Published on May 29, 2014
1 Identify strategies to implement GSCM In manufacturing industry – using AHP Karim Khayat Abstract: It has been increasing in consciousness of the environment in the last few decades. More people are aware of the world’s environmental problems such as global warming, toxic substance usage, and decreasing in non-replenish resourcesi . In addition awareness exists among companies which seek to become green. This study presents the various strategies to implement a GSCM in manufacturing industry. It focuses on the use of decision making models; the model used here is AHP. This method is used in such a way that helps in evaluating different criterion under each strategy, and therefore deciding about best strategy needed. Key words: GSCM, AHP, strategies, priority weighthing Introduction: Recently, people, especially consumers, become aware of all issues that threaten their existence, and therefore they put more pressure on companies to promote a healthy environment by adopting the necessary techniques. The trend nowadays is summarized by 4 words: Green Supply Chain Management (GSCM). A Green Sustainable Supply Chain can be defined as "the process of using environmentally friendly inputs and transforming these inputs through change agents - whose byproducts can improve or be recycled within the existing environment. This process develops outputs that can be reclaimed and re-used at the end of their life-cycle thus, creating a sustainable supply chain."ii It is not an easy task to have a sustainable supply chain which typically begins with the acquisition of raw resources and ends with the delivery of the final goods to customers. In order to reach such sustainable chain, the starting point is that the company should identify the long-term policies and the effective strategy toward a sustainable future state, and therefore take some rigorous decisions. Therefore, in this study we will provide a sample on how to use AHP decision model while seeking the best strategies to achieve the best GSCM in the manufacturing industry. Literature review: The concept of SCM has been remarked as major trend of the management. Note that this chain includes not only suppliers and manufacturers, but also warehouses, retailer’s transporters, and consumers
2 themselves; so it is a distribution and facility network that carries out the activities of material procurement and its reformation into finished and intermediary products as well as the finished products distribution to customers.iii GSCM, on the other hand, is innovative chain supply management from green purchase, green packaging, green manufacturing, and reverse logistics. Methodology: In manufacturing industry, where the need of GSCM become beneficial, not only for helping the environment but also for making more profit and reducing costs, it is necessary to identify the appropriate strategies to implement Green Supply Chain Management. Major strategies in this field have been categorized in four dimensions based upon their direct or indirect role in greening the supply: (1) non-members of supply chain, (2) downward stream supply chain members, (3) organizational perspective and (4) upward stream supply chain members. Relevant strategies are identified through extensive literature review and discussion with experts. AHP technique has been used to rank the strategies of GSCM implementation in manufacturing industry. Analytic Hierarchy Process (AHP) is one of Multi Criteria decision making method that helps the decision-maker facing a complex problem with multiple conflicting and subjective criteria; it is originally developed by Prof, Thomas L. Saaty in 1980. In short, it is a method to derive ratio scales from paired comparisons. The input can be obtained from actual measurement such as price, weight etc., or from subjective opinion such as satisfaction feelings and preference. AHP allow some small inconsistency in judgment because human is not always consistent. The ratio scales are derived from the principal Eigen vectors and the consistency index is derived from the principal Eigen value. iv The application of AHP consists in three parts, namely, making the hierarchy structure of the decision problem, evaluating the weights of the answers by pair wise comparison and calculating global weights. Narrowing our study to the manufacturing industry, especially in India, the AHP involves the following series of stepsv : Step 1: establishing the hierarchical structure; AHP has the advantage of permitting a hierarchical structure of the criteria, which provides users with a better focus on specific criteria and sub-criteria when allocating the weights. Step 2: Constructing the pair wise comparison matrix; at each node of the hierarchy, a matrix will collect the pair wise comparisons of the decision-maker Step 3: Calculating the consistency; as priorities make sense only if derived from consistent or near consistent matrices, a consistency check must be applied. A consistency index (CI) is proposedvi ; CI = (λmax–n)/ (n–1) Where λmax=maximal Eigen value The consistency ratio, the ratio of CI and RI, is given by: CR=CI/RI Where RI varies depending upon the order of matrix.vii
3 A table (1) shows the value of the RI for matrices of order (N) 1 to 10 obtained by approximating random indices using a sample size of 500viii . N 3 4 5 6 7 8 9 10 RI 0.58 0.9 1.12 1.24 1.32 1.41 1.45 1.49 Table 1: random indices Fortunately, there is no need to implement the steps manually each time we need to take a decision, since professional commercial software, expert choice, developed by expert choice. Incix is available on the market simplifying the implementation of AHP’s steps. Figure (1) below shows a research frame work of strategies to implement GSCM in Indian manufacturing industry.
4 Figure 1:research frame work of strategies to implement GSCM in manufacturing industry First, we can start by showing the Eigen value of the 4 strategies (dimensions) to implement GSCM. (See table (2)); then we will rank the various elements in each dimension (see tables (3, 4, 5, 6)); and finally come up with a priority weighting. The main tool used in the coming section is the pair wise comparison. A group of expert give the appropriate weight to each dimension considered in this study; table (2) below presents the weight of each strategy.
5 Non- members of supply chain Downward- members of supply chain Organization perspective Upward- members of supply chain Global priority weighting Non- members 1 2 2 3 0.410021 Downward- members 0.5 1 2 2 0.269285 Organization Perspective 0.5 0.5 1 3 0.211901 Upward- members 0.333 0.5 0.333 1 0.108793 Table 2: strategies to implement GSCM practices Analysing results in table (2), we will find that the dimension of non-members of supply chain is the most important dimension with a value of (0.410021), followed by downward-members of supply chain (0.269285), then organization perspective (0.211901), and the last one is upward-members of supply chain with a value of (0.108793). (See chart 1) Chart 1: global priority weighting given to each strategy in the implementation of GSCM in manufacturing industry In this section, we will focus on weighting different elements in each strategy alone. Starting by “non-members of supply chain”; which involves international environmental agreement, central and state government legislations, and NGOs. Those different variables play a main role in greening the supply chain and therefore meeting our green objective. Table (3) presents the weighting of each variable mentioned above. International environmental agreement Central government litigations State government litigations Non- government organizations Priority weighting 0 0.1 0.2 0.3 0.4 0.5 non-members downward-members org. perspective upward-members global priority weighting of various dimensions in implementing GSCM global priority weighting of various dimensions in implementing GSCM
6 Int. Env. Agreement 1 2 3 4 0.458558 Central gov. Litig. 0.5 1 3 3 0.304806 State gov. Litig. 0.333 0.333 1 2 0.143218 NGOs 0.25 0.333 0.5 1 0.093419 Table 3: strategies of non-members of supply chain Table 3 presents that international environmental agreement is the most important variable in this analysis (0.458558), followed by central government litigations (0.304806), then the state government litigations (0.143218), and the last one is the non-government organizations (0.093419). Moving to strategies of downward-members of supply chain, which involves suppliers and vendors in green activities, hence companies seek to find suppliers who reduce their environment impact without reducing the quality of their products. Also, this dimension involves training and quality education programs to achieve successful implementation of GSCM, technology advancement that helps finds efficient solutions, and environmental audit management system. Table (4) presents the global weighting of all these variables in the downward- members if supply chain; Green suppliers and vendors Training programs Technology advancement Environmental audit system Priority weighting Green sup.&vend. 1 0.333 0.333 0.5 0.10343 Training prog. 3 1 3 3 0.48835 Technology advancement 3 0.333 1 2 0.25073 Env. Audit system 2 0.333 0.5 1 0.15749 Table 4: strategies of downward members of supply chain Based on the numbers presented in the table (4) above, it will be clear to notice that training and quality education program is the most important variable studied in this section (0.48835), followed by the technology advancement (0.25073), then the environmental audit management system (0.15749), and the last one is the availability of green suppliers who care about saving the environment (0.10343). Pair wise comparison will now be used to weight strategies related to organization perspective; which include a set of issues all presented in figure (1) above, and these issues will be weighted in table (5) below. Innovativ e green practices Top mng. perspectiv e Employee perspectiv e Economic interest Firm’s competitive ness Industrial perspectiv e Priority weightin g
7 IP 5 1 5 3 2 2 0.14683 TP 1 0.2 4 0.5 1 3 0.37415 EP 0.25 0.2 1 0.25 0.25 0.5 0.04536 EI 2 0.333 4 1 1 2 0.17709 FC 1 0.5 4 1 1 2 0.16381 IP 0.333 0.5 2 0.5 0.5 1 0.09276 Table 5: strategies of organization perspective The most important feature in this section is top management perspective (0.37415), and the least important is employee perspective (0.04536). A detailed analysis of variables in organization perspective is summarized in the chart (2), where different sub-criteria are weighted regarding to each others. Chart 2: various sub-criteria in decision making related to organization perspective The last pair wise comparison made for identifying criteria related to upward- members of supply chain; in this section, 3 criteria has been measured: awareness level of customer, end-of-life management; which is the most important criteria (0.45793), and association with local recycling organizations. The priority weighting is showed in the table (6) below; Awareness level of customer End of life management Association with recycling org. Priority weighting Awareness level of customer 1 1 3 0.41606 End of life management 1 1 4 0.45793
8 Association with recycling org. 0.333 0.25 1 0.12601 Table 6: strategies of upward-members of supply chain Discussion and analysis of result: Further result analysis can be done in this part of the project concerning strategies related to the implementation of GSCM in manufacturing industry; relying on all previous information and measures given, we can rank the result by the following way: Non-members of supply chain have received the highest global weighting and upward stream supply chain members’ lowest global weighting; they are ranked 1st and 4th respectively. Downward stream supply chain members and Organization members of supply chain are ranked 2nd and 3rd respectively. In addition, various strategies in each one of these dimensions have been ranked upon their priority weighting. From the first dimension, non-member of supply chain, we can note the importance of international environment agreement in influencing companies and government. The second dimension, downward stream supply chain members, shows the benefit that can arises from having the appropriate training programs such as workshops and seminars on the implementation of GSCM. The third dimension, organization perspective, ensures that top management is the key criteria to adopt and implement GSCM. Finally, the fourth dimension, upward stream supply chain members, focuses more on the role that End-of-life management plays, in addition to the awareness that customers may have. Conclusion: In this paper selecting GSCM strategy in manufacturing industry is illustrated by incorporating AHP model in evaluating criteria and considering sub-criteria. The four strategies were also compared in pair wise manner under each decision criterion; the final scores of each strategy were evaluated. Based on this study, the non0member of supply chain is selected as the best and most important dimension in the implementation of GSCM, this helps to protect the environment and also integrate corporate functional strategies to achieve an effective and profitable green managementx i http://www.scribd.com/doc/47801180/Green-Supply-Chain-Management ii http://www.mhi.org/media/news/7056 iii R. Ganeshan and T. P. Harrison, An Introduction to Supply Chain Management, Department of Management Sciences and Information Systems, Pennsylvania State University, PA, USA, 1995. iv thecourse-pm.com/Library/AHP/AHP_Tutorial.pdf v Saaty, 2000, 2008 vi Saaty (1977) vii http://www.palgrave-journals.com/ori/journal/v22/n4/full/ori200910a.html viii Saaty, 2000 ix Expert Choice, Inc., Expert Choice software and manual. 4922
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Figure 1. Research frame work of strategies to implement GSCM in Indian manufacturing industry. 4.1. Analytical Hierarchy Process: A Brief Overview
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