INCORPORATING ENVIRONMENTAL CONCERNS IN SUPPLY CHAIN OPTIMIZATION - Environmentally Conscious Materials Handling - page 125

or production process requirements (Seal 1999). The U.S. EPA states that one
of the reasons for the inception of its voluntary labeling program, Energy Star,
is that it was “ ... designed to identify and promote energy-efficient products
to reduce greenhouse gas emissions” (Star 1999). Although the program is vol-
untary, institutional as well individual buyers often prefer or demand that the
products they purchase be Energy Star qualified in order to be assured of cost
savings from reduced energy consumption, or to take advantage of tax incen-
tives for energy-efficient purchases (e.g., Internal Revenue Service 2006). SCO
should be expanded to allow for choosing amongst a myriad of certifications,
given their different emphases and the associated costs of certification. Adver-
tising campaigns can be quite costly as well. For example, Siemens AG rolled
out a $145 million “Siemens Answers” campaign in late 2007 to promote the
company's focus on health and the environment (Maddox 2007). Below, we
summarize the ways by which the aforementioned social factors have brought
about changes to SCO.
1. In the midst of societal influences, the SCO endeavor must allow for
multiple, prioritized objectives. Priorities (or weights) for possibly con-
flicting objectives must be established after a careful analysis of what
would have the greatest positive impact on the long-term economic and
environmental sustainability of the business. For example, the goal pro-
gramming approach (a branch of multiobjective optimization, which will
be further discussed in section 5) can be used to suitably accommodate
both profit maximization as well as emissions minimization objectives.
2. Related to the prioritization of objectives, new decision variables must
be factored into SCO models, such as the particular environmental cer-
tifications to pursue and the extent of advertising effort to undertake.
Mixed-integer methods could be applied to determine the most viable
certifications. Additionally, relationships such as those between adver-
tising effort and the resulting economic benefit (or risk avoidance) are
difficult to estimate. They require robust methods of optimization.
3. The time horizons for SCO have to be altered since a firm's
beyond-compliance environmental efforts typically take a longer time to
be recognized and valued by the market than immediate economic gains.
Because elements such as risk avoidance are difficult to precisely value,
robust methods of optimization must be used to allow for uncertainties
across longer time horizons.
4. SCO exercises must be expanded in scope both vertically (across links
within a supply chain) as well as horizontally (across firms in different
supply chains). For example, Cruz (2008) presents an integrated model
of a supply chain network consisting of a manufacturer, a retailer, and
consumers. This network aims to achieve the objectives of maximizing
profit, minimizing emissions, and minimizing risk. Costs of socially