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TOPIC OVERVIEW – SUSTAINABILITY AND SUPPLY CHAINS
1.1 Introduction
The sustainability movement has gained significant momentum over the last few years as both
consumers and corporate managers begin to realize the impact of unsustainable environmental
practices on their current and future quality of living standards and the most immediate and
direct impact of environmental issues for most people has been the recent dramatic increase in
the cost of fossil fuels and raw materials. Not surprisingly, issues regarding energy usage,
access to clean water, carbon dioxide emissions, and climate change have received the vast
majority of the attention in the popular press. The current business practice of extracting raw
materials from the earth, manufacturing them into products, and then disposing of the products
into landfills or incinerators after a short period of use is not sustainable.
Companies can do many things to be more sustainable. However, not all sustainability
initiatives are the same. Different actions have different risk and return profiles, from low-risk,
high-return eco efficiencies, to bolder moves like reworking a product line to be more green or
launching a new company that has social and environmental improvement goals at its core.
Sustainably minded companies may wonder if strategy is relevant to them. If the core purpose
of strategy is to help a firm gain a competitive advantage in the market and outcompete others
economically, does it conceptually align with the philosophy and values of sustainability?
Many sustainably-minded firms collaborate as much as they compete; want a win/win as much
as an outright advantage, and want their business to generate more than just profits as an
outcome.
Clearly, differentiation is an important strategy for sustainable business development. As
consumers will pay more for “value,” which in the context of a sustainable business is the
opportunity to enable a greater good by buying that particular product over spending money
on something else, companies will have more financial room to innovate, take risks, and
develop business models, products, processes, and supply chains that support that perception
of value. Examples of value-driven activities and investments include:
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Investments in innovation (e.g., investing in sustainable product and process design
activities, like life cycle assessment or biomimicry; investing in the innovation and
development of more sustainable materials, like fully compostable plastics, etc.);
Investments in higher material or labor costs (e.g., sourcing recycled materials, building
or renting the dedicated equipment needed to work with organic materials, buying or
renting hybrid vehicles, using biofuels, paying workers a living wage, offering great
benefits, etc.);
Investments in control mechanisms (e.g., supplier audits, certification fees); and
Taking on costs that were formerly externalized (e.g., creating and running product
take-back programs, to ensure products are appropriately processed after the end of
their useful life). Clearly, sustainable supply chain management can contribute strongly
to competitive advantage, by both reducing threats and risks, and by increasing
marketability.
1.2 Learning Outcomes from the Module Outline
LO.1 Display an understanding of sustainability issues in organisations and globally, with the
ability to propose strategic improvements within supply chains
LO.2 Understand the basics of supply chain operations in relation to planning, operating,
scheduling and controlling, including knowledge of supply chain operation practices (demand
management, master planning, material management, capacity management and inventory
management)
LO.3 Understanding the impact of supply chain operation practices within commercial and
social contexts and global trends in supply chain operation practices
LO.4 Review the area of Global Reporting Initiatives
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1.3. Introducing sustainability issues
Products and processes are conceptually dissimilar but at the same time, they are interwoven
and above all interacting. The industrial horizon covered by a product is wider than that of a
process since it requires considering features that operate before and after the production plant
where the process is run. Often, the literature refers to that horizon as the “supply chain” (SC)
of the product where the process plays the role of transforming the input raw material(s) into
some output product(s). The SC comprises further actions such as moving both the input and
output goods to and fro the plant while solving the distribution and inventory problems and
meeting the customer(s)’ demand. In addition, the SC has to deal with supplementary
intangible features (that are compromising, blocking, and mandatory) such as the availability
of utilities, transportation means, maintenance support, insurance, and advertising. Here, the
concept of sustainability assumes a primary role in running the process to produce the product
through a well-balanced SC management (SCM). The extension of the above-mentioned
horizon increases further as the sustainability of SC is involved (You, 2015).
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A six-step process for assessing progress toward landscape sustainability
The landscape sustainability assessment process is triggered by a need to evaluate a production
system, product, technology, investment, policy, or other discreet intervention (herein called
the activity) designed to meet specified societal needs or maintain environmental benefits. The
coordinator (may be a government official, scientist, or a representative from industry, local
community, or a non-governmental organization) initiates the assessment and engages relevant
stakeholders in the landscape sustainability assessment process within specified context and
goals. The coordinator drafts the sustainability assessment objectives and context, which
establish the spatial and temporal boundaries of the process and identify major stakeholders.
These objectives and context may be modified during the assessment process, for learning
about the system occur as the “living” evaluation is deployed. Each of the six steps of the
landscape sustainability assessment approach requires actions and decisions illustrated by the
decision-making cycle shown in the figure below and detailed in the following subsections.
While several steps can be initiated simultaneously, the finalization of later steps depends on
the completion of the prior steps. Iterations within and among the steps are common, as each
step is influenced by new information. And the entire circuit may be reinitiated as goals are
adjusted in light of changing conditions, priorities, and available information toward agile
decision making. The decision-making cycle is underlain by five essential: stakeholder
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engagement, timely and effective communication, transparency and trust, monitoring, and
continual improvement (Dale et al.,2019)
Figure 1: Six steps and cross-cutting insights for assessing progress toward sustainability goals
Three milestones marked the path toward a progressive familiarization with the sustainability
term applied to SC and SCM subjects. These milestones are WCED (1987), Rio summit, 1992,
and World summit, 2002. The first document widely recognized as the minter of the sustainable
development (SD) path was published in 1987 with the title “Our common future” from the
World Commission on Environment and Development (WCED) of United Nations. Also
known as the Brundtland report (from the last name of the coordinator and president of WCED
in 1987) that document synthesized the contributions of senior government representatives,
scientists and experts, research institutes, industrialists, representatives of non-governmental
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organizations, and the general public thus displaying a manifold approach to sustainability.
WCED (1987) focused on the environmental issues of economic sustainability and recognized
that poverty reduction, gender equity, and wealth redistribution play a major role in human
resource development and are crucial in the formulation of strategies for environmental
conservation. Additionally, the Brundtland report spotted that there are environmental limits
to the economic growth of industrialized countries. It also laid the foundations for the Earth
Summit of 1992, which delivered the Agenda 21 document and the Rio Declaration that
established the Commission on SD. Ten years later, the 2002 World summit discussed more
extensively the SD concept by the United Nations (WSSD 2002) and set a number of targets
to be met in the following years. The WCED (1987) minted the definition of SD as the
development that meets the needs of the present without compromising the ability of future
generations to meet their own needs. This very concise sentence distils the three pillars of
sustainability, which are economic, environmental, and social development (You, 2015).
Regarding the regions of influence, there are four typologies of sustainable systems:
1. systems referring to global concerns or problems, such as global warming, ozone
depletion, use of genetically modified crops;
2. systems characterized by geographical boundaries (e.g., cities, villages, defined
ecosystems);
3. systems based on businesses, either localized or distributed, which strive to be
sustainable by practising cleaner technologies, eliminating waste products, reducing
emissions of greenhouse gases, and reducing the energy intensity of processes; and
4. any particular technology that is designed to provide economic value through clean
chemistries.
The sequence of sustainable systems proposed is hierarchical and reduces the dimension of
intervention/influence by moving from the first to the last item. Systems 3 and 4 are suitable
for chemical engineering problems because they rely more on the process and product designs,
and manufacturing methods (Sikdar, 2003)
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1.3.1. Three pillars of sustainability
Economic indicator
Environmental indicators
Social indicators
Financial indicators
Human-capital indicators
employment contribution
Environmental impact
solid waste
Environmental efficentcy
Volunatry actions
Ethics indicators
Presentation of cultural values
-stakeholder inclusion
-involvement in community
projects
International standards of conduct
-business dealings
-child labor
-fair prices
-collaboration with corrupt
regimes
intergenerational equity
Welfare indicators
income distribution
value added resource use contribution to GDP global warming expenditure on
environmental protection
azone depletion environmental liabilities acidification ethical investments eutrophication photochemical smog human toxicity eco toxicity staff turnover expenditure on health and
safety
investment in staff
development
material and energy
intensity
material recyclability work satisfaction
product durability satisfaction of social needs
service intensity
environmental
management systems
environmental
improvements above
compliance levels
assessment of suppliers
Table 1: Classification of Indicators for the Three Pillars of SD
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Figure 2: Three pillars of sustainability
It is worth observing that each of the three pillars has a distinctive identity but at the same time
contains contaminations from the other pillars. For instance, the economic indicators show a
human-capital subsection that finds its origin in the social indicators. The same happens for the
welfare subsection of social indicators that are pretty related to the economic indicators. The
environmental indicators are even more connected to the economic issues.
Environmental indicators are often oversimplified and refer to material and energy
consumptions that can be transformed easily into economic quantities. For instance, the
chemical industry uses often energy consumed, waste production, and by-products recycling
as environmental indicators. These indicators are harmonized and normalized to a single
measure by means of suitable metrics based on economic criteria (Azapagic and Perdan, 2000).
Even if the classification of indicators in Table 1 lists a few qualitative terms, it is often
preferable to work with quantitative terms that allow the implementation of a systematic
approach (if not a factual methodology) to the SD assessment.
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1.3.2 Social impact assessment
Table 2: Principles of SIA
The assessment of sustainability is usually made using sustainability indicators, thus social
sustainability indicators should address the impact on the social systems. The main role of
sustainability indicators is to simplify the evaluation process and to enable easier use of the
obtained assessments by stakeholders, project engineers, politicians, etc. The existing methods
of social sustainability assessment are diversified and developed by many organizations and
researchers. Social sustainability can be assessed by using indicators frameworks, social impact
assessment (SIA) guidelines, government actions, socially responsible investment indexes,
international standards and guidelines, corporate social responsibility standards, etc.
It is the methodology that assesses social sustainability by using qualitative and quantitative
indicators useful for decision-makers. The guideline for social impact assessment is comprised
of six principles, which are summarized in Table 2 (US Principles and Guidelines, 2003; You,
2015).
1.3.3. Design and Planning of Sustainable Supply Chains
In this context, supply chains that are nowadays a key system in any organization as they
interact globally and involve a large set of resources, need to incorporate sustainability
Principle 1
Evaluate existing human environment, which
could be affected by the certain action, program,
or policy.
Principle 2
Evaluate social sustainability aspects from human
environment that could be affected by certain
action, program, or policy.
Principle 3
Identify methods that could be used for
evaluation of impacts.
Principle 4
Collect data needed for making evaluation.
Principle 5
Verify that all social sustainability aspects are
included in process of evaluation.
Principle 6
Perform evaluation or monitoring of the certain
action, program, or policy.
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concerns in their design and operations. Supply chain design on its own is a complex problem.
A supply chain needs to be efficient, flexible, and resilient and ensure fast delivery at minimum
cost in an uncertain environment. Different products need to flow between different entities,
using different transportation modes, under different transportation conditions. It involves
decisions from the strategic to the operational level, which are related to several stakeholders
presenting conflicting needs, and in a global market with different cultures and legislation
constraints. Sustainability in the supply chain is still a topic that is just recently being the focus
of researchers and companies. Even though its importance is well established not enough
research has been done to develop clear, accurate, and proven guidelines to support the
implementation of sustainable practices. Having fuzzy sustainability measures and so many
different methodologies available is in fact more confusing for the decision-makers who do not
want to risk the economic viability of their companies by pursuing strategies based on the
uneven grounds of sustainability. The social sustainability pillar is the most intricate one to
evaluate. One cannot quantitatively and accurately measure the impact of a given relocation
decision on society, given the number of interconnected factors involved. However, decisions
are still made both by governments and municipalities in developing measures that attempt to
reduce given socio-economic problems such as unemployment and desertification. These same
measures are analyzed by company decision-makers when designing their strategy (Pullman
and Sauter, 2012).
Benefit
Rationale
Enhanced
marketability
Brand value increases if consumers feel a company values more than just
profits; brand reputation can also be more easily maintained if the risk of
doing the wrong thing is reduced and if consumers have loyalty.
Reduced risk
More conscientious management of a company’s
supply chain improves its ability to prevent social and environmental
disasters, which helps reduce mitigation costs and brand rebuilding costs.
Reduced costs
Fuel and energy efficiency, in addition to lean manufacturing methods, can
reduce waste in operations and the supply chain, thereby reducing
production costs and improving margins.
Higher prices
Green consumers are interested in sustainable products and are willing to
pay a premium for these projects. Higher consumer prices can result in
higher margins, if costs are contained.
Improved
employee morale
Employees feel good working for a company that is striving to do the right
thing, and if they are engaged in company improvement efforts. They
therefore become more productive and improve the bottom line.
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Regulatory
opportunities
Being first in line has given some companies the opportunity to help create
new regulations related to sustainability; retrofitting operations to match
new regulatory frameworks is also costly.
Supply chain
distinction
Sustainability’s focus on relationships and collaboration build trust in the
supply chain. This can make suppliers wary of selling to others, thereby
creating unique and hard-to-replicate supply chains.
Shared
efforts/costs
Complicated sustainability efforts often necessitate collaboration in the
supply chain. This spreads the creative effort and costs of sustainability to
partners, who then each partake in the rewards.
Table 3. Common Stated Benefits of Sustainability Initiatives
Sources: Accenture/United Nations Global Compact 2010 CEO Survey
Opinions on sustainability’s benefits do seem to have coalesced around a certain set of
observations, as summarized in Table 3. Stated benefits include improved marketability;
enhanced worker morale and thus, productivity; reduced risk and risk-related costs; and unique
opportunities to shape future regulatory frameworks. Concerning supply chain management,
additional benefits include the opportunity to develop hard-to-replicate supply chains, the
chance to share the effort and cost of sustainability initiatives with partners in a supply chain,
and the often significant opportunity to reduce operating costs via aforementioned energy, fuel,
and manufacturing efficiencies, sometimes called eco efficiencies.
1.4 Summary
In this introductory week of the module, we have set the basis for sustainability and supply
chains. In the following week, we will examine Corporate Social Responsibility and CSR
strategies.
References
Azapagic, A. and Perdan, S., (2000), Indicators of sustainable development for industry: A
general framework, Process Safety and Environmental Protection, 78(4), 243-261).
Dale, H. V., Kline, L. K., Parish, E. S., Parish, Eichler, S. E., (2019), Engaging stakeholders to
assess landscape sustainability, Landscape Ecology Volume, Springer.
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You, F., (2015), Sustainability of Products, Processes and Supply Chains:Theory and
Applications, Elsevier
Pullman, M. and Sauter, M., (2012), Sustainability Delivered : Designing Socially and
Environmentally Responsible Supply Chains, Business Expert Press, LLC.
Sikdar, S., (2003), Sustainable development and sustainability metrics, AIChE Journal 49(8).
