All these concerns mean that lower-tier suppliers are unquestionably the riskiest members of a supply network. (5) They were members of the Billion Dollar Roundtable (firms spending at least $1 billion with minority- and women-owned suppliers). The three MNCs also participate in the Carbon Disclosure Project’s (CDP’s) Supply Chain Program, a global data-collection platform in which suppliers disclose information about their carbon emissions. These initiatives can also draw in more suppliers, because suppliers that have many customers with the same sustainability requirements tend to be more willing to participate. Building a sustainable supply chain isn't easy, but it is possible — and necessary. Added to the uncertainty we’ve seen in the past few years regarding global trade and tariffs, we will be looking at increased reliance upon modern supply chain and manufacturing technologies to help us bring our supply bases closer to home. Business with effective sustainable procurement programs and solid commitment to sustainable supply chains see measurable ROI: They win more business and see sales revenue increases of up to 20%. The noncompliant company we cited above, for example, doesn’t try to enforce a strict 60-hour workweek limit with any of its suppliers. Sustainable Supply Chain Management at Portland State University is a certificate program. Our research suggests that isn’t yet happening in a meaningful way. Digital transformation and the growing sophistication of digital supply chain technologies are playing a major part in the evolution of supply chain transparency and sustainability. Supply chains tied to multinational corporations represent over 80% of global trade and engage over one in five workers. Sustainable supply chains: why placing ethics over profits pays off Companies may talk about ethical supply chains, but if they don't independently monitor and audit suppliers, nothing will change Arguably, they need more incentives as well: Companies must reward them for hitting all three Ps—that is, not just cost, quality, and delivery goals but also social and environmental ones. Sustainability Measures: As major companies and countries around the globe move towards sustainable production, all supply chains become impacted. Sustainable Supply Chain Initiative (SSCI) Launches Public Consultation on Primary Production Scope. Of course, the main obstacle to implementing these changes is the associated cost. Every aspect of supply chain sustainability … The foam manufacturer has little incentive to conform to the automakers’ sustainability requirements, because the automakers account for only a small fraction of its total business. In our research, we identified a few critical shortcomings in their operations when it comes to developing sustainability beyond first-tier suppliers. In 2018, we’ll continue to see progress in sustainable supply chains. To avoid this, MNCs should set convergent sustainability goals and align the incentives for all functions that interact with first- and lower-tier suppliers. This poses serious financial, social, and environmental risks. A sustainable supply chain demonstrates a long-term commitment to procurement and supply chain management that considers "the environmental, social and … Discover what's new. Collaborative initiatives have many benefits. Consider the electronics maker Flex, a full member of the RBA and a first-tier supplier for many MNCs. Supply chain sustainability is a complex issue, and the more people who are working to solve it, the better. Another MNC includes the program’s ratings in its supplier scorecard and monitors those ratings annually. Select high-performing suppliers to pilot new sustainability initiatives. First, there are supply chains that operate within legal limits and comply with agreed-upon contractual requirements. Fueled by consumer demands, increasing regulations and a mounting business case, steering supply chains in a more sustainable … Supply chain sustainability (SCS) is a holistic view of supply chain processes, logistics and technologies that affect the environmental, social, economic and legal aspects of a supply chain's components. They should send their suppliers a more consistent message that economic, social, and environmental requirements are all important. MNCs, too, are handicapped by ignorance. Countless reasons to adopt a more sustainable supply chain exist, from taking advantage of government benefits to committing to a mission that speaks to your customers. At three of the companies, temporary workers made up nearly 50% of the workforce, and turnover rates sometimes reached 100%, making it difficult to implement viable environmental, health, and safety programs. A third shortcoming we observed is that although our three MNCs devote considerable effort to developing their first-tier suppliers’ sustainability capabilities, they have little direct contact with their first-tier suppliers’ procurement personnel. Starbucks is a leading brand that claims to be sustainable; Let’s see if Starbucks could be considered a case study for the success of sustainability in supply chains Such practices, also called sustainable plans, are the ones that improve not only supply chain economic performance, but also their environmental and social performances. The progress is encouraging: According to the CDP’s 2019 supply chain report, 35% of the program members engaged with their suppliers on climate change in 2018, up from 23% the year before. Supply Chain Management with Zara as an Example. Those officials should take a hands-on approach to collecting data about suppliers’ capacity, monitoring indicators of their sustainability performance, and engaging with them in continuous improvement projects. All partners in these supply cha… Green, transparent, and circular supply chains are all components of a modern sustainable supply chain. Yet, in many other surveys, such as this recent report, Nielsen indicates that customers are willing to pay more for products that ensure green logistics practices and transparent supply chains. They are also frequently located in countries where such regulations are nonexistent, lax, or not enforced at all. We know that logistics optimization through technological innovations and data integration can make supply chains more efficient and more financially sound. Survey suppliers on their environmental, health, safety, and labor practices and on their procurement practices. Another MNC annually surveys its first-tier suppliers to gather information not only about their health, safety, labor, and environmental practices but also about the sustainability performance of their lower-tier suppliers. +1-800-872-1727 Awareness is key. Different functional units of an MNC (engineering, procurement, sustainability) may pursue different agendas in interacting with first- and lower-tier suppliers—with results that do systemic damage to the corporation’s overall sustainability effort and undermine its credibility. Harvard Business Publishing is an affiliate of Harvard Business School. The information is used to compile the environmental metric in the … That’s often because they’re struggling with sustainability issues themselves. We rely on logistics service providers for all of our transportation and much of our distribution center operations and work with them to drive efficiency improvements and innovations to make our supply chain more sustainable. What we discovered was that many were violating the standards that the MNCs expected them to adhere to. And to encourage widespread dissemination of best practices, they need more direct contact with the procurement people at their first-tier suppliers. Use tools and data that those organizations provide for dealing with suppliers (contracts and scorecards). It has six, 15-hour modules. The ethical supply chain: Definition, examples, stats . These fall into four broad categories: The MNCs we studied set and monitor social and environmental targets for their first-tier suppliers regarding second-tier suppliers. … Sustainability concept and its relationship with supply chain management The concept of sustainability is designed around there elements, environmental, social and economic development. They tend to act only when MNCs intervene. “We don’t comply with this requirement ourselves,” the representative told us, “so how could we ask our own suppliers to do so?”. Review and cite SUSTAINABLE SUPPLY CHAIN MANAGEMENT protocol, troubleshooting and other methodology information | Contact experts in SUSTAINABLE SUPPLY CHAIN MANAGEMENT … Embracing environmentally sustainable … It requires its first-tier suppliers to allocate 7% of their procurement spending to minority suppliers. In recent years a rising number of multinational corporations have pledged to work only with suppliers that adhere to social and environmental standards. Suppose it does business with a foam manufacturer that has many other big customers in the electronics, appliance, and health care industries—each of which has different sustainability standards. The MNCs in our study have successfully addressed some of the problematic sustainability practices of their suppliers. Most of the first-tier suppliers we interviewed told us that such training had led them to make substantial changes in their manufacturing processes and to begin asking their suppliers to adopt similar sustainability standards. For instance, all three corporations have joined the United Nations Global Compact, an international effort to promote corporate social responsibility. Generic Supply Chain. We also interviewed 50 operations and supply chain leaders. 6 Sustainable Supply Chains: A Guide for Small- to Medium-sized Manufacturers Examples of Supply Chain Sustainability in Business In addition to reviewing existing research in supply chain sustainability… As ethical supply chain practices become a greater and more immediate priority for businesses, compliance goals and sustainability benchmarks are also becoming more standardized. What’s more, all those scandals involved first-tier suppliers. Green supply chain of child’s crib manufacturer. We also studied a representative set of each MNC’s suppliers—a total of nine top-tier and 22 lower-tier suppliers, based variously in Mexico, China, Taiwan, and the United States. To explore this problem—and identify solutions—the authors studied the supply networks of three MNCs deemed to be sustainability leaders. Many of the MNCs that have committed to it have faced scandals brought about by suppliers that, despite being aware of sustainability standards, have nevertheless gone on to violate them. Currently, SSCM plays a crucial role in mature markets as well as in emerging economies (Esfahbodi et al. Forest Positive Mobilising resources to build a forest positive future. Reward suppliers for cascading sustainability requirements to lower-tier suppliers. see our complete list of local country numbers, Gain key insights by subscribing to our newsletter, Accounts Receivable, Billing and Revenue Management, Governance, Risk, Compliance (GRC), and Cybersecurity, Services Procurement and Contingent Workforce, Engineering, Construction, and Operations, SAP Training and Adoption Consulting Services, see our complete list of local country numbers. Typically, sustainability … And so on. In a 2019 survey of over 1,500 U.S. consumers, delivery speed was ahead of all other factors when it came to choosing a retail channel. To move towards a sustainable supply chain one needs to include considered metrics into the specifications and evolve the procurement process. They can increase efficiencies for suppliers, who can use a standardized self-assessment or audit to satisfy many customers and thus avoid duplication. … Countless reasons to adopt a more sustainable supply chain exist, from taking advantage of government benefits to committing to a mission that speaks to your customers. They should make the same message clear to their procurement officials and create incentives for them to pursue not only economic goals but also environmental and social goals. Read Item ; Business Sustainability Risk and Performance Index 2020. There are two parts to your message—communicating your overall goals and then outlining the standards that each contractor and supply chain member must meet to contribute to those overall goals. We also studied a representative set of each MNC’s suppliers—a total of nine top-tier and 22 lower-tier suppliers, based variously in Mexico, China, Ta… For companies that invest in more sustainable and transparent supply chains, there are potential benefits across the entire business, including: Digital transformation in the supply chain allows companies to meet and exceed sustainability benchmarks while also innovating and growing their businesses. 29th September 2020. Sustainable Supply Chain Management at Portland State University is a certificate program. However, a responsible supply chain is not necessarily sustainable. 1700] defined SSCM as “the management of material, information and capital flows as well as cooperation among companies along the supply chain while taking goals from all three dimensions of sustainable development, that is, economic, environmental and social, into account which are derived from customer and stakeholder requirements. To reduce such risks, MNCs need to include both first-tier and lower-tier suppliers in their sustainability programs. Even when they do attract attention (for sexual harassment problems, for example, or chronic overtime demands), we found that they do not feel the need to address the issues involved. “The demon in this place,” one of them said, “is the [lower-tier] suppliers that I know the least about.” Another said, “I don’t have control over the ones that pose the highest risks, so I’m losing sleep over them.”. Firms such as Microsoft, Johnson & Johnson, and Walmart use this platform to engage their suppliers in being transparent about their environmental impact. For example, Pacific Gas and Electric (PG&E) uses response from the Electric Utility Industry Sustainable Supply Chain Alliance survey to gauge performance of its top tier suppliers on important aspects of environmental performance, including greenhouse gas emissions, energy and water usage, and waste generation. In fact, 83% of supply chain … Figure 1 identifies four broad strategies for supply chain management: legal, ethical, responsible, and sustainable. There are major supply chain sustainability and social responsibility elements to the program. Some suppliers have set sustainability targets of their own, ahead of receiving mandates from their customers. But that seat maker may have a hard time getting its suppliers to follow suit. For the procurement professionals we interviewed, cost savings were unquestionably the top priority, followed by quality improvement and on-time delivery. If you continue browsing the site, you agree to the use of cookies on this website. Typically, sustainability initiatives include identifying the source of raw materials, ensuring good conditions for workers and reducing the carbon footprint. Recognize suppliers that excel in programs sponsored by NGOs and international institutions. A recent article in the Economist calls COVID-19 “the new normal” and suggests that we will have to restructure our lifestyles and businesses in the long term. … The MNCs should also work directly with their suppliers’ procurement units on the best ways to disseminate sustainability requirements throughout their supply networks. How successful supply chain management works is demonstrated by Inditex, one of the largest textile companies in the world based in Arteixo (Spain), with its fashion brand Zara. (For the specific selection criteria, see the “About the Research” sidebar.) The three MNCs have also created preferred-supplier programs aimed at fostering peer learning about sustainability. As sustainable practices become more prevalent and accessible, it is important to continue to explore new ways that we can maintain an ethical supply chain. More often sustainability and procurement functions are merged, resulting in senior sustainability procurement managers, for example. The RBA, for example, requires its full members to conduct approved audits annually for at least 25% of their own high-risk facilities and 25% of their high-risk suppliers’ facilities. But all MNCs have more work to do to develop sustainable supply networks. Social and environmental concerns were notably absent. The hoped-for cascade effect was seldom occurring. For example, Seuring and Müller [28, pp. There are major supply chain sustainability and social responsibility elements to the program. Increasingly, multinational corporations (MNCs) are pledging to procure the materials and services they need from companies committed to fair labor practices and environmental protections. These cover areas of environmental responsibility, labor practices, human rights, and corruption. Photos © Edward Burtynsky, courtesy Howard Greenberg Gallery and Bryce Wolkowitz Gallery, New York / Nicholas Metivier Gallery, Toronto. sustainable supply chains, for example: • How does this driver influence the introduction of sustainable procurement? Supply-chain sustainability is a business issue affecting an organization’s supply chain or logistics network in terms of environmental, risk, and waste costs. Whether due to changing regulations or seeking good PR, many companies are working to reduce pollution and other issues in their chain. Despite this importance, there is currently no comprehensive, empirically grounded understanding of how companies address sustainability in their supply chains. To understand the situation and develop ideas for tackling it, we conducted a study of three supply networks. Copyright © 2020 Harvard Business School Publishing. The activities involve the entire stages of the product’s life cycle, from procurement of raw material, manufacturing, use and reuse till the final recycling or disposal. Companies tend to focus on their top-tier suppliers, but the real risks come lower down. Lower-tier suppliers are also the least equipped to handle sustainability requirements. Companies now have a much greater ability – and obligation – to demonstrate corporate social responsibility and to share best practices for green supply chains and sustainable logistics. They require first-tier suppliers to set their own long-term sustainability goals. Definition of Sustainable Supply Chain Management (SSCM): SSCM may be perceived as the proper management of related environmental, social, and economic impacts in constructing and maintaining effective and efficient global supply chains. They are asking suppliers to cut their emissions, … Several directors of the three MNCs we studied viewed this as a big problem. While the first two decades of the sustainable procurement field focused on codes of conduct, supplier compliance, and auditing, procurement professionals in the vanguard today are looking to do much more with their sustainable procurement efforts. Work with major first-tier suppliers to map the firm’s supply network. United States For example, PwC calculates that carbon emissions must be reduced by 6.3% per year until 2100. Each was headed by an MNC considered to be a “sustainability leader”—one in the automotive industry, one in electronics, and one in pharmaceuticals and consumer products. There is a sustainability course for you. Firms can also borrow some of the specific strategies that our MNCs use to spread good practices throughout their supply networks. But cost efficiency and sustainability aren’t mutually exclusive. For more information about the research, see “The Missing Link? This may explain why most of the lower-tier suppliers in our study lacked programs to dispose of toxic waste and in fact had no environmental management program whatsoever. Of course, the main obstacle to implementing these changes is the associated cost. Via industry organizations, share resources with competitors and major suppliers to achieve sustainability goals. For example organisations need to consider the whole life cost of goods and services from cradle to grave. In the United States we studied seven lower-tier suppliers and found that three had high concentrations of airborne chemicals and a lack of systematic accident reporting. But cost efficiency and sustainability … When we asked a representative at one supplier why his company had violated a 60-hour workweek limit, he gave us a frank explanation: “We didn’t want to tell our customer that we can’t produce its products on time, because otherwise it’s going to try to find someone else that can. Several participating suppliers told us that as a result, they are now collecting previously unsolicited information and making investments to try to reduce their carbon footprints. Supply Chain Examples. Furthermore, most lower-tier suppliers are not well known, so they receive relatively little attention and pressure from the media, NGOs, and other stakeholders. The automotive corporation, for instance, has a strong commitment to supplier diversity. In 2018, we’ll continue to see progress in sustainable supply chains. Not surprisingly, that can lead to situations in which preapproved lower-tier suppliers violate the sustainability requirements of the MNCs they work with. If exemplary MNCs are having trouble ensuring good practices among their lower-tier suppliers, then “regular” firms, in all likelihood, are faring even worse at this. Translating science-based thresholds, like those in the planetary boundaries framework, to the supply chain level can be difficult, but it can be done. Such predicaments are not uncommon. Sustainability goals and targets must come from something beyond the supply chain itself. A sustainable supply chain is one that fully integrates ethical and environmentally responsible practices into a competitive and successful model. Get in touch. But, realistically, ours is a global economy and we will always have to rely on some international sources for certain raw materials and manufacturing capabilities. There is a sustainability course for you. Our MNCs collaborate with their competitors and major suppliers to develop and disseminate industrywide sustainability standards. The first-tier suppliers we interviewed noted that the MNC periodically checks to see if the target is being met and creates opportunities to help them network with minority lower-tier suppliers. The following are illustrative examples of a supply chain. As a result, those people are poorly informed about the MNCs’ sustainability requirements and cannot communicate them clearly to their own suppliers, much less enforce them. A responsible supply chain, for example, must also be legal and ethical. 12 shares Share on Twitter; Share on Facebook; Share on Linkedin ; Consumers expect more from the brands they buy from than ever before, and an ethical supply chain is now a requirement in the experience economy. Organizations that continue to build out supply chain sustainability practices will thrive, while helping build a better planet for all. This is known as the Amazon Effect, and it has created something of a paradox as it relates to supply chain sustainability. Supply-chain management therefore has a significant impact on key social and environmental challenges. First, the MNCs’ engineering and procurement units often preapprove lower-tier suppliers, but their vetting criteria don’t include social and environmental considerations. If companies are to deliver on both speed and sustainability in a meaningful way, it will require the ability to have real-time access to third-party logistics networks and deep, end-to-end visibility into their entire supply chain operation, including the most distant, low-tier suppliers. This allows them to identify potentially risky lower-tier suppliers and to work with the major suppliers to deploy customized risk-mitigation programs where needed. A second problem is lack of sustainability training and incentives for procurement officers. For example, one can require carbon footprint for a product or service, one can also require a product and service with the litigation history (or lack of one), one can require disposal instructions for particular products etc. Several of these suppliers have started to set their own sustainability requirements for the suppliers they use. Remember, all those suppliers were connected to model firms that were working proactively to encourage sustainability. Figure 1. Supply chain sustainability (SCS) is a holistic view of supply chain processes, logistics and technologies that affect the environmental, social, economic and legal aspects of a supply chain's components. Through understanding ways to mitigate ethical supply chain problems, this gives hope to many companies to move towards a greener manufacturing process. About the art: Edward Burtynsky’s photographs explore the manufacturing landscapes of China and their central role in the global supply chain. These strategies are hierarchical. They have established long-term sustainability goals. For example, the challenges belong to Automotive industry to achieve sustainable supply chain is very different from the food industry. One such change has been the huge rise in demand for next-day shipping. Supply chain SC activities transform natural resources, raw materials, and components into various finished products that are delivered to end customers. However, even before the pandemic was upon us, some fundamental changes to consumer behavior had been causing global supply chain managers to begin reevaluating their operations. Many multinational corporations have committed themselves to using suppliers with sustainable social and environmental practices, but suppliers—especially those low in the supply chain—often don’t comply with standards. A supply chain is the end-to-end system that creates products and services and delivers them to the customer. The Strategic Role of Procurement in Building Sustainable Supply Networks,”, “On the Riskiness of Lower-Tier Suppliers: Managing Sustainability in Supply Networks,”. For example, Cargill has committed to creating a transparent, traceable, and sustainable palm-oil supply chain by 2020. These companies engage in behaviors that are worth emulating; for example, they have established long-term sustainability goals, and they try to cascade good practices all the way down to lower-tier suppliers, using a combination of direct, indirect, industrywide, and global strategies. Ideally, multinational corporations will use a combination of approaches—direct, indirect, collective, and global—to encourage sustainable practices throughout their supply networks. The three MNCs in our study have taken a number of steps to promote suppliers’ social and environmental responsibility: These are all beneficial measures that other companies should consider adopting. To understand the situation and develop ideas for tackling it, we conducted a study of three supply networks. The authors studied the supply networks of three MNCs considered to be sustainability leaders. In Mexico we visited five lower-tier suppliers; all lacked environmental management systems, and four lacked procedures for handling red-flag social problems such as sexual harassment, retaliation by supervisors, and hazardous labor conditions. The practices of lower-tier suppliers are almost always worse, increasing companies’ exposure to serious financial, social, and environmental risks. We found problems in every country we studied. Work closely with relevant NGOs and international institutions interested in improving supply chain sustainability. While sustainability is central to research on supply chains, there has been relatively little research on diversity and impact on supply chain sustainability performance. But all corporations can and should do more. Some first-tier suppliers were already meeting that target; others have made substantial changes to do so (for example, by changing performance criteria for their purchasing managers). One corporation, for instance, invites its most socially and environmentally responsible suppliers to join an exclusive group that enables them to strengthen relationships with the MNC and exchange best sustainability practices with one another. Green supply chain makes the applications of the key sustainable development strategy outstand. Sustainable supply chain management should focus on improving recycling numbers, using more recycled materials, and reducing the amount of packaging used overall rather than eliminating all … Typically, these MNCs expect their first-tier suppliers to comply with those standards, and they ask that those suppliers in turn ask for compliance from their suppliers—who ideally ask the same from their suppliers. All of the 52 procurement employees we interviewed (at MNCs and at suppliers) said they needed more training to properly pursue supplier sustainability on behalf of their firms. Consider the embarrassing scrutiny that Apple, Dell, and HP endured not long ago for sourcing electronics from overseas companies that required employees to work in hazardous conditions, and the fallout that Nike and Adidas suffered for using suppliers that were dumping toxins into rivers in China. (For the specific selection criteria, see the “About the Research” sidebar.) By combining innovation, creativity, and modern supply chain technologies, these companies have developed sustainable solutions to keep their supply chains green, transparent, and more competitive than ever. A high efficient SC would bring … Sustainable Supply Chain Definition. The pattern is worrisome. Twenty years ago, the word sustainability was almost completely synonymous with eco-friendliness. 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