An Introduction to Sustainable Supply Chain Management and Business Implications

ABSTRACT

The chapter will explain the concept of sustainability in supply chain management. Sustainability in business operations is fast becoming vital element to successful global acceptance. It is also one of the major marketing strategies for points-of-difference (POD) product positioning. It is necessary to have a basic knowledge of how sustainability is brought about in supply chains in order to truly comprehension the opportunities from it. An understanding of the basic elements to sustainability in supply chain management and global models adopted for implementation of sustainability by corporations is essential. The chapter further focus on introducing the concept of reverse logistics as sustainability supply chain process and the strategic advantage for industries from adoption of reverse logistics across the supply chain. An insight into United Nations Global Compact program for sustainability across businesses and sustainability governance has been provided.

KEYWORDS: Sustainability, SSCM, UN Global Compact, Reverse Logistics, Elkington, Three tiers of sustainability, LCM

INTRODUCTION

Sustainability in business operations is a challenging issue that corporates have been facing due to growing awareness of environmental issues and cause factors by public and governments. The increasing contribution of business operations such as sourcing, manufacturing and logistics to environmental issues, created a need for optimization of business operations with reduced negative effects. The increasing stakeholder pressure on companies’ further influence adoption of sustainability by companies. The increasing competition among corporates to show their environment commitment through green supply chains and its marketing, complete supply chain revolution into sustainable is in trend. In order to understand the decision making process behind this change, it is essential to recognize the areas in supply chain wherein the changes are being implemented by corporates. This ground zero knowledge of the business supply chain is essential while planning of operations, especially in a global sense. This is also essential since sustainable changes are not a short-term application, and responsible decisions made might lead to a successful green company in the future.

Learning objectives

After reading this chapter, readers will be familiar with concepts on:-

1. An understanding of sustainability and its ranking

2. Understand sustainability in supply chain management and its parameters

3. Familiarize with the green concept of reverse logistics

4. Explore the UN Global Compact Management for sustainable supply chain management

SUSTAINABILITY

Sustainability is based on the simple fact that all activities for survival depend on the natural environment. The objective of sustainability is to preserve harmony in the environment, fulfilling the social, economic and economic requirements of the current generation and preserving for future generations. The Brundtland Report of 1987 popularized sustainability and described it to be any development meeting present needs without affecting future generation’s capability to survive. The maintenance of practices and factors supporting environment conservation summarize sustainability. This is an initiative taken in order to repair the damages from direct and indirect human actions on the environment. A business is said to be sustainable when it considers sustainability issues in its decision making, provides environment-friendly products or services, have a green supply chain, have made environmental commitment as part of its operations. The sustainable activities emphasize on maximum utilization and minimal wastage. Environmental sustainability involves serious decision-making and provides a balance between environment commitment and interest of the company. It is not a short-term application, and responsible decisions made might lead to a successful green company in the future. Several models of sustainability have developed over the years. The Brundtland Report depicted sustainability as a three-legged stool of profit, planet and people. Businesses try to cover these three areas while implementing sustainable activities. The Triple Bottom Line (TBL) model of Elkington (1998), collaborating economic, environmental and social dimensions of sustainability and their interdependency, is another accepted study in research circles (Figure 1). This model focuses on holistic development considering the three spheres of social, economic and environmental impacts on society, business and environment. A sustainable approach focus on understanding the interactions among the environmental, social and economic pillars as a way to measure the impact of business operations. The environmental pillar includes activities like ecosystem services, green engineering, air quality, water quality, stressors, resource integrity, while social pillar includes environmental justice, human health, participation, education, resource security, sustainable communities. The economic pillar consists of activities like incentives, jobs, supply and demand, natural resource accounting, costs and prices. Other researches on sustainability also brought out these three pillars of sustainability. The Triple Top Line (TTL) value concentrates on the same three important requisites for a sustainable business namely financial benefits, work betterment, and social advantages for its stakeholders.

The three tiers of sustainability

The sustainability involvement of an organization can be classified into three groups using the ranking system developed by Future Laboratory in 2008, called Three Tiers of Sustainability. The three tiers are based on the sustainability practices implemented by companies and their commitment to its enhancement. The three tiers are namely:

· TIER 1: The Basics- The implementation of basic environment friendly measures like switching off lights and PCs when not in use, paper management, and reduction in carbon footprint from daily business activities.

· TIER 2: Thinking Sustainably- Companies incorporate sustainability into their supply chain operations. This level is attained through corporate assessment of their operations. Supplier management, LCM and resource optimization belong to this group of sustainable activities. The companies at this stage of sustainability understand the benefits from incorporation of sustainable practices into their supply network.

· TIER 3: The Science of Sustainability- The creation of an auditing system and benchmarks for development of a framework for governance of SSCM. The environmental impact of supply chain agility, flexibility and the costs incurred are explained here. The companies at this level will be committed to sustainability and act as a pushing force to implementation of sustainability standards and regulations across the industrial and government levels.

SUPPLY CHAIN MANAGEMENT (SCM)

A supply chain consists of all parties involved in fulfilment of a customer request, thereby including suppliers, manufacturers, transporters, distributors, retailers, warehouses, and customers themselves. The end objective of every product/service supply chain is to generate profits through customer satisfaction. The integrated effort of all concerned supply chain parties to fulfil this mission is termed as Supply Chain Management (SCM). Globalization and open markets across the globe further necessitated the development of this synchronized effort by supply chain players. The term “supply chain management” was coined in 1982 by Keith Oliver, a consultant for Booz & Company. SCM derives its applicability by combining operations management, logistics, procurement, and information technology (IT) towards development of an integrated and efficient supply chain. According to Lambert et al. (1998), SCM can be defined as the “integration of key business processes from end-user through original suppliers that provide products, services, and information that add value for customers and other stakeholders. Mentzer et al. (2001) argue that SCM could be defined either as a management philosophy, the implementation part of the philosophy or as a set of process. SCM is thereby described by Mentzer et al. (2001) as being a strategic and systematic integration of business functions and strategies, with the intension of long term performance of the business and viability of the supply chain. However, Svensson (2002) define SCM focusing on the philosophy part of SCM, describing SCM as a philosophy of business that need to address the dual direction flow of resources and information between the players, on a tactical, strategic as well as operational level, from point or origin to point of consumption. The SCM components include supply chain strategy, supply chain enterprise application, supply chain planning, procurement, asset management, product lifecycle management, and logistics. The supply chain processes across these SCM components could be explained in terms of its cycle of movement of products across the players and their marketing outlook. The four main cycles of SCM are namely customer order cycle, replenishment cycle, manufacturing cycle, and procurement cycle. The marketing outlook consists of the push and pull process of marketing. While the pull process of SCM is initiated by a customer order, the push process is triggered by anticipation in customer orders.

SCM has four elements which focus on supply chain value creation and relationship management.

1) Supply chain demand management: Demand management focuses on meeting consumer needs over the production process. The increased awareness of consumer expectations and needs, supported by increasing collaboration between supply chain players create increased business opportunities and improved competitiveness of the supply chain network.

2) Supply chain communication: An effective communication strategy helps in efficiency and productivity enhancement of the supply chain operations, through information sharing between the concerned players. It also makes the supply chain flexible and agile to changing market conditions.

3) Supply Chain integration: The integration of supply chain processes leads to reduced inventory costs, better inventory management among players and improved competitive pricing to customers. The establishment of information networks is critical to the integration across the players in supply chain.

4) Supply chain collaboration: Collaboration among the supply chain players strengthens relationships, increases efficiency and lead to enhanced business performance.

The efficiency management of SCM across its players requires consideration of four main steps into the strategic planning process, given below:

1) Plan: Efficiency in resource utilization requires careful planning of its management across the supply chain. This therein necessitates the development of metrics to monitor the utilization and conversion rate of resources into final output.

2) Make: Scheduling activities of production, testing, product packaging and delivery based on necessity is a crucial step in effective management of SCM. This is the most metric centric work of the supply chain, wherein quality levels, production output and labour productivity could be measured for efficiency.

3) Delivery: The coordination during receipt of orders, storage, transportation, and delivery stages will help faster movement of goods across the supply chain.

4) Return: This is a crucial part of the supply chain necessary in today’s green world, but often avoided by many companies. The development of a reverse flow supply chain process is critical to management of return of defective, excess and end-of-life products along the supply chain. The absence of such as system only results in cluttering of the supply chain flow for forward movement of goods.

Studies on impact of supply chain activities of transportation, packaging and warehousing on the environment were conducted to understand SCM’s contribution to carbon footprint of a company. SCM operations was found to contribute to nearly 75% of a company’s carbon footprint. The sole focus of business on customer satisfaction from reduction of costs and faster delivery further enhance the negative effects of logistics on environment. Globalization, out sourcing and just-in-time inventory management systems have further reduced the control over logistics activities. The complexity of the new supply chains as a result of new markets and opportunities could further damage the environment, unless steps are taken to prevent it. Transparency, integration and coordination between the supply chain players is necessary to streamline these complex supply networks. The pressure for short-term profits often lead to overlook on long term durability of the business. Sustainability is the key to this solution. SCM has a wide range of influence on various stages of the life cycle of materials, and is thereby an excellent platform to initiate sustainability across all products, services and processes that a company is currently engaging in. Any change or chance for optimizing the operations through sustainability needs to start from the top management. In order for the board of members to consider sustainability as a solution, it is necessary to address sustainability in terms of its benefits of resource efficiency. Quantification of long term benefits from sustainability is often difficult and the proposal for sustainability in supply chain falls short of approval. The focus for commitment should thereby be on business volatility and profit generation, for capturing the board’s attention. Some of the practices like compulsory standard maintenance by suppliers goes a long way towards ensuring sustainability across the supply chain. Government legislations further ensure acceptance of sustainability by companies. Legislations like the Landfill Tax by the UK government ensure development of proper waste management and disposal systems. Legislation, and collaboration between stakeholders are some of the suggested ways to create confidence among companies to follow the sustainable way of business. For that, ample knowledge of sustainability and its incorporation into business operations is essential.

SUSTAINABLE SUPPLY CHAIN MANAGEMENT (SSCM)

Sustainable supply chain management encompasses a set of sustainable logistics practices designed to include environmental parameters into the forward and reverse logistics supply chains. Supply chain sustainability is the management of environmental, social and economic impacts, and the encouragement of good governance practices, throughout the lifecycles of goods and services. The objective of supply chain sustainability is to create, protect and grow long-term environmental, social and economic value for all stakeholders involved in bringing products and services to market. Sustainability is often measured in terms of the triple bottom line of economic, social and environmental impacts, while supply chain sustainability is rated using social, ethical, cultural, and health footprints (SECH). The increasing awareness among customers regarding SECH ratings and its’ significance, combined with their involvement with NGOs and reaction to unethical companies has forced companies to ensure sustainability in their supply chain. Reducing packaging waste, supplier assessment for sustainable practices, development of sustainable products, reducing carbon footprint, compliance with eco standards and specifications are some of the practices of SSCM. SSCM integration is necessary into the supply chain activities of product design, procurement, manufacturing, logistics, distribution and returns management. Business sustainability initiatives are often conducted under the title of ‘Corporate Sustainability’ Corporate sustainability can be defined as meeting needs of current stakeholders without compromising ability to meet the needs of the future stakeholders.