PLM11 - 8th International Conference on Product Lifecycle Management 147

IFIP Working Group 5.1, 2011

Sustainable Industrial Systems: A Case Study from
the Malaysian Palm Oil Industry

Choong Chee Guan*
School of Mechanical Engineering
University of Leeds, LS2 9JT, UK
Fax: +44 113 343 2150, Tel: +44 113 343 2113
Email: mngcc@leeds.ac.uk

*Corresponding author

Alison McKay
School of Mechanical Engineering
University of Leeds, LS2 9JT, UK
Fax: +44 113 343 2150, Tel: +44 113 343 2113
Email: a.mckay@leeds.ac.uk

Abstract: Regulatory drivers such as the EUs Sustainable Procurement
Directive are creating a need for sustainable products where suppliers must
provide evidence of the environmental impact of the products they deliver to
customers. The environmental impact of the products is closely connected to
the environmental performance of the supply networks that transform the
product from raw materials and deliver it to customers. In this paper we argue
that lifecycle management approaches can usefully be applied to such supply
networks to support the design of sustainable industrial systems. Using the
Malaysian palm oil industry as a case study, the paper focuses on the definition
of a case study supply network with a view to creating information needed to
support lifecycle assessments of its operation under alternative environmental
management systems. Early results from studies exploring the influence of the
ISO 14001-based environment management systems on the operation of
Malaysian palm oil industry supply network are presented.

Keywords: Systems engineering, strategic management, environmental
management system, ISO 14001, sustainability


1 Introduction
In order to achieve improved standards of sustainability, there is a need for the Malaysian
palm oil industry to develop sustainability indicators to pursue certification of sustainably
produced palm oil with full traceability. As demand for low cost and high quality
vegetable oil increases, to feed the worlds growing population, frameworks to support
the visualisation of sustainability of palm oil supply networks will contribute to
improving the sustainability of palm oil production.
The need to produce palm oil sustainably has led to the establishment of the Round
Table on Sustainable Palm Oil. This acts as a platform to reach mutual understanding at
an international level among a range of palm oil stakeholders, including; palm oil
growers, palm oil processors/traders, consumer goods manufacturers, retailers,
investment organisations, social and development non-governmental organisations and
environmental or nature conservation non-governmental organisations. Such
understanding could be translated into common actions towards improving the
sustainability of palm oil production and used in its entire supply chain. The Round table
on Sustainable Palm Oil has progressed by formulating a set of principles and criteria for
148 Choong Chee Guan; Allison McKay
sustainable production, but has yet to implement a scheme to enable sustainably produced
palm oil to be certified with full traceability.


Roundtable on Sustainable Palm Oil ISO 14001
Principles and Criteria
Principle 1 The RSPO requirements for this principle are
Commitment to transparency consistent with the ISO 14001 communication
sub-element, with the exception that ISO 14001
does not specifically mention the reporting of
information on social issues.

Principle 2 This is a mandatory requirement of ISO 14001
Compliance with applicable laws that is checked by internal and external auditors.
and regulations It is important to note that ISO states that
appropriate information about legal and other
requirements should be communicated to all
persons working for or on behalf of the
organisation.

Principle 3 This commitment is additional to the
Commitment to long-term economic requirements of the ISO 14001 standard.
and financial viability

Principle 4 The ISO 14001 guideline does not specifically
Use of appropriate best practices by refer to best practices.
growers and millers

Principle 5 The ISO 14001 standard requires the preparation
Environmental responsibility and of management plans and environmental
conservation of natural resources and improvement plans for reducing the negative
biodiversity environmental impacts associated with the
significant issues.

Principle 6 An additional to those of the ISO 14001
Responsible consideration of employees management system specification.
and individuals and communities affected
by growers and mills

Principle 7 The ISO 14001 standard requires any changes to
Responsible development of new plantings the scope of the companys activities to be
included in the environmental management
systems.

Principle 8 Continuous improvement is one of the doctrines
Commitment to continuous improvement of ISO 14001 and the company must commit to
in key areas of activity this process in order to achieve certification.
Table 1: Links between the Roundtable on Sustainable Palm Oil principles and criteria and ISO
14001 elements

In this research, potential influences of ISO 14001-based environment management
systems on the operation of Malaysian palm oil industry supply networks are explored.
ISO 14001 is an internationally recognised standard for environmental management
systems and provides the requirements according to the standards outlined.
Environmental management system implementation requires that companies obtain ISO
14001 certification. The Roundtable on Sustainable Palm Oil principles and criteria
provide an interpretation of the sustainable palm oil requirements for incorporation within
the ISO 14001-based environment management systems framework. The implementation
of an environmental management system as a tool in this study can be regarded as a
response to the requirements of the Roundtable on Sustainable Palm Oil principles and
Sustainable Industrial Systems: A Case Study from the Malaysian Palm Oil Industry 149


criteria (as shown in Table 1) in realising the design of sustainable industrial systems. To
date, 20 mills in Malaysia have obtained Roundtable Sustainable Palm Oil certification.
1

However, the authors argue that standard operating procedures need to be modified not
only to incorporate the requirements of specific Roundtable on Sustainable Palm Oil
principles and criteria but also for the realisation of more sustainable industrial systems.
Market pressures coupled with regulatory drivers such as the EUs Sustainable
Procurement Directive are demanding sustainable products where suppliers are required
to provide evidence regarding the environmental performance of the industrial systems
that produce the products along with the products themselves. In response, ISO 14001-
based environmental management systems provide a means of tracking, managing and
improving performance regarding to these environmental requirements. The influence of
ISO 14001 on the implementing organisation performance plays a new way of thinking of
a balance economic, societal and environmental growth for sustainability. ISO 14001
certification has a positive impact on both economic and environmental performance
(Ann, et.al, 2006). In the future, the implementation of an environmental management
system framework model, through registration with ISO 14001, could become the norm.

2 Structure of the Paper











Figure 1: Research method

An overview of the regulatory framework within which the Malaysian palm oil
industry sits is given in Section 3. This is followed by a literature review, in Section 4,
which collects together information on Malaysian palm oil industry supply networks. The
research method used in this research is shown in Figure 1. It can be seen that the
research is based on a definition of a supply network of the Malaysian palm oil industry;
this was used to identify potential problems for the implementation of ISO 14001-based
environmental management system in the case study network and is provided in Section
5.1. The supply network map was used to identify potential problems from the
implementation of ISO 14001-based environmental management systems; these are
reported in Section 5.2. Step 3 involved the application of the so-called Enterprise
Engineering Framework (McKay, A et. al, 2009). This framework brings together ideas
from systems engineering and strategic management and supports their application to the
design of enterprise networks. The framework was used to develop sustainability
questions as uncertainties affecting the implementation of the design of sustainable

1
Fourth ASEAN State of the Environment Report 2009. Available at: http://www.aseansec.org/
publications/SoER4-Report.pdf
Map out supply network of Malaysian palm oil industry
Identify potential problems from the implementation of ISO14001-based EMS
Apply Enterprise Engineering Framework to manage transition processes
Develop a template questions assessing sustainability solutions
Benchmark sustainability indicators as critical success factors
150 Choong Chee Guan; Allison McKay
industry system in the Malaysian palm oil industry. The template questions can establish
relationship between the Malaysian palm oil industry as an organisation collaborating
with its supply networks that are responsible for the process of managing the
sustainability of the palm oil it produces. From the delivery of these sustainable solutions,
the benchmarked sustainability indicators can be used as critical success factors for the
redesign of materials flow, new technology advances for recycling, and environmental
and socio-economic impacts assessments in the future.

3 An overview of the regulatory environment Malaysian palm oil
In Malaysia, ISO 14001 certification is carried out by Standards and Industrial Research
Institute of Malaysia (SIRIM), QAS International Sdn. Bhd. At present, the evaluation of
the effectiveness of the ISO 14001-based environmental management system in reducing
environmental pollution is difficult to make. Nevertheless, the evaluation is only based on
the number of companies certified to ISO 14001. The high number of companies awarded
the certificate indicate high level of environmental awareness among the industrial sector.
As up to November 2010, a total of 56 companies have been certified with ISO 14001 by
Standards and Industrial Research Institute of Malaysia (SIRIM), QAS International Sdn.
Bhd., Malaysia as an approved Roundtable on Sustainable Palm Oil (RSPO) supply chain
certification body.
2


4 Literature review
The Malaysian palm oil industry is a highly regulated industry. Being sensitive and
proactive on current environmental concerns, the Malaysian palm oil industry is actively
pursuing international series of standards notably on climate change, life cycle
assessment, eco-labelling, environmental communications, and environmental
management systems. Although the ISO 14001-based environmental management
systems model was intended to foster continual environmental improvement, the standard
does not establish absolute requirements for environmental performance, other than a
commitment to compliance with applicable regulations, nor is environmental
performance a factor in certification. ISO 14001 provides a framework for organisations
to implement their environmental policies and third party verification that they are doing
so. As a management system standard it allows more flexibility in the practices applied
and the speed of implementation. ISO 14001does not provide verification that specific
performance requirements have been applied, unless linked to a code of practice which
defines the performance requirements. In addition, it does not permit product labelling.
Table 2 showed a matrix of environmental management systems implementation
which can be related to the supply network map from the summary of literature review.
From the matrix shown, the researchers agreed that the successful implementation of
environmental management system were due to the on-going commitment and support
from the top management and better environmental improvement. For instant, Zutshi, et
al. (2004) examined the role of employees and suppliers as organisational stakeholders
during the ISO 14001-based environmental management systems adoption process. Some
empirical findings indicated that the adoption was influenced by organisation cultures
(GE Ann et al., 2006), regulatory and customer pressures (TK ElTayeb et al., 2010), and
reducing ecological impacts of economic activities (D Walker et al., 2007). It was also a
systematic approach to manage environmental issues in identifying opportunities of
conserving material and energy consumptions, reducing emission and waste, thus

2
Standards and Industrial Research Institute of Malaysia (SIRIM), QAS International Sdn. Bhd.,
Malaysia.
Sustainable Industrial Systems: A Case Study from the Malaysian Palm Oil Industry 151


improving process efficiency (B. Poksinska et al., 2003). While other results indicated
that involvement of all employees and flow of information factors influence the
efficiency and effectiveness of environmental management system implementation (L
Lawrence et al., 2002).
Table 2: Matrix of Environmental Management System Implementation



Strengths Weaknesses
1. Defines a companys environmental Ambiguous definitions and general vagueness of
philosophy terms (environmental aspect, environmental
impact, continual improvement, etc.)
2. Identifies environmental impacts and Lack of substantial public environmental
aspects reporting and public communication requirements
3. Sets regular objectives and targets Inconsistent global applications and
for managing environmental impacts interpretations of the standard
4. Creates a thorough employee Lack of clarity about the ISO 14001-based
training programme environmental management system auditing
criteria
5. Provides documentation/record No requirements for tracking the financial guidelines
success or failure of an ISO 14001-based
environmental management system (via
environmental cost accounting, cost benefit
analysis, etc.)
6. Ensures top management commitment No guidelines for standard environmental
and involvement as well as system performance indicators, which consequently
improvements makes the comparison of certified firms
environmental performance virtually impossible.
Table 3: Strengths and Weaknesses of ISO 14001-based environmental management system


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Authors Environmental Management Systems
A Zutshi, AS Sohal. (2004)
B Poksinska, JJ Dahlgaard,
JAE Eklund. (2003)

D Walker, M Pitt, UJ
Thakur. (2007)

GE Ann, S Zailani, NA
Wahid. (2006)

L Lawrence, D Andrews, B
Ralph, C France. (2002)

MA Balzarova, P Castka,
CJ Bamber. (2006)

N Johnstone, J Labonne.
(2009)

Sebhatu SP, and Enquist B.
(2007)

TK ElTayeb, S Zailani, K
Jayaraman. (2010)

152 Choong Chee Guan; Allison McKay
Sustainability can be achieved through optimisation of the use of resources along the
product lifecycle, while maintaining quality of products and services (Ciceri et al., 2009).
However, optimization and quality of product related processes are strongly based on the
flow of information. The context of information and knowledge sharing between
producers and consumers is important for delivering service and sustainability along the
product lifecycle. There is also a need of addressing topics such as interoperability
throughout the supply network, knowledge sharing in the product chain and social
implications of sustainability. For this reason, product lifecycle management represents a
very important approach for achieving a more sustainable paradigm of in the design of
sustainable industrial systems.
There were both strengths and weaknesses to ISO 14001-based environmental
management systems in heightening organisation awareness of the importance of
managing environmental impacts and actions as shown in Table 3.


5 Case study results
5.1 Map of an example Malaysian Palm Oil Industry supply network
A map of the Malaysian Palm Oil industry supply network is given in Figure 2. The
boundary of the system considered in this research is shown by the dashed box; these are
the parts of the supply system that are located in Malaysia. The information about
customers is included in the map because they influence the requirements for
sustainability-related information. For example, the regulatory framework under which
food producers operate differs both across national boundaries and with the regulations
that, for example, cosmetic and detergent producers must comply with.















Figure 2: Supply network map for palm oil industry

The focus of mapping out the supply network for Malaysian palm oil was to review
the implementation of ISO 14001-based environmental management systems from
cradle-to-gate of the supply network. The system served as a boundary to identify, predict
and communicate information about the impacts on environment. The boundary covers
Plant-
ati on
c
A B
c fl ows from Or ganisation A to
Organisation B
Mil l
fresh frui t
bunches
Refinery
crude
palm oil
Crushing
Plant
palm
kernels
Trader
crude
kernel oil
empty fruit
bunches
palm kernel
meal
Manu-
facturers
Value-added
products such as
fibreboard,
pulp/paper and
ferti liser
Feed
Manufact
urers
Animal
feed
Farmers
Meat
products
Trader
palm
oil
Trader
Trader
Food
pr oducers
Trader
Trader
Detergent &
Cosmeti c
pr oducers
Trader
Trader
Chemi cal
pr oducer s
Trader
Trader
Biofuel
pr oducer s
Trader
Trader
Retail ers
palm
oil
KEY
Sustainable Industrial Systems: A Case Study from the Malaysian Palm Oil Industry 153


from plantation mill refinery crushing plant (dashed box). From the production
processes side, the implementation of ISO 14001-based environmental management
systems should be enhanced with proper procedures so that the entire production process
becomes more environmentally friendly.
However, sustainability solutions should include issues and flows that extend beyond
the nodes up to the retailers of end of life. In order to do so, the Malaysian palm oil
industry and its research and development arm are continuously working to improve the
industrys environmental performance. Various approaches and technologies aimed to
reduce the impact of the industry on the environment have been converted to successful
practices in palm oil plantation, palm oil mill, and refineries. The industry envisions
achieving the highest standards of sustainability of palm oil.

5.2 Potential Problems from the Implementation of ISO 14001-based
Environmental Management System Model in the Malaysian Palm Oil
Industry
Environmental management systems have potentially complementary and significant
implications for an organisations environmental sustainability of defining and
establishing sustainability among supply networks (refer to Figure 2). However, when
environmental management systems are adopted without consideration of a whole
sustainable industrial system, environmental benefits are likely to diminish. This is
because the organisation supply networks partners are unlikely share its environmental
goals and environmental sustainability of any organisation is inevitably limited by if
sustainability related questions are not incorporated in the design of its supply network.
From the supply network mapped out in Figure 2, the boundary of the system
considered in this research can be seen to range from the plantation (raw materials) to
retailers (end of life); as such the research relates to the management of a large portion of
the palm oil cycle. ISO 14001certification is applied to organisation rather than the
products of that organisation (within the dashed box in Figure 2). In this case, product
labelling (beyond the dashed box in Figure 2) was not permitted. In the absence of
product labelling, chain of custody is not normally traced. The implementation of ISO
14001-based environmental management systems help to reduce the costs of regulation,
in terms of government enforcement effort and the costs of compliance of the individual
enterprise. Hence, ISO 14001 certification can be used to replace some statutory reporting
requirements and was not a substitute for a regulatory framework, but the monitoring and
reporting systems of a well-managed enterprise might substitute for some of the statutory
inspections, audits, and reports normally required under government regulations. There
was also considerable evidence that an informed public has a strong influence on the
environmental performance of industrial enterprises, through a variety of mechanisms
that include market forces, social pressures, and support for improved regulatory controls.
Hence, it is argued that issues related to product life cycle management such as costs of
regulation, product labelling, documentation in proving compliancy, and product
information should be taken into considerations when designing a supply network where
product sustainability is a key factor.

5.3 Application of Enterprise Engineering Framework for Design of Sustainable
Industrial Systems
The implementation of product lifecycle management helps to regroup organisational
structure, operation process and resource configuration as facing customers and markets.
In this case, the enterprise engineering framework can be used to develop template
questions on sustainability issues that build upon the view of an entire product lifecycle.
154 Choong Chee Guan; Allison McKay
Building better understanding of sustainability related questions is an important in the
delivery of sustainable palm oil products. Applying the enterprise engineering framework
to the design of a Malaysian palm oil supply network can facilitate the translation of
environmental related requirements towards achieving sustainability solutions.

Define Develop Deploy
Purpose
Explore and define
sustainability issues

Agency
Sustainable industrial
products
supply network
Environmental
Management
Systems

Products &
services
Sustainability oriented
products & services

Design of
sustainable industrial
system solutions
Figure 3: Enterprise Engineering Framework for Design of Sustainable Industrial systems

Under the enterprise engineering framework, ISO 14001-based environmental
management systems can respond as strategic management approach that helps to define
how an organisation will address its impact on the environment. The ISO 14001-based
environmental management systems can be an agency in the enterprise engineering
framework in establishing an environmental policy; undergoing internal assessments of
the organizations environmental impacts; creating quantifiable goals to reduce
environmental impacts, providing resources and training workers; checking
implementation progress through systematic auditing to ensure that goals are being
achieved; correcting deviations from goal attainment; and undergoing management
review. By doing so, organisations can embed environmental practices deep within their
operational systems so that protecting the environment becomes an integral element of
their overall business strategy.
In Figure 3, the ISO14001-based environmental management systems sit in the
Agency row and served as the intended organisation that applies developed framework or
tools to serve the purpose to define sustainability issues in order to deliver sustainable
products and services. By applying the ISO 14001-based environmental management
systems as an enterprise operating system will mobilise the enterprise capabilities to
deliver value to stakeholders through assessing sustainability solutions (from the
plantation to retailers in Figure 2). The palm oil products, which sits in the Products and
Services row of the enterprise engineering framework, comprises a physical product and
associated services that support the product life through the supply networks. During the
enterprise realisation process, the design of sustainable industrial systems requirements
can be translated to deliver sustainability solutions. Hence, it is argued that the success of
sustainable industrial systems is determined by the ability to monitor and verify the
implementation of an organisations quality and environmental policy within the supply
networks. It is important that this framework can be adapted to develop template
questions to assess sustainability solutions for strategic management that integrates
environment, economy and social aspects.

5.4 Developing Template Questions to assess Sustainability Solutions by using
the Enterprise Engineering Framework
Applying the enterprise engineering framework to the design of sustainable industrial
systems is presented in the format of Template Questions in Table 4. The Purpose row of
Sustainable Industrial Systems: A Case Study from the Malaysian Palm Oil Industry 155


the enterprise engineering framework defined sustainability issues to answer the triple
bottom line implications and supply network influence to the entire supply network (from
the plantation to retailers in Figure 2). As for the Agency row, the organization in-charge
of the Malaysian palm oil industry sits to provide sustainable solutions by implementing
tool such as the environmental management system to establish relationship between the
sustainability questions and parameters by developing sustainability indicators to
benchmark critical success factors. Once the sustainable indicators were identified, the
Products and Services row of the enterprise engineering framework can then define
sustainability oriented products and services by answering to the needs and desires for
successful attributes in designing of sustainable industrial systems.

Level Aspects for an enterprise Template questions assessing sustainability solutions
1. Purpose What are the triple bottom line implications and the best
-defining sustainability issues possible sustainable solutions?
How can the sustainable supply network influence the
entire supply chain?
2. Agency Which organisation is in charged in providing sustainable
-defining sustainable industrial solutions?
products supply network How can the implementations of Environmental
Management System by the related agencies influence the
sustainable supply network?
What are the critical success factors to benchmark
sustainable indicators?
3. Products and Services What are the need and desire for sustainable attributes
-defining sustainability oriented in products & services?
products and services How can the sustainability oriented products and services
be developed?
Can the design of sustainable industrial systems solve
sustainability issues?

Table 4: Template questions for assessing sustainable industrial systems using the
Enterprise Engineering Framework

5.5 Benchmarking sustainability indicators as critical success factors
By assessing sustainable industrial systems through answering the template questions
provided, the authors anticipate to benchmark sustainability indicators of the mapped out
supply network performance (refer to Figure 2) in future research.
From the summary of studies done by researchers in Table 5, the management
approach success factor emphasized on the commitment and support from top
management was seen to be a successful implementation of the environmental
management systems beginning from the palm oil plantation itself. The researchers
argued that without top management supports, failure of any environmental management
system is likely. Employees must be able to trust managements decision for ISO 14001
implementation and feel the continuing support for the decision. A successful
implementation of ISO 14001-based environmental management systems also requires
changes within an organisation in structure with clearly defined responsibilities,
authorities, and communication channels throughout the supply networks. Due to
growing pressure from customers, governments and other stakeholders to the companies
to demonstrate their commitment to environment, ISO 14001 certification is seen as an
evidence of such a commitment. This helps to strengthen team spirit and venture business
into the international market. However, regular monitoring needs to be done by using
appropriate monitoring and measuring equipments to improve the processes. In order to
do so, the authors suggest that the provided template questions should be answered to
156 Choong Chee Guan; Allison McKay
assess to sustainable industrial systems and benchmarking of sustainability indicators as
critical success factors of the supply network performance should be an important
element.

Critical Success Factors References
1. Management Approach A Zutshi, AS Sohal. (2004),
Top management approach can be seen in the form of Ambika, Z, Amrik, S. (2004),
commitment and support, appropriate environmental policy Clement, R.B. (1996),
that is accepted by every employee in the organisation, and Kuhre WL. (1995),
regular management reviews. Lim-Teck G, Lee-PT. (2001),
Nalini, G., et al. (2004),
Wee & HA Quazi (2005).
2. Organizational Change
Organisational changes associated with the implementation can Clement, R.B. (1996),
lead to a continual improvement in environmental performance. Lim-Teck G, Lee-PT. (2001).
3. External and Social Aspects
The effective development and implementation of ISO 14001 Lin CM. (1995).
-based EMS is influenced to a great extent by external and Sayre D. (1996),
social aspects that include environmental legislation, market Thornton R. (2000).
pressure, customer requirements, and employee relations.
4. Technical Aspects
The effective implementation of ISO 14001-based EMS in Kuhre WL. (1995),
technical aspects include assistance from environmental Clement, R.B. (1996),
specialists, availability of monitoring and measuring equipment, Lin CM. (1995).
and the production process enhancement.
Table 5: Critical Success Factors by References

6 Conclusions
This case study was to explore the need to integrate sustainability considerations into
organisational structures and supply networks. The aim was to propose a framework to be
used for the design of sustainable industrial systems that can translate requirements to
deliver sustainability solutions. Hence, the relationship and linkages between
sustainability, organisational structures and supply networks need to be better understood
and therefore more research and case studies are needed. It is intended that the template
of sustainability questions created can be used to inform the design of supply networks
intended to deliver more sustainable products. In addition, we anticipate that they could
be used to inform benchmarking activities as critical success factors to aid decision
making and the measurement of supply networks performance. The novelty of this case
study was that it identifies the significance of sustainable industry systems from the
viewpoint of the enterprise engineering framework model and provides a basis for
evaluations with respect to the environmental and socio-economic impacts assessments in
the future.
The adaptation of the enterprise engineering framework towards the design of
sustainable industrial systems can be further analysed with a case study on the life cycle
assessment as the enterprise operating system. The expected outcomes can be compared
to investigate the importance between environmental management systems and life cycle
assessment which later will be coupled to address two major research questions:-
1. How can sustainability be defined and applied to the supply networks of
Malaysian palm oil industry?
2. What are the capabilities needed to develop sustainable new products, and how
might such capabilities be assessed?


Sustainable Industrial Systems: A Case Study from the Malaysian Palm Oil Industry 157


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