What is Green Supply Chain Management: Objectives, Importance, Best Practices, Benefits, Examples

Worldwide supply chains are great for international businesses, but they are also significant sources of CO2, greenhouse gases, and other air, water, and soil pollutants. Rapidly rising global temperatures, changing weather patterns, and climate disasters have raised concerns about the sustainability of supply chains in their conventional forms. Every sector is investing in pro-environment supply chain management infrastructure. 

This article explains green supply chain management and how it is emerging as the next big thing in the supply chain management domain. Stay with us.

What is green supply chain management?

Green supply chain management is a set of standardised practices and strategic approaches to implementing control on conventional supply chain activities to make them environment-friendly and sustainable. Often, green supply chain management is also defined as incorporating 4R and 1 D. Here, 4R AND 1D stand for REDUCE, REUSE, RECYCLE, RECLAIM, and DEGRADABLE. 

Such approaches promote innovation and the adoption of practical tools and techniques to make supply chains least harmful to the ecology.

Objectives of green supply chain management

Any green supply chain management can have 6 primary objectives based on industries and companies. These are: 

• Reduction in emission of greenhouse gases 
• Increasing use of renewable resources 
• Minimising waste in supply processes 
• Sustainable sourcing through collaboration 
• Compliance with environmental protection regulation 
• Ensuring transparency and accountability 

Reduction in greenhouse gas (GHG) emissions —The Footprints of any supply chain network can contribute significantly to the emission of greenhouse gases like carbon dioxide, hydrofluorocarbons, sulphur hexafluoride, and many more. Green supply chain management aims to track GHG emissions throughout a supply chain and incorporate accountabilities to reduce such emissions through alternative technology interventions.    

Increasing use of renewable resources—A company can begin showing commitment to adopting a green supply chain by decreasing its reliance on fossil fuels and electricity from fossil fuels. Increasing the use of on-premise and off-premise solar and wind energy can also offset the ecological impact of conventional supply chains. 

Minimising waste in supply processes - Ecologically harmful industrial wastes are significant soil and water pollution concerns. Such waste may seep into our food chain through freshwater sources and agricultural fields. Green supply chains counter such problems through multi-pronged strategies like reducing industrial waste to zero, adopting better waste treatment facilities and promoting biodegradable packaging materials in final goods delivered to consumers.   

Sustainable sourcing through collaboration—This covers both the use of sustainable raw materials and the way raw materials are extracted, handled, and supplied. Implementing sustainable sourcing for any individual company is difficult. So, sustainable sourcing has to be a collaborative process involving Tier-1, Tier-2, and Tier-3 suppliers, building their awareness of the economic benefits of adopting sustainable sourcing. 

Compliance with environmental protection regulation—Governments across countries are legislating stricter environmental protection regulations. A major aim of green supply chain management is to ensure compliance with such regulations at every supply chain footprint. This helps to avoid business disruptions because of legal ramifications and also proactive implementation of ecology-friendly supply chains.  

Ensuring transparency and accountability involves data-driven supply chain management decisions that provide visibility into the environmental impact of the supply chain processes. Without this transparency and accountability, it can become difficult to establish ecology-friendly supply chain initiatives in front of regulators and consumers. 

Why is green supply chain management important?

Traditionally, supply chain decisions are based on concerns about efficiency, costs, and customer satisfaction. Green supply chain management's importance can be attributed to all these factors, along with reducing the negative impact of supply processes on the environment. 

A green supply chain and its effective management are essential for any organisation for the following reasons: 

• Reducing the negative environmental impact of supply chain footprints
• Enhancing brand image through social value addition 
• Improving resource utilisation and process efficiency 

Reducing the negative environmental impact of supply chain footprints - Every country and region faces the burden of global warming, changing climate conditions and their subsequent implications on socio-economic situations. If one part of the world is suffering from drought and excessive heat waves, the other part is experiencing devastating storms and incessant rainfalls. These affect businesses regarding operational disruptions, property damage, employee productivity, and increasing insurance costs. So, immediate action to control global warming and its other consequences is essential for companies of any size to safeguard their long-term business interests. 

Enhancing brand image through social value addition—The success of every business ultimately depends on the success of consumers and communities. Today, the environmental impact of industrial supply chain footprints is well-documented and scientifically established. Strong public awareness about these issues is causing severe damage to the corporate brand identity of many companies. So, adopting an ecology-friendly supply chain can help companies build a positive brand image and improve their long-term business viability. 

Improving resource utilisation and process efficiency—One of the primary objectives of a green supply chain management initiative is to reduce waste and promote reuse and recycling. These actions can improve resource utilisation at every point of a supply chain and help create a significant positive impact on the bottom line. 

Components of green supply chain management

The essential components of green supply chain management are: 

1. Green Sourcing 

It involves selecting sourcing partners based on their performance in environmentally sustainable business practices and choosing raw materials that have zero harmful environmental impact. 

2. Green Manufacturing 

Green manufacturing can involve:

• Choosing the least polluting manufacturing methods.
• Zero discharge of untreated effluent from factories.
• Green waste management.
• Using renewable energy.  

3. Green Warehousing 

Environmentally sustainable supply chain management promotes using warehouses based on ecology-friendly business principles and renewable energy.

4. Green Logistics 

It may involve fleets running on eco-friendly fuels, renewable electricity in warehouses and cold chains, spatial intelligence to reduce the wastage of logistical resources, and seamless information flow across logistical sub-chains for more process control. Reverse logistics can also help achieve green supply chain management. 

5. Green Distribution 

Distribution processes can have a significant ecological impact because of non-degradable packaging materials, excessive packaging material use, inefficiencies in order processing, and last-mile delivery management. Green supply chain management can address these issues to remove potential ecological impacts.  

6. Continuous data-based monitoring and evaluation   

Green supply chain management is a dynamic process that considers different key performance indicators (KPIs) to monitor and evaluate the impact of sustainable supply chain initiatives. The aim is to identify areas for improvement and enhancement.

Green supply chain management best practices

Best practices help implement management processes in a sensible way and avoid confusion. So, companies adopting green supply chains must follow a few standard best practices. 

• Establish long-term sustainability goals. This will help keep the sustainability roadmap on track and plan out companies' short and medium-term implementation routes. 
• Implement an information technology framework for monitoring. One of the critical components of green supply chain management is an information technology infrastructure that can track every process, store data, and make information available for analysis and modelling. So, any effort to adopt a sustainable supply chain must begin with establishing an appropriate IT system. 
• Adopt sustainable product and process design. Any company trying to adopt and implement sustainability practices must make these initiatives an integral part of their product and process design activities. 
• Make a team or person accountable for organisation-wide implementation. Visibility of supply chain processes and delegating accountability are essential for successfully implementing a green supply chain. It helps build trust, monitor performance, and increase employee engagement.  
• Collaborate with suppliers for sustainability practices at their ends. - Suppliers and vendors are essential stakeholders in a supply chain. For companies to adopt seamless sustainability practices, it is essential to collaborate with suppliers across the Tiers. The first tier of suppliers and vendors must have their own organisational roadmap for sustainability implementation. Otherwise, it isn't easy to encourage second and third tiers to adopt new processes and practices. 

Benefits of green supply chain management

Previously, many companies perceived implementing sustainable practices as an excess burden on the bottom line, despite many adopting these practices to comply with regulatory obligations. However, the business fraternity is slowly and steadily realising the economic value of green supply processes. 

Some of the significant benefits of green supply chain management are: 

• Environmental conservation 
• Cost saving 
• Brand identity building 
• Risk management 
• Regulatory compliance 

Environmental conservation is the prime benefit of green supply chain management. Sustainable supply chain practices reduce greenhouse gas emissions, minimise fossil fuel usage, increase renewable energy usage, and help incorporate sustainability as part of the product design process. Certain industries are significant contributors to ecological disruption by their operations. Without their active participation, bringing our ecology back on track is difficult.

Cost savings—Implementing certain sustainable practices in sourcing, distribution, and manufacturing may require new investments and expenses. However, several studies have shown that cost savings due to energy efficiency, waste reuse and recycling, and process efficiency can help companies make significant savings over the long term. Many organisations have realised the cost efficiency a green supply chain can offer over conventional practices.

Brand identity building - Business success largely depends on the company's and its products' brand value. Young consumers value sustainability and want to be associated with pro-environment brands. The rapid growth of social media has increased the importance of public perception building and maintenance of that perception. Substantial brand value can attract consumers and increase revenue. At the same time, association with environmentally fragile business practices can significantly destroy brand value. Adoption of sustainable business practices can also help businesses.

Risk management—Sourcing, transportation, and logistics are highly susceptible to climate change. Many in the food processing industry suffer because of climate change-induced disruptions in agricultural activities. Sustainable supply chains can counter such disruptions by diversifying sourcing partners, reducing dependencies on scarce resources, and ensuring regulatory compliance.

Regulatory compliance—Across countries, business regulations related to environmentally affecting business practices are becoming stricter. We can think of Corporate Average Fuel Economy (CAFE) standards for automobile companies. Other examples can be regulations on temperature-controlled transportation fleet owners regarding maintaining statutory energy efficiencies and the use of eco-friendly refrigerant gases.  

Companies that use green supply chain management in India

Some of the prominent names in corporate India for adopting green supply chain management are:

• Godrej Consumer Products - They have reduced specific energy consumption by 39% in FY22-23 and increased the renewable energy portfolio to 31.6%. Godrej Consumer Products has also achieved a 48% reduction in greenhouse gas emissions during the same financial year. 
• ITC - ITC's supply chain has a strong linkage with sustainable practices. As per their FY2023-24 annual report, their Trade Marketing & Distribution is focussed on renewable energy adoption in the processes. During the same period, their electrified fleet adoption has increased by 2.7 times compared to the previous year.  
• Mahindra Logistics - They have set a long-term target of making their operation carbon-neutral by 2040. MLL aims to achieve a net-zero target in electricity consumption by 2026 and 100% recyclable packaging by 2028. Net-zero electricity consumption means shifting dependencies on fossil fuels to electricity from renewable sources.  

Along with these companies, all large public limited companies in India have committed to using more electricity from renewable sources, reducing their emissions, and adopting sustainable distribution and logistics. 

Green supply chain performance indicators (KPIs)

• Recycling rate - It shows the total volume of recycled and repurposed materials used in a process divided by solid waste generated in the same business process, like manufacturing, warehouses, etc. 
• Net-zero electricity consumption is the difference between a company's total electricity consumption and total electricity generated from renewable sources, such as rooftop solar systems and biogas power plants. 
• Greenhouse gas emission - This is an absolute indicator that helps to track GHG emissions in manufacturing, transportation and other business processes. 
• Supply chain waste generation tracks waste generation throughout a product's lifecycle from raw materials until it reaches the consumer. The formula is the total solid waste a business generates divided by its production volume.  
• Water consumption indicators—These are multiple indicators involving total water consumption, consumption of recycled water, and the amount of water treated before being released to the environment by a business. 
• Material quality for future value creation—High-quality raw materials can help improve a product's recyclability and reusability. This indicator helps identify the quality of materials used in a product.  

Challenges of green supply chain management

• Increase operational costs—Sustainable business operations can increase a company's operational expenditures. In a competitive market, passing such excess costs to consumers is difficult. 
• Capital expenditure requirement —Green supply chain management requires a significant investment in IT infrastructure, pollution control devices, and other fixed costs. This discourages small and medium-sized companies from adopting sustainability voluntarily.
• Unexpected delays in the supply process—Adopting electrified transportation and other sustainable interventions can cause significant delays and longer lead times, at least in the initial phase. This can be a considerable challenge. 

Disadvantages of green supply chain management

Sustainability must be balanced with any business process and the community they are serving. However, incorrect implementation, lack of regular monitoring and absence of collaborative practices can cause some initial bottlenecks, such as:

• Data risk: Sustainable supply chain management requires IoT-enabled and sensor-based IT infrastructure for real-time data collection, storage, and analysis. Lack of information security measures can cause companies to lose important business data. 
• Loss of competitive edge—Implementing sustainable business practices requires incurring extra costs that can cause a business to lose its competitive edge in the market. However, industry-wide adoption and regulations can help overcome this challenge. 
• Customer backlash—Often, companies engage in greenwashing or superficial adoption without serious efforts and investment in sustainable business practices. Such greenwashing can seriously harm a company's brand credibility.