Designing the Green Supply Chain

Benita M. Beamon
University of Washington Industrial Engineering Box 352650 Seattle, WA 98195-2650 Phone: (206) 543-2308 Fax: (206) 685-3072

Logistics Information Management (1999) Vol. 12, No. 4, pp. 332-342

Abstract
The supply chain has been traditionally defined as a one-way, integrated manufacturing process wherein raw materials are converted into final products, then delivered to customers. Under this definition, the supply chain includes only those activities associated with manufacturing, from raw material acquisition to final product delivery. However, due to recent changing environmental requirements affecting manufacturing operations, increasing attention is given to developing environmental management (EM) strategies for the supply chain. This research: (1) investigates the environmental factors leading to the development of an extended environmental supply chain, (2) describes the elemental differences between the extended supply chain and the traditional supply chain, (3) describes the additional challenges presented by the extension, (4) presents performance measures appropriate for the extended supply chain, and (5) develops a general procedure towards achieving and maintaining the green supply chain.

Keywords
supply chain, logistics, environment, environmental management

Introduction

Years ago, the concept of environmental quality was almost non-existent in the United States. Then, the concept came to mean cleaner air and cleaner water. Now, environmental quality has come to mean safe drinking water, healthy ecosystems, safe food, toxic-free communities, safe waste management, and the restoration of contaminated sites (Council on Environmental Quality, 1996). Concurrently, there has been increasing public attention placed on the overall condition of the natural environment. This attention may be largely attributed to information provided by the media, through growing numbers of environmental and consumer interest groups (Fiksel, 1996). The most commonly perceived enemy to environmental protection is manufacturing and production operations. That is, manufacturing and production processes are viewed as the culprits in harming the environment, in the forms of waste generation, ecosystem disruption, and depletion of natural resources (Fiksel, 1996). Indeed, waste generation and natural resource use, primarily attributed to manufacturing, contribute to environmental degradation by outstripping the earths ability to compensate and recover, and thus are not sustainable by the earths ecosystem. The current state and trend of environmental degradation (from regulatory, consumer, and moral standpoints) indicate a need for a change in manufacturing philosophy. That is, there must be a fundamental shift in the way production systems operate. There must be a move towards sustainability, achieved through vast reductions in resource use and waste generation, and a move away from one-time use and product disposal. The first step in such a move is to extend the structure of the current one-way supply chain to a closed loop, including supply chain operations designed for end-of-life product and packaging recovery, collection, and re-use (in the forms of recycling and/or remanufacturing). The objectives of this research are to: (1) describe the current state of the natural environment, (2) investigate the environmental factors leading to the development of an extended environmental supply chain, (3) describe the additional challenges presented by the extension, (4) present performance measures appropriate for the extended supply chain, and (5) develop a general procedure towards achieving and maintaining the green supply chain.

2
2.1

The State of the Environment

Solid and Hazardous Waste

The amount of solid waste generated in the United States has been growing steadily over the past 30 years and is expected to continue to grow (Council on Environmental Quality, 1996). According to the United States Environmental Protection Agency (EPA), approximately 12 billion tons of industrial waste (and approximately 208 million tons of municipal waste) is generated every year in the United States. Over 4 billion tons of the total waste generated is hazardous waste, and is increasing at a rate of 10% annually (Environmental Protection Agency Office of Solid Waste, no date, and Fiksel, 1996). This translates into approximately 10 pounds of total waste per person per day (approximately 4.3 pounds of municipal waste per day). Although disposal fees vary by region, the national average waste disposal fee has increased

dramatically during the span of 1985 to 1995, rising from $8.20 per ton in 1985 to $32.19 per ton in 1995 (Council on Environmental Quality, 1996). These costs are largely a result of the fact that, according to EPA estimates for municipal solid waste, only 56 million tons (27%) was recovered by recycling or composting and 33.5 million tons (16%) was incinerated, while 118.5 million tons (57%) was landfilled (Environmental Protection Agency Office of Solid Waste, no date).

2.2

Natural Resource Use

The United States extracts an increasing amount of material from United States lands and territories annually, currently in excess of ten tons of material per person (United States Congress Office of Technology Assessment, 1992). In fact, material consumption has increased by a factor of four since the turn of the century (while population has increased by a factor of three during the same period) (United States Congress Office of Technology Assessment, 1992). During this time, the largest increases in natural resource extraction were derived from mining operations (metals and non-metallic ores) and from organics (plastics, and petrochemicals) (United States Congress Office of Technology Assessment, 1992). Additionally, the types of resources extracted have shifted from agricultural and forestry resources in the early 1900s to mining and organics today (United States Congress Office of Technology Assessment, 1992). It is important to note here that modern product designs are generally more efficient (requiring much less material to produce) and result in products that are lighter in weight; however, these modern products are also highly complex, making them generally more difficult to repair, recycle and/or remanufacture.

2.3

Water and Air Pollution

Water Although the rivers, lakes, and coastal waters of the United States are cleaner today than they were in the early 1970s, water pollution is still a very real concern. For example (Council on Environmental Quality, 1996): Nearly 40% of all U.S. waters are still too polluted to support all of their designated functions. Contaminated fish advisories or bans were issued in 1995 for over 1,700 bodies of water (representing a 14% increase over the previous year) to protect the public from eating contaminated fish. More than 4,000 beaches were closed in 1995 due to harmful levels of bacteria and other pollutants. Approximately 20% of the population receive water from a facility that is in violation of at least one national safety requirement.

Air Similar to water quality, air quality in the United States has undergone considerable improvement in recent years. However, also similar to air quality, some troubling facts still remain: In excess of 2/3 of the global urban population (primarily in developing countries) breathes air that has unhealthy particulate levels at least part of the year (Percival, et. al., 1992). It has been estimated that air particulate levels in the United States are responsible for approximately three percent of all deaths in the U.S. (corresponding to 60,000 deaths per year) (Percival, et. al., 1992). In November of 1993, the EPA designated 42 U.S. areas as non-attainment areas for carbon monoxide (41 of which were classified as moderate; Los Angeles was classified as serious) (Council on Environmental Quality, 1993). Approximately 59 million people in the U.S. live in counties in which pollution levels failed to meet at least one air quality standard in 1993 (Council on Environmental Quality, 1993).

3
3.1

Environmental Policy
Public Pressure

In the United States of America, an estimated 75% of consumers claim that their purchasing decisions are influenced by a companys environmental reputation, and 80% would be willing to pay more for environmentally friendly goods (Lamming and Hampson, 1996). On a worldwide level, a recent 22-country survey of environmental attitudes found that (Elkington, 1994): In half of the countries surveyed, the environment was considered one of the three most serious problems. In most countries, the majority of the citizens surveyed said that the state of the environment affects their health, and an even greater majority say that the environment affects the health of their children. In 16 of the 22 countries, citizens said that they avoid products that are harmful to the environment.

Thus, in the USA, and worldwide, there is an overall awareness of the worsening state of the environment, as well as a desire to reverse that trend, even if it costs more to do so.

3.2

Environmental Legislation

In response to growing worldwide concern regarding the state of the environment, including pollution and resource conservation, new environmental legislation was adopted in the United States. The primary pieces of legislation are : (1) the Clean Air Act (CAA), (2) the Clean Water Act (CWA), (3) the Resource Conservation and Recovery Act (RCRA), (4) the Comprehensive Environmental Response, Compensation, and Liability Act (CERCLA), (5) the Toxic Substances Act (TSCA), and (6) the Amendment Acts to CERCLA, called the Superfund Amendments and Reauthoriztion Acts (SARA), which includes the Emergency Planning and Community Right-toKnow Act (EPCRA), as Title III. Table 1 below lists each of these major pieces of environmental legislation and the year of original enactment (shown in boldface), the years of subsequent amendments (if any), and the primary provisions it contains.

Act
CAA

Year of Enactment, Amendments

1967, 1970, 1977, 1990

Primary Provisions
National Ambient Air Quality Standards (NAAQSs) Hazardous Air Pollution Standards Motor Vehicle Emissions Standards Fuel and Fuel Additive Standards Aircraft Emission Standards Ozone Protection Provisions

CWA

1972, 1977, 1981, 1987

Regulation of wastewater discharges from manufacturing facilities Provisions for federal aid for municipal sewage treatment systems Identification and permit requirements for non-point discharges

RCRA

1976, 1984

Regulation of generation, storage, transportation, treatment, disposal, and storage of hazardous waste Ban on landfilling untreated hazardous waste Ban on burning hazardous waste for energy recovery

CERCLA (Superfund) TSCA

1980

Provisions for federal funding to clean up sites contaminated from prior unregulated disposal

1976

Provisions for testing, regulating and screening all substances produced or imported to the United States prior to use Provisions for banning and reporting any chemical substance posing unreasonable risk to health or to the environment

SARA

1986

Provisions for increased pace of cleanup Provisions for increased public participation Provisions for more stringent and better defined cleanup standards

EPCRA (SARA, Title III)

1986

Provisions requiring companies to report the release and storage of specified chemicals and chemical compounds above certain threshold limits (called release reporting) Provisions allowing public access to release reports, including chemicals used, and the amount and nature of the releases to the environment

Table 1. Environmental Regulations RCRA represented the first legislative step away from isolated command and control policies and towards more integrated life cycle approaches. That is, RCRA was the first piece of legislation that made landfill disposal of hazardous waste cost ineffective, since RCRA

established that although the short-term cost of hazardous waste landfill disposal may be small, the long-term environmental cost of such a move is far greater. In fact, the current philosophy of pollution and waste reduction and resource follows this model; environmental management is moving away from risk management and pollution prevention, and towards life cycle management and industrial ecology, as shown below in Table 2. Stage of Environmental Policy Risk Management Pollution Prevention Life Cycle Management and Industrial Ecology Primary Characteristic(s)
Waste management and pollution control. Process improvement to reduce material use, minimize waste, and improve efficiency. Systematic product and process management to maximize profitability and ensure environmental quality. Focus on life cycle environmental effects of processes and products.

Year(s)
1970s mid 1980s mid 1980s early 1990s mid 1990s - ?

Table 2. Evolution of Environmental Management

3.3

Environmental Management Standards (ISO 14000 Series)

In response to more stringent environmental regulations and changes in environmental management philosophy, there has been a corresponding need to develop operational guidelines and standards to assist organizations in moving towards ecologically sustainable business practices. The ISO 14000 series standard is designed to address these needs. Objectives and Structure Recently, the International Organization for Standards (ISO) adopted ISO 14000 Series as its international specification standard for environmental management systems, with the objectives of (Alexander, 1996 and Pratt, 1997): 1. Encouraging an internationally common approach to environmental management. 2. Strengthening companies abilities to improve and measure environmental performance, through continual system audits. 3. Improving international trade and removing trade barriers. The ISO 14000 Series documentation is comprised of five basic components, and is structured as shown in Table 3 below:

ISO 14001 ISO 14004 ISO 14010 ISO 14011 ISO 14012

Specifies minimum requirements for achieving ISO 14000 Certification. Sets guidelines for developing an environmental management (EM) system. Establishes the general principles of environmental auditing. Establishes auditing procedures for the auditing of EM systems. Establishes qualification criteria for environmental auditors. Table 3. The ISO 14000 Series (source: (International Organization for Standardization, 1996))

Primary Requirements ISO 14000 addresses these three objectives by requiring that organizations develop (Pratt, 1997 and Sarkis, et. al., 1995): 1. An advance environmental impact analysis of all new activities, products, and processes. 2. A continuous environmental impact assessment of current activities, products, and process. 3. Standards and objectives, that include policies for pollution prevention and waste minimization, that are defined for and continuously improved at every organizational level. 4. Numerical targets and monitoring procedures for each identified objective. 5. Procedures to be followed in the event of non-compliance with established environmental policies, and in cases of accidental discharge. 6. Procedures to ensure that suppliers and contractors working within or associated with organizational facilities apply environmental standards equivalent to organizational standards. Thus, ISO 14000 is indicative of the recent shift in environmental philosophy; ISO 14000 focuses on procedures and systems, and says nothing of discharge standards, limits, or test methods (Pratt, 1997).

The Supply Chain Re-Defined

The new environmental era represents a new challenge to manufacturing and production enterprises worldwide. The challenge is to develop ways in which industrial development and environmental protection can symbiotically coexist. The first step in meeting this challenge is to re-define the basic structure of the entire supply chain, by accommodating environmental concerns associated with waste and resource use minimization.

4.1

The Traditional Supply Chain

The traditional supply chain is defined as an integrated manufacturing process wherein raw materials are manufactured into final products, then delivered to customers (via distribution, retail, or both). Figure 1 below illustrates the structure of the traditional supply chain.

Distribution Consumer Supply Manufacturing Retail

Figure 1. The Traditional Supply Chain Design, modeling, and analysis of the traditional supply chain has primarily focused on optimizing the procurement of raw materials from suppliers and the distribution of products to customers. The issues considered within this scope of analysis include (Beamon, 1998): Production/Distribution Scheduling: Scheduling the manufacturing and/or distribution schedule. Inventory Levels: Determining the amount and location of every raw material, sub-assembly, and final assembly storage. Number of Stages (Echelons): Determining the number of stages (or echelons) that will comprise the supply chain. This involves either increasing or decreasing the chains level of vertical integration by combining (or eliminating) stages or separating (or adding) stages, respectively. Distribution Center (DC) - Customer Assignment: Determining which DC(s) will serve which customer(s). Plant - Product Assignment: Determining which plant(s) will manufacture which product(s). Buyer - Supplier Relationships: Determining and developing critical aspects of the buyersupplier relationship. Product Differentiation Step Specification: Determining the step within the process of product manufacturing at which the product should be differentiated (or specialized). Number of Product Types Held in Inventory: Determining the number of different product types that will be held in finished goods inventory.

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4.2

The Extended Supply Chain

The ultimate objective of extending the traditional supply chain is to allow consideration of the total immediate and eventual environmental effects of all products and processes (known as product and process stewardship, respectively). The stewardship concept is based on the recognition that the environmental effects of an organization include the environmental impacts of goods and processes from the extraction of raw materials, to the use of goods produced, to the final disposal of those goods (Lamming and Hampson, 1996). The evolution of manufacturing enterprises from traditional, problem-solving environmental management techniques to fully integrated environmental management (EM) is described in Table 4 below. Evolutionary Stage 1. Problem Solving Characteristics
Traditional approaches View regulatory compliance as a burdensome cost of doing business Primitive attempts at EM coordination and integration Compliance-oriented Visionary/long-range planners Utilize risk management to balance potential future environmental liabilities versus costs Pollution prevention instead of pollution control Waste minimization and source reduction Environmental quality viewed as an aspect of Total Quality Management (TQM) Global concern about processes and entire product life cycle

2. Managing for Compliance 3. Managing for Assurance

4. Managing for Eco-efficiency 5. Fully Integrated

Table 4. Stages of Environmental Management (adapted from (Fiksel, 1996)) Thus, in the earliest evolutionary stages of environmental management, organizations separate environmental performance from operational performance. However, as organizations evolve, they begin to integrate environmental objectives within the framework of their existing operational objectives. In this way, the following potential benefits may be realized: Reduced product life cycle costs increased profitability. More specifically, effective environmental management results in the avoidance of the following costs (Cattanach, et. al., 1995):

Cost avoidance of purchasing hazardous materials as inputs, which reflect the internalized costs associated with environmental harm.

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Cost avoidance of storing, managing, and disposing process waste, particularly as waste disposal becomes increasingly expensive. Cost avoidance of stigmatization or market resistance to environmentally harmful products. Cost avoidance of public and regulatory hostility towards environmentally harmful organizations.

Reduced environmental and health risks reduced liability risks (Cattanach, et. al., 1995 and Zhang, et. al., 1997). Safer, cleaner factories (Zhang, et. al., 1997).

The fully-integrated, extended supply chain contains all of the elements of the traditional supply chain (Figure 1), but extends the one-way chain to construct a semi-closed loop that includes product and packaging recycling, re-use, and/or remanufacturing operations. The extended supply chain is illustrated below in Figure 2. Figure 2 represents the traditional supply chain links as solid lines, and the links corresponding to the extended supply chain as dashed lines. The Ws enclosed by diamonds represent waste (or disposed) materials.
W Recycling W W W W
Distribution Consumer Supply Manufacturing Retail

Remanufacturing/ Re-use W

W Collection

Legend: W
Waste (or disposed) materials

Figure 2. The Extended Supply Chain

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4.2.1

Recycling and Re-use

Recycling is the process of collecting used products, components, and/or materials from the field, disassembling them (when necessary), separating them into categories of like materials (e.g., specific plastic types, glass, etc.), and processed into recycled products, components, and/or materials. In this case, the identity and functionality of the original materials are lost. (Thierry, et. al., 1995). The success of recycling depends on: (1) whether or not there is a market for the recycled materials, and (2) the quality of the recycled materials (since most recycling processes actually reduce the value of the material from its original value, as the material itself has degraded). Re-use is the process of collecting used materials, products, or components from the field, and distributing or selling them as used. Thus, although the ultimate value of the product is also reduced from its original value, no additional processing is required. 4.2.2 Remanufacturing

The process of remanufacturing consists of collecting a used product or component from the field, assessing its condition, and replacing worn, broken, or obsolete parts with new or refurbished parts. In this case, the identity and functionality of the original product is retained. The resulting (remanufactured) product is then inspected and tested, with the goal of meeting or exceeding the quality standards of brand new products. Thus, in some cases, the remanufactured product can exceed the original product in quality and/or function. This is due to the fact that during the remanufacturing process, the design of the replaced parts and/or components may have been improved since the original product was manufactured. The unique advantage of remanufacturing is that, unlike recycling and re-use, the process of remanufacturing does not degrade the overall value of the materials used.

4.3

The Extended Supply Chain: Operational and Strategic Issues

Extending the supply chain to include recovery operations, such as remanufacturing, recycling, and re-use adds an additional level of complexity to supply chain design, and a new set of potential operational and strategic considerations. These new considerations arise from two basic problems: (1) uncertainty associated with the replacement/recovery process (in time requirements, quality, and quantity of returned products, packaging, and/or containers), and (2) the reverse distribution process itself (collection and transportation of used products, packaging, and/or containers). Examples of operational and strategic issues associated with recoverable product systems are: Inventory control policies (including lot-sizing, scheduling, and safety stocks) given highly uncertain timing, quality, and quantities of replenishments (Guide, et. al., 1997a, Guide, et. al., 1997b, Haynsworth and Lyons, 1987, and Perry, 1991). Impact of uncontrollable recovery processes on inventory composition, production planning, and scheduling (i.e., the demand and recovery processes are not perfectly correlated, potentially resulting in uncontrolled growth of unwanted parts and non-availability of critical parts) (Van der Laan, et. al., 1996a and Van der Laan, et. al., 1996b).

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Disassembly planning (including scheduling, sequencing, and disassemblability analysis) for material recovery (Gupta and Taleb, 1994 and Johnson and Wang, 1995). The number and location of collection/recovery facilities. Collection procedures and customer incentive systems for retrieval operations. Effects of traditional supply chain strategies (e.g., decentralized versus centralized business functions, facility location, purchasing strategies) on environmental performance (e.g., energy use, solid waste, pollution, product recovery). Simultaneous operational/environmental supply chain optimization; merging environmental and operational goals into traditional analysis. Level and location of buffer inventories must be considered on both sides of the extended supply chain (forward and reverse) (Fleishmann, et. al., 1997). New criteria for vendor selection and certification.

Performance Evaluation

An important component in supply chain design and analysis is the establishment of appropriate performance measures. A performance measure, or a set of performance measures, is used to determine the efficiency and/or effectiveness of an existing system, or to compare competing alternative systems. Performance measures are also used to design proposed systems, by determining the values of the decision variables that yield the most desirable level(s) of performance.

5.1

Traditional Supply Chain Performance Measures

Available literature regarding traditional supply chain systems identifies a number of performance measures as important in the evaluation of supply chain effectiveness and efficiency. These measures are typically concerned with: (1) customer satisfaction, service, or responsiveness or (2) cost. The interested reader is referred to Beamon (1996) and Beamon (1998) for a discussion of these measures.

5.2

Performance Measures for the Extended Supply Chain

Although a number of performance measures appropriate for traditional supply chains have been developed, these existing measures are inadequate for use in the extended chain. The existing measures are inadequate in capturing the dual extended supply chain objectives of economic efficiency and environmental protection. This identifies a need to develop new, more inclusive, measures to describe supply chain performance. ISO 14000 identifies the need for these

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measures implicitly in its certification requirements. In fact, these certification requirements (as previously identified), refer directly to requiring environmental impact analysis and assessment, continuous measurement, targets, and monitoring procedures. Table 5 below describes and classifies the existing performance measures for the extended supply chain.

Performance Measure Classification

Resource Use Product Recovery Remanufacturing Re-use Recycling

Performance Measure
(Measured over Product and Process Life Cycle, except where indicated) Total energy consumed Total material consumed (e.g., water, timber, steel, etc.) Time required for product recovery % recyclable/reusable materials (volume or weight) available at end of product life % product volume or weight recovered and re-used Purity of recyclable materials recovered % recycled materials (weight or volume) used as input to manufacturing % product disposed or incinerated Fraction of packaging or containers recycled Material Recovery rate (MRR)1 Core Return Rate (CRR)2 Ratio of virgin to recycled resources Ratio of materials recycled to materials potentially recyclable Materials Productivity: economic output per unit of material input Useful product operating life Total mass of products produced Total toxic or hazardous materials used Total toxic or hazardous waste generated Solid waste emissions % product (weight or volume) disposed in landfills Concentrations of hazardous materials in products and by-products Estimated annual risk of adverse effects in humans and biota Waste ratio3: the ratio of wastes to all outputs. Average life-cycle cost incurred by the manufacturer Purchase and operating cost incurred by the consumer Average total life-cycle cost savings associated with design improvements Ecoefficiency4: adding the most value with the least use of resources and the least pollution. Generally, The ability to simultaneously meet cost, quality, and performance goals, reduce environmental impacts, and conserve valuable resources

Product Characteristics Waste Emissions and Exposure Hazard

Economic Economic/Emissions

Table 5. Extended Supply Chain Performance Measures (sources: (Fiksel, 1996, Guide, et. al., 1997b, Krupp, 1992, and Schmidheiny, 1992) The types of performance measure(s) used by an organization will largely depend on their evolutionary stage in Environmental Management. Table 6 below lists each of the organizational evolutionary stages (as previously shown in Table 4) versus the performance measure type(s) with which that stage is most likely associated.

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Evolutionary Stage 1. Problem Solving 2. Managing for Compliance 3. Managing for Assurance 4. Managing for Eco-efficiency 5. Fully Integrated

Performance Measure Classification

Waste Emissions and Exposure Hazard; Economic Waste Emissions and Exposure Hazard; Economic; Product Characteristics Economic; Product Characteristics; Economic/Emissions Product Characteristics; Economic/Emissions; Resource Use Product Characteristics; Economic/Emissions; Resource Use; Product Recovery

Table 6. Evolutionary Stage vs. Performance Measure Classification

Towards the Green Supply Chain

In general, the impact of manufacturing operations on the environment may be categorized as follows: (1) waste (all forms), (2) energy use, and (3) resource use (material consumption). In order to achieve the green supply chain, manufacturing organizations must follow the basic principles established by ISO 14000. In particular, organizations must develop procedures that focus on operations analysis, continuous improvement, measurement, and objectives. An implementation procedure for extending the supply chain includes the following tasks. Identify Processes. For each product within the supply chain, identify all inputs, outputs, byproducts, and resources. Develop a Performance Measurement System. Given the complexity of most supply chains, a single performance measure will likely be inadequate in assessing the true performance of the supply chain. Thus, a system of performance measures will be necessary. Such a performance measurement system must include measures for the three environmental categories given above, as well as existing operational measures. The interested reader is referred to Beamon (1998) for a discussion of performance measure criteria and selection. Measure the Supply Chain System. Calculate the actual composite performance at each step in the supply chain process for each product. The composite performance, as calculated at each supply chain process step, will be a function of the performance measures developed above. The composite performance, therefore, may be a single numerical value, or (more likely) a vector of numerical values. Prioritize. After all processes for all products have been measured, prioritize the process steps in order of increasing composite performance, as calculated above. Develop Alternatives and Select Approach. Develop alternatives for performance improvement (targeting first those process steps exhibiting the worst composite performance, based on prioritization above), and select a preferred approach. Establish Auditing and Improvement Procedures. Establish schedules and procedures for auditing and continuous improvement, including emergency and non-compliance procedures.

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Conclusion

The supply chain concept grew out of the recognition that the process of transforming raw materials into final products and delivering those products to customers is becoming increasingly complex. As such, it became increasingly apparent that analysis (and subsequent improvement) of the individual supply chain stages did not lead to improvement of the chain as a whole. Thus, the concept of the supply chain emerged to describe all production stages from raw material acquisition to final product delivery. Changes in the state of the environment, leading to subsequent public pressure and environmental legislation have necessitated a fundamental shift in manufacturing business practices. No longer is it acceptable or cost-effective to consider only the local and immediate effects of products and processes; it is now imperative to analyze the entire life cycle effects of all products and processes. Therefore, the traditional structure of the supply chain must be extended to include mechanisms for product recovery. This extension presents an additional level of complexity to supply chain design and analysis; more specifically, the addition of the product recovery mechanism gives rise to numerous issues affecting strategic and operational supply chain decisions. Consequently, the extension of the traditional supply chain requires the establishment and implementation of new performance measurement systems. These new measurement systems will serve as the centerpieces of environmentally-conscious implementation plans, based on continuous improvement, that will enable organizations to become and remain competitive while achieving sustainable processes.

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8
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Appendix: Extended Supply Chain Performance Measures

, where Sij Nj is the number of units of item j scrapped in time period i, and Nj is the total number of item j inducted into the process (Guide, et. al, 1997a).
n

The Material Recovery Rate (MRRj) for a product j is defined as: MRR j = 1

S
i =1

ij

The Core Return Rate (CRR) is defined as CRR =

r F
y y =1

, where ry is the discrete return rate

and Fy is the forecast or actual usage during year y (Krupp, 1992).

3

The Waste ratio is given by (Fiksel, 1996):

Waste ratio =

waste product + by - products + waste

Ecoefficiency is defined as (Schmidheiny, 1992): Ecoefficiency = Value Resource Use + Pollution

The Supply Chain Response to Environmental Pressures Discussion Paper

Julie Paquette Engineering Systems Division Massachusetts Institute of Technology June 2005

This paper is written as part of Supply Chain 2020, a research initiative investigating the critical factors shaping supply chains of today and tomorrow.

Table of Contents
Table of Contents.......................................................................................................................................... 2 I. Introduction ................................................................................................................................................ 3 II. Supply chains must respond to four sources of environmental pressures. .............................................. 4 A. Regulations ........................................................................................................................................... 4 Directives ............................................................................................................................................... 5 Taxes and fees ...................................................................................................................................... 9 Liability ................................................................................................................................................... 9 B. Consumers and Ethical Responsibility................................................................................................ 10 Quality .................................................................................................................................................. 10 Cost...................................................................................................................................................... 12 C. Resources........................................................................................................................................... 14 D. Summary............................................................................................................................................. 15 III. The supply chain response involves a distinct operating model, objective, and processes.................. 16 A. Integral part of strategy ....................................................................................................................... 16 B. Distinct operating model ..................................................................................................................... 16 C. Balanced operational objectives ......................................................................................................... 17 D. Best business processes .................................................................................................................... 19 Plan ...................................................................................................................................................... 19 Source.................................................................................................................................................. 20 Make .................................................................................................................................................... 21 Deliver .................................................................................................................................................. 22 Return .................................................................................................................................................. 22 IV. Conclusion ............................................................................................................................................. 24 Bibliography ................................................................................................................................................ 25

I. Introduction
Supply chains represent the integration of hundreds of decisions, each with discrete economic and environmental implications. While delivering the right product at the right time and unprecedented corporate profitability, supply chains have operationalized a linear production path that extracts resources, uses energy, releases emissions, and produce wastes at volumes and rates that place increasing burdens on the natural environment. However, as supply chains mature into sophisticated networks of material and information flow, so does the ability to carefully trace the environmental impacts of individual products along the supply chain and address these impacts proactively. Today, supply chains must respond to an array of environmental pressures, including regulations, consumer demands, and limited resource availability. This response involves the development of distinct operating models, objectives, and new supply chain processes that are expanding the scope of supply chain management within organizations. This discussion paper draws from supply chain and environmental management literature as well as industry case studies to characterize the current state of supply chain environmental activity and form a basis for future research.

II. Supply chains must respond to four sources of environmental pressures.

As supply chains grow to accommodate ever-increasing market demands, so do the environmental implications of linear production and public concerns for protecting the natural environment and human health. Concerns are most visibly translated into environmental regulations that shape the behavior and economics of industry. However, regulations represent just one source of environmentally-motivated pressure, which affects supply chain decision-making. Though significant, this narrow frame of reference may be expanded to include three additional sources: resource availability, ethical responsibility of corporations, and consumer demands for environmentally-advanced products and services. It is critical to understand the context and influence of pressures on the supply chain in order to respond effectively with technical and organizational innovation. Figure 1. Sources of environmental pressures affecting the supply chain

defines constraints

regulations

market

resources consumers

ethical responsibility

defines behavior within constraints

A. Regulations
Governments use a variety of regulatory instruments to address the environmental and health externalities associated with industrial production. These instruments include environmental directives, taxes and fees, and liability. All three affect the pricing and availability of products and services, and warrant consideration at the supply chain level. This section will describe the changing nature of environmental regulatory instruments as they may be applied to supply chain management.

Directives

The most commonly recognized examples of environmental regulation come in the form of directives, such as pollution limits, material bans, and fuel-economy standards. Regulatory directives set requirements for industry practices and performance. In the United States, more than a dozen statutes form the primary legal basis for federal environmental regulations, including 1 2 :

Clean Air Act (1967, 1970, 1977, 1990, 1999) requiring development of National Ambient Air Quality Standards, Hazardous Air Pollution Standards, Motor Vehicle Emissions Standards, Fuel and Fuel Additive Standards, Aircraft Emission Standards, and authorizing provisions for ozone protection

Clean Water Act (1972, 1988, 1981, 1987) authorizing regulation of wastewater facilities and nonpoint discharges and provisions for federal funding of municipal sewage treatment systems. Resource Conservation and Recovery Act (1976, 1984, 1986) authorizing regulation and banning of the generation, storage, transport, treatment, and disposal of hazardous waste, as well as management of non-hazardous wastes.

Toxics Substance and Control Act (1976) authorizing regulation and banning of industrial chemicals that pose unreasonable risk to human health or the environment. Comprehensive Environmental Response, Compensation and Liability Act (1980) allowing federal funding to remediate sites contaminated from prior unregulated disposal. Superfund Amendments and Reauthorization Act (1986) authorizing the development of clean-up standards and provisions for increased public participation. Emergency Planning & Community Right-To-Know Act (1986) authorizing the EPA to publicly report the release and storage of specified chemicals, and requiring emergency planning at the state level.

Pollution Prevention Act (1990) allowing provisions for agencies to support cost effective changes in production, operation, and raw material use through technical assistance and voluntary partnerships.

Though this list comprises only a few of the more influential statutes from the supply chain perspective, it represents a discernible shift in the federal governments regulatory approach. Stringent command and control regulation of industrial point-source releases has given way to agency support for continuous environmental improvement and community risk management. While this shift has moved targets from end-of-pipe pollution control to process pollution prevention, current environmental regulations within the United States focus primarily on the facility. Facility personnel are responsible for implementing environmental health and safety activities, efficiency measures, and emergency planning. No formal

mandate requires that environmental management processes and improvements extend beyond this domain. Further, while facility-focused regulations impact the cost of operations which very well may change the decisions of supply chain managers, they do not require that any factor beyond cost be explicitly considered. Environmental regulations are increasingly focused on consumer products. Products embody the cumulative environmental impacts from production, use, and disposal. Therefore, regulatory directives aimed at improving the environmental attributes of individual products effectively impact industry as a whole. In fact, product-focused regulation is ostensibly supply chain regulation, because changes to products drive changes to the design and operation of supply chains. Whereas regulations targeting manufacturing and transport activities at the facility level largely encourage either compliance or relocation of facilities (both of which are reflected in operation costs), regulations at the product level require new business processes both within the facilities that make up the supply chain and between them. Today, there are at least three categories of regulatory directives that are focused on consumer products:

Performance requirements. Standards that address the environmental impact of products during their use phase are relatively established regulatory instruments, including product fuel economy, energy efficiency, and emissions standards. In the United States, sequential acts for National Energy Policy (1975, 1978, 1992) authorize the Department of Energy to regulate energy (and to a lesser extent) water efficiency in end-use equipment, appliances, and building systems, notably including Corporate Average Fuel Economy (CAF) standards for passenger cars and light trucks. Use of such standards is increasing across the globe. The European Union recently passed the Directive on the eco-design of Energy Using Products 3 which will harmonize and advance the already strict energy and water efficiency standards across the EU. It is likely that performance targets, as well as labeling and reporting requirements, will grow more stringent with time. These requirements place significant demands on product designers and also affect architectural, material, and process choices. Although it may appear that a change in product attributes has limited impact on the design and operation of the supply chain, a large body of research suggests that end-product design alterations affect the entire production system. 4 Therefore, product innovation to meet mounting performance standards will affect fundamental supply chain functions planning, sourcing, manufacturing, and marketing.

Material mandates. Research increasingly correlates damage to the environment and human health to the use of toxic and hazardous materials. Accordingly, mandates in the United States have moved beyond manufacturing emissions controls to regulate the use of select materials in consumer products. In concept, material mandates are nothing new. The Food and Drug Administration has

been regulating the materials of food, drugs, cosmetics, medical devices, and radiation-emitting electronics for over a century, representing a large portion of products that consumers purchase 5 . The Consumer Product Safety Commission sets guidelines for material use in consumer goods such as appliances, toys, clothing, and paint. Past mandates have focused on materials that may directly harm human health due to direct exposure, and include a variety of state and federal-level restrictions on products containing asbestos, lead, and mercury. 6 Today, material mandates are being applied to a broader range of materials, products, and industries with arguably less direct health impacts. For instance, the European Unions Restriction on Hazardous Substances (RoHS) Directive is one of the more aggressive bans of materials in history. 7 The directive specifically targets the electronics industry and requires the phase out of lead, mercury, cadmium, hexavalent chromium and two groups of flame retardants in all products by 2008. This type of material mandate not only challenges the technical capabilities of product designers, but also the organizational capabilities across the electronics industry. Although materials for electronics are often selected far up the supply chain for commodity components, RoHS places responsibility for a complete bill of materials and certification on the final producers, requiring a level of information exchange and data management unprecedented in the electronics industry. Supply chain managers will be called upon to manage data, monitor supplier activity, and provide quality control while coordinating material transitions in existing product lines.

Extended producer responsibility legislation. In an effort to reduce material waste, conserve resources, and prevent hazardous disposal, several countries have enacted the principle of extended producer responsibility (EPR) within statutory frameworks. EPR directives place financial responsibility for the collection and disposal of products at the end of their useful life on manufacturers, thereby aiming to create incentive to redesign products for reuse and recycling. EPR legislation, also referred to as take-back, is attractive to policy-makers not only because it is a market-oriented instrument for environmental improvement, but also because it reduces the burden of waste disposal from individual municipalities.
8

While deposit schemes for the recovery of aluminum

cans and car batteries represent variations of take-back directives, EPR as discussed here has approximately a fifteen-year history beginning with packaging initiatives in Europe. The early efforts of several European countries were formalized in 1994 by the EUs Packaging and Packaging Waste Directive that stipulates national collection systems and recycling quotas. 9 A variety of public and private systems have developed in response, including Germanys Dual System which collects waste and coordinates recycling at a profit for producers who pay an upfront fee to display the green dot logo on their packaging. 10 EPR directives have since targeted more complex products, including automobiles, appliances, and electronics. The more aggressive legislative efforts are coming out of East Asia and Europe, and include Japans End-of-Life Vehicle Recycling Initiative (1996) and Home Appliance Recycling Law (2001), and the EUs Directive on End-of-Life Vehicles (2000) and Directive

on Waste Electrical and Electronic Equipment (2002). Although, regulations have been adopted or proposed in Korea, China, India, Brazil, Venezuela, Chile, and some states within the United States as well. In order to comply with EPR requirements, companies must design, implement, and possibly operate comprehensive reverse supply chains. 11 Representing no small endeavor, reverse supply chains may involve collection facilities, reverse logistics, partnerships with disassembly and recycling providers, integrated remanufacturing and reuse plans, and marketing initiatives to encourage consumer participation. Altogether, take back requires considerable organizational, technical, and financial commitment from industry. This discussion of product-focused directives is in no way exhaustive, rather providing a broad overview of present and future regulatory directions. Altogether, several broad conclusions may be drawn: First, the global nature of todays markets and supply chains complicates regulatory compliance efforts. The broad and sometimes conflicting requirements of various regulatory bodies must be managed effectively, presenting an additional element of complexity to supply chain management. As such, there is considerable incentive to standardize environmental processes across the supply chain when possible. In the past decade, the United States has taken a much different approach to regulating industry than other nations favoring environmental improvement through voluntary partnerships with corporations over more adversarial and legislative measures. While this shift may be preferable for supporting a market-oriented environmental response, it is likely that the more stringent regulations coming out of Europe and East Asia will set the standard for performance in all countries for better or worse. Second, product-focused regulatory directives raise the stakes for industry because they assign chief responsibility for environmental improvement to the most visible players in the production chain the final manufacturers. A requirement that the product embody certain environmental attributes ensures that some level of improved environmental coordination occurred along the supply chain, regardless of whether or not the product was imported from a country with little to no environmental regulations. While regulations that required facility improvements affect operation costs along the supply chain, productfocused directives change the entire decision framework of the supply chain, influencing cost and adding environmental criteria to fundamental processes in sourcing, manufacturing, operations, distribution, and data management. Third, the optimal supply chain response to product-focused directives will be difficult to determine in the near future. Not only are global production systems increasingly complex, but such regulatory frameworks are relatively new, still evolving, and seemingly unclear about ultimate environmental goals. For instance, it is unclear whether EPR legislation is intended primarily to minimize waste, reduce the toxic constituents of waste, encourage alternative waste disposal methods, or achieve a combination of these things.

Evidence from past governmental initiatives suggests that it is difficult to achieve multiple goals with one policy instrument (Walls, 2003). For this reason, it may be presumed that future regulations will require multiple activities as an integrated response to multiple policy goals. Taxes and fees

Environmental taxes either impose a tax cost on a product or activity that is environmentally damaging or they give a tax benefit to some product or activity that is environmentally beneficial. 12 For example, in the United States, the federal government imposes an excise tax on ozone-depleting chemicals and offers a tax credit to people who buy electric vehicles. In this sense, environmental taxes do not replace regulatory directives, but rather help regulate the use of resources by visibly changing the purchase price. Environmental taxes, if applied aggressively and globally, may transform the way supply chains are designed and operated. For instance, suppose the United States levied a substantially higher gasoline tax. Logistics systems might change dramatically in light of escalating transportation costs. This response could either foster regional supply chains and economic development or irreparably damage international markets. Environmental fees create the same affect, increasing the cost of select activities to environmentally-preferable ends. Fees may be applied to landfill, hazardous waste, or raw material extraction, with ramifications that ripple along the supply chain. While a large body of literature discusses the use of taxation to shape consumer behavior and raise government revenue 13 , the direct impact of various taxation schemes on the management of global supply chains is not addressed. Environmental taxes and fees may be effective instruments for environmental progress, though arguably less effective for supply chain progress. In changing the visible price of a product or activity, supply chain decision outcomes may be different, but the decision framework and business processes in place may stay the same.

Liability

Liability for environmental damage serves as pressure for performance improvements. Under United States tort law and environmental statutes such as the Resource Conservation and Recovery Act, strict liability places the full burden of environmental costs on the pollution generator, independent of the safety or precaution taken by the defendant. 14 This liability extends along the supply chain, creating situations where organizations may be held liable for environmental damage even when that damage is not a direct consequence of their actions. In the case that larger companies are conducting business with supply chain partners who have limited assets, it is in the best interest of those large companies to put into place technical support systems that assure compliance in the use of their products. 15 In fact, companies that

have relative advantages in certain risk reduction factors should implement these to reduce the liability of the entire supply chain. 16 Risk reduction activities may include training initiatives, product redesign, management of end-of-life products, and service offerings. For example, Greentech Assets, Inc. in Rhode Island offers recycling services specifically targeted at corporations aiming to limit the environmental and privacy risks associated with retired electronics. 17 Ashland Chemical reduced their own liability and that of their customers by offering chemical services rather than sales. 18 Ashland sells product on a turn-key basis, taking on all the responsibilities of providing and disposing chemicals. 19 In this sense, liability becomes an extremely effective regulatory instrument for several reasons. One, assigning liability to the most influential player creates incentive for the adoption and diffusion of environmental practices. Two, liability also invites pressure for environmental practices from insurance providers who underwrite industrial activities. Third and perhaps most importantly to supply chain processes, liability creates business opportunities to those companies who have invested in environmental literacy and services because they are able to reduce the risks associated with the activities of their customers and the supply chain as a whole. 20

B. Consumers and Ethical Responsibility

Markets create powerful venues for change since a savvy consumer base continually demands more value from products, services, and the organizations that offer them. In this sense, end consumers drive fundamental characteristics of the supply chain, including environmental performance. This type of pressure for environmental attributes and responsibility creates distinct market opportunities for supply chains that can deliver the right product at the right time. This section will describe how consumer product demands and the ethical responsibilities of corporations are realized through supply chain level environmental performance. Quality

Consumers demand quality products. As environmental awareness and expectations increase, so do demands for products with improved environmental qualities, including energy-efficient appliances, organic food and fabrics, recycled paper goods, and non-toxic cleaners. Past studies have shown that pinning down the exact status of environmental consumerism is challenging and subject to debate. Even as 79% of Americans consider themselves environmentalists and 67% state they would be willing to pay 5-10% more for environmentally compatible goods, 21 actual buying practices have not supported opinion polls. Consumers rarely accept environmentally-preferred products with inferior performance, and very few are willing to pay a price premium for environmental attributes. 22 While environmental expectations may be high all around, many companies still view the green consumer as a niche market.

10

Regardless, the niche market has demonstrated consistent growth in recent years and currently comprises more products with improved environmental attributes than ever before. Sales in select product categories demonstrate this phenomenon:

Organic: While the conventional food industry is generating a steady 2-3% per year growth, the organic industry has grown at rates between 17-20% annually for the past several years. 23 Energy-efficient: Energy Star, a labeling program administered by the United States EPA since 1992 to reward the most energy-efficient products, has expanded to include 11,000 different models within 40 product categories, ranging from washing machines to light bulbs. 24

Non-toxic: Natural household cleaners, including laundry and dishwashing detergents, have risen in sales from $140 million in 2000 to $290 million in 2004. 25

Industrial sales mirror these trends. Purchasing Magazine reported in 2002 that the most significant factor affecting supply, demand, pricing, and availability of solvents is the environmental issue. While demand for conventional solvents will be essentially flat at 0.2% per year growth, green solvents will post robust gains averaging 5.7% per year through 2005. 26 The issue of branding adds another element to managing consumer pressures for environmental performance. Research suggests that environmental expectations are higher when products are marketed with a strong brand. Since branding efforts essentially encourage consumers to develop an emotional attachment to a companys image and reputation, consumers in turn expect a relatively higher level of social and environmental performance. In fact, one of the most comprehensive surveys conducted in this area, covering 25,000 individuals in 26 countries, found that more consumers base their impression of a company on its corporate social responsibility than do on (product) reputation or financial factors. 27 A positive reputation is a valuable corporate asset, hard to build, yet easy to diminish. 28 The higher the profile of the brand, the more responsibility that that company must take for environmental activities along its supply chain. Environmental activities, however, represent just one aspect of the broader corporate social responsibility (CSR) agenda which has gained wide appeal in the past fifteen years. Also referred to as corporate citizenship, CSR involves the ethical treatment of employees, resources, the natural environment, communities and nations in which companies operate. Non-profit advocacy organizations have evoked the concept of CSR to raise awareness and build pressure for more ethical corporate behavior. For example, Global Exchange launched an infamous campaign against Nike, Inc. for subcontracting to sweatshops throughout South East Asia that employed children, required long hours, and maintained no environmental health and safety policies. 29 The Silicon Valley Toxics Coalition condemns brand name electronics manufacturers for toxic components and hazardous waste as a result of

11

irresponsible disposal. Their seminal publication, Exporting Harm: The High Tech Trashing of Asia, drew public attention to the practice of exporting electronic waste to be processed in parts of Asia. 30 On the other hand, some companies such as Stoneyfield Farm and Aveda have built a name for themselves on a basis of CSR. The efforts of these companies may drive both consumer demand for environmentally advanced products and competitive pressure for more responsible behavior in general. In a time when marketing, media, and public relations define success for many high profile companies, pressure to project an image of corporate ethical responsibility is very high. While it may be relatively easy to pay tribute to CSR in annual reports, it appears considerably more challenging to implement and enforce practices along the supply chain that yield measurable environmental benefits. Altogether, consumer demands create serious challenges for supply chain management because while environmental expectations are high and extend beyond final manufacturers to include multi-tiered suppliers, consumers are unwilling to sacrifice product performance or price. Improved environmental performance, whether necessitated by regulatory directives or consumer demand, require product design changes which ultimately affect supply chain functions in planning, sourcing, manufacturing, and marketing. In the case of directives, often regulatory agencies provide technical assistance and facilitate compliance activities to a degree. However, the onus of meeting consumer pressures for environmental improvement in a time of greater corporate ethical responsibility is on those who sell the products.

Cost

Consumers also demand competitively-priced products. In order to offer the right price and maintain profitability, production system costs must be carefully balanced with performance along the supply chain. Ample anecdotal and empirical evidence suggests that environmental waste equals financial waste in production systems. 31 High utilities, fuel costs, and waste disposal fees provide incentive for the adoption of environmental management systems that streamline production and yield greater efficiencies along the supply chain. An oft-cited paper by Michael Porter and Claas van der Linde published in 1995 presents basic reasoning for environmental improvements as investments that yield both product and process benefits and possibly create major competitive advantages in innovation and operations. 32 These mechanisms for efficiency include: Process

substitution, reuse, or recycling of production inputs; less downtime through more careful monitoring and maintenance; better utilization of by-products by conversion of waste into valuable forms; lower energy consumption during the production process;

12

reduced material storage and handling costs; savings from safer workplace conditions; and elimination or reduction of the cost of activities involved in discharges or waste disposal

Product

higher quality, more consistent, safer products; lower product costs; lower packaging costs; lower net costs of product disposal to customers; and higher product resale and scrap value

This concept of keeping operation costs low through environmental improvements has been plugged by business environmentalists for years as the illustrious win-win situation. As such, there are abundant anecdotal case studies that endorse the use of environmental management systems and processes both within individual facilities and as collaborative efforts between supply chain partners. 33 In a document published in 2000, the EPA reported that 34 :

GM reduced disposal costs by $12 million between 1987 and 1997 by establishing a reusable container program with its suppliers. Additionally, reusable containers can reduce solid waste, product damage during shipping, and worker safety problems that come with slicing open boxes.

Andersen Corporation developed a composite material from wood wastes generated during its manufacturing process. This innovation yielded internal rates of return exceeding 50% and enabled Andersen to decrease solid lumber purchases by 750,000 board-feet.

Public Service Electric and Gas Company saved more than $2 million in 1997 in storage and product disposal fees by requiring maintenance and operating material suppliers to adhere to stringent return policies. These costs had previously been hidden in overhead accounts.

Examples like these may be found in many publications, old and new, along with a wide range of process tools for organizations to identify and implement tailored environmental strategies. Notably, a tool called GreenSCOR 35 has been developed to merge environmental management with supply chain management in order to integrate environmental considerations into the entire supply chain process. An offshoot of the Supply Chain Councils original Supply Chain Operation Reference model (SCOR), benefits to GreenSCOR include the ability to reduce environmental impacts and related costs system-wide while supporting traditional supply chain objectives. The approach also raises the visibility of the financial and operational benefits of environmental supply chain practices. While the desire to keep operating costs low is good reason to pursue environmental performance

13

improvements along the supply chain, this desire does not represent a unique environmental pressure within this framework. It is perhaps more accurate to group the win-win situations described here as either 1) operational improvements motivated by economic pressures that happen to demonstrate environmental benefits, or 2) environmental improvements motivated by regulatory, consumer, or ethical responsibility pressures that happen to yield cost-savings. In the future, environmental pressures will require significant and pervasive changes in supply chain design and operations, changes that will not likely be motivated by incremental cost-savings.

C. Resources
Escalating global population and affluence create demand for more and more products. The corresponding rates of production inevitably place strains on the natural environments ability to supply resources and absorb wastes. Traditional supply chains are based on a linear production paradigm which relies on constant input of virgin natural resources and unlimited environmental capacity for assimilation of wastes and emissions. 36 Despite considerable progress in resource conservation and process efficiency measures, this paradigm is still pervasive. The secure supply of critical feed-stocks will remain a supply chain challenge into the future. An examination of the global supply and demand for fish illustrates this point well. The World Resource Institute reports that consumption of fish and fishing products has doubled in the past thirty years and has increased five-fold since 1950. 37 Fish supply has become one of the major natural resource concerns, as seventy-five percent of commercially important marine and most inland water fish stocks are either currently being over-fished, or are being fished at their biological limit. 38 This situation bodes poorly for those in the fish business, including global corporations such as Unilever that sells fish and uses fish products as raw materials. Unilever is one of the world's leading suppliers of food, home care, and personal care consumer goods. In the mid-1990s, Unilever launched a comprehensive effort to secure a sustainable supply of fish. First, they provided seed money to the World Wildlife Foundation to research the situation and establish the Marine Stewardship Council as an independent organization to certify sustainable fish supplies. Then, they initiated discussion with competitors and national regulatory bodies in support of the Councils standards. Finally, Unilever publicly endorsed the work of the Stewardship Council and committed to purchasing only certified fish.
39

The availability of energy and water resources for manufacturing also presents a challenge to supply chain management. Water shortages are increasing world-wide as demand for drinking and irrigation grows. The United Nations Environmental Program reports that one third of the worlds population lives in countries where consumption exceeds 10% of total supply and more than 2.7 billion people will face severe water shortages by the year 2025. 40 Supply chain managers must consider resource constraints

14

when locating facilities and planning operations, since energy and water shortages may dramatically affect business. For example, both Pepsi and Coca-Cola lost their license to use local groundwater at bottling plants in Kerala, India following a local drought. 41 While it may be easy to take for granted the availability of natural resources to support industrial activities, resource constraints represent a systemic environmental pressure. The most successful companies will recognize natural limitations, in time to plan for conservation, substitution, or production of their own feedstocks. Such a response will require a broader perspective on the role of companies in providing goods, services, as well as stewardship of the resources that enable economic success.

D. Summary
Altogether, supply chains must respond to environmental pressures from four sources. Resource availability and regulatory pressures place physical, legal, and economic constraints on supply chain management, while consumer demands and the ethical responsibilities of corporations define desirable behavior in the market and within those constraints. As supply chains mature and environmental pressures become more diverse and demanding, technical and organizational innovation is needed in supply chain design and operation.

15

III. The supply chain response involves a distinct operating model, objective, and processes
In order to characterize how industry may best respond to environmental pressures through their supply chains, it is important to understand the role supply chain management plays in supporting business strategy. Given that ample evidence exists to support the premise that supply chain management processes have a significant impact on the operational and financial performance of companies, it is appropriate to ask what constitutes a supply chain that successfully brings value to a company. 42 In a working paper that forms the basis for the Supply Chain 2020 research initiative at Massachusetts Institute of Technology, a four statement hypothesis defining an excellent supply chain is proposed. An excellent supply chain:

enhances and is an integral part of a corporations business strategy; leverages a distinctive operating model to gain competitive advantage; executes well against a balanced set of operational objectives or metrics; and focuses on a small number of best business processes that are aligned with objectives.

This hypothesis may be further examined with respect to environmental excellence.

A. Integral part of strategy

First, if an excellent supply chain is considered an integral part of a corporations business strategy, then it should also be integral to a corporations environmental strategy. Supply chains operationalize the existing linear cycles of industrial production, and represent the cumulative environmental impacts of a product from extraction to final delivery. It is reasonable to believe that if a company has an environmental strategy, then that strategy would be implemented through activities at the supply chain level. Many companies have exhibited a commitment to the natural environment through corporate responsibility statements in marketing publications and on the internet. One may evaluate whether or not these companies supply chains are enhancing or undermining their stated environmental positions.

B. Distinct operating model

Second, an excellent supply chain should leverage a distinctive operating model to gain competitive advantage. An operating model defines an organizations overall strategy for business, and may be reduced commonly to simple statements like to offer the lowest priced products or to provide the largest selection of products. Supply chains either support the designated operating model, effectively

16

coordinating supply channels and production activities, or they do not. A supply chain may also leverage a distinctive operating model with respect to environmental pressures. Although environmental activities are typically regarded as ancillary to business operations, under ideal circumstances, these activities are aligned with and augment the core operating model. Regardless of whether or not this alignment exists, as environmental pressures increase and require action at the supply chain level, a company must choose 1) to operate beyond environmental pressures, 2) to operate at environmental pressures, or 3) to resist environmental pressures. Figure 2. A response to environmental pressures requires an environmental operating model.
current level
Resist pressure Operate at pressure Operate beyond pressure

environmental pressure

This categorization of environmental operating models is not a new concept. Several researchers have described various corporate environmental orientations in a similar way. R. Kopicki presents three approaches in environmental management: the reactive, proactive, or value-seeking. 43,44 Steve Walton offers a comparable model in characterizing the purpose of environmental activity as either comply with the letter of the law, clean up, or be proactive. 45 Robert Klassen describes the continuum of behavior from reactive to proactive orientations in several publications. 46 Ad de Ron designates environmental strategy as following, market-oriented, or sustainability-oriented. 47 Finally, Paul Murphy introduced a survey tool that classifies companies across industries as environmental progressives, moderates, or conservatives. 48 It is important to note, however, that these categorizations of corporate environmental orientation focus primarily on behavior within the facility, as opposed to articulating a product-focused supply chain response. Also, they do not explicitly identify the different sources of environmental pressure - regulations, consumers, and resources in recognition of the fact that it may be advantageous to operate beyond pressure for one and at pressure for others. Despite this more limited view and slight difference in descriptive terms, it is generally agreed that environmental and core business activities are best when mutually supportive. Accordingly, an excellent supply chain should leverage a distinct operating model that is informed by environmental pressures to gain competitive advantage.

C. Balanced operational objectives

Third, an excellent supply chain executes well against a balanced set of operational objectives or metrics. Classic supply chain objectives are described by the Supply Chain Council to include reliability,

17

responsiveness, flexibility, cost, and asset utilization. 49 A balanced set may include only one or two of these operational objectives depending on the designated operating model. For instance, a corporation may focus on supply chain efficiency and may employ metrics such as line-items-picked-per-hour or cash-to-cash-cycle-time to indicate performance. With regard to the environment, operational objectives may be developed for each environmental operating model in response to each type of environmental pressure as follows: Table 1. Environmental operational objectives

environmental pressures Resources environmental operating models Operate beyond pressure Operate at pressure Substitute Expand Conserve Secure Regulations Obviate the need for Exceed Comply Breach Relocate Markets Drive Create Meet Satisfy Exit Ignore

Resist pressure

Suppose a corporation elects to operate at regulatory pressure. This corporations operating objective, therefore, is to comply with all regulatory directives that affect its activities with the least disruption to other business processes. Metrics such as number-of-non-compliance-incidents, or fines-for-noncompliance may be selected to indicate direct environmental performance. Metrics such as cost-tocompliance and time-to-compliance may be used to indicate efficiency and environmental performance. A large body of research discusses the application of metrics to indicate direct environmental performance, such as energy use or total waste generated. 50 An interesting extension of this research involves the development of metrics to indicate environmental performance of an entire supply chain. 51 Table 1 presents a useful framework for examining industry environmental activity at large. Proponents of corporate environmental initiatives may argue that a proactive orientation operating beyond environmental pressures is the best way to protect the natural environment and sustain long-term value and profitability. However this framework suggests that environmentally-aware supply chain excellence may be achieved within each operating model. In this sense, excellence may perhaps rely on three conditions: 1) environmental pressure is effectively signaled to the company, 2) there is sufficient time to respond to the pressure, and 3) the company has adequate management and technological capability to implement a response at the supply chain level. A company that is reactive, flexible, and efficient in execution may operate extremely well at environmental pressure, while a company that is proactive,

18

innovative, and differentiated from competition may best place themselves beyond pressure. The operating model decision may be further determined by market conditions and product attributes.

D. Best business processes

Fourth, an excellent supply chain focuses on a small number of best business processes that are aligned with operational objectives. While comprehensive supply chain management may require hundreds of processes to be performed in a structured manner, the greatest operational and financial benefits result from concentrated efforts on a relatively small number of unique business processes. The same may be said about environmental benefits: an excellent supply chain with respect to environmental performance focuses on a small number of processes that are aligned with environmental operating objectives. During the past decade, best business processes have typically included cross-functional processes, extended or inter-enterprise processes, the use of formal optimized decision-making, the use of stochastic decision-making, and the use of risk management. 52 Interestingly, the vast body of environmental management literature echoes these themes, encouraging many of the same approaches in developing processes to improve environmental performance. Accordingly, concepts proposed by environmental management literature may be understood and effectively applied to the context of supply chain management. Consider environmental processes arranged by the most basic functions of supply chain management as defined by the SCOR model: Figure 3. Basic supply chain management functions as defined by the Supply Chain Council
Company A

Basic supply chain management functions of Company A

plan

source

make

deliver

return

Plan

The chief variables that influence the environmental performance of a product or system are determined

19

during the planning phase. A number of processes may be used to aid environmental decision-making while planning the supply chain.

Environmental cost accounting 53 is a technique to identify and assign discrete costs to environmentally harmful activities within a broader system. The term cost as used implies two meanings. The first is the monetary cost that an individual company might incur from a specific activity, such as the fees associated with hazardous waste disposal. The second is the cost of damage to human health or the natural environment that may be directly attributed to a corporate activity. Companies motivated to reduce operating costs or to demonstrate an environmental commitment use environmentally accounting techniques to capture environmental costs not typically captured through conventional accounting methods. The US EPA commissioned a comprehensive study of the use of environmental accounting in hospital purchasing and waste management in the year 2000, which serves as an excellent reference about accounting techniques. 54

Environmental life cycle analysis is a method used to identify and evaluate the environmental impacts associated with a product or service throughout its entire life from material extraction to eventual disposal and assimilation into the environment. As opposed to environmental cost accounting, life cycle analysis implies non-monetary environmental assessment and is used as a product or system design tool. A number of life cycle analysis methodology books and software programs are available, 55 although not specifically geared to supply chain managers.

Design for environment is an approach to reduce the environmental impacts of a product by introducing specific design criteria during the product development phase, such as design for recyclability or design for energy efficiency. Once the environmental impacts of a particular product characteristic or life-cycle phase are identified through a formal or informal analysis, design for environment may be used as an organizing design principle to ameliorate those impacts. Many industries have successfully implemented a design for environment approach in product development. For instance, appliances that have been awarded Energy Star rating by the US EPA are designed to meet specific energy efficiency criteria,
56

and Kodak Fun Saver one-use-cameras

are designed to be disassembled and remanufactured into new cameras. 57 Source

Sourcing professionals may consider the environmental attributes of materials, components, and products, as well as the environmental performance of the suppliers direct activities using the following processes.

20

Environmental auditing is a procedure to verify the environmental performance of a material, component, product, or facility. Auditing may be conducted by a third-party organization or the buyer in accordance with previously established environmental guidelines. Many multi-national companies, including Limited Brands, Inc., Texas Instruments, and General Motors have designated standards and routinely audit suppliers for environmental performance. 58 Internal auditing is also widely promoted as part of the ISO 14000 59 environmental management standards.

Environmental certification is a guarantee that a product or facility meets environmental standards defined by a third party. Certification typically involves product labeling for consumer marketing in response to regulatory pressures or consumer demands for products with improved environmental attributes. Examples of prevalent certification programs include Green Seal 60 , Germanys Blue Angel 61 , Certified Organic, 62 and the building industrys Leadership in Energy and Environmental Design certification 63 . Companies may undergo environmental certification for their own products or seek to purchase certified products.

Make

As discussed earlier, the manufacturing response to facility-focused regulatory directives has evolved from end-of-pipe pollution control to the implementation of environmental management systems. It may be expected that this evolution will continue domestically and extend to facilities in regions with weaker regulatory regimes, involving the following processes:

Pollution prevention is an approach to preemptively identify and alter activities that create waste. Prevention techniques including substitution, product modification, improved maintenance, and recycling have been successfully applied at several facilities following the Pollution Prevention Act of 1990 and several state-level regulatory directives. The Journal for Cleaner Production 64 and the Pollution Prevention Resource Exchange 65 serve as excellent references on this topic.

Environmental management systems are sets of processes that enable an organization to identify, monitor, and address the environmental impacts of its activities. Systems typically include guidance for employees in environmental health and safety procedures and facilitation tools for continual improvement of environmental performance. While developing an environmental management system does not guarantee better environmental performance, it generally helps companies comply with regulations and manage risk more consistently and effectively. While ISO 14000 serves as the international standard for environmental management, the US EPA also provides several good references to develop a system independently.
66

21

Deliver

The environmental implications from transportation are growing, as materials, components, and finished products travel longer distances through production and distribution cycles. The total impact of delivery functions correlates to two variables that logistics professionals manage directly: transportation distance and mode. Green logistics is an approach that considers the environmental impacts of procurement, transport, inventory control, and distribution activities along with other considerations in order to minimize environmental costs. For example, in addition to considering monetary cost, time, and reliability of freight service, one may also consider the volume carbon dioxide emissions. There are several interesting studies that compare the environmental impacts of various product distribution systems, including online retail models. 67 Return

Return processes are gaining in strategic importance as companies compete further to maintain customers, recover assets, minimize liability, and meet extended producer responsibility regulatory requirements.

Reverse logistics is a set of activities to collect, transport, and manage products and materials after sale and delivery to the customer. Reverse logistics has been typically used to facilitate unsold product and warrantee returns, and it is being further developed to address take back regulatory obligations and to pioneer concepts of closed-loop supply chains. This subject represents an important area of emerging research within supply chain management. 68

Remanufacturing is a process to clean, repair, and restore used durable products to good condition for resale. Remanufacturing is typically integrated with reverse logistics processes because valuable products and components must be appropriately transferred from the consumer to the manufacturer. In addition to logistical challenges, remanufacturing involves serious technical, planning, and inventory management challenges, areas which are increasingly explored in practice and research literature. 69

Recycling is a procedure to reuse materials, which may otherwise be considered waste, in a form other than primary use. Recycling is facilitated by return processes in part because existence of a secondary market depends on the quality of recycled materials. Whether recycling recovered materials or using purchased recycled content in production, processes require additional planning

22

due to fluctuations in material timing and availability. This list is by no means exhaustive or prescriptive. Rather, it provides an overview of the many business processes that could yield significant environmental improvements while being conscious of the impact on corporate strategy. Although some may argue that true environmental excellence is a product of the holistic integration of many processes, concentrated efforts on even one may yield significant environmental benefits that ripple through the supply chain and create economic value. As said previously, an excellent supply chain focuses on a small number of best business processes, which prompts the question: when it comes to the supply chain response to environmental pressures, what is best?

23

IV. Conclusion
Environmental pressures add a new element of complexity to supply chain management, requiring a comprehensive response involving environmental operating models, operational objectives, and new supply chain processes. As environmental pressures grow more diverse and demanding, the quality of an individual companys supply chain response may confer significant competitive advantage. This discussion paper presented an overview of the types of environmental pressures that impact supply chains today, as well as a framework for characterizing what may be an excellent response to these pressures. From here, we may explore the different models and processes that companies within one industry are implementing in response to a single pressure. This future research may establish a relationship between the quality of a supply chain response and the extent of competitive advantage, offer a prescriptive, evaluative framework for addressing environmental pressures, and present a path towards the proactive development of supply chains that enable increased profitability and environmental sustainability.

24

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53

The US Environmental Protection Agency maintains a website with a number of resources about the environmental and financial benefits of environmental cost accounting, available at www.epa.gov/opptintr/acctg/resources.htm, accessed June 2, 2005. Shapiro, K., Stoughton, M., Graff, R., Feng, L., Health Hospitals: Environmental Improvements through Environmental Accounting, A Report from Tellus Institute, July 2000, available at www.epa.gov/opptintr/acctg/pubs/hospitalreport.pdf, accessed June 1, 2005. Among the most recent books published about life cycle analysis is The Hitch Hikers Guide to LCA by Henrikke Baumann and Anne-Marie Tillman published in 2004.
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28

Guide Jr., V.D.R., and Van Wassenhove, L.N., Business Aspects of Closed-Loop Supply Chains, in Guide Jr., V.D.R., and Van Wassenhove, L.N., eds., Business Aspects of Closed-Loop Supply Chains, Carnegie Mellon University Press, (2003): 17-42.

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29

GREEN SUPPLY CHAIN PARAMETERS FOR COMPANIES IN THE LUMBER INDUSTRY

Salem Y. Lakhal, Ph.D.1* and Souad HMida, Ph.D.2

1

Faculty of Business Administration, Phone: +(506) 858 4601, Fax: +(506) 858 4093. University of Moncton, Moncton, NB, E1A 3E9, Canada, E-mail: lakhals@umoncton.ca Faculty of Business Administration, Phone: +(506) 863 2035, Fax: +(506) 858 4093 University of Moncton, Moncton, NB, E1A 3E9, Canada, E-mail: hmidas@umoncton.ca

Abstract

This research studies the environmental dimensions, policies, operations, and technologies of companies in the lumber industry. It proposes an analysis of the supply chain from suppliers to clients and focuses on specific actions related to the following: (i) reduction of contaminants; (ii) analysis of the operations process; and (iii) development of parameters and characteristics, which can evolve into a benchmarking system for measuring greenness efforts of lumber industry companies. This analysis aims at defining the basic features of an Olympic green supply chain, characterized by zero emissions, zero waste of resources, zero waste in activities, zero use of toxics, zero waste in product life-cycle, and zero waste ( the five zeros analogous to the five circles in the Olympic flag), and green input and output. Keywords: Green supply chain, Wood industry, Environment, Kyoto Convention 1. Introduction In the present days of globalization, leading corporations increasingly are coming to appreciate the value of the supply chain as a competitive advantage, which has the potential to enhance customer retention, revenue generation, cost reduction, and asset utilization (GEMI, 2004). However, concern is growing about the impact that, through the supply chain, business activities have on the environment, and efforts are underway to develop appropriate policies, which would reduce adverse environmental repercussions. The number of companies publishing environmental reports has been increasing rapidly (Kokubu and Nashioka, 2001). Environmental reporting within the forest and paper industries is around 56% according to Sinclair and Walton (2003) Furthermore, leading companies are beginning to realize the importance of proactive environment management
*

Corresponding author

strategies, and to factor in environmental costs when making management decisions. These measures, however, are still in early stages of development (Lee, 2001). For example, 35 leading American companies, members of the Global Environmental Management Initiative, have acknowledged the competitive edge acquired by considering environmental aspects in supply chain management (GEMI, 2004). This statement has been corroborated by Hitchens et al. (2003), substantiating that improved environmental performance does not translate into bad economic management. Similarly, strong environmental policies do not weaken the competitive advantage of a company. Rather, any company that has a long-term vision is likely to excel both in the short-term and the long-term. Corporate environmental initiatives are on the rise in North America, while Japanese firms remain leaders in this field (Imai, 2001). However, while environmental awareness has increased, the corporate response towards environmental sustainability is marred by the absence of an agreed upon set of operational environment assessment tools. In this paper, we seek to fill this gap by suggesting a supply mechanism that embraces the environment-friendly dimensions of a green supply chain. The existing knowledge of the "green" aspect of the supply chain is still in its embryonic stage and much remains to be done (Bjorndalen et al., 2005; Khan et al., 2005b; Lakhal and H'Mida, 2003; Robert, 1999; Sarkis, 2003) to develop its evaluation tools (Bolli and Emtairah, 2001; Cox, 1999; Lakhal and H'Mida, 2003). While research on environmental benchmarking remains relatively sparse, it is evident that companies are interested in learning about methodologies, which ensure the integration of environmental considerations in all supply chain activities. (See for example Auramo et al., 2002; Cox, 1999; Kleijnen and Smith, 2003; Robert, 1999). The design, construction, and maintenance of buildings have a tremendous impact on our environment and our natural resources. Based on the information available on the website of Smart Community Network (http://www.sustainable.doe.gov/buildings/gbintro.shtml),

buildings use one-third of all the energy consumed in the US, and two-thirds of all electricity. Therefore, wood product companies must work to be sustainable, especially if they are to survive today's world of rapid changes in technology, increasing complexity in products, and strong competition. These factors require companies, among other things, to integrate environmental protection dimensions into their supply chain operations. The development of customer awareness about ecological problems of forest product industries puts the lumber industry companies into the center of interest of the home building 2

industry. The natural building movement is where organic food was 20 years ago, says Joe Kennedy, co-editor of the book The Art of Natural Building. However, the movement is growing quickly: in 2002 alone, an additional 13,000 green houses were constructed. By the year 2010, 38 million buildings are expected to be constructed. The challenge will be to build them smart, so that they use a minimum of non-renewable energy, produce a minimum of pollution, and cost a minimum of energy dollars, while increasing the comfort, health, and safety of the people who live and work in them. Basically, all companies need to know where they stand relative to where they could be, and what they need to do to close the gap between the customers expectations and the technology available to reach the green supply chain. They need to take advantage of advanced technologies to achieve the best possible levels of performance. The green supply chain concept (Lakhal and H'Mida, 2003) helps companies make the right decisions in the greening process, given each company's unique resources, capabilities, opportunities, and limitations. This study proposes parameters to benchmark lumber industry companies in Canada, using the greening framework developed by Lakhal and HMida (2003). It analyses the structure of the supply chain from supplier to client (Figure 1), and considers the following specific aspects: (i) the actual contaminants in the supply chain; and (ii) an analysis of operations, process, materials design, and selection, according to environmental policy. The research asserts that environmental practices will accrue competitive benefits to lumber companies and enhance corporate performance.

n
Forests

o
Harvesting

r p
Inventory Management

Building Construction

s
Building

Sawmill

Figure 1: The lumber supply chain

This paper is organized as follows: Section 2 opens with a brief review of the available literature on the green supply chain. Section 3 proposes a functional model of an Olympic green supply chain for a lumber industry company. Section 4 offers concluding comments and guidelines for future research. 2. Literature review No research has been conducted on a green supply chain in the lumber industry. Therefore, this review covers the small amount of literature that is available on green supply chain in general. We have listed nearly ten papers that deal with the topic. The central concern of this literature has been to investigate the relationship between environmental management activity of suppliers and firms, and to study the structure of customer-supplier manufacturing patterns. Simpson and Power (2005) developed a model for approaching issues in the environmental performance of the supplier, and Zhu and Sarkis (2005) used regression analysis to examine the relationship between green supply chain practices and economic performance. Preuss (2001) studied purchasing patterns of Scottish manufacturing companies. He introduces the notion of Green Multiplier Effect, suggesting that purchasing could become an important agent of change towards environmental initiatives in the supply chain. Three industries were studied in this corpus of research: paper making, chemicals, and electronics. Evidently, some concepts need more elaboration and clarification, as shown by Seuring (2004). He assimilates product life-cycle into the supply chain and discusses environmental aspects of inter-organizational management: life-cycle management, closed-loop supply chains, integrated chain management, and green/environmental or sustainable supply chain management. However, Seuring is not clear about how these concepts relate to each other, and if or how they are different. Rarely do these researchers suggested models to assess green supply chains. Lakhal and H'Mida (2004) suggested a framework for a green supply chain, using gap analysis to compare structural patterns of different supply chains. In marketing research, Georgiadis and Vlachos (2004) studied the effects of the green image on customer demand. Rios et al. (2003) worked on the disassembling process and developed a model that uses electronic products to study scenarios in which a recycler identifies and separates high-value engineering plastics and metals. Murphy and Poist (2003) conducted an empirical study of the relationship between logistics and environment, confirming that greenness would broaden the scope of logistics, and influence the way logistics managers do their jobs. Finally, Rao (2002) used a survey questionnaire to determine the extent of greening taking

place in the supply chain in South East Asia: the Philippines, Indonesia, Malaysia, Thailand, and Singapore. It is obvious from this brief review that limited research has been done on the green supply chain. More models are needed to assess greenness efforts and for research specific to the most pollutant industries. This paper adds to the literature on green supply chain and the methods for the assessment of greenness efforts. In addition, it prepares a protocol for implementing truly sustainable technologies (Khan et al., 2005a).

3. Attributes of Olympic lumber company green supply chain This section defines the attributes of the green supply chain for a green lumber company, using the framework to assess greenness efforts of a lumber company through its supply chain developed by Lakhal and H'Mida (2003; 2004). The section proceeds to develop the concept of the Olympic green supply chain. The ideal green supply chain is an Olympic green supply chain We term the ideal green supply an Olympic lumber green supply chain, which is characterized by the following: (i) Five zeros of waste or emissions (corresponding to the five circles in the Olympic flag): 1. Zero emissions (air, soil, water, solid waste, hazardous waste); 2. Zero waste of resources (energy, materials, human); 3. Zero waste in activities (administration, production); 4. Zero use of toxics (processes and products);
5. Zero waste in product life-cycle (transportation, use, end-of-life); and

(ii) Green input and output. The zero waste approach is defended by Zero-waste Organization (www.zerowaste.org) using a visionary goal of zero waste to represent the endpoint of closing-the-loop so that all materials are returned at the end of their life as industrial nutrients, thereby avoiding any degradation to nature. A 100% use efficiency of all resources -- energy, material, and human is promoted by Zerowaste, working towards the goals of reducing costs, easing demands on scarce resources, and providing greater availability for all. When applied to products, Zerowastes principles reduce the negative impact on the environment during the

manufacture, transportation, use, and end of the products life cycle. For a lumber company as a unit of analysis, the concept of the green supply chain is illustrated by Figure 2. Such an approach, which is always the norm in nature, is what we define in the case of a lumber company.

Product Green Green By-products

Figure 2: The concept of the Olympic Green Supply chain adapted from the Zerowaste approach We now proceed with an analysis of the five zeros emissions, output,, and input to elaborate on the parameters of the Olympic green supply chain. Parameters of an Olympic lumber company Zero emissions (air, soil, water, solid waste, hazardous waste) We have compiled a list of the most important contaminants from the Tri-Explorer database from the Environmental Protection Agency (EPA):

http://www.epa.gov/triexplorer/. Since 1998, the EPA has been collecting information for the database from the commercial hazardous waste treatment sector. The data is based on industry reports regulated under the Federal Resource Conservation and Recovery Act (RCRA). Eighty-five contaminants have been reported by the industry. For our purposes, we have retained a list of 26 contaminants considered important according to the quantity more or less equal to 100,000 lb in 2003. Air emissions: Acetaldehyde, Ammonia, Glycol Ethers, Creosote, Ethyl Benzene, Ethylene Glycol, Formaldehyde, Hydrochloric Acid, Manganese and Manganese compounds, Methanol, Methyl Ethyl Ketone, Methyl Isobutyl Ketone, N-Butyl Alcohol, Phenol, Propional Dehyde, Styrene, Toluene, Xylene (mixed isomers), Dioxin, Co2.

Soil emissions (landfills): Arsenic Compounds, Chromium Compounds, Copper Compounds, Creosote, Manganese and Manganese compounds, Methyl Ethyl Ketone, Pentachlorophenol, Zinc Compounds, Mercury. In Canada, for example significantly, only four contaminants were tracked: Chromium (and its compounds), Copper (and its compounds), Dioxins and Furans, and Hexachlorobenzene (Environment-Canada, 2005a). Furthermore, based on the American lumber industrys declaration,. the industry emission of the Hexachlorobenzene seems to be insignificant (15 lbs in the U.S. was declared in 2003). The occupational standard of respirable particle concentrations at the sawmill are 5mg/m3. In evaluating workers at a pine and spruce processing sawmill in west central Alberta, Hessel et al. (1995) found that the airway dysfunction causing a degree of airway obstruction occurred at respirable dust levels below the occupational standard of 5mg/m3. . According to authors, histories of acute bronchitis and asthma were reported in a significant number of workers with more than three years of employment in the sawmill. Primary Hazardous/solid wastes: In the lumber industry, sawmill workers and woodworkers are considered high risk for contracting occupational asthma (Probable Occupational Asthma) (JOHNSON et al., 2000). The association between exposure to wood dust and respiratory symptoms was examined in mill workers by (Liou et al., 1996). The authors concluded that high levels of wood dust exposure in the wood mill industries may cause pulmonary damage; engineering controls and industrial hygiene were recommended. Total dust concentrations from grinding and screening in the high exposure work areas ranged from 4.4 to 22.4mg/m3, and the respirable proportions were between 2.4% and 50.2%. The dust level in sawing work was 2.9 mg/m3. These results are corroborated by Malo et al. (1994), who found that asthmatic symptoms appeared to be of occupational origin in 59 % of workers after 30 months of work. Risks of nasal cancer and nonmalignant nasal pathology among woodworkers in North America was reviewed in detail and contrasted with experiences in Europe and elsewhere by Blot et al. (1997). Considering the totality of evidence on the risk of cancer in exposed workers, it appears that wood-dust-related nasal adenocarcinoma essentially can be

eliminated in Europe and its occurrence prevented in the United States if wood-dust exposures do not exceed an eight-hour, time-weighted average of 5 mg/m3 standard. Zero waste of resources (energy, materials, and human), In Canada, lumber drying accounts for a significant portion of the total energy used in lumber production, and energy costs represent a large portion of production costs. According to Natural Resources Canada (NRC) (2005), dry kilns consume an estimated 121 petajoules (PJ) of energy annually, 57% of which is fossil-fuel energy, and emit roughly 3.5 MT/year of CO2. It is important to have kilns energy efficient. Evidently, this not the case in Canada where a large percentage of the kilns used in the industry are aging and not very energy efficient. A reduction in kiln energy consumption would allow the sector to increase its competitiveness and to have a greener supply chain by decreasing greenhouse gas (GHG) emissions. In fact, a reduction in energy consumption by 25% and considering a 15% penetration rate would result in a 3.5 MT reduction in CO2 emissions over twenty years (NRC 2005). To reduce loss, the effective use of materials throughout the stages of lumber goods production is examined, as is the reduction of raw material use by cutting down the amount of wood used in products and their wrapping and packing. The target is the reduction of the amount of resource depletion through the use of recycled materials. Like the manufacturing industry, labor costs constitute a high percentage of expenses. The waste of human resources could be measured by ratios of accident (number of work accidents / number of employers), and absenteeism due to illness (number of days lost for illness / number of work days x number of employees). In an Olympic lumber company, ratios of accident and absenteeism would be near zero. Zero waste in administration activities Zero waste in administration Considerable cost savings could be achieved by using resource-efficient products and good environmental practices. Good practices should target energy-efficiency, waste reduction, water conservation, and other resource-efficient practices for the environment. By taking advantage of these practices, lumber companies can avoid resource waste and save money. An Olympic lumber process should have a list of good practices and should encourage employers and employees to respect them. For example, one workstation (computer and monitor) left running after business hours, causes power plants to emit nearly one ton of

CO2 per year. That emission could be cut by 80% if the workstation is switched off at night and set to sleep mode during idle periods in the day. If every computer and monitor in the US was turned off at night, the nation could shut down eight large power stations and avoid emitting seven million tons of CO2 every year (Nichols et al., 2001). Zero use of toxics (Processes and Products) The most toxic product used to protect wood is arsenic. In the 1970s, the lumber industry introduced pressure-treated boards ordinary planks and posts injected with a preservative known as CCA, which can extend the life of wood fivefold, eliminating repairs and saving millions of trees annually. What received less attention at the time is the fact that CCA stands for chromated copper arsenate--a form of arsenic. This has turned out to be a problem. No one knows precisely what concentrations of environmental arsenic are toxic, and the wood-treatment industry insists that wherever that line is, its products do not cross it. Environmental groups, however, disagree, insisting that at any dosage level, children and arsenic don't mix. The alarm bells being sounded by consumer groups have reached the point where CCA-treated lumber sold in the US now carries warning labels. Many playgrounds have been shut down, and some states have been ordered to switch to another preservative. In the US, 98% of outdoor wood is treated with CCA, and represents a market of more than $4 billion a year (Kluger, 2001). In Canada, this process is the most used, and remains the most important soil contamination source by arsenic (EnvironmentCanada, 2005b). Arsenic was found in the soil in nearby playgrounds at levels far higher than hazardouswaste experts consider safe. Prolonged exposure can lead to nerve damage, dizziness, and numbness, as well as increased risk of bladder, lung, and skin cancer. Therefore, an Olympic lumber company would ban the use of arsenic in wood treatment. Zero waste in product life cycle (Transportation, Use, and End-of-Life) Green Input An Olympic lumber company should receive wood from forests carefully harvested. A well-managed timberland respects habitats, wildlife, air, land, and water, and the general forest ecosystem. Harvesting often results in more (and more species of) birds and animals living in woodland.

Sustainable forests generate income while improving the environment. It is rooted in the present and the future. Whatever CCA's ultimate fate, the existing problem probably will remain when disposing of treated wood with CCA. Dumping it in an unlined landfill allows arsenic to seep underground; mulching it scatters CCA on the surface; and burning it fills the air with toxic smoke. Leaving the structures to disintegrate on their own could take long time. An Olympic green lumber supply chain would only use biodegradable input to assure a green output. Green output Green output is obtained if green input is used through the supply chain in the lumber processing. A green output could be assured by certification becoming an important tool to demonstrate that the lumber company is operating according to a set of principles and criteria determined by a particular certification program. In the wood industry, one result of a study conducted in U.S. (Vlosky and Gazo, 2003) indicates a lack of significant awareness of certification. An average of a third of respondents declared that they had no understanding of the certifier services and objective. A third of of the respondents had not heard of the certifiers. Greenness effort to be an Olympic Lumber company
A lumber company does not easily reach the Olympic stage, which is why stages in the process should be considered. The efforts utilised to reach the Olympic stage could be designated as greenness efforts, and the company would receive recognition at each stage. We define

greenness efforts as the difference between regulated contaminant levels and average real contaminant levels. If no regulations exist, the industry average should be considered. This

difference should be positive or equal to zero. This way, the lumber company must comply with any regulations in place. Clearly, each greenness effort would have to be specific to its region. Even in one country, it could vary from one region to another. In Canada, for example, the regulation could vary from one Province to another. 4. Concluding remarks This research defines the main characteristics of the green supply chain of a lumber company, applying the framework developed by Lakhal and Hmida (2003). It develops the concept of the Olympic green supply chain, characterized by five zeros recalling the five-circled flag of the Olympics: zero emissions, zero waste of resources, zero waste in

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activities, zero use of toxics, zero waste in product life-cycle, in addition to green input and green output. This research can serve as the cornerstone of a green supply chain assessment mechanism, where practical solutions may be generated to improve greenness levels in supply chain operations. This research aims at ensuring the sustainable development of the Canadian lumber companies sector, and at maximizing its contribution to the economic and social well-being of the Canadian nation. Acknowledgements This research was funded by the Social Sciences and Humanities Research Council of Canada (SCHRC) 410-2004-1384, the New Brunswick Innovation Foundation (FINB), the Society of Management Accountants of Canada (CMA), and Universit de Moncton, Canada.

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