Abstract
POSC is based on the resource-based theory, which posits that organizations should manage innovations and resources to better their competitive edge while resolving or preventing the adverse socio-ecological effects. According to the theory, resources are the key to organizational and access and control of these resources is the basis for power (Munasinghe et al., 2019). This product fits into the triple bottom line (TBL) theory. This is because the palm oil supply chain is characterized by significant resource use such as environment and water and multiple stakeholder relationships, which is considered an organizational resource.
Issues in the Palm Oil Supply Chain
Environmental Issues
Palm oil is characterized by deforestation, which is associated with multiple environmental issues, including greenhouse gas emissions (GHG), habitat destruction, and biodiversity loss. Tree felling, disposal of empty fruit bunch, palm oil biomass combustion, and fertilizers and pesticide use are the major GHG contributors. Extraction produces 58% of GHG emission, plantations 37%, while harvesting and transporting produce 5% of the total GHG (Munasinghe et al., 2019). Plantations consume 77% of natural resources, harvesting & transport 22%, and tree nurseries 1% (Munasinghe et al., 2019). Water use is another sustainability issue in the industry: it is estimated that the water consumption is 5275 m3 per tonne of palm oil. Besides the unsustainable water consumption, the industry releases toxic wastes from industry effluents into water sources.
Socio-Economic Sustainability
The industry is marked by human rights issues such as child labor, toxic working conditions, health risks, and ownership rights. Ownership rights are obscure since the product’s ownership changes as it passes across the supply chain; therefore, it is challenging to achieve accountability. It is also estimated that plantation management accounts for 68% of the total supply chain labor, yet its workers have high poverty indices (Munasinghe et al., 2019). They are paid wages that do not meet the Human Charter of Rights living.
Notably, an intense ethical conflict exists between producer countries and importing countries due to the supply chain’s political economy. For example, Indonesia accused the European governments (importers) of controlling the market. EU required exporting countries to comply with sustainability regulations before their products were allowed to the EU market. These policies led to a decline in the palm oil trade, which mostly hurt Indonesian Indonesia’s economic wellbeing. This scenario provides a clear demonstration of cultural and ethical conflicts in the supply chain. While Indonesia desired socio-economic wellbeing, EU ideals focused on community and environmental wellbeing. It also addresses sustainable logistics activities and lean management principles.
Potential Areas of Improvement
Integration of Sustainability in the Supply Chain
The POSC should integrate sustainability concepts into operational activities to achieve optimal firm performance. The triple bottom line theory asserts that companies should equally focus on environmental and societal issues as profits. Therefore, the POSC should create mechanisms to promote Sustainability in various supply chain areas, including the nursery, plantation management, plucking and transportation, and extraction from kernels and grains. Stakeholders should adopt sustainable activities such as outsourcing transportation services to reduce GHG emissions.
The key players should find alternatives to deforestation, such as plantation forest, which involves incorporating forestry and agricultural farming. They should also create awareness of water value across the entire supply chain instead of firm-level water sustainability. On the social side, while the low wages are commonly justified by the massive employment of locals and the fact that plantation management is generally labor-intensive, companies should at least address some of the aggregate issues. For example, through CSR, the companies should empower the vulnerable by supporting local economic initiatives through financial assistance, training, or mentorship programs.
Logistics
The Importance of a Sustainable Logistics Activity (SLA)
Sustainable logistics activity is based on triple bottom line (TBL) principles which describe how businesses can incorporate Sustainability into their operational management. SLA’s goal is to improve business profitability and performance with minimal environmental impact. SLA can improve a business’s financial performance by improving effective or appropriate resource use, asset utilization, and ensuring process efficiency. A study by Martins et al. (2019) demonstrated that the stock market positively responds to a company’s sustainability achievement. Therefore, stakeholders, including customers, are likely to trust a firm if they are aware of its values.
The Use of Outsourced Logistics to Improve Environmental Business Credentials
Third-party logistics or outsourced logistics, commonly abbreviated as 3PL, can help organizations improve environmental business credentials. The findings of a study conducted by Ali et al., (2016) revealed that 3PL functions such as warehousing, packaging, and transportation significantly affect a company’s economic, environmental, social, and operational performance. 3PL can improve a business credential by reducing the total GHG emissions. A considerable amount of the total global emission comes from transportation. By outsourcing transportation services, companies reduce their share of carbon emission footprint. Most 3PL services use efficient vehicles, optimize transportation load, and select transportation that gives sustainable benefits such as air, sea, rail, etc. (Ali et al., 2016). By outsourcing packaging processes, a business reduces material consumption. Outsourcing packaging encourages recycling, the use of eco-friendly package design, and biodegradable materials. Outsourced warehousing activities promote environmental Sustainability by reducing wastewater emissions, encouraging renewable energy sources, and effective solid waste management.
Outsourced logistics can improve environmental business credentials by promoting the business’ brand image. A brand involves creating a company reputation or image to build company value, expand company goodwill, and create or attract new markets. Companies use specific colors or identifiers for marketing their values. The legitimacy theory asserts that a firm can build a positive brand image and improve its social acceptance by revealing its corporate social responsibilities. When companies reveal their sustainable activities to the public, it creates a positive impression, enhancing long-term financial and organizational outcomes. Companies can use the benefits sourced from 3PL activities as a marketing strategy or tool to improve their green brand image.
The Benefits and Challenges of Outsourced Logistics Activity
Benefits
- Resource utilization – 3PL promotes efficient resource utilization: It saves time and cost by reducing a company’s investment cost in warehouse space, transportation, and labor.
- Skilled human resources – Most 3PL service providers are familiar with the latest logistics development and technology used in the logistic process, reporting, and inventory management – This can result in cost-savings and improve operational efficiency. Companies can leverage their expertise to enhance their competitive advantage.
- Continuous Improvement – 3PL is highly flexible and scalable, which can improve quality and maximize profits. Due to their expertise and advanced system, 3PL can help companies achieve continuous quality improvement.
Challenges
3PL are associated with loss of control due to their extensive networks and routes. It also makes it difficult for companies to make real-time strategic decisions and customize their business operations to fit customer demands. The upfront costs of hiring a skilled 3PL are high and can be unaffordable for small and medium-sized companies. The supply chain relies on effective and transparent communication to be successful. However, communication barriers might occur between suppliers and 3PL providers due to the incompatibility of communication systems or communication barriers.
Lean Management
Identification of Issues that Currently Need to be Addressed
The most crucial issue that McDonald’s should consider is the spreading word that it promotes unhealthy foods. The globally recognized food joint is known for its tasty foods that it promotes as nutritious. However, in the real sense, McDonald’s only sells processed junk food. Junk or processed food possesses high fat, sugar, and salt levels, lacking the nutrients like vitamins and fiber (Shewfelt, 2017). In other words, the food at McDonald’s is linked with an individual’s increased chances of contracting chronic diseases, such as cancer, diabetes, heart disease, among other conditions. The restaurant is associated with a bad food image where its customers frequently question their ingredients, especially their chicken. Another popular question from most customers was why food from McDonald’s does not rot.
The other crucial issue affecting McDonald’s is their prices and increased competition. For instance, another food joint, Taco bell, started a breakfast menu that hijacked most McDonald’s’ customers. With this, growing items on the menu tend to slow down the services and promotes inaccurate orders and services. Further, the lack of flexibility with McDonald’s also sends customers away. For instance, customers can order their burgers in other food joints, particularly in outlets that allow them to customize it according to their preference.
Solutions to the Identified Issues
The lean principles could come in real handy in handling the issues that McDonald’s is continuously facing. For instance, it would be of great assistance for McDonald’s to understand the customer needs. Customer needs, in this case, involve ensuring that consumers are aware of what they are consuming because the survey shows that most of their clients showed concern. To map the value stream, it would be necessary for McDonald’s to alter the ingredients used for other foods and offer products containing minimum calories (less junk) for people who mind their diet. After applying the other lean precepts, the final focus of pursuing perfection is also as important. In this case, the lean implementation approach is incorporated with the organization making it part of its culture (Pakdil and Leonard, 2015). Employees must also be involved in the company’s strive for perfection by delivering the services based on customer preferences.
Potential Challenges Associated with Lean Implementation
A significant challenge likely to be encountered by McDonald’s in their attempt to implement the lean principles is that it would need to deviate from processed food because it has been a substantial concern by its customers. Processed foods and junk are basically what defines McDonald’s and what attracts most of its consumers. However, other clients cite the unhealthy foods served by the company as their main reason for avoiding the place. The lack of resources cannot be identified as a concern for the aforementioned company since McDonald’s is a big organization that has been around for a longer time and has branches worldwide. However, given that it has a chain of businesses globally, the proposed change cannot be effectuated promptly and efficiently throughout the enterprise’s (McDonald’s) outlets (Gelmez et al., 2020). Further, the organization may require a lot of time to ensure the implementation strategy runs effectively from its employees to the customers. Moreover, if McDonald’s workers do not adhere to the company’s directions, the lean implementations are not likely to succeed.
Reference List
Ali, A., Chauhan, K., Barakat, M., and Eid, A. (2019) ‘The role of sustainability for enhancing third-party logistics management performance’, Journal of Management & Sustainability, 9(1), pp. 14–31. Doi: 10.5539/jms.v9n1p14
Gelmez, E. et al. (2020) ‘An empirical research on lean production awareness: the sample of Gaziantep’, International Journal of Global Business and Competitiveness, 15, pp. 10–22. Doi: 10.1007/s42943-020-00010-8
Martins, V. W. et al. (2019) ‘Sustainable practices in logistics systems: an overview of companies in Brazil’, Sustainability, 11(15), pp. 1–12. Doi: 10.3390/su11154140
Munasinghe, M. et al. (2019) ‘Value–supply chain analysis (VSCA) of crude palm oil production in Brazil, focusing on economic, environmental and social sustainability’, Sustainable Production and Consumption, 17, pp. 161-175.
Pakdil, F., and Leonard, K. M. (2015) ‘The effect of organizational culture on implementing and sustaining lean processes’, Journal of Manufacturing Technology Management. 26(5), 725–743. Doi: 10.1108/JMTM-08-2013-0112
Shewfelt, R. L. (2017) In defense of processed food. Göttingen: Copernicus Publications.