Deep Shade of Green

Kelvin Inn looks at three Asian companies that have derived tangible cost and efficiency advantages of a greener supply chain.

Asian consumers are ready to pay more for green products, says the Deutsche Post DHL study “Delivering tomorrow: Towards sustainable logistics”. It also claims that customers in Asia and the Americas consider green transport to be even more important than European customers. How far have companies in the region come along in adopting environmental-friendly thinking? Are there any companies here that have instilled green practices along the entire chain; from product design, material sourcing and manufacturing to delivery and product disposal? What can we learn from them?

China: Guitang Group

The first case is about Guitang, which was established in 1956 and is a state- owned enterprise operating one of China’s largest sugar refineries. Guitang looked at adopting green supply chain management practices early on, as a means to tackle heavy competition and consolidation in the Chinese sugar industry. It initially sought to increase its revenues and profits by setting up new processing plants downstream and utilizing the by-products of upstream plants. Later, it tried to improve relations with its sugarcane suppliers and gain support from the local government for its initiatives. It even started collaborating with local competitors to ensure a steady stream of by-product supply.

A closed-loop system of both material and energy flows thus emerged. Sugarcane farmers signed long-term contracts with Guitang, who in turn provides seeds, organic fertilizer and pesticide use, as well as the technical support to assist farmers convert their farms to organic production. It processes the sugar using a higher quality carbonation process, which yields a filter mud waste by-product that is used by its cement plant. The same cement plant also uses the white sludge by-product from its paper plant as a raw material. Guitang uses the sugar plant’s bagasse residue in its pulp and paper plants. The latter also recycle their black liquor waste to yield alkali. The white liquor waste is treated to recover pulp and paper fibers as well as reusable water. The third by-product from the sugar plant is pith. This is reused as a fuel by a cogeneration power plant (50 percent CO2 emissions compared to coal).

Alkaline wastewater from the paper plant is used as an input for the wet scrubber (air pollution treatment equipment), with the two by-products also reused: Gypsum produced is provided to farmers as a fertilizer and recovered ash is used by the cement plant and for road construction. The last by-product from the sugar plant is molasses. This is used as an input into the alcohol plant. The resultant waste from that is then reused as compound fertilizer and sold back to sugarcane farmers, thus closing the system loop.

Given that the city government is heavily dependent on the sugar industry and that Guitang is a prominent player, they have taken appropriate action to ensure the sustainability of this closed loop system by co-opting the other stakeholders, sugar competitors and sugarcane farmers.

Firstly, smaller local sugar firms are required to send their waste bagasse and molasses to Guitang and local banks are encouraged to offer no-interest or low-interest loans to farmers planting on a larger scale. This also helps provide employment opportunities for bought-out farmers. Secondly, the local government also places requirements on Guitang to pay farmers a certain minimum price to incentivize them to plant enough sugarcane and meet utilization targets for the bagasse sourced from local competitors.

India: Seshasayee Paper & Board

The second case involves Seshasayee Paper & Board (SPB), a paper company established in 1962 in Tamil Nadu, India.

Similar to Guitang, its original motivation was to increase revenues and profits, setting up a sugar mill to ensure a steady supply of raw materials, and then an alcohol distillery plant to re-use the sugar plant’s waste molasses and produce ethyl alcohol. SPB also took an interest in co-opting local sugarcane farmers and signed long- term agreements in return for supplying them with treated wastewater from their paper plant. SPB also used bagasse pith from their paper operations and other local combustible agricultural wastes, as an energy source in their methane power generation plant.

Japan: Fujitsu

The third case focuses on the green logistics efforts of Fujitsu, a Japanese information technology and electronic appliances multinational company in Japan. The impetus came from a steering committee to find ways to increase their efficiency and lower costs and environmental burden. To this end, the steering group started from the perspective of their customers first, gathering feedback and then re- organizing their customers into three tiers of delivery time preferences (two days, three days, and four-five days). Goods meant for those customers in the slowest delivery tier could then be transported via cleaner and cheaper rail transportation instead of by truck.

Other initiatives included developing a system to share common distribution centers with other Japanese companies, increasing the loading rates by delivery trucks and reduce total distances travelled. Fujitsu’s electronic devices group consolidated the use of three transportation companies into one, and switched to use of a distribution center. Paper transportation pallets were used instead of wooden ones to lighten the weight of materials employed in the distribution and improve efficiency and reduce the volume of chemicals utilized for fumigation when exporting. Charter service operation routes between delivery centers and customers were reorganized, and changed from single- destination to circular delivery, thereby rationalizing routes such that a single journey delivers goods to multiple customers in different locales, and not just to one customer. Regular mail service delivery of parts to partner companies was promoted instead of on-the-spot service delivery.

Lesson Learnt

The Chinese and Indian companies illustrate the 3Rs principle of Reduce, Reuse and Recycle. They also highlight how companies can increase their revenues and profits and grow into new related businesses by utilizing the waste products of some businesses for power generation or as raw material in other businesses.

The Japanese IT multinational case illustrates the benefits of centralization, infrastructure sharing and route optimization in a local context, all involving a simple series of actions that combined, can result in relatively large efficiency improvements and cost reductions.

All three case studies reiterate the importance of building effective incentives with external parties (suppliers, competitors, customers and government) to improve the robustness of the supply chain system on all levels: local, national and international. They also contradict a common business maxim that there must be trade-offs in business in green supply chain management. In fact, they demonstrate that it may be possible to have your cake and eat it too, resulting in better quality, lower costs and higher revenues.

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