Benefits of Engaging Value Chain Partners through Lifecycle Practices

Many companies, both within the chemical industry and in other sectors, have recognized benefits from involving their suppliers and customers in various aspects of their business. The area of supply chain management (SCM) has become a critical element in the overall business strategy of improved productivity, reduced costs, and better control of the quality and potential risks associated with raw materials and intermediates. Proactive management of supplier environmental performance, as practiced by Hewlett Packard, can lead to product and process simplification, improved resource efficiency, product quality enhancement, reduced liability, and customer perception of the company as an industry leader.

Within the chemical industry, BASF and Bayer, among others, have instituted aggressive programs to extend their activities up the lifecycle chain. Product safety and environmental evaluation begin at the buying stage, when purchase contracts are negotiated for raw materials for the company's worldwide production facilities. Hundreds of staff members comprising the global purchasing team are not only responsible for buying raw materials and negotiating contract terms, they also assess product and supplier risk using company-developed, life-cycle tools. Assessing environmental and safety standards of suppliers means that a BASF employee from Raw Materials Purchasing visits suppliers and carries out an environmental and safety assessment to ascertain whether they operate effluent treatment plants to minimize pollution and use safety standards that comply with Responsible CareĀ® (BASF website, http://www.basf.de/en/corporate/ sustainability). The aim is not to disqualify suppliers, although in certain instances that may occur. Rather it is to consider suppliers as production partners and use BASF expertise to help suppliers deal with environmental and safety issues and work with them to reduce any potential risks. Although not fully quantified, such partnerships can mean real savings in the form of stabilizing supply, ensuring that environmental issues cannot force shutdown of a critical raw material production process, and reducing the liability of the purchaser due to use or disposal issues (BASF, 2002). Suppliers themselves gain by obtaining access to a larger base of expertise on hazards and risks and can reduce costs by reengineering their business processes and operations.

Bayer recently instituted lifecycle cost reduction for use by procurement personnel with suppliers (Purchasing Magazine Online, http://www.man-ufacturing.net/pur/index.asp?layout = article&stt-000&articleid = CA310878). The database and software allow purchasing staff and the business units they are supporting to identify the most promising cost-reduction opportunities globally and to track the financial consequences of the resulting agreement during the lifecycle of the contract. By doing so, visibility is gained into which contracts with which suppliers are producing the greatest cost reduction benefits.

Extending this type of involvement to the social dimension of SCM is a bit more challenging. Nevertheless, some companies have begun to take the employment and community relations aspects of their suppliers into account. As part of its commitment to the principles of sustainable development, BASF has now supplemented its environmental criteria with minimum social standards. Their purchasing activities comply with the UN's Global Compact initiative - insisting that suppliers reject child labor and do not use forced or bonded laborers. Conditions for the purchase of technical equipment and goods specify that suppliers must comply with the International Labor Organization's (ILO) employment standards.

Other examples of customers using lifecycle approaches to involve and energize their suppliers can be found. The U.S. automotive manufacturers, both individually and collectively through the USAMP initiative, have undertaken to prepare lifecycle inventories for an entire generic midsize passenger vehicle and various components parts of other vehicles. In doing so they needed to engage their supply chain in providing data for the analyses. By itself, this would have been considered a burden and a cost for their suppliers. However as a participant in this exercise, Visteon recognized that they could adopt life-cycle practices in the design and marketing of their own products and leverage the awareness and willingness of the automakers toward lifecycle considerations in product development (http://www.visteon.com/). One tangible result of this, among several, is a new, long-life air filter that Visteon designed around lifecycle considerations and using lifecycle tools to estimate the environmental consequences.

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