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The high-tech industry operates in a competitive environment with a complex and long value chain that has become increasingly dynamic. The changing regulatory and environmental requirements and the push from stakeholder groups for accountability and transparency in practices are a few of the key drivers in this environment. Financial benefits accruing from sustainable practices are other drivers.
Thus, the players in the high-tech industry have now embarked on a path towards achieving a "Green Enterprise." They are employing sustainable practices internally as well as externally in collaboration with supply chain partners. However, the road map towards a greener supply chain is full of challenges that each organization has to overcome. IT solutions can offer a robust and scalable foundation to support the initiatives of the companies in this direction. In this document, we review the drivers of this paradigm shift as well as how an appropriate choice of IT solutions can help in the transformation to a greener high-tech industry.
Green SCM: Concept and Relevance to High-Tech Industry
Environmental concerns such as global warming, toxic substance usage and decreasing non-renewable resources have increasingly become one of the key focal points of major debates and lobbying in the global political, social and business world in recent times. During the past few years, a consensus has emerged that environmental issues induced by industrial development should be addressed throughout the supply chain to ensure an effective and a collaborative approach is taken to tackle these issues. This has led to the emergence of the concept referred to as "Green Supply Chain Management (GSCM)".
Be it Raw Material, Manufacturing Processes, Distribution, End Customer Usage or End of Life disposal, all the elements of manufacturing supply chain can be a reason for pollution, waste and other hazards to environment. Hence, there is an ever increasing pressure to take active steps towards implementing green methods across all these fronts.
GSCM is basically an enhanced, long-term sustainability oriented view of the traditional supply chain of the business. It focuses on not just economic but also ecological impacts and is targeted towards optimizing both of these. This view becomes critical for the high-tech manufacturing industry since by its sheer nature, material transformational processes and operations have direct impact on the environment.
Green SCM: Trends, Challenges and Opportunities
It is acknowledged by all organizations that needs of the community are as important as those of other traditional stakeholders. IBM has announced its Green Sigma Coalition, an industry alliance among high-tech companies. Green Sigma is an approach that applies Lean Six Sigma principles and practices to energy, water, waste and greenhouse gas emissions throughout a company's operations, which include manufacturing, transportation and distribution center operations that make up a product's value chain.
We have identified a few key areas where adoption of greener practices and greener solutions are being / should be embraced by firms in attaining goals of meeting regulatory compliance and sustainability. IT solutions can provide the required foundation to support the business processes and provide tools to measure, contain, mitigate and solve environmental problems which is critical to a sustainable future. The key IT focus areas in GSCM that enable a transition to a green organization are:
• Product Life Cycle Management
• Supply Chain Network and Logistics Optimization
• Process Optimization
• Green Reporting
In the following sections, we will analyze the trends and challenges in these key areas and how IT can help in achieving the green targets.
A. Product Life Cycle Management
High-technology industry is facing the challenge of ever increasing demand for innovative new products at lower prices but of improved quality while ensuring regulatory compliance. To meet these demands and maintain profitability, electronics and high-tech companies must relentlessly accelerate product innovation and introduction, minimize costs, and manage risks arising due to a changing regulatory scenario. One of the prominent trends in the high-technology industry is the increasing amount of regulation that can slow down the time to market of new products or in worst-case scenarios threaten the product life cycle itself.
There are several pieces of environmental legislation that are aimed at reduction, if not elimination, of hazardous materials included in many products. Some of the key regulations are the Restriction of Hazardous Substances (RoHS) directive and the Waste Electrical and Electronic Equipment (WEEE) in manufacturing and electronics industry; IMDS (International Material Data Systems) reporting; and ELV (End-of-Life Vehicle) in the automotive sector. The European Union estimates that more than 80 percent of a product's environmental impact is determined in the product conception phase. Companies that cannot manage product compliance across the range of regulatory bodies can suffer costly business interruptions such as product redesigns, delayed market launches, product returns and recalls. Hence, effective lifecycle management is a key short-term as well as long-term differentiator to get an edge over the competition.
IT products and solutions can help electronics and high-tech companies to effectively leverage the product management space by driving product innovation, speeding up the product launch lead times, and managing risks by ensuring compliance, thereby facilitating a timely move towards greener lifecycles.
• In the concept phase, PLM tools help effectively manage product and program schedules, costs and resources.
• In the design, development and pilot phases, PLM tools enable collaboration with suppliers and customers, and enhanced re-usability options helping in designing products with the right cost, quality and suppliers.
• In the launch phase, PLM tools facilitate rapid implementation of changes and effective relationship management.
• In the production phase, PLM helps control product lifecycle costs.
• In the service and support phase, PLM aids accurate capture of defect information for quick resolution and incorporation in next generations of the product.
• In the phase-out, PLM tools help ensure environmental compliance as per regulations.
Agile Product Governance and Compliance solution (which is one of the elements of Oracle's Agile PLM suite of products) has the capability to provide the backbone for compliance support in an organization by helping manufacturers audit the presence and amount of regulated substances used in their products. Additionally, it facilitates the disposal, recycle, or re-use of parts containing those substances thereby ensuring regulatory compliance throughout the product lifecycle. Its environmental compliance functionality supports RoHS, WEEE, China RoHS, and Japanese Green Initiative. The key core functionalities of Agile Product highlighted below enable tracking and maintaining full compliance by linking critical steps in the product lifecycle:
• Design for environment functionality to build products that satisfy environmental regulations and allow what-if analysis.
• Effective change management for potential changes in the regulations as well as the product compositions by enabling detection when products move out of compliance.
• Performing hazardous materials compliance risk analysis and generating reports which enable access to regulatory information faster and provide auditors with accurate and transparent data.
• Provide repository of information about resources and materials used in the production of the product including material declarations and certificates of compliance. This is done in a central database that can be enhanced with content from industry sources as well as third party databases.
• Tracking and logging of all actions taken in the system to ensure compliance with internal and external policies and procedures.
Universal Scientific Industrial (USI) Co., Ltd, for example, one of Taiwan's largest electronic components manufacturers, implemented Oracle's Agile PLM enabling it to automate manual processes, replace paper with electronic records, and improve the flow of documents and information across the enterprise. As a result, USI cut product development time from six months to two months, giving it a significant competitive advantage. Using the Agile product modules, USI can now also communicate with customers, suppliers, and manufacturing partners in real time, ensuring it has greater control over the manufacturing and supply chain lifecycles.
B. Supply Chain Network and Logistics optimization
This is a broad focus area which essentially covers three topics - Transportation, Reverse Logistics and Strategic Supply Chain optimization.
In the high-tech supply chain, Transportation is a significant component after manufacturing. This is because the chain itself has a high number of players like Semiconductor Players, Component Manufacturers, Component Distributors, Contract Manufacturer's / Electronics Manufacturing Services (EMS), Original Equipment Manufacturers (OEMs), Product Distributors, Software and Service Providers and End Customers. Any given product can take any path / route to market.
Inefficient transportation methods in the modern supply chain represent a significant part of the ecological problem. This has been illustrated by a recent report by "Eyesfortransport" that found that as much as 75 per cent of a company's carbon footprint comes from transportation and logistics alone.
Transportation management applications support load consolidation and route planning to drive cost savings and reduction of environmental impact. Oracle Transportation Management (OTM) can become partners for waste reduction and make transportation and logistics lean. Some of the features are:
• The schedule for the Milk Run (ability to service multiple customers/suppliers in single trip) in OTM and the subsequent shipments help the manufacturer have several runs for a pre-defined route.
• Planning engine takes care whether to build a Multi-Stop, LTL, Direct or a Multi-Leg based on all the constraints on the order.
• OTMs Supply Chain Event Management tracks the shipment which helps in planning at the warehouse so that the truck idle time and hence emissions are reduced. This implies higher loading/unload efficiency by achieving dock optimization.
• Cooperative Routing feature of OTM identifies repetitive routes and helps in determining the right number of vehicles required for a particular route resulting in increased efficiency per unit of distance traveled. This supplements the Transport Network rationalization.
• Fusion Transportation Intelligence module provides a means to monitor Key Performance Indexes like number of on-time deliveries, number of late deliveries, total load pre lane etc.
Reverse Logistics manages the handling and disposition of returned goods, improving a company's ability to put returned goods back on the market. Because of the strict norms pertaining to disposition of goods in the high-tech industry, this is a very strategic area. Companies implementing reverse logistics processes can dramatically reduce the waste going into landfills and increase opportunities to reintroduce returned products to market. This obviously has economic benefits too.
The key modules in Oracle Applications that support reverse logistics processes are:
• Customer service management helps managing customer complaints and ensuring service contract compliance.
• Spares Management reverse logistics process includes features specifically designed to address the needs of field service like excess identification based on max levels, advanced routing to determine the returns destination, handling of excess returns using business rules to prioritize based on impact on inventory value.
• Transportation and Logistics supporting authorizing returns, collecting, sorting, testing, stocking, shipping (transportation) and disposition.
• Depot repair to managing repair, remanufacturing, reassembly and reuse of salvaged components.
In one of the well-known industry successes, Xerox has implemented a reverse logistics solution and has achieved huge financial benefits of equipment remanufacture and parts reuse amounting to over hundred million dollars a year, thereby also reducing the waste from landfills.
Another important need is to be able to simulate the outcome of unpredictable events in the supply chain network flow and evaluate the supply network design more frequently. Organizations need to work towards designing optimum supply chain networks for sustainability incorporating criteria like fuel usage, carbon emissions, etc. Also, business events like mergers and acquisitions require that environmental impact is also factored in the benefit analysis statements.
Oracle Strategic Network Optimization enables organizations to perform such kind of analysis by providing below key features:
• Optimizing the supply chain to reduce carbon emissions by considering the complex costs and constraints that drive network design and facilitates decision on the most optimal network configuration to run the business.
• The system considers all supply sourcing decisions, including production, distribution, capacity, labor and the environment before recommending optimal sourcing strategies and product-facility assignment strategies for businesses.
• Mitigate supply chain risk by modeling potential unplanned events like new environment guidelines in a particular country, understanding their impact and determining cost effective mitigation strategies.
• Simulating changing business conditions by providing easy to model what-if analysis capabilities. A typical application of this feature is in evaluation of post-merger supply chain network and taking decisions to reduce the carbon footprints.
• Oracle Strategic Network Optimization provides time-phased sourcing decisions on what facilities and suppliers should provide which products to which markets and what transportation methods and lanes should be used. For example, when evaluating whether to move production offshore, organizations can weigh the trade-off between lower offshore production costs against the increase in transportation costs, working capital, and environmental impact.
C. Process Optimization
In high-tech industry, significant benefits can be attained by targeting the core business areas of Manufacturing and Procurement by restructuring them towards a leaner mode of operation.
High-technology companies have embraced the principles of lean manufacturing, to improve the synchronization of production with customer demand and supplier capacity. The focal areas of green manufacturing are reduction in energy and water consumption, waste (both hazardous and non-hazardous Waste) and emissions which are part of manufacturing processes.
Oracle Lean Manufacturing allows companies to implement processes that eliminate the wastes that inflate costs, lead times, and inventory requirements and facilitates the adoption of lean manufacturing principles. With Oracle Lean Manufacturing, companies can more easily adhere to environmental compliance initiatives and develop processes that promote environmental sustainability. Functionality built in Oracle E-Business Suite helps replace physical Kanbans with electronic pull systems that communicate materials requirements automatically and provide highly visible cues between supplying and consuming operations. Real-time feedback on process performance against established objectives provides a foundation for continuous improvement.
Sustainable procurement, as part of an improved procurement process, seen as an organizational priority which questions the need to spend, cuts out waste, seeks innovative procurement solutions which are environmental friendly. There are valuable gains that can be realized through improving transparency of supplier products and processes identifying those areas where improvements can be made. Responsibility of a supplier's products and processes does not stop with the immediate supply base; today's companies need to understand the practices of their full supply chain, including the entire multi-tiered supply base.
Oracle Lean procurement solutions are based on three core principles that are derived from demand-driven manufacturing:
• Migrate from push to pull by enabling procurements processes in real-time mode using tools like Buyer Workbench and Supplier Self-Service collaboration portals to connect buyers, suppliers and partners.
• Develop a flexible and responsive supply chain.
Oracle Advanced Procurement consolidates information from all procurement processes across all lines of business - from both Oracle and non-Oracle data sources - and automates the entire procurement cycle from PO creation to settlement.
The system uses Oracle Daily Business Intelligence, and sorts information by commodity, supplier, organization, geography, time and contract type. This enables companies to easily monitor pricing trends, contracts commodity performance. This gives the visibility needed to drive down costs whilst ensuring that sustainability metrics are not being compromised.
D. Sustainability and Environmental "Green" Reporting
Measuring and reporting the environmental impact is the first step towards setting on the path of reducing them. There are direct benefits to organizations from measuring and reporting as it gives a better understanding of their exposure to the risks of climate change. A demonstration of leadership will also help strengthen their green credentials in an increasingly environmentally conscious marketplace. Globally, sustainability and environmental reporting are becoming one of the most important management concerns due to increasing pressures of legislation as well as voluntary disclosure initiatives.
While companies focused on green initiatives are looking for ways to create environmental progress reports, the challenge remains to quantify and report the emission and environmental footprints. It can be a time consuming and costly process that requires extraction of data from multiple systems and manipulating it to arrive at required reports.
The key attributes that organizations are looking for in the environmental reporting are:
• Relevance: It should appropriately reflect the emissions to satisfy decision-making needs of both internal and external stakeholders.
• Completeness: All GHG emissions sources and activities from the business / operations should get measured and reported on.
• Consistency: Methodologies should be consistent to allow meaningful comparisons of emissions.
• Accuracy: Reported data should be systematically accurate so as to assure the integrity of the reported information.
• Scalability: The reporting system should be scalable and flexible to comply with the changing laws and regulations and audit requirements.
Reporting is an area in which intelligent IT solutions can help companies increase the efficiency, comprehensiveness and compliance by significant amounts by ensuring that a repeatable, auditable and consistent approach is implemented. By incorporating the environmental reporting flavor in IT systems, organizations can achieve the strategic objectives as well as meet the regulatory requirements satisfactorily in an automated manner. The solutions can be customized to meet the specific need of the organization or it can be implemented using offerings by software product providers like Oracle.
Oracle provides the tools and packaged solutions to meet the growing need of corporations on sustainability reporting front using its wide product portfolio. Listed below are some of the key offerings that can help in this area:
• In a major step towards simplifying environmental reporting, in mid-2010, Oracle has pre-integrated GHG Accounting Software with Oracle E-Business Suite and JD Edwards Applications. This pre-integrated solution provides additional data capture, analysis and presentation capabilities that help organizations assess their current carbon footprint, and comply with internal / external reporting standards. The solution can also be used to track additional environmental metrics such as waste and water consumption and complies with standards published by the World Resources Institute and the World Business Council for Sustainable Development.
• Oracle's enterprise performance management (EPM) and business intelligence solutions enable customers to support sustainability reporting and management initiatives. EPM applications provide the ability to collect economic, environmental, and social metrics from financial and operational data sources, and use it to consolidate, and report this information for regulatory bodies and other external stakeholders.
• Oracle Business Intelligence Enterprise Edition (OBIEE) is a comprehensive business intelligence platform that delivers a full range of analytic and reporting capabilities. Oracle's BI tools can be utilized to present environmental metrics to internal management via graphical dashboards resulting in improved decision-making, better-informed actions, and more efficient business processes.
• Companies can also implement Oracle Hyperion Financial Management to reduce the lead time for generating sustainability reports. It enables firms to transition from a fragmented process to a more streamlined approach towards reporting.
Green practices and a green supply chain have now almost become a necessity due to both regulatory obligations and inherent economic benefits. Increasingly the companies are giving a greener shade to their brands to promote loyalty of customers, who are getting more aware about the socio-ecological implications of businesses.
Economic activity has an impact on, and responsibility towards, the environment and the society; and industries need to factor this into their business operations and costs. IT-led innovation will be critical in measuring and managing the green impact.
In the context of the high-tech industry, the need for a green supply chain is to document their own marketing claims of environmental sustainability, to satisfy customer mandates or to comply with government regulation. However, the vast amounts of data involved means that utilizing IT products is the best way to meet the challenge. Key impact areas in the supply chain like PLM, Transportation and Logistics, Manufacturing, Procurement and Reporting can be effectively supported by various IT products available today in an organization's endeavor towards becoming green.
Ranjan Gupta is a Lead Consultant with Oracle Enterprise Solutions group at Infosys Technologies Ltd (NASDAQ: INFY). Ranjan has over 7 years of experience in IT with expertise in Supply Chain and Advanced Planning areas. He has worked on large ERP transformation projects in Hi-Tech domain and has been instrumental on solution design & development.
Pankaj Kalia is a Senior Project Manager with Oracle Enterprise Solutions group at Infosys Technologies Ltd (NASDAQ: INFY). Pankaj has over 15 years of industry and consulting experience and has worked on a host of ERP transformation projects in discrete manufacturing and Hi-Tech domain.
Ashish Shrivastava is a Lead Consultant with Oracle Enterprise Solutions group at Infosys Technologies Ltd (NASDAQ: INFY). Ashish has over 11 years of experience in Manufacturing domain and IT with expertise in Supply Chain and Manufacturing systems. He has worked on large ERP transformation projects in Hi-Tech domain and has been instrumental on solution design & development.
Source: Infosys Technologies
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