Using the Triple Bottom Line to Select Sustainable Suppliers for a Major Oil and Gas Company Pandarinath Adarsh Sunkari University of Arkansas, Fayetteville
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University of Arkansas, Fayetteville ScholarWorks@UARK Theses and Dissertations 5-2015 Using the Triple Bottom Line to Select Sustainable Suppliers for a Major Oil and Gas Company Pandarinath Adarsh Sunkari University of Arkansas, Fayetteville Follow this and additional works at: http://scholarworks.uark.edu/etd Part of the Industrial Engineering Commons, Operational Research Commons, Operations and Supply Chain Management Commons, and the Sustainability Commons Recommended Citation Sunkari, Pandarinath Adarsh, "Using the Triple Bottom Line to Select Sustainable Suppliers for a Major Oil and Gas Company" (2015). Theses and Dissertations. 1114. http://scholarworks.uark.edu/etd/1114 This Thesis is brought to you for free and open access by ScholarWorks@UARK. It has been accepted for inclusion in Theses and Dissertations by an authorized administrator of ScholarWorks@UARK. For more information, please contact [email protected], [email protected]. Using the Triple Bottom Line to Select Sustainable Suppliers for a Major Oil and Gas Company Using the Triple Bottom Line to Select Sustainable Suppliers for a Major Oil and Gas Company A thesis submitted in partial fulfillment of the requirements for the degree of Master of Science in Industrial Engineering by Pandarinath Adarsh Sunkari Jawaharlal Nehru Technological University Bachelor of Technology in Electronics and Instrumentation Engineering, 2010 Institute of Public Enterprise Master of Business Administration, 2012 May 2015 University of Arkansas This thesis is approved for recommendation to the Graduate Council _______________________ Dr. Gregory Parnell Thesis Director _______________________ Dr. Ed Pohl Committee Member _______________________ Dr. Terry Esper Committee Member Abstract Companies have primarily been focusing on the financial bottom line i.e., on increasing profits by increasing revenues and reducing costs. With high energy usage and environmental change posing threats to the environment and business operations, companies are now considering sustainability. Since some global suppliers have low cost labor, social well- being and human development has also emerged as major goals of a company performing global operations. Focusing on these three goals is termed the “Triple Bottom Line” (TBL). We study and explore the TBL benefits that could be realized by an oil and gas company by focusing on sustainable suppliers. A company with a global supply chain cannot be sustainable without sustainable suppliers. This thesis develops the business case for sustainable suppliers using the TBL and presents the benefits of integrating sustainable suppliers into the supply chain. We consider a major oil and gas company and use multi-objective decision analysis to perform the analysis. Contents 1. Introduction ................................................................................................................................. 1 1.1 Brief Introduction to the Oil and Gas Industry ..................................................................... 1 1.2 Definition of Sustainability ................................................................................................... 5 1.3 Triple Bottom Line (TBL)..................................................................................................... 6 1.4 Risk Management and Sustainability Benefits...................................................................... 9 2. Problem Definition.................................................................................................................... 11 3. Literature Survey ...................................................................................................................... 12 4. Single and Multi Objective Decision Analysis ......................................................................... 14 4.1 Introduction of Value Hierarchy Model and Supplier Selection Criteria ........................... 15 4.2 Types of suppliers ............................................................................................................... 20 4.2.1 Sustainable supplier ..................................................................................................... 20 4.2.2 Social value focused supplier....................................................................................... 21 4.2.3 Environmental value focused supplier ......................................................................... 21 4.2.4 Economic value focused supplier ................................................................................ 21 4.2.5 Ideal supplier ................................................................................................................ 21 5. Decision Model and Calculations ............................................................................................. 22 5.1 The Three Models ............................................................................................................... 22 5.2 The Net Present Cost of the Supplier .................................................................................. 25 5.3 Environmental Value........................................................................................................... 30 5.4 Social Value ........................................................................................................................ 35 5.5 Total Value .......................................................................................................................... 39 6. Summary and Conclusions ....................................................................................................... 40 Bibliography ................................................................................................................................. 42 Figure 1: Operations during life cycle stages (Cliq Energy Website, 2015) .................................. 2 Figure 2: Oil and Gas Value Chain (PetroStrategies Inc., 2015) .................................................... 3 Figure 3: The three legged stool of sustainability (Willard, Sustainability models: Sustainability Advantage, 2010) ............................................................................................................................ 7 Figure 4: Influence Diagram ........................................................................................................... 8 Figure 5: Value chain and sustainability benefits (Willard, Value chain and sustainability benefits, 2010)................................................................................................................................. 9 Figure 6: Top Ten Business Risks ................................................................................................ 11 Figure 7: The Taxonomy of Decision Analysis (Parnell, Bresnick, Tani, & Johnson, 2013) ...... 15 Figure 8: Environmental Value Hierarchy .................................................................................... 18 Figure 9: Social Value Hierarchy ................................................................................................. 20 Figure 10: Sensitivity to Discount Rate ........................................................................................ 28 Figure 11: Total costs for 30 years ............................................................................................... 29 Figure 12: Value Component Chart for Environmental Value ..................................................... 35 Figure 13: Social Value Component Chart ................................................................................... 39 Figure 14: Total Value Bubble Chart ............................................................................................ 40 Table 1: The 32 market segments (Spears & Associates, 2014)..................................................... 4 Table 2: Subsea Equipment ............................................................................................................ 5 Table 3: Literature Survey ............................................................................................................ 13 Table 4: Environmental criteria selection ..................................................................................... 16 Table 5: Social criteria selection ................................................................................................... 18 Table 6: Type of Suppliers ............................................................................................................ 22 Table 7: Example of Input Table .................................................................................................. 26 Table 8: Example of Total Cost Calculations ............................................................................... 27 Table 9: Net Present Costs for all Suppliers ................................................................................. 27 Table 10: Environmental value single-dimensional value functions ............................................ 30 Table 11: Scores on each Environmental Value Measure ............................................................ 31 Table 12: Single-Dimensional Value Calculations for each Value Measure ............................... 32 Table 13: Swing Weight Matrix for Environmental Value .......................................................... 33 Table 14: Normalized Swing Weight for Environmental Value .................................................. 33 Table 15: Normalized Weighted Values for