A Greener And Leaner Supply Chain {Fiu 19 20 Feb 2009}

© Copyright IBM Corporation 2009

Thoughts on Carbon as the New MudaThoughts on Carbon as the New Muda


About the Presenter

2

Mondher Ben-Hamida, CPIM, CSCPAssociate Partner / Global Electronics SME

IBM GBS Supply Chain Strategy Practice

EducationEducationEducation1997

1995

Master of Science in Industrial Engineering and Operations Research, University of Minnesota, Minneapolis, MN, USA.

Master of Engineering in Industrial Engineering, ENIT, Tunis, Tunisia

LanguagesLanguagesLanguages• English• French• Italian• Arabic

FluentFluentFluentFluent

SpecializationSpecializationSpecialization• Supply Chain Strategy• Global Issues in SCM• Enterprise Sustainability• Advanced Planning Tools

Experience OverviewExperience OverviewExperience OverviewMondher is an Associate Partner in the IBM Supply Chain Strategy group. The practice is responsible for providing strategic and operational guidance to senior executives within client organizations. Mondher is an Industrial Engineer and a Global Supply Chain Strategist with over 13 years of global management and manufacturing consulting experience. Primary focus has been the design and implementation of Supply Chain Management strategies and tools, Advanced Planning and Scheduling solutions and Theory-Of- Constraints initiatives. Mondher is a frequent speaker at various supply chain events (APICS, SCC, AMR, etc.) and has published a number of articles on various topics ranging from supply chain strategy to reducing the environmental impact of logistics operations. He is also a co-inventor of a supply chain carbon modeling tool (patent pending). Mondher is a universal citizen and his passion for solving global supply chain problems along with his fluency in 4 languages has led him to operate in four continents

Sample EngagementsSample EngagementsSample Engagements• Helped one of the world’s largest fabless companies (wireless phone chip segment) define and

implement a comprehensive supply chain collaboration model (VMI, Consignment and Schedule Sharing) with three of its most strategic customers on 3 continents.

• Led a major supply chain strategy definition for one of Europe’s largest industrial conglomerates. Activities included assessing state of current operations model, compiling and documenting appropriate best practices and devising a novel supply chain vision that is customer centric (secured agreement on a new market segmentation) and emphasizes the agreed upon core competency (fulfillment).

• Led a major supply chain strategy redesign effort at McDonald’s. This executive level initiative assessed competitive trends and provided a global vision for the future supply chain integration model along with a ‘playbook’ of practical steps to achieve the vision

• Selected by AMR Research as an SME and voting panelist for the 2007 World’s Top 25 Supply Chains

• Served as the Make Best Practices Lead and co-author of SCOR 7.0


Objectives

Provide an overview of the Green challenge global companies are (or will

be) facing

Provide an overview of the Green challenge global companies are (or will

be) facing

Provide an overview of the dynamics between environmental goals and

operational realities

Provide an overview of the dynamics between environmental goals and

operational realities

Provide an Overview of IBM’s approach to tackling the green challengeProvide an Overview of IBM’s approach to tackling the green challenge

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222

333

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Overview

The ImperativeThe Imperative The RealityThe Reality

The Question

Can Lean and Green co‐exist?

The QuestionThe Question

Can Lean and Green coCan Lean and Green co‐‐exist?exist?

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CEO focus on environmental issues has doubled

•

Corporate social responsibility rises on

the CEO agenda

–

The only three external forces

consistently rising on CEOs’

agendas

are all linked to corporate social

responsibility (CSR)

–

CEO focus on environmental issues

has doubled globally with strong

differentiation between Geos

9%12%

42%

12%15%

44%

18% 17%

48%

EnvironmentalIssues

Socio-EconomicFactors

People Skills

200420062008

Source: IBM CEO Study 2008, n = 1,130

External forces impacting the organization

5 out of 6 CEOs no longer agree with Nobel economist Milton Friedman’s view that the

sole purpose of business is to increase profits.

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Incorporates the

company's value

system and/or

code of conduct

to guide business

behavior

Incorporates the

company's value

system and/or

code of conduct

to guide business

behavior

Access to new

markets, new

partnerships or

product/service

innovations that

generate

revenue

Access to new

markets, new

partnerships or

product/service

innovations that

generate

revenue

Adherence to

law in the

countries of

production,

operation and

distribution

Adherence to

law in the

countries of

production,

operation and

distribution

Measurable cost

savings through

efficient or win‐

win scenarios

Measurable cost

savings through

efficient or win‐

win scenarios

Alignment of

charitable

activities with

social issues that

support business

objectives

Alignment of

charitable

activities with

social issues that

support business

objectives

Values-based Self Regulation

Growth Platform

Legal & Compliance

Efficiency

Strategic Philanthropy

e.g. Operational

Carbon Management

Cost Return

There is a shift from cost to return as we ascend the value curve

Help your customers

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The Four Key Pressures on Organizations

Global Pressures• Increasing regulatory

requirements, many enforced globally

• Carbon credits & trading

Regional / Local Pressures• EU/Germany lead the agenda

for CO2 reduction• Exit of Nuclear Power

generation in Germany• EU Regulation for energy

using products implementing measures under study

Global Pressures• Customers environmentally

aware• Greater demand for more

environmentally preferable products and services

Regional / Local Pressures• Corporate policy extending

beyond the bounds of law, high efficiency is a basic requirement

• Premiums start at higher costs• Local talent management

Global Pressures• Rising energy, raw

materials and waste management costs

• Scarcity of resources• Risk from adverse weather

Regional / Local Pressures• Exchange rate $ vs. EUR and

‘export’• Higher ‘eco’ tax in Germany• Source of local supply and

security of source

Global Pressures• Customers increasing

demand for environmentally preferable products and services

• Operational efficiencies

Regional / Local Pressures• Availability for resources• Local competitors

Organisation

Laws, Regulation, StandardsTo reduce emissions of greenhouse gases such as the EU Emissions Trading Scheme, Climate Change Levy or Building Regulations

Stakeholder PressuresFrom investors, market and financial analysts, employees, consumers or NGO’s about the environmental and economic consequences of climate change

Costs Rising costs of energy, transport, waste disposal and raw materials; risks for physical assets due to climate change / global warming

New Business Developments in markets, knowledge and new technologies, which enable business to cut their carbon emissions while increasing productivity and finding potential new revenue opportunities

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Green InitiativesGreen Initiatives

Concept

Design

Sourcing & Procurement

Manufacturing

Supply Chain Logistics Product

Availability Sell

Service & Repair

Disposal

Recycle/ Reuse

Product Introduction Product End-of-Life

Inverse

Manufacturing

Inverse

Manufacturing

Recycling Recycling

eco‐design & Sustainabilityeco‐design & Sustainability

Take‐back LogisticsTake‐back Logistics

Greening the Supply Chain Greening the Supply Chain

Green Factories Green Factories

eco‐communicationeco‐communication

eco‐management eco‐management

Refurbishment and Re‐use

Refurbishment and Re‐use

Also Green IT… Carbon Management … Water Management

In response, Industrial Sector companies are implementing Green Initiatives, especially within the areas of PLM and SCM.

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Epson’s Green Factory 2010 Project will reduce production energy consumption through scalable minimum Fabs

Sharp will upgrade all their plants into green factories via their 10-step green factory concept

Panasonic aims for zero emission clean factories

Ricoh will reduce CO2 emissions by 12%, far exceeding the pace agreed to in the Kyoto Protocol

Fujitsu’s Green Policy 21 Themes include: Green Factory, Green Management, Green Products, Green Solutions, Green Earth

Mitsubishi Electric uses their procurement and green factory policies to make a clear difference on the environment by eliminating the use of hazardous substances through the product lifecycle

Canon has established an eco-factory certification system and is expanding this globallyTop 5 Basic Sustainability Categories for Manufacturers:●

Material selection

●

Sourcing policies

●

Resource consumption and emissions

●

End-of-life postponement and management

●

Customer demand and fulfillmentSource: “Making Sustainability Real”, IDC Company #MI211085, March 2008

For example, many Japan-based Electronics companies are reducing energy needs & CO2

emissions via Green Factories and Green Products.

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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?

•Design for the Environment

•Carbon footprint thinking throughout product lifecycle design

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

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

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

•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?

•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?

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

•Feedback loop to engineering to reduce impact

•Various strategies to reduce impact throughout lifecycle

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

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Introducing the IBM Carbon Distribution ModelCarbon Analysis needs to be seen from a total Product Lifecycle View

IBM SCM Carbon Distribution Model™Phased Product Lifecycle View

Design & Sourcing

Inbound Logistics

InternalOperations

OutboundLogistics

Service and Use

Time

Our goal can be formulated rather simply:Lower the outer edge

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Sustainable Supplier Strategy Development

Volume

DistanceCarbon Impact

Unit Cost

Mexico

China

AsAs--IsIs

ToTo--BeBe

New “Green”

Value Equation = Actual Cost (Production + Transportation) + Corresponding Carbon Cost

ABC, IncABC, Inc

Classic Value Equation = Least Production Cost despite the Transportation Cost

ABC

ABC

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CO2 Tons

Sourcing Options

0.700.5

1.0

1.5

2.0

2.5

1.72

0.49

1.46

0.25

1.06

Transportation Manufacturing Technology

Δ = 1.1T

Source:2006 IPCC Guidelines for National Greenhouse Gas Inventories

Asia / Pacific Europe North America

The Sourcing Strategy Articulation –

Carbon, Technology & Distance

Tons of CO2 per 1 Ton of Steel sourced from various locations / manufacturing technologies

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The Need to Embrace Carbon as a New Decision Variable


Some Intriguing Analysis from CIBC That Corroborates some of the IBM findings

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Network Optimization Strategy

Market Demand Potential DC Locations

Classic Optimization ApproachMinimize Total Cost – select DC’s so as to minimize the total DC and transportation

costs of meeting demands

Green Optimization ApproachMinimize CO2 Emissions – objective function

changes from minimization of total cost to minimization of total CO2 emissions (equivalently, total miles traveled)

Demand Volume DC Location

Vs.

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Helping a Network become Leaner and Greener

100 DC’s100 DC100 DC’’ss 40 DC’s40 DC40 DC’’ss

Logistics $’s

CO2Emissions


A Value Chain Network View

Carbon Reduction Needs to be a Value Chain Affair

PrevailingView

IBM View

Leverage ++––

What is a fabless company Carbon Footprint?What is its environmental responsibility?

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Noise in the Supply Chain is Neither Lean nor Green

The Carbon Reverse Bullwhip Effect

Extended Supply Chain ViewExtended Supply Chain ViewE

nd Custom

ers

Suppliers RetailersPlants

Caron Buildup Process

Classic Bullwhip

Effect

True Customer Demand

Inventory Produced

Amount of Inventory

Inefficiencies

CarbonProduced

Amount of Carbon

Inefficiencies

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Across Your Entire Supply ChainAcross Your Entire Supply Chain


12 Ideas to Make Your Supply Chain Greener

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Exploring the Ideas

Redesign the product Reconfigure Manufacturing Shift to Green Suppliers

Shorten Distances Alter service-level agreements Shrink packaging

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Exploring the Ideas (continued)

Plan for reverse supply chain activity Consolidate shipments Plan smaller routes

Start now: define a green strategyTake a life-cycle viewCoordinate with partners

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Operational Scenario # 1

Quantifying the impact of shipment frequency on cost and carbon can help establish a greener inventory replenishment policy

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Shipment frequency InventoryInventory Transp. costTransp. cost Carbon in

Transp.

Carbon in

Transp.Carbon in

Warehousing

Carbon in

WarehousingInventory

cost

Inventory cost

Scenario 1• LOW

shipment frequency• HIGH

shipment size

Scenario 2• HIGH

shipment frequency• LOW

shipment size

InventoryInventory

InventoryInventory

© Copyright IBM Corporation 2009 25

Supplier 1• LOW

price• LONG

distance

Supplier 2• HIGH price• SHORT distance

Supplier choice Component

Cost

Component

CostCarbon in

Warehousing

Carbon in

WarehousingCarbon in

Transp.

Carbon in

Transp.InventoryInventoryTransp. costTransp. cost


Supplier choice can impact component cost, carbon emission, and inventory all of which can be quantified to support a green procurement strategy

InventoryInventory

InventoryInventory



Some levers such as better routing can create a win-win case for both reducing carbon and cost in the supply chain

Efficient routing

Inefficient routing

Carbon in

Transp.

Carbon in

Transp.Carbon in

warehousing

Carbon in

warehousingInventoryInventoryTransp. costTransp. costRouting efficiency

InventoryInventory

InventoryInventory


An Overview of our Thinking and CapabilitiesAn Overview of our Thinking and Capabilities


IBM’s Environmental Heritage

1971IBM formally establishes a corporate policy on Environmental Affairs

1996In remarks at a White House briefing on climate change, Vice President Gore app- lauded IBM's new PFC emissions reduction goal.

1992IBM becomes

charter member of EnergyStar program

2005IBMers "jam" on innovations for a

better planet, and IBM invests $20M

Big Green InnovationsIntelligent Utility Network

"These developments send a strong message: A healthy environment and a healthy economy go hand in hand," the Vice President said. "Through technology and innovation, we can turn this challenge into a huge opportunity for business and for America. And the sooner we act, the easier it will be."

1990Start measuring

global greenhouse gas emissions

2000Charter member of

World Wildlife Fund's Climate Savers Program

Reduction in IBM’s total worldwide CO2 emissions attributable solely to its energy conservation efforts between 1990 and 2005.40%

2000Charter member of World Resources Institute's Green Power Market Development Group

2003Charter member of Chicago Climate Exchange®

2007Founding member of The Green GridSM

2006Qualifies for and joins U.S. EPA's Green Power Partnership; also joins EPA SmartWaySM

Transport Partnership 2002Charter member of U.S. EPA's Climate Leaders program

Saved more than $100M since 1998 by conserving energy

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Illustrating IBM’s Three Step Approach1 2 3

Between 1990 and 2007, IBM’s global

energy conservation actions reduced or avoided CO2 emissions by an amount equal to 45% of our 1990 emissions.

New goal: to extend the above achievement by reducing CO2 emissions by 12% between 2005 and 2012.

45%45%45%

First company to receive U.S. EPA’s Climate Protection Award twice.

First in the semi-conductor manufacturing industry to establish numeric goal for reducing PFC emissions.

First in ComputerWorld’s Top 12 Green IT vendors.

Charter memberships in World Wildlife Fund's Climate Savers program, World Resources Institute's Green Power Market Development Group, U.S. EPA Climate Leaders and Chicago Climate Exchange

Member of U.S. EPA’s SmartWay Transport Partnership and Green Grid Consortium

17yrs17yrs17yrs 1st1st1st

Annual corporate environmental reports released every year since 1990

U.S. Dept. of Energy's Voluntary Greenhouse Gas Emissions Reporting for 13 years (since inception)

Reported to the Carbon Disclosure Project for 5 years (since inception)

‘Stewardship’ IBM’s actions for climate protection (PDF on ibm.com)

Set substantive goalsEffective global goals should document integrated results from across all aspects of your business

Be transparent in reportingDisclosure programs, commitments and performance against goals – consistently and independent of performance level

Demonstrate leadershipPartnerships and collaborations are important if you desire improving performance of your supply chain

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http://www.ibm.com/ibm/environment/climate/


The IBM Energy and Efficiency Framework

Strategy

People Information Products & Services

IT Property Operations

Manage Supply

Reduce Demand

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Challenge Areas

Information• How do you measure and monitor information

on energy efficiency consistently and efficiently?

• How do you demonstrate regulatory and policy compliance?

• Do you have an energy efficiency scorecard and key performance measures?

Products & Services• What are the new green market opportunities

and how can you exploit them?• How can you design our products & services

to be more energy-efficient & environmentally- preferable?

• How do you optimize these benefits throughout the full product lifecycle?

IT• How do you integrate energy efficiency &

environment management into an IT Strategy?• How do you identify which areas of IT provide

the greatest opportunities for energy efficiency? • How do you minimize energy consumption in

each area of IT, now and in the future?• How do you optimize to get more IT capacity

for less energy?• How do you address capacity/power issues?

Property• How do you manage energy efficiency in:

• Buildings, offices and branches?• Production plants?• Distribution centers & stores?

• How does the property portfolio contribute to your carbon footprint & ecological balance sheet and how can you improve it?

• How do you work towards a more sustainable property portfolio?

Operations• How can you make your end-to-end operations

more energy-efficient & less impacting to the environment?• Supply Chain: Procurement, Logistics,

Warehouse, Manufacturing• CRM: Targeting / Segmentation, Sales• Waste & Recycling

• How do you communicate your green credentials (Branding, Marketing, Communications)?

• Regulations / Legislation / Targets• Pressure groups• NGOs• Media

Market Forces • Customers• Shareholders• Financial & Market Analysts• Competition

Strategy

What do you want to achieve with your energy & environment efficiency efforts?

How integrated is your energy efficiency strategy with your overall business strategy?

Do you have an integrated program of action?

How do you finance our energy efficiency program?

People• How do you establish and implement effective

green HR policies regarding travel, work place, collaboration?

• How do you engage with our employees, your business and alliance partners on the green agenda?

• How do you enable and sustain behavior change across your organization?

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The Green SCM Coverage Matrix

DeliverDesign & Source

Make Use and EOLPlan

Tactical

Operational

Strategic

SCE

CarBan CarBan

SNAP

VRPGreen Sigma

GARS

GARSGreen Sigma

Virtual Command Center

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SNOW

WSP

Logic Tools


IBM Green Sigma™

Dashboard (Voice of the Environment)

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IBM Carbon Tradeoff Modeler

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Case Study

A Division of a Fortune 500 Company

DeliverMakeSource

Suppliers

X-Docks

X

X

Plant Location

W/H Plant

Dealers

Direct Shipments

Flow attributes modeled:• CO2 emissions• Transportation

• Cost ($)• Fuel Type• Mode• Consolidation

• Various inventory metrics

Analyze inbound transportation to establish carbon emissions

baseline and suggest reduction opportunities

Analyze inbound transportation to establish carbon emissions

baseline and suggest reduction opportunities

ProblemScopeProblemProblemScopeScope


Dimensions of the Analysis

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Input DataInput Data

PartsParts

SuppliersSuppliers

LocationsLocations

ShipmentsShipments

CarriersCarriers

ModeMode

Carbon AnalyzerCarbon Analyzer

Shipment AnalysisShipment Analysis

Scenario AnalysisScenario Analysis

Sensitivity AnalysisSensitivity Analysis

Business InsightsBusiness Insights

Carbon ImpactCarbon ImpactCarbon Impact

Cost ImpactCost ImpactCost Impact

Business ImpactBusiness ImpactBusiness Impact

Sourcing AnalysisSourcing Analysis

Carbon Metrics• Mile-Tons Transported• Carbon Emission (Tons and $’s)• Cost per Mile-Ton• Carbon KG per Mile-Ton

Analytics Components

Regression Model

Distance Calculator

Cost Optimization Model

Carbon Calculator

Cost Calculator

Business metrics calculators

Cost & Business Metrics

Transportation Cost

Average Inventory Level

Inventory Carrying Cost

Inventory Turns

Order Frequency

Inventory Availability

Cost Of Goods Sold

Inventory Liability


Results of the Analysis

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Identify top operational actions based on overall carbon reduction potential

Identify top operational actions based on overall carbon reduction potential

Compare sourcing options by carbon, cost and business

metrics

Compare sourcing options by carbon, cost and business

metrics


Cognos-Based Business Intelligence


The IBM SCM Practice

By leveraging innovative ideas from our research division

and proven best practices from our internal supply chain group, we are uniquely positioned to help our clients improve

their supply chain strategy and operations

Advisory ServicesAdvisory Services ResearchResearchInternal Supply ChainInternal Supply Chain

Supply Chain Strategy Practice

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