Sustainable Solutions for Supply Chain Management Radim Lenort (Leader Author) Andrzej Bujak, Ingo Gestring, David Holman, Jorma Imppola, Agata Kozioł, Thomas Liebetruth, Jakub Soviar, David Staš, Pavel Wicher
Scientific reviewers: Prof. Ing. Emílie Krausová, CSc., VŠB – Technical University of Ostrava (Czech Republic) Prof. Ing. Peter Trebuňa, PhD., Technical University of Košice (Slovakia)
The project “Green Solutions for Business and Industry” is funded with the support of the European Union under the programme “Erasmus+”, project registration number: 2014-1-CZ01-KA203-002096. Document reflects only the author’s view. The National Agency and the European Commission are not responsible for any use that may be made of the information it contains.
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References 27 2 SUSTAINABLE SUPPLY CHAIN STRATEGIC MANAGEMENT MODEL 31 2.1 Sustainable vision and strategic goals 33 2.2 Supply chain analysis 34 2.3 Supply chain business environment analysis 34 2.4 Business environment scenarios 35 2.5 Sustainable supply chain strategy formulation 35 2.6 Sustainable supply chain strategy implementation using BSC method 36 2.7 Sustainable supply chain strategy control 39 References 40
3 SUSTAINABILITY IN PERFORMANCE MEASUREMENT AND MANAGEMENT SYSTEMS FOR SUPPLY CHAINS
41 41 41 42 43 47 48 51 55 57 57 61 62 63
3.1 PMMS – developments and definitions
3.1.1 Relevance and developments
3.1.3 Selected models
3.2 Guidelines for supply chain PMMS
3.2.1 Guidelines for particular performance elements 3.2.2 Guidelines for performance measurement instruments 3.2.3 Guidelines for performance management processes 3.3 Approaches for supply chain PMMS and the integration of sustainability
3.3.1 Key performance indicators
3.3.2 Total cost of ownership and life cycle assessments
3.3.3 Value driver systems 3.3.4 Balanced scorecards
3.3.5 Maturity assessments
66 71 73
3.4 Summary and outlook
4 COOPERATION MANAGEMENT TOWARDS SUSTAINABLE SOLUTIONS
4.1 Theoretical background
4.2 Case study of cooperation management – New United Motor Manufacturing, Inc.
79 79 80 81 84 86
4.2.1 Introduction to the topic 4.2.2 Sketch of the situation
4.2.3 Elements and processes of the NUMMI joint venture 4.2.4 Simplified graphic model of cooperation within NUMMI
4.2.5 Case study conclusions
4.3 Case studies literature review – main results overview 86 4.4 Proposal for effective organisation of cooperation activities of a company 93 4.5 Cooperation strategy and general model of cooperation management 95 4.6 Conclusions – cooperation management as a sustainable solution 97 References 100 5 SUSTAINABLE ASPECTS OF LOGISTICS ACTIVITIES 104 5.1 Transportation 105 5.1.1 Distribution 106 5.1.2 Transportation risks 107 5.2 Packing 107 5.2.1 Internal package 108 5.2.2 External package 109 5.2.3 Marking 109 5.2.4 Loading 110 5.2.5 Shipment documentation 111 5.2.6 Sustainable packing 112 5.2.7 Epic failure: the garbage patches 114 5.3 Inventories and storage 116 5.3.1 Motives of storage 116 5.3.2 Features of the inventory system 117 5.4 Logistics and recycling 119 5.4.1 Recycling logistics 119 5.4.2 Objectives of the recycling logistics 120 5.4.3 Functions and effect areas of the recycling logistics 121 5.4.4 Value chain thinking 122
5.4.9 Reasons to invest in a sustainable warehouse
6 CARBON DIOXIDE EMISSION FOR THE PROCESSES OF DISTRIBUTION ANDWAREHOUSING 6.1 Emissions, energy consumption and greenhouse gases 6.2 Calculation methods for transportation and standards
6.3 Transportation modes
6.3.1 Truck transport 6.3.2 Train transport 6.3.3 Sea transport 6.3.4 Air transport
6.4 Emissions during warehousing
6.4.1 Warehousing in a supply chain
6.4.2 Impact of warehousing on the environment
6.4.3 Assessing the impact
6.4.4 Reducing the environmental impact of warehouses 6.5 Combined model for distribution and warehousing
7 SUSTAINABLE SOLUTIONS IN URBAN LOGISTICS
7.1 The definition of telematics 7.2 The tasks of telematics systems 7.3 Applications of telematics solutions
160 7.3.1 Telematics systems in process of ensuring the safety in motor transport 163 7.4 The assessment of the need for the implementation of telematics 165 7.5 Public transport management 166 7.6 The use of telematics solutions in the example of the city of Wroclaw road infrastructure 167 7.7 Problem and solution Wroclaw telematics system – a case study 170 7.7.1 Intelligent transport system 170 7.7.2 City of Wroclaw 171 7.7.3 Green solutions for Wroclaw 173 7.7.4 Summary 181 References 183
Authors Prof. Ing. Radim Lenort, Ph.D. , Leader Author, ŠKODA AUTO University (Czech Republic) dr hab. inż. Andrzej Bujak , prof. nadzw. WSB, WSB University in Wroclaw (Poland) Prof. Dr. Ing. Ingo Gestring , Dresden University of Applied Sciences (Germany) Ing. David Holman, Ph.D. , ŠKODA AUTO University (Czech Republic) Mr.sc. Jorma Imppola , Seinajoki University of Applied Sciences (Finland) dr Agata Kozioł , WSB University in Wroclaw (Poland) Prof. Dr. rer. pol., Dipl.-Kfm. Thomas Liebetruth , Regensburg University of Applied Sciences (Germany) doc. Mgr. Jakub Soviar, PhD. , University of Žilina (Slovakia) Ing. David Staš, Ph.D., ŠKODA AUTO University (Czech Republic) Ing. Pavel Wicher, Ph.D. , ŠKODA AUTO University (Czech Republic)
FOREWORD This monograph represents one of the main outputs of the “Green Solutions for Business and Industry” project, funded with the support of the European Union under the programme “Erasmus+”, project registration number: 2014-1-CZ01- KA203-002096.The project was solved at SKODAAUTOUniversity (Czech Republic) in close cooperation with five foreign partner universities - Dresden University of Applied Sciences (Germany), Regensburg University of Applied Sciences (Germany), Seinajoki University of Applied Sciences (Finland), University of Žilina (Slovakia), and WSB University in Wroclaw (Poland) – and with the involvement of ŠKODA AUTO a.s. logistics and production experts between 2014 and 2017. Sustainability is widely accepted as one of the most important concepts, which allows to reach a long-term success of companies and supply chains in today’s turbulent and highly competitive business environment. The concept means a wise balance among economic development, environmental attitude, and social equity. The monograph presents interesting solutions suitable for logistics and supply chain management. It summarises contemporary leading concepts in supply chain management, suggests approaches to the sustainability strategic management and performance measurement, and provides sustainable solutions for logistics activities.
Radim Lenort Leader author
1 NEW CONCEPTS IN SUPPLY CHAIN MANAGEMENT
1.1 Supply chain The concept of a “supply chain” has recently been defined by many authors, which has lead to several different viewpoints. One of the crucial ones defines a supply chain as a group of activities which fall within a few different companies. The closest definition to the above presented understanding of a supply chain was presented by the European Committee for Standardisation a “supply chain is a sequence of processes to add value to the product during its flow and processing of raw materials, through all the intermediate forms, to form in line with end customer requirements” . Ganeshan and Harrison define a supply chain as “a network of facilities and distribution options that performs the functions of procurement of materials, transformation of these materials into intermediate and finished products, and the distribution of finished products to customers” . A much respected and well-known definition is the one by Christopher: “the network of organisations that are involved, through upstream and downstream linkages, in the different processes and activities that produce value in the form of products and services in the hands of the ultimate consumer” . A similar definition is presented by Bagchi: “a supply chain consists of a network of companies and carriers supplying raw materials and components and, later, they transform them into semi-finished products and final products designed to be consumed by the ultimate consumers”  or, more simply, by Lambert et al.: “a supply chain is the alignment of firms that bring products or services to market” . The characteristics of each supply chain include (modified according to ): • A complete process in order to provide products and services to final consumers. • All logistic operations, from sourcing to distribution. • Management extending beyond the boundaries of individual organisations to plan and control processes in other organisations. • The attainment of individual goals of the organisation. • Suppliers, production equipment, warehouses, carriers, consumers and customers: the flows among these elements can be divided into informational, material and financial. The supply chain structure is always influenced by the specific conditions in which it was created and has been operating. The basic model of the structure is referred to as “linear” and is mostly used for theoretical study, since at each stage it contains only a single subject (see Figure 1.1).
Figure 1.1 Simplified model of linear supply chain structure
This type of supply chain structure does not occur in practice since real supply chains, especially from the industries, contain many subjects at every level. Such models are referred to as “networks”. A simplified example of a supply chain network model is shown in Figure 1.2.
Figure 1.2 Simplified model of network supply chain structure (modified according to )
The model shown in Figure 2 is still considered as considerably simplified since real models are in many cases much more complicated. For example, in the automotive industry, the number of first tier suppliers is in the range of hundreds to thousands. First tier suppliers are suppliers directly supplying components to the production plant. An even more complex network of second and further suppliers is behind these. Also, in other parts of the supply chain, subjects may exist in considerable numbers and with a complex structure of linkages. Links in the above figures represent flows in the supply chain. The basic types of flows include , , : • Material flows include flows of materials, semi-finished products and finished products flowing towards customers, but also reverse flows from end-customers to suppliers. These are used on the basis of a claim for goods, warranty service, repairs, recycling or disposal of goods. In industrial practice, material flows are usually discrete, their movements are carried out in batches (transport, handling, production). • Financial flows include all types of payments, whether cash or non-cash. It also involves ownership relationships, various loans, invoices, bills of exchange, etc. • Information flows represent communication between subjects. They allow all movement in the supply chain and are part of all processes carried out in the supply chain. Information flows form a system of information about orders, places and times of supplies, demands, all movement of goods, capacities, customer requirements, but also individual activities of all subjects in the supply chain. • Decision flows are defined as the sequence of decisions of the participants influencing the overall performance of the chain. Managing this task requires usage of a wide range of principles and methods. All subjects in the
supply chain (suppliers, manufacturers, distributors, dealers and customers) are all involved in the decision. All supply chain flows can stream in both directions, and interconnection between non-adjacent levels of the supply chain is not ruled out. Decision and information flows can flow at one point across a large number of subjects or even the entire supply chain. 1.2 Supply chain management According to the Council of Supply Chain Management Professionals “Supply chain management encompasses the planning and management of all activities involved in sourcing and procurement, conversion and all logistics management activities. Importantly, it also includes coordination and collaboration with channel partners, which can be suppliers, intermediaries, third party service providers, and customers. In essence, supply chain management integrates supply and demand management within and across companies.” . Supply chain management (SCM) contains logistics management, which is defined as “the process of planning, implementing, and controlling the efficient, effective flow and storage of goods (materials, semi-products, finished products), services, and related information from point of origin to point of consumption for the purpose of satisfying of customer requirements.” . It is clear from the above stated definitions that today’s approach to logistics deals with the entire supply chain management, i.e. a chain which starts with the initial raw material suppliers, through producers, wholesalers, retail shops and finishes with the final consumers (see Figure 1.3).
Figure 1.3 Integration of processes in a supply chain The introduced approach is based on close cooperation or partnership among the individual parts of the supply chains and the companies providing logistics services (for example transportation or public storage). If this prerequisite is not fulfilled, some of the participating parties of the supply chain can find out, often within a very short time, that their position is less favourable than before. Processes belonging to supply chain management can be divided into individual activities that fall into the following management levels : • Strategic level – it consists of long-term decisions that affect many subjects in the supply chain, for example: choosing suppliers and other supply chain links, setting capacities, production cycles and geographic location of individual supply chain links.
• Tactical level – this includes decisions with a medium-term effect that does not influence the supply chain as a whole, such as the purchasing and production plans of individual businesses, procedures for negotiating the transport conditions of individual carriers and logistics companies, procedures for determining inventory management in individual companies. • Operational level – this refers to everyday specific decisions in selected companies, such as creating schedules for the order of supplies, obtaining of transportation, routing. Processes in supply chains (especially those associated with material flow) can also be broken down by the timing of their implementation in relation to the demand of end customers. This classification is essentially done as following : • Push processes – Processes implemented in the push system are implemented before the expected demand of customers based on demand forecast. They are also referred to as speculative processes as they are based on speculative customer demand. • Pull processes – Processes performed in the pull system are performed on already accepted orders. At the time when the processes are carried out, customer demand is known. They are also referred to as reactive processes because they respond to real customer demand. A different approach to systematically classifying the supply chain management processes has been taken by the Global Supply Chain Forum, which identified eight key cross-functional business processes that make up the core supply chain management : • Customer relationship management – includes processes which provide the structure for how the relationships with customers will be developed and maintained. • Supplier relationship management – include processes which define how companies interact with their suppliers. • Customer service management – includes processes which provide the customers with real-time information on promised shipping dates and product availability through interfaces with the company’s functions such as manufacturing and logistics. • Demand management – includes processes which balance the customers’ requirements with the capabilities of the supply chain. • The order fulfilment – includes all activities which are necessary to define customer requirement and to design a network and a process that permits a firm to meet customer requests while minimising the total delivered cost as well as filling customer orders. • Manufacturing flow management – includes all activities which are necessary to move products through the plants and to obtain, implement and manage manufacturing flexibility in the supply chain.
• Product development and commercialisation – includes processes which provide the structure for developing and bringing to market products jointly with customers and suppliers. • Returns management – includes processes by which activities associated with returns, reverse logistics, gatekeeping and avoidance are managed within the firm and across key members of the supply chain. 1.3 Lean supply chain management Supply chain management as a systematic approach to delivering customer value from the extraction of raw-materials to delivery of semi-final products to the final customer was originated in the mass-production era to increase competitiveness due to the coordinating flow of resources of all chains in the supply chain during the 1990s. Emphasising the management of the flows or resources through the supply chain, not only particular parts, is the critical assumption to create the value for final customers. However, this flow was driven by the needs of producers to increase production volumes to improve the economic results in initial severe global competition at the end of 20th century. At approximately the same time, the MIT international research of automotive producers discovered that the mass production principles governing the 20 th century would be challenged by the fundamentally different business system developed by the Japanese automotive producer, Toyota Motor Corporation. International Motor Vehicle Program was the largest and most thorough study ever undertaken of any industry – five years over fourteen countries. The whole study described in The Machine That Changed the World, discovers the efficiency and effectiveness of the Toyota Production System. The most important differences from the previous mass production era are :
• Direction of resources flows. • Cooperation in supply chain.
• Production smoothing. • Defect management.
Producer-driven flow should be replaced by customer driven flow, and intensive cost pressure and limited integration is replaced by collaborative cooperation and sharing profits and losses. Production smoothing substitutes the production volumes as much as possible based on the availability of resources rather than cooperation with suppliers, while also sharing information and keeping the production volume and structure as constant as possible. Defect management could be solved either with the help of high stock level and quality checks at the receiving dock in the supply chain or with the help of close and intensive cooperation, sharing information and without any reserved stock. The second attitude focuses on defect resolution of causes, rather than postponing the solution and mainly solving effects.
History of the Toyota Production System In 1929, the Toyoda family sold the patent for weaving looms to England and decided to produce cars. By 1950, they were studying the production systems in General Motors (GM) and FORD plants in the USA. Because of the market conditions on the Japanese islands, which were totally different from the automotive market in the USA, they had to develop a production system able to efficiently produce small production volumes of different variants of cars. After 40 years, Toyota has developed the Toyota Production System able to produce the same amount of cars with half the number of people and 50% better quality than its main competitors (see Figure 1.4).
Figure 1.4 Development of TPS success The success of TPS was not only in the economy and family classes but even among luxury brands, where Toyota Lexus surpassed the traditionally luxury brands like Mercedes, BMW and AUDI in the USA in the late 1990s. In 2008, Toyota became number 1 in terms of volumes sold in the world after 40 years of domination by GM. Seven kinds of waste in logistics Logistics processes are responsible for interactions in the supply chain. However, lean improvements have been focused so far on production added value and waste. Logistics places the same importance on added value and waste. The availability of all resources is an inseparable part of the value-added activities because logistics added value reflects the new reality of the worldwide markets. Flexibility and availability enabling satisfaction of customer wishes do not have such an importance in the past either for producers or for customers . Classical “lean books” describe 7 wastes in production. Nevertheless, 7 wastes in logistics have the same importance . Supply chain activities responsible for flow contain a huge amount of waste during the information flow of the order or the physical flow of the product. The success of the interactions between production chains in the supply chain is critically dependent on the identification of waste in logistics caused by delivering a product before it is needed, delays during manipulation and delivery flow as well as unutilised and unnecessary transportation, motion, inventory, space and errors.
Lean principles in supply chain management The Toyota House  describes the most important lean tools and principles. However, to recognise the difference between lean and previous mass production and logistics systems, especially the reduction of the waste in production and logistics, four main transition principles can be identified: 1. One-piece flow.
2. Tact. 3. Pull. 4. Zero defects.
Its understanding in the supply chain management is important for efficient integration between suppliers, logistics service providers, producers and customers. One- piece flow interaction could be characterised by the flow of the as small as possible amount of components in containers which should create only a few hours of quantity of stock level in each chain of the supply chain. It improves work in progress, waiting times and interruptions. Tact means, in logistical terms, the precise time-tables, how the flow of resources is and how the interaction between partners in a supply chain is organised. It improves balance work content, and the continuous flow and responds flexibly to changes in the market-place. Rather than Push, Pull is understood as the direction of optimal either informative or physical flow of resources which minimises over-delivery, inventory and working capital. Zero defects describe the cause and effect distinction in problem solving which means that all mistakes and defects should be solved immediately rather than afterwards. All four principles in combination with concrete lean tools enable radical improvement in quality, lead time and costs. Critical mistakes in lean implementation Despite the enormous popularity of lean, some recent studies say that failure rates for lean programmes range between 50%and 95%. The study from 2007 declares that 70% of plants in the US were using lean as an optimisation method. Only 2% of them reach expected results, and 24% have any positive results at all . Understanding principles in mass and lean production, certainly in the research of academic papers dedicated to principles of production and SCM or practical implementation of lean principles and tools in the automotive industry, enables the creation of a conceptual framework built on 4 fundamental changes connected with transition from mass to lean production . Without acceptance of the changes in productivity, added value, cost accounting and management approach, it is impossible to implement lean and expect long-term positive results. Productivity in mass production is based on maximisation of output (output/ input) of each individual chain, either production or logistics and push this output through the supply chain to the final customer. Such an evaluation of productivity supports the wrong direction of the flow of all resources. In the case of the pull flow of resources, the new evaluation formula needs to be accepted. Productivity in lean production respects the importance of customer wishes so the productivity formula
evaluates only real customer demand (output demanded by customer/input) and thus supports the pull flow in the supply chain management. The following case study dedicated to computer production  enables for the accurate differentiation between productivity of batch production and one-piece flow production, which is the first fundamental problem in the transition from mass SCM to lean SCM. The case study quantifies the difference in the lead times as the production of 10 computers take 30 minutes by batch production and 12 minutes by one-piece flow production (see Figure 1.5).
Figure 1.5 Production of computer set by mass SCM and by lean SCM (modified according to )
The production process provided in Figure 1.5 is linked for the purpose of this paper with the management of the whole supply chain, in both concepts of mass SCM (batch transformation) and lean SCM (OPF – one-piece flow transformation). The number of value-added activities necessary for computer finalisation (customer order completion) is used for comparison of productivity of both concepts in Figure 1.6. These activities are considered to be added value by the current recognition of what is and what is not added value.
Figure 1.6 Traditional mass vs. lean productivity performance indicators The general understanding of added value is the production added value. Nevertheless, because of the latest market changes, logistics added value has at least the same importance. Lean divides any activity in business processes into a value added activity (production and logistics) and waste (production and logistics). The critical
difference between mass and lean is the understanding how to increase the productivity. Meanwhile, mass production focuses on the “producing more” principle to reach minimum unit costs (production value added) through the economies of scale. Lean production focuses on the “consuming less” principle observing the reduction of the total costs (production, logistics value added and production, logistics waste). Standard cost accounting leads to minimisation of unit costs of particular chains in the supply chain. Concrete goals of the chains in the supply chain are then set based on the sum of costs and goals of the related cost centres rather than as a reflection of customer requirements. Today, cost accounting is in this matter more anti-lean as it is incapable of identifying positive effects of lean such as productivity growth and cost reduction (see Figure 1.7).
Figure 1.7 Differences in cost allocation in mass and lean  The inaccurate perception of productivity, explained in the previous paragraph, considers as productive whatever is produced rather than only what is demanded, which causes a highly inaccurate allocation of costs. Lean SCM involves a system view so its aim is to reduce the cost of the complex. Therefore, activities causing waste have the same importance as those adding value. The benefits of lean could only be made visible when the cost of wasting is identified and calculated (see Figure 1.7, lean SCM – batch production). Unit cost of wasting has to be considered in today’s cost accounting so that the waste could be made visible . The previous three changes require the new attitude to management of supply chains. Functional management is focused on insular optimisation of single departments or chains. On the other hand, process management enables optimisation of total affects which are also dependent not only on cost accounting of performances of related departments but also on evaluation of productivity and the capacity of optimisation itself. Management of the particular parts built on planning, organising and control
should be replaced by management of interactions inside or outside of a managed unit and should be built on leading, sharing information and delegation of competencies. The new competitive advantage in the current business environment from a combination of supply chain management and lean principles has not been exhausted so far. The main reason is that the new lean tools have been implemented in the old mass production environment. A different business environment, market conditions, competencies of competitors and the new demand of customers should be followed not only by new technologies and tools but also by the radical changes in the understanding of productivity, added value, cost evaluation and management of supply chains. 1.4 Agile supply chain management In the last decades, agility has been one of the key concepts discussed by many authors. Christopher defines agility as an ability of an organisation to respond rapidly to changes in demand both in terms of volume and variety . Sheffi emphasises the unpredictability of changes, and agility is the ability to respond to unanticipated changes . Sharifi and Zhang focus their attention not only on the changes in demand (market), but on all the changes in the business environment – agility is the ability to cope with unexpected changes, to survive unprecedented threats of the business environment, and to take advantage of changes as opportunities . Charles et al. point out the short-term character of the changes, and they distinguish between agility and adaptability – while agility is being able to deal with and take advantage of uncertainty and volatility, adaptability is rather used for more profound medium-term changes . Finally, Chinnaiah and Kamarthi remind us that virtually anything can be changed if cost is not a constraint, but change at any cost is not a viable solution . That is why the supply chain agility can be defined as the ability of the supply chain to react very quickly, but at an acceptable cost, to short-term, unexpected and significant changes in the business environment in order to satisfy customer requirements. There are many changes that may occur in the business environment. They occur with constantly increasing speed, unpredictability and the rate of impact on the supply chain. The main areas where changes occur are: • Customers – changes in their requirements, stability of demand. • Competition – not only the existing but also potential and substitution. • Suppliers – instability of supplies, financial problems of the suppliers. • Politics and law – changes in legislation, way of market protection and support of business in each country. • Economics – changes in macroeconomic development of countries. • Society – changes in habits and preferences of inhabitants, social problems. • Technology – development of new technologies, short product life cycles. Generally, the changes can be divided into two groups – the changes in the competitive environment (especially customers, suppliers, competitors) and the changes in the general environment (politics, economics, society and technologies). The classification of the changes under consideration is shown in Figure 1.8.
Figure 1.8 Classification of the changes in the business environment To describe a supply chain as agile, it must have certain capabilities that will allow it to cope with these changes. The most frequently presented ones are : • Responsiveness – the key to achieving agility is the ability to identify the change correctly and in time. • Competency – the ability to effectively achieve the goals in the area of agility. • Flexibility – the ability to use different procedures and tools to achieve the given objectives. • Quickness – the ability to perform all activities as quickly as possible. The supply chain can acquire these skills only if it is well-designed and controlled. The basis is the maximum sharing of information throughout the supply chain, which should be completely open and should be done in real time . Sharing information is important, but it is not the only corner-stone of agility. Other means include : • Collaborative relationship – creating cooperation within the supply chain on such a level so that the suppliers and customers develop new products together. • Process integration – the supply chain is understood as a single unit with integrated processes. • Customer/market sensitivity – the supply chain is able to quickly and effectively read the market changes and customers’ needs. Summary of the concept of agility is shown in Figure 1.9. At the beginning, there are changes in the business environment which affect or may affect the supply chain. According to their quantity and scope, it is necessary to determine the range of the required agile capabilities of the supply chain. The supply chain will acquire these capabilities if it consistently respects the goals of agility and if it applies the designed basic procedures.
Figure 1.9 Conceptual model of agile supply chain building
1.5 Resilient supply chain management The basic definition of resilience related to supply chain management comes from the area of ecology, where resilience is defined as “the ability of a system to return to its original state or move to a new, more desirable state after being disturbed” . The perception of resilience is very different across recent research. Many authors are trying to capture the same core meaning of resilience using different words. For an explanation of the complexity and ambiguity of the problem, recent trends in resilience definitions are presented here. Resilience is: • The ability of a system to return to its original (or desired) state after being disrupted . • The ability to bounce back from large-scale disruptions . • Being better positioned than competitors to deal with – and even gain advantage from – disruptions . • The ability to maintain output close to potential in the aftermath of shocks . • About building capacity, through the collective and simultaneous efforts of those in and out of government towards a shared result . • The capacity of an enterprise to survive, adapt and grow in the face of turbulent change . The main idea of these definitions is to create and manage such supply chain that is not vulnerable to disruptions. Today’s supply chains must face a wide spectrum of factors causing their disruption. According to the World Economic Forum (WEF) , the most important ones include: natural disasters, extreme weather changes, conflicts and political troubles, terrorism and sudden radical changes in demand. According to the kinds of disruptions identified by WEF and the definitions of resilience mentioned, the supply chain resilience can be defined as the ability of a supply chain to return to its original performance in cases of serious disruptions.The influence of these disruptions on current supply chains is intensified by the following trends in the business environment:
• Globalisation – it allows transferring production capacities to developing countries, achieving cost savings and entering new markets. However, global chains are exposed to greater disruptions because of their complexity and size, further extending logistic flows; an important role is also played by cultural differences. • Outsourcing – the original benefits of outsourcing are cost reductions and allowing the company to concentrate on its key business activities. However, these benefits are balanced by increased vulnerability to disruptions in terms of loss of control and further breakdown of the supply chain into a more complex system that is more difficult to control. • Lean processes – the reason behind the lean approach is, again, the costs that are spent inefficiently and are thus “wasted.” A typical example includes excessive inventory or multiplication of suppliers in the supply chain. However, if these “buffers” are not available, it is much more likely to be affected by a disruption. • Centralisation – enables the cost savings achieved by economies of scale, mainly thanks to better possibilities for distribution of fixed costs. The degree of centralisation however goes hand in hand with decreasing flexibility of the chain and the result is, again, increasing its vulnerability. With maximum centralisation, the failure of the entire systemcan be caused by a single disruption. • IT-dependence – logistic flows in today’s supply chains are very closely linked to IT systems. The failure or instability of IT systems may disrupt the continuity of these flows. • Complex products and services – the complexity and diversity of today’s products are constantly increasing. This increase goes hand in hand with increasing complexity of a supply chain behind the given product. The level of complexity then increases the vulnerability of the supply chain to disruptions. • Deficit of information – good information management is one of the basic prerequisites of supply chain management. Insufficient sharing of information and knowledge among the individual companies exposes the chain to more risk. • Specialised factories – special, irreplaceable components of the supply chain have the same impact on the supply chain as centralisation – they reduce flexibility, thus increasing the vulnerability. • Volatility of demand – increasing instability of demand leads to its more difficult predictability thus increasing the vulnerability. • Technological innovations – progress and research are the engines of business. Without innovations, companies and the whole supply chains would quickly become unable to compete. Innovations also increase the vulnerability because it represents novelty and change. Any serious disruption will have a typical profile in terms of its effect on company performance. Supply chain performance can be measured by sales, profits or level of production. The nature of the disruption and the dynamics of the company’s response can be characterised by the eight stages described in Figure 1.10:
1. Preparation – in some cases, the chain can predict and prepare for disruption, minimising its effects. 2. The disruptive event – there is the disruption of supply chain processes. 3. First response – investigating the type of disruption and assessing its expected impacts, taking rapid action. 4. Initial impact – the impact of some disturbances is immediate, but some disturbances may take place over time. 5. Full impact – the maximum impact of disruption, in which the performance of the chain sharply declines. 6. Recovery preparations – it involves the preparation of procurement to restore the performance of the chain. 7. Recovery – progressive return to the original string performance. 8. Long-term impact – the disruption can have permanent consequences in the form of loss of a certain amount of original performance.
Figure 1.10 The disruption profile  Building a resilient supply chain is not an easy or short-term goal. It is a strategic decision that requires a great deal of effort from all stakeholders and funds. The natural question then is how resilient the supply chain should be. The optimum level of resilience is closely related to efficiency and cost. The optimal level of supply chain resilience can be defined as one in which the total logistics costs in the supply chain over a long period are minimal, while the performance and competitiveness of the supply chain is preserved . To achieve the required resilience of a supply chain, the necessary capabilities must be created. It is important to use suitable principles and ways in order to build these capabilities (see Figure 1.11).
Figure 1.11 Conceptual model of resilient supply chain building Necessary capabilities are (according to Pettit): flexibility in sourcing, flexibility in order fulfilment, capacity, efficiency, visibility, adaptability, anticipation, recovery, dispersion, collaboration, organisation, market position, security and financial strength . The ways of building these capabilities are different in each publication. According to Christopher and Peck , there are four basic principles how to create a resilient supply chain that are described in more details in their article. They are Supply Chain Reengineering, Supply Chain Collaboration, Agility and Supply Chain Risk Management Culture. Other important authors from this field are Sheffi and Rice , who describe two ways how to achieve resilience; building in redundancy or building in flexibility. In a different book , Sheffi et. al. recommend the following principles of building resilience: developing the ability to move production among plants, using concurrent processes of product development, designing products and processes for maximum postponement of as many operations and decisions as possible in the supply chain and aligning procurement strategy with supplier relationships. Iakovou, Vlachos, and Xanthopoulos  refer to the following ways of creating resilience: flexible sourcing, demand-based management, strategic safety stock, total SC visibility and process and knowledge back-up. Falasca et al.  focus on the methods associated with supply chain design and examine the influence of supply chain density, supply chain complexity and supply chain node criticality on the degree of resilience. Tang  proposes the following SC design strategies to create a resilient supply chain: postponement, strategic stock, flexible supply base, make-and-buy trade-off, economic supply incentives, flexible transportation, revenue management, dynamic assortment planning and silent product rollover. Carvalho and Machado  describe SC characteristic features that can be modified to increase SC resilience: chain configuration, chain control structure, information system and organisation structure. Enyinda and Szmerekovsky  stress the links between sharing information and using new technologies.
1.6 Green supply chain management The concept of green supply chain management was first introduced by US Michigan State University in 1996 , the authors have drawn on the results of interviews with five environmental managers in the furniture industry to develop a taxonomy of environmentally-friendly (green) supply chain best practices. The results suggest that in order to be successful, environmental management strategies must be integrated in all stages of the supply chain, including procurement, manufacturing, packaging and logistics. While the potential for performance improvement in all five of the companies is evident, all of them demonstrated “pockets” of environmentally-friendly practices (EFP) in different stages of their respective supply chains. US and other parts of the academic world begun to study various aspects of the green supply chain management , , , , . Green supply chain management (GSCM) involves traditional supply chain management practices, which integrate environmental criteria, or concerns, into organisational purchasing decisions and long-term relationships with suppliers . GSCM is defined as integrating environmental thinking into supply chain management, including product design, material sourcing and selection, manufacturing and delivering the final product to the customers, its consumpiton and end of serviceability . A green supply chains aims at confining the wastes within the industrial system in order to conserve energy and prevents the dissipation of dangerous materials into the environment. It recognises the disproportionate environmental impact of supply chain processes within an organisation. GSCM is often perceived as a new innovative managerial tool, which can be used as a strategic weapon to gain competitiveness and to simultaneously promote a firm’s environmental and financial performance . GSCM as a strategy to gain competitive advantage means that there is substantial interest amongst the companies to take action to decrease their environmental impact. The goal of adding value to the business and reducing costs in all parts of the production system is identified as key drivers in order to increase competitiveness. The companies agree that the common manufacturing objectives such as cost, quality, delivery and flexibility will not be enough in order to stay competitive when external stakeholders require an increased focus on sustainability . Some famous foreign multinational companies such as the Ford Motor Company, Hewlett-Packard Company, Valuable Clean Group and General Electric Company regarded supply chain management as a strategic asset and corporate culture acquiring corporate competitive advantage to filter into various parts, various departments and employees. As in the past and so also in the present, the practice of GSCM is understood as a multi-dimensional concept which can be measured from different perspectives and at different dimensions of GSCM practices. Already in 2005 Zhu et al. , proposed a four-dimensional GSCM practices, namely internal environmental management, external GSCM, eco-design and investment recovery. Holt and Ghobadian  suggested internal environmental management practices, logistics, supplier assessment and evaluation, green procurement and logistics policy, supplier education and mentoring, and industrial networks as important GSCM practices. For example, according to Ninlawan et al.  and Thoo et al. , green procurement, green manufacturing, green distribution and
green logistics are important dimensions of GSCM practices needed by manufacturing sectors to achieve enhanced sustainability performance. Green et al.  suggested that GSCMpractices should include internal environmental management, green information systems, green purchasing, cooperation with customers, eco-design and investment recovery. Lee et al.  published the opinion that GSCM practices are composed of corporate and operational strategies to improve the environmental sustainability such as internal environmental management, green purchasing, cooperation with customers and eco-design. Authors of contemporary literature usually presenting GSCM practices from four important perspectives: green procurement, green manufacturing, green distribution and green logistics , . Green (or sometimes environmental) sustainability aims to improve the current proceses which will preserve the environment as pristine as naturally possible. It is about the alignment of sourcing, manufacturing, distribution, transportation and remanufacturing/recycling processes with the goal of reducing a company’s carbon footprint. Environmental sustainability demands that society designs activities to meet human needs while indefinitely preserving the life support systems of the planet. Sustainability requires that human activity only use natural resources at a rate at which they can be replenished naturally. Sustainable development is intertwined with the concept of carrying capacity. This entails sustainable usage of water, energy and sustainable material supplies (e.g. harvesting wood from forest at a rate that maintains the biomass and biodiversity). A comprehensive monitoring and evaluation at the enterprise level would provide an opportunity for individual companies to determine the level of implementation of the green strategy. Based on this information, benchmarking for example of individual companies within a holding structure could be done, or monitoring over a longer period of time. 1.7 Sustainable supply chain management Sustainability is practiced globally as a comprehensive strategy for improving the sustainability performance of the manufacturing industry. Although there exists a divergence of definitions of sustainability, these differences are not too great. Most definitions of sustainability incorporate a consideration of environmental, economic and social dimensions (see Figure 1.12): • Sustainability is a wise balance among economic development, environmental stewardship and social equity . • Sustainability includes equal weightings for economic stability, ecological compatibility and social equilibrium . • Sustainability is the complete plan of ethical action for an organisation which is attempting to transform itself into something sustainable, i.e. to become pro-environmental, pro-social and traditionally pro-economic .