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Towards building a sustainable economy with the ‘Triple Supply Chain’
Articles- Nov 24,23
The increased consciousness of corporate management of the harm done due to unbridled, uncontrolled growth has now put the brakes on waste and inefficiency. Overall, the sustainability movement has led to significant new developments in the handling of supply chains, as well as processes, says R Jayaraman.
By now, the sustainability development goals (SDGs), declared by the United Nations, have been well understood, and being actioned in many spheres. Water conservation, energy conservation, waste reduction and avoidance, and many such measures have been taken up. In industrial organisations, reducing consumption, improving productivity, maximising usage of space and adopting lean management principles have all been introduced. The Circular Economy (CE) is one such initiative at the aggregate level, to reduce, reuse and recycle (or the 3Rs, for short) materials. Specifically, it is a commercial effort to conduct operations in a way that improves the overall economy of the organisation, by adopting the 3R’s principle.
In general, any organisation can be represented by the universal value chain diagram (refer Figure 1).
Sustainability has changed this whole setup by the inclusion of sustainable operations. Firstly, the whole value chain is now in an envelope called ‘sustainability’, indicating that each and every part of the value chain is subject to sustainability scrutiny. For example, inputs have now subject to the ‘Green Scrutiny’, in-process variables like consumables, utilities, manpower are subject to strictly monitored usage norms as well as productivity norms which include a ‘Green Scrutiny’, to ensure that the suppliers ‘Go Green’. Similarly, the outputs are also subject to sustainability check and inspection, with specifications being modified to include sustainability aspects, like, green packaging, returnability and reusability warranties.
In the second instance the whole value chain has undergone a change, as shown in Figure 2.
The sustainability movement has increased the focus on supply chains, as well as the processes themselves which produce the outputs. Outputs can vary, depending on whether an organisation is a manufacturing company or in the service industry. For the sake of convenience, we will deal with manufacturing. The principles will remain the same for the other industries also. As is evident, the focus is on three supply chains, which serve the organisation. This focus-based view allows to us to take a new look at how to practice sustainability. And this is the new ’Triple Supply Chain’ view for sustainability. This view makes it easier to visualise the activities to be undertaken by a company to accelerate its addressal of sustainability.
The input supply chain is amenable to ‘Green’ practices. Also, the practice of JIT will lead to waste reduction and optimisation of resource usage. Due to the frequent replenishments at the user end, and, typically, smaller batches of production, storage space requirements will reduce, lower production volumes and inventories will lead to minimal working capital, and loss due to theft, misplacement, wrong despatches etc. Through the use of vendor scorecards, transactional relationships with vendors can be progressed to strategic partnerships, thereby bringing in the long-term view, which will optimise planned capacity increases and product designs and tooling.
Using the Toyota practice of ‘Sensei’, companies can practice continuous improvement to create a win-win situation, instead of a win-lose proposition. The input supply chain is often used as a dumping ground for catering to further downstream process inefficiencies. Hence, instead of only improving the downstream processes, one can also trigger improvement and optimisation by increasing input efficiencies. Industry 4.0 applications cover the input supply chain more extensively than the distribution chain ahead of the output. The logic is that making changes in the input stage can reduce the burden of catering to value added operations which then get stuck in the value chain, for which the working capital need will be higher. If at all, working capital is to get stuck, it would be better to keep the input end buffered, and the velocity of conversion is accelerated.
Using industry 4.0 in the input supply chain can result in closer, monitored, interactions with vendors will reduce wastage, loss of materials, and increase the chances of practising efficiency. For example, close contact between vendor and user can avoid overproduction at the vendors, with the lower in-process inventories leading to lower material loss, reduced working capital and cleaner shop floors.
In the in-process supply chain, typically, the most critical supplies are water, power, lubricants, machine spares, lubricants, etc. Of these the power is a key ingredient. The current focus is on reducing/ converting to friendly fuels usage for power. Companies are either installing their own solar panels or asking suppliers to supply from non-fossil fuel materials. This has led to the usage of LED bulbs, transparent factory roofing, and solar powered operations. Similarly, water conservation, rain water harvesting, creation of recirculating water ponds have all been given a push. Many companies are working towards net-zero operations. As well as low to nil effluents.
In the process area, greater levels of automation, use of AI and ML to control machine activities, using IIOT to improve co-ordinated production, and industry 4.0 practices, such as, data analytics, using SCADA devices to gather and control data from all over the plant through electronic sensors, using a central control room with mimic boards to make decisions on a continuous basis, and using lean management practices, all lead to lower levels of waste and higher efficiency.
The next area is the ‘output supply chain’, which is usually the distribution, warehousing, and retailing. In each of these areas, Industry 4.0 applications, such as, continuously monitored dispatches, TOC driven replenishment planning, POS information and data gathering, to be processed along with social media data analytics, have led to considerable reduction of waste. Lower levels of inventory lead to lower working capital locked up. And fewer recalls, fewer waste of unsold products, which then have to be disposed off at a loss, etc.
Overall, the sustainability movement has led to significant new developments in the handling of supply chains, as well as processes. The increased consciousness of corporate management of the harm done due to unbridled, uncontrolled growth has now put the brakes on waste and inefficiency. The advent of Industry 4.0 has enabled the increased usage of new technologies like 3D printing, IOT, data analytics to control and guide manufacturing operations to use environment friendly technologies. For example, the world is certainly a better place due to the replacement of IC engine driven cars by EV. Increased usage of ‘hybrid’ vehicles. Part shipments being accepted by 3PL operators. Increasing usage of milk-run based supplies for retail consumer businesses.
Some concepts which could be examined by industry in the future could be: smaller is less pollutive and more sustainable, distributed manufacturing is better than massive manufacturing in one location (especially with the coming into vogue of 3D printing). McDonald’s, KFC, Starbucks, are all some of the examples. The future is full of possibilities.
About the author:
R Jayaraman is the Head, Capstone Projects, at Bhavan's S P Jain Institute of Management & Research (SPJIMR). He has worked in several capacities, including Tata Steel, for over 30 years. He has authored over 60 papers in academic and techno economic journals in India and abroad. Jayaraman is a qualified and trained Malcolm Baldrige and EFQM Business Model Lead Assessor.
Circular Economy
recycle
sustainable economy
Triple Supply Chain
sustainability
R Jayaraman
SDGs
Industry 4.0
electric vehicle
S P Jain Institute of Management & Research
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