«Extension and Outreach Sustainable Supply Chains: A Guide for Small- to Medium-sized Manufacturers Jennifer Blackhurst College of Business, Iowa ...»
Extension and Outreach
A Guide for Small- to
College of Business, Iowa State University
College of Business, Iowa State University
CIRAS, Iowa State University
The Center for Industrial Research and Service (CIRAS) provides applied research, education, and technical assistance to Iowa
industry through partnerships with Iowa’s universities, community colleges, and government agencies. Assistance is supported in part by the DoC/NIST Hollings Manufacturing Extension Partnership, the DoD/DLA Procurement Technical Assistance Program, the DoC/EDA University Center Program, and the USDA BioPreferred Program.
This report was prepared under awards from the U.S. Department of Commerce, Economic Development Administration and the National Institute for Standards and Technology, Hollings Manufacturing Extension Partnership.
This publication was prepared by the Center for Industrial Research and Service. The statements, findings, conclusions, and recommendations are those of the author(s) and do not necessarily reflect the views of the Department of Commerce.
© 2012, Iowa State University Extension. All Rights Reserved.
Sustainable Supply Chains: A Guide for Small- to Medium-sized Manufacturers ii Table of Contents Current State of Supply Chain Sustainability: A Benchmarking Report
Supply Chain Sustainability: An Introduction
Defining Sustainability: Triple Bottom Line Approach
The Triple Bottom Line and Stakeholders
Examples of Supply Chain Sustainability in Business
Lessons from Industry Reports
Sustainability within SMEs
Synthesizing the Findings
Supply Chain Sustainability: Roadmap for Implementation
Appendix A: Examples of Sustainability Initiatives
Appendix B: Supply Chain Sustainability Assessment for SMEs
Appendix C: Sustainability Standards
Summary The goal of this report is to provide small- to medium-sized enterprises (SMEs) with the tools and knowledge to begin making changes to their business that benefit the triple bottom line—financial, social, and environmental success. This is accomplished through a review of academic research, industry best practices, and lessons learned by the authors in working with businesses.
Supply chain sustainability is a topic of increasing importance for businesses and can be of particular interest to SMEs. A recent survey suggests 30% of manufacturers are gaining new profits directly from sustainability initiatives, showing a clear opportunity for bottom-line results by implementing sustainability.
In this report, the concept of supply chain sustainability and its importance in today’s environment is introduced. The idea of the triple bottom line as the foundation of sustainability is used.
This report highlights the importance of supply chain sustainability from a business perspective and discusses findings from recent surveys on the benefits and challenges of supply chain sustainability. It then focuses on SMEs in particular and how they may use the concept of supply chain sustainability to their competitive advantage. Finally, a roadmap for developing excellence and expertise in supply chain sustainability is presented and a tool for benchmarking and current state analysis is offered.
Sustainable Supply Chains: A Guide for Small- to Medium-sized Manufacturers 1 Supply Chain Sustainability: An Introduction The issue of sustainability in supply chain management is gaining attention in both academic literature and industry practice as an area of opportunity. Companies across geographic and industry boundaries are implementing sustainability initiatives in the supply chain in response to pressures from consumers, regions of operation, investors, and even employees. Melnyk, Davis, Spekman, and Sandor (2010) state that supply chains must be designed and managed to deliver certain outcomes—sustainability being one of these outcomes—that are driven by customer needs. Sustainability may be driven from within the company or may, in part, be the result of customer needs and pressures as well as other supply chain partners such as suppliers and local and federal governments.
• Define the scope, importance, and impact of sustainable supply chains;
• Discuss the importance and opportunities for SMEs to implement sustainable supply chain practices; and • Develop a high-level roadmap for supply chain sustainability.
Sustainable Supply Chains: A Guide for Small- to Medium-sized Manufacturers Defining Sustainability: Triple Bottom Line Approach A sustainable supply chain is one that includes measures of profit and loss as well as social and environmental dimensions (Carter and Rogers 2008; Linton, Klassen, and Jayaraman 2007).
Such a conceptualization has been referred to as the triple bottom line—financial, social, and environmental performance (Elkington 1994, 1998; Kleindorfer, Singhal, and Wassenhove 2005).
The use of triple bottom line is adopted in this report as the definition of sustainability.
The Triple Bottom Line and Stakeholders Recent research has shown that implementing triple bottom line initiatives is largely in response to growing pressure on businesses to pay more attention to the environmental and resource consequences of their operations. This pressure comes from a variety of groups including stakeholders, government regulations, nongovernment organizations, and competitors (Dai and Blackhurst 2011; Sarkis 1998). This presents an added complexity in implementing sustainability within the supply chain. Historically, business initiatives (such as total quality management, lean manufacturing, and others) require relatively minimal stakeholder input, as these initiatives are profit motivated. However, the inclusion of the triple bottom line, by definition, brings in additional stakeholders who focus on the financial, social, and environmental impacts of the business.
This effort pays back in terms of profit. Consumers are willing to pay “substantially more” for goods produced based on triple bottom line, and consumers will also punish producers for Sustainable Supply Chains: A Guide for Small- to Medium-sized Manufacturers 3 unethically produced goods (Trudel and Cotte 2009). However, the story does not end there. The negative impact of unethically produced goods is greater than the positive impact of ethically produced goods. Consumers will, in fact, pay more for ethically produced goods, but if the goods are unethically produced, consumers will only purchase them at a substantial discount.
This highlights not only the benefits of sustainability but the need to market or advertise these activities to various stakeholders in the supply chain, including (of course) the end customer.
This is supported in academic research as well. For example, Krause, Vachon, and Klassen (2009) state that businesses that emphasize sustainability as a competitive priority will benefit by communicating sustainability efforts to customers.
Many experts are predicting that sustainable supply chain operations will, in fact, become an integral part of supply chain strategy and operations. The tools and concepts discussed in this paper will become part of daily business and tie directly into performance. In a recent Deloitte Consulting report, the tie between sustainable supply chain management and cost savings was specifically addressed. In the report, it was stated that while many organizations have traditionally focused on their internal operations for cost reduction initiatives, businesses should not ignore the massive savings opportunities in the supply chain. Leading businesses recognize that this goes beyond demanding cost cutting from their suppliers but “re-looking at their supply chain and focusing on reducing use and production of five metrics that are ubiquitous within it—energy, carbon, water, materials and waste.” Applying the triple bottom line concept across the supply chain can lead to significant financial benefits. The United Nations Global Compact (2010) discusses how sustainability in the supply chain is driven by business needs—specifically, (1) managing risks (risks that are environmental, social, and financial in nature), (2) realizing efficiencies (such as reduction in cost for materials, labor, energy, and transportation), and (3) creating sustainable production (which can meet the needs of all stakeholders including government, customers, and suppliers). Therefore, there is a need to integrate sustainability into supply chain strategy and decision-making processes.
Recently, a framework for obtaining input from stakeholders in developing a sustainable sourcing strategy (Figure 2) was developed (Dai and Blackhurst, Forthcoming). This iterative loop could be adopted to include all facets of supply chain management. Using a framework such as this would not only allow for input but also the sharing of sustainable practices and activities across the supply chain, which could then be used to demonstrate commitment to sustainable practices across the entire supply chain.
This above framework is specific to supplier selection processes, but this concept of supply chain sustainability should also be considered beyond simple supplier selection. There are implications for product development, innovation, and even the design of a supply chain that can follow a similar process.
Sustainable Supply Chains: A Guide for Small- to Medium-sized Manufacturers 5 Examples of Supply Chain Sustainability in Business In addition to reviewing existing research in supply chain sustainability, best practices in business were analyzed. Appendix A provides summaries of several industry-based initiatives to implement sustainability across the supply chain. These activities support the research findings, show some common practices, and provide clear examples of the various expected and unexpected benefits of applying sustainability across the supply chain.
For example, in July 2009, retail giant Walmart announced the creation of a sustainability index, which will be rolled out in three phases including a sustainability index for suppliers, a life cycle analysis database, and a labeling system to provide the consumer with the environmental measurement of the product they are purchasing (Bustillo 2009; Walmart n.d.). The various sustainability initiatives at Walmart have been positive public relations, and activities such as energy reduction have resulted in significant cost savings. Reviewing the best practices of major corporations shows that there are many common elements.
Common themes identified across these examples include the following:
• Legal and Regulatory Compliance: Ensuring business units and suppliers comply with laws and regulations in their areas of operation • Managing Natural Resource Use: Reducing the use of natural resources and their wastes, including fossil fuels, water, and material waste, as appropriate to the volume used in their business • Stakeholder Engagement: Participation in or leadership of formal organizations focused on engaging stakeholders to improve the business • Supplier Scorecards: Clear systems to measure supplier performance beyond traditional performance indicators to also include environmental and social performance measures Lessons from Industry Reports In preparing this report, consulting studies in the area of supply chain sustainability were researched. Two of them are highlighted here, then overarching themes are discussed.
In a recent report by the Boston Consulting Group and MIT (Berns 2009), a survey of more than 1,500 business leaders plus more than 400 academics, government officials, and executives of nonprofit organizations was conducted to learn more about how sustainability changes competition for businesses.
Key findings include the following: There is a strong consensus that sustainability is having—and will continue to have—a material impact on how companies think and act. In fact, more than 92 percent of survey respondents said that their company was addressing sustainability in some way.
In addition, sustainability seems to be surviving the downturn. The findings highlight that fewer Sustainable Supply Chains: A Guide for Small- to Medium-sized Manufacturers than 25 percent of survey respondents said that their company had decreased its commitment to sustainability during the downturn. In fact, the opposite was true in some segments such as the automotive industry.
Although almost all surveyed executives thought that sustainability would have an impact on their business and were trying to address this topic, many stated that they simply were not exploiting opportunities fully—leading to an area of opportunity. In fact, the minimum standards for meeting regulatory requirements were what many of the businesses were focusing on—being reactive to regulation changes rather than being more proactive or ahead of the curve. This may be due, in part, to a lack of vision: more than 70 percent of executives admitted they had not developed a clear business case for sustainability. Interestingly, a large number of smaller businesses are aggressively pursuing sustainability and reaping the rewards for their efforts, finding more than they had anticipated, including “tangible bottom-line impacts and new sources of competitive advantage.” The survey also highlighted experience in implementing sustainability and found additional interesting insights. While novice practitioners mainly focused on environmental and regulatory aspects, businesses also consider the financial, social, and even personal impacts of sustainabilityrelated activities. “Simply put, they saw sustainability as an integral part of value creation,” going beyond environmental and regulatory factors to become a part of how the business is managed.