How Can Supply Chain Management Enable a Greener World?

1. How Can Supply Chain Management Enable a Greener World? Thoughts on Carbon as the New Muda Themes in Trade Logistics – World Bank Group – Washington, DC – June 7, 2010

2. Agenda 1 Framing the Challenge 2 The Green Context of Supply Chain Operations 3 The Need for a Public/Private Partnership 4 Case Studies and Best Practices

3. The Need for a Paradigm ShiftAnd Why It Has Not Taken Place Yet! The Imperative The Reality The Question / Dilemma Can Green & Lean Co-Exist? Tell Me How You’ll Measure Me, I Will Tell You How I Will Behave! The Interpretation

4. Why is Supply Chain Management a Good Starting Point? Source – http://www.eia.doe.gov/emeu/aer/pdf/aer.pdf

5. Unfortunately, the Green SCM Revolution Remains Elusive Fortune 500 0 22 # of Fortune 500 companies that have initiated some Green SCM strategy # of Fortune 500 companies that have approached this with their trading partners January2010

6. Achieving this Paradigm ShiftRequires a Perception Change of CO2 as a Decision Variable Carbon in the Business Environment Needs to be De-Mystified Introducing Carbon as the 8th Muda 1 2 3 4 Defects Inventory Waiting Excess Motion 5 6 7 8 Over Production Over Processing Transportation CO2 / GHG

7. There Are Some Good Signs

8. Agenda 1 Framing the Challenge 2 The Green Context of Supply Chain Operations 3 The Need for a Public/Private Partnership 4 Case Studies and Best Practices

9. Where is the Carbon in the Supply Chain? Everywhere! Supply Chain activities create significant carbon emissions, making supply chain an important focus for clients seeking to reduce their carbon footprint Customers & Channels Suppliers & Manufacturers Flows: Product, Process, Information, Cash Design Plan Source Make Deliver Service & End-of-Life SC Strategy Procurement Integrated Ops Logistics Integrated Ops PLM • 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 Asset Management Sustainable facilities management: Green building & renewable energy; carbon footprint asset management; Asset utilization (Real-time data on energy usage; Carbon dashboard) Finance Paperwork Reduction; Environmental Cost Accounting; Environmental Tax Benefits Tracking

10. Carbon Distribution Model Carbon Analysis needs to be seen from a total Product Lifecycle View SCM Carbon Distribution Model Phased Product Lifecycle View Our goal can be formulated rather simply: Lower the Outer Edge Design & Sourcing Inbound Logistics Internal Operations Outbound Logistics Service and Use

11. $ ABC $ Classic Value Equation = Least Production Cost despite the Transportation Cost $ ABC $ $ Sustainable Supplier Strategy Development ABC, Inc Mexico China Unit Cost Volume Carbon Impact Distance New “Green” Value Equation = Actual Cost (Production + Transportation) + Corresponding Carbon Cost

12. The Need to Embrace Carbon as a New Decision Variable

13. The 3 Primary Supply Chain Variables…taken from a Green Perspective I Inventory L Lead-Time T Throughput = x John D.C. Little Institute Professor Your Company OEM’s / Brand Owners T EMS Partners Warehouse(s) Suppliers Customers Component Suppliers Raw Materials Retailers Lead Time Observations • Cost and Environmental concerns are likely to create a trend for “supply chain collapsing / localization” • Incentives need to be put in place to encourage creation of local and sustainable supply chain networks

14. Carbon Reduction Needs to be a Value Chain Affair A Value Chain Network View Leverage – + Prevailing View Our View What is a fabless company Carbon Footprint? What is its environmental responsibility? 14

15. Noise in the Supply Chain is Neither Lean nor GreenThe Carbon Reverse Bullwhip Effect Extended Supply Chain View Suppliers Plants Retailers End Customers InventoryProduced Carbon Produced Caron Buildup Process Classic Bullwhip Effect Amount of Inventory Inefficiencies Amount of Carbon Inefficiencies True Customer Demand 15

16. Value of a Network Approach BOM Analysis Reverse Operations Tier2+ Partner Selection Channel / Distribution • Energy • Embodied Energy • GHG Regulatory $ Impact • Processing • Manufacturing process • Quality control • Processing • Repair / refurbishment process • Shipment process • Quality control • Processing • Order fulfillment • Shipment process • QC process • Organizational management process • Transportation • Modes • Shipment frequency • Load consolidation • Carrier routing • Supply • Substitutable components • Sourcing choices • Location choices • Packaging • Package size options • Package recycling options • Corrugated box • Inventory policy • Safety stocks • Lot sizes • Replenishment VMI/VMR

17. Implementing a Network Solution Automate Compliance Data Collection Sustainability & SC Integration Associate compliance to Orders & Inventory Provide performance KPI’s to customers 17

18. Agenda 1 Framing the Challenge 2 The Green Context of Supply Chain Operations 3 The Need for a Public/Private Partnership 4 Case Studies and Best Practices

19. The Need for a Public / Private Sectors PartnershipRegulatory Setups Under Consideration Your Company Tier 1 Supplier (e.g. CM, EMS) 3PL / 4PL Tier 2 Supplier (Components) Customer 4 Scenarios CO2 CO2 CO2 CO2 Penalty Zone Tax Zone ABC, Inc. Quota ABC, Inc. CO2 Savings XYZ, Inc. Actual XYZ, Inc. Actual XYZ, Inc. Excess CO2 XYZ, Inc. Excess CO2 Strict Cap ABC, Inc. Actual Supply Chain Generated Carbon Footprint Supply Chain Carbon Quota XYZ, Inc. Quota XYZ, Inc. Quota Trade Transaction A – Strict Cap B – Carbon Tax C – Cap & Trade D – CO2 Offsets

20. Some of the Key Questions that Need a Global Approach Observation # 1 ECX • Proliferation of CO2 trading platforms will delay properly tackling the problem • Carbon trading should be approached as a global commodity AP CCX OCE Observation # 2 • Local and Regional Models need to be encouraged (less carbon footprint and less inventory as a result of reduced lead times) Local Model Global Model Regional Model

21. Agenda 1 Framing the Challenge 2 The Green Context of Supply Chain Operations 3 The Need for a Public/Private Partnership 4 Case Studies and Best Practices

22. Several Leading Japanese Companies seem to be taking the Green Challenge quite seriously 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 Fujitsu’s Green Policy 21 Themes include: Green Factory, Green Management, Green Products, Green Solutions, Green Earth Canon has established an eco-factory certification system and is expanding this globally Ricoh will reduce CO2 emissions by 12%, far exceeding the pace agreed to in the Kyoto Protocol • Top 5 Basic Sustainability Categories for Manufacturers: • ● Material selection • ● Sourcing policies • ● Resource consumption and emissions • ● End-of-life postponement and management • ● Customer demand and fulfillment • Source: “Making Sustainability Real”, IDC Company #MI211085, March 2008 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

23. Standardization Will be a Key EnablerBut Challenges Remain… • Carbon labeling (Tesco, Timberland, Patagonia, Coca-Cola, Walkers, Coors, Wal-Mart)

24. Concurrently, Software Solutions are Starting to Be Developed – for Both Monitoring & Optimization

25. 12 Ideas to Make Your Supply Chain Greener 25

26. Exploring the Ideas Redesign the product Reconfigure Manufacturing Shift to Green Suppliers Shorten Distances Alter service-level agreements Shrink packaging 26

27. Exploring the Ideas (continued) Plan for reverse supply chain activity Consolidate shipments Plan smaller routes Coordinate with partners Take a life-cycle view Start now: define a green strategy 27

28. Classic Optimization Approach Minimize Total Cost – select DC’s so as to minimize the total DC and transportation costs of meeting demands GreenOptimization Approach Minimize CO2 Emissions – objective function changes from minimization of total cost to minimization of total CO2 emissions (equivalently, total miles traveled) Network Optimization Strategy Market Demand Potential DC Locations Demand Volume DC Location Vs. 28

29. Case Study – Network OptimizationConcurrently pursuing ‘Lean’ & ‘Green’ Objectives 100 DC’s 40 DC’s 23% 15% (100,000 Tons) Logistics $’s CO2 Emissions 29

30. About the Presenter Mondher Ben-Hamida, CPIM, CSCP Vice President – Strategy E2open (www.e2open.com) Education Experience Overview 1997 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 Mondher is an Industrial Engineer and a Global Supply Chain Strategist with over 14 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 five continents Languages Sample Engagements • English • French • Italian • Arabic Fluent Fluent Fluent Fluent • Helped a leading Fortune 500 with its first Green Logistics strategic initiative which led to the development of a carbon modeling software • 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 a leading QSR company. 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 • Served as the Make Best Practices Lead and co-author of SCOR 7.0 Specialization • Supply Chain Strategy • Global Issues in SCM • Enterprise Sustainability • Advanced Planning Tools