SUSTAINABLE SUPPLY CHAIN MANAGEMENT

 SUSTAINABLE SUPPLY CHAIN MANAGEMENT

Sustainability in Supply Chains

Sustainability is a complex concept. Sustainable supply chain is the development that meets the needs of the present without compromising the ability of future generations to meet their own needs.

Simply claiming your operation is 'sustainable' or 'green' isn't enough anymore. Your clients, customers, and even your staff members, want to actually know how you are sustainable.

Supply Chain Sustainability. There is no universally accepted definition of supply chain sustainability. Specific definitions and supporting principles and criteria vary by sector and commodity. In general terms the following economic issues are considered on time employee’s payment, overtime and payment, profit share practice, forced reduce item price or cost from supplier, delay supplier payment.

The economic rationale to operate a global supply chain in a sustainable manner is developed. Arguments are made based on marketing, finance, and production theories that by engaging in socially responsible behavior the firm will increase sales, decrease costs, reduce financial risk, and increase profits, which will ultimately increase returns to the firm's shareholders. A model is developed of the mechanism by which modern production methods such as lean production and quality management result in sustainable corporate behavior that, in the long run, translates into higher stock valuations. The production effects cause marketing and financial risk effects that are complementary, and all three channels of influence synergistically result in higher stock values in the model. These effects also provide important benefits to other stakeholders of the firms including employees, customers, the environment, and the community. An important ethical issue in global supply chains is working conditions in foreign plants often leading to allegations of sweatshop labor conditions, such as child labor, labor payment, overtime payment and more. This issue is used to illustrate how lean production practices can affect consumers, employees, and financial risk. Conclusions from the sweatshop labor issue are shown to apply to other sustainability issues as well.

Environmental and social issues are considered - labor use, water use, energy efficiency, pollution prevention, ETP plant, biosecurity, social impacts, displacement, indigenous people, loss of biodiversity, forest conversion and land use and sustainable use of living resources. Legal issues are reputation, human rights, civil liability and more.

Economic, environmental and social issues are supply chain issues. All are connected with each other. Supply chain sustainability is not possible to implement one other than the other an organization.

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Sustainable supply chain management

Supply chain management is the process through which a company manages the sourcing and procurement of inputs, the processing and manufacture of products and services, and their delivery to the consumer (figure 1). The primary objective of supply chain management is to meet consumer demand with more efficient use of resources including labor, inventory, stock, and distribution capacity. Accordingly, supply chain management aims to integrate major business functions and business processes within and across

companies into a cohesive and high-performing business model capable of quickly reacting to dynamic market demands and rapidly changing features. Supply chain management provides opportunities through which private sector companies can extend their influence in pollution control and abatement beyond their own operations and into their supply chain. This involves coordination and collaboration with partners throughout the value chain, which can include suppliers, intermediaries, third-party service providers, and customers.

The term “supply chain” includes all organizations, activities, and processes associated with all stages of the business processes involved in the planning, sourcing, processing, manufacturing, and delivery of goods and services. This process begins with suppliers of raw materials and inputs, proceeds to processors and manufacturers, and culminates to the delivery of completed goods and services to consumers and end users. The supply chain of multinational corporations can be complex, extensive and may be global in nature, whereas the supply chain of national or smaller enterprises will be less complex, smaller in scale, and local in nature, involving only local contractors, subcontractors, and home workers. Globalization has led to increased visibility of the environmental, social and economic impacts associated with the sourcing and processing of raw materials. Increased visibility has led to heightened consumer awareness and increased demand that firms ensure environmental, social and economic sustainability through the entire supply chain.

Figure 1. Generic Illustration of Supply Chain and Potential Sustainability Issues

Supply chain management Sustainability

Supply chain management is an indispensable part of a business. Knowing the level of environmental, social, and economic impact and viability of your vendors and customers is becoming increasingly common as all industries move towards a more sustainable future. Company’s pressures are unlikely to be the driver of this change, but you're already seeing corporate pressures on suppliers and vendors.

Companies are striving to operate in a more sustainable manner. There is no denying that going green and being environmentally friendly is the way of the future. And, in order to meet the future head on, companies are making their products or delivering their goods or services in a way that does not impact the environment, that does not deplete natural resources, that does not contribute to climate change, that does not contribute to social inequalities or injustice, and that in general, is done “the right way”.

One of the ways a company does this is by looking at their entire manufacturing process. When I say manufacturing, I mean anything from a product to a service, from where the raw materials are obtained, through the entire process within the plant, to the use and ultimately disposal or recyclability of their product or service. We might call this evaluating the process from “cradle to cradle” (thinking beyond cradle to grave) or on a “life-cycle assessment” type analysis.

Really, companies are looking at every aspect of the way they are and even you, do business and that includes things you might not think of when you think of sustainability. Not just environmental factors, but also things like social factors and economic factors. Obviously, if your raw materials are extracted by forced child labor in a third-world country, like Bangladesh and your business with that source is keeping them going, then you are not running a sustainable business, no matter where you are located or what you say. A bit of an extreme example, but I think you get the point.

One aspect of running a sustainable business is your supply chain. Who do you get your raw materials, your supplies, the things you need to make your operation go from? For example, it could be mineral water extracted from centrally in all division in Bangladesh that you use to make electronic components. Or, it could be locally harvested vegetables you serve in your restaurant. Or, it could be the cleaning products on the shelf in your store. Where did those materials come from, and under what conditions?

Companies large and small are asking these questions about themselves, and their suppliers. They are looking at creating supply chains of top

performers with the ultimate goal of using them to create a better, more environmentally sound, and ultimately more profitable company.

Determining a way to find out, and creating a policy based on how sustainable you want to be, is the essence of sustainable supply chain management.

Simply put, you want to do business with people and businesses that do things the right way, and avoid altogether those who don’t. You really cannot run a sustainable operation yourself any other way.

Sustainable Supply Chain Management Implementation

You could almost envision this as having the following steps:

ü  Develop some form of a sustainability plan for your business. What are your goals and objectives, and how do you want to go about them?

ü  Include your supply chain in your considerations of how sustainable you are. Supply chains are part of your operation, environmentally, socially, and economically.

ü  Develop a policy for your suppliers and customers. This is up to you, but you should at least be looking at some basic indicators of sustainable operations, whether it’s environmental impact, waste disposal, energy use, employees and community social factors, whatever. It’s your call but make a policy and stick to it.

ü  Then, go out and evaluate your supply chain. This probably means a survey of some sort. How do they stack up, and more importantly, what are you going to do about it? The customer made it clear that they were making their buying decisions based on the answers. You do the same, figure out where you draw the line. Is your choice price only not sustainable, or solely based on the sustainability level of your suppliers (bold move), or some combination thereof?

ü  Then, go back to your supply chain and take appropriate action. Who knows, they might surprise you with some changes towards sustainability themselves.

 

So what types of things were request for information? Questions about economic, social and environmental practices, such as how much they recycled, how much solid waste they generated, how much energy they used, how much practice in your organization human rights, are you allow child labor, how much they payment their stuff, are you delay supplier payment etc.

Notice that these questions had to do with environmental regulations? That's because it's expected you're already following all applicable regulations. If you're not, you might as well consider that customer gone.

There was one question about compliance: can you confirm you are in full compliance with all applicable environmental regulations? How many companies out there can answer that truthfully?

There were also questions about labor practices, minority hiring, third party hiring, community support, volunteering, subcontract without permission from buyer, employee’s education, and safety practices and records. Remember, sustainability isn't just about being green and environmentally friendly. Remember the triple bottom line of people, planet, and profit.

 

Best Practices of Sustainable Supply Chain

While the concept of a “sustainable supply chain” is still relatively new, there is a budding consensus over best practices to follow when building a more sustainable supply chain. The National Bureau of Sustainability, in conjunction with various corporations, summarized these best practices which have been modified slightly:

Define Company Objective:

Define ways management will communicate sustainable initiatives internally and externally

Develop a business case that illustrates the costs and payback period. Highlight all benefits, even those where the financial benefit is less obvious but the sustainability value is clear.

Create Meaningful Expectations:

Interview and leverage experience and opinions of all stakeholders to create relevant documents to enhance the applicability, legitimacy and efficacy of policies.

Conduct appropriate environmental research, in the context of international supply chains, to better anticipate challenges and to allow for organization to pro-actively manage supply chains.

Search for and assess the applicability of pre-existing standards that the company might adopt, thus improving efficiency and avoiding audit fatigue.

Select Suppliers and Agree to Targets:

Create an interview process with qualitative measures to select and develop a supplier base, relying less on the traditional “tick box” selection scenario.

Create a safe and open environment that allows for and promotes supplier-led solutions. This includes developing key performance indicators (KPIs) with suppliers, bench marking KPIs across suppliers to guarantee that standards and metrics will stand up to external inspection and creating a set of clear and systematic processes to obtain performance data.

Evaluate and Develop Suppliers:

Communicate effectively with suppliers regarding performance in relation to sustainability targets. Advise suppliers early if performance is not meeting goals.

Create a development a program for suppliers as a means to understand supply chain failures and as a way to support and improve future performance.

Build on Past Successes:

Cultivate and prioritize a culture of learning, highlighting the importance of transparency and accountability as imperative for success and persistent growth.

Measure continuously the company’s performance against KPIs and metrics developed above.

The shift to a sustainable supply chain typically requires a sizable upfront investment as well as a significant change in the culture of the organization. However, current research indicates that the business case for more sustainable business operations is quite strong. The noted benefits include the ability to reduce costs significantly with the potential to increase revenue through innovation and enhanced market demand. Companies with best practices around sustainability will continuously screen customers for unmet needs generated by sustainability developments in the marketplace. A company think that their some product developing flexible pricing schedules for garments deployment in developing countries. By reducing prices, they hopes to have a first mover advantage in developing markets, gaining significant revenue and market share. Specifically, a preemptive shift to a sustainable supply chain has positive business impacts including risk management, realizing gains through more efficient operations and creating sustainable products.

Sustainable procurement 

Sustainable procurement is a high profile matter for businesses today. It can help to save money, reduce waste, improve competitiveness and build a business' reputation. As part of their sustainability programmes, many oil companies have invested in local transportation networks or built schools. They provide jobs and by sourcing supplies locally help to develop the local economy. The global oil industry has a responsibility to the countries in which it operates to manage its operations in as sustainable way as possible. A purchasing manager might want to consider whether the supplier behaves responsibly, for example, adhering to ethical standards or sourcing raw materials in an ethical way. For example, shell is working with its existing suppliers to implement the shell supplier principles. These set out the minimum standards which Shell suppliers need to meet. These include using energy and natural resources as efficiently as possible to minimize impact on the environment and covering health and safety issues.

Efficiency and responsiveness in sustainable supply chain

An effectively managed supply chain must be efficient and responsive at the same time. Responsiveness can be defined as the ability of the supply chain to respond purposefully and within an appropriate time frame to customer requests or changes in the marketplace.

Other aspects of sustainable business include managing waste effectively and reducing the company’s carbon footprint. This can be improved by choosing suppliers who also take their responsibilities towards environmental impact seriously. For example, Marks & Spencer made £70 million of efficiency savings during 2010/11. Alongside reductions in waste and packaging and increased energy efficiency, the company is working with suppliers to reduce carbon emissions in the supply chain by improving efficiency of deliveries. So sustainable supply chain must be efficient and responsive at the same time.

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Important of sustainable supply chain Management

The most important of sustainable supply chains is a positive long term net impact on the financial performance of the organization. While many companies identify the supply chain as the most difficult aspect of their business to make sustainable, it is also one of the most important. This is largely due to the impact that a sustainable supply chain can have on the overall well-being of society and the environment.

Traditional supply chain management has focused primarily on cost, with professional consulting targeting costs (including transport, inventory, and administration) of 7% to 9% of revenue.  

The recent emergence of sustainable supply chain management provides the opportunity to review processes, materials, and operational concepts from a different perspective. It incorporates the role of the environment in supply chain value creation.

Leading companies are finding unique value opportunity in sustainable supply chain management: Pepsi-Cola Saved $44 million by switching from corrugated to reusable plastic shipping containers for one liter and 20-ounce bottles, conserving 196 million pounds of corrugated material.

Benefits and additional reasons to incorporate eco awareness in the supply chain includes:

1. Increase Profitability – Proactively incorporating sustainability concepts into your supply chain will decrease cost and add the value to operations.

2. Asset Utilization – Incorporating greater eco awareness into transportation and inventory practices will increase utilization of key assets.

3. Risk Mitigation – Promoting greater understanding of sustainability within the company’s supply chain will mitigate environmental, social, economic and market risks.

4. Innovation – Incorporating sustainability concepts into the supply chain will be a catalyst for supplier innovation.

5. Alignment – Negotiating business sustainability policies with suppliers and customers will promote alignment across the supply chain.

6. Continuous Improvement – A common understanding of sustainability concepts, goals and objectives provides a platform for continuous improvements.

7. Customer Service – Implementing sustainable best practices within the supply chain will standardize operations and allow for improve customer service.

8. Regulatory Compliance – Green supply chain management will help ensure regulatory compliance.

9. Product Differentiation – Creating uniquely different green supply chain practices will differentiate the company and its products in the market place.

10. Enhance Reputation – Demonstrating green business practices will promote business sustainability and enhance company reputation.

Reduced costs and enhanced efficiency, responsibility and productivity. Improved working conditions can reduce turnover and improve quality and reliability. Environmental responsibility improves efficiency and profitability.

Green Factory and the Conditions

When the environment is being polluted by the world constantly developed world, such as the garment industry, our customers are seeking the happiness of the third world as a factory environment, be off the bad effects of the environment and contribute to protecting the environment through green. Consequently, in 1999 the United States United States Green Building Council (USGBC) to assess the effectiveness of any structure or building environmental LEED, or Leadership in energy and Environmental Design, a certification system was introduced. Allowing deployment of more environmentally sustainable patterns of thinking and expand the building and the building has been staged introduction of the LEED Certification. 

LEED Certification is observed to be a lot of conditions, including the building can be used to reduce carbon emissions, bricks, cement and steel has been made to ensure that the reproduction is the maximum use of resources. At the same time all the ingredients to be purchased from the factory to the nearest institution. The low-cost of fuel for transport, this is also a condition. In his 500-square-meter factory workers to the home, school, market, bus or tempo to be stand. As soon as the car will need to come from the factory workers. The carbon emissions as well as will be fuel consumption. 

The latest technology machines, as well as energy saving, which will absorb the dust itself.

As per its certified USGBC, LEED is the most widely used third-party verification for green buildings, with around 1.85 million square feet being certified daily. LEED works for all buildings—from homes to corporate headquarters—at all phases of development. Projects pursuing LEED certification earn points across several areas that address sustainability issues. Based on the number of points achieved, a project receives one of four LEED rating levels called LEED v.4.  LEED v.4 four levels of certification are (1) Certified 40-49 points, (2) Silver: 50-59 points, (3) Gold: 60-79 points and (4) Platinum: 80 points and above. According to USGBC, so far, a total of 79,600 projects in 161 countries have received LEED certificates.
A total of seven categories in terms of compliance with the conditions of the deployment of eco-certification by the USGBC, which provides as follows:
This certification is given, total 110 point is divided into seven categories:

1.  The geographical land  26 points
2.. Water saves 10 points 
3. Natural Energy Use 35 points 
4. Eco-friendly construction materials 14 points 
5. Internal environmental conditions 15 points 
6. Use most recently invented instruments 6 points
7. Area-based preference 4 points
Further, to meet the conditions are as follows:
1. What kind of construction materials have been used to build factories
2. What is the use of sunlight in the factory
3. Whether solar power is used
4. Whether there is a residency of workers in a particular distance of the factory
5. Whether there are schools, markets, bus stands
6. As well as using sunlight, solar power consumption and electricity lights are used
7. Whether rain water is used or not used
8. Whether the construction of the factory has been a certain amount of open space; 
9. Whether the fire extinguishing system is there
10. In addition to the electrical fittings set fire to avoid accidents like the latest technology is used in electronics.

Conclusion
Sustainable or Green supply chain management can be defined as integrating environmental thinking into supply-chain management, including product design, material sourcing and vendor selection, manufacturing processes, delivery of the final product as well as end-of-life management of the product after its useful life. If you want to become more sustainable, or if you just don’t want to lose business in the future, you ought to consider a corporate sustainability program, including sustainable supply chain management. As part of that, you will want to take a close look at your suppliers and vendors. Are they sustainable themselves? If not, your actions will continue this ever-expanding web of corporate pressure towards a sustainable future.