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How Sustainable Supply Chain Management reduces critical risks.

May 30, 2017

 

Supply Chain Management is lately very much influenced by Sustainability trends that have arisen from a resource scarcity and greater awareness of environmental issues on the impact of businesses on society and lifestyles.

 

Moreover, there has been an outstanding greater interest amongst the community on the impact of businesses on society and lifestyles provided that

 

75% of customers say they will boycott the brand firm in case of an unsustainable incident.

 

A great example of this is the case of Nestle which has had extensive media coverage and has been punished by consumers for a supplier that was involved in deforestation in South America.

 

Sustainability management systems trigger the need to involve stakeholders in decision-making processes at all level of the company: definition of strategies, control and monitoring and organization setup. This integration enables a better understanding of the needs and requirements of the different parties involved and so enables a better management of the risks and opportunities.

 

This links directly to the possibility of innovation and research and development as well as enhancing and promoting transparency and accountability.

 

The ultimate goal is to achieve sustainability which can be translated as: the ability of the company to keep in business through time providing a positive impact for its clients, for its partners, for its suppliers, for the environmental and ultimately to the world.

 

Main Risks avoided by sustainable supply chains

 

Unsatisfied, Angry customers & Poor reputation

 

 

Research by Julia Hartmann and Sabine Benoit has shown that customers don’t seem to care whether the company itself or one of its suppliers caused an unsustainable incident. The phenomenon by which consumers hold firms responsible for the unsustainable behavior of their upstream partners suggests the notion of “chain liability.”  They applied the Attribution Theory to figure out the logic behind the Blaming the brand firm responsible and punish it for its supplier’s behavior.

 

Consumers make the brand responsible for its supplier’s impact and incidents, whether the supply chain is simple or complex, even though the incident is minor & even though the company has an extensive environmental system. the chain liability effect increases if an environmental degradation incident (1) results from supplier behavior rather than force majeure, (2) results from a company decision rather than the decision of an individual employee, and (3) is more severe.  Check out the full research to get all the insights!

 

Lost control over the supply network

 

Supply chains can be simple or can be complex. Focal firms can have:

  • Tier 1 suppliers (direct suppliers/providers),

  • have Tier 2 suppliers (the suppliers of their suppliers)

  • and may even have Tier 3 suppliers (the suppliers of the suppliers of their suppliers).

Depending on the complexity of its supply chain network it’s control & monitoring will differ, and the responsibility and accountability as well.

 

Sustainability enables all suppliers to adhere to a common understanding of what operations are accepted and what operations pose a threat to the community, society and the environment. Companies have to assume the responsibility and accountability they have with their suppliers and with the operations of their suppliers. Mechanisms such as supplier code of conduct, regular auditing of their facilities & operations and having a closer relationship can be simply introduced increasing control on supplier operation and ensuring they are in line with the companies vision and understanding of the sustainable operation.

 

Consumers do not differentiate between members of the supply chain when it comes to unsustainable behavior. Instead, they hold the focal firm responsible for everything that occurs in the supply chain, which creates a “chain liability effect.” Such unsustainable behaviors might entail economic, social, and/or environmental dimensions

 

Negative impact on environment and society

 

The integration of environmental, society, economic and community factors into business strategies trigger their inclusion in all levels of decision-making processes.

 In this sense, all employees need to be aware of the implications and all of the different departments need to ensure the implementation and innovation towards such reality. This applies to all stakeholders, including suppliers.

 

Business operations cannot pose a risk or a negative impact on the environment or on society: environmental management systems, assessments, and analysis need to be made in order to assure the business operations are respectful with the environment (energy, water, waste, emissions), as well as society (inclusion, diversity, human rights, labour practices). Unsustainable supplier behavior instead increases the risk of unsustainable incidents, either immediately (e.g., contamination of water supply) or after some time (e.g., climate change due to greenhouse gas emissions). 

 

A very strong force influencing innovation and research and development is regulation and legislation frameworks for the different markets. Embedding these together with addressing global challenges is the winner formula.

Therefore, Brand companies should figure out how to control, monitor and collaborate with their suppliers.

 

 

Benefits of Sustainability in Supply Chains and Networks

 

Sustainability goes hand in hand with supply chain management. Companies are enforced to establish sustainable supply chains where environmental, economic and social criteria are controlled and monitored throughout the whole production chain.

 

Supply chains must seek to reduce complexity, increase value, increase competitive advantage and assure service outputs.

 

The creation of valuable networks for businesses is crucial to have a well-established system that addresses correctly sustainability trends and opportunities. Very valuable networks setups include amongst others: Enterprise resource planning tools, Supply chain management, customer relationship management and online exchanges.

 

The main benefits are, therefore:

  • Better Risk Management & ability to address change

  • Improved reputation Management

  • Satisfied employees

  • Access to innovation, competitiveness’ and market positioning

  • Operational efficiency and cost savings

  • Efficient supply chain

  • Social Licence

  • Access to capital & investors

  • Contributing to a better world

 

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