Introduction to Green Supply Chain Management (GSCM):
Climate change has been analysed by the climatologists and has been quantified. When the first CO2 concentrations were measured in 1958, it counted as 316ppm which is just above 280ppm of the pre-industrial era and within fifty years it has crossed 406.58ppm on 22nd January, 2017 (1). With 2016 given the ‘Hottest Year’ in the history and 16 of the top 17 have been after 2000 (2), the global temperatures have risen by 1.1 degree Celsius which are to be limited to 2 degrees Celsius as formulated by Paris Conference, 2015 (3). Given the catastrophic conditions, much attention by the government and the global regulating bodies have been on environment. Global Reporting Initiatives (GRI) (4) Guideline Number 4 have Environmental Disclosures includes codes EN1 to EN34, Social Disclosures SO9 and Product Responsibility Performance Indicators (PR1 to PR9), ISO 14064 giving GHGs emission reporting, Greenhouse Gas Protocol (GHGP) (5) put forward by World Resources Institute and World Business Council for Sustainable Development (WBCSD) amongst others are being used by the public and private corporates to review and report their sustainability and other initiatives. Further there are global surveys such as ‘Newsweek Green Ranking’ (6), McKinsey’s business sustainability survey (7), which have given importance to green practices. Important part of most surveys and protocol is the product life cycle. As Green Design Institute (2007) research suggest that within apparel industry only 3.4 per cent of carbon dioxide emissions are generated through manufacturing while 93 per cent of energy is invested in logistics. Thus logistics is an important component of the product life cycle. The following paper will explore ‘Reverse Logistics’, a dimensions of Green Supply Chain Management (GSCM).
Concept of GSCM:
Most comprehensive definition of GSCM was given by Aragon-Correa in 1998 as ‘Green SCM is a management approach to link environmental concerns with all stages of supply chain comprising purchasing material, managing material, product and process design, inbound logistics, production, outbound logistics and reverse logistics’. The sources of the GSCM can be attributed to Corporate Social Performance theory (DJ Wood, 1991), Shareholder’s theory of maximizing profits for shareholder, Stakeholder’s theory for maximizing profits for all stakeholders, Corporate Citizenship theory where company has responsibility of the society’s welfare, resource view theory emphasizing on the limited resources in the environment and thus sustainable use of them, Slack availability of resources theory where the under-utilized resources act as a competitive advantage and most importantly green supply chain theory given by Emmett and Sood (2010). The drivers of GSCM are regulation, market demand, competition, customer pressure, supplier pressure, employee pressure, community pressure, expected business benefits and social responsibility.
GSCM as a competitive advantage (Vachon & Klassen, 2008; Yang & Sheu, 2007) improves agility by mitigating risk and speeding up innovation, adaptability and alignment of suppliers and customers. Thus it can increase profits as much as 10 per cent compared to traditional supply chain management practices. The monetary gains can be attributed to two forms i.e. reverse gains from reuse, refurbishing and remanufacturing while cost reductions are achieved through streamlining of the design, manufacturing, logistics, marketing from the first step of product life cycle. Sustainable supply chain management has shown an improvement in corporate financial performance (Wang et al, 2013). Operational performance has been improved by adoption of GSCM practices which in turn enhances organizational performance (Green et al, 2010) having synergetic effect on the stakeholders (Choi, D. & Hwang, 2015). Emmett and Sood (2010) have shown that in automobile industry the profitability increase by 6% while in chemical industry it brings more profits of 3%. As human resources implication, it can help attract and retain talent increasing employee productivity and citizenship behavior (World Business Council for Sustainable Development, 2010).
The different facets of GSCM (M. Ghobakhloo et al) are as follows:
1) Green Purchasing/Procurement and Inbound Logistics: Supply side process based on technical-ecological-environment friendly activities, green purchasing is procurement of raw materials, goods or services which emphasizes on reduction of carbon (pollutant), minimization of wastage, recycle of raw materials, optimization of logistics. Making inbound logistics green is the next step of the cycle which reduces the input carbon footprint. Matching demand to supply has to be monitored on real-time basis and proscriptive demand should be accessed in turn decreasing the operations and administrative costs further reducing carbon for purchasing and logistics. Selection of appropriate transport system (trains have lesser carbon emission than trucks), use of logistics model (cross docking or milk route) can optimize the processes.
2) Green Manufacturing: Green Manufacturing is conversion of raw materials into goods and services by optimal use of raw material, use of renewable energy and non-toxic substances, reduction of pollution of all kinds (air, water, land, noise, etc), industrial symbiosis i.e. conversion of waste into inputs for recycling and changed structure of ownership (Allwood, 2005).
3) Green Distribution and Outbound Logistics: Green Distribution being demand side logistics is based on use of green packaging materials, fewer shipments, less handling, cooperation with vendor, more direct routes, and better space utilization having a trade-off among delivery time, responsiveness, quality and cost. Walmart says: "Within the transportation function, for example, we want to accomplish three goals: fill every trailer to capacity; drive those trailers the fewest miles possible; and use the most efficient equipment," she explains. "All these efforts drive sustainability, as well as operational efficiency." (8)
4) Reverse Logistics: Return of materials, components and products by collection, separation, densification or disassembly, transitional processing, delivery and integration back into the ‘forward logistics’ chain is called Reverse Logistics. SMEs in China where a ‘closed loop’ approach (Frios, 1999) utilizes all waste through the recycling and reuse of energy and materials.
As defined, all the stakeholders, such as suppliers, manufacturer, retailers, logistics providers, consumers, are not only aligned in the series but also integrated and interact with each other for achieving a well-balanced green supply chain.
Reverse Logistics:
Rogers and Tibben-Lembek (1998) defined Reverse Logistics as: “the process of planning, implementing, and controlling the efficient, cost effective flow of raw materials, in-process inventory, finished goods and related information from the point of consumption to the point of origin for the purpose of recapturing value or proper disposal”. It is process flowing opposite to the traditional SCM to recover value and leads to proper disposal (Kumar and Malegeant 2006) thus integrating environmental management in traditional supply chain management. It is mandatory to have reverse logistics to effectively implement green logistics due to its contribution to reduce waste through recovery processes such as reuse, remanufacturing and recycling (Hervani et al., 2005). There are two costs related to reverse logistics i.e. process the return and asset realization. To process the returns (considering 4% returns) can cost up to $4 -$6 billion while value of all products returned is about $12billion. Although reverse logistics have implications on the reverse (or opposite) direction of the product flow, but understanding forward flow which includes the material selection, designing of the product (in a way that is easy to disassemble, repair and reuse old parts for building new parts, assemble and remanufacture), manufacturing, assembly of the product, marketing, logistics helps in designing and implementing the reverse logistics.
Components of Reverse Logistics:
1) Handling of Reverse Goods by Collection and Redistribution (Logistics & Transportation): The first task of the reverse logistics is to have a robust recall, return framework with help of IT infrastructure. Whenever the customer orders for return or the manufacturer recalls a product, it should be integrated with other processes with all the stakeholders. Reduction in recall should be the target, but even 6 sigma techniques have 3.4 parts in million failures. Ryder, a third party service provider for Philips Consumer Lifestyle, handles reverse transportation on basis of reduction in number of trips to reduce carbon footprint and cost. Samsung electronics has taken help from U.S. Postal Service and Newgistics for recycling operations. After the product is recycle, remanufacture, repaired, the same should be integrated with the forward logistics cycle.
2) Categorization:
a) Reuse: Reuse involves use of the old item by second customer without prior repairing. Philips Consumer Lifestyle who manufactures electronic shavers have tied up with third party logistics Ryder Supply Chain Solutions to provide zero-landfills solutions under stringent business rules.
b) Repair/ Refurbish: In case, the product can’t be reused, the non-working parts are repaired and refurbished introducing the non-working products for resale. It is considerable to use this method of recovery if the refurbished product is at least 70-80 per cent cost of the original (Mr. Morris, ATCLE). Apple’s refurbished iPhones and Macs are largely purchased by consumers on a low price as it involves re-assembly of individual parts from the scraped iPhones and Macs. In India, online websites such as www.greendust.com (having 50 point Quality inspection) has refurbished products for sale.
c) Remanufacture: The process of rebuilding the product to the original specification with use of reused, repaired and new parts is called remanufacturing. They should have same customer satisfaction as that of a new product. Engines are remanufactured by the OEMs and third party services.
d) Recycle: The scrap material like plastics, metals, is again used back as raw material for manufacturing of new parts, thus decreasing the cost of manufacture and increasing the profits. Many automobile companies such as BMW, Toyota has established such models in the closed loop system for increasing the sales of the new products while decreasing the cost of manufacturing by re-buying (giving discounts) old products. Samsung began its recycling program called “Samsung Take-back and Recycling (S.T.A.R) in 2007 by establishing drop-off locations, reverse transportation, recycling useful materials.
3) IT infrastructure:
It plays a critical role in Reverse Logistics in GSCM. Reverse ordering, Transaction processing, planning and collaboration, tracking and delivery (to warehouses) processes all can be made hassle free through IT infrastructure (Kauremaa, Kemppainen, 2008). Tracking ability to go back to time history. Keeping track of usage of machine and forecast the demand and reverse logistics for replacement. For example, Bosch has data logger chip in electric motors which counts the number of hours of use and speed thus determining the recycling life. Rezwan (2011) proposes RFID (Radio frequency identification technology) is key to optimality for reverse logistics. RFID has the advantage of bulk reading, automation, less time required, less human interaction, thus reducing time and human cost. RFID can also be input with the quality information of the product returned thus making easier decision making for reuse, recycle, refurbish or remanufacture. (Visich, Li, & Khumawala, 2007). It also helps in theft detection while increasing the real time analysis of the system.
An Overview of Reverse Logistics in Indian Automobile Sector:
Indian Automobile industry (2015-16) manufactured 2,39,60,409 automobiles while 2,04,69,385 automobiles were sold. It is one of the largest manufacturing sector in India. The implementation of GSCM has been in focus not only due to economic reasons but also due to environmental factors and legislations. For ages, open-air had been used to discard automobiles which attracted the waste disposal and green disposal techniques in automobile industry (Cui & Roven, 2010). Though reverse logistics reduce the profit margins but the recovery of materials can lead to value creation (Daugherty et al. 2001). Reverse logistics cost in Indian auto and auto components industry is estimated to be around 0.5%-1% of auto and auto components industry [8].
The first step of RL in automobile industry is of recall, return of used, unused vehicle. This requires an interaction between customers, retailers and OEMs. Based on the request, the vehicle is brought to the retailers or to the OEMs. If the vehicle has no defect, it can be sold again for reuse through third party services. At Mahindra First Choice Wheels, every automobile goes through 118-point certification process before it is launched for reuse thus giving maximum protection to the customers [9]. If the vehicle is recalled by the OEMs for repair or replacement, it is then repaired/replaced to the original specifications and given back to the customer. Due to defect in Takata’s airbags, Honda recently had to recall 41,580 automobiles in India as a part of global recall campaign. The replacement was done free of cost by Honda through the dealership showroom. The customer first had to submit a 17 lettered alpha-numeric vehicle identification number (VIN) on the Honda India website after which the closest dealership contacted the specific customers and the vehicles were brought back to the dealer and transported to the assembly plant in Greater Noida (U.P) or Bhiwadi (Rajasthan) and sent back to the dealership and to the customer eventually [10].
When the vehicle has reached its life-cycle and needs recycling, it is either bought by OEMs or it is thrown in scrap. Depollution of the vehicle and removal of hazardous material parts and liquids is the first step. Dismantling of the automobile is the second step in this process. Around 15-20% of the automobile parts are made of plastics (polymers) while 80-85% are made up of metals and small percentage of glass and liquids (Cui & Roven, 2010, Hanko et al. 2002). After dismantling, the RFID can/is be used for easy and effective segregation or manual separation is used for segregation in different buckets of remanufacturing, refurbishing or recycling. The refurbishing parts such as engine, suspension, tyre, seats are separated which can be used after repairs. Remanufacturing parts such as engine, battery, transmission can be used after inspection and recalibration and repairs with help of reused, repaired or new parts. Through remanufacturing of an engine 94% engine can be recovered while saving 54kg of steel and reducing CO2 emissions by 565kg [11]. While the damaged parts or everything else which can’t be reused/repaired/remanufactured is brought down or sold to recycling units after crushing/shredding them into solid blocks of cube as they are easy to transport.
There are almost 30.55 million vehicles in India which are at the end of product life cycle (more than 15years) which can generate 320 Billion Rupees worth of scrap till 2020. Government norms and regulations plays an important policy intervention for scrapping of the End of Life Vehicles (ELVs). After NGTs efforts in New Delhi, state governments have taken scrapping policy and implemented norms [12].
MSTC Ltd.(MSTC) is a Government of India enterprise under the Ministry of Steel plays an important role in scrapping of the automobiles. It has fair and transparent process of valuation of scrapped automobiles. http://www.mstcindia.co.in/PMU/ScrapVehicles.aspx[13] website has the primary form for the customer to initiate the enquiry. Private participation is encouraged for setting up of ELV units. Mahindra Intertrade Ltd (MIL) has signed a contract for scrapping unit with MSTC. A typical 8 tonne ELV unit working 15 hours a day will need 250 cars/day i.e. 72,000 cars per annum has a potential of generating around 6 million tonnes (MT) of steel scrap; 1,50,000 MT copper scrap; 0.8 MT aluminum scrap and 1.8 MT plastic and rubber scrap. Numbers are expected to grow in years to come [14].
Material wise Valuation of Scrapped Automobile [14]
Sr No
Particular
% Share
Quantity (Kg)
Price (Rs./kg)
Value (Rs.)
1
Steel Scrap
65-70
950
14
13,300
2
Aluminum
7-8
105
110
11,550
3
Copper
1-1.5
16
250
4000
4
Rubber & Plastics
15-20
250
8
2000
Total
31,000
As per the Director General of Automotive Components Manufacturers Association of India (ACMA), Indian Automobile Reverse Logistics is not yet ready because of following barriers:
1) Unavailability of collection and scraping centers
2) Lack of tech to identify, separate and recover, plastics, little recognition to RL
3) Lack of collaboration between vendors, OEMs, suppliers and customers, thus decreasing the probability of vehicle scrapping through OEMs.
4) Management Information System is not integrated with existing technology for seamless collection, disposal, segregation of vehicle parts.
5) Burden on the management for addition cost and administrative processes.
6) Informal sector: Today in India, RL in automobile is performed by unorganized sector and scrap is generally sold back to the OEMs. No end-to-end process is established.
But as described before, Mahindra Intertrade Ltd. is venturing into the scrapping yard in India thus the key success factor is top management awareness which initiates the process. If management is convinced and see cost benefit ratio in RL, then it might take it as a priority sector. Generally, the cost implications are the major issue while considering the new processes. The management needs to be convinced by examples in MNC automobile sector which has resulted in 10-16% cost savings. Likewise, the customers need to be educated for the reverse logistics. The customers’ economic incentives for recall of the product is the deposit fee (glass bottles of soft drinks), buy back option (electronics, utensils), reduced prices while the non-economic incentives are new for old, lease or rent contracts (mobile phones in USA), timely information (batteries return in Denmark, Germany), legislations, environment conscious global citizen (Marisa P. de Brito et al). For efficiency in the system, standardization is required which can connect the different processes seamlessly for which collaboration between all the stakeholders is necessary for integrated approach. Further, linking the reverse logistics to sustainability programs such as CSR policy, Green Initiatives, Environment Reporting can help improve the environment in RL where the government policies can be impactful. Government should frame appropriate policies like the one of End of Vehicle Life. The tax structure should give a exemption to importing of core (necessary for remanufacturing) and also inventory management.
HR Implications of Reverse Logistics in Automobile sector in India:
1) Employees’ perception: It has been suggested that employees or workers perceive the returned vehicle as less satisfaction thus of lower grade which in turn decreases the motivation of the employee to continue with her work. As an HR manager, training for green supply chain management should be one of the important task for communication, educating and thus working towards the goal from bottom to top approach.
2) Approach towards integration not interface: HR should not act as an interface between the GSCM or RL and the employee but also bring together all the process stakeholders together and design the RL process that starts with the green designing to green manufacturing including green marketing and reverse logistics. Further, the suppliers and vendors need to be educated and strict quality controls should be implemented in the organization.
3) Employment of new resources: Due to reverse logistics, the ‘closing loop’ needs to be employed. Skilling of such employees would be a priority task.
4) Marketing: Marketing and sales teams requires attitudinal shift in the processes as they need to market the new competitive advantage of cost saving with sustainable development.
5) Technology absorption is the crucial success factor. It might lead to retrenchment of some employees in the industry or re-skilling of the same. As a HR manager, primary concern should be involvement of such employees in other employment activities. But in case it is not feasible, options such as VRS, job opportunity at other plants, other industry can be suggested and it would be the duty of HR department to educate and help the employees in distress. Further, technology might bring in the factor of stagnancy which might affect the motivation level of the employees. Job enrichment is the probable option in such situation.
Conclusion:
Indian Automobile sector is in the nascent and dormant stage and needs to be incentivized by government, OEMs, suppliers and customers. This can lead to increase in profit margins by almost 16% with reverse logistics cost implication of 0.5% of the total logistics. Not only it increases the brand value of the organization with sustainability as its vision but also attracts right talent and enhances employee engagement. It would be a competitive strategy of the automobile sector in times when the demand is stagnant and the marginal costs are higher. Automobile industry should mirror the global trend by educating the customers, suppliers and lobby for the appropriate policies and incentives with the government and thus develop their vision for sustainable development.