bestpractices_greensupplychainsfinal

A QAD Leadership White Paper for the

Global Manufacturing Industry

Best Practices in Achieving Green Supply Chains

ContentsIntroduction 1

Sustainability Defined 1

The Green Supply Chain 1

Where to Start 2

The Value of Green Supply Chains 3

Top Five Green Supply Chain Strategic Actions 3

Key Green Supply Chain Processes 4

Supplier Collaboration 5

Demand Management 5

Lean Manufacturing 6

Transportation Management 6

Warehouse Management and Distribution Requirements Planning 6

Enterprise Asset Management 6

Product Design and Product Lifecycle Management 6

The QAD Green Supply Chain Solution 7

Conclusion 8

What can you do today 8


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Introduction Sustainability is, without a doubt, one of today’s most significant global business opportunities. Besides being good for planet Earth, sustainability is important to your customers and presents a huge opportunity for market share growth, as well as providing potential cost reductions in manufacturing and your supply chain.

Government regulations and public opinion are compelling your customers to adopt environmentally-friendly policies, like reductions in packaging, water usage and green house gasses, and energy efficiency policies designed to reduce their environmental “footprint”. They expect you, as their supplier, to support these initiatives.QAD has the expertise and solutions to help you meet these demands while improving both top and bottom-line financial performance.

Sustainability Defined Sustainability is a characteristic of a process or state that can be maintained at a certain level indefinitely. The term, in its environmental usage, refers to the potential longevity of vital human ecological support systems, such as the planet's climatic system, systems of agriculture, industry, forestry, fisheries, and the systems on which they depend.

The Brundtland Commission, led by the former Norwegian Prime Minister Gro Harlem Brundtland, defined sustainable development as “development that meets the needs of the present without compromising the ability of future generations to meet their own needs.”

Embraced as a key strategic element and change management tool, sustainability will help you secure the future of the organization, brands, and reputation. It will help to minimize business risk, reduce bottom-line costs, increase top-line profits, and enhance the experiences of employees, customers, and stakeholders. It’s no surprise that virtually every manufacturer is claiming they have sustainable or green products and corporate philosophies. But what does a sustainable green supply chain actually look like?

The Green Supply ChainAn industry-accepted definition of a green supply chain does not exist today. So how does one build one? Is it enough to be eco-friendly in some processes, like transportation or manufacturing, to qualify your company as being green? What about warehousing, inventory management, and the efficient maintenance of your capital equipment? Must every supply chain function be eco-friendly, or can you focus on some areas of the supply chain and still be considered green? In reality, all of these questions are open-ended. However, most experts agree that building a green supply chain is similar to implementing lean or six sigma strategies; it is a journey, not a destination.

“Most experts agree that building a green supply chain is similar to implementing lean or six sigma strategies; it is a journey, not a destination.”

"Being a good steward of the environment and in our communities, and being an efficient and profitable business, are not mutually exclusive. In fact they are one in the same.”- Lee Scott, Former CEO Wal-Mart


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Building a green supply chain involves making trade-offs between minimizing your supply chain environmental impact, and other business objectives like agility, efficiency, profitability, and customer service. Manufacturers need to take a holistic approach to supply chain sustainability, starting with product development, and working their way through supplier management, manufacturing, transportation, inventory management, and management of key capital equipment. See Figure 1.

“Building a green supply chain involves making tradeoffs.”

Where to Start Greening an entire supply chain is a daunting endeavor and requires a long-term commitment. Most companies start with a more manageable goal, focusing their initial greening efforts on one or two processes. For example, a company might start their greening journey by:• Reducing energy consumption through

lean manufacturing methods and machine preventive maintenance

• Measuring and minimizing its transportation and warehousing energy usage and carbon footprint

• Working with its suppliers to minimize excess shipping and end-item packaging

As with other transformative initiatives, there are three major areas manufacturers must consider when greening the supply chain: people, process, and technology.

Most manufacturers lack the organizational structures and processes that enable an end-to-end view of their environmental footprints across their extended supply chains. Manufacturers that are still functionally-aligned across manufacturing, sourcing, transportation, maintenance, and distribution will find it difficult to manage supply chain-wide green initiatives. Even if strong organizational structures and processes are in place, companies still require a strong sustainability vision with associated goals.

Leading manufacturers have identified both strategic and tactical green supply chain goals as a result of pressures driving their sustainability issues. These goals include reducing business cost, enhancing company social responsibility, improving profits, reducing waste, increasing recycling, reducing emissions, and reducing use of toxic materials. These goals are being accomplished through projects and on-going process and system enhancements including distribution network redesign, collaboration efforts, demand management improvements, capital equipment maintenance improvements, product reformulation, packaging redesign, and enhanced transportation and warehousing capabilities.

“Manufacturers need to take a holistic approach to building a green supply chain”

Figure 1: Typical Green Supply Chain Components

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The most successful supply chain greening efforts align a company’s technology to their organization and process capabilities. Diving into a technology investment without understanding how it aligns with an overall company strategy is counterproductive. When a manufacturer is ready for green supply chain technology investment they need to ensure they have a holistic vision that considers integration across multiple supply chain areas versus point solutions specializing in only one area like transportation or manufacturing. Having established a holistic vision, implementation can be accomplished through focused initiatives around key supply chain elements. The benefits of such a phased approach is reduced complexity and improved time to value.

The Value of Green Supply ChainsBeyond being good for planet Earth and your company’s image, green supply chain initiatives also tend to have a large return on investment by impacting both top and bottom line results. In the white paper “Building a Green Supply Chain: Social Responsibility for Fun and Profit”, Aberdeen used four key cost-related criteria to distinguish Best-in-Class companies from industry average and laggard organizations. See Figure 2.

Evidence suggests that the net effect of evolving to a sustainability culture is positive to the bottom line – not just from a cost impact and risk avoidance, but also revenue from your enhanced image with the customers. Going green can lead to benefits beyond measure – especially when you take a long term view.

Top Five Green Supply Chain Strategic ActionsAlthough manufacturers take on green initiatives for a multitude of reasons, according to Aberdeen Research the most common areas that companies are implementing supply chain process and technology improvement strategies. See Figure 3. Historically manufacturers have started sustainability or green programs to improve public relations or influence stakeholders. More recently Aberdeen Research has found that the major areas of emphasis for green programs have expanded to include the extended supply chain where being green also has large impacts on profitability. See Figure 4.

Figure 2: The Value of Greening the Supply Chain

Cost Criteria Laggards Average Best-in-ClassTransportation & Logistics Costs 4% Increase 1% Increase 2% Decrease

Energy Costs 7% Increase No Change 6% Decrease

Operations & Facilities Costs 4% Increase No Change 2% Decrease

Supply Costs 6% Increase No Change 2% Decrease


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Figure 3: Top Five Green Supply Chain Strategic Actions

“We’re a publicly held retailer who has millions of shareholders who are interested in making a return on their investment, so to say that this (sustainability) is an altruistic type of a venture for us would not be true. We had to show a (return on investment).” - Kelly Abney, Vice President of Corporate Transportation Wal*Mart

Best-in-Class

% of companies Source: Aberdeen Group, March 2008

0% 10% 20% 30% 40% 50%

All others

Key Green Supply Chain Processes While there are a number of functional areas that can contribute to greening the supply chain, most of the benefit can be gained by improvements to key supply chain processes discussed in the following sections. Supplier CollaborationSupplier relationships have always been a critical component of business success. But in an increasingly competitive and fast-paced world, the role of the supplier is becoming even more important.

The principle of supplier collaboration is based on gaining visibility and control not within a single company, but across an enterprise and its key suppliers. Because trading partners share visibility, control and accountability for their cooperative activities, trust and dependability are increased and surprises are all but eliminated. Companies that have implemented supplier collaboration initiatives consistently refer to three high-impact benefits for their organizations: increased visibility and responsiveness; optimal inventory levels; and improved customer service.

Supplier collaboration also has tremendous productivity and efficiency benefits,

streamlining and even automating the traditionally paper and time intensive activities associated with procurement and delivery. And, in an increasingly globalized business world, web-based supplier collaboration has other obvious productivity benefits. Not only do shared technology systems and data help to overcome cultural differences and disparate business processes, but they also ensure that the supply chain is productive around the clock. No matter what country or time zone key vendors are in, real-time information sharing ensures that there are no delays in response.


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Supplier collaboration helps to green the supply chain by:

• Reducing material shortages, production downtime and obsolescence

• Reducing the amount of inventory kept in stock at the customer and supplier locations

• Reducing expediting activities, administrative tasks and indirect personnel costs

• Reducing extra freight requireddue to the need to expedite

• Optimizing floor space andcapacity utilization

Demand ManagementDemand management is the matching of supply and demand over time. Demand Management consists of forecasting based on history and known future, creation of alerts to notify of exceptional circumstances, forecast calculations based on standard and proprietary algorithms, inventory policies based on forecast variability, and

collaborative planning between various business functions and between suppliers and customers.By optimizing demand management, manufacturers enable green supply chain efforts in a number of ways including:

• Reducing over production leading to spoilage, obsolescence, and excess inventory storage requirements

• Improving forecasting for new product introductions including new products that are environmentally friendly

• Optimizing the roll-out of enhanced packaging that minimizes waste and includes recycled materials

• Reducing inventories by quickly sensing changes in consumer demand and synchronizing market demand with production output

• Improving manufacturing efficiencies by removing surprises and smoothing the flow of products through the production cycle

0% 10% 20% 30% 40% 50% 60%

Figure 4: Best in Class Goals for the Green Manufacturer


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Lean ManufacturingOne proactive way for manufacturing companies looking to enable green practices across their supply chain is to implement lean manufacturing.

While lean manufacturing environments differ according to the nature and needs of the manufacturer, they all share a number of critical elements:

• Production is done according to customer demand

• Value is assessed from a customer perspective

• Processes are designed for maximum flow

• Continuous improvement procedures are integral to operations

• Personnel are empowered to control the manufacturing processes for which they are responsible, and they have the authority to shift operations based on real-time demand

The underlying principles of lean manufacturing are to build effectiveness and efficiency across the entire supply chain by delaying differentiation through postponement, minimizing buffers and steps, and eliminating waste. The net effect of lean completely supports sustainability.

Transportation ManagementManaging the transportation carbon footprint is probably one of the more discussed greening efforts in supply chain management. One reason for this is the push to make product carbon foot-printing information available to consumers. Another reason is its alignment with transportation efficiency and rising transportation costs. Minimizing empty miles, shifting to intermodal capacity, and improving capacity utilization through consolidation will reduce energy consumption and transportation costs while also reducing carbon emissions.

Warehouse Management and Distribution Requirements PlanningSupply chain processes like warehousing management and distribution requirements planning are often more challenging to green. Minimizing the environmental footprint of inventory can be in direct conflict with the more accepted goal of reducing working capital. To add to the challenge, in greening inventory management, a company must consider the ramifications of decisions on efficiency, customer service, flexibility, and greening goals not only for inventory, but also transportation, customer fulfillment, and production. This is certainly a tall order from an organizational alignment, process definition, and technology standpoint. However, the effort to reduce warehouse space through advanced inventory management capabilities and to operate required warehouse space as efficiently as possible leads to greening of the supply chain through less power consumption and less total emissions.

Enterprise Asset ManagementManufacturing companies are searching for ways to increase production output and improve product quality while reducing cost. One of a manufacturing company’s most important assets is its manufacturing equipment, and the costs associated with managing and maintaining this equipment can be significant. Higher performing equipment uses less power, produces less waste and less carbon emissions leading to greener supply chain operations.

Product Design and Product Lifecycle ManagementGreen product design and environmental regulatory compliance are increasingly important for manufacturers across all industries. EU RoHS, China RoHS, Korea RoHS, California RoHS, ELV, REACH–the list of environmental regulations for reducing hazardous substances in products keeps growing. What, exactly, are the costs if a


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company’s products fail to comply? Missed customer requirements, blocked shipments, costly redesigns and scrapped parts are just the tip of the iceberg. No doubt, the stakes are high–with potentially millions of dollars in lost revenue and related costs. To avoid these costs, manufacturers must identify, track and control a constantly evolving list of high-risk substances, both in their products and in their supply chain. Spreadsheets, homegrown databases, and manual processes simply can’t meet this enormous data management challenge.

The QAD Green Supply Chain SolutionQAD’s Enterprise Application is a completely integrated suite of software solutions designed to accommodate the needs of manufacturing companies around the world including solutions to facilitate greening of the supply chain.

The QAD Supply Chain Solution enables a green culture, both directly and indirectly. Directly by significantly improving a manufacturer’s supply chain transaction capabilities, and indirectly through enhanced product development and rationalization, and business process transformation.

The QAD solution enables manufacturers to go green by helping them to realize reduced

scrap, rework, and energy consumption through improved supply chain processes throughout the value chain. QAD’s supply chain solution enables manufacturers to drive toward “making what is needed, when it is needed, and having it available where it is needed.” The bottom-line is improved process capabilities, asset utilization, and optimized customer service resulting in reduced waste, the nemesis of sustainable green cultures.

Although most solution components of the QAD Enterprise Suite could enable green initiatives the QAD solution components that have a direct impact on greening the supply chain are shown in Figure 5 and include:

• PLM – Product Lifecycle Management• SV – Supply Visualization• DM – Demand Management• EAM – Enterprise Asset Management• Lean Mfg – Lean Manufacturing• TMS – Transportation Management

System• DRP – Distribution Requirements Planning

(Part of the QAD Supply Chain Planning Solution)

• WMS – Warehouse Management System

Each one of these solution areas is discussed in further detail in the QAD White Paper, “QAD’s Green Supply Chain Solution.”

Figure 5: QAD's Green Supply Chain Solution


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ConclusionAberdeen’s white paper entitled “Building a Green Supply Chain: Social Responsibility for Fun and Profit” identified five key categories that differentiate companies with Best-in-Class green supply chain capabilities from those companies with ‘Average’ and/or ‘Laggard’ capabilities. These categories include process, organization, data, technology, and performance measurement. ‘Best-in-Class’ companies have the following characteristics.

• A holistic, life-cycle approach to their green supply chain initiatives, and a senior executive in charge of establishing the vision and driving associated initiatives

• A well-developed green training program, and active recruitment of talent with expertise in green initiatives

• Are 30% more likely to use advanced transportation and logistics systems to enable their green transformation

• Are 70% more likely to use Enterprise Asset Management solutions to effectively manage asset life-cycles

• A commitment to track and measure key supply chain cost metrics, especially in the areas of transportation, warehousing, distribution, and manufacturing

What can you do today?1. Engage QAD to help evaluate your

supply chain processes and supporting systems. This evaluation can also help you to define a vision for the evolution to green supply chain strategies. QAD has the expertise and solutions to help you through every phase of greening your supply chain.

2. Build the required foundation for supply chain environmental footprint visibility. A foundational step companies can undertake is to start collecting the necessary data on their current environmental footprint. A focus on performance management across the supply chain as it pertains to the environmental footprint is essential.

3. Focus on operational excellence, reliability and agility. Strong product development, transportation, manufacturing, and distribution capabilities provide fertile ground for cultivating innovation and creativity specifically focused on greening your supply chain.

This document contains proprietary information that is protected by copyright and other intellectual property laws. No part of this document may be reproduced, translated, or modified without the prior written consent of QAD Inc. The information contained in this document is subject to change without notice.

QAD Inc. provides this material as is and makes no war-ranty of any kind, expressed or implied, including, but not limited to, the implied warranties of merchantability and fitness for a particular purpose. QAD Inc. shall not be liable for errors contained herein or for incidental or con-sequential damages (including lost profits) in connection with the furnishing, performance, or use of this material whether based on warranty, contract, or other legal theory.

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