09/23/09

Reduce Supply Chain Carbon Footprint

A green supply chain is like a mystery. The idea always conjures images of a higher cost and investment to the business. However, is that really the case? Will companies need to spend more to be green? How can green initiatives drive financial and social benefits? I hope my short article can answer these questions. In my last article, I discussed the approach to collect data in the supply chain to quantify carbon emissions. Once we can quantify and start measuring the carbon footprint of the company’s supply chain, we can find ways to reduce it and measure their improvement.

Before I start discussing the possible solutions, I would like also to express my opinion for the recent trend of using “green” as a reason to call for nationalization or deglobalization. The trend suggests that manufacturers should be moved back to the U.S. to shorten the supply chain distance thus reducing the carbon footprint. I agree that a short supply chain close to production or the end consumers can be beneficial in some cases, such as the JIT practice. However, according to IEA, International Energy Agency, international shipping accounts for approximately 2.7% of world CO2 emissions, which is small relative to the benefits brought by global trade.  Hence it’s not the reason to prevent globalization and international trade. I’m a strong believer of “competitive advantage”, which is the way to promote global welfare and technological development. “Green” initiatives should focus on innovation and waste reduction, in either technology or process. “Green” shouldn’t be used for a political reason and incur more costs for the whole society. According to the North American Supply Chain Carbon & Sustainability report, moving production closer to home is 12% of all environmental initiatives. Practically, companies will be interested in the green initiatives only when they are able to achieve a lower financial cost and a better customer satisfaction at the same time. That is true that companies can develop products more environmentally friendly and some consumers are willing to pay a premium for the green contents, such as for a Toyota Prius. However, the majority of consumers are not ready to pay more for green, especially for commodities. Hence, to enhance a company’s competitiveness, the approaches to reduce the carbon footprint of the supply chain should also aim to drive cost efficiency and customer satisfaction.

Just like the total cost analysis for supply chain, there are many trade-off decisions to be made in green supply chain optimization, and the goal is to maximize carbon emissions reduction. I’d like to suggest the environmental initiatives from supply chain functions’ point of view, represented in the below matrix.

green initiatives

As we can see, many of those initiatives are day-to-day initiatives and process improvement activities to drive operational efficiency, increase recycling, reduce waste, and enhance communication and visibility in the supply chain. Hence, the outcome of the green initiatives not only improve operational effectiveness of balancing costs and service, but also reduce the carbon footprint from movements, spaces and materials in the supply chain. A “green” KPI or measurement enables companies to associate the positive financial results to the carbon footprint reduction. Once the mystery of “green” is discovered, the cost of green initiatives won’t become an implementation barrier and companies can benefit from quick financial and social return from those initiatives. As a result, the “green” strategy is not just a social responsibility. It becomes the “sustainable” and “desirable” strategy for any company.

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06/24/09

From Coffee to Business Process Improvement: A Story of Office Coffee

Employees on the third floor were not happy, especially in the early morning. The coffee kettles, two for regular and one for decaf, in the breakroom were always empty! It’s almost unacceptable for an anxious coffee drinker to wait even five minutes for a freshly brewed cup in the morning. Even worse was that there are others waiting in line in front of you so you might even need to wait for the next kettle to brew. So, people are cranky, unhappy, and even cursing because coffee was not available when people needed it. Time is money, but without coffee in the morning, work won’t be efficient!

It’s totally a supply chain breakdown issue, so a few Six Sigma Black Belts set out on a mission to fix it. The new process is focused on regular coffee because there is much less demand for decaf. Many sigma tools can be applied in this analysis, such as normality analysis of waiting time per person, fishbone analysis, Pareto, regression and correlation analysis between waiting time vs. office hours. A typical six formula can be developed such as Y(coffee waiting time)=Xs of (number of kettles, office hours, number of  coffee addicts, coffee grounds and filter availability, etc. )

According to the rumor, there were quite a lot of hours involved with group brainstorm and heated discussion among Black Belts. A rather complicated new coffee making process, which is like the two-bin system of supply chain management, was produced. The company generously paid for a big desktop mat with nicely printed color coded flow and process. Below is my simplified version to illustrate the idea.

Coffee Making Process

The mat was placed in front of the coffee kettles so it’s very eye catching for everyone serving coffee. The kettles were also relabeled with clear signs of “regular” vs. “decaf”. People were laughing at the change. Many felt it’s a waste of resources in designing the process and printing the mat, but people started to follow the process flow. You know what? The fresh coffee availability was much more improved! The chances of being out of coffee in the early morning were decreased dramatically. Whoever craved coffee in the early morning could now be blissfully caffeinated. Yes, there were still times of process breakdown when a few were not following the process to make a new kettle when the first one was empty, or coffee availability tends to be lower in the afternoon. But overall, the situation is getting better and employees on the third floor were happier. The company was happier too, by investing a little bit of printing cost, the total office productivity improved!

It’s a coffee making process implementation in the office breakroom, but it reflects some supply chain, LEAN and business process improvement disciplines and practices:

  1. When a two-bin replenish system is implemented, the re-ordering process, when and how, is the key to maintaining high stock availability.
  2. Obvious signs, colors or labels are always useful in LEAN implementation.
  3. When a change is implemented, it’s not always welcomed at the beginning. Change management may be necessary in many cases.
  4. Any process improvement opportunity should be encouraged. It might be a small improvement but result in a huge increase of customer satisfaction.
  5. I think the Human Factor is the most import learning from the office coffee making process. Human factor is the most critical X in Y, no matter if the Y is fresh coffee waiting-time in the office, or products availability for our consumers. A well-designed process can be easily broken because of human manipulation and interruption. The coffee making process relies on many individual coffee drinkers to brew coffee when the first one is empty. Like any processes in the real business world, the expected outcome of a well-designed process relies on many individual employees consistently following instructions. For many manual processes, training and retraining are always required for process enforcement in order to achieve the same standard outcome. Cross-functional communications are always critical to make sure information flows properly and that following the steps can be executed in a timely manner. On the other hand, employees are those who will develop continuous improvement opportunities to streamline processes to achieve better result with a shorter lead-time.

OK, enough learning from this office coffee process. Now it’s time for me to make a coffee for myself at home. Waiting time: 2 minutes.

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