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Chapter
15 Supply Chain Sustainability
TEACHING TIP
Sustainability is a hot topic in business schools; this chapter focuses on how supply chains can
support environmental responsibility and social responsibility.
Mention FedEx. The opening story tells how FedEx’s supply chain reacted to a major disaster
1. The Three Elements of Supply Chain Sustainability
• Introduce the ideas of financial responsibility, environmental responsibility, and social
responsibility as three underpinnings of sustainability.
o Figure 15.1 shows the linkages
o Table 15.1 shows examples from major companies.
• Financial responsibility: improving the financial well-being of the firm increases its chances
of survival in a competitive world.
• Environmental responsibility: addresses the firm’s stewardship of the natural resources used
in the production of services and products.
o Supply chains can be designed to produce a product and then reprocess them at the
end of their lives to yield value in the form of remanufactured products or recycled
materials.
o Supply routes can be planned to reduce the amount of energy consumed in delivering
materials or products to customers.
• Social responsibility: addresses the moral, ethical, and philanthropic expectations that society
has of an organization.
• Humanitarian logistics: the process of planning, implementing and controlling the efficient,
cost-effective flow and storage of goods and materials, for the purpose of alleviating the
suffering of vulnerable people
2. Reverse Logistics
Reverse Logistics: the process of planning, implementing, and controlling the efficient, cost
effective flow of products, materials, and information from the point of consumption
1. Supply Chain Design for Reverse Logistics
a. A supply chain that integrates forward logistics with reverse logistics is called a
closed-loop supply chain
b. Figure 15.2 shows how a product starts its journey at the new service/product
development process, makes its way to the customer, and then enters the reverse
logistics chain that attempts to maximize the value of the item at the end of its useful
life
2. Financial Implications
a. Incentives used to make reverse logistics financially viable
i. Fee: a fee is paid to the user when a used product or recyclable material is
delivered for recovery.
ii. Deposit fee: incentive for the user to return the product or containers of the
product to get the reimbursement of the deposit fee.
iii. Take back: offer to collect its products from its customers for no charge
when those customers want to dispose of them.
iv. Trade-in: a new copy of a product if another copy is returned.
v. Community programs.
3. Energy Efficiency
Carbon footprint: The total amount of greenhouse gasses produced to support operations, usually
expressed in equivalent tons of carbon dioxide (CO2).
1. Transportation distance
a. Decrease the amount of energy consumed in moving materials or supplying
services by reducing the distance travelled.
b. Locating service facilities or manufacturing plants in close proximity to customer
populations reduces the distance required to supply the service or product.
c. Reduce transportation distances through route planning
d. Nearest neighbor heuristic:
1. Start with the city that is designated as the central location. Call
this city the start city. Place all other cities in an unvisited set.
2. Choose the city in the unvisited set that is closest to the start city.
Remove that city from the unvisited set.
3. Repeat the procedure with the latest visited city as the start city.
4. Conclude when all the cities have been visited, and return back
to the central location.
5. Compute the total distance traveled along the selected route.
e. Use Example 15.1: Finding and Energy-Efficient Route Using the Nearest
Neighbor Heuristic
f. Use Application 15.1: Building an Efficient Route for Equipment Repair Inc.
Equipment Repair Inc. is a privately-owned firm located in Monroe Kansas.
Each workday a repair vehicle is dispatched to customer locations that have
requested an equipment repair. After all repairs have been completed, the
vehicle must be returned to the shop in Monroe. For one particular day, 5
customers in 5 different cities must be visited. The distance between any two
customers in miles reported by city name is given below.
To/From
Monroe
Apex
Concord
Dover
Oxford
Monroe
-
15
30
10
20
Apex
15
-
12
22
25
Concord
30
12
-
5
26
Dover
10
22
5
-
18
Oxford
20
25
26
18
-
Use the Nearest Neighbor heuristic to identify an efficient route for the
truck and compute the truck’s total distance traveled.
SOLUTION
The application of the NN heuristic results in the following steps:
1. Start with Monroe and place all other cities in the unvisited set.
2. Select the closest city to Monroe in the unvisited set, which is Dover.
Remove Dover from the unvisited set. The partial route is now Monroe –
Dover, which is 10 miles.
3. Scan the unvisited set for the city closest to Dover, which is Concord.
Remove Concord from the unvisited set. The partial route is now Monroe-
Dover – Concord, which is 10 + 5 = 15 miles.
4. Repeat the procedure until all cities have been removed from the
unvisited city set. Connect the last city to Monroe to complete the route.
5. Compute the total distance traveled along the selected route. The route
using the nearest neighbor heuristic is Monroe – Dover – Concord – Apex –
Oxford - Monroe. The total distance traveled is (10+5+12+25+20) = 72
miles.
Note that using the same sequence of cities we could start the route at any
one of them and travel the same total distance.
Repeat the heuristic four more times using each city as the starting point.
Apex – Concord - Dover – Monroe - Oxford – Apex (72 miles)
Concord – Dover – Monroe – Apex – Oxford – Concord (81 miles)
Dover – Concord – Apex – Monroe – Oxford – Dover (70 miles)
Oxford – Dover – Concord – Apex – Monroe – Oxford (70 miles)
This approach results in the following best route: Dover-Concord-Apex-
Monroe-Oxford-Dover for 70 miles.
2. Freight density
a. Reducing the volume that a product displaces while staying within the weight
limits of the conveyance, the firm can use fewer trucks, containers, or rail cars to
ship the same number of units.
b. Firms using 3PLs to get their materials or products to their customers must pay a
freight rate based on six factors:
1. The freight density.
2. The shipment’s weight.
3. The distance the shipment is moving.
4. The commodity’s susceptibility to damage.
5. The value of the commodity.
6. The commodity’s loadability and handling characteristics.
c. A formula is provided to determine the breakeven weight between two adjacent
weight breaks. Use Example 15.2: Evaluating an Increase in Freight Density
to illustrate
d. Use Application 15.2: Evaluating an Increase in Freight Density
Kayco Stamping in Ft. Worth, Texas ships sheet metal components to a
switch box assembly plant in Waterford, Virginia. Each component weights
approximately 25 lbs and 50 components fit on a standard pallet. A complete
pallet ships as freight class 92.5.
Calculate the shipment cost for 3 and 13 pallets.
SOLUTION
At 3 pallets or 150 pieces
Shipping Weight (150) * (25) = 3,750 pounds
Break-even weight (Freight Class = 92.5)
(50) * (28.64) / (37.56) = 38.13 or 3,813 pounds
Does NOT qualify for lower rate
Total shipping cost (37.5) * (37.56) = $1,408.50
The per-unit shipping charge $1408.50/150 = $9.39
At 13 pallets or 650 pieces
Shipping Weight (650) * (25) = 16,250 pounds
Break-even weight (Freight Class = 92.5)
(200) * (18.87) / (28.38) = 132.98 or 13,298 pounds
Total shipping cost (162.5) * (18.87) = $3,066.38
The per-unit shipping charge $3,066.38/650= $4.72
3. Transportation mode.
a. The four major modes of transportation
1. Air freight
2. Trucking
3. Shipping by water
4. Rail
b. From an energy perspective, air freight and trucking are much less efficient than
shipping or rail.
c. Intermodal shipments: building in door-to-door convenience by mixing modes of
transportation in a single shipment.
d. There are other considerations
1. Air freight is the fastest, but costly.
2. Trucks are the most flexible
3. Shipping by water typically can handle containers of greater weight,
thereby minimizing the number of necessary shipments.
e. Transportation technology designed to improve:
1. Relative drag – the energy needed for propulsion of a vehicle of a given
size at a given speed.
2. Payload ratio – the cargo-carrying capacity of the vehicle relative to the
vehicle’s weight when fully loaded.
3. Propulsion systems – the technology used to move the vehicle.
4. Disaster Relief Supply Chains
Disasters can be human-related (epidemic, war, genocide, insurgency, arson, or terrorism), or
natural (earthquake, tsunami, hurricane, tornado, flood, or volcanic activity).
TEACHING TIP
Managerial Practice 15.1, “Using Drones in Disaster Relief”, illustrates how drones equipped
with technology such as UAV or cameras can help disaster relief teams in surveillance and swift
understanding of the disaster’s extent without putting people in harms way.
1. Organizing for disaster relief
a. Use Figure 15.4 to show the three major disaster relief operations of prepare, response,
and recovery.
• Prepare: relief agencies do advance planning to reduce the response time.
2. Managing disaster relief operations
a. Supply chain managers can provide the glue between the disaster relief operations.
• Understand that the timetable and ultimate customer for a supplier changes rapidly.
b. The life cycle of disaster relief supply chains has five stages
brief needs assessment
development of the initial supply chains for flexibility
speedy distribution of the supplies to the affected region
Copyright © 2019 Pearson Education, Inc.
increased structuring of the supply chain as time progresses
dismantling or turning over of the supply chain to local agencies.
c. The unpredictability and severity of disasters pose unique challenges to supply chain
managers.
• Design implications: At the onset of a disaster, the supply chain could require a new
design from scratch featuring quick response capabilities involving innovative suppliers.
• Command and control: In major international disasters, the United Nations typically
has the leadership role.
• High employee turnover: The manual processes often needed in disasters are poorly
defined. Coupled with the uncertainty of funding from the relief agency, employee
turnover tends to be high in disaster relief operations.
• Poor communication: Information technology is fragmented: telephone lines are
disrupted, cell service is limited, and Internet access is unreliable.
5. Supply Chain Ethics
1. Buyer-Supplier relationships
a. SA80000:2014 standards include 9 dimensions for ethical workforce management:
• Child Labor
• Forced Labor
• Health and Safety
b. Unethical behaviors also include:
Revealing confidential bids and allowing certain suppliers to rebid.
2. Facility location
• The construction and operation of new facilities may affect the natural environment.
• Energy efficiency is also a concern.
3. Inventory management
6. Managing Sustainable Supply Chains
• International Organization for Standardization (ISO) standards include:
o ISO 14001:2004 covers environmental management systems
o ISO 26000:2010 addresses seven principles of social responsibility
• Firms may take the following steps to ensure their supply chains are sustainable:
o Develop a sustainable supply chain framework.
o Gather data on the performance of current suppliers and use the same questionnaire
to screen potential new suppliers.
