Introduction to Sustainable Supply Chains
A supply chain is a system in organizations, technology, information, people, resources, and activities that involves moving a product or service from the supplier to the customer.
Sustainable supply chains are supply chains with the ability of helping organizations to grow, protect, and create long term social, economic and environmental value for shareholders involved in bringing products and services to the market.
Supply chain sustainability is the management of social, economic, and environmental impacts and the encouragement of practices of good governance through the lifecycle of services and goods.
Sustainable supply chain management is the transparent and strategic achievement and integration of economic, environmental, and social goals in an organization in a systematic coordination of key business inter-organizational processes for improving the economic performance on individual companies in the long term (Pullman, Maloni & Carter, 2009).
Sustainable supply chains are important to ensure that an organization complies with laws and regulations and to support and adhere to international principles for sustainable business conduct.
Organizations adopt sustainable supply chain to reduce costs of operations in order to maximize profits. The organizations acquire the potential of satisfying the interests of stakeholders and the society.
Examples of successful sustainable supply chains are those that practices of collaboration. An example of collaboration is “investment in alternative modes of transportation to reduce environmental impacts and cost of deliveries”.
Some of the modes of transportation include airports, ships and canals. A successful sustainable supply chain is also in major components of management of supplier relationships.
It is applied to create efficient way of cutting costs in the retail business (Krause, Vachon & Klassen, 2009).
For example, Wal-Mart has a Supplier Energy Efficiency Project that are aimed at emission elimination the company’s supply chain.The project’s suppliers “reduced 3300 metric tons of GHG emissions saving approximately $200,000 costs of energy in 2009”.
The suppliers of Wal-Mart were requested its suppliers to show efficiency in management of environmental footprint as a measure of reducing cost and realize this benefit. This could save energy, time, and cost for the company.
IBM has a sustainable supply chain in which it conducts studies annually to address the issues in its supply chain.
The company prepares strategies to overcome global challenges that arise from globalization to create business value (Pagell & Wu, 2009).
Difference Between Traditional Supply Chains and Sustainable Supply Chains Have Created Competitive Advantage For Organizations
When accurately designed, traditional or conventional supply chains present clientele the advantages of quality enhancement, reduced overheads, and rapid delivery. Sustainable supply chain offer reduced costs and create value in the supply chain.
Supply chain managers face challenges of changes in requirements of expertise in today’s business long-term trends. Business trends in recent years involve increasing intensity of competition and demand in environmental protection, resource scarcity, and security arising from the ongoing globalization.
Businesses have to adopt better business systems that have the potential of satisfying stakeholders and customers. This makes the traditional supply chain insufficient in the modern business world.
Under the objectives of a variety performance, a new prototype of a more complicated supply chain is emerging that caters for the needs of sustainable and developing competitiveness.
The main differences between the traditional and sustainable supply chain is that the traditional supply chain is a drive of prices and decouple strategically but the sustainable supply chain is a drive of value and couple strategically.
This means that management and design of supply chains should deliver specific outcomes, such as security, sustainability, innovation, cost reduction, and resilience (Pagell, Wu & Wasserma, 2010).
Paulraj (2011) identified that sustainable supply chains create competitive advantage in businesses by managing risks, creating sustainable production, and realizing efficiencies.
Managing business risks minimizes disruptions in business from social, economic, and environmental impacts. Managing business risks also protects the brand value and reputation of the company.
Companies can protect themselves from interruptions in their potential supply chains associated with labor, human rights, governmental practices, environmental practices, and suppliers’ human rights by ensuring that suppliers comply with management systems and programmes covering sustainable supply chain management principles.
Managing risks ensures that a company has access to resources. A company with a sustainable supply chain has the potential of reducing future liability and additional costs.
Therefore, companies with sustainable supply chains understand the different strategies to undertake to ensure productivity and efficiency. Realizing efficiencies occurs when sustainable supply chains reduce costs of energy, transportation, and material inputs.
Realizing efficiencies also increase labor production and create efficiencies across the entire supply chain. Creating sustainable products involve meeting the requirements of business and customer partners and innovating to satisfy the changing market.
A company can reduce costs of supply through creating strong health, safety, and labor practices, increasing the understanding of key processes in the supply chain, and designing systems and processes that reduce required inputs.
Companies create competitive advantage through developing new products and improving existing products through collaborating with suppliers on sustainable issues that foster product innovation.
Sustainable supply chain creates competitive advantage by providing understanding of the business value and incorporated ideas in the market by competitors. This is addresses as benchmarking against the competitors.
Sustainable supply chain enables an understanding of customer, suppliers, and shareholder expectations creating maximum return on the investments of the company.
A sustainable supply chain creates a vision for the company providing direction of the company’s strategies and defining the company’s commitment to achieve competitive advantage.
The company can evaluate and identify areas that need improvement to create competitive advantage (Reuter, Foerstl, Hartmann & Blome, 2010).
Challenges in Building Sustainable Supply Chains
Supply chain managers face challenges because of the increase in the requirements of management expertise in the long-term trends of companies today.
These trends include the increasing intensity of competition, ongoing globalization, environmental protection, resource scarcity, and the growing security demand in businesses.
Businesses are also requiring cost efficient, flexible, and reliable business systems that have the capability of supporting customer differentiation.
Modern supply chain managers have to confront complex and dynamic supply chains becoming difficult to predict developments and trends in the long term (Paulraj, 2011).
Supply chain management has to come up with additional plans that extend beyond the operational scope of the current activities.
Supply chain managers need to understand and identify the new sustainability issues in their businesses and company environment to respond to respond to the changes in the long term trends and to remain competitive.
This challenges calls for international, global, and the fragmented supply chain to apply skills of networking and creating efficient supply chain operations that adapt to sustainable demands to create sustainable customer focused supply chains in the long term.
This is because sustainable supply chains must be able to create sustainable competitive advantage (Pullman, Maloni & Carter, 2009).
Challenges of building sustainable supply chains can arise from the weak and non-built relationships of companies with suppliers. It becomes difficult for companies to form strong relationships with suppliers because some of the suppliers are untrustworthy in that they fail to deliver the quantity and quality paid by the company.
The owners or managers have to inspect the suppliers, especially in cases in which the suppliers can corrupt the employees easily. Challenges can arise when the company has inadequate capital to pay the suppliers at the required time.
The company can strain to pay the suppliers or the suppliers can reduce business relationships with the company.
Challenges in building a sustainable supply chain can arise when the suppliers create inconsistencies in price and quality without providing notice to the purchasing enterprise.
This means that this change would pass to the customers creating inefficiency in the supply chain (Reuter, Foerstl, Hartmann & Blome, 2010).
According to Pullman, Maloni and Carter (2009), challenges can arise when the suppliers have a poor record from the purchasing entity making it difficult for the purchasing enterprise to keep a trend of their suppliers in frequency of supply, quality of supply, and prices of supply.
This makes it difficult for the purchasing enterprise to build a strong relationship with the supplier. Challenges in building sustainable supply chain can result from poor planning where the purchasing enterprise makes quick decisions on the supplier without taking time to understand the competence of the supplier.
This makes it difficult for the supplier and the purchase enterprise to create good relationships when the problems in the supply chain begin to occur.
Other challenges arise from unfair competition based on prices, high prices for poor quality of products, lack of customer records and statistics, and interpersonal challenges, such as religious differences, race, and social status.
Cases of corruption can arise from the purchase enterprises to suppliers passing on the costs through price increments on the customers. Corruption destroys the sustainability in the supply chains.
Challenges can arise from changes in government levies and taxes. Government taxes and levies affect cost of operations to both the suppliers and the purchasing enterprises leading to additional costs that have to depict in changes in the quantity, quality, and prices of products and services in the market.
These changes affect the satisfaction of the shareholders and customers forcing them to shift to competitors. The company profits and resources decrease leading to collapse of some of the supply chains (Pagell & Wu, 2009).
Management Implications to the Importance and Challenges in Building Sustainable Supply Chains
Various enterprises strive to build positive public relations to improve image and reputation essential for attracting and maintaining potential and competent suppliers and customers.
A company can improve the nature and frequency of communication to customers and suppliers to maintain or improve sustainable supply chains. Some enterprises offer promotional items and credit to customers in efforts to build strong relationships for sustainable supply chains.
Business enterprises reduce prices below that of competitors and improve quality of products to attract customers. This is difficult because cost of production match prices, quantity, and quality and reducing the prices means that the quality or quantity will decline.
Enterprises have difficult time managing sustainable supply chains with prices, especially when the business has obligation of satisfying the stakeholders, customers and suppliers (Paulraj, 2011).
According to Reuter, Foerstl, Hartmann and Blome (2010), business enterprises provide quality and unique services to loyal customers and suppliers to attract and maintain them. This action strengthens their relationships making it easy to build a sustainable supply chain.
This has been possible through creation of clubs, especially in retail shops and food points (Lamp, 2011). Enterprises result to supporting sporting events, channels, and teams to nurture prestige and good reputation of businesses.
Businesses offer sponsorships and donations to the society to attract the attention and interest in the members in the supply chain.
Business enterprises also offer newspapers and special seats to the members of the supply chain to ensure good relationships and image.
Businesses enterprises have also put extra efforts in building sustainable supply chains by paying its suppliers promptly and involving the suppliers and customers in their business and personal functions and initiatives.
For example, Unilever is multinational company that earns annual revenue of more than $50 billion in approximately 400 brands. It sources from 100000 non-production suppliers and 10000 suppliers of raw materials.
The company approximately purchases 3% of the world’s palm oil and 6% of the world’s black tea (Krause, Vachon, & Klassen, 2009). Securing sustainable supply chains is critical for sustaining growth and the success of the business in the future.
The company has developed tangible benefits in business through sustainable supply chains. The company invests resources and time in building strong relationships with suppliers, customers, and stakeholders.
The company achieves this by providing good wage incomes, managing environmental issues, such as climate change and waste, and ensuring good working conditions in the supply chains.
Unilever’s ability to maintain sustainability in chain of supply helps in creating cost efficiency in the company operations, improve company’s reputational image, and assist in securing and stabilizing business long-term operations..
Unilever has created competitive advantage successfully through building sustainable supply chains (Pagell, Wu & Wasserma, 2010).
References
Krause, D., Vachon, S., & Klassen, R. (2009). Special topic forum on sustainable supply chain management: introduction and reflections on the role of purchasing management. Journal of Supply Chain Management, 45(4), 18-25.
Lamp, C. (2011). Essentials of marketing. New York, NY: Cengage Learning.
Pagell, M. & Wu, Z. (2009). Building a more complete theory of sustainable supply chain management using case studies of 10 exemplars. Journal of Supply Chain Management, 45(2), 37-56.
Pagell, M., Wu, Z., & Wasserma, M. (2010). Thinking differently about purchasing portfolios: an assessment of sustainable sourcing. Journal of Supply Chain Management, 46(1), 57-73.
Paulraj, A. (2011). Understanding the relationships between internal resources and capabilities, sustainable supply management and organizational sustainability. Journal of Supply Chain Management, 47(1), 19-37.
Pullman, M., Maloni, M., & Carter, C. (2009). Food for thought: social versus environmental sustainability practices and performance outcomes. Journal of Supply Chain Management, 45(4), 38-54.
Reuter, C., Foerstl, K., Hartmann, E., & Blome, C. (2010). Sustainable global supplier management: the role of dynamic capabilities in achieving competitive advantage. Journal of Supply Chain Management, 46(2), 45-63.