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RESEARCH NOTE

Sustainability and energy efciency

Research implications from an academic roundtable and two case examples
Remko van Hoek and Mark Johnson
Supply Chain Research Centre, Craneld School of Management, Craneld, UK
Abstract
Purpose The purpose of this paper is to attempt to answer the questions posed by the special issue editors using insights from leading academics in the eld and case examples drawn from two renowned global companies. It also aims to dene potential avenues for further research in the thematic areas covered. Design/methodology/approach The paper uses a roundtable discussion with the Council for Supply Chain Management Professionalss Education Strategy Committee and case materials and presentations from Cisco Systems and Walmart to generate the insights. Findings The existing cost/lead-time trade-off model still applies yet changes in fuel prices and the importance of sustainability initiatives (also from a marketing point of view) lead to different equilibrium points. Research limitations/implications Based on insight from leading academics and case examples, the paper suggests that the trade-offs are made more intricate and require the more accurate addition of new factors such as social costs as today most of the decision making tends to be traditional economic and not yet include social and environmental as much. Nuances need to be added to avoid marketing skewing the trade-off away from sustainability over time if it turns out that sustainability is a marketing/public relations fad that might go away. And the length of time for sustainable initiatives to have an impact needs to be considered, if it turns out the marketing advantage does not have staying power as long as investment write off periods. These suggest potentially fruitful avenues for further research. The cases also offer practical guidance as to how leading companies green their supply chains. Originality/value This paper specically addresses the call for papers questions of the special issue editors through the synthesis of insights from leading academics and companies. Keywords Supply chain management, Sourcing, Sustainable development, Localization, Energy conservation Paper type Research paper

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Received January 2009 Revised August 2009 Accepted September 2009

International Journal of Physical Distribution & Logistics Management Vol. 40 No. 1/2, 2010 pp. 148-158 q Emerald Group Publishing Limited 0960-0035 DOI 10.1108/09600031011018064

The authors would like to thank the members of the CSCMP Education Strategy Committee that participated in this roundtable discussion. They were: Linda Coley (Miami University), Brian Gibson (Auburn University), Chris Moberg (Ohio University), Powell Robinson (Texas A&M University), Funda Sahin and Ted Stank (University of Tennessee), and Walter Zinn (Ohio State University).

Introduction Logistics and supply chain management (L&SCM) affects the environmental, social and economic performance of organizations (Carter and Rogers, 2008). Pagell and Wu (2009) state that as a consequence:
[. . .] a sustainable supply chain is then one that performs well on both traditional measures of prot and loss, as well as on an expanded conceptualization of performance that includes social and natural dimensions.

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These three components form what is referred to as the triple bottom line (Elkington, 2004). L&SCM can improve the environmental performance of organizations through reductions in the packaging used in the supply chain (Mollenkopf et al., 2005), and the facilitation of reuse, recycling and remanufacture (Fleischmann et al., 2001). Conversely, L&SCM can adversely impact an organizations environmental performance as supply chains tend to be getting longer due to sourcing from low-cost economies resulting in increased consumption of fossil fuel and emissions from transport (Stock, 1978). A further negative environmental impact can be caused by less-stringent regulations on manufacturing in low-cost economies (Carter and Jennings, 2002). L&SCM can possibly impact the social performance of organizations through reduced health and safety costs (Brown, 1996) and the use of sustainable sources of supply (Ciliberti et al., 2008). The economic performance of organizations is, of course, impacted by the supply chain function sourcing from low-cost economies where the labor costs are signicantly lower than the sourcing country (Krugman, 1995). In 2007, Srivastava published an authoritative review of 227 papers on green supply chain management which reveal that this area has become widely covered from the engineering, manufacturing, and logistics angles. The paper also reveals is that there is little convergence between these areas of research:
Research in green supply chain management to date may be considered compartmentalized [. . .] more integrative contributions are needed in the longer term, including intra- and inter-rm diffusion of best practices, green technology transfer and environmental performance measurement.

The editors of this special issue posed some thought-provoking research questions in their call for papers. These questions are integrative and not limited to any function within the supply chain. This paper reports on a roundtable discussion of these questions with leading academics in our discipline who serve on the Council for Supply Chain Management Professionals (CSCMP) Education Strategy Committee. The remit of the committee is to advance integrated thinking within supply chain management and supply chain education. In this research note, we report on the outcomes of that roundtable discussion and the implications for further research in this eld. Additionally, we offer case examples presented at the 2008 CSCMP annual conference from two well-known global companies, Walmart and Cisco Systems. These companies have devoted signicant resources and efforts towards greening their supply chains. These cases are used to complement the academic perspectives, in addition to addressing the call for best practices from Srivastava (2007). Additionally, we hope to address Carter and Rogers (2008) call for further research which posits that:

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A [. . .] valuable research design [. . .] would be to sample companies that have been identied as engaging in sustainable corporate and supply chain management practices, such as organizations that are members of the Dow Jones Sustainability Indices.

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Both cases included in this paper are prominent companies highly engaged (on record) in sustainability and Cisco Systems not only won a 2008 CSCMP Supply Chain Excellence Award for its efforts in this area, the company is also part of the Dow Jones Sustainability Index. The outcomes of the roundtable with academics can hopefully address Carter and Rogers (2008) second call for research: Our hope is that our research will stimulate additional theory-building and conceptual development within the supply chain management discipline. The remainder of this paper is structured as follows. We review, in turn, the three questions posed by the special issue, starting with the outcome of the roundtable with academics and followed by the case examples of companies that have developed real-world solutions. The three questions posed by the editors were: (1) Are current theory and solutions suitable to address current challenges of sustainability and energy efciency? (2) Are time-based distribution with small-size shipments and deliveries at exible dates still environmentally and economically sustainable? (3) Global sourcing is the next step local sourcing? Based upon those implications for further research are generated. Question 1: Are current theory and solutions in L&SCM suitable to address current challenges of sustainability and energy efciency? Despite the prolic nature of existing theory and theory development in this area, discussion in the roundtable of academics went immediately to a number of commonly used economic trade-offs between transport and inventory that were found to still be valid. It was stated that the economic equilibrium in those trade-offs might that change due to changes in energy and fuel prices. With higher fuel prices frequency of delivery might be decreased, networks might be decentralized more and a greater focus might be placed on increased capacity utilization. The risk of this response is that they may be short-term responses to changing economic trade-offs and have little to due with true sustainability. Furthermore, economic trade-offs are constantly changing due to uctuating fuel prices, this however does not lead us to challenge the theory underneath the trade-off. In the recent past, the costs of holding inventory and cost-of-goods-sold (COGS) have been relatively more expensive than the costs of transport in many supply chains. Hence, a lot of production has been globalized and inventory centralized, at the expense of length of transportation lanes and frequency of shipments. In summary, Figure 1 shows the well-known trade-off between inventory and transportation costs. Two changes within this trade-off are in play. First, inventory costs increase due to the credit crunch, focusing companies on reducing working capital and increasing liquidity as nancing raw material and work-in-progress inventory through debt becomes more costly. Second, transportation costs increase due to the increased fuel prices. Owing to the slope of the transportation cost curve, shorter lead times will face

Transportation cost increases duel to rising fuel costs

Inventory costs increase due to credit crunch

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Costs

Short lead time

Long lead time

Figure 1. Cost/lead-time trade-offs

disproportionate increases favoring longer lead times. The overall equilibrium point is at a higher cost level with longer lead times. So, when considering these changes, costs are used as a proxy for sustainability with greater costs leading companies to implement cost-cutting initiatives for example transport network optimization that could be viewed as sustainable. Furthermore, the roundtable participants felt that sustainability might only be at the planning stage for most companies, making it very easy to de-prioritize them in an economic recession. With oil prices going down, many fuel efciency efforts might lose steam and the balance may swing back to reducing inventory as access to credit remains tight and the economy is heading into decline. The participants suggested that this will lead rms away from a focus on prot to a focus on survival and liquidity. However, it was also felt that social costs (e.g. emissions, noise pollution, and infrastructural costs) could be more effectively incorporated in the total cost denition (in addition to transportation and inventory costs). A case example from Cisco Systems on their value recovery program illustrates an inclusive approach to dealing with all of the costs associated with a products design, manufacture, delivery, and disposal. Cisco Systems won CSCMPs Supply Chain Innovation Award in 2008 for its work in this area. The reason why it is relevant to offer in the context of this question is that it proves that efcient resource utilization and re-utilization can be good business practice not just from a social, but from an economic point of view. As a result, it might be concluded that well-known trade-offs still apply but that innovative practice in industry might improve returns economically, socially, and environmentally.

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Cisco Systems value recovery program In 2005, Cisco Systems dealt with US$500m of returned products and parts through a cost center whose annual cost was US$8m. All returns were treated as defective product and service returns with the rationale being that all returns were without value. Furthermore, 95 percent of all returns were scrapped. The 5 percent of returns that were re-used were therefore more accidental than by design. The US$500m in scrap products and parts was equal to a volume of 12 football elds covered knee high with defective products and parts. Cisco Systems made the transition towards a prot making value recovery operation by setting criteria for value recovery and screening all returns for embedded value. The criteria include: can a cosmetic touch up or software upgrade be performed? Can they be broken down into spares or parts or go into the secondary market or even be donated to philanthropy? The lessons learned from this program for Cisco Systems included: . Do not treat all returns the same. There are products and parts that are beyond saving but more often than not things can be used in different ways to generate value. . Uncovering this value requires getting into the details of the product to identify possible ways to recover value and assess the opportunity to do this with a specic product. . Most returns are not defective but are returned for other reasons. . Take a broad view of the opportunity. Think of reverse logistics as a business and approach it like a general manager, not looking only for pennies or operational issues, but instead looking for what value can be brought to other parts of the organization such as the corporate social responsibility department and social efforts. . Learn from other functions. It may require you to take pages from the service manual, learn from nance on quantifying value (returns can provide a tax write off when they are donated to philanthropic causes) and learn from the sales department in running a value recovery program effectively (focus on solution selling, segment the business for opportunities, establish return quotas, and value recovery targets). As a result of the program, 44 percent of returns are now re-used and returns have moved from a cost center to a net contribution of US$85m. This is on top of the non-nancial environmental and social benets. Note: A further description of this program is available from the CSCMP web site. It contains a further write-up of this supply chain innovation award winning case. Walmarts sustainability program Walmart has set three ambitious goals for sustainability: (1) to be supplied by 100 percent renewable energy; (2) to create zero waste; and (3) to sell products that sustain the environment.

In moving towards these goals, several key projects have been rolled out, including changing store design to use more natural light as opposed to electrical light, to catch rain from store roofs and AC units for watering the landscaping. On its eet, the company has introduced auxiliary power units so that when waiting idle for more than 3 minutes the main engine turns off. It is estimated that this alone will lead to US$23m in fuel savings per year. Furthermore, the company worked with its supplier of private label toys to remove excess packaging from 277 childrens construction toy stock-keeping units and to reduce the size of the package. This alone will lead to 727 fewer shipping containers and a US$3.5m saving in transportation costs. Additionally, the company recognizes a marketing advantage as customers frequently ask for sustainability improvements. Research implications Traditional economic trade-offs such as the transport/inventory trade-off do still apply, even though the equilibrium might change with changes in fuel prices and credit availability. The roundtable participants did suggest that social costs and benets are not accurately, if at all, captured in these frameworks. This is consistent with research that posits that sustainable supply chain practices extend beyond simply reducing the amount of transportation (Klassen and Johnson, 2004) and extends into other areas such as social responsibility and corporate image (Kleindorfer et al., 2005) and product design and recovery (Linton et al., 2007). The nding that existing frameworks are applicable and can be adapted is reinforced by the Cisco Systems case example. The company has turned a cost center into a revenue generator with explicitly social benets through its value recovery program. Conversely, it is not able to quantify or assess those benets, with the only trade-off and quantitative assessment being in monetary terms. In short, as much as existing theories and solutions might still apply, there are additional areas of consideration that provide opportunities for further research. Question 2: are time-based distribution strategies with small-size shipments and deliveries at exible dates still environmentally and economically sustainable? The roundtable concluded that given the fact that economic trade-offs between transport and inventory have not disappeared but have only changed with prices. According to the roundtable participations, the answer to this question has to be that these shipments are less feasible but still possible provided adequate fees are paid to compensate for the increased costs. Obviously, the trick might be in getting smarter about transport and logistics as a whole and this is where Walmart offers an example of a company that is making changes that are benecial no matter what the fuel prices. Overall, however it was concluded by the roundtable discussants that companies are taking a predominantly economic point of view, as opposed to an integrated economic, social and environmental triple bottom line point of view. Examples were given of companies that were considering alternative sourcing patterns when fuel prices where high that stopped considering those overnight when fuel prices collapsed. Marketing reasons where mentioned as a driver behind sustainability initiatives by the roundtable participations. This begs the question how sustainable sustainability marketing is. For example, if Walmart is partially driven by marketing and public

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relations (PR) considerations, will the company change direction away from sustainability when a different marketing opportunity arises. Will sustainability by a marketing fad or a long-term trend? Long term enough to earn back investments needed to green the supply chain? Research implication The answer to Question 2 appears to be that time-based distribution with small-sized shipments are still feasible, just perhaps a bit more expensive when fuel prices are higher and when social costs are consider as part of the trade-off. Skinner et al. (2008) call for further research that looks into the impact of disposition strategies on end customer satisfaction. The Walmart example appears to imply that distribution service is not touched but that product design and technology (trucks and stores) are altered. This provides the company with a marketing advantage. As consumers are seeking sustainability as an added service, but not necessarily as an altered service. So, beyond the Skinner et al. (2008) call, this raises the research question: RQ1. Does the marketing edge drive efforts too much and does it distract attention from greater sustainability opportunities? RQ2. How to sustain programs such as Walmarts when the consumer and management attention might shift during an economic recession? Question 3: global sourcing is the next step local sourcing? The roundtable participants indicated that there are certainly companies that are considering moving some production back into markets and reversing global sourcing efforts. The limited is one such organization that has indicated it is assessing such scenarios and Ikea is looking at stepping up in-market production in the North American market. However, this is a logical consequence of transportation trade-offs changing and the transportation downside of global sourcing weighing more heavily than before in comparison to labor costs and the scale economics of global sourcing. It seemed logical therefore that that with dropping fuel prices, considerations have shifted back to global sourcing almost instantaneously. Again, it appears that companies are more driven by economic considerations rather than the triple bottom line and are even a bit short-term and opportunistic in nature. However, according to the roundtable participants, the long-term trend does appear to point towards rising fuel prices and the marketing considerations of sustainability becoming more important. That coupled with the risks of supply uncertainty and labor costs that will eventually rise even in China, a return to local sourcing might become a more feasible consideration in the longer-term. Research implications Having answered all three questions by referring back to existing economic trade-offs, the question for research becomes a three-part one; how do traditional trade-offs become more complex with the addition of: (1) new factors such as social costs, as today most of the decision-making tends to be traditional economic and not yet include social and environmental considerations as much;

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(2) nuances to avoid marketing skewing the trade-off away from sustainability over time if it turns out that sustainability is a marketing/PR fad that might go away; and (3) the length of time for sustainable initiatives to have an impact if it turns out the marketing advantage does not have staying power as long as investment write-off periods. The latter refers to the fact that if fuel prices are driving local sourcing considerations. And if an increase in fuel prices drives companies to consider reversing global sourcing efforts from the past decades. It is than understandable that when fuel prices dropped again these considerations were largely dropped because it is a simple economic trade-off decision within an existing framework, not a new sustainability and triple bottom-line optimization. As such, the question becomes what the timeframe for sustainability is and how sustainable it is as a consideration, and even if it is going to have enough staying power to earn back investment needed in greening the supply chain. This relates to Skinner et al. (2008) who see opportunities to study sustainability longitudinally and over time.

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Summary and review of research implications What the roundtable discussion and the case examples reveal, in answering the questions posed by the special issue editors, is that existing trade-offs and solutions do still apply in todays practice of supply chain management that has not changed. Changing fuel and energy prices are impacting network design considerations, within the existing trade-off framework. So, local sourcing becomes a stronger option when fuel costs are high. But, when fuel costs drop again, local sourcing becomes a less-relevant consideration and this is precisely what has happened over the past year or so. The same applies to inventory reduction. With the credit crunch inventory reduction is favored but when credit becomes more easily available again the trade-off will change, while the framework remains. Customers might value sustainable products and services but that does not mean they do not value fast delivery service anymore. So, in reconsidering the Carter and Rogers (2008) comprehensive framework for sustainable supply chain management, it appears that economic performance considerations, and not environmental and social performance, still largely drive decision making. As a result and in response to Carter and Rogers (2008) call for more theory development, we would suggest based upon our ndings that existing trade-offs can be expanded with: . new factors (such as social costs); . nuances (is marketing skewing the trade-off away from sustainability?); and . time-frames of criticality (what is the time window for sustainability?). We hope that these research implications might inspire further progress in thinking and research, just like the call for papers for this special issue had inspired us. Table I summarizes the questions from the editors, case example, and research implications and questions.

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Question from the editors Cisco systems value recovery program proofs that resource efciency and sustainability can be economically, socially, and environmentally sound current innovative solutions are applicable Walmart sustainability program rather focuses on removing needless transportation through truck and product innovation. The company sees a marketing advantage in that as well, due to customer requests for sustainability

Existing trade-offs such as the inventory transport trade-off still apply but variables are changing. The credit crisis and economic downturn place pressure on inventory, fuel prices, and social concerns place pressure on transportation (2) Are time-based distribution with They are still feasible, but they are also more expensive and possibly small-size shipments and less affordable deliveries at exible dates still environmentally and economically sustainable?

(1) Are current theory and solutions suitable to address current challenges of sustainability and energy efciency?

(3) Global sourcing is the next step Yes, leads to transportation cost local sourcing? benets larger than labor cost and scale advantages of global sourcing. If this happens it might only be sustainable if fuel prices are high with prices dropping the consideration might disappear

Table I. Summary of ndings Summarized academic perspective Case example summarized Research implications and questions Even though existing theories and practical solutions apply, there are additional considerations such as social costs that are not yet quantied or really incorporated into trade-offs this is a research opportunity In stead of touching delivery service, product, and technology innovation provides a marketing edge how sustainable are these and does it steer attention towards the best sustainability? What is the time frame of sustainability considerations? Fuel prices are very volatile will local sourcing considerations vanish as quickly as fuel prices can drop?

References Brown, K.A. (1996), Workplace safety: a call for research, Journal of Operations Management, Vol. 14 No. 2, pp. 157-61. Carter, C.R. and Jennings, M.M. (2002), Logistics social responsibility: an integrative framework, Journal of Business Logistics, Vol. 23 No. 1, pp. 145-80. Carter, C.R. and Rogers, D.S. (2008), A framework of sustainable supply chain management: moving toward new theory, International Journal of Physical Distribution & Logistics Management, Vol. 38 No. 5, pp. 360-87. Ciliberti, F., Pontrandolfo, P. and Scozzi, B. (2008), Logistics social responsibility: standard adoption and practices in Italian companies, International Journal of Production Economics, Vol. 113 No. 1, pp. 88-106. Elkington, J. (2004), Enter the triple bottom line, in Henriques, A. and Richardson, J. (Eds), The Triple Bottom Line: Does It All Up?, Earthscan, London, pp. 1-16. Fleischmann, M., Beullens, P., Bloemhof-Ruwaard, J.M. and van Wassenhove, L.N. (2001), The impact of product recovery on logistics network design, Production and Operations Management, Vol. 10 No. 2, pp. 156-73. Klassen, R.D. and Johnson, P.F. (2004), The green supply chain, in New, S. and Westbrook, R. (Eds), Understanding Supply Chains: Concepts, Critiques and Futures, Oxford University Press, Oxford, pp. 229-51. Kleindorfer, P.R., Singhal, K. and van Wassenhove, L.N. (2005), Sustainable operations management, Production and Operations Management, Vol. 14 No. 4, pp. 482-92. Krugman, P. (1995), Growing world trade: causes and consequences, Brookings Papers on Economic Activity, No. 1, pp. 327-77. Linton, J.D., Klassen, R. and Jayaraman, V. (2007), Sustainable supply chains: an introduction, Journal of Operations Management, Vol. 25 No. 6, pp. 1075-82. Mollenkopf, D., Closs, D., Twede, D., Lee, S. and Burgess, G. (2005), Assessing the viability of reusable packaging: a relative cost approach, Journal of Business Logistics, Vol. 26 No. 1, pp. 169-97. Pagell, M. and Wu, Z. (2009), Building a more complete theory of sustainable supply chain management using case studies of 10 examplars, Journal of Supply Chain Management, Vol. 45 No. 2, pp. 37-56. Skinner, L.R., Bryant, P.T. and Richey, R.G. (2008), Examining the impact of reverse logistics disposition strategies, International Journal of Physical Distribution & Logistics Management, Vol. 38 No. 7, pp. 518-39. Srivastava, S.K. (2007), Green supply chain management: a state of the art literature review, International Journal of Management Reviews, Vol. 9 No. 1, pp. 53-80. Stock, J.R. (1978), The energy/ecology impacts on distribution, International Journal of Physical Distribution & Materials Management, Vol. 8 No. 5, pp. 249-83. About the authors Remko van Hoek (PhD, University of Utrecht) is a visiting Professor of Supply Chain Management at the Craneld School of Management, UK, and Chief Procurement Ofcer at Cofely in The Netherlands. He serves on the Board of Directors of the CSCMP, the Advisory Board of the Procurement Leaders Network (UK based) and on the editorial board of several international academic journals. He is the Co-author of Logistics Management and Strategy (with Alan Harrison) which is now in its third revised edition. Remko van Hoek is the corresponding author and can be contacted at: vanhoekr@hotmail.com

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Mark Johnson (EngD, University of Warwick) is a Senior Research Fellow within the Craneld School of Management at Supply Chain Research Centre. His research focuses on the management of networks that design, deliver, and support complex products and services. He is currently involved in research contracts worth in excess of 2.5m and is Principal Investigator on an EPSRC Innovative Manufacturing Research Centre (IMRC) grant researching the strategies, congurations and relationships within service networks. He has previously conducted a number of research projects funded by the EPSRC IMRC, UK Lean Aerospace Initiative, Rolls-Royce, the UK DTI, PA Consulting, Atos Origin and Pro Logis. He also runs the Agile Supply Chain Research Club, an industry forum of 15 blue-chip companies which aims to develop creative, customised insights into the complexity of todays supply chain environments. His research has appeared in the International Journal of Physical Distribution & Logistics Management, the International Journal of Production Economics, and the International Journal of Logistics Management among others.

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