LOYOLA INSTITUTE OF BUSINESS ADMINISTRATION

Sustainability Supply Chain Management

Dr. SIVAKUMAR K
Assistant Professor
LOYOLA INSTITUTE OF BUSINESS ADMINISTRATION

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 Introduction
Supply Chain Management

The systematic, strategic coordination of traditional business functions and tactics across all
business functions within a particular company and across businesses within the supply chain,
for the purposes of improving the long-term performance of the individual companies and the
supply chain as a whole”
ECONOMIC PERSPECTIVE- Mentzer et al., 2001

The right
Product
+ The right
Price
+ The right
Store
+ The right
Quantity
+ The right
Customer
+ The right
Time
= Higher
Profits
 Supply Chain Management
• The recent leading trend is lean supply chain management:

• The main idea of leanness is an elimination of all supply chain activities, which don't
bring a value to products - they represent waste:

✓ Expensive inventory

✓ Unnecessary capacities

✓ Duplicate supply chain links

• Main goal is to achieve highly efficient supply chain - to minimize costs

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 Supply Chain Management
• To achieve leanness a relative business environment stability is necessary

• Unfortunately, the recent environment is unpredictable and changeable

• Many crisis situations appear more and more frequently:

✓ Tsunami, Japan, March 2011, Toyota Motor company

✓ Suppliers and productions shutdown over the world

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 Types of Supply Chain Management
• Two new trends appear as a response to this situation:

• Agile supply chain management – an ability of a supply chain to respond to major

and unpredictable changes in the business environment very quickly

• Resilient supply chain management – an ability of a supply chain to turn back to

original performance after a serious disruption

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 Supply Chain Management
• The next recent and very important trends:

• Green supply chain management – an ability of a supply chain to minimize

negative impact of logistics activities on environment

• Sustainable supply chain management – an integration of the aforementioned

approaches

✓ It is an ability of a supply chain to balance its economic, environmental and

social performance

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Green Supply Chain Management (GSCM)

“Integrating environmental thinking into

supply chain management, including
product design, material sourcing and
selection, manufacturing processes, delivery
of the final products to the consumers, and
end-of-life management of the product after
its useful life”
- Srivastava 2007

ENVIRONMENTAL PERSPECTIVE

7
 Sustainable Supply Chain Management (SSCM)

“management of material, information and capital flows as well as cooperation among

companies along the supply chain while taking goals of all three dimensions of sustainable
development, i.e. economic, environmental and social, into account which are derived from
customer and stakeholder requirements”
- Seuring and Muller, 2008

“development that meets the needs of the present

without compromising the ability of future
generations to meet their own needs”
-World Commission on Environment and
Development (WCED) by Brundtland (1987)

“sustainability is introduced in the supply chain as

a set of practices called SSCM practices”
- Carter and Rogers, 82008
 Need for SSCM

➢The focus on sustainability has increased as the economies in large countries such as Brazil,
China, and India have grown

➢Rapid industrial development due to globalization and technological advancements had left
companies to focus on high profit goals and the fast-paced advancements by the companies
may have a severe impact on the society.

➢The industries worldwide have shown more interests in solving the social and environmental
issues as a result of the pressures faced due to stringent government policies, regulations,
customers, market competition etc.

➢These pressures have led many businesses to adopt Sustainable Supply Chain Management
(SSCM) practices because SSCM is a more successful concept which helps industries in
solving these issues.

➢Also, organizations adopt sustainability concepts to gain competitive advantages in market

and to satisfy the ever-increasing needs of the customer. 9
 The Role of Sustainability in Supply Chain
• The health and survival of every supply chain and every individual depends on the health of
the surrounding world

• Expand the goal of a supply chain to others - may be affected by supply chain decision

• Factors driving focus on sustainability

1. Reducing risk and improving the financial performance of the supply chain

2. Attracting customers who value sustainability

3. Making the world more sustainable

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 The Role of Sustainability in Supply Chain
Example:

• Unilever, the Dutch-British consumer goods giant - helped tomato

growers convert to drip irrigation to save water.

• Wal-Mart - Switching to more efficient light bulbs at its stores and adding
skylights for natural light have helped significantly reduce its energy
costs

• Starbucks - started its coffee and farmer equity (C.A.F.E.) practices - that
evaluate the sustainable production of coffee along four dimensions:
product quality, economic accountability, social responsibility, and
environmental leadership.
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 Key Metrics for Sustainability
• Defining explicit metrics that can be used to judge sustainability-related efforts in the supply
chain is important.

• Corporate social responsibility (CSR) reports shows some commonality but also a lot of
divergence in terms of the metrics they chose to report.

• From an environmental perspective, all firms should measure and report on these four
categories:

1. Energy consumption

2. Water consumption

3. Greenhouse gas emissions

4. Waste generation
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 Key Metrics for Sustainability
• Two fundamental challenges exist in a supply chain in the measurement and
reporting of the four categories.

Challenge 1:

• Relates to the scope over which a category is measured

• It is important to clearly define the scope across which metrics are measured and
reported.

• Example: In the context of greenhouse gas emission - the Greenhouse Gas Protocol
(GHG Protocol) initiative defines three scope levels.
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 Key Metrics for Sustainability
• Scope 1 - refers to direct emissions (owned or controlled by the reporting entity)

• Scope 2 - refers to indirect emissions (grid-sourced electricity and other utility

services)

• Scope 3 - refers to other indirect emissions (production of purchased materials,

outsourced activities, contractor-owned vehicles, waste disposal, and employee
business travel )

• In most firms - the extent of direct emissions is typically only a small fraction of the extent
of indirect emissions in the supply chain.
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 Key Metrics for Sustainability
• Example: the pharmaceutical company Abbott indicated that its indirect emissions were
about 6 to 14 times its direct emissions.

• All categories should be measured across the entire supply chain from the consumer to the
lowest tier supplier to capture the full impact of the supply chain on the environment.

Challenge 2:

• Relates to the use of absolute or relative measures of performance.

• An absolute measure reports the total amount of energy consumption whereas a relative
measure may report the energy consumed per unit of output.
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 Key Metrics for Sustainability

Absolute measure Relative measure

• Reports the full impact of the supply chain • More effective at capturing improvement
along the category being measured.
• drop in supply chain sales and production • using a relative measure is the choice of
basic unit because each category can be
measured relative to dollars of sales,
kilograms of output, or a variety of other
units

• It is better for firms to measure and report both absolute and relative measures to get a
true picture of their performance

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 Sustainability and Supply Chain Drivers

• Opportunities identified by matching the four categories with supply chain drivers

• Every firm measure its environmental impact for each driver along each of the four
categories.

1. Facilities

• Facilities tend to be significant consumers of energy and water and emitters of waste and
greenhouse gases.

• Initially, a firm must measure the direct impact of each facility in terms of energy, water,
emissions, and waste.
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 Sustainability and Supply Chain Drivers
• Separate the improvement opportunities into those that generate positive
cash flows and those that do not.

• Example: Walmart has designed and opened a viable store prototype that
is up to 25 to 30 percent more energy efficient and produces up to 30
percent fewer greenhouse gas emissions compared to the 2005 baseline
(CSR report, 2011).

➢ energy efficient light bulbs and building skylights for natural

light

➢ waste has been diverted from landfills and recycled to produce

revenue

• Coca-Cola has worked hard to reuse heat energy from boilers in its
production process and reduce its total water footprint
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 Sustainability and Supply Chain Drivers
2. Inventory

• Raw materials, work in process, finished goods and inventory sitting in typical landfill

• Life cycle assessment (LCA) can be used to assess a product’s environmental impacts
associated with a product’s life from cradle to grave

• Goal is to reduce harmful inventory and unlock the unused value in products when they are
discarded

• Example : Walmart reduced the number of harmful phosphates in laundry and dish
detergents in the Americas by 14.5 percent in 2011
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 Sustainability and Supply Chain Drivers

• Walmart redesigned packaging to eliminate 91 percent of jewelry pallets and make all its
jewelry boxes from recycled materials.

3. Transportation

• Another driver wherein firms are likely to find several positive cash flow opportunities.

• Any supply chain design innovation that lowers transportation costs also tends to reduce
emissions and waste generated from transportation.

• Product design can also play a significant role in reducing transportation cost and emissions

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 Sustainability and Supply Chain Drivers

• Reducing packaging and allowing greater density during transportation

Example:

• Walmart reported that it decreased the amount of fuel used to deliver a case of product by 65
percent between 2005 and 2010 in U.S.

➢ increased aggregation,

➢ a more efficient loading of transportation vehicles, and

➢ an increase in their fuel efficiency - cuts both cost as well as environmental damage
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 Sustainability and Supply Chain Drivers
• Hewlett- Packard, Electrolux, Sony, and Braun -
that have formed a joint venture - the European
Recycling Platform, to gain better economies of
scale in their recycling efforts.

• IKEA has always worked hard to design products

that can be shipped flat to achieve high volume and
weight density during transportation

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 Sustainability and Supply Chain Drivers
4. Sourcing
• Majority of energy and water use and waste and emissions occurs in extended supply chain
outside the enterprise

• Organization must look at the extended supply chain and work with their suppliers to
improve performance

• Verifying and tracking supplier performance on sustainability is a major challenge

• Example: C.A.F.E. program at Starbucks encourages suppliers to improve their

environmental and social responsibility scores by providing a price premium.

• Walmart and IKEA have also set aggressive targets for their suppliers to improve overall
supply chain sustainability.
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 Sustainability and Supply Chain Drivers
5. Information

• Good information continues to be one of the biggest challenges to improved supply chain
sustainability.

• The absence of standards for measurement and reporting has led to claims of improvement
that are often not verifiable

• Leads to company-specific standards and an explosion of certifications and certifying

agencies

• Use of consistent measures within a supply chain

• Example: The C.A.F.E. standards and supplier rating are an effort by Starbucks to
encourage suppliers to focus on sustainability
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 Closed-Loop Supply Chains
• Supply chains cause significant harm to the environment when their output ends up in a
landfill

• Improve sustainability by designing products that can be reused and recycled

• Must be supported by a supply chain that ensures recycling

• Economic interests of all the parties must be understood and aligned for the activities to be
performed

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 Closed-Loop Supply Chains

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 Thank You

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