resources and energy.
Facing international challenges in energy security, water shortage and climate change, GSC requires enterprises to follow all rules and regulations developed by local governments, regional authorities and world leaders on environmental issues and sanitation. Companies must also ask suppliers to follow their environmental requirements, and both sides must follow them strictly.
In 2015, Walmart - the largest US-based retailer - asked suppliers to submit reports on the use of 10 toxic chemicals in production. Giant computer producer HP requested suppliers to reduce the amount of carbon dioxide in production and transportation by 20%, and the Japanese Fujitsu Corp applied a green purchasing policy to its entire supply chain and for all its suppliers. Many enterprises also co-operated with their suppliers to design green products and develop business strategies, allowing these suppliers to understand their responsibility towards the environment and society, thus forming a long-term relationship between them.
In practice, GSC may protect the people’s health and the environment, raise productivity and encourage people to be creative, as well as boost corporate earnings, save energy, reduce costs and improve the competitiveness of companies. With all these benefits, companies see GSC as a strategic analysis tool and push each agent of the supply chain to meet environmental standards to create products that satisfy the market demand. A great deal of research has pointed out that managing GSC is part of the company’s commitment to protecting the environment and achieving sustainable development, which will boost competitiveness, raise productivity, improve the company’s administration and retain the loyalty of employees. However, GSC management also brings with it certain difficulties for the companies in terms of maintaining or reducing the current level of financial costs and in evaluating the competence of suppliers and customers.
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| IKEA always pays attention to environment protection in the GSC |
Standard model of GSC and examples of effective development
According to the Supply Chain Council (SCC) – a non-profit organization that provides standard tools and methods to assist company develop and operate supply chain – the Supply Chain Operations Reference-Model (SCOR) is a closed model of supply chain, in which all production stages are tightly connected by exchanging information regularly between all links of the supply chain in all stages: Planning; importing materials; producing; distributing products; retrieving products; and retrieving recycled materials.
According to the Supply Chain Council (SCC) – a non-profit organisation that provides standard tools and methods to assist companies in developing and operating their supply chains – the Supply Chain Operations Reference Model (SCOR) is a closed supply chain model, in which all production stages are tightly connected by exchanging information regularly between all the links of the supply chain, from planning, importing materials and producing and distributing products to retrieving products and recycled materials.
On the basis of this model, the SCC has developed a new model called the GreenSCOR Model, with additional environment protection activities. More specifically, in the planning stage, an enterprise needs to design environmentally friendly products, calculate the related costs and analyse the environmental lifecycle. In the stage of importing materials, the enterprise needs to locate the source of the materials, check the information, purchase clean materials and work with a third party to inspect the suppliers. In the production stage, the enterprise will perform activities that are related to environmental protection, provide management tools to suppliers and monitor their impact on the environment. In the distribution stage, the enterprise must select partners who have vehicles that save fuel and eject a low amount of carbon dioxide into the air. During the stage of retrieving the used products for recycling, the enterprise needs to work with the recycling companies to develop a recycling process to deal with toxic chemicals and waste.
With this standard model, many of the world’s largest enterprises have established an efficient and sustainable GSC network, which benefits themselves and other companies involved in their supply chain. One example is the Sweden-based IKEA Group, the world’s third-largest wood-consuming company. Established in 1943, IKEA is present in 31 nations, with 76,000 employees, and earns annual revenue of EUR12 billion.
IKEA has effectively implemented its concept “suppliers and customers are friends” by developing a network of 1,800 suppliers in 55 countries and setting up a successful GSC program based on a partnership and friendship-focused relationship with customers. Besides this, IKEA also pays attention to protecting the environment and refuses to use toxic chemicals and types of wood exploited from damaged rainforests. The group issues standards for suppliers on the quality of products and services it will purchase and their responsibility towards the environment and society. It also works with its suppliers to resolve these issues.
In 2000, IKEA released a new standard called the IKEA Way on Purchasing Home Furnishings Products (IWAY) for all its suppliers around the world and asked them to comply with it. IWAY includes 19 categories, which are subdivided into 90 items that are adjusted every two years to reflect the current environmental and social changes in the world. IKEA has also founded the IWAY Council, which is responsible for resolving issues that violate the principles of IWAY.. In its business dealings, IKEA always tries to co-operate closely with its suppliers to successfully implement the IWAY standard. On the global front, the group has set up a unit that works to monitor and ensure that IWAY is well managed and implemented. Suppliers’ compliance is evaluated by this unit. All employees in the group and all its suppliers are well-versed in environmental issues, society’s needs and the standards to be followed. The information is provided in training programs that are organised by IKEA. Through this approach, IKEA expects its strategic partners to play an important role in accepting their responsibility towards society and developing a more environmentally friendly supply chain.
The key component of IKEA’s successful business is the flexible use of GSC, which turns suppliers and customers into friends, and together, they create benefits and value for both sides.
Nguyễn Bình Minh
University of Economics and Business
Vietnam National University
