SUSTAINABILITY AND THE SUPPLY CHAIN

Chapter 18

 THE ROLE OF SUSTAINABILITY IN A SUPPLY CHAIN:

Sustainability has become a key priority in the design and operation of supply chain. A
focus on sustainability allows a supply chain to better serve more environmentally
conscious customer while often improving supply chai performance, the focus on
sustainability has increased as the economy in large countries such Brazil, China, and India
have grown.
The factors driving an increased focus on sustainability can be divided into three
categories:
- Reducing risk and improving the financial performance of the supply chain.
- Attracting customers who value sustainability
- Making the world more sustainability
Sustainability has presented more of a challenge when it requires efforts that do not provide
obvious return on investment for a company.

 THE TRAGEDY OF THE COMMONS

Hardin (1968) described the tragedy of the commons as a dilemma arising when the
common good does not align perfectly with the good of individual entities. The tragedy of
the commons is often cited in connection with sustainable development, meshing economic
growth and environmental protection, as well as in the debate over global warming. It has
also been used in analyzing behavior in the fields of economics, evolutionary psychology,
anthropology, game theory, politics, taxation and sociology.

 WHAT ARE SOME SOLUTIONS TO THIS “TRAGEDY”?

The common here is the environment, the hope is to set mechanisms in place that can
sustainability address the problem.
- “cap-and-trade” which constrains the aggregate emissions by creating a limited
number of tradeable emissions allowances that emissions sources must secure and
surrender in proportion to their emissions (the mechanisms starts with the
government creating a limited number of total allowances that are distributed
among all players in the economy)
- The second mechanisms to control emissions is a emissions tax, each entity
generating greenhouse gases is charged a tax proportional to the size of the
 emissions (a charge for emissions will encourage companies to reduce their
emissions using all ideas whose marginal costs is less than the charged)

 KEY METRICS FOR SUSTAINABILITY

From an environmental perspective, all firms should measure and report on these four
categories:
- Energy consumption
- Water consumption
- Greenhouse gas emissions
- Waste generation
Two fundamental challenges exists in a supply chain in the measurement and reporting of
the four categories.
- The first challenge relates to the scope over which a category is measured.
- The second challenge in measurement and reporting relates to the use of absolute or
relative measures of performance

 SUSTAINABILITY AND SUPPLY CHAIN DRIVERS

Opportunities for improving supply chain sustainability can be identified by matching the
four categories (Energy consumption, Water consumption, Greenhouse gas emissions and
Waste generation)
- Facilities: tend to be significant consumers of energy and water and emitters of
waste and greenhouse gases and thus offer significant opportunities for profitable
improvement.
- Inventory: To track landfill inventory and separate harmful additives and unused
value.
- Transportation: Another driver wherein firms are likely to find several positive cash
flow opportunities.
- Sourcing: The majority of energy and water use and waste and emissions occurs in
the extended Supply Chain outside their own enterprise.
- Information: One of the biggest challenges to improved Supply Chain sustainability.
- Pricing: Consumption visibility and differential pricing by load or time of the day
have the potential to make a significant difference in the usage of energy by
consumers.

 CLOSED-LOOP SUPPLY CHAIN

Profitably take back product from customers and recover value by reusing the entire
product or some part of it.