Sustainable Supply Chains - Research Paper Example

?Sustainability is defined as the ability to survive or sustain. Sustainable or green supply chain management can be roughly defined as the management of all activities right from the purchase from suppliers to taking back the disposed product from the customers with a special focus on improving the social and environmental impacts of those activities (New Zealand Council for Sustainable Development). This can be contrasted with the conventional supply chain management focused only on the activities until delivery of manufactured products or services to the customers. Therefore, the environmental responsibility has drifted away from the consumer to the manufacturer and retailer (New Zealand Council for Sustainable Development). A more comprehensive definition of sustainability encompasses all three foundations of sustainability, including the people, economy and the environment. If only the social and environmental development is taking place that is referred to as “bearable” (Chick and Micklethwaite). If only the social and economic development is taking place, that is referred to as “equitable”, whereas, if only the environmental and economic development takes places, that is referred to as “viable” (Chick and Micklethwaite). Sustainability occurs only when all three dimensions develop simultaneously; that is, it is bearable, equitable and viable. A significant driver of this initiative is the government. The government can come up with measures such as environmental labels, licenses and product design guidelines (New Zealand Council for Sustainable Development). There are already a number of regulations in place for sustainability. These include U.S. Farm security and rural investment act (2002), European Union’s Restriction of Hazardous Substances (RoHS), China ROHS, E.U. Cosmetics directive, E.U. Packaging Directive, Waste Electrical and Electronic Equipment (WEEE) and REACH. In addition there are International Standards such as WRAP, FLA, ICTI CARE, ISO 14000 and ISO 26000 for addressing environmental causes (Business for Social Responsibility). For successfully realizing a sustainable supply chain, an organization needs to go through five major steps. The first if Business Case Development which requires looking at the external environment and study case studies of companies which have done so successfully in the past. An analysis should be done of the differences before and after this implementation (United Nations Global Impact). These initiatives have to be driven by the top management. After this study a commitment has to be made by the board members to work on the same. The second is “Risk, Gap and Scope assessment” which appreciates the fact that the sustainable supply chain initiative has a number of risks which could have a short term impact on finances or new operational bottlenecks. These risks have to be listed and mitigation plans have to be developed. A gap analysis between the current state and future state is required so that efforts could be made to bridge the gap. It is also essential to decide the scope of the initiative at this stage in line with organizational strategies and priorities (United Nations Global Impact). The third step is Supply chain identification which requires an internal assessment of the firm’s supply chain. The position that the company’s supply chain holds relative to other supply chains needs to be assessed (New Zealand Council for Sustainable Development). The next step is Implementation. In this step, the expectations of the organization are communicated to suppliers, distributors and all other partners in the upstream and downstream supply chains. Internal operations are realigned to adjust to the new priorities. The organizations try to build strategic partnerships if required to realize its goals. These may include partnerships with third party logistic providers, IT outsourcing firms, consultants and so on (Nunes, Junior and Ramos). Next, Measurement is done whereby new metrics have to be introduced to track performance on sustainability. Therefore, traditional scorecards need to be replaced by balanced scorecards and new versions of SCOR Model. Absolute transparency is required in tracking performance against goals. The final step is communication of sustainable development as a part of business strategy. After the new order has been established, it is very important to communicate the same to all business partners especially employees and customers. This would ensure seriousness on the issue as well as help in efficient change management. Training and counseling sessions need to be arranged for the same. It is important to note that several successful companies have already adopted this initiative; Sony Electronics and L’Oreal to name a few. Sony Electronics has partnered with Waste Management Inc. which is one of the world’s largest solid waste handlers. WMI has opened about 75 recycling centers in the U.S. to date. WMI believes that there is a significant economic value in e-waste especially in electronics industry due to the high value of metals being used. Therefore, it is looking forward to build strategic partnerships with electronics manufacturers. Sony was one of the first partners of WMI. Generally, WMI charges fee to the customers who drop their e-wastes at WMI’s facilities for disposal. However, with partners such as Sony the payment is based on weight/volume. This fee turns out to be very small for Sony in comparison with the profits due to positive responses from the customers (PriceWaterHouseCoopers). As far as L’Oreal’s case is concerned, it has a condition for the suppliers to be audited by signing an Ethical Commitment Letter (L'oreal). All subcontractors, suppliers of raw materials, packaging, security, cafeterias etc. are audited by L’Oreal according to SA8000 standard (L'oreal). The audits are done by third parties without notice. However, the sustainable supply chain initiative is not devoid of challenges. One of these if the lack of supplier information, in which case either the information is limited to functional silos or there are just not enough efficient information systems to get real time information. The situation has improved with the emergence of ERP and SCM systems. However, there is a lack of central compliance and CSR repository which can capture information on social and environmental performance of the suppliers (Business for Social Responsibility). Also a communication gap exists whereby the organizations and suppliers do not have a proper understanding of what information needs to be shared. Many times the suppliers are very small to invest in IT infrastructure and communication. Also third parties for logistics, data cleansing and audits are generally not well integrated into organizational systems (Business for Social Responsibility). Another major issue is the non alignment of training programs and monitoring. Training programs are arranged generally by independent departments and are carried out by external trainers who are unaware of organizational objectives. Similarly monitoring and compliance activities are carried out independently in many companies (Business for Social Responsibility). With the advent of globalization, consumerism, boundary-less exchanges and pounding pressures on companies to incorporate sustainability into their supply chains it has become imperative for corporations to embrace the significance of the ‘cradle-to-grave’ standard pertaining to the product life cycle (Kaplan and Norton). Companies must come to terms with the fact that sustainability is not a short term fad. Sooner or later companies will have to come to terms with it. This, however, would not come without substantial investment; hence, companies must decide which path to engage in- that of higher initial investments and positive long term profits or that of high short term profits and higher investments in long term. References Business for Social Responsibility. "Perspectives on Information Management in Sustainable Supply Chains." 2007. Chick, A. and P. Micklethwaite. Design for Sustainable Change: How Design and Designers Can Drive the sustainability agenda. London: AVA Publishing, 2011. Kaplan and Norton. "Using the Balanced Scorecard as a Strategic Management System." Harvard Business Review (2007): 150-161. L'oreal. "2009 Sustainable Development Report." 2009. New Zealand Council for Sustainable Development. Business Guide to a Sustainable Supply Chain: A Practical Guide. Auckland: New Zealand Council for Sustainable Development, 2003. Nunes, Breno Torres Santiago, Sergio Marques Junior and Rubens Eugenio Barreto Ramos. "A Theoretical Approach for Green Supply Chain." Working Paper. 2004. PriceWaterHouseCoopers. "Going green: sustainable growth strategies." 2008. United Nations Global Impact. "Supply Chain Sustainability: A Practical Guide for Continuous Improvement." 2010. Read More