The Challenge of Sustainable Supply Chains
Modern production is global, and globalization persists through pandemics, war, xenophobia, and trade wars. It persists because global supply chains enhance product quality while reducing costs. Globalization continues since the technology of communication, information, and even transportation keeps advancing while becoming relatively cheaper. The sustainability issue for those who make or sell goods and services is how does an organization be sure that what they’re making or selling will not be built with components that destroy the environment or use child or slave labor during production? Out of sight can’t be out of mind, and that’s the heart of the challenge of sustainable supply chains.
Certainly one of the problems still under debate within the proposed U.S. Securities and Exchange Commission carbon disclosure rule is how should the SEC address “scope 3” emissions — those outside the control of the organization but inside their supply chain. Scope 1 emissions are those created directly during production, and scope 2 are those caused not directly through the usage of whatever is produced. Those are relatively easy to discover and measure. Nevertheless, governments looking for to manage the reporting of greenhouse gasses recognize that offer chains must even be regulated.
As Dieter Holger recently observed in The Wall Street Journal:
“A bunch of supply-chain regulations went into effect lately and more are on the way in which, exposing corporations to potential penalties and public criticism if found to be negligent, lawyers said. The foundations come as businesses, especially small and midsize corporations, have a limited view of their supply chains and are struggling to broaden their oversight, sustainability analysts say. Certainly one of the most important pieces of laws on the horizon is the European Union’s Corporate Sustainability Due Diligence Directive. The proposal published last February would require larger corporations operating within the EU to discover, prevent and treatment risks to human rights and the environment of their supply chains, comparable to minimum age requirements, employee safety, pollution and biodiversity loss.”
Supply chain relationships aren’t random encounters but are contractual and formal inter-organizational interactions. The standard of a services or products is agreed to, and payment is exchanged. Corporations purchasing supplies might want to add elements of environmental and social sustainability to the definition of quality and develop methods for ensuring quality control. There’ll all the time be unscrupulous suppliers that cut corners and cheat on contracts or purchase orders, but there are long-standing methods for detecting such practices, and they’re going to simply must be prolonged to cover these recent elements of quality. We’ve seen this in other areas of regulation, comparable to auto safety. Recalls of defective airbags are perhaps the best-known example of ensuring that quality control principles are applied to make sure regulatory compliance.
The image of a supply chain is overly simplistic because organizations often depend on multiple suppliers for a similar supply, and their suppliers are serviced by suppliers as well. It might be more sensible to talk of supply webs somewhat than chains and replace the linear image of a sequence with the more complex, multidimensional image of a network. In a 2020 piece within the Harvard Business Review, Verónica H. Villena and Dennis A. Gioia reported on their study of the sustainability practices of multi-national corporations (MNCs) and their suppliers and located that:
“In recent times a rising variety of multinational corporations have pledged to work only with suppliers that adhere to social and environmental standards. Typically, these MNCs expect their first-tier suppliers to comply with those standards, and so they ask that those suppliers in turn ask for compliance from their suppliers—who ideally ask the identical from their suppliers. It’s an admirable idea, nevertheless it’s been hard to appreciate in practice. Most of the MNCs which have committed to it have faced scandals caused by suppliers that, despite being aware of sustainability standards, have nevertheless gone on to violate them… What’s more, all those scandals involved first-tier suppliers. The practices of lower-tier suppliers are almost all the time worse, increasing corporations’ exposure to serious financial, social, and environmental risks.”
The strategy they propose to enhance the performance of multinational corporate supply chains is to coach their very own procurement staff or purchasing agents to know that the definition of a high quality supply will not be simply its technical requirements but extends to the availability’s environmental and social sustainability. Villena and Gioia conclude that the senior management of multinational corporations should make it:
“ …clear to their procurement officials and create incentives for them to pursue not only economic goals but additionally environmental and social goals. Those officials should take a hands-on approach to collecting data about suppliers’ capability, monitoring indicators of their sustainability performance, and interesting with them in continuous improvement projects.”
The challenge of supply chain sustainability is not any different than the general challenge of sustainability management. The goal is more thoughtful, careful management. The main focus is on precision. What resources should be used to provide this good or service, and the way can we be sure that the production process is efficient and doesn’t create more waste or environmental impact than needed? Similarly, are the people involved in producing the nice or service treated well? Our goal is that employees remain in good health so that they can remain engaged in production as their lives, skills, and the organization’s productive capability are all enhanced.
In a supply chain or supply web environment, this requires communication and energy at relationship constructing between suppliers and customers. Slightly than sitting back and expecting an automatic delivery of sustainable supplies, engage with suppliers and discover their obstacles to sustainability. In a single notable effort on this direction, Walmart has a program where they work with the HSBC bank to reward sustainable suppliers with faster payment on invoices and access to capital. Some suppliers may require technical assistance to make sure compliance with sustainability quality criteria. Procurement officers could help them gain access to that assistance.
The formalization of sustainability requirements through regulation will help be sure that these aspects are taken more seriously by senior management. Anticipation of the emergence of regulation in Europe and the US is already having an impact. The key accounting firms try so as to add sustainability experts to their auditing staff, and corporations are starting to appreciate that sustainability is greater than public relations. General counsel offices are adding environmental lawyers or having experienced legal analysts fastidiously review environmental and employment statutes and regulations. While conservatives who find regulation inherently anti-business will likely seek to impede these practices, it could be more useful in the event that they could give attention to ensuring that the principles facilitate somewhat than impede organizational productivity and effectiveness. More enlightened labor practices can lead to more motivated and productive employees. Production that creates less waste and uses less energy and water will reduce costs. This is solely good management, and at its best, regulation can encourage best management practices.
Sustainability management and the careful use of individuals and natural resources will probably be how we proceed economic growth without destroying the planet. The old management philosophy that you need to break some eggs to make an omelet is just that—old and outdated. Relatively free markets are one of the best strategy to create the wealth all of us depend on, but let’s end this delusion that there has ever been a completely free, unregulated market. Rules and regulations are needed and have all the time been around—try “thou shall not steal,” for instance. The rule of law has never been as necessary because it is today on this crowded, interdependent world. We are able to meet the challenge of supply chain sustainability, a process that has already begun.
