(Note: This article has been provided by Dennis Taylor Jr. for SupplyChainer.com. Dennis holds an MBA from Michigan Tech and currently serves as a researcher in School of Business and Economics, Michigan Technological University. Since sustainability issues have become a big concern of the supply chain specialists, I thought it might be useful to provide the readers with recent thought process in the academia. Hope you enjoy it!)

Valuation

When seeking to value the impact of the implementation of greening initiatives and arrive at a true cost associated with such initiatives, total cost assessment is one approach which could be utilized. Total cost assessment is an idea that aims at leveling the playing field between traditional capital projects and greening initiatives. This is done by taking into account the costs and savings that are typically ignored by traditional project evaluation approaches. This approach allows for the "true" valuing of inputs into a product or process, which encompasses environmental and other social costs incurred but often not accounted for. Such an approach would provide substantial leverage for proposals for greening projects and would position the projects better when compared to traditional capital generating projects. A total cost assessment approach relies on knowledge that reaches beyond bottom-line Mathematics and as such requires a significant educational component when utilized as a valuation method.

Costs Associated with Greening Practices

When embarking upon the implementation of greening initiatives within supply chains there are some costs that a firm can expect to bear. These costs include capital costs associated with new greening related projects, forgone direct economic profits, and opportunity costs. Capital costs are often easy to estimate and plan for; they include the cost of undertaking new projects and other associated costs. The cost of forgone direct economic profits, are often merely delays in the generation of short-term profits due to the extended time often needed to realize profits from greening initiatives, however, in some cases profits are traded-off for benefits expected in the form of increased customer loyalty, improved image, or public relations credits. The opportunity cost experienced by firms consists of costs associated with not undertaking other activities which would possibly generate an economic profit and instead undertaking greening initiatives for the purpose of realizing other forms of profit.

Benefits Associated with Greening Practices

In order for firms to be interested in instituting greening practices within their supply chains there must be some benefits to be realized by the firm. There are several benefits to be expected when implementing greening practices, they include: consumer appeal, positive publicity and public relations, and conformance to standards both OEM and governmental. Consumer appeal is a benefit that is growing as consumer awareness grows; through greening practices firms will be afforded the opportunity to tap into new market niches and segments of consumers who look specifically for "green products" when making purchasing decisions. Positive publicity and good public relations are
always good for firms; greening practices not only reap intrinsic benefits for firms but also can aid in the improvement of the firm's external image, which in turn will help promote the products and services offered by the firm. Finally, the benefit of conforming to OEM and governmental standards is a significant source of competitive edge as well as an image enhancing element in the eyes of customers. Having practices in place, which met or exceed standards set forth by OEM's will poise firms to be fit to except contracts and engage in commerce with OEM firms. Additionally, particularly in the European Union several standards and certifications exist was created by various governments, and the institution of green practices will aid in firm's compliance to these standards and certifications.

References:

1) Aref A Hervani, Marilyn M Helms, Joseph Sarkis. (2005). Performance measurement for green supply chain management. Benchmarking, 12(4), 330-353.

2) Business - IISD (International Institute for Sustainable Development). http://www.bsdglobal.com

3) New Guidance Available on Environmental Management Accounting. (2005). Hazardous Waste Consultant, 23(3), 1_8,1_9,1_10,1_11.