Supply chain sustainability

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Supply-chain sustainability is a business issue affecting an organization’s supply chain or logistics network in terms of environmental, risk, and waste costs. There is a growing need for integrating environmentally sound choices into supply-chain management. Sustainability in the supply chain is increasingly seen among high-level executives as essential to deliver profitability and has replaced monetary cost, value, and speed as the dominant topic of discussion among purchasing and supply professionals. A sustainable supply chain seizes value creation opportunities and offers significant competitive advantages for early adopters and process innovators.

Background[edit]

Supply chains are critical links that connect an organization’s inputs to its outputs. Traditional challenges have included lowering costs, ensuring just-in-time delivery, and shrinking transportation times to allow better reaction to business challenges. However, the increasing environmental, social and economic costs of these networks and growing consumer pressure for eco-friendly products has led many organizations to look at supply chain sustainability as a new measure of profitable logistics management.[1] This shift is reflected by an understanding that sustainable supply chains frequently mean profitable supply chains.[2]

Many companies are limited to measuring the sustainability of their own business operations and are unable to extend this evaluation to their suppliers and customers. This makes determining their true environmental, social and costs highly challenging. However much progress has been made in defining supply chain sustainability and benchmarking tools are now available that enable sustainability action plans to be developed and implemented.[3]

One of the key requirements of successful sustainable supply chains is collaboration. The practice of collaboration — such as sharing distribution to reduce waste by ensuring that half-empty vehicles do not get sent out and that deliveries to the same address are on the same truck — is not widespread because many companies fear a loss of commercial control by working with others. Investment in alternative modes of transportation — such as use of canals and airships — can play an important role in helping companies reduce the cost and environmental impact of their deliveries.[4] Collaboration platforms are emerging because of the fear of a loss of commercial control and competitive advantage by working closely with other companies.[5]

Climate change poses a new risk to supply chains and a need to increase their resilience. Food and beverage companies are particularly vulnerable to the impacts of climate change as changing weather patterns can disrupt agricultural production. Measuring supply chain resilience on factors such as natural resource availability, infrastructure, financial resources, and social safety networks among others, can help them respond to challenges and create better supply chains in the process. [6]

Besides sustainability and resilience, an ethical supply chain is imperative to ensure corporate social responsibility and adhere to the moral code of conduct. The work environment for the workers should be congenial and must not violate the basic human rights. For instance, companies like Nike and Apple, which outsource manufacturing of their products to other countries like China, have been under the scanner for workplace conditions and wages of their workers.[7] Consumers increasingly demand transparency and traceability in supply chains, especially where disturbing social breakdowns occur, such as with forced and child labor for globally traded goods.[8] [9]

Three Tiers of Sustainability[edit]

In 2008, The Future Laboratory produced a ranking system for the different levels of sustainability being achieved by organization. This was called the Three Tiers of Sustainability:

Tier 1: Getting the basics right[edit]

This is the base level and is the stage in which the majority of organizations are at. Companies employ simple measures such as switching lights and PCs off when left idle, recycling paper, and using greener forms of travel with the purpose of reducing the day-to-day carbon footprint. Some companies also employ self-service technologies such as centralized procurement and teleconferencing.

Tier 2: Learning to think sustainably[edit]

This is the second level, where companies begin to realize the need to embed sustainability into supply chain operations. Companies tend to achieve this level when they assess their impact across a local range of operations. In terms of the supply chain, this could involve supplier management, product design, manufacturing rationalization, and distribution optimization.

Shortening supply chains can be part of a sustainable supply chain strategy. Some of the benefits include building direct relationships with producers, promoting regionally specific production, increasing profits for producers that would otherwise be split among intermediaries, and adding value to the products by sharing information about the quality, context and uniqueness of each source. For example, single origin coffee beans are part of a niche market that benefits producers who can earn a higher wage for high quality products. In some cases, single origin producers can earn three times as much as producers who are part of the conventional global coffee market, where there are more participants in the chain who are not necessarily adding value that would benefit the producer. [10]

Tier 3: The science of sustainability[edit]

The third tier of supply chain sustainability uses auditing and benchmarks to provide a framework for governing sustainable supply chain operations. This gives clarity around the environmental impact of adjustments to supply chain agility, flexibility, and cost in the supply chain network.[11] Moving towards this level means being driven by the current climate (in which companies recognize cost savings through green operations as being significant) as well as pushing emerging regulations and standards at both an industry and governmental level.

In some sectors there are many Voluntary Sustainability Standards that indicate sustainable practices, however the impact of these practices is not always determined or in alignment with the initial sustainable supply chain goals. Using consistent metrics to manage and understand supply chain sustainability would add validity to Voluntary Sustainability Standards and allow for more transparent comparison across different ecolabels. Sustainability measurement which can be replicated across sectors and throughout different locations improves knowledge and accountability within supply chain management. [12]

Application of sustainability[edit]

Companies looking to implement sustainable strategies down its supply chain should also look upstream. To elaborate, if a company is able to choose between various suppliers, it can for example use its purchasing power to get its suppliers in compliance with its green supply chain standards. In managing suppliers, companies must measure that inputs from suppliers are of high quality, and the usage of water and energy is minimised leading to less pollution, defects and over production. They also must audit their supplier base and make sure that they are improving the supply chain metrics[13]

When measuring sustainability in supply chains, consistent measurements which can be replicated and compared are crucial to encourage consumer trust. Environmental and social change often takes time to measure and must be considered by private companies or governments over a long term period to accurately assess the results.[14]

Software[edit]

As supply-chain sustainability becomes a more critical business issue, the need for reliable and robust data from suppliers increases.[citation needed] Whilst some existing business systems can collect some sustainability data,[citation needed] most large businesses will look to dedicated software providers for more specific sustainability functionality.[citation needed]

In order for businesses to determine the degree of sustainability impact of their business model, they must have the data to support it. Harvard Business School created the Impact-Weighted Accounts Initiative (IWAI)[15] to assess the degree of impact that many large companies have on social, environmental, and economic areas. Impact data comes from long term research on specific, measurable topics that can be applied to future changes within a company or system.  Data collection helps data scientists and consultants analyze the current system of supply chains and find areas for improvement. Data needs to be accessible in order for it to be used for the benefit of improving supply chains, which is why transparent publications across the spectrum of supply chain industries is important. Addressing the fact that impact data is sparse allows institutions like HBS to hold companies accountable and introduce greater transparency. When companies have a negative impact on a wide variety of areas, environmental or otherwise, it may show in their stock market value, therefore showing investors the true values of the company, which may be reflected across the supply chain down the line[15]. Transparency in impact data makes a difference in how consumers view large companies and how the economy functions as a result, proving that improving data driven sustainability efforts can positively affect supply chain business. While impact data is probably one of the better ways of assessing a company’s long term impacts, it is important to note that data collection for impact assessment is a lengthy process and not all companies can spend that much time measuring their impact without making positive changes. Because of this, alternatives to long term impact assessments are necessary for some businesses.

See also[edit]

References[edit]

  1. ^ Supply Chain Management
  2. ^ The Sustainable Supply Chain Project
  3. ^ Weir Total Supply Chain Sustainbility
  4. ^ Airships float back to the futures
  5. ^ "Supply Chain Sustainability: A Strategic Responsibility". Procurious. Lucy Harding. Retrieved 20 May 2016.
  6. ^ USAID, 2020. An Introduction To Assessing Climate Resilience In Smallholder Supply Chains. USAID Feed the Future Learning Community for Supply Chain Resilience.
  7. ^ "Building Sustainable and Ethical Supply Chains". Forbes. March 9, 2012.
  8. ^ "Child Labour". www.ilo.org. Retrieved 2020-07-28.
  9. ^ Georges, Salwan; Dec. 30, Peter Whoriskey |; 2019. "The children who harvest cocoa - The Washington Post". Washington Post. Retrieved 2020-07-28.CS1 maint: numeric names: authors list (link)
  10. ^ Luis Fernando Samper, Daniele Giovannucci and Luciana Marques-Vieira. 2017. The Powerful Role of Intangibles in the Coffee Value Chain. WIPO Economic Research Working Paper No. 39. World Intellectual Property Organization. Geneva.
  11. ^ The Science of Sustainability, pg 14
  12. ^ Schmidt, Michael; Giovannucci, Daniele; Palekhov, Dmitry; Hansmann, Berthold, eds. (2019). "Sustainable Global Value Chains". Natural Resource Management in Transition. doi:10.1007/978-3-319-14877-9. ISSN 2198-9702.
  13. ^ Kumar, Sameer; Teichman, Steve; Timpernagel, Tobias (2012). "A green supply chain is a requirement for profitability". International Journal of Production Research. 50 (5): 1278–1296. doi:10.1080/00207543.2011.571924.
  14. ^ COSA. 2013. The COSA Measuring Sustainability Report: Coffee and Cocoa in 12 Countries. Philadelphia, PA: The Committee on Sustainability Assessment
  15. ^ a b Cohen, Ronald. "How to Measure a Company's Real Impact". Harvard Business Review.