Perspective What do I need to know about environmental issues
to make my business more successful?
Slide 4
Agenda Closed Loop Supply Chains What are they and what are the
business implications Examples from Industry What some companies
are already doing in this area Research TalkIs Leasing Greener Than
Selling? Wrap-up
Slide 5
Traditional Supply Chain Material Production Distribution Use
Ecosystem
Slide 6
So What is a Green Supply Chain?
Slide 7
Problems with Traditional Supply Chain Practices The
Electronics Industry In the U.S. alone, 40 million PCs become
obsolete every year According to the UN, 50 million tones of
e-waste is discarded globally every year Only 20% of this is
recycled, the rest ends up in landfills Of the 20% recycled, 80% is
shipped to developing countries
Hardin, Science (1968) - http://dieoff.org/page95.htm
http://dieoff.org/page95.htm Herdsmen grazing cattle on common
pasture Entire benefit of adding one animal goes to owner
Disbenefit of overgrazing (plant destruction, soil erosion) caused
by adding one more animal is shared by all Each herdsman adds one
more, then one more, . Conclusion: Freedom in a commons brings ruin
to all. Tragedy of the Commons
Slide 13
The commons as the food basket Water, fisheries, timber, etc
The commons as the cesspool Sewage, waste, CO 2 emissions, etc. "So
that's where it all goes! Well, I'd like to thank you fellows for
bringing this to my attention."
Slide 14
The cost of the externality is a function of the system state
There are strong nonlinearities in system dynamics Tragedy of the
Commons time consumption - - - carrying capacity
Slide 15
The cost of the externality is a function of the system state
Tragedy of the Commons time consumption - - - carrying capacity
diminishes The cost of the externality is a function of the system
state There are strong nonlinearities in system dynamics
Slide 16
Newfoundland cod stocks The Atlantic cod stocks off the east
coast of Newfoundland collapsed in 1992, forcing the closure of the
fishery Cost ~$2 billion in income support and retraining Depleted
stocks may not recover even if harvesting is significantly reduced
or eliminated entirely
Slide 17
Can We Learn From Past Mistakes?
Slide 18
Research on CLSCs Closed Loop Supply Chains: New Developments
To Improve The Sustainability Of Business Practices Published April
2010 by Mark E. Ferguson Gilvan C. Souza
Slide 19
Table of Contents PART I: STRATEGIC CONSIDERATIONS 2.Strategic
Issues in Closed-Loop Supply Chains with Remanufacturing MARK
FERGUSON 3. Environmental Legislation on Product Take-Back and
Recovery ATALAY ATASU AND LUK N. VAN WASSENHOVE 4. Product Design
Issues BERT BRAS
Slide 20
Table of Contents PART II: TACTICAL CONSIDERATIONS 5.Designing
the Reverse Logistics Network NECATI ARAS, TAMER BOYACI, AND VEDAT
VERTER 6.Product Acquisition, Grading, and Disposition Decisions
MORITZ FLEISCHMANN, MICHAEL R. GALBRETH, AND GEORGE TAGARAS
7.Production Planning and Control for Remanufacturing GILVAN C.
SOUZA 8.The Market for Remanufactured Products: Empirical Findings
RAVI SUBRAMANIAN
Slide 21
Table of Contents III: INDUSTRY CHARACTERISTICS AND CASE
STUDIES 9.Examples of Existing Profitable Practices in Product
Take-Back and Recovery MARK FERGUSON, GILVAN C. SOUZA, AND L. BERIL
TOKTAY 10.Reuse and Recycling in the Motion Picture Industry
CHARLES J. CORBETT 11.Reverse Supply Chain in Hospitals: Lessons
from Three Case Studies in Montreal RAJESH K. TYAGI, STEPHAN
VACHON, SYLVAIN LANDRY, AND MARTIN BEAULIEU
Slide 22
Table of Contents PART IV: INTERDISCIPLINARY RESEARCH ON
CLOSED-LOOP SUPPLY CHAINS 12.Interdisciplinarity in Closed-Loop
Supply Chain Management Research VISHAL AGRAWAL AND L. BERIL TOKTAY
13.Empirical Studies in Closed-Loop Supply Chains: Can We Source a
Greener Mousetrap? STEPHAN VACHON AND ROBERT D. KLASSEN
14.Conclusion and Future Research Directions MARK FERGUSON AND
GILVAN C. SOUZA
Slide 23
Company Examples of How Sustainable Resource Use can be
Achieved?
Slide 24
Whats Coca-Cola doing? 24 Planet People Profitability
Slide 25
Sustainability Overview 25 Water Reduce, Recycle, Replenish
Energy Reduce, Refrigeration, Refuel Packaging Reduce, Recover,
Reuse
Slide 26
Font: Arial. Title: 228, 30, 43, font size 32. bold. Text:
regular, font size 20 or 16, black Sustainability Lean And
Green
Slide 27
Font: Arial. Title: 228, 30, 43, font size 32. bold. Text:
regular, font size 20 or 16, black Sustainability Lean And Green
Water Stewardship
Slide 28
Groundwater Depletion Extreme Scarcity 10,000 Ocean/ Inland
Water No Data m 3 /person/year 2003 data Source: The Coca-Cola
Company
Slide 29
Water Stewardship 29 Goals & Results Reduce Improve water
use efficiency by 20% by 2012, using 2004 baseline. Lean Management
1.7 liters/liter of product currently. (19% improvement so far)
Tools: Dry lubes, Air rinsers,Can warmers. RecycleRecycle: Return
all water used in mfg process to a level supporting aquatic life by
2010, using stringent wastewater treatment. Closed-loop Now, 88%
percent of facilities met internal treatment standard. Create water
treatment facilities where municipal facility doesnt exist.
ReplenishReplenish Expand support of healthy watersheds and
sustainable community water partnerships, globally. Bottlers must
assess vulnerability of water source & implement water source
protection plan by 2013. Community water partnerships. Over 200
projects in 60 countries. Water footprint Life Cycle
Assessment
Slide 30
Geospatial Analysis of Bottling Plants
waterwiki.net/.../5/.../Coke_Lunch_Presentation_
Brazil_24Jun05_vermeer.ppt Many of Coca-colas bottling plans in
Africa are located in high distress areas.
Slide 31
5 Water Crisis Hits Africa the Hardest April 1, 2005 Business
Thirst for Water Is Unsated August 23, 2004 Nine million Chinese
Face Drinking-Water Shortage April 3, 2005 On World Water Day, One
Billion People Still Lack a Clean Supply March 23, 2005 Water
Scarcity: a looming crisis? December 19, 2004 Bottled Water Plant
Runs into Opposition April 7, 2005 January 31, 2005 India: Fluid
State of Water Battles -Central Coast, Australia Coca-Cola Leaves
Chennai Thirsty April 25, 2005 Times of India
waterwiki.net/.../5/.../Coke_Lunch_Presentation_Brazil_24Jun05_vermeer.ppt
Headlines to the Bottom Line
Slide 32
Font: Arial. Title: 228, 30, 43, font size 32. bold. Text:
regular, font size 20 or 16, black Sustainability Lean And Green
Energy Management
Slide 33
Energy Efficiency GOAL: Reduce the overall carbon footprint of
the business operations by 15% by 2020, compared to 2007 baseline
Reduce: Measuring carbon footprint and reduce - Calculated total
Greenhouse gas emission (GHE) at all countries it operated in 2008
has energy management system in place Life Cycle Assessment Refuel:
Transportation & Facilities / Renewable Energy -630 hybrid
delivery truck in North America in 2010 -A new facility in CA is
pending LEED certification -Piloting solar panels and Apollo Light
Pipes in 3 facilities LEED certification Refrigeration: Vending
machines / Coolers -Placed 1.6 million units with energy management
system in markets around the world (improve energy efficiency up to
35%) - Installed 39,000 of HFC (hydro-fluorocarbon) free cooler in
2009 Pollution prevention and waste reduction 33
Slide 34
Hybrid Electric Vehicle (HEV) ROI Model
Slide 35
Font: Arial. Title: 228, 30, 43, font size 32. bold. Text:
regular, font size 20 or 16, black Sustainability Lean And Green
Packaging
Slide 36
Goals & Results Reduce : Focus on life-cycle management and
advance sustainable design efforts through an initiative known as
e3, eco-efficiency, life-cycle effectiveness and eco-innovation.
Waste reduction and pollution prevention Recover : Design packages
to be recycled and invest in programs that enable their recovery.
Design for environment Recove Reuse : Use advance technologies to
greater amounts of recycled materials. Recycling and reuse Re
36
Slide 37
Font: Arial. Title: 228, 30, 43, font size 32. bold. Text:
regular, font size 20 or 16, black Productivity The Fuel For Growth
Lightweighting
Slide 38
Font: Arial. Title: 228, 30, 43, font size 32. bold. Text:
regular, font size 20 or 16, black Sustainability Enhancing Brand
Value Sustainable Packaging
Slide 39
Remanufacturing in the US Remanufacturing is a $53 B industry
in the US. e.g. motor vehicle parts, office furniture, engines,
tires, copiers, cell phones, heavy equipment, PCs, toner
cartridges, single- use cameras 73,000 firms, 480000 direct
employment. Both OEMs and third-party firms remanufacture.
http://www.remancentral.com/about_reman_industry.htm
Slide 40
Slide 41
Slide 42
Slide 43
Slide 44
IBM Global Asset Recovery Solutions Some Figures: Annual
collection volume > 1M machines 85% reutilized, refurbished,
resold Annual end-of-life + waste volume processed > 50,000t
Annual recycling volume > 18,000t Billions $ of revenues from
equipment, parts, and material sales
Slide 45
Caterpillar: Remanufacturing Division Remanufacturing Business
Model: 200 dealers keep close tab on customers Customers get 50%
discount for returning an old part Receives about 2M old parts per
year Approximately $2B in sales in 2007 The remanufacturing
division is Caterpillars fastest growing division
Slide 46
Wal-Marts Commitment to Sustainability 1.To be supplied 100% by
renewable energy 2.To create zero waste 3.To sell products that
sustain our resources and the environment Wal-Mart CEO Lee Scott,
October 2005
Slide 47
What ARE the Sources of Business Value? Wal-Mart CEO Lee Scott,
October 2005 Being a good steward of the environment and being
profitable are not mutually exclusive. They are one and the
same.
Slide 48
Wal-Marts Sources of Business Value 1.Cost reduction
2.Assurance of supply 3.Improved supply chain visibility
rationalization 4.Assistance from environmental NGOs 5.Positive
press Ability to open new stores 6.Voice with regulators 7.New
sources of revenue 8.Attract and motivate employees
Slide 49
Interface Carpet Recycling
Slide 50
Challenge: 95% of all carpet ends up in a landfill
Slide 51
Designed a Carpet Nylon Separation Process
Slide 52
Nylon is converted into raw material pellets Interface becomes
a supplier to their supplier
Slide 53
But where does Interface obtain a supply of used carpets?
Evergreen Lease: Leasing carpet rather than selling it and being
responsible for it cradle to cradle is the future. (1996)
Slide 54
Is Leasing Greener than Selling? Vishal Agrawal Mark Ferguson
Valerie Thomas Beril Toktay
Slide 55
Enterprise Strategies for Sustainable Operations Raw Materials
Production Distribution Use Disposal Reduce Reuse Recycle
Slide 56
Motivation Evergreen Lease: Leasing carpet rather than selling
it and being responsible for it cradle to cradle is the future.
(1996) product reuse extends the useful life of equipment,
especially at the end of leasing agreements when consumers return
products... Xeroxs Green Line: refurbished off-lease products
Promoted by U. S. EPA, NYC Government and State of Minnesota.
Reduce Reuse Recycle
Slide 57
Motivation Arguments against Leasing Premature disposal due to
cannibalization concerns. What about environmental impact due to
the production and use phases? Is leasing more profitable than
selling? What is the profit-maximizing strategy and when can it
also be environmentally superior?
Slide 58
Related Literature and Contribution Durable Goods: Focuses only
on profitability of leasing and selling. Coase (1972), Stokey
(1981), Waldman (1997), Desai & Purohit (1998,1999), Huang et.
al (2001), Bhaskaran and Gilbert (2005,2009). Closed-Loop Supply
Chains: Focuses only on selling. Majumder and Groenevelt (2001),
Debo et al. (2005), Ferrer and Swaminathan (2006), Guide et. al
(2006),Ferguson and Toktay (2006), Atasu et al. (2008), Guide and
van Wassenhove (2009). Environmental Strategy and Industrial
Ecology: Only focuses on the environmental performance of a single
unit. Hawken et al. (1999), Lifset & Lindhqvist (2000),
Fishbein et al. (2000)
Slide 59
The Model We compare a pure leasing strategy with a pure
selling strategy. Product has a useful life time of two periods.
Discrete-time, Infinite Horizon, Dynamic game. Under leasing,
operating lease of one period duration. Under selling, there is an
independent secondary market. Cost of producing a new product is c.
Remarketing and Transaction costs are normalized to zero.
Slide 60
Key Differences between Leasing and Selling Consumers
End-of-life products Used products Used product leases New product
leases Consumers New Product sales Secondary Market Leasing firm
Selling firm Disposal pays Disposal pays
Slide 61
The Consumer Model Forward-looking and Heterogeneous consumers.
Consumer type denoted by Per-period Gross Utility New Product Used
Product Product durability
Slide 62
Unique steady-state policy where premature disposal is optimal
if Analysis: Leasing Strategy N U I Customers Problem Firms Problem
Demand Functions
Slide 63
Analysis: Selling Strategy Firms Problem Customers Problem N U
I N U I
Slide 64
Analysis: Selling Strategy Restricting to time-independent
Markov Perfect Equilibrium or Focal Point N U I N U I
Slide 65
Lease or Sell: Profit-Maximizing Strategy Effective Cost under
Firm Disposal Effective Cost under Consumer Disposal Full
Remarketing under Leasing Premature Disposal under Leasing
Slide 66
Lease or Sell: Profit-Maximizing Strategy Effective Cost under
Firm Disposal Effective Cost under Consumer Disposal Full
Remarketing under Leasing Premature Disposal under Leasing Leasing
Selling 96 08
Slide 67
Total Life-Cycle Environmental Impact Impact/unit CO 2 equiv.
So x No x Energy Use Raw Materials Use Hazardous Waste Water Use..
.. ProductionUse Disposal Impact/unit Williams and Sasaki (2003),
Williams (2005), Udo de Haes (2006), Apple (2009) Apple MacBook 530
kg of CO 2 e Desktop Computer 3160 kWh ECO-99 Total Environmental
Impact under Leasing Total Environmental Impact under Selling
Slide 68
Total Life-Cycle Environmental Impact Impact/unit ProductionUse
Disposal Impact/unit
Slide 69
Lease or Sell: Environmentally Superior Strategy Effective Cost
under Firm Disposal Effective Cost under Consumer Disposal Full
Remarketing under Leasing Premature Disposal under Leasing
Slide 70
Lease or Sell: Environmentally Superior Strategy Effective Cost
under Firm Disposal Effective Cost under Consumer Disposal Full
Remarketing under Leasing Premature Disposal under Leasing Lease
for any U
Slide 71
Lease or Sell: Environmentally Superior Strategy Effective Cost
under Firm Disposal Effective Cost under Consumer Disposal Full
Remarketing under Leasing Premature Disposal under Leasing Sell for
any U
Slide 72
Lease or Sell: Environmentally Superior Strategy Effective Cost
under Firm Disposal Effective Cost under Consumer Disposal Full
Remarketing under Leasing Premature Disposal under Leasing Lease
for any U Depends on U Sell for any U
Slide 73
When is Leasing a Win-Win Strategy? Effective Cost under Firm
Disposal Effective Cost under Consumer Disposal Full Remarketing
under Leasing Premature Disposal under Leasing Lease i.e., products
with high use impact.
Slide 74
Sell When is Selling a Win-Win Strategy? Effective Cost under
Firm Disposal Effective Cost under Consumer Disposal Full
Remarketing under Leasing Premature Disposal under Leasing Sell
i.e., products with high non-use impact.
Slide 75
When is the Profit-Maximizing Strategy also Greener? Effective
Cost under Firm Disposal Effective Cost under Consumer Disposal
Full Remarketing under Leasing Premature Disposal under Leasing
Never Win- Win
Slide 76
Extensions II. Differential per-unit impact. IIII. Moral hazard
or Remanufacturing under Leasing. IIIIII. Aggregate Consumer
Surplus LS Effective cost under Leasing Effective cost under
Selling Win-Win Strategies
Slide 77
Extension Ia: Differential Use Impact Use impact of an old
product may be higher than a new product. LS Effective cost under
Leasing Effective cost under Selling
Slide 78
Extension Ib: Differential Disposal Impact Disposal by the
consumer may be worse for the environment than disposal by the
firm. LS L Effective cost under Leasing Effective cost under
Selling
Slide 79
Extension IIa: Moral Hazard under Leasing Value of off-lease
products may be lower due to rougher use. LS S Effective cost under
Leasing Effective cost under Selling
Slide 80
Extension IIb: Remanufacturing under Leasing Remanufacturing
may improve the value of off-lease products. LS L Effective cost
under Leasing Effective cost under Selling
Slide 81
Extension III: Aggregate Consumer Surplus Which strategy has
higher aggregate consumer surplus? If a strategy has higher profit
and lower environmental impact, it also has higher consumer
surplus. Win-Win-Win! LS Effective cost under Leasing Effective
cost under Selling Selling Leasing
Slide 82
Conclusions The remarketing level is not a good proxy for the
environmental performance of leasing. Disposal cost is an important
driver of the firms choice. Leasing can be a win-win strategy for
products with high use impact and selling for products with high
production and disposal impact.
Slide 83
Some Resources Ecological Footprint -
http://www.footprintnetwork.org/http://www.footprintnetwork.org/
Union of Concerned Scientists - http://www.ucsusa.org/publications/
http://www.ucsusa.org/publications/ Global Reporting Initiative -
http://www.globalreporting.org/Home
http://www.globalreporting.org/Home Dow Jones Sustainability Index
- http://www.sustainability-index.com/
http://www.sustainability-index.com/ Ethibel Sustainability Index -
http://www.ethibel.org/subs_e/4_index/main.html
http://www.ethibel.org/subs_e/4_index/main.html Environmental
Sustainability Index - http://www.yale.edu/esi/
http://www.yale.edu/esi/
