Session 5 Integrating Sustainability into the Supply Chain

Session 5: Integrating Sustainability into the Supply Chain 1

Approach to Sustainable Supply Chain Management (SSCM): Overarching Framework Framing the Issues Session 1: From Sustainable Development to Sustainable Supply Chains Session 2: Governance of Supply Chains: From Compliance to Voluntary Standards Session 3: Governance of Supply Chains: Introducing International Labour Standards Preparing for Implementation Assessing Impact Session 4: Sustainable Supply Chains as a Lever of Competitive Advantage Session 5: Integrating Sustainability into the Supply Chain Session 8: Measuring and Communicating on Sustainable Supply Chain Performance Session 6: Managing Stakeholder Relations Session 7: Building Supply Chain Partnerships 2

Session Objectives § Analyse the relationship between SSCM and competitive strategy; § Discuss steps for integrating sustainability into the SC; and § Highlight key benefits and challenges. 3

Session Outline Unit 5. 1: Introduction. Unit 5. 2: Analysing SSCM and Competitive Advantage. Unit 5. 3: Integrating Sustainability into the SC. Unit 5. 4: Benefits and Challenges for Integrating Sustainability into the SC. Unit 5. 5: Conclusion 4

Unit 5. 1: Introduction Question What are the key social and environmental challenges that corporations are called upon to integrate when seeking to achieve their economic supply chain goals? 5

Sustainability concerns in Global SCs § Economic goals in SCs: Cost, quality, speed of delivery, flexibility, resource utilization, visibility and innovativeness (Chan, 2003; and Gunasekaran et al, 2001). § Social issues: respect of human and workers’ rights – child labour, bonded labour, health and safety, working conditions (Maignan et al, 2002); gender equality, poverty alleviation, etc. § Environmental problems: pollution, climate change; decline in ecosystems & biodiversity; deforestation; soil degradation; resource depletion and fresh water crisis (Mc. Allister et al, 2005). 6

Question How many people think it is difficult to simultaneously integrate economic, social and environmental sustainability issues into the supply chain? 7

Video: What do Business Leaders Think About Supply Chain Sustainability? “Future Supply Chain 2016” CEOs of consumer and retail products highlight Sustainable Supply Chain concerns: challenges, breakthroughs, innovations, collaboration and momentum. http: //www. youtube. com/watch? v=US 5 l. O 1 Hfm. Eo 8

Unit 5. 2: Analysing SSCM & Competitive Advantage To achieve competitive advantage, resources and/ or capabilities generated through SSCM must be: § Valuable: respond to threats and opportunities. § Rare: Controlled by a few competing firms. § Imitate: Costly for rivals to reproduce. § Organisation’s policies and procedures should support exploitation of the above three. (Barney, 2007) 9

The VRIO Framework (Barney, 2007, pp. 150) Is a resource or capability resulting from SSCM… Valuable? Rare? Costly to Exploited by Imitate? Organization? No No Competitive Implications Competitive Disadvantage Competitive Parity Yes No Yes Yes Temporary Competitive Advantage Yes Sustained Competitive Advantage 10

Group Discussion and Presentation Identify the resources and capabilities that resulted from Mc. Donald’s adoption of a SSCM strategy. Using Barney’s (2007) VRIO framework explain the competitive implications of each resource and capability identified. 11

Unit 5. 3: Integrating Sustainability into the SC All levels in the SC § Raw material sourcing. § Manufacturing. § Packaging. § Warehousing. § Logistics (Transportation & distribution). § Retail. § Consumption. 12

Integrate Sustainability into SC processes § Product design. § Manufacturing by-products. § By-products produced during product use. § Product life extension. § Product end-of-life. § Recovery processes at end-of-life. (Linton et al, 2007) 13

Businesses employ various strategies to integrate sustainability into the SC. Reactive Defensive Accommodative Proactive (Maignan et al, 2002) 14

Proactive Strategies § § § § Define sustainability goals. Educate suppliers. Sanction suppliers. Designate organisational member in charge. Monitor Suppliers. Communicate achievements to stakeholders. Receive stakeholder feedback (Maignan et al, 2002) 15

Framework for Integrating Sustainability into the SC (Pagell and Wu, 2009) 1. 2. 3. 4. 5. 6. 7. Innovation capability. Positive management orientation. Reconceptualise SC members. Collaborate with non-traditional SC members. Supplier continuity is an important outcome. SC performs well on traditional metrics. Institute measurement and reward system. 16

Model for Integrating Sustainability into the SC (Pagell and Wu, 2009) 17

Mc. Donald’s case study and Group Discussion/ Class Presentation. Using Pagell and Wu’s (2009) framework for integrating sustainability into the SC, what issues should Mc. Donald’s consider if it were to redesign and enhance its SSCM? 18

What does these mean for SCs? § § § Way forward is proactive SSCM strategy. Firms and suppliers should adopt and implement voluntary codes of conduct (Doh, 2005) Establish long-term relationships, certification and building capabilities of SMEs. Voluntary initiatives filling regulatory vacuum in developing countries (Frenkel, 2001) Enhance buyers’ ability to influence sustainable supply chain practices (Bowen et al, 2001) 19

Brainstorming and Class Discussion SC sustainability projects are generally cut to suit business and supplier priorities and circumstances. Given Mc. Donald’s core business, suggest MDG priorities to the Board of Directors and justify your preferences. 20

Unit 5. 4: Benefits and Challenges for Integrating Sustainability into the SC Benefits § Stimulates innovation and builds new capabilities – e. g. Patagonia’s quest for recycled inputs led to new product development. § Market positioning and firm-customer bonding – e. g. the Dutch coffee brand Max Havelaar; and Ford and General Motors encouraging minority suppliers. (Maignan et al, 2002; Markley and Davis, 2007) 21

Benefits § Increase sales, revenues and profits – E. g. Coca-Cola § Positive publicity and good corporate reputation – e. g. Mc. Donald’s, Wal-Mart. § Greater organisational and employee commitment when properly communicated – e. g. Patagonia, Mc. Donald’s. (Maignan et al, 2002; Markley and Davis, 2007) 22

Challenges § Insufficient dedication to sustainable development § § (MDGs Report, 2010). Lack of top management commitment and resources (Maignan et al, 2002; Min and Galle, 2001). Inadequate expertise. Strong emphasis on efficiency and governance of supply relationships rather than environmental and social sustainability (Maignan et al, 2002). Reactive and fire fighting culture (Preuss, 2001) 23

Challenges § Effectively § § § implement rather than end at senior management goals (Preuss, 2001) High costs; complexity of and insufficient communication in supply chains (Seuring and Muller, 2008). Green washing and poor supplier commitment (Greer and Bruno, 1996; and Wycherley, 1999) Small firms have limited resources and low response rate to supply chain pressures (Kempe and Soete, 1992; Walley and Whitehead, 2004; Hill, 1997). 24

Unit 5. 5: Conclusion What do you think? Given the guidance and tools provided in this session, do you think it can be less difficult to integrate economic, social and environmental challenges into the supply chain? 25

Conclusion § A SSC is a veritable source of business growth and sustainable development. § Think beyond short-term financial benefits and build long-term value across the entire SC. § Corporations that have the relevant knowledge and skills are capable of realising sustained competitive advantages. 26

Additional References • • Bowen, F. E. , Cousins, P. D. , Lamming, R. C. and Faruk, A. C. (2001), “The Role of Supply Management Capabilities in Green Supply”, Production and Operations Management, Vol. 10, Iss. 2, pp. 174 -189. Chan, F. T. S. (2003), “Performance Management in a Supply Chain”, International Journal of Advanced Manufacturing Technology, Vol. 21, pp. 534 -48. Doh, J. P. (2005), “Offshore Outsourcing: Implications for International Business and Strategic Management Theory and Practice”, Journal of Management Studies, Vol. 42, Iss. 3, pp. 695 -704. Frenkel, S. J. (2001), “Globalisation, Athletic Footwear Chains and Employment Relations in China”, Organization Studies, Vol. 22, Iss. 4, pp. 531 -562. Gunasekaran, A. , Patel, C. and Tirtiroglu, E. (2001), “Performance Measures and Metrics in a Supply Chain Environment”, International Journal of Operations and Production Management, Vol. 21, Nos 1 -2, pp. 71 -87. Greer, J, and Bruno, K. (1996), “Greenwash: The Reality Behind Corporate Environmentalism”, Penang, Third World Network. Hill, K. (1997), “Supply Chain Dynamics, Environmental Issues and Manufacturing Firms”, Environment and Planning, Vol. 29, Iss. 7, pp. 1257 -1274. Kempe, R. and Soete, L. (1992), “The Greening of Technological Progress: An Evolutionary Perspective”, Futures, Vol. 26, pp. 1047 -1059. 27

Additional References • • Linton, J. D. , Klassen, R. and Jayaraman, V. (2007), “Sustainable Supply Chains: An Introduction”, Journal of Operations Management, Vol. 25, Iss. 6, pp. 1075 -1082. Mc. Allister, D. T. , Ferrell, O. C. and Ferrell, L. (2005), “Environmental Issues” in Mc. Allister, D. T. , Ferrell, O. C. and Ferrell, L. (2005): “Business and Society: A Strategic Approach to Social responsibility”, Boston/ New York, pp. 257 -288. Min, H. and Galle, W. P. (2001), “Green Purchasing Practices of US Firms”, International Journal of Operations and Production Management, Vol. 21, Iss, 9, pp. 1222 -1238. Preuss, L. (2001), “In Dirty Chains? Purchasing and Greener Manufacturing”, Journal of Business Ethics, Vol. 34, Iss. 3 -4, pp. 345 -359. United Nations Organisation (2000), “United Nations Millennium Declaration”, New York, 6 -8 Sept. Available at: http: //www. un. org/millennium/declaration/ares 552 e. pdf United Nations Department of Economic and Social Affairs (2010), “The Millennium Development Goals Report” New York, June. Available at: http: //www. un. org/millenniumgoals/pdf/MDG%20 Report%202010%20 En%20 r 15%20 low%20 res%2020100615%20 -. pdf Walley, N. and Whitehead, B. (1994), “It’s Not Easy Being Green”, Harvard Business Review, May. June, pp. 46 -53. Wycherley, I. (1999), “Greening the Supply Chain: The Case of the Body Shop International”, Business Strategy and the Environment, Vol. 6, No. 2, pp. 169 -184. 28