Value Chain Model Essay Example

Value Chain Model Essay Int. J. Management and Enterprise Development, Vol. 3, No. 3, 2006 Porter’s value chain model for assessing the impact of the internet for environmental gains Nazim U. Ahmed and Sushil K. Sharma* Department of Information Systems and Operations Management Ball State University Muncie, IN 47306, USA E-mail: [emailprotected] edu E-mail: [emailprotected] edu *Corresponding author Abstract: The revolutionary potential of the internet promises to transform economic and environmental gains. By reducing the amount of energy and materials consumed by business, the internet stands to revolutionise the relation between economic growth and the environment. The internet is improving the capability to understand the science of environmental degradation and communicate that knowledge to public and private decision makers. It also helps decrease resource waste and associated pollution by improving the efficiency of economic activity and provides improved sensors and instantaneous telecommunications links to control pollution spillovers, better manage shared resources and reduce waste. This paper examines the impact and potential of internet-based technologies in the performance of important information and communication functions for resolving the environmental issues using Porter’s value chain model. Managerial implications of using the internet for environmental gains for SMEs are also discussed. Keywords: internet; digital technologies; environment; Porter’s value chain model. Reference to this paper should be made as follows: Ahmed, N. U. and Sharma, S. K. (2006) ‘Porter’s value chain model for assessing the impact of the internet for environmental gains’,Int. J. We will write a custom essay sample on Value Chain Model specifically for you for only $16.38 $13.9/page Order now We will write a custom essay sample on Value Chain Model specifically for you FOR ONLY $16.38 $13.9/page Hire Writer We will write a custom essay sample on Value Chain Model specifically for you FOR ONLY $16.38 $13.9/page Hire Writer Management and Enterprise Development, Vol. 3, No. 3, pp. 278–295. Biographical notes: Dr. Nazim U. Ahmed is a Professor of Information Systems and Operations Management at Ball State University, Muncie, Indiana, USA. His research interests include environmental management, total quality management, productivity improvement, supply-chain issues and e-commerce. He has published articles inInternational Journal of Production Research, Journal of Operations Management, Journal of Business Research,Transportation Research,International Journal of Operations and Production Management,Information and Management,Information Resource Management,Management Decisions,Production and Inventory Management, Journal of the Academy of the Marketing Science, International Journal of Policy and Information, Computers and Industrial Engineering and other journals. Dr. Sushil K. Sharma is an Associate Professor of Information Systems and Operations Management, at Ball State University, Muncie, Indiana, USA. Co-author of two textbooks and co-editor of four edited books, Dr. Sharma’s research contributions have appeared in many peer-reviewed national and international journals, conferences and seminar proceedings. Dr. Sharma’s primary teaching and research interests are in e-commerce, information systems Copyright  © 2006 Inderscience Enterprises Ltd. Porter’s value chain model ecurity, ERP systems, database management systems and knowledge management. Dr. Sharma has wide consulting experience in information systems and e-commerce and has served as advisor and consultant to several government and private organisations including World Bank-funded projects. 1Introduction 279 Studying natural environment is always a complex exercise because natural environment is produced by combined interactions among geological, hydrological , biological and human social systems and is therefore one of the most complex systems. The complexity of issues involved in understanding the impact of the industrialised world on the environment requires an interdisciplinary approach. For example; ecosystem and natural resource management involves integrating scientific knowledge of ecological relationships within a broader policy and economic framework. Transportation issues often carry important implications for the environment (Anderson and Bateman, 2000). In this study, we are examining the impact and potential of internet-based technologies in the performance of important information and communication functions for resolving the environmental issues using Porter’s value chain model. Internet-based technologies offer the potential to improve pollution prevention and environmental monitoring; for instance, the capabilities and limitations of satellite and other remote sensing systems to scan ecosystems and enhance the effectiveness of monitoring large tracts of land (Benedick, 1991). Internet and related information technologies help to capture process and transmit information with far more ease and efficiency than in the past; they can play a role at each point of this process, improving both the quantity and quality of scientific understanding about pressing environmental problems (Dodson, 1995; Starik and Marcus, 2000). The internet, has also proved valuable in allowing multiple researchers to access and process data simultaneously thus multiplying the analysis capability. The Human Genome Project1 demonstrated this capacity through immediate online publication, making the code results available to all scientists over the internet (Bentley, 1996). Thus, the internet provides numerous avenues for collecting, distributing and analysing environmental information, making it available to greater numbers of researchers, reducing redundancy and increasing our capacity to understand the complex global ecosystem. The graphical capabilities of the internet help policymakers and others to ‘see’ and understand the sources of environmental degradation. Images, such as the ‘ozone hole’ or the impacts on agriculture of a doubling of global temperature, are becoming increasingly available on the web. Furthermore, an OECD study indicates that generalised use of internet retailing could eliminate the need for 12. % of retail-building space, saving the energy and materials needed to build, operate and maintain buildings (OECD, 1999) and product delivery from e-tailers, contrary to common opinion, may use 40% to 90% less fuel than if customers drive their cars to the mall (Romm, 1999). UPS expects to improve on these numbers by using the internet to fill what would otherwise be empty trucks as they make the return trip from a delivery. Added benefits from these efforts are reduced traffic congestion, air pollution and fuel use. Even larger gains can be had with products that can be digitised and delivered entirely online, like software, music, N. U. Ahmed and S. K. Sharma entertainment, and some consulting services (Wired, 1999). Along this line Egghead Software has closed all physical stores and moved to a completely online business model (Libert and Ribaudo, 1996). The internet helps in product life cycle through improved supply chain management. By using the internet to integrate customers, manufacturers and suppliers, wasteful over production and spoilage can be largely eliminated (Siekman, 1999). An Ernst and Young study estimates that internet applications could reduce inventories by 25% to 35%, while IBM estimates the savings could be as high as 50% (Romm, 1999). All of these study indicate that the internet could prove an important innovation for reducing environmental degradation. The internet has also helped reduce environmental impacts in agriculture, water pollution etc. The internet has served as an important innovation in facilitating what is called ‘precision farming methods’ that dramatically lower the amount of inputs needed for any given crop (Chong et al. , 2005). There are not many articles in current literature dealing specifically with the internet and natural environment. However, there are a lot of articles dealing with different aspects of environment from awareness to benefits, to strategy implementation and so on, which can be impacted by the internet. One of the questions of the past decade is how individual environmental concerns shape corporate environmental actions (Avila, 1993; Starik, 1995; Bansal and Roth, 2000). Bansal and Roth (2000) mentioned that personal concern and values could affect a firm’s environmental efforts in important ways. First, values and concern can help decision makers discriminate, identify, and prioritise (Dutton, 1997). Second, environmental concerns will induce some individuals to champion eco-initiatives (Anderson and Bateman, 2000; Lawrence and Morell, 1995). Third, a firm’s top management will be more proactive in their environmental effort if their value systems reflect environmental concerns (Dutton and Ashford, 1993). Environmental decision-making is also dependent on concerns of external stakeholders such as customers and suppliers (Johnson, 1998). It is logical that the internet can be used effectively to convey relevant information to different stakeholder group which in turn will make them more understanding of the need for sustainability. Positive economic impacts of environmental strategies are discussed by Porter and Van der Linde (1995) and Cordano (1993). Porter and Van der Linde suggested that by reengineering the production process, firms could reduce environmental impacts and simultaneously reduce the cost of inputs and waste disposal. Cordano (1993) proposed that revenues could be increased through green marketing, sale of waste products and outsourcing a firm’s environmental expertise. Additionally, there are suggestions in the literature that eco-initiatives will improve corporate image (Hart, 1995; Russo and Fouts, 1997). Here we can also use the internet to make business processes reengineering, marketing and other functions more environmentally friendly. Despite the potentially important role that the internet is playing in improving environmental activities at a macro level, little research has been performed to date that examines the factors that affect environmental supply chain management at a micro level. This paper examines the impact and potential of internet-based technologies in the performance of important information and communication functions for resolving the environmental issues using Porter’s value chain model. The intent of this paper is to examine the internet as a communication and information dissemination tool for resolving environmental issues at a macro and a micro level, and identify the eco issues and eco criteria using Porter’s value chain model. Porter’s value chain model 2Impact and uses of internet-based technologies at macro level 81 Internet-based technologies are providing fast, easy and cost-effective means through which to access, use, create and disseminate information. E-mail, which knows no geographic boundaries, provides a cost-effective method of communication with other similar organisations and individuals. E-mail also provides a means of direct access to government representatives. Listservs, which are focus group discussions d isseminated via e-mail, provide opportunities for individuals to join in conversations about timely, focused topics. Organisational webpages provide mechanisms through which environmental organisations can affordably disseminate information about themselves to a large, geographically dispersed audience. Additionally, there is much useful information and data on the web to further grassroots environmental activists’ causes, which have never before been freely and easily accessible. The ability to transport computer files over the internet allows for rapid distribution of timely information. The internet also provides access to free downloadable software. The internet is a unique medium because of its speed, low cost, easy capacity for forwarding messages and unlimited capacity (Frantzich, 1999). The various interest groups can easily converse with each other and present their collective voice to national and international organisations to further their environmental causes. Neighbourhood organisations can use internet-based technologies to communicate effectively within their own communities and across neighbourhoods to build and expand their intracommunity and intercommunity power base (Craig, 1998). Internet technologies facilitate a shift from representative democracy to a more direct democracy, as the technology provides the ability for wide range participation by people outside existing power structures (Grossman, 1995). To understand the significance of the impact of internet-based technologies on the information functions of grassroots environmental justice initiatives, two guiding concepts are suggested, borrowed respectively from the fields of sociology and political science. First, the internet breaks the insider/outsider dichotomy as related to the flow of information. Traditionally, insiders such as government officials have had privileged access to certain kinds of information and do not seek information and advice from citizen for various decision-making related to environmental concerns (Chatman, 1996). The internet appears to be breaking down this traditional insider/outsider dichotomy and political empowerment, and makes it possible for citizens to participate in environment-related policy making. The internet is changing the flow of political information and thereby changing the pattern of political participation (Hill and Hughes, 1998). Secondly, the internet allows direct communication, bypassing many information intermediaries and also substantially reduces the cost of communicating through space and time, allowing for greater organisation around shared interests, and allowing for a more heterogeneous base of participants in political processes (Pierce et al. 1992). Using the internet, the media, opposition politicians, environmental entities, individual citizens, community groups and other nongovernmental organisations, can easily obtain vast quantities of data on environmental results. Substandard performance by governments or companies is easier to spot. Transparency may also smoke out cases where special interests distort the policy process. Power, in the form of the ability to create and disseminate information, has been given to relatively powerless segments of society through the use of internet-based technologies (Zelweitro, 1998). N. U. Ahmed and S. K. Sharma Using the internet to connect satellite imaging and global positioning systems to digital controllers on farm tractors and harvesters allows the precise applications of fertilisers and pesticides to local conditions in the fields. The result is higher yields, quality and profits and at the same time much lower environmental impacts. Similarly, the forestry giant Weyerhaeuser is using digital maps and satellite imagery to classify forest type, age and health (Horrigan et al. , 1998). This information is delivered to field crews over the internet through handheld devices and laptop computers. The technologies allow forest managers to extract maximum value from precious natural resources while reducing the environmental damage. The various impacts of the internet to resolve environmental issues at the macro level are shown in Figure 1. Figure 1 indicates how internet-based technologies have been helping to improve environmentalism through various means at a macro level. Figure 1 The impact of internet-based technologies to environmentalism at macro level Communication medium Internet-based technologies are providing fast, easy, and cost-effective means through w h i c h t o a c c e s s , u s e , c r e a t e , a n d disseminate information using e-mail, listservs, websites and other web-based channels. Greater policy transparency and comparative analysis Using internet, the media, opposition politicians, environmental entities, individual citizens, community groups and other non-governmental organisations, can easily obtain vast quantities of data on environmental results. Sub-standard performance by governments or companies is easier to spot. Internet helps to provide more data driven decision-making. Dematerialisation, the substitution of physical materials with information The substitution of books, periodicals, s t e r e o s , v i d e o r e c o r d e rs , c am e r as , telephones, and answering machines and any other information oriented products by interest-based digital products. The impact of internet-based technologies to environmentalism at macro level Integration and coordination with governments, suppliers, customers, and competitors Internet technology is integrating and coordinating activities of governments, suppliers, customers and other competitors for environmental gains. 3The Porter’s value chain model Politi cal empowerment through internet technologies Internet is helping citizen participation through community organisations as a collective voice to local governments. Neighbourhood organisations can use internet-based technologies to communicate effectively within their own communities and across neighbourhoods to build and expand their intra-community and inter-community power base for environmental concerns. Internet-driven, web-based technologies have a tremendous impact on procurement, manufacturing, and distribution to significantly compress time and reduce costs throughout the supply chain (Benjamin and Wigand, 1995). To better understand the impact, we have mapped the environmental issues on Porter’s value chain model. In the later section, we have mapped the impact of the internet on these environmental issues (Porter and Miller, 1985). Our identification of environmental issues using Porter’s value chain model are detailed in Table 1. Porter’s value chain model Table 1 Identification of environmental issues using Porter’s value chain model Primary activities Environmental issues Eco-performance criteria A-criteria In-bound logisticsReturnable containers Percentage of returnable containers Cost of returning the containers Amount of pollution due to non-returnable containers Percentage of returnable containers Operations Outbound logistics Efficient transport route Less pollutable transport mode Warehousing and storage space requirements Supplier relation Product Process Material Storage and warehousing Packaging Shipping Load-distance Amount of fuel consumption Amount of pollution generated in transport mode Amount of fuel consumption Amount of storage space needed to per unit of output Percentage of outputs using JIT Number of suppliers who has environmental programme Number of supplier ISO 14000 certified Number of suppliers on JIT Service life Percentage of output recycled Percentage of output reused Amount of waste generated per hour of use Decibel of noise Amount of toxicity Time to degrade Amount of raw material needed Amount of energy needed per unit of output Amount of pollution generated per unit of output Percentage of production related waste recycled Percentage reduction in production elated waste Amount of hazardous material Percentage of substitution for hazardous material Warehousing cost per unit of output shipped Pound of material used in packaging Percentage of degradable material in packaging Percentage of packaging recyclable Load-distance Fuel consumption per mile per item Amount of fuel consumption Amount of fuel consumption Percentage of output using JIT Number of suppliers who has environmental programmes Number of suppliers on JIT Service life Percentage of output recycled Time to degrade Amount of raw material needed Amount of pollution generated per unit of output Amount of energy needed per unit of output Percentage substitution of hazardous material Warehousing cost per unit of output shipped Pound of material used in packaging Percentage of packaging recyclable Fuel consumption per mile per item N. U. Ahmed and S. K. Sharma Table 1 Identification of environmental issues using Porter’s value chain model (continued) Primary activities Environmental issues Eco-performance criteria A-criteria Marketing and sales Service Communication of environmentally friendly product offerings Value added service in the environmental area Environmental awareness and audit Percentage of total advertising expenditure for environmentally friendly products Percentage growth of sales of environmentally friendly product Percentage of market research dollars environmentally friendly products Total dollar amount of environmental value added service provided Number of customers provided with environmental value added services Number of environmental value added offerings Number of customers on environmental audit programmes Percentage of customers on recycling programme Percentage of total advertising expenditure for environmentally friendly products Total dollar amount of environmental value dded service provided Percentage of customers on recycling programme Support activities Product take backPercentage of product take-back Percentage of customers on take-back programme Cost per unit of product take-back Percentage of product take-back Procurement Human resource development Environmental purchasing Environmental training and awareness Number of suppliers wh o has environmental programme Number of supplier ISO 14000 certified Number of suppliers on JIT Percentage of employees trained in environmental programme Percentage of employees participating in environmental programmes Number of suppliers who as environmental programmes Number of suppliers on JIT Percentage of employees participating in environmental programmes Technological Environmental auditNumber of employees trained in environmental audit Number of employees participating in environmental audit Waste reductionNumber of units or plants using Number of employees participating in environmental audit Percentage change in development technology Recycling technology Energy reduction technology waste reduction technology Percentage change in waste reduction in last five years Number of plants or units using recycling Percentage of output recycled Percentage of units or plants using energy reduction technology Percentage of total energy reduction in last five years waste reduction in last five years Percentage of output recycled Percentage of total energy reduction in last five years Porter’s value chain model Table 1 Identification of environmental issues using Porter’s value chain model (continued) Support activitiesEnvironmental issues Eco-performance criteria A-criteria Infrastructure Reuse technologyPercentage of outputs being reused Number of products in the reuse programme Environmental policy Number of environmental initiatives nd initiativesin last three years Number of incentive schemes for environmental leadership Frequency of environmental audits EnvironmentalPresence of an environmental website Number of products in the reuse programme Number of incentive schemes for environmental leadership Frequency of environmental audits Percentage of employees communication Frequency of up-dates Percentage of em ployees using environmental website using environmental website Eco-criteria are environmental performance criteria that can be used to track the impact of environmental strategies or decisions in the value chain. For example, for inbound-logistics, one of the ways to achieve environmental efficiency is to use returnable containers. Several criteria such as the percentage of returnable containers, cost of returnable containers, amount of pollution reduction by returnable containers etc. , can be used as eco-criteria. Among several eco-criteria, which can be used to track impact of a strategy or decisions, some could be more important than others. For efficiency and simplicity one can use one or some but not all of the eco-criteria. These are called A-criteria. For the environmental strategy of using returnable containers, the A-criteria can be a percentage of returnable containers. 4Impact of internet technologies at micro level 4. 1 Inbound logistic: efficient transport and logistic management Internet-based technologies will enormously help the environment industry improve its value chain by conveying real-time information to ensure a product’s timely arrival. Information include raw materials to manufacturers, goods to distributors, products to retailers and purchases to customers. Retailers, customers, suppliers and manufacturers can now have immediate access to their supply chain information to track valuable shipping information (Rayport and Sviokla, 1996). Real-time information available to manufacturers and retailers will help them to manage their transportation and logistics resources more effectively. This would not only help for efficient transport routes and less pollutable transport mode but help to manage warehousing and storage space requirement with better efficiencies. Efficient package delivery by truck may replace at least in part inefficient personal driving to malls, supermarkets, bookstores and the like. The transportation sector is responsible for about one-third of US energy consumption today. The internet holds the prospect of reducing transportation energy intensity by replacing some commuting with telecommuting; replacing some shopping with teleshopping; replacing some air travel with teleconferencing; enabling digital transmission or e-materialisation of a variety of N. U. Ahmed and S. K. Sharma goods that are today shipped by truck, train and plane, including formerly printed material, software, construction materials, and the like; improving the efficiency of the supply chain and increasing the capacity utilisation of the entire transportation system. As traditional manufacturing and commercial companies put their supply chain on the internet, and reduce inventories, overproduction, unnecessary capital purchases, paper transactions, mistaken orders, and the like, they achieve greater output with less energy consumption. These things will have a larger environmental benefit than pollution prevention, especially in the energy-intensive manufacturing sector. The internet allows vastly superior supply chain management, which can dramatically reduce inventories, improve forecasting, and eliminate mistakes and wasted production. This would improve capacity utilisation, and holds the potential for increased material reuse. Avoiding overproduction, waste, and mistakes, and fostering material reuse, can have disproportionately large energy and environmental impacts. Web-based technologies enable buyer and supplier to operate more efficiently, as a result of visibility of orders throughout the entire distribution network. Transactional outsourcing for transportation, warehousing, packaging, and related activities is being replaced by network outsourcing, where these individual functions are managed integrally by a third-party provider. Also, the Logistics Management module helps companies transport goods more efficiently because suppliers and customers configure optimal truckload and delivery schedules. This reduces wasted truck (or other carrier) space, wasted time, and fuel mileage due to inefficient routing. 4. 1. 1 Warehousing and storage space requirements The internet-based technologies will enormously help the companies improve its value chain by conveying real-time information to customers, suppliers and manufacturers. This would help companies to accurately predict consumer demands and that will result into a reduction of excess inventories at the retail level by replenishing them on a just-in-time basis. This could decrease the space needed to store excess inventories, thereby minimising the environmental impacts of warehousing: the consumption of open spaces by warehouses; the materials used to build them; and the energy needed for heating, cooling and lighting (Stein and Sweat, 1998; Basile, 1998). The internet makes mass customisation possible because it facilitates information exchange between companies and individual customers. The internet and innovative production technologies are helping companies to manufacture products specifically designed for individual consumers. Customisation enables producers to manufacture the products that are needed by customers thus reducing product waste or slashing inventories by reducing stockpiles of soon-to-be obsolescent equipment and machines (Mathieson, 1998). For example; e-book or publishing on demand may eliminate the waste thus saving on paper and reducing printing and storage costs (Basile, 1998). Mass customisation could have profound environmental benefits for reducing the energy and Porter’s value chain model 4. 1. 2 Relationships Internet technology has enabled a firm to begin to extend the concept of its value chain to include all of the firm’s suppliers and business partners into a single web. This enables companies to work directly with companies around the world. One-to-one buyer-supplier relationships are quickly being replaced by interenterprise collaboration enabled by horizontal and vertical marketplaces. Defined products and services are giving way to dynamic, customer-configurable offerings, where products and services related to those products are bundled to meet the unique requirements of individual customers. In addition to efficiently balancing demand (orders) with supply (availability and capacity), effective demand and supply planning significantly impacts the bottom line. Optimisation of the planning process can drive revenue growth, reduce inventory investment, and lower operating costs. . 2 Operations Through mass customisation, manufacturers can formulate products specifically for individual customers: detergents that fit the cleaning needs of particular workplaces; pesticides that fit the insect population of specific localities, lawn-care products that fit the nutritional needs of unique landscapes; and cosmetics and personal hygiene products formulated to avoid a particular allergen or exposure to a particular chemical or chemicals (Schafer, 1997). Efficient product, processes and technology: e-materialisation Many of the materials such as newspapers, books, dictionaries and encyclopedias, periodicals, stereos, video recorders, cameras, telephones, and answering machines, are products designed to manipulate, store and transmit information. Similarly, many of our institutions, from the post office to the local bank, consume energy and materials by occupying structures that exist mainly to process information. As a technology for manipulating, storing and transmitting information, the internet can perform many of the same functions as these material objects, and in some cases much more quickly and conveniently. This substitution of bits and bytes for physical goods has been called ‘dematerialisation’. Dematerialisation through the internet helps not only to assimilate and communicate information, and conduct financial transactions online, but also has the potential to dramatically reduce the raw materials used in the production of goods, the energy consumed in manufacturing, and the solid waste generated by businesses and consumers. For example, the manufacture of film, processing chemicals, and photographic paper is a significant source of emissions of toxic chemicals such as ethylene chloride, methanol, acetone, toluene, chromium, selenium, and methyl ethyl ketone (US-EPA, 1994). Digital photography avoids the major environmental impacts of film manufacturing and photo processing. Few companies offer customers to receive and store pictures electronically, thus, enables broad distribution without any material required. Financial transactions performed via the web require far fewer material resources and none of the energy involved in moving information stored on paper to and from the home or office. It is estimated that electronic billing saves approximately 50 to 75 cents per bill in envelopes and postage, and another $1 in handling costs. N. U. Ahmed and S. K. Sharma The internet is helping companies and organisations to reduce energy costs and Greenhouse Gas (GHG) emissions by providing them with tools and strategies that can improve the environment, while increasing profits and productivity. E-materialisation of paper alone holds the prospect of cutting energy consumption by about 0. 25% of total industrial energy use. By 2010, e-materialisation of paper, construction, and other activities could reduce US industrial energy and GHG emissions by more than 1. 5% (Romm et al. , 2003; Romm, 1999). 4. 3 Outbound logistics Manufacturers invest large amounts of money in the design of packaging. The environmental costs of packaging are enormous. The packaging results into solid waste. Using internet for selling, and marketing products makes attractive pollution-causing packaging a less attrac