Chapter 13

Sustainable Supply
Chain Management

Copyright 2011 John Wiley & Sons, Inc. 13-1

 Lecture Outline

• What is Sustainability?

• Evaluating Sustainability

• Sustainability in Practice

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 What is Sustainability?
Future:
• Sustainability
– meeting present needs without compromising
the ability of future generations to meet their
own needs

Present:
• Balance Competing Needs
– utilizing a resource for one purpose, should
not jeopardize the resource use elsewhere

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 SCM Sustainability
Identify sustainability issues
• Inputs
– analyze resource consumption
• Outputs
– analyze pollutant emissions

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 Sustainability Payoffs
Four types of payoffs:

• Financial

• Customer-related

• Operational

• Organizational

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 Financial Payoffs

– reduced operating costs

– increased revenue

– lower administrative costs

– lower capital costs

– stock market premiums

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 Customer-related Payoffs

– increased customer satisfaction

– product innovation

– market share increase

– improved reputation

– new market opportunities

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 Operational Payoffs

– process innovation

– productivity gains

– reduced cycle times

– improved resource yields

– waste minimization

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 Organizational Payoffs

– employee satisfaction

– improved stakeholder relationships

– reduced regulatory intervention

– reduced risk

– increased organizational learning

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 Environmental Sustainability

Preservation of diverse biological systems

that remain productive over time

– pollution issues

– resource depletion issues

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 Social Sustainability

Maintaining societies’ long-term well-being

– economic issues

– population issues

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 Interconnectedness
Supply chain networks are the links between
human activity and the natural world

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 SCM Decisions and Effects

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 Principles of Sustainability
Nine Principles:
•Ethics
–promoting a culture that fosters truthful and fair
conduct between all stakeholders
•Governance
–conscientious execution of duties held by corporate
board members and managers
•Transparency
–care about the information needs of others

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Sustainability Principles Continued
•Business Relationships
–treat all supply chain members fairly
•Financial Return
–continue to create value, while balancing
nonmonetary factors
•Community & Economic Development
–improving the economic welfare of the
community creates additional opportunities

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Sustainability Principles Continued
•Value of Products and Services
–clarify responsibilities to customers
•Employment Practices
–diverse workforce, competitive wages, time off
•Protection of the Environment
–comply with environmental laws
–cut waste, lower pollutants, consume fewer
resources, recyclable materials

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 Anti-Environmental Posture
Stems from two paradigms:
•Crisis-Oriented Environmental Management
–managements purpose is to make more money
–uncooperative behavior with other agendas
•Cost-Oriented Environmental Management
–environmental regulations are a cost of doing business
–pollute as necessary, then factor in sanctions as a cost

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 Why Sustainability?

Four Reasons:
•Legal Compliance with Regulations
•Positive Community Relations
•Increase Revenue
•Satisfy Moral Obligations

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 Legal Compliance

Two sets of standards for polluters:

•Design Standard
–specifies the type of technology
necessary to be in compliance
•Performance Standard
–specifies the amount of permissible
pollution

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 Positive Community Relations

Failure to operate sustainably:

–can stigmatize a company
–lead to loss of trust
–provide a negative reputation with
stakeholders
–can cause consumers to cease purchasing

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 Increase Revenue

Financial value can be created:

–adoption of energy-efficient technology
–process improvements
–eliminating steps
–eliminating barriers to smooth
processes

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 Satisfy Moral Obligations
Three Frameworks:
•Minimalist Ethic
–precautions worthwhile to avoid liability
•Reasonable Care Ethic
–protect against foreseeable risks
•Good Works Ethic
–take affirmative steps to discover hazards
–proactively safeguard against hazards

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 Supply Chain Sustainability Model

The Supply Chain Sustainability Model (SCSM)

integrates social and environmental impacts into a
company’s supply chain management strategy

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 Supply Chain Sustainability Model

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 SCSM Model Elements
Elements of the SCSM:
•Inputs
–external context
–internal context
–business context
–human and financial resources
•Leadership
–factoring all inputs into management decisions

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 Model Elements Continued
Elements of the SCSM:
•Processes
–sustainable performance diffused within each
company function
–proactive, reactive, internal, and external actions
•Sustainability Performance
–reflects all positive and negative impacts on
stakeholders
–definition of stakeholders is critical

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 Model Elements Continued
Elements of the SCSM:
•Stakeholders Reaction
–supply chains should consider impacts of their
activities
•Financial Performance
–monetize the impact of activities to make a
business case for sustainability
•Feedback
–enables leaders to translate data into
improvements

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 Adopting Sustainability

Three drivers of sustainable initiatives:

•Enforcement
•Compliance
•Innovation

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 Enforcement

Government agencies can enforce

sustainable initiatives:
–official oversight
–sanctions for noncompliance
–Environmental Protection Agency

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 Compliance

Compliance is voluntary participation in

sustainable practices
•Industry-Initiated Certification Programs
–advertising benefits
–membership benefits

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 Innovation

Innovation to enhance operations can be

used to satisfy environmental and social
priorities
–voluntary
–internal to the company

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 Implementation

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 Measures of Sustainability
Several approaches to measuring whether a
product/service is sustainable:
•Total Cost of Ownership (TCO)
–economic viability
–estimates sum of all costs (including those not
reflected in price)
•Life-Cycle Assessment (LCA)
–environmental stewardship
–broadens scope of visible costs by considering
environmental consequences

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 Measures of Sustainability
Continued
•Ecological Footprint
–spatially represents impact of a product by quantifying
the land and water area required
•Carbon Footprint
–measures the amount of carbon released
•Food Mile
–measures distance between production source and
retail location

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 Values in Sustainable SCM

Nonmarket benefits need to be considered:

•Use Value
–benefit derived from utilization of a resource
•Option Value
–value of preserving a resource for future potential
use
•Existence Value
–benefit from knowing a resource exists

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 Cost Assessment

Monetizing environmental and social effects helps

firms “see” the cost of their actions
•Cost-of-Control
–cost of avoiding damages before they actually
occur
•Damage Costing
–cost of damages as if they had actually occurred

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 Costing Systems
Systems to account for environmental costs:
•Activity-Based Costing
–disaggregates costs to avoid lumping
environmental costs with overhead
•Life-Cycle Costing
–amortized annual cost of a product, discounted
over the life cycle of the product
•Full Cost Accounting
–incorporates external and future costs

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 Risk Assessment Tools
•“Fat Tails”
–events of low probability and high consequence seen on a
distribution curve
nuclear plants

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 Risk Assessment Tools Continued

•Scenario-Based Analysis
–identifies issues that may arise
•Fuzzy Logic
–deals with sets of information that
lack precise boundaries

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 Risk Assessment Tools Continued

•Monte Carlo Simulations

–compares outcomes of different
operations
•Real Option Analysis
–frames risk analysis decisions when
static models are insufficient

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 Types of Risks
•Social Risks
–unmet community expectations
•Political Risks
–governmental influences compromise the
company’s economic value
•Environmental Risks
–unpredictable risks from geological or
meteorological activity

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 Sustainability in Practice
SCM changes can have a major impact
Consider:
–Product Design
–Packaging
–Sourcing
–Process Design
–Marketing Sustainability
–Unintended Consequences

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 Product Design

•Product design changes affect:

–materials
–sourcing
–disposal
•Design considerations:
–awareness of harmful components
–modular designs

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 Packaging

Sustainable packaging criteria:

–GHG emissions from packaging production
(greenhouse gas)
–product-to-packaging ratio
–recycle packaging content
–emissions from transporting packaging

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 Sourcing
•Selecting suppliers
–utilize sustainable resources
–fair trade (cooperative farmer’s associations)
–mandate sustainable practices with contracts
•Monitoring Compliance
–plant inspections
–employee interviews
–third-party audits
–document reviews

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 Process Design

Examples of process redesign for sustainability:

–product disposal “take-back” procedures
–find secondary markets for used equipment
–promote social sustainability through donations

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 Marketing Sustainability

Common to advertise “green” features:

–recycled materials
–biodegradable packaging
–fair partnerships
–no harmful ingredients
–certifications by independent reviewers

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 Unintended Consequences

•Sustainability initiatives should assess all foreseeable

costs and benefits
•Good intentions can have unexpected and undesirable
consequences – adequate analysis is required

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 Review
1. The environmental and social initiatives that
define the sustainability trend can be
incorporated into decision making by
expanding the concepts of cost, value, and risk
to include longer time horizons and the
reactions of all stakeholders.
2. The Supply Chain Sustainability Model can
enable effective sustainability decisions by
linking inputs, processes, outputs, and
outcomes in a feedback loop.
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 Review Continued
3. Nine principles of sustainability performance: ethics,
governance, transparency, business relationships, financial
return, community involvement, values of products/services,
employment practices, & protection of the environment.
4. Quantifiable data relevant to costs, risks, and stakeholder
preferences are needed in order to accurately measure and
predict the impact of sustainability performance.
5. Sustainability implementation requires a concerted effort from
top leadership and cut across all aspects of a supply chain. In
other words, sustainability performance is a series endeavor
that requires considerable commitment of corporate assets
and attention.
Copyright 2011 John Wiley & Sons, Inc. 13-50
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• http://
www.ceres.org/roadmap-assessment/progress-r
eport/performance-by-expectation/supply-chain/
align-procurement-practices-1

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