Build Competitive Advantage through the Integra-

tion of Sustainable Supply Chains

Jianxin Xu, Hecheng Wang

Institute of Strategy and Management
School of Management, Hangzhou Dianzi University
Hangzhou 310012, P.R. China
leoxu007@gmail.com

Abstract-Sustainability and corporate citizenship is a social
ideal and a business necessity. Being sustainable is now a
source of competitive advantage and a matter of corporate
survival rather than a costly burden. Now many companies
look on sustainability as a top-line priority. However, satisfy-
ing profit and sound corporate sustainability behavior will
go unfulfilled unless orderly supply chains literally and sus-
tainably "deliver the goods".
Achieving genuine sustainability is the result of making
supply chains more sustainable. Since typically 50 percent of
a product's value, and often upward of 70 percent, is derived
from suppliers, claims of corporate sustainability are likely
just empty promises without the support from the whole
supply chain. Companies and consumers realize that cus-
tomers do not just buy products, they also buy the whole
supply chain that delivers the products.
We organize our key views in four parts. At first, after a
brief introduction, we discuss the reason of building sustain-
able supply chains, and the relation between a sustainable
firm and sustainable supply chains. Then, we described the
characteristics of sustainable supply chain management,
including devising a sustainable strategy, retooling the or-
ganization, managing supplier relations and monitoring and
enforcing performance. Thirdly, we provide some advice on
how to build the sustainable supply chains, and on the base
of which to help a firm to build up its sustainable competi-
tive advantage, in the end of the paper, we take Timberland
as a case for further discussion.
tors, and in some cases, it's even very significantly, such
as the recall of Fisher-Price toys by MatteI Inc in August
2007, the contractor of MatteI Inc named Fisher-Price
toys has shut down entirely, the factory's owner killed
himself after the recall, and the company laid off hun-
dreds of workers. A company's impact is increasingly
linked to the operations of its suppliers and contractors as
well as the materials, products and services it sources (see
Figure 1). At the same time, the globalization amplifies
consumer pressure and scrutiny. As supply chains become
more global and diffuse, they also become more difficult
for executives and consumers to monitor, and suppliers
and producers may also hold different ethical standards.
The costs of collecting and monitoring such information
are extensive, but the advantages may be significant too.
Recent recalls focused on China such as toothpaste, toys
and even cups from Starbucks showed that a critical mass
of customers is demanding changes in products, processes
and corporate practices. As there customers put their
money where their values are, firms have to respond.
Fig. 1. Footprint of Products along the Supply Chain

Keywords-Supply Chain, Sustainable Competitive

Company
Advantage, Integration footprint

I. INTRODUCTION
Companies today face relentless pressure to grow their
markets and remain competitive. At the same time, how
they conduct their business is scrutinized like never be-
fore from a large and growing stakeholder base, many
companies now recognize their wider responsibilities and
accept that they are accountable to a wide range of stake- Downstrun'
holders - including shareholders, regulators, customers,
suppliers, employees, community groups and the news
media. Companies are being asked to be accountable not II. SUSTAINABILITY RELATED PRACTICES
only for their own performance but for the performance of OF COMPANIES
their entire supply chain.
The triple bottom line (or "TBL", "3BL", or "People,
Leading companies have recognized that their own so-
Planet, Profit", see Figure 2) emerged as a popular
cial, environmental and economic impacts are associated
conceptualization and reporting vehicle for articulating
not only with the products and services they supply but
corporate social, environmental, and economic
also with the performance of their suppliers and contrac-

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 performance and is receiving significant attention in
connection with its efficiency sufficiency as a means for
reporting the extent to which an organization meets its
societal responsibilities.
Social Equity Environmental Stewardship
Equity Environment
People Planet
Fig. 2. Triple Bottom Line
John Elkington (1994) first coined and later expanded
the phrase of triple bottom line, the concept of TBL de-
mands that a company's responsibility be to 'stakeholders'
rather than shareholders. In this case, 'stakeholders' refers
to anyone who is influenced, either directly or indirectly,
by the actions of the firm. According to the stakeholder
theory, the business entity should be used as a vehicle for
coordinating stakeholder interests, instead of maximizing
shareholder (owner) profit.
Guided by TBL framework, companies promote sus-
tainable practices according to three core values.
• Economic development: promoting profits, creating
jobs, attracting customers, reducing costs, anticipat-
ing and managing long-term risks, and fostering
long-term competitiveness.
• Environmental citizenship: conserving energy and
resources, consuming more renewable and less-
polluting energy, increasing recycling, minimizing
ackaging and reducing the firms' "carbon foot-
print".Social well-being: improving labor standards
and conditions, enhancing communities and creating
and delivering socially responsible products and ser-
vices.
A survey carried out by AT Kearney and ISM (Insti-
tute of Supply Management) in 2007 (Figure 3) showed
that 60 percent of firms in the survey adopt sustainable
practices to strengthen brand names or differentiate their
products, and more than half of the 250 largest u.S. cor-
porations issued reports in 2005 on sustainability or cor-
porate social responsibility, which means that the majority
of firms are now on the first stage by saying and proc-
laiming the right things, however, the second stage for the
firms is moving to do the right things and make supply
chains more sustainable, since typically 50 or more per-
cent of a product's value is derived from suppliers, claims
of corporate sustainability are likely just empty promises
without this effort. Companies and consumers realize that
customers do not just buy products, they also by the
supply chains that deliver the products, in this sense, cor-
porate social responsibility means addressing the legal,
ethical, commercial and other expectations society has for
business all along their supply chains, and making deci-
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sions settle down all key stakeholders.
III. WHAT ARE SUSTAINABLE SUPPLY
CHAINS?
In today' s business world, supply chain is redefining
and expanding its role by both internal and external costs,
supply managers can foster sustainability by ensuring that
suppliers incorporate sustainable innovations in opera-
tions and processes. They can also investigate new
processes and technologies that reduce dependency on
scarce and potentially expensive resources. Managing the
supply chain then becomes the catalyst for triggering cor-
porate behavior that is truly green and socially responsible,
and these efforts need to be anchored in right strategy,
organization and management practices. According to
Mahler (2007), we identified that the following characte-
ristics differentiate the best from other performers.
A. Planning a sustainable strategy
Top firms have a formal sustainability strategy for
managing supply chains. Such a strategy defines the val-
ues a company wants to emphasize, declares how it will
enforce those values, and identifies consequences when
the guidelines are not met by suppliers or employees.
Deep principles inform the firm's purpose and values,
which shape corporate behaviors and guidelines for en-
gaging suppliers. By making these values, principles and
guidelines explicit, a company improves its accountability
and performance.
B. Auditing the organization
As firms increase the role of sustainability in their
supply management practices, they are drafting specific
guidelines and procedures, creating training programs and
introducing sourcing tools that equip buyers to support
sustainability goals. ISM's survey showed that 50 percent
of firms provide written sustainability guidelines to
supply management staft: about 41 percent provide train-
ing on sustainability management.
C. Managing supplier relations
Top firms reward suppliers with good sustainability
practices or jointly improve processes with suppliers that
do not.
D. Monitoring and enforcing performance
Many firms use traditional standards to measure
supply chain performance, such as suppliers' labor prac-
tices, use of recycled materials and effects of material
waste. These are the standards most visible to consumers,
and in addition, some companies are now taking more
advanced sustainability metrics, for example, a growing
number of firms track the carbon footprint, measure the
toxicity of input materials, and use sustainable sources.
In the future, more and more companies will inevita-
bly adopt sustainability measures relevant to currently
prominent social and environmental issues. Sustainable
supply management will become the measure of any
company's claims of social and environmental responsi-
 bility.
Total-100%
Fig. 3. Multiple Goals of Sustainability Strategies
Source: "True" and Profitable Sustainability Management: How Supply
Management Is Key to Fulfilling a Promise, A. T.Kearney and ISM
( Institute of Supply Management)
IV. HOW TO BE SUSTAINABLE?
Creating sustainable supply chains are as much mat-
ters of corporate survival as of environmental care and
social responsibility. The following offers some guide-
lines on how to begin:
First, companies have to get to know the strategic con-
text. To derive the strategic focus of a supply manage-
ment unit, companies must first identify and understand
their economic, environmental and social priorities.
Supply chain priorities may follow from specific corpo-
rate goals such as resource efficiency, energy consump-
tion, reducing of carbon footprints, best-in-class social
behavior by the suppliers, ensuring access to likely scarce
input materials. Setting a foundation for supply managers
to implement best practices requires developing a docu-
mented and aligned sustainability strategy.
Of course, risks and opportunities evaluation is also
among the key steps, such as the opportunities exist to
limit the exposure of supply chains to social and environ-
mental risks and to future supply-demand imbalances, and
how the opportunities affect suppliers' operations, pur-
chases, internal operations, commodity production, com-
modities, packaging, distribution or logistics, the sourcing
categories should prepare for major supply-demand im-
balances down the road, risks and implications of the eco-
footprint left by global suppliers and low-cost sources,
exploitable opportunities for the supply chain to help the
firm meet existing market demand in new ways or to
create and meet new demand, identification of business
partners reliably offer access to innovations that foster
sustainability.
Companies must make sure that current management
strategies are adequate, such as appropriate processes in
place for evaluating how suppliers and internal operations
meet evolving customer needs or incorporating innovative
solutions to current or future issues, the right organiza-
tional structure in place, the right staff the firm need to
hire or embed skills in the existing organization, the
changing of targets, incentives and internal measurement,
and the action from other companies.
Sustainable companies set formal priorities for im-
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plementing plans based on "ease of implementation" (in-
ternal costs, time and resources) and expected value (ex-
pected revenue, savings, increased efficiency and reduced
liabilities). They set visible, measurable targets.
At last, sustainable firms ensure that appropriate in-
centives, supporting processes and resources are in place
to implement the plan. They monitor progress against
specific goals and measures, and determine necessary
adjustments.
V. CASE FROM TIMBERLAND
From 2005, Timberland, the known shoes and boot
maker, began to integrate their supply chain partners (in-
cluding the suppliers and subcontractors) into the CSR
(Corporate Social Responsibility) assessment process, in
2006, the stakeholders asked Timberland to further clarify
who they include in the assessment process. In summary,
all suppliers (including "non-core" product suppliers and
indirect subcontractors) are required to adhere to the
firm's Code of Conduct. Timberland reserves the right to
assess any supplier, but will initially limit its assessment
schedule to manufacturers of "core products" (Le., foot-
wear, apparel, gear and key/long-term licensed goods
such as belts, watches, product care and eyewear). As-
sessments of raw material and component suppliers are
limited to tanneries and footwear component suppliers
that have global sourcing contracts.
Subcontractors to these primary vendors must be ap-
proved by Timberland, but mayor may not be included in
the assessment schedule. For example, if a subcontractor
completes most of a Timberland order (the majority of the
steps and/or more capacity than the prime supplier), Tim-
berland believes this subcontractor should be assessed.
Sewing, knitting and certain assembly operations are con-
sidered to be integral to product manufacturing and so are
included in the assessment schedule. Among those who
are not automatically included in our assessment schedule
are subcontractors who do cutting only, wash houses and
mills. Efforts to work with other brands to monitor further
upstream in the supply chain are being considered.
Primary vendors of Timberland are required by con-
tract to ensure that the Code of Conduct is applied by
suppliers and subcontractors Timberland does not assess.
Assessors of Timberland do review the process through
which these primary vendors communicate and monitor
their suppliers' and subcontractors' adherence to Timber-
land Code.
VI. CONCLUDING DISCUSSION
Top firms view sustainability not only as a chance to
contribute to social values, but as a powerful and sustain-
able source of competitive advantage. Improving sustai-
nability allows them to cut costs, and do more work in
innovations to satisfying customers, and further defeat
rivals, to do so, companies need to incorporate socially
responsible values into their supply chains, and only then
sustainability will take root firmly.
ACKNOWLEDGMENT
Fund Sponsor: The paper is the research result of Phi-
 losophy and Social Science Research Program of Zhe-
jiang Province No. 08CGYD008ZQ.

REFERENCES
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business strategies for sustainable development.", California Man-
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How Retailers and Consumer Goods Companies Can Cut Costs
and Increase Revenue While Improving the Environment?", L.E.K
Consulting Executive Insight. Volume VIII, 2007.
[3 ]Malher, D., Erhard. A. and Callieri,C., "True" and Profitable Sustai-
nability Management: How Supply Management Is Key to Fulfil-
ling A Promise, A.T.Kearney, 2007.
[4] The Timberland Company, 2006 Corporate Social Responsibility
Report, The Timberland Company, 2006.

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