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Session 5:

Integrating Sustainability into the Supply Chain

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Approach to Sustainable Supply Chain Management (SSCM): Overarching Framework

Framing the Issues Preparing for Implementation Assessing Impact

Session 1: From Sustainable Development

to Sustainable Supply Chains

Session 2: Governance of Supply Chains: From

Compliance to Voluntary Standards

Session 4: Sustainable Supply Chains as a Lever of Competitive Advantage

Session 5: Integrating Sustainability into the

Supply Chain

Session 6: Managing Stakeholder RelationsSession 6: Managing Stakeholder Relations

Session 7: Building Supply Chain Partnerships

Session 8: Measuring and Communicating on

Sustainable Supply Chain Performance

Session 3: Governance of Supply Chains: Introducing

International Labour Standards

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Session Objectives

Analyse the relationship between SSCM and competitive strategy;

Discuss steps for integrating sustainability into the SC; and

Highlight key benefits and challenges.

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Session Outline

Unit 5.1: Introduction.

Unit 5.2: Analysing SSCM and Competitive Advantage.

Unit 5.3: Integrating Sustainability into the SC.

Unit 5.4: Benefits and Challenges for Integrating Sustainability into the SC.

Unit 5.5: Conclusion

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Unit 5.1: Introduction

Question

What are the key social and environmental challenges that corporations are called upon to

integrate when seeking to achieve their economic supply chain goals?

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Sustainability concerns in Global SCs

Economic goals in SCs: Cost, quality, speed of delivery, flexibility, resource utilization, visibility and innovativeness (Chan, 2003; and Gunasekaran et al, 2001).

Social issues: respect of human and workers’ rights – child labour, bonded labour, health and safety, working conditions (Maignan et al, 2002); gender equality, poverty alleviation, etc.

Environmental problems: pollution, climate change; decline in ecosystems & biodiversity; deforestation; soil degradation; resource depletion and fresh water crisis (McAllister et al, 2005).

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Question

How many people think it is difficult to simultaneously integrate economic, social and

environmental sustainability issues into the supply chain?

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Video: What do Business Leaders Think About Supply Chain Sustainability?

“Future Supply Chain 2016”

CEOs of consumer and retail products highlight Sustainable Supply Chain concerns:

challenges, breakthroughs, innovations, collaboration and momentum.

http://www.youtube.com/watch?v=US5lO1HfmEo

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Unit 5.2: Analysing SSCM & Competitive Advantage

To achieve competitive advantage, resources and/ or capabilities generated through SSCM must be:

Valuable: respond to threats and opportunities.

Rare: Controlled by a few competing firms.

Imitate: Costly for rivals to reproduce.

Organisation’s policies and procedures should support exploitation of the above three. (Barney, 2007)

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The VRIO Framework (Barney, 2007, pp. 150)Is a resource or capability resulting from SSCM…

Valuable? Rare?Costly toImitate?

Exploited byOrganization?

CompetitiveImplications

No

Yes

Yes

Yes

Yes

Yes Yes Yes

No

No

No Competitive Disadvantage

Competitive Parity

Temporary CompetitiveAdvantage

Sustained CompetitiveAdvantage

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Group Discussion and Presentation

Identify the resources and capabilities that resulted from McDonald’s adoption of a SSCM strategy. Using Barney’s (2007)

VRIO framework explain the competitive implications of each resource and capability

identified.

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Unit 5.3: Integrating Sustainability into the SC

All levels in the SC

Raw material sourcing.

Manufacturing.

Packaging.

Warehousing.

Logistics (Transportation & distribution).

Retail.

Consumption.

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Integrate Sustainability into SC processes

Product design.

Manufacturing by-products.

By-products produced during product use.

Product life extension.

Product end-of-life.

Recovery processes at end-of-life. (Linton et al, 2007)

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Businesses employ various strategies to integrate sustainability into the SC.

Reactive Defensive Accommodative Proactive

(Maignan et al, 2002)

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Proactive Strategies

Define sustainability goals.

Educate suppliers.

Sanction suppliers.

Designate organisational member in charge.

Monitor Suppliers.

Communicate achievements to stakeholders.

Receive stakeholder feedback

(Maignan et al, 2002)

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Framework for Integrating Sustainability into the SC (Pagell and Wu, 2009)

1. Innovation capability.

2. Positive management orientation.

3. Reconceptualise SC members.

4. Collaborate with non-traditional SC members.

5. Supplier continuity is an important outcome.

6. SC performs well on traditional metrics.

7. Institute measurement and reward system.

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Model for Integrating Sustainability into the SC (Pagell and Wu, 2009)

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McDonald’s case study and Group Discussion/ Class Presentation.

Using Pagell and Wu’s (2009) framework for integrating sustainability into the SC,

what issues should McDonald’s consider if it were to redesign and enhance its SSCM?

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What does these mean for SCs?

Way forward is proactive SSCM strategy.

Firms and suppliers should adopt and implement voluntary codes of conduct (Doh, 2005)

Establish long-term relationships, certification and building capabilities of SMEs.

Voluntary initiatives filling regulatory vacuum in developing countries (Frenkel, 2001)

Enhance buyers’ ability to influence sustainable supply chain practices (Bowen et al, 2001)

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Brainstorming and Class Discussion

SC sustainability projects are generally cut to suit business and supplier priorities and

circumstances.

Given McDonald’s core business, suggest MDG priorities to the Board of Directors and justify

your preferences.

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Unit 5.4: Benefits and Challenges for Integrating Sustainability into the SC

Benefits

Stimulates innovation and builds new capabilities – e.g. Patagonia’s quest for recycled inputs led to new product development.

Market positioning and firm-customer bonding – e.g. the Dutch coffee brand Max Havelaar; and Ford and General Motors encouraging minority suppliers.

(Maignan et al, 2002; Markley and Davis, 2007)

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Benefits

Increase sales, revenues and profits – E.g. Coca-Cola

Positive publicity and good corporate reputation – e.g. McDonald’s, Wal-Mart.

Greater organisational and employee commitment when properly communicated – e.g. Patagonia, McDonald’s.

(Maignan et al, 2002; Markley and Davis, 2007)

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Challenges

Insufficient dedication to sustainable development (MDGs Report, 2010).

Lack of top management commitment and resources (Maignan et al, 2002; Min and Galle, 2001).

Inadequate expertise. Strong emphasis on efficiency and governance of

supply relationships rather than environmental and social sustainability (Maignan et al, 2002).

Reactive and fire fighting culture (Preuss, 2001)

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Effectively implement rather than end at senior management goals (Preuss, 2001)

High costs; complexity of and insufficient communication in supply chains (Seuring and Muller, 2008).

Green washing and poor supplier commitment (Greer and Bruno, 1996; and Wycherley, 1999)

Small firms have limited resources and low response rate to supply chain pressures (Kempe and Soete, 1992; Walley and Whitehead, 2004; Hill, 1997).

Challenges

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Unit 5.5: Conclusion

What do you think?

Given the guidance and tools provided in this session, do you think it can be less difficult to integrate economic, social and environmental

challenges into the supply chain?

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Conclusion

A SSC is a veritable source of business growth and sustainable development.

Think beyond short-term financial benefits and build long-term value across the entire SC.

Corporations that have the relevant knowledge and skills are capable of realising sustained competitive advantages.

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Additional References

• Bowen, F. E., Cousins, P. D., Lamming, R. C. and Faruk, A. C. (2001), “The Role of Supply Management Capabilities in Green Supply”, Production and Operations Management, Vol. 10, Iss. 2, pp. 174-189.

• Chan, F.T.S. (2003), “Performance Management in a Supply Chain”, International Journal of Advanced Manufacturing Technology, Vol. 21, pp. 534-48.

• Doh, J. P. (2005), “Offshore Outsourcing: Implications for International Business and Strategic Management Theory and Practice”, Journal of Management Studies, Vol. 42, Iss. 3, pp. 695-704.

• Frenkel, S. J. (2001), “Globalisation, Athletic Footwear Chains and Employment Relations in China”, Organization Studies, Vol. 22, Iss. 4, pp. 531-562.

• Gunasekaran, A., Patel, C. and Tirtiroglu, E. (2001), “Performance Measures and Metrics in a Supply Chain Environment”, International Journal of Operations and Production Management, Vol. 21, Nos 1-2, pp. 71-87.

• Greer, J, and Bruno, K. (1996), “Greenwash: The Reality Behind Corporate Environmentalism”, Penang, Third World Network.

• Hill, K. (1997), “Supply Chain Dynamics, Environmental Issues and Manufacturing Firms”, Environment and Planning, Vol. 29, Iss. 7, pp. 1257-1274.

• Kempe, R. and Soete, L. (1992), “The Greening of Technological Progress: An Evolutionary Perspective”, Futures, Vol. 26, pp. 1047-1059.

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• Linton, J. D., Klassen, R. and Jayaraman, V. (2007), “Sustainable Supply Chains: An Introduction”, Journal of Operations Management, Vol. 25, Iss. 6, pp. 1075-1082.

• McAllister, D. T., Ferrell, O. C. and Ferrell, L. (2005), “Environmental Issues” in McAllister, D. T., Ferrell, O. C. and Ferrell, L. (2005): “Business and Society: A Strategic Approach to Social responsibility”, Boston/ New York, pp. 257-288.

• Min, H. and Galle, W. P. (2001), “Green Purchasing Practices of US Firms”, International Journal of Operations and Production Management, Vol. 21, Iss, 9, pp. 1222-1238.

• Preuss, L. (2001), “In Dirty Chains? Purchasing and Greener Manufacturing”, Journal of Business Ethics, Vol. 34, Iss. 3-4, pp. 345-359.

• United Nations Organisation (2000), “United Nations Millennium Declaration”, New York, 6-8 Sept. Available at: http://www.un.org/millennium/declaration/ares552e.pdf

• United Nations Department of Economic and Social Affairs (2010), “The Millennium Development Goals Report” New York, June. Available at: http://www.un.org/millenniumgoals/pdf/MDG%20Report%202010%20En%20r15%20-low%20res%2020100615%20-.pdf

• Walley, N. and Whitehead, B. (1994), “It’s Not Easy Being Green”, Harvard Business Review, May-June, pp. 46-53.

• Wycherley, I. (1999), “Greening the Supply Chain: The Case of the Body Shop International”, Business Strategy and the Environment, Vol. 6, No. 2, pp. 169-184.

Additional References