One of the most significant contributions brought by the Covid pandemic is the awareness of the fragility of supply chains across the globe. Rob Zuidwijk, Professor of Global Supply Chains and Ports; Merieke Stevens, Associate Professor of Technology and Operations Management; and PhD candidate Linh Nguyen explain how, as supplies became disrupted, companies began to investigate new and innovative ways to ensure that their supply chains became more resilient, and socially and environmentally responsible and accountable.
Of course, these companies had been thinking about their supply chains for years before this, especially with an eye towards increasing their environmental and social sustainability. Many of these companies had true environmental drivers in mind, and were examining issues such as the CO₂ impact of ocean freight, alternatives such as rail, and ‘green’ last-mile deliveries in urban centres. Others have pledged to address social issues such as modern slavery and labour conditions within their supply chains. But the main driver globally was economic. As the concept of sustainability took hold in the cultural zeitgeist, an increasing number of organisations realised that if they didn’t take a more sustainable approach, they would exacerbate environmental damage and lose business.
Most supply chains are embedded in societies and ecosystems around the globe.
And as organisations increase their efforts to report on their sustainability efforts, the inherent complexity of global supply chains makes increasing transparency challenging.
It’s not enough to be as green as possible. Organisations have to navigate a maze of complex environmental and social issues. As they strive to become more socially and environmentally responsible, they need to be able to account for their actions, and explain to a variety of stakeholders with diverging interests what they are doing. In other words, you have to be sustainable, and you have to put measures in place to report on and account for it.
At the other end of the spectrum, you should not oversell your sustainability practices (‘greenwashing’) nor invest too much time and effort while compromising your competitive edge. Innovative supply chain practices that drive social, environmental and economic sustainability are the way forward.
But supply chains are always complex. If working with one supplier introduces complexity, what happens when you have hundreds of them? Basic supply chain principles address how to manage the tension between a supplier who wants to sell as much as possible and a buyer who wants smaller shipments. New tensions come from buyers who want to create transparency and report sustainable practices in their supply chain, and sellers who want to share as little as possible about their production process to protect their intellectual property and competitive edge.
Some organisations respond by creating strategic in-depth supplier relationships that move from simply transactional approaches to more complex, higher-level engagement. However, building high levels of trust with long-term suppliers is not without its risks.
Sustainability also means that governments become stakeholders, adding increased complexity through new governmental regulations. While due diligence regulations might have the best of intentions, they can mean enterprises discard some suppliers that aren’t properly certified. Instead, building relationships with suppliers to improve sustainability performance would contribute more to a better planet.
The marketing of responsible products is also a supply chain question, something that is well known in food processing industries, for example. Many consumers pay attention to environmental issues associated with the product; are the ingredients organic? do they come from ethical sources? Some product certificates even pay attention to the governance structure of the responsible supply chain (i.e., the chain of custody involved), although this may go beyond consumers’ understanding.
But processing in large quantities – using economies of scale – has the potential for confusion when there are so many sources for ingredients or components. With a mix of certified and non-certified suppliers, these manufacturers do their best to source sustainable content in line with the chain of custody called ‘mass balance’.
This is a method of manufacturing with a mix of certified and non-certified ingredients.
If small businesses in the coffee industry know their artisanal, organic, and fair-trade producers personally, and have no reason to doubt sustainability practices, they will have no intrinsic motivation to comply with and buy certification. But when they face larger competitors that tick all the boxes, and consumers expect sustainability certificate logos on the product, such small businesses might feel compelled to pay for independent certification.
Clearly, straightforward transparency is not always easy, and complexities can blur the issues. Supply chain managers need to align stakeholder objectives. For instance, automotive companies with a longstanding history of using a certain set of suppliers might be losing out on a competitive edge, but these kinds of supplier relationships nurture sustainability because they nurture responsible practices and lower footprints – as long as the supplier is reassured of a long-term commitment.
As companies search for more insights into their supply chains, the role of new technologies for future transparency is clear. Organisations are already making huge investments in increasingly effective supply chain analytics and CO₂ measurement. Many logistics companies now have CO₂ calculators on their pricing websites. Their clients can calculate the exact carbon footprint of their shipment, along with options to reduce or offset the damage.
Technology – along with the ever-expanding Internet of Things and blockchain technology – will open the door to detailed transparency with advanced metrics for supplier locations, vulnerability factors such as child or slave labour, deforestation, and more.
And there are more ideas coming through. Companies can issue ‘tokens of value’ for each individual step that creates increased sustainability across the chain. Consumers can then purchase ‘right of use’ tokens, much like airlines offering CO₂ offsetting.
There is one catch, however. The complexity of these supply chains moderates the effectiveness of these tools. Joint processing in the supply chain, where multiple companies contribute to the result, blurs the extent to which different companies contribute to carbon reduction. For example, products that lose their identity along the way due to processing cannot be tracked and traced. A proper understanding of supply chains and credible commitment to suppliers will help to implement these relevant technologies effectively.
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