The Role of Sustainable Supply Chain Management in the Business World

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The Role of Sustainable Supply Chain Management in the Business World

Abstract

This chapter introduces the role of sustainable supply chain management (SSCM) in the business world, thus explaining the theoretical and practical concepts of sustainability, supply chain management (SCM), and SSCM; the overview of triple bottom line (TBL); and the applications of SSCM in the business world. This chapter performs a large-scale literature review and uses the conceptual theory building to introduce the concept of sustainability beyond the triple bottom line to consider key supporting facets to implementing SSCM practices to the field of SCM and demonstrates the relationships among environmental, social, and economic performances within the SSCM context. Applying SSCM will significantly enhance organizational performance and achieve business goals in the global supply chain environments.

INTRODUCTION

The field of SCM has an inherent connection to sustainability, and it has been recognized that the concept of sustainability extends to both the operational drivers of profitability and their relationship to people and the environment (Winter & Knemeyer, 2013). The fast growing branch of research is the SSCM (Seuring & Muller, 2008). SSCM investigates management strategies to adapt to sudden changes, risks and opportunities in the market and how to influence and control their environment to achieve a competitive advantage (Beske, 2012). SCM exhibits typical characteristics of a subject at early stages of evolution including diversity and lack of conceptual clarity (Gibson, Mentzer, & Cook, 2005). SCM is a business process integration that allows organizations to exploit the competitive advantages of SCM and achieve better organizational performance by lowering costs and increasing profits and customer satisfaction (Mitra & Singhal, 2008; Martinez-Sanchez, Vela-Jimenez, Perez-Perez, & De-Luis-Carnicer, 2009).

Considering the dynamic nature of business environments (i.e., a downturn or upturn of the global economy), competitive firms are flexible enough to make constant strategic adjustments and policy changes (Hong, Roh, & Rawski, 2012). Organizations have faced with sustainability practices at all levels (i.e., strategic, operational, and outcome measures) to gain a competitive advantage (Zhu & Sarkis, 2004). SCM is a relatively new concept and the green supply chain management (GSCM) is a newer concept (Holt & Ghobadian, 2009). Srivastava (2007) focused primarily on reverse logistics, while Carter and Rogers (2008) focused on the link to organizational performance. The area of sustainability is examined with a particular focus on using the TBL approach to evaluate sustainability efforts in a supply chain context (Winter & Knemeyer, 2013). This chapter introduces the role of SSCM in the business world, thus explaining the theoretical and practical concepts of sustainability, SCM, and SSCM; the overview of TBL; and the applications of SSCM in the business world.

Background

A number of researchers have attempted to produce a unified definition by examining collection of proposed definitions (Bechtel & Jayaram, 1997). The concept of SCM was introduced in the early 1980s (Harland, 1996). The extant literature on SSCM contains studies on a diverse set of topics such as green purchasing, purchasing ethics, remanufacturing, safety management, supplier certification, carbon footprint and reverse logistics (Winter & Knemeyer, 2013). SCM is considered as a collection of practices for managing and coordinating the transformational activities from raw material suppliers to customers (Heikkila, 2002). SCM is viewed as an organizational response by organizations to business pressures in their supply chain environment (Cravens, Piercy, & Shipp, 1996).

SCM is defined as a long-term oriented, inter-organization arrangement, involving cooperative relationships (Grant & Baden-Fuller, 2004; Das, 2006). Economic theory defines supply chain as a multistage and multidirectional system of autonomous decision makers (Kotzab, Teller, Grant, & Sparks, 2011). The management of supply chain is the result of a social negotiation process among the interested business parties regarding specific norms and standards (Halldorsson, Kotzab, Mikkola, & Skjøtt-Larsen, 2007). SCM proceeds and develops through the systematic and strategic coordination of business functions and strategies across businesses, with an overall goal of improving the long-term profitability in organizations (Mentzer, DeWitt, Keebler, Soonhoong, Nix, Smith, & Zacharia, 2001).

ROLE OF SUSTAINABLE SUPPLY CHAIN MANAGEMENT IN THE BUSINESS WORLD

This section introduces the theoretical and practical concepts of sustainability, SCM, and SSCM; the overview of TBL; and the applications of SSCM in the business world.

Concept of Sustainability

The term “sustainability” has been defined in various disciplines, such as engineering science, operations management and social science (Linton, Klassen, & Jayaraman, 2007). However, there exists a divergence of definitions of sustainability in the management literature (Carter & Rogers, 2008). Carter and Rogers (2008) stated that sustainability refers to an integration of social, environmental, and economic responsibilities. Shrivastava (1995) defined sustainability as the potential for reducing long-term risks associated with resource depletion, fluctuations in energy costs, product liabilities, and pollution and waste management. Sustainability is viewed as a continuous process, moving toward a more sustainable existence (Elkington, 2006; Mauerhofer, 2008). The definitions of sustainability in the engineering literature have been more encompassing, and have explicitly incorporated the social, environmental, and economic dimensions of the major viewpoint by defining organizational sustainability as a wise balance among economic development, environmental stewardship, and social equity (Sikdar, 2003).

Organizations can engage in environmental and social activities that positively affect the natural environment and society, and provide long-term economic benefits and a competitive advantage in organizations (Markley & Davis, 2007; Carter & Rogers, 2008). The integration of sustainability concepts into SCM involves not only the various business processes and activities, but also cooperation between parties across the network of relationships that form a supply chain (Winter & Knemeyer, 2013). The operations management literature has considered sustainability from the ecological perspective without explicit incorporation of social aspects of sustainability (Daily & Huang, 2001; Sarkis, 2001). Four aspects of sustainability include risk management, transparency, strategy, and culture (Sarkis, 2001; Henriques & Richardson, 2004; Savitz & Weber, 2006):

Risk management

The concept of risk and risk management is considered as a reoccurring theme in the sustainability literature (Carter & Rogers, 2008). Shrivastava (1995) stated that within the context of sustainability, an organization must manage short-term financial results and risk factors such as harm resulting from its products, environmental waste, and worker and public safety. Gladwin, Kennelly, and Krause (1995) stated that sustainable development must encompass the concept of security which demands safety from chronic threats and protection from harmful disruption including biodiversity loss, climate change, freshwater scarcity, food insecurity, and population growth.

Sustainability risk management (SRM) is a business strategy that aligns profit goals with an organization's environmental policies. The goal of SRM is to make this alignment efficient enough to sustain and grow a business while preserving the environment. One of the chief drivers for SRM adoption is increasing demand for compliance with global and national regulations. Organizations implementing SRM generally focus on the environmental effects of each business process individually and then look for ways to minimize them. The IT department assists by managing data as it relates to the organization's sustainability goals and providing automated auditing and reporting capabilities.

Transparency

Transparency deals with the idea that by having an engaging and open environment in the company as well as the community will improve performance and increase profits. It is an open culture that promotes employee involvement in the innovation and creative processes. Reaching out to the community creates a much bigger team is extremely cheap and provides evaluation from all angles. Companies are looking inward and realizing changes must be made to fulfill environment needs such as energy efficiency, limiting product waste and toxicity, and designing innovative products.

Transparency is partially driven by the quick speed of communication via the Internet and satellite television (Elkington, 1997), as well as other factors such as interoperable software and globalization of supply chain which have lead to a flat world (Friedman, 2005). Transparency involves reporting to stakeholders, and actively engaging stakeholders and using their feedback and input to secure buy-in and improve supply chain processes (Carter & Rogers, 2008). Transparency encompasses green marketing activities within a stakeholder perspective (Rivera-Camino, 2007) as well as more traditional cause-related marketing (Drumwright, 1994). Transparency can be improved through vertical coordination across supply chain as well as horizontal coordination across networks (Carter & Rogers, 2008).

Strategy

An organization’s sustainability initiatives and its corporate strategy must be closely interwoven, rather than separate programs that are independently managed in organizations (Shrivastava, 1995). A key driver for implementing sustainability practices for any organization is its strategic initiatives that respond to the pressures of the external environment (i.e., market requirements, societal expectations, and government regulations). Such strategic initiatives influence the organizations to adopt internal response practices that reflect the similar features of sustainability practices (Hong, Kwon, & Roh, 2009; Yang, Hong, & Modi, 2011). IBM (2005) described the integration of its TBL strategy with its core business strategy.

Culture

Organizational culture and corporate environmental sustainability are jointly related (Klassen, 2000). Organizations that support employee involvement in environmental efforts have demonstrated greater success in reducing the organization’s environmental impact (Ramus & Steger, 2000). By recognizing and creating organizational culture as part of corporate sustainability efforts, organizations are able to better integrate these sustainability‐related initiatives into daily business activities (Baumgartner, 2009). Merging sustainability strategies and activities to the organizational culture reduces the risk of the organization misrepresenting its environmental performance (Baumgartner, 2009).

Concept of Supply Chain Management

Gibson et al. (2005) defined SCM as the planning and management of all activities involved in sourcing and procurement, conversion, demand creation and fulfillment, and all logistics management activities. SCM is considered as the integration of an organization’s business processes, with the objective of replacing a single isolated operational unit with a whole supply chain spanning raw material suppliers to the customer (Frohlich & Westbrook, 2001; Heikkila, 2002). Integration occurs in a forward as well as a backward direction (Cousins & Menguc, 2006). The objective of a supply chain is to produce the business value in terms of products and services that are distributed to a customer (Winter & Knemeyer, 2013). The aim of SCM business processes is to increase customer value and to optimize the whole entity of supply chain (Cooper, Lambert, & Pagh, 1997; Heikkila, 2002). Lambert, Cooper, and Pagh (1998) considered SCM 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.

The performance of supply chain is increased through suppliers in the supply chain (Fynes, de Burca, & Mangan, 2008). The effective execution of SCM can result in organizational performance improvement (Kotzab et al., 2011). Li, Ragu-Nathan, Ragu-Nathan, and Subba Rao (2006) stated that higher levels of SCM practice lead to an increased competitive advantage and improved organizational performance. Frohlich and Westbrook (2001) stated that the organizations with the widest supplier and customer integration have the highest rates of organizational performance improvement.

The requirement for an organization to adopt and execute SCM derives from the marketplace, which expects both product and service customization and suitable utilization of resources in the global supply chain environment (Christopher, 2000; Cousins & Menguc, 2006). The supply chain environment provides organizations with an incentive to establish a value-added supply chain network, where complex inter-organization relationship management, collaboration and coordination correlate with the product design, production, supplier selection and marketing (Das, 2006; Cousins & Lawson, 2007).

Internal SCM conditions are the requirements for adopting SCM-related processes and executing SCM inside the organization (Kotzab et al., 2011). Internal SCM conditions represent a commitment and dedication of human and financial resources, top management support, internal visions and goals, the staff’s technical expertise, internal information technology (IT) systems, guidelines for information exchange, education, the set-up of internal project groups and processes as well as integration behavior

(Cousins & Lawson, 2007; Martinez-Sanchez et al., 2009).

External SCM conditions are the requirements for adopting SCM-related processes and SCM execution between organizations and in cooperation with partners in the supply chain (Kotzab et al., 2011). External SCM conditions include shared performance measurement, planning and controlling systems, shared vision and goals, organizational structure, joint project groups, systems perspective, trust, long-term-oriented relationships, power, shared profits and risks, mutual dependency, shared information on inventory status, shared information on forecasts, shared information on product development, organizational culture and equivalent management methods (Cousins & Lawson, 2007; Martinez-Sanchez et al., 2009).

SCM-related processes are the business practices that merge different key business areas within an organization and between an organization’s suppliers and customers (Kotzab et al., 2011). SCM-related processes generate a flow of products, services and related information and create value for customers as well as improving the total performance of the supply chain (Das, Narasimhan, & Talluri, 2006; Martinez- Sanchez et al., 2009). SCM-related processes are categorized into eight areas (i.e., customer relationship management; customer service management; demand management; order fulfillment; manufacturing flow management; supplier relationship management; product development and commercialization; and return management (Croxton, Garcia-Dastugue, Lambert, & Rogers, 2001; Lambert, Garcia-Dastugue, & Croxton, 2005).

SCM execution within organizations is recognized as the organization’s internal and external integration of business processes with suppliers and customers to create business value and to improve the overall organizational performance of the supply chain (Cooper et al., 1997; Lambert et al., 1998). Lambert and Knemeyer (2004) presented the construct of organizational behavior as a strategic component of SCM, including variables of culture, power and human resources. Mentzer et al. (2001) considered the prerequisites, which are required to connect organizations within a value-added supply chain network. SCM-related processes are positively affected by internal and external SCM conditions (Lambert et al., 2005).

The lack of top management support, the inability to share information, a resistance to change, a lack of training and skills, a lack of process orientation, inflexible systems and processes, a lack of internal controlling systems, and no guidelines for information exchange are considered as the barriers that obstruct the integration of business processes (Droge, Jayaram, & Vickery, 2004; Das et al., 2006). To overcome these barriers, the organizations should adopt internal education to develop a vision and to dedicate financial and human resources (Cooper et al., 1997; Mentzer et al., 2001). Dyer and Nobeoka (2000) developed the knowledge-sharing processes between the organizations and their suppliers.

External SCM conditions reflect a supply chain orientation that should lead to cooperation among organizations (Mentzer et al., 2001). Lambert et al. (2005) characterized this process as the intra-organization and inter-organization connectedness that drives the degree of inter-organizational interaction. External team working, sharing knowledge, and expertise are essential for managing inter-organization relationships (Araujo, Dubois, & Gadde, 1999). Since sustainability requirements cover all the component parts that suppliers provide, external network configurations that involve suppliers and customers are important for sustainability implementation (Liao, Hong, & Rao, 2010; Roh, Min, & Hong, 2011). Internal response practices and external network configurations will result in desirable sustainability outcomes (Hong, Tran, & Park, 2010; Soni & Kodali, 2010).

SCM is executed by integrating corporate functions using business processes across organizations (Lambert et al., 2005). This dimension of business integration is significant for managing supply chain (Frohlich & Westbrook, 2001). Regarding strategic alignment literature, the effective business integration requires the external alignment efforts of at least two factors leading to the long-term and sustainable business relationships, and gains arising from external business activities such as external product development and integration of business processes in the supply chain (Cousins & Menguc, 2006; Cousins & Lawson, 2007).

Concept of Sustainable Supply Chain Management

Despite the high recognition, the term “SSCM” is recognized in recent years (Pagell & Wu, 2009). SSCM makes the organizations available to gain a sustained competitive advantage over their competitors (Pagell & Wu, 2009). Supply chain performs on the financial performance measures as the social and environmental indicators in organizations (Beske, 2012). Organizations move toward sustainability and engage in SSCM practices to react to organizational incentives from their environment, namely governments, non-governmental organizations (NGOs) and other various stakeholders, or to influence their environment (Seuring & Muller, 2008). Focusing on how SSCM can be successfully implemented, SSCM theory points to the necessity for top management support (Gold, Seuring, & Beske, 2010), the installation of cross functional teams (Chen & Paulraj, 2004), enhanced communication and the pursuit of win-win situations for all included partners (Seuring & Muller, 2008).

Concerning SSCM, researchers and practitioners have examined several stand-alone topics of environmental and social issues, including the development of environmental logistics strategies (Murphy, Poist, & Braunschwieg, 1996); environmental purchasing (Min & Galle, 1997); carrier selection for hazardous materials, and the transportation of hazardous materials (Sharp, Novack, & Anderson, 1991); improvement of fuel efficiency and emission reduction from transportation equipment (McKinnon, Stirling, & Kirkhope, 1993); safety in motor carrier, rail, and airline industries (Crum, Dooley, & Morrow, 1995; Cantor, Corsi, & Grimm, 2006); diversity hiring and promotion issues concerning logistics personnel (Lynagh, Murphy, & Poist, 1996); variety of motor carriers (Corsi, Tuck, & Gardner, 1982); and range of other industrial suppliers (Carter, Auskalnis, & Ketchum, 1999).