Sustainability in Supply Chains - Essay Example

Sustainability in Supply Chains Also known as a demand chain or a value chain, a supply chain refers to the sequenced network of facilities and activities that are leveraged for the production and delivery of goods and services (Janvier-James 2012, p.194); supply chains begin with suppliers and extend all the way to the end consumers of the manufactured goods and services. Normally, supply chains transcend the manufacturing process to include other functions such as demand forecasting, purchasing or sourcing, as well as customer relations management and logistics, which entails the movement and storage of goods, services and information (Cholete S., n.d p.1). Supply chain management has been defined in many terms but it refers to the coordination of business functions within the company and its component partners to produce goods and services to satisfy market demand in a responsive, efficient as well as sustainable manner (Storey et al 2006, p.754). The three essential stages of decision-making in supply chain management include strategy, planning, and operations; supply chain strategy is the superior level of decision-making in supply chain management and it entails designing and building supply chain that is suitable for the provision of goods and services. Supply chain planning on the other side entails exploiting the finalized supply chain to support medium-term goals of the enterprise, mostly quarterly or yearly needs of production while supply chain operations involves the short-term monitoring and control that is crucial for the effective functioning of the supply chain plan. Sustainability in supply chain strategy has emerged to be a critical issue in supply chain management in the contemporary business environment, particularly given the heightened global concern for the environment and alleviation of complex environmental challenges such as global warming (Woodhead, Janelle & Mah 2009, p.5). Precisely, companies are leveraging supply chain strategies to address the complex new chain challenges facing the industries since it is no longer sufficient for supply chain leaders to simply focus on creating flexibility and keeping costs low (Yu & Tang 2011, p.495). Thus, besides having flexible, nimble supply chains, companies ensure that these supply chains can work effectively with new and innovative products, emerging markets, manufacturing zones, as well as new suppliers. In that respect, a supply chain must not just focus on the present short-term goals, but also on the longer-term goals of sustainability and for a supply chain to be successful and effective. In the present market situation, it must adequately address the sustainability issue using numerous ways or approaches of addressing sustainability in supply chain strategies of organizations; this paper will discuss the differences between a normal supply chain and a sustainable supply chain in addition to what motivates businesses to adopt sustainable supply chains. The concept of Sustainability A sustainable firm is one that is able to produce and deliver its goods and services for the foreseeable future without causing any harm or degradation; sustainability can be perceived through the Three Bottom Line (3BL) perspective, which defines three essential pillars namely social responsibility, environmental stewardship and economic viability. The three pillars of sustainability are often referred to as “people, planet, and profits;” social responsibility entails providing a safe working environment that awards fair compensation and benefits while avoiding child and/or forced labour. Besides that, social responsibility entails hiring and promotion based on merit rather than discrimination while positively contributing to the development of host communities where businesses are located. Environmental stewardship entails addressing the potential threat of depleting resources, pollution of the environment, and the overall ecological impact through reuse, recycle and disposal initiatives; economic viability involves the longer term profitability, growth and prosperity of the firm. Normal supply Chains Supply chains entail all the parties involved either directly or indirectly in adding value for the customer, from manufacturer to suppliers to transporters, warehouse, retailers and the end consumers (Chopra and Meindl 2004, p.1). Supply chain management in companies is thus a system of organizations, people, activities, information and resources that are crucial for the provision of goods and services and making them available for customers’ consumption. In other words, supply chain activities are essential in transforming raw material among other components into finished products and services to meet existing market demands (Pullman & Dillard 2010, p.744); the ordinary supply chain model aims to optimize the entire supply chain to promote production and distribution of goods and services. This eventually leads to reduced costs while increasing value to customers through enhanced final products, which eventually leads to better overall results for all the companies collaborating in the supply chain. Precisely, a normal supply chain management strategy will primarily focus on fulfilling customer demands through the most efficient utilization of resources such as distribution capacity, inventory, as well as labour. Theoretically speaking, a normal supply chain will focus on matching demand with supply with the minimum inventory possible; organizations often seek to optimize the supply chain through numerous ways such as liaising with suppliers to diminish bottlenecks in the chain significantly. Another crucial aspect of the normal supply chain entails strategic sourcing to strike a balance between the most affordable cost of material and the cheapest transportation mechanism both from suppliers to the firm and from the farm to the end consumers. Similarly, the normal supply chain strategy is concerned about implementing just-in-time techniques to optimize the manufacturing flow while maintaining the right mix as well as location of factories and warehouses to best satisfy customer markets through the provision of goods and services. To maximize the efficiency of distribution, companies further exploit location allocation, vehicle routing analysis, dynamic programming as well as the conventional optimization of logistics; unlike supply chain, which encompasses a much broader focus on multiple players collaborating to meet a market demand for a product, logistics is bound to the activities related to product distribution within a company. Supply Chain sustainability The rapid shifts in the evolution of global business environment and consumer markets have necessitated the need for resilience in supply chains, the capacity of supply chains to cope with change; thus, the contemporary supply chains are aligned to strategy and operations to adapt to the myriad risks that undermine their effectiveness. There are about four levels of resilience in supply chains including the reactive supply chain management, internal supply chain integration, collaboration across extended supply chain networks, as well as dynamic supply chain adaptation and flexibility. In that respect, resilience in supply chains goes beyond merely responding to occasionally crises flexibility to encompass the continuous anticipation and adjustment to discontinuities that continuously undermine the provision of value to customers. Strategic supply chain calls for the continuous innovation of product structures, processes as well as corporate behavior in response to the myriad changes in the global customer markets especially because the long term trends such as globalization, increasing competition, insecurity, environmental challenges as well as scarcity of resources undermine efficiency of supply chains. Unlike the normal supply chains, sustainable supply chains management takes on additional strategic tasks that go beyond the conventional operational scope of activity by identifying and responding to new sustainability issues both within the company and in the external business environment (Centinkaya et al 2011, p.17). Sustainable supply chain management calls for highly efficient supply chain operations as well as networking skills that continuously shift according to the prevailing sustainability demands to create customer-centred supply chains that are sustainable in the longer-term. In that respect, supply chain sustainability refers to the management of environmental, social, as well as economic impacts of organizations and the encouragement of good corporate governance practices in the entire lifecycle of products and services. Unlike the normal supply chain, which focuses on operational efficiency, sustainable supply chain aims to create, protect, as well as to grow environmental, social as well as economic value for all the players involved in value creation in the longer term. Supply chain sustainability aims to create, protect Supply chain sustainability has been taunted, as a crucial component of corporate responsibility since managing the social, environmental as well as economic impacts of supply chains is essentially not only the right thing, but also the best thing to do (Carter & Easton 2011, p.46). Case for sustainability in supply chains Supply chain sustainability can be understood from three major perspectives namely the normative, innovation as well as rational perspectives (Dembski, Ewering & Müller-Christ 2007, p.7); the normative sustainability perspective entails the fair allocation of global resources while making visible trade-offs between profit-orientation and ethical reasons. While the innovation perspective focuses on technological and process innovations to reduce consumption of resources, the rational perspective entails protecting and investing into the resource basis for the production capacity. Presently, a vast majority of multinational corporations are pursuing sustainability initiatives, which entails strategies for alleviating greenhouse-gas emissions since compliance with emissions reporting requirements is deemed a crucial aspect of more responsible environmental as well as social stewardship. For instance, the heightened environmental degradation concern in the global society has prompted companies to focus on community recycling projects while ethical considerations have resulted to the commitment to human and labour rights across supply chains. Moreover, the ever-soaring energy costs and the inevitable risk of depletion of crucial strategic resources such as water among other risks in the global business environment provide an incentive for companies to engage in sustainability initiatives. The diversification and widespread extension of supply chains due to globalization has further increased the vulnerability of supply chains due to the increased risk of disasters, civil conflicts, among other significant risks that jeopardize chain operations. In that respect, sustainable supply chains are no longer mere optional add-ons to business, but essential business imperatives since they are inevitably intertwined with the success of the entire organization in a perilous world (Hanifan, Sharma, & Mehta 2012, p.2). Motivations for addressing supply chain sustainability Numerous reasons motivate organizations to establish sustainable supply chains but primarily, companies’ sustainability initiatives are directed at ensuring compliance with laws and regulations while adhering to and supporting international principles for sustainable business conduct (UN Global Compact 2010, p.5). Given the heightened global environmental and ethical concern, many countries have adopted laws and regulations to mitigate environmental impacts while promoting ethical business conduct in business chains, which have prompted compliance measures on the part of organizations. Furthermore, the heightened global environmental and ethical concerns has necessitated the need for companies to adopt actions that result to enhanced social, economic as well as environmental impacts not only because society expects them to, but also because it is good for business. In other words, organizations are motivated to address sustainability in their supply chains because it is increasingly becoming a strategic advantage to do so; companies act in their own, their stakeholders’ as well as in their society’s interests by managing and continuously seeking to enhance environmental and socioeconomic performance as well as governance throughout the supply chains. Presently many companies are collaborating with their suppliers in numerous information management initiatives that are designed to encourage collaboration and the effective exchange of crucial information that is vital for sustainability. By working with their suppliers to address sustainability in the supply chain, companies can reduce costs significantly while enhancing their capacity to manage risks and generate new sources of revenue besides boosting the value of their brand. For instance, Nestle, the Switzerland-based global food company has addressed sustainability in its “farm to fork” supply chain by collaborating with suppliers on issues of water management and nutrition through their procurement procedures (Hanifan, Sharma, & Mehta 2012, p.3). Nestle has a Supplier Code covering all its global suppliers and forms an integral part of all the company’s purchase orders as well as supply contracts across its diverse market zones and business areas. This code has enabled Nestle to encourage best practices in sourcing thereby promoting the longer-term supply of safe, quality-assured as well as regulatory-compliant agricultural materials across its supply chain. Similarly, the Montepaschi Group prefers suppliers that demonstrate better management of environmental, social, and economic impacts within both their production and supply processes and sustainability indicators are a crucial selection and evaluation factors that the group uses for procurement of goods and services (“Sustainability in the supply chain” 2012, p.2). Model for addressing sustainability in supply chains There are three steps that can guide corporations in developing sustainable supply chains, which include identifying motivators, assessing levers, and improving practices; firstly, companies need to understand the many motivators for addressing social and environmental issues in their supply chains (Brammer, Hoejmose & Millington n.d, p.7). The 5C’s framework of motivation, comprising of customers, compliance, costs, competitive advantage and conscience has proved to be an invaluable guide; thus, by addressing sustainability in their supply chains, companies attract and retain customers, comply with regulations, reduce costs, while gaining competitive advantage and honoring their moral obligation (Wolf 2014, p.317). Companies evaluate their capacity to address sustainability in supply chains based on the extent of their control on seven key levers namely partners, public policy, peers, power, purpose, policy and people, which can either promote or undermine a company’s efforts in establishing a sustainable supply chain. There are four prevalent baseline practices for sustainable supply chains development; these include establishing a Code of Conduct, obtaining Third-Party Certifications, as well as selecting and monitoring suppliers. Sustainable Supply Chain Case Study: Unilever Unilever, a multinational food and consumer products company, is a global supply chain leader that enjoys optimized supply chain efficiency; the company sources its materials from nearly 10000 suppliers and its trademark Supplier Code effectively addresses sustainability within the company’s supply chain (Brammer, Hoejmose & Millington n.d, p.17). Unilever requires all its suppliers as well as its suppliers’ suppliers comply with the principles highlighted in its supplier code; to effectively ensure compliance to the code, Unilever requests supplier self-assessments besides undertaking site audits to ensure suppliers are abiding by the code’s principles. Furthermore, Unilever continuously strives to share knowledge and best practices amongst its suppliers, peers, as well as partners thereby improving the sustainability of its supply chains through the active sharing and learning. For instance, Unilever and its peers exchange their experiences and best practices on how to get all the stakeholders in the supply chain to contribute to monitoring the causes of climate change in the supply chain. Conclusion Ultimately, given the rapid shifts that are constantly realigning the global customer market because of globalization and technological changes, among other pressures, it is no longer adequate for an organization to have a flexible and nimble supply chain. Since the highly integrated and interconnected global business environment has resulted to complex supply chain networks that have further accentuated the vulnerability of supply chains due to increased risk threat. Companies act in their own, their stakeholders’ as well as in their society’s interests by managing and continuously seeking to enhance environmental and socioeconomic performance and governance throughout the supply chains. A sustainable supply chain is not only considered necessary, but also a crucial business strategy since it could potentially yield essential strategic advantages that primarily lead to reduced costs and increased value for customers and other stakeholders. References “Sustainability in the supply chain: Management approach of Montepaschi Group.” (2012). Brammer, S., Hoejmose S., & Millington, A. (n.d). Managing sustainable global supply chains: Framework and Best Practices. Carter, C. R., & Easton, P. L. (2011). Sustainable supply chain management: Evolution and future directions. International Journal of Physical Distribution & Logistics Management, 41(1), 46-62.  Centinkaya, B. et al. (2011). Sustainable Supply Chain Management: Practical Ideas for moving Towards Best Practice. Available at: http://www.springer.com/cda/content/document/cda_downloaddocument/9783642120220-c1.pdf?SGWID=0-0-45-1059742-p173962035 Chopra, S. and Meindl, P. (2004). Supply Chain Management. 2 ed. 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