CHAPTER II: Review of Related Literature
This literature review aims to give a brief evaluation on the implications of supply management to the economy and to the environment. This covers a brief discussion on what Supply Chain Management (SCM) is, along with Just-In-Time (JIT) systems. This also presents some opinions on the never-ending issue of which is more important, economics or the environment.
Supply Chain Management
According to Modern Materials Handling (2003), Wall Street values supply chain management. (SCM). Good SCM is no longer just a goal; it is a necessity. Indeed, SCM is rapidly becoming the most important aspect of business success. A company that has an effective supply chain management is bound to prosper, whereas a company that has poor management of its supply chain will probably not be around after a few years (Ashcroft, 2003).
A supply chain is the process of moving goods from the customer order through the raw materials stage, supply, production, and distribution of products to the customers. Every company has its own supply chain, the degree of which varies, depending on the size of the company and the product being manufactured (RCG University, 1999).
Controlling or directing the events in this process is what’s called supply chain management. Logistics, on the other hand, is that part of the supply chain process that plans, implements, and controls the efficient, effective forward and reverse flow and storage of goods, services, and related information between the point of origin and the point of consumption in order to meet customers' requirements (Council of Logistics Management, 2003).
The six elements to a supply chain are production, supply, inventory, location, transportation and information. Production is concerned with what the customers want and how much the market demands. This puts into consideration the volume of products to be produced and where they will be produced, as well as assuring the quality of the products and balancing the workload. Supply involves the consideration of the facilities to be used in production, in which case outsourcing may be considered in the event that the company does not have the required facilities. Inventory is concerned with how much stock is kept in-house, making sure that it is not too much nor too little, in order to meet customer satisfaction. The placement or location of production plants, distribution and stocking facilities is also important as it should be in close proximity to the market being served or to the source of raw materials. Transportation is a crucial factor to the entire process as it plays a big role in the speed of delivery of the products to the customers. It should be considered whether to use air transport or shipping by boat or by rail. The cost of transport would also be considered. Lastly, a part of supply chain management is obtaining information from the point of end-use and linking them with resources throughout the chain for speed of exchange.
Old supply chains were paper chains, linearly connecting manufacturers, warehouses, wholesalers, retailers and consumers. Communication among the people involved was messy and time-consuming Money and potential customers may also be lost (Mayer, 2003).
However, with the advancements made in technology, particularly with computers, a new way of doing things has been developed. Software packages, customized to every company’s needs, have been developed to provide optimum delivery route of the products, from supplier to manufacturer. This optimization improves the performance of a company’s supply chain management in the following areas: reduced supply costs, improved product margins (profit per additional unit produced), increased manufacturing throughput (production at all levels) and better return on assets (net income after expenses/interest).
SCM is improved even further with the advent of the Internet, where business transactions, such as ordering and checking of the availability of products, may already be done online, minus the delay caused by having to deal with a lot of paper work and the time spent in passing these papers throughout the chain.
This gave birth to the concept of Just-in-time, an approach to manufacturing that stresses the benefits of a system, where material is brought to the worksite only when it is needed. To achieve this goal, each operation must be synchronized with those subsequent to it (Microsoft Business Solutions ApS, 2003. It connects the producer directly to the consumer, eliminating the costs of storage, as production is done upon the demand of customers, that is, a made-on-order transaction (Bennett, 1998). Its elements, though not discussed in detail in this paper are: Customer-supplier satisfaction, Empowerment, Dynamic Quality improvement (DQI), Quality and metrics, Standardization, Reusable components and the library, Flexible approaches to development, and Planning (Kliem, Ludin, 1994).
Economics vs. the Environment
It cannot be denied that the supply chain management being applied in this modern age is effective and that most, if not all, companies apply it in their operations. Atik Ahmed Faroqi, member of the Oracle 11i team, Oracle India Private Ltd, said that it is possible to streamline the procurement to payment process, reducing purchasing costs and realizing a rapid return on investment. It facilitates forecasting, reduces inventory costs, improves delivery performance, shortens supply chain planning cycle times, increases data accuracy, extends visibility and responds to exceptions across the entire supply chain (Kumar, 2002).
Effective SCM has been responsible for $472 billion in revenues since 1996. Outsourced SCM services alone, such as software, integration and on-demand services, will grow to over $50 billion annually within the next few years. Still, more investors are bound to invest in companies with good SCM.
Indeed, SCM has contributed a lot to the improvement of the economy. However, together with the increased production and the faster delivery of goods come the increase in pollution and an increase in damage to the environment. Increased production would lead to more factory wastes, and faster modes of transport, including an increase in the use of air transport, would cause increased traffic and air pollution. A deterioration in natural systems: can be seen. Forests are shrinking, deserts are expanding, croplands are losing topsoil, the stratospheric ozone layer continues to thin, greenhouse gases are accumulating, the number of plant and animal species is diminishing, air pollution has reached health-threatening levels in hundreds of cities, and damage from acid rain can be seen on every continent (Stren, 1992, p. 307).
To this, environmentalists have made their concerns known. Analysis conducted in the ’60s and 70s indicate that the reason why market economies produce too much pollution is because polluters do not have to pay for the damage they cause (Blinder, 1988, p. 7). A paper plant, for instance, that throws its waste into bodies of water does not have to pay for its use of the clean water, but it is the people who eventually make use of this water who will bear the effects of using dirty water.
To somehow balance these effects to the environment and to control the activities of companies, economists have developed policies and imposed laws in order to penalize these companies. These companies are charged taxes or fees for the pollution they cause, but environmentalists continue to argue that cleaner air and water are not just goods to be bought and sold like milk and shoes, but are rights not to be trifled with. Economists think of environmental degradation as an economic problem that should be corrected, but many environmentalists see it as a moral issue that should not be reduced to the monetary calculations made by economists. Still, more criticism against these policies state that pollution cannot be measured, so that punishment for these companies may not be measured accurately either. Analysis made by The European Union Online (2003) goes on further to say that holding polluters liable for the environmental damage they cause does lead to less damage and a cleaner environment. However, its purpose may be defeated by substitution, where companies would redirect the emission of waste from one place or medium to another that is with lesser risk of damage. If this becomes a practice, though, it can only lead to nothing but environmental damage just the same.
Davidson (2000, p.7-11) goes on further to state the three fallacies of the current mainstream economic and technological model. They are: 1. Marie Antoinette Economics; 2. Custer’s Folly; and 3. False Complacency from Partial Success.
“Marie Antoinette’s economics” derives its name from what Marie Antoinette suggested that French peasants without bread could eat cake. Some economists are not bothered by ecological damage such as global warming, since they reason that the only sector that will be greatly affected by it is agriculture, which contributes very little to a country’s GNP (3% in the US). However, what if this agriculture fails? Can the 97% of the GNP be eaten? It cannot be denied that food production is an essential part of life, as our well-being depends largely on the quality of food we eat. The role of forests in providing clean water and habitat for plants and animals and in regulating the climate is also important.
Custer’s Folly is counting on technology to save the ecology from completely being destroyed. Yes, technology has contributed a lot to improving agriculture and the other sectors of the economy, but with the continuous deterioration of the environment because of the use of chemicals and other activities, no matter how advanced technology may become, will it still be capable of saving the environment from complete disaster?
Lastly, False Complacency from Partial Success states that just because the measures implemented by governments have improved the quality of water and air and reduced poisonous lead emissions with the use of unleaded gasoline, this is no reason to be complacent or to think that ecological damage is no longer a serious problem, as the environment still continues to deteriorate at an amazing speed.
Looking at it from another point of view, it is indeed ideal to have a pollution-free environment, but the cost of cleaning up the environment is very high, and suppose that a pollution-free environment can be attained, the poor are unlikely to applaud these efforts, as they will be sacrificing a decent way of living for a clean environment, since the money used for environment cleanup could be used to feed the poor, for housing and for educational purposes. In reality, though, it is impossible to attain a pollution-free environment, as every raw material that is processed would either be recycled completely, which is very difficult, or turn to waste. Even a horse that is used for transport would produce its own waste.
This is very much likened to what a Harvard physicist said. A particular benzene standard proposed by the Occupational Safety and Health Administration (OSHA) might save at most one life every three years, at an annual cost of more than $100 million per year. Human life may be valuable, but would it be practical to spend more than $300 million just to save one life, when that money could be spent on improved highway, guard rails, on organ transplants, or on more policemen, eventually saving and improving more lives?
When more people may benefit and when the good of the majority is considered, it is natural to place clean and water only second to economic goods. Although everyone would want a clean environment, perfection just cannot be attained, and this should be accepted.
To the contrary, studies (California Native Plant Society, 2003) examining factory emissions, endangered species, air quality and other issues have found no evidence that economies suffer as environmental policy strength increases. Instead, numerous researchers have reported slight positive correlations between environmental and economic figures, suggesting that environmental health may help fortify economies. Also, evidence that increased environmental regulation damages economies or reduces employment is insufficient.
The value of rivers and the wilderness are measured by the number of visitors who want to travel to it, and the value of real estate that is adjacent to clean bodies of water, to open space or to an area with high quality of air. Studies agree that clean and fishable waterways, including those that can be used for swimming, clean air, diverse and vigorous native plant and wildlife populations, and open space are highly valued by the public and that the public is willing to pay to preserve and enjoy these resources
The value of ecosystem services has also increased. Ecosystem services are the processes by which the environment produces resources that we often take for granted such as clean water, timber, and habitat for fisheries, and pollination of native and agricultural plants. One of the most widely cited analyses estimated the average aggregate global annual value of wild land ecosystem services at $33 trillion.
Finally, these studies state that pollution control and other green industries are rapidly growing and are strengthening economies, providing more jobs everyday. There are also jobs in wild land ecosystem restoration and management.
Summary and Conclusion
Effective SCM has been responsible for generating a large part of revenues. However, this robustness in the economy comes with a price, a price that the environment is made to pay. Pollution increases, and the forests and other natural resources are being damaged.
On the other hand, there are those who say that the economy should not be sacrificed because of concern for the environment.
It cannot be avoided that improving the economy would do some harm to the environment, in the same manner that protecting the environment may have some effect on the economy.
Since one cannot do without the other, it is best to create a balance between them. More than implementing policies for this, the writer believes that the best measure would still be self-discipline, genuine concern and cooperation within the society.
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