building a green supply chain - dbguide.net · · 2008-10-27gillette samsung electronics sprint...

© 2008 IBM Corporation

No part of it may be circulated, quoted, or reproduced for distribution without prior written approval from IBM GBS

IBM Global Business Services

Building a Green Supply Chain

Frank KangIBM Global Supply Chain Innovation Center

October 10, 2008


1 © Copyright IBM Corporation 2008

Frank Kang, Global Supply Chain Innovation Center Leader

Associate Partner, IBM Global Business Services

Education:M.S., B.S., Cornell University, USA

Select Clients Served:MotorolaGilletteSamsung ElectronicsSprintAmwayCiscoWarner-Lambert

Specializations:Supply chain optimizationCustomer relationship managementStrategy consultingBusiness process redesignIT functional designOrganization change

Frank is an Associate Partner and leads IBM’s Global Supply Chain Innovation Center. He has more than 16 years experience in SCM and strategy consulting in the Electronics, Consumer Packaged Goods, Retail, Industrial Products, and Telecommunications Industries. Within SCM, he has extensive experience in supply chain strategy, supply and demand planning, new product development, vendor and channel partner management and IT strategy. Prior to IBM, Frank was employed by PwC Consulting and Booz, Allen & Hamilton.Some of his relevant projects include:

Project Leader for Operations Strategy – Global Consumer Electronics Client. Created and implemented global, cross-functional peformance metrics for a market leader in the electronics industry. The metrics spanned financial, customer satisfaction, internal productivity and business controls across the client, supply chain partners and final customers. This will result in the ultimate creation of a global performance metric scorecard to monitor and proactively address potential performance shortfalls.. Project Leader for Supply Chain Strategy – Global Consumer Electronics Client. For a Global 100 electronics manufacturer, developed the supply chain planning and execution strategy needed to improve poor customer on-time delivery performance. The scope included: 1) redesigning the forecasting and product planning processes 2) creating a new customer care vision and sales force automation tools 3) developing an e-business vision of an extended network of internal and external collaboration. The project resulted in a 35-45% customer order fulfillment lead time reduction and greater overall customer satisfactionProject Leader for Logistics Strategy – Global 500 Consumer Products Manufacturer. Reconfigured the global distribution network to increase customer service by over 20% while reducing inventory by 50%; the scope included determining facility locations, inventory consolidation opportunities, end-to-end product logistics at the SKU level, and deferred manufacturing and packaging optionsProject Leader for Inventory and Procurement Strategy – Global 500 Consumer Products Manufacturer. Developed and implemented forecasting, economic order quantity, and inventory disposal models to enable the client to reduce overall inventory by over 20% and operational expenses by over 25%; recommended vendor procurement strategies to increase corporate cashflow by consolidating the purchasing activities of all business groups and by realizing methods for restructuring vendor prices



Agenda

Case Studies2

IBM Carbon Point of View1



Global companies are already impacted by regulation with EU leading the way and US focus growing rapidly

Kyoto ProtocolClean Development Mechanism

EU Emissions Trading Scheme

NSW Greenhouse Gas Abatement Scheme

Australian Emissions Trading Scheme (proposed)

Regional Greenhouse Gas Initiative

California’s Global Warming Solutions Act (AB 32)

Western Regional Climate Action Initiative (WRCAI)

Chicago Climate Exchange

UK ETS

Greenhouse Friendly™ Certification Program

Australian National Abatement Register (proposed)

Japan Voluntary Emissions Trading Scheme (JVETS)

California Climate Action Registry

Legally-binding agreement with 169 countries agreeing to reduce collective GHG to a level that is 5.4% below 1990 emission levels by 2012. Market is based on a cap-and-trade model

Almost $25B traded in FY2006, up from $8B in FY2005Over 1 billion credits traded (3x increase)Increased focus on Phase II (current 2008 price is over €20) – will include every company spending over $400k pa on energy, by 2010

Low cost abatement (US$7 cap)Due to start in 2009Targets 5 MtCO2-e in 2010

Regulation

VoluntaryRequires members to cut emissions by 6% by 201010.3 MtCO2-e traded in 2006, at US$38million valueNow over 230 members and increasing

Well established certification scheme for ‘carbon friendly’products and servicesNot an open marketBased on ‘life-cycle emissions’calculations with detailed rules for reporting and verification

US state-wide program to cap all GHG emissions from major industries Includes penalties for non-compliance

10/17/07 - US Senate climate bill tightens cap

The bill, which congressional leaders claim has the best

chances of passing out of the Senate’s environment

committee to the full floor of the upper chamber, now calls

for a cut of 15% by 2020 below the 2005 level.

Pending US Legislation



“Our company is investing extensively in corporate social responsibility. We need to be a reference in this domain. As the leader of the luxury industry, we have to stay ahead.”Yves Carcelle, Chairman and CEO, Louis Vuitton

The only three external forces consistently rising on CEOs’ agendas are all linked to Corporate Social Responsibility

9%12%

42%

12%15%

44%

18% 17%

48%

EnvironmentalIssues

SocioeconomicFactors

People Skills

200420062008

Source: IBM Global CEO Study 2008; n (2004) = 403, n (2006) = 760, n (2008) = 1130

“Our strong commitment to corporate sustainability will be a clear differentiator for us with all stakeholders.”Tom Johnstone, CEO, SKF

“I see corporate responsibility going through three phases. People start to consider issues like the environment because they are compelled to do so. Then they realize that it actually makes business sense. Eventually they move beyond compulsionand selfish motives to become passionate because it is the right thing to do.”Vinod Mittal, Managing Director, ISPAT Industries

External Forces Impacting the Organization



8%11% 12%

2004 2006 2008

Americas

15%13%

21%

2004 2006 2008

EMEA

8%12%

21%

2004 2006 2008

Asia Pacific

9%

12%

18%

2004 2006 2008

CEO-focus on environmental issues has doubled globally with strong difference between Geos

Concern about Environmental Issues

Global“As the world becomes more "green", we can replace a plastic-based music distribution system with a waste-free music distribution system.”Chris Gorog, CEO, Napster

“We must double our investment in environmental areas.”CEO, Industrial Products Company, Sweden

“Environmental issues are driving entry into new market segments as avenues of growth.”President and CEO, Automotive Company, Australia

Source: IBM Global CEO Study 2008; n (2004) = 403, n (2006) = 760, n (2008) = 1130



Majority of CEOs see CSR as an opportunity, not a threat, and plan to significantly invest in CSR to integrate with society

Investment past 3years

Investment next 3years

Increasing customer expectations of corporate social responsibility

“The consumer’s concept of quality will no longer be measured by only the physical attributes of a product — it will extend to the process of how the product is made, including product safety, environmental compliance and social responsibility compliance.”Victor Fung, Chairman, Li & Fung

25 %INCREASE

10.7%13.4%

No impact 20%

Positive impact 69%

Negative impact 11%

Source: IBM Global CEO Study 2008, n = 609; * Total investments: all asset investments + all investments in R&D, marketing and sales



New products and services are top of mind for CSR-focused CEOs

Focus areas to benefit form increasing customer expectations of corporate social responsibility

New Products / ServicesEnvironmental Initiatives

New Operations

New Segments

New Channels

New Markets

New Business Relationships

Transparency

9%

8%

3%

3%

1%

1%

6%

9%Lower Focus*

Higher Focus*

Source: IBM Global CEO Study 2008, n = 180; * Difference between the response of CSR-focused CEOs and the entire sample



IBM’s “House of Carbon” approach facilitates a structured, comprehensive, and integrated model for carbon management

Strategy

People Information Products and Services

IT Property Supply Chain



• How can product design make better trade-offs between design requirements, including carbon footprint?

• What tools & practices should be employed by co’s wanting to establish leadership?

• What are the carbon impacts throughout the product’s lifecycle, and how can they be minimized upfront through smart design?

• How can the total network be optimized considering service, cost, “green”tradeoffs

• What CO2 impact is there from various inventory concepts & planning methodologies

• Are there opportunities to reduce cost and carbon emission at the same time?

• How can we best measure a supplier’s carbon impact (product, packaging, upstream logistics) and ultimately compliance with carbon reduction requirement?

• What sourcing strategies will result in a better trade-off of cost, service levels, carbon emission?

• How should we evaluate carbon offsets?

• What operations strategy (facility location, operating model) provides the best trade-off between cost, service, carbon?

• Is there a role for sustainable factory / facility mgmt?

• Can lean manufacturing and 6-sigma approaches be used to manage carbon?

• Is there a role for Manufacturing Execution Software in the mgmt of carbon?

• What distribution network strategy (facility locations, sizes, transport modes) provides the best tradeoff of cost, service and carbon?

• How can packaging be reduced and recycled?

• What is the impact of increased load consolidation, and is this practical?

• What role can alternative fuel or power sources play?

• How can field service operations reduce carbon footprint with better routing and parts inventory tracking?

• Is there a mechanism to drive continuous design improvement from service back to product design and engineering?

• Are all strategies being employed to reduce landfilled materials: reuse, refurbishing, recycling, secondary markets?

Flows: Product, Process, Information, Cash

SC Strategy Procurement LogisticsIntegrated Ops Integrated Ops

Plan Source Make DeliverDesign Service & End-of-Life

Asset Management

Finance

Sustainable facilities management: Green building & renewable energy; carbon footprint asset management; Asset utilization (Real-time data on energy usage; Carbon dashboard)

Paperwork Reduction; Environmental Cost Accounting; Environmental Tax Benefits Tracking

Suppliers & Manufacturers

Customers & Channels

PLM

Everywhere! Supply Chain activities create significant carbon emissions, making supply chain an important focus for clients seeking to reduce their

carbon footprint

Where is the Carbon in the Supply Chain?



Companies must balance carbon as a new trade-off in the supply chain to succeed in the 21st century

Typical supply chain optimization only considers the direct monetary costs

Different areas of supply chain present different options for becoming more sustainable and managing carbon more effectively

All areas of supply chain are interconnected and dependent on one-another- Local optimization efforts can adversely affect

other supply chain areas- Holistic approach is best for analyzing impact of

carbon

An optimized supply chain in the 21st century quantifies both the cost and the carbon impact of various supply chain policies.

Balancing Cost, Quality, Service and now…Carbon



Illustrative Trade-off Analysis: Quantifying the impact of shipment frequency on cost, inventory replenishment policy and “green”

Inventory

Inventory

Shipment

size

Inventory

Transportation

cost

Carbon in

transportation

Carbon in

warehousing

Vehiclesize

Inventory

Transportation cost

Carbon in

transportation

Carbon in

warehousing

Inventorycost

Inventorycost

Scenario 1LOW shipment frequency

Scenario 2HIGH shipment frequency



Agenda

Case Studies- Leading Manufacturer (US): “Green” Supplier Management- Leading Logistics Provider (China): “Green” Outbound Logistics

2

IBM Carbon Point of View1



Case Study

“Green” Supplier Management



Client Overview- A top global manufacturer

Project Engagement- The overall project utilized IBM’s Carbon Tradeoff Modeler solution to develop the

current carbon footprint of supplier operations- The project team developed new carbon-sensitive supplier strategies by focusing

on:Alternative fuels and delivery modes of suppliers Route and product load modifications

Benefits- Developed strategies to reduce the carbon footprint by over 10% while reducing

supplier management costs

Case Study: Leading US Manufacturer“Green” Supplier Management



This setup will reduce carbon footprintThis setup will reduce transportation costThis setup will reduce miles traveled but increase average inventory

Combine 2 consecutive weekly shipments of item A1 from Supplier A in a bi-weekly shipment of the combined quantities

Preliminary AnalysisPreliminary AnalysisDescriptionDescription

ToTo--BeBeAsAs--IsIs

“Green” Supplier ManagementScenario Analysis # 1 – Same Supplier / Same Item (less miles)

Supplier A Supplier B

A1 A2 A3 B1 B2 B3

Maintown, USA

W/H Plant

Week 1200 Units

Week 2150 Units

Week 3300 Units

Week 4100 Units


A2 A3 B1 B2 B3

Maintown, USA

W/H Plant

Week 1350 Units

Week 3400 Units

A1



This setup will reduce carbon footprintThis setup will reduce transportation costAverage inventory will increase if different shipments dates are combined

Consolidate partial shipments of various items from a particular supplier in a single shipment



“Green” Supplier ManagementScenario Analysis # 2 – Same Supplier / Many Items (less miles)


A1 A2 A3 B1 B2 B3

Maintown, USA

W/H Plant


A2 A3 B1 B2 B3

Maintown, USA

W/H Plant

A1

A3

A3A

1A

1

A2

A2

B 1B 1B 2

B 3

A3

A2

A1

B 1 B2B 3



This setup is likely to reduce total miles traveledThis setup will reduce carbon footprint and transportation costAverage inventory will increase if different shipments dates are combined

Consolidate shipments from various suppliers using a Milkrun approach (applied to logical supplier locations)



“Green” Supplier ManagementScenario Analysis # 3 – Many Suppliers / Many Items

Supplier A

Supplier D

Maintown, USA

W/H Plant

Supplier B

Supplier C

Supplier ESupplier A

Supplier D

Maintown, USA

W/H Plant

Supplier B

Supplier C

Supplier E



“Green” Supplier ManagementScenario Analysis Output

Identify top operational actions based on overall carbon reduction potential

Compare sourcing options by carbon, cost and business metrics



Case Study

“Green” Outbound Logistics



Client Overview- One of the leading logistics providers in China, with a growing global presence

Project Engagement- The project utilized IBM’s Green-SNOW solution to optimize logistics planning

from manufacturing sites to customer delivery- The ongoing “green” logistics project involves the analysis of the current carbon

footprint and developing alternative logistics strategies to reduce carbon emissions.

Tradeoff analysis between carbon, logistics cost and customer serviceAlternative mode and freight consolidation strategies.

Expected Benefits- Reduced number of DCs by 50%; 20%+ saving on regional distribution cost; 6%+

saving on line-haul transportation; 20%+ saving on inventory carrying cost- The operational benefits can be achieved with a 10-15% carbon reduction

Case Study: Leading China Logistics Provider“Green” Outbound Logistics



“Green” Outbound LogisticsBaseline Model: Customer Demand Distribution



“Green” Outbound LogisticsBaseline Model: RDC Layout and Customer Demand Distribution



“Green” Outbound LogisticsBaseline Model: Multi-modes of Logistics Transportation

Line-Haul Transportation Direct Ship

Inter-Warehouse Transfer Secondary Distribution



“Green” Outbound LogisticsProject Results

Green Network Integration and

Optimization

AS-IS

Reduced DCs by 50%Reduced distribution cost by 23% Reduced Line-haul transport expense by 7% Reduced safety stock cost by 23%Potential carbon reduction of 10-15%.

TO-BE

building a green supply chain - dbguide.net · · 2008-10-27gillette samsung electronics sprint...

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