Integral Logistics Management — Operations Management and Supply Chain Management Within and Across Companies

3.3.3 Economic Opportunities for Environmental Commitment of Sustainable Supply Chains

Intended learning outcomes: Produce an overview on energy-intensive industries. Disclose examples of using alternative fuels and raw materials in order to decrease the carbon footprint and the amount of fossil fuels required in the cement industry. Differentiate between opportunities and threats favoring proactive and reactive environmental involvement.


While the regulatory landscape is changing and forcing firms to do environ­mentally responsible business, research and practice is showing that measures can be taken that improve environmental and economic performance at the same time. However, identifying viable improvement opportunities to increase energy efficiency remains a challenge in daily business. For one, energy is still (in 2010) relatively low priced. In the conventional manufacturing industry, energy cost can make up 2 to 3% of operating costs. For another, for investment decisions, the opportunities and risks that may be caused by regulations, prices, and markets are difficult to estimate: The core competencies and priorities of most companies are not in the field of energy saving (and buying know-how from the outside is also connected with costs). Clearly, for energy-intensive industries, such as chemicals and petrochemicals, iron and steel, cement, and pulp and paper, the situation is different than for the conventional manufacturing industries.

Energy-intensive industries (EIIs) are industries where energy costs make up a significant part of the operating costs (possibly up to 60%) and thus represent a major competitive factor.

As the fuels are regularly mostly fossil fuels, EIIs emit a considerable amount of CO2, which makes them vulnerable to carbon footprint regulation. EIIs made significant improvements in the past, especially the chemical and petrochemical industry. The following example from the cement industry may be taken for illustration: The cement industry requires a conside­rable amount of energy for the clinkering process (the chemical process transforming limestone into clinker, a basic element of cement). Fuel makes up to 30 to 40% of the total operating costs. At the same time, the chemical reaction produces COas a by-product (worldwide, the cement industry is responsible for more than 5% of the man-made COemissions). Figure 3.3.3.1 shows actions that were taken to reduce both costs and CO2.

Fig. 3.3.3.1        Example of using alternative fuels and raw materials in order to decrease the carbon footprint and the amount of fossil fuels required in the cement industry [ScVo10].

By using by-products (or waste) from other industries, it becomes possible to both reduce the amount of fossil fuel and the amount of clinker required for the production of cement. An approach like this is called co-processing, and it is an important way to approach the challenges in the cement indus­try. However, a general criticism may be that using wastes in incineration (as fuel) can lead to toxic emissions and promote more production of waste. Life cycle considerations and pollution prevention need to be taken into account before deciding whether measures are suitable and, because of the complex economy and business activities, a challenging undertaking.

The situation for companies can be presented with two general options (with many intermediate levels in real application). As Figure 3.3.3.2 shows, companies may decide to be proactively environmentally committed (light gray fields) or take a reactive position (dark gray fields). For both options, uncertainties lead to opportunities as well as threats.

Fig. 3.3.3.2        Selection of opportunities and threats favoring proactive rather than reactive environmental involvement. Adapted from [ScVo10].

When being environmentally proactive, the human factor is very important for creating opportunities. Internally, employees’ awareness can be raised, and the capability to deal with challenges and changing environmen­tal conditions can be increased. Further, strategic relationships with stake­holders from GOs, NGOs, and new customers can be developed. Also, productivity can be increased and international standards fulfilled, resulting in financial savings. Thus, being active increases planning security and lessens dependency on volatile prices.

Taking the reactive role may be advantageous in the short and medium term. Focusing on core competencies strengthens competitiveness, as investments in environmental changes may be postponed to a later point in time when technology is “adult” and reliable (“no experiments”). Company resources are used only where it is imperative to satisfy regulatory measures, which allows conservative budgeting.

Proactive commitment entails several risks for which competing polluters may gain competitive advantage (in the medium term). For example, a company may invest in a technology that reduces a certain kind of pollution. When regulation does not implement liability costs for this pollution, it results in a disadvantage for the company. Fulfilling standards may differ greatly from region to region, which hinders knowledge transfer. When engaging in (and marketing) “green” practices and products, the noncompliance of supply chain partners has a stronger impact and they may be more difficult to replace (“captive buyer situation”). The identified risks are rather of a company external nature. Perhaps a reason is that integrated approaches go hand in hand with higher interdependencies between, for example, companies, regulatory bodies, and supply chain partners.

There are various risks when taking the reactive environmental engage­ment position. A company may become vulnerable to regulation, market development, and liability costs as unanticipated developments emerge. Vulnerability to price shocks and supply disruptions is higher if no counter­measures have been taken (e.g., increased efficiency or alternative feedstock). Lower level of employees’ awareness leads to potentially missing out on cost-saving opportunities, and internal satisfaction may suffer due to a lack of environmental responsibility. With regard to a company’s visibility, a polluter image and negative reporting from the media and NGOs may lead to disadvantages in the long term.

Although this analysis considered mostly industries in the developed countries, many of the risks and opportunities may be applicable in other regions as well. Environmental regulations change and become more important as wealth increases. The relevance of these economic drivers may apply to virtually all industry sectors (with EIIs being especially affected). Therefore, searching for new approaches and solutions is an essential part of working towards long-term competitiveness. Also, earlier approaches need to be re-evaluated. Although they may not have been accepted in the past, they can become viable under the changed economic conditions. For further reading, see [Sriv07].



Course section 3.3: Subsections and their intended learning outcomes

  • 3.3 Sustainable Supply Chains

    Intended learning outcomes: Explain the changing concept of sustainability with reference to the triple bottom line. Disclose economic opportunities for social commitment and for environmental commitment. Describe energy management concepts and measures for improved environmental performance. Produce an overview on the measurement of the environmental performance. Present social and environmental dimensions in industrial practice.

  • 3.3.1 The Changing Concept of Sustainability with Reference to the Triple Bottom Line (TBL)

    Intended learning outcomes: Produce an overview on the concept of the triple bottom line. Present the paradigm change that correlates to the evolution of sustainability aspects and their interaction.

  • 3.3.2 Economic Opportunities for Social Commitment of Sustainable Supply Chains

    Intended learning outcomes: Disclose the term “double bottom line”. Produce an overview on ethical standards, or code of conduct (CoC). Differentiate between groups of company-internal ethical standards and groups of company-external ethical standards. Present the supplier code of conduct (SCoC) and the certificate of compliance.

  • 3.3.3 Economic Opportunities for Environmental Commitment of Sustainable Supply Chains

    Intended learning outcomes: Produce an overview on energy-intensive industries. Disclose examples of using alternative fuels and raw materials in order to decrease the carbon footprint and the amount of fossil fuels required in the cement industry. Differentiate between opportunities and threats favoring proactive and reactive environmental involvement.

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