Greening Supply Chain - Improving supply chain governance with sustainable supply chain model

• By: Ramesh Srinivasan, Manager MetricStream Inc
• Date: December 07, 2009

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In Energy Company

A large Chicago-based electric utility company with annual revenues of approximately $7 billion, demonstrated that electric utilities and other companies can successfully and substantially reduce their costs and environmental burdens with innovative accounting practices.

Analyses of the total cost of managing materials and equipment revealed that the costs related to environmental management were often overlooked. In the first phase of life cycle management activities, company minimized the chemical inventories at generating stations. After realizing its successes, company launched a formal Life Cycle Management (LCM) initiative. Since then a small, dedicated LCM staff has formed effective partnerships with the operating divisions to systematically assess life cycle costs and benefits. This initiative has not only reduced waste volume but also provided over $50 million in financial benefits. These gains include improvements in supply chain management, facility management, and other business processes, accruing to the supply chain activities.

In Manufacturing Company

As the largest manufacturer of wood windows and patio doors in North America, the company achieved substantial financial and environmental benefits when it began incorporating environmental considerations into its purchasing, materials handling, inventory, and disposition decisions.

Started as a directive to the staff to reduce emission levels of toxic chemicals; soon became a Corporate Pollution Prevention Team whose mission was to eliminate the use, release, and transfer of hazardous chemicals.

The team conducted a waste accounting project, developed waste reduction goals, and justified waste reduction projects by developing several business cases that quantified environmental and other cost savings. For example, the team justified the purchase of an improved system for mixing paints at point-of-use
based on the savings from improved material usage rates and reduced waste. Based on their initial success, company managers recognized that a more systematic implementation of environmental accounting techniques would improve their ability to make strong business cases for a wide range of projects. Accordingly,
they developed procedures for environmental cost assessments for a number of supply chain management activities. The process leads to more comprehensive and lucid business cases, including detailed Internal Rate of Return (IRR) schedules that incorporate savings from increased material efficiency and reduced waste streams.