A search on Google for ‘sustainable Supply-Chain Management’ (SCM) gives 15 000 000 results. ‘Green supply-chain management’ has even more. Both topics are addressed in numerous international and national publications. Already in 2001 the Sigma Report from the UK examined the fundamentals of sustainable supply-chain management and the challenges for its further expansion
After a decade of promotion and producing motivational material on sustainable supply chain management, it is now opportune to review the state of its application. And as the sustainability agenda is not standing still we should also discuss how supply chain management links to new thinking behind the concepts of value-chains, life-cycle management, sustainable consumption, and corporate social responsibility. We outline some factors that would assist SCM in contributing to the sustainability agenda. In particular a more holistic framework for sustainable SCM will be needed in future, in the same way that environmental management systems arose to overcome the earlier fragmented approach to solving pollution problems.
Why should SCM consider issues of sustainability? Quite simply because many of the challenges faced by companies have their genesis in the operating practices of sub-contractors and suppliers, whether this relates to chemical content, labour practices, or impact on communities and habitats. And the political agenda has moved on; it is no longer accepted that we blame someone upstream for deficiencies in the products we put on the market, nor for the environmental impacts may they have caused there. By building sustainability criteria into its purchasing practices a company is taking a preventive approach that translates into lower liability risks and greater operating efficiency, and increasingly also into innovative product development.
Many companies have already oriented their future strategic approach around the sustainability agenda. A recent article in the Harvard Business Review
For SCM to do this however it has to expand its reach as well as incorporating additional performance parameters. ‘Supply-chain’ traditionally refers to the sources of raw materials and components coming into the production plant. The more recent and broader concept of ‘value chain’ includes all points and activities directly related to a company’s products, from the extraction of raw materials through to processing, manufacturing, distribution, and sale. Importantly, it includes the consumption phase (of products, materials, services…), and the eventual recovery, recycling and disposal at the end of the product life. Value chain is also a wider notion than the conventional concept of ‘life cycle’ which is usually employed to communicate to clients and other stakeholders the environmental footprint of a single product. Much discussion on product life-cycles has a technical or political connotation of materials and energy flows, and is not always linked with options of corporate decision-making. The value-chain framework leads to a reconsideration of how supply-chain management can contribute more strongly to the sustainability initiatives being pursued within the company. Fig. 1 below shows the relationship between some of the key concepts.
In promoting a greening of the supply chain, there remains in some minds the question ‘why do it’? We will see that by addressing sustainability issues via supply chain management it becomes easier for the company to implement its corporate sustainability programme, to reduce potential environmental and social liabilities, and to facilitate future product development and marketing. In short, environmental and social compliance is easier and cheaper where the supply-chain is more closely linked to corporate sustainability policy. There is of course a cost in doing this – it leads to more complex SCM, requires additional training of company and suppliers’ staff, more extensive monitoring and tracking, and more time spent in developing closer relationships with suppliers and clients. The experience of most big companies is that the benefits outweigh the costs.
2. Background to sustainability issues
2.1. What is meant by sustainability?
In 1987 the Brundtland Report
Despite regular references to ‘win-win’ strategies, optimising simultaneously our environment, social and economic progress requires some compromises, increasingly so as we deal with local issues. Along the way the meaning of ‘sustainability’ has been defined in a host of different and sometimes incompatible ways, sometimes to a point where it has almost lost its original meaning. In this chapter we will be referring to the key issues identified by various leadership organizations at national and international levels and as included in major global initiatives, agreements and conventions. Thus the United Nations Environment Programme (UNEP) has defined key sustainability challenges concerned with an environmental point of view (Fig. 2). The complete sustainability agenda also includes social and human rights issues. In its outreach to the business sector, the UN Global Compact has defined nine major issues in four categories (human rights, labour rights, environment, anti-corruption) on which it invites a business response from global and national companies.
For industry, preoccupied with costs, profitability and workplace issues the sustainability agenda may seem far removed from immediate concerns. In part this is due to the language used in international fora. A closer look shows that many issues – but hiding under other names – are already serious concerns for managers. Many companies face land-use conflicts over plant location and resource extraction in environments of high conservationism value. Polluted water must be cleaned before it can be used in manufacturing processes (and of course discharged after use). Occupational safety and health requires serious attention everywhere. Companies have been known to go out of business due to chemical contamination they were unable to control. Importantly, environmental management has understood that the company is no longer an isolated entity – actions of upstream suppliers can also affect regulatory compliance, pollution liability and reputation damage to the company.
Addressing impacts after they have been allowed to occur is expensive compared with avoiding them from the outset. Experience has shown that ‘upstream, preventive’ action is cheaper (and more effective) than crisis control and remediation. Sustainability programmes now almost always embrace the use of management approaches such as cleaner production, pollution prevention, eco-efficiency, green productivity, life cycle management and so on. These approaches all depend on two common factors: (i) preventive action to avoid wastes, pollution and other impacts from being generated in the first place, and (ii) a focus on the entire value chain since many interventions need to occur well before the manufacturing steps (eg in product design, raw material selection, transport, packaging etc). This latter aspect extends to the consumption-side issues of efficiency in use, recycling and of end-of-life disposal.
2.2. What has been the response to the sustainability agenda?
There is an increasing trend in companies to adopt sustainability policies, and to integrate wider social factors into business strategies. “Shared values” was the term used in a recent publication (Porter, 2011). For instance the Lafarge cement company
Ensuring that all parts of a company pull together in a co-ordinated fashion usually requires a formal management system, commonly of the type ISO 14000
At the operational level companies (and some governments) use a range of environmental instruments and tools to give effect to their standards. In particular, there is increasing use of assessment procedures such as environment impact assessment, life cycle assessment, chemicals risk assessment, social impact assessment, etc. all of which help an organization to look into the future and predict what sustainability issues and impacts may be attached to a product or process. This assists not only in achieving ‘cleaner operations’ but also the planning for more sustainable products, services and operations. For example at the level of product conception, the use of Product-Service Systems (PSS), eco-design and eco-labelling is becoming increasingly common. At the manufacturing stage extensive monitoring of supply chains and operations ensures that sustainability principles are efficiently (and effectively) applied. Most major companies put in place pollution prevention programmes, energy efficiency, water saving, as well as work-place and public safety initiatives.
Companies may also practise various forms of green purchasing for their raw materials and operational supplies, or engage in types of ‘offset’ activities by purchasing carbon or other environmental credits. Major distribution chains such as Ikea, Walmart, Tesco and others now have stringent requirements on certain substances that must not be included in products, e.g. chlorine-free for Ikea, low embedded energy for Walmart. Others, especially food retailers (e.g. Tesco in the UK and Monoprix in France), have put emphasis also on ethical and/or locally produced food, as do many individual product brands, of which Max Haavelar (see for more details below) is perhaps the best known. Most major retailers now require that no child or prison labour be used in the supply-chain of the products they offer.
Some go further, for example, in 2000 Carrefour worked with the Fédération Internationale des Droits de l’Homme, a group of more than 100 human rights organizations from around the world, to establish INFAS, a monitoring agency to help Carrefour have a code of conduct for its suppliers. The purpose of the code was to commit the company’s suppliers to recognize and respect international standards regarding working conditions set out in various conventions of the International Labour Organisation (ILO) with regard to the abolition of child labour and forced labour, freedom of association and collective bargaining, etc. According to CSR Europe
3. Supply-chain management and the value chain
3.1. Supply-chain management as a management activity
The value-chain spans the entire upstream-downstream progression from raw materials through manufacturing to the final product, including its use and eventual recovery or disposal.
Traditional supply chain management has an important place in this progression. For convenience we can consider the following five basic components of SCM
Plan — Companies need a strategy for managing all the resources needed for their product or service. A big piece of SCM planning is developing metrics to monitor the various aspects of the supply chain.
Source — Companies must choose suppliers and create metrics for monitoring and improving also the relationships and managing their goods and services inventory.
Make — Companies need to schedule the activities necessary for production, testing, packaging and preparation for delivery. This is the most metric-intensive portion of the supply chain—one where companies are able to measure quality levels, production output and worker productivity.
Deliver — This is the logistics, to coordinate the receipt of orders, storage, transport and delivery
Return — This can be a problematic part of the supply chain for many companies. Planners have to create a responsive network for return of defective and excess products and increasingly, end-of-life products.
In the context of a corporate sustainability objective, ‘managing all the resources needed’ takes on a new meaning. Suddenly additional criteria become relevant in the choice of materials and suppliers. But it is important to not regard sustainability merely as a constraint or some form of restrictive operating framework for companies. Careful choice of incoming raw materials also improves efficiency, avoids pollution problems and cuts manufacturing costs, as well as reducing subsequent product liability risks. Many sustainability issues give rise to new business opportunities when properly managed, as for example the increased market for organic food, higher efficiency appliances, newer materials and energy technologies. Incorporation of social and environmental issues also makes the company less vulnerable in an uncertain and fast-changing commercial world. Pro-active supply-chain management can help to identify and implement these opportunities in addition to its traditional role of addressing cost and quality.
What is the impact of responsible sourcing, environmental sustainability and the "green" movement on the supply chain? If the technological side of supply chain management was not hard enough, the new corporate social responsibility movement inside 21st century organizations adds another layer of complexity. Broadly defined, CSR initiatives for companies include such strategies as being able to show environmental sustainability (eg. reducing the carbon footprint), responsible sourcing from a wide range of global suppliers, and how "green" an organization is. So how does that affect supply chain management? In order to prove that a company has lowed its carbon emissions, is not dumping hazardous materials into rivers and doesn't buy its materials from suppliers that employ underage workers, company leaders need to be able to gain insight into and track the actions of their suppliers, and their suppliers and their suppliers—all the way down the chain into some good and not-so-good parts of the global economy. This ability also becomes critical when tainted goods need to be identified and found quickly in a supply chain, before the goods spread throughout a country's population
3.2. Green supply-chain management
In the two decades following the Brundtland Report, environmental and social parameters have still often been overlooked in SCM in many industry sectors despite the increasing prominence of corporate social responsibility programmes.
In an attempt to redress this situation a number of initiatives in what can be loosely called “green supply chain management” have sprung up in recent years. The driving force comes from two different directions. The first is from the environmental movement (including government ministries) as it looks for new instruments to help implement sustainability policies in public life. This constituency stresses the environmental outcomes rather than the business benefits, but the end-result is still a business issue. For example, government legislation on recycled content of products such as paper is deemed to be beneficial for the environment and changes market conditions in favour of companies that can modify their processes to incorporate paper scrap. Governments and environmental groups promote ‘green purchasing’ as a way of moving the environmental agenda forward, with some successes, but also some limits
The second and possibly now more major force is from business itself. Many companies have found a commercial reason to green their value chains, exposed as they are to regulatory and consumer pressure in environmentally aware societies. This applies especially to retail and consumer distribution chains. Major retailers such as those mentioned above Walmart, Carrefour, Tesco, Ikea, Monoprix and also others are offering customers a choice of ‘green’ products, and are increasingly applying sustainability criteria to their entire product range. The outcome for their suppliers is a modification not only of the composition of the components of their products (e.g. free of toxic chemicals), but perhaps also to change the type of product completely. This latter factor may well lead to the selection of an entirely different supplier who can better meet both criteria.
According to the New York Times
Many of these green purchasing arrangements consider a limited set of issues (often only a single issue). No doubt this simplicity is partly responsible for their success as it is easy to understand. But it also means that other equally important issues may go unaddressed. The major distribution chains are gradually expanding their vision by increasing the number of criteria, nevertheless even in such a highly organised sector the limited extent of the sustainable elements is still evident. For Max Havelaar coffee the sustainable supply-chain focus is on the growers rather than on the subsequent processing, distribution and consumption stages, and the number of criteria taken into account is still limited. Organically grown food, similarly, may subsequently be processed or packaged in environmentally unfriendly ways without affecting its label. The distillation of public sustainability sentiment into a number of popular surrogate issues, each with a simple label like organic food, fair trade, chlorine-free, sustainably harvested timber etc thus satisfies certain market requirements even if it does not always accord with a rigorous sustainability management approach.
Intimately linked to green purchasing is the issue of eco-labelling
Green supply-chains are not limited to consumer goods. They also apply to heavy industry sectors such as construction, chemicals, oil and mining. Many corporations in these industries are sensitive to pressure from shareholders and institutional investors and thus have well-defined sustainability policies. These companies increasingly apply their criteria along the supply-chain to their raw materials suppliers in whatever country of origin. It can be noted that government and privately owned companies are somewhat less influenced by such a movement and provide fewer examples of green SCM than do listed public companies.
For instance the Indian subsidiary of the major cement company Lafarge undertakes sustainability audits of its regional gypsum supplier in Bhutan to ensure that it has a level of sustainability performance acceptable to the parent company in Europe. Labour and safety factors were given particular emphasis in addition to the checking of regulatory compliance with environmental standards. From Lafarge’s 2009 sustainability report
The FSC and MSC examples involve short supply-chains, and are based on a common agreement rather than a traditional SCM approach of formal tendering. Of course the FSC will also involve contracts eventually, but the initial agreement was the result of a conference process rather than contract negotiation. Neither FSC nor MSC extend downstream to the consumer to try to influence how the product is used. The next example shows how it is possible to take this extra step.
3.2. Some lessons learned from the supply-chain management examples provided
The examples above show how green SCM can be used to work towards sustainability objectives. But they also illustrate some of the limitations in the way it is presently used.
A common limitation is the restricted number of sustainability elements taken into consideration. Energy content is a common ‘green’ factor (e.g. Walmart), alongside also chemical content (e.g. IKEA). Certain social features such as possible child or prison labour are carefully scrutinised by popular brands of clothing or sports items (e.g. Nike). Big mining companies are now careful about workplace safety among their sub-contractors and suppliers. Biodiversity is becoming a more common factor among resource companies generally. While single-issue programmes are still common among the smaller players the larger companies are gradually moving more confidently into multiple-issues. Most are focussing on energy, greenhouse gases, water, and waste as core elements with labour issues also mentioned separately. All the same the number of SCM initiatives that prominently address the entire set of sustainability issues as recommended by global bodies such as the UN, business councils and independent institutes is still small. A contributor to this sustainability myopia is likely to be the perceived relative importance of high-profile issues to which a company has subscribed, whether a labour convention, the cyanide code or a conservation objective etc, and which leads to other issues to take second place in the action agenda. For some it can also be surmised that the ‘too hard’ factor is at work, and that companies prefer to take a gradual approach, gaining experience and confidence in the process.
As an example we can look at Unilever which has selected greenhouse gases, water and solid waste as the key factors to address, while also aiming at “sustainable agriculture” for its principal source of supply. As well as adopting multiple criteria (four), Unilever has acknowledged the importance of the end-consumer in reducing the impact of its products across the entire value-chain as the box below demonstrates.
Unilever’s sustainability strategy addresses environmental impacts across the value chain
Expanded and more standardised approaches to SCM will no doubt follow further promotional work by the UN Global Compact as well as greater use of instruments such as the Global Reporting Initiative
The cyanide code mentioned earlier is perhaps the most complete instrument of all, systematically – and contractually - integrating chemical supplier, transporter, and end-user long the entire value-chain of this material, except for the suppliers of basic chemicals in the initial cyanide manufacture. This is not perhaps a serious criticism since the instrument is quite deliberately focused on cyanide risks and other considerations are beyond the conceptual design boundary of the Code.
Although we are not aware of formal studies to this end, when we read between the lines of various case studies we can infer that many sustainable SCM initiatives are still “add-on” rather than “built-in” i.e. the green supply chain has not been effectively mainstreamed in corporate practice. This is especially so where greening has been externally imposed. Thus the corporate focus on better cyanide management by Code members seems not to have resulted in a significant overhaul of general management practice of other chemicals in these companies. While not necessarily detracting from the effectiveness of the immediate SCM exercise, it represents a missed opportunity for the company, and also for sustainability overall. Where sustainability it is part of a clear business strategy such as in Walmart, the mainstreaming of SCM will be more systematic. Enhanced integration is also more likely where quality issues are critical as for example in the motor industry.
4. Including sustainability factors in supply-chain management
4.1. General considerations
The complexity of the sustainability agenda has led many companies and other organizations to take more systematic approaches to these issues through, for example, use of formal (environmental/ sustainability) management systems and an end-to-end value-chain consideration. These systems co-ordinate the use of appropriate instruments for assessment, ensure a cleaner production approach to manufacturing, put greater emphasis on green design and on social factors, while maintaining appropriate oversight of quality and cost of raw materials and supplies. Monitoring of relevant aspects of corporate operation is the key to achieving and maintaining high performance levels, and ultimately also customer satisfaction and loyalty. SCM is inevitably an integral part of such systems. SCM already considers quality, reliability, resource costs, and increasingly reputational risk (e.g. sourcing products made with child labour). The incorporation of sustainability factors thus adds only a few more parameters to a process that is already established.
We can ask how SCM managers deal with such a complex area in which they may have no formal training. Within large companies considerable guidance and support to SCM managers is available through the various in-house initiatives to link different corporate departments. Detailed advice is also available from manuals, guidelines and handbooks that have been independently published (eg the Global Compact and WBCSD New Zealand publications mentioned in this paper). Here, we will simply mention some of the key steps that will need to be carried out in a systematic effort.
An important next step is a
How can suppliers be identified and rated/ranked on sustainability factors? Self-assessment performance reports are only credible when independently verified. Short of visiting each supplier (difficult for extended supply-chains) we need a label or certification process. Standardised environmental management systems e.g. ISO 14001 have now become a de-facto way to identify ‘good environmental practice’ suppliers. SA 26000 does the same for social performance. Nevertheless a number of companies have gone further by putting their own supplier recognition schemes in place, as for example Proctor and Gamble’s Supplier Environmental Sustainability Scorecard
Following the identification of priorities (an internal exercise within the company), a number of different possibilities for action appear. In most cases there are adequate possibilities for taking action on sustainability. It may be possible to switch to suppliers who have a lower environmental or social footprint. Alternately, joint work with existing suppliers may improve their sustainability performance. Specifying in contractual documents the suppliers’ desired environmental and social performance is the most common way of greening supply chains. In large companies contract management is already a sophisticated, well-managed exercise and can easily incorporate the additional criteria.
But there are also in-house options for optimising sustainability such as redesign of the product or of revamping the manufacturing processes to allow the use of alternative raw materials that have better sustainability credentials. These are the so-called eco-design options. There may also be more holistic options such as Product-Service Systems (PSS)
Options such as these go a long way to achieving sustainability goals, but require a whole-of-company approach that the SCM manager can certainly initiate, but which transcend his immediate management responsibilities. Most of the above measures can be implemented using conventional management approaches and tools. But there remain some issues in the sustainability agenda that require more thinking. The most prominent is that of sustainable consumption defined as
In view of the fact that business is trying to maximise its volumes and product turn-over, it may seem a contradiction that the subject of a more programmed sustainable consumption should even be part of its objectives. A number of prominent companies have nevertheless been shifting in this direction with revised business plans and operations as they position themselves for future markets and greater international competition (WBCSD et al., 2002). Whether such initiatives can be mainstreamed into entire business sectors rather than remaining a niche for market leaders remains to be seen.
A particular challenge for sustainable companies is how to influence consumers to follow their lead by using their products in a more considered (from sustainability perspective) way. While such influence has long been accepted for reasons of product safety, the application of other criteria has been slow to be incorporated into company advice and guidance. Still, things are gradually changing as the Unilever example illustrates. Unilever in its objectives on greenhouse gas reduction is encouraging the consumers to wash at lower temperatures and at correct dosage in 70% of machine washes by 2020. While ‘encourage’ may seem a rather loose notion, the objective at least has the merit of being quantified in terms of target and date. In a similar way, chemical suppliers frequently advise the commercial users on the safety and proper use of their products. But it is still considered the role of governments to make this mandatory.Whatever approaches and actions are taken to green the supply-chain, it will be necessary to monitor the way in which the various objectives are achieved, and at what cost. This is of course in addition to any monitoring for quality, safety and reliability in the manufacturing cycle. Results of such monitoring are now increasingly incorporated into corporate sustainability reports, whether along Global Reporting Initiative guidelines
Taken together, the above procedures clearly require considerable skill and expertise. Insight is needed into the new issues and parameters that managers have to deal with. Some of the assessment tools are quite sophisticated and are also evolving quickly. Consideration of new management options would benefit from exchange of experience with others who have already applied them. To assist the process of information exchange and professional development various practical manuals and guides have been published by business groups and individual companies - see for example the one from the WBCSD New Zealand
Industrial ecology, Life cycle thinking
Life cycle accounting
Definition of supply chain management (SCM)
Definition of green supply chain management (GSCM)
Environmental and economic dimension
Economic value vs. environmental impact added Environmental cost accounting
Cost allocation and life cycle costing. Interest rates, cash flow, NPV, IRR, Payback
Contracting / Servicing
Recycled content versus end-of-life recycling
Reverse Logistics for Green Supply Chain Management
4.2. The role of Life Cycle Assessment and Life Cycle Management
In view of the importance of the evaluation of the supply chain it is useful for SCM managers to become familiar with the Life Cycle Assessment (LCA) tool and its potential. They do not of course need to become LCA experts; but it is important that they can supervise the procedure when carried out by staff or by consultants. It should be noted that LCA has in past focussed chiefly on pollution and energy as these are the easiest parameters to quantify. More recently LCA has also started to develop tools to assess non-quantifiable issues such as land-use, biodiversity, safety, human rights and other social factors. The UNEP/SETAC Life Cycle Initiative
Based on the above information,
A simple example will suffice to illustrate the above. In the life-chain of an automobile, the use phase accounts for about 80% of the energy consumed over the life of the product. While efforts to reduce the energy used in the manufacture of the product (i.e. the car) are certainly desirable, it is the design, choice of materials, driving habits of the owner etc that strongly influence fuel consumption during use, and this is where most of the energy over the life of the car will be consumed. (A full systems approach with broader boundaries may even propose alternatives to the auto in the first place.) LCA can identify the stages with the most impact. LCM can then propose interventions that would achieve the best overall reduction in energy consumption over the life of the vehicle at a defined cost as identified by LCC. It can link with each member in the value chain to orient these partners to better achieve co-ordinated sustainability objectives at their level, and ultimately along the entire value-chain. For example, more efficient metals production (mining, smelting) produces less pollution and also reduces the embedded energy of the product. Better design and lighter materials in frames, panels and components will allow users to drive more frugally, as would industry-sponsored driver education facilities. Authorities can help traffic to flow more smoothly. Recovery at end-of-life returns metals to society, and so on. Such considerations are not unique to the automotive sector. Similar thinking applies in the building industry, where much of the resource consumption and environmental impact calculated over the life cycle actually occurs in the use phase rather than in construction.
Even if some stages are more significant than others, all parts of the value chain can contribute to the optimisation of the entire system. It is the function of LCM to put in place the management objectives, systems and arrangements that allow the various partners along the value-chain to cooperate in achieving this systems optimisation that they cannot achieve by acting on their own. Seuring & Goldbach (2002) identify two options, the co-operative and the coercive models. In reality a mixture of the two would be employed, with the co-operative model generally getting better results in longer value chains.
4.3. Relationship between Life Cycle Management and supply-chain management
It is useful to now consider how LCM can achieve the above optimisation within the context of supply-chain management. It is easy to see how SCM could contribute to lowering some of the 20% of embedded energy in the motor car through judicious choice of energy-efficient suppliers. In terms of the use of lighter materials in vehicles, this has not been the primary role of SCM but rather that of the product designers. Nor have we seen widespread use of SCM in influencing the end-user (although SCM could assist in facilitating end-of-life recycling for example by for example specifying the use of recycled materials in the raw materials). While SCM is gradually reaching down also to the downstream side of production to build a stronger loyalty of the end-consumer to the manufacturer and supplier, LCM is actually better adapted to take on such a systems-wide function. Through this example we see SCM as one of the important instruments in the implementation of LCM, based on the identification of important value-chain steps by LCA. If the exercise were simply the greening of the supply chain, then the LCA/SCM combination would be enough.
Overall, the growing experience with LCM will soon make it an important framework for achieving complex sustainability targets. Both SCM and LCA/LCM have vibrant networks that SCM managers can use to enhance their practice of sustainable SCM.
5. Discussion and synthesis
The increasing prominence of the sustainability agenda has resulted in major changes in decision-making in business and government. Environmental and social factors can be expected to become ever more important considerations in the foreseeable future. The visibility many companies now give to corporate social responsibility is already a reflection of this ‘mega trend’ that has major implications on corporate practices, including supply-chain management. Companies are moving quickly to ensure that both their operations and their products are compatible with sustainability principles.
In the supply of sustainable goods and services, ‘the world behind the product’ is taking on increasing significance. It is now important to understand, and to better manage, the totality of the embedded environmental and social footprints of the products and services we consume. ‘Green’ or ‘sustainable’ supply-chain management is thus on the increase. Many large companies already have sophisticated internal procedures to bring suppliers into line with corporate policies on environment, social and ethical issues. In some cases groups of companies, in for example the electronics and resource industries, have joined up to produce global guidelines that define performance of their members’ supply chains on selected issues such as water, wastes or labour conditions. We also see more and more independent ‘sustainable purchasing’ arrangements applying a variety of sustainability criteria, individually or in combination.
Encouraging though these developments are, many of the present initiatives suffer from certain structural deficiencies such as a limited number of sustainability criteria and short length of the supply chains. As a result the global sustainability objectives are often only partly achieved, leaving serious issues in both geographical and thematic locations unaddressed. Incomplete integration and fragmentation of effort is also a common factor. All these problems will not be easy to overcome as they arise from the inherent complexity of managing large networks of relatively independent partners. Fortunately there are also some examples that can serve as inspiration and encouragement.
The picture of a supply-chain is now evolving away from a ‘materials life cycle’ towards a more holistic concept of ‘value chain’ where the traditional upstream stages of raw materials and manufacturing are joined also by the downstream elements of product, use, consumption, and end-of-life issues. There are many additional partners involved here and the linear chain concept is gradually transforming itself into a notion of a network, where multiple nodes of suppliers and consumers all warrant attention. Within this concept a wider life cycle management approach is becoming more prominent, dealing in an integrated way with the downstream aspects of the product as well as the upstream management elements of traditional supply chains. LCM uses standard business management instruments to identify, prioritise and act on key sustainability impacts along the value chain in such a way that the sustainability of the total value chain is optimised rather than just each stage individually. LCM relies heavily on the results of expanded techniques of LCA, however it is a management rather than a scientific exercise. Given the range and extent of most value-chains, the use of various techniques of consultation, negotiation and collaboration is a major part of the LCM challenge.
From the corporation’s viewpoint, moving to sustainable value-chain management and LCM makes business sense. Systematic value-chain management can better identify appropriate opportunities for adjustments to the entire life-chain of materials and products, including consumer use and end-of-life aspects. Optimising the social and environmental factors inherent in the entire the value-chain has intrinsic advantages for cost and quality management in the company. But in particular it can greatly assist the company in its longer-term product development and marketing strategies.
While the potential benefits are clear, there are also challenges. An expansion of supply-chain considerations into the downstream product cycle brings new partners (both from inside and outside the company) into the picture, as well as additional sustainability objectives, for example product use efficiency, recycling and end-of-life disposal (or reconversion) of the product. While assessment tools are available for evaluating the options, the design, marketing and service departments within most companies have traditionally not pre-occupied themselves with such considerations. Expanding the value-chain partners beyond the first tier (ie immediate suppliers or clients) will remain a challenge for rigorous companies since the number and complexity of partners increases rapidly. A variety of techniques is available for profiling the various supply chain partners against sustainability criteria, however the lack of co-ordination often causes problems where the suppliers have demands from different customers. It is especially in this respect that greater use of new international standards (including verification systems) will be required. It will also require new methods of communication and negotiation with value-chain partners many of whom will be in remote places, operating in other cultures and languages, and unaware of the nature of the end-products.
Accordingly, at the global level the practice of sustainable value-chain management would benefit from a clearer framework that helps to avoid fragmentation and inconsistencies (and eventually discouragement) at the point of the suppliers and clients. It is important that the suppliers of the suppliers also be linked into the sustainability initiatives, despite the difficulties this may involve. A variety of ‘tool boxes’ for sustainability management is already available for the practitioners. What is still needed is a set of broader agreements on objectives, boundaries and techniques, to standardise the practices, and give a common reference point to the many partners and players involved. Again, in view of the pattern of global trade now, such agreements should ideally be at international level. At the same time the hierarchical relationships between supply chain management and other management streams such as environmental management systems, CSR, eco-design etc could be further clarified. At present, ISO has not developed any specific standard or guideline on sustainable supply chain management, let alone on value-chain management or on life cycle management. Experience with a number of sector-wide supply chain frameworks that have been established in certain industries could nevertheless provide some useful references on the above.
6. Conclusion and perspectives
In the evolution to new models of supply chain management it is important not to loose sight of the fundamentals. Correct identification of the sustainability issues – both present and those likely to be important in the future – is vital to focus the exercise and deal with the issues most relevant to the company. This identification is not always straightforward for global companies operating in different countries and cultures, or where products will be sold in global markets.
The management of ‘green’ issues in SCM can be usefully built on experience with traditional corporate practices and techniques by expanding the parameters and adding new knowledge from various assessment tools such as LCA. It is also important to recall that sustainable supply chain management is a further development of, and hence an integral part of, traditional SCM, not an independent additional action to be undertaken in parallel. And close integration of SCM with CSR remains an important ingredient for success.
Taken together the above presents a considerable challenge to SCM managers in all companies and organizations. The moving targets of sustainability, techniques and even regulations require regular updates and exchange of information. While various manuals and conferences are now available to promote such exchange, further emphasis on professional development training would help smooth the path to a more sustainable future.
Time moves on, sustainability issues evolve and ideas about how to deal with them mature. Both the external and internal business environments can change rapidly. Supply-chain management has traditionally been one of the threads that bind corporate units together. The adoption of a broader view of value chains and of how to manage them leads to a changing business landscape. In this context, corporate social responsibility and product stewardship constantly redefine the concept of sustainable supply-chain management. Dealing with this change will require adaptability and new working methods, but the basic objectives of managing a supply chain for a sustainable future will remain intact.
Fritz Balkau is an independent advisor, focusing particularly on strategic guidance to assist the transition to future sustainable societies. Until 2005 he was Head of UNEP’s Production and Consumption Branch, in Paris, France. Guido Sonnemann is UNEP’s Programme Officer for Sustainable Innovation and Coordinator of the Secretariat for the Life Cycle Initiative and science focal point for the Resource Efficiency/ SCP subprogramme.
- http://en.wikipedia.org/wiki/Earth_Summit and http://www.un.org/jsummit/
- http://www.igpn.org/ http://www.fairtrade.org.uk