Typically, sustainability … United States (For the specific selection criteria, see the “About the Research” sidebar.) “The Missing Link? To alleviate that problem, MNCs could invite suppliers’ procurement personnel to their sustainability training sessions (along with environmental, health, and safety personnel) and encourage them to participate in industrywide sustainability training. 12 shares Share on Twitter; Share on Facebook; Share on Linkedin ; Consumers expect more from the brands they buy from than ever before, and an ethical supply chain is now a requirement in the experience economy. Green supply chain of child’s crib manufacturer. More logistics providers that are asset-based, for example, are taking sustainability into consideration when purchasing transportation. Supply chain sustainability (SCS) is a holistic view of supply chain processes, logistics and technologies that affect the environmental, social, economic and legal aspects of a supply chain's components. We rely on logistics service providers for all of our transportation and much of our distribution center operations and work with them to drive efficiency improvements and innovations to make our supply chain more sustainable. For the procurement professionals we interviewed, cost savings were unquestionably the top priority, followed by quality improvement and on-time delivery. Our MNCs collaborate with their competitors and major suppliers to develop and disseminate industrywide sustainability standards. They frequently place orders that exceed suppliers’ capacity or impose unrealistic deadlines, leading supplier factories to demand heavy overtime from their workers. (5) They were members of the Billion Dollar Roundtable (firms spending at least $1 billion with minority- and women-owned suppliers). Business with effective sustainable procurement programs and solid commitment to sustainable supply chains see measurable ROI: They win more business and see sales revenue increases of up to 20%. But the reality is that their suppliers—especially those at low levels of the chain—often violate sustainability standards, exposing MNCs to serious financial and social risks. Commit to developing and complying with industrywide sustainability standards, and help suppliers become full members of industry organizations. In this article we describe various ways that MNCs can defuse the ticking time bomb those risks represent. They should make the same message clear to their procurement officials and create incentives for them to pursue not only economic goals but also environmental and social goals. Get in touch. Our work is moving the entire industry forward together, strengthening its reputation and fostering growth. (2) They were members of the Carbon Disclosure Project (CDP) and the United Nations Global Compact. As a result, those people are poorly informed about the MNCs’ sustainability requirements and cannot communicate them clearly to their own suppliers, much less enforce them. The foam manufacturer has little incentive to conform to the automakers’ sustainability requirements, because the automakers account for only a small fraction of its total business. The Strategic Role of Procurement in Building Sustainable Supply Networks,”, “On the Riskiness of Lower-Tier Suppliers: Managing Sustainability in Supply Networks,”. Many multinational corporations have committed themselves to using suppliers with sustainable social and environmental practices, but suppliers—especially those low in the supply chain—often don’t comply with standards. Firms such as Microsoft, Johnson & Johnson, and Walmart use this platform to engage their suppliers in being transparent about their environmental impact. The three MNCs have also created preferred-supplier programs aimed at fostering peer learning about sustainability. Select high-performing suppliers to pilot new sustainability initiatives. Typically, sustainability initiatives include identifying the source of raw materials, ensuring good conditions for workers and reducing the carbon footprint. The aim is to create a cascade of sustainable practices that flows smoothly throughout the supply chain, or, as we prefer to call it, the supply network. One such change has been the huge rise in demand for next-day shipping. This may explain why most of the lower-tier suppliers in our study lacked programs to dispose of toxic waste and in fact had no environmental management program whatsoever. Thus, green supply chain … Starbucks is a leading brand that claims to be sustainable; Let’s see if Starbucks could be considered a case study for the success of sustainability in supply chains If they have poor or dubious sustainability performance, then an MNC that does business with them can endanger its reputation and suffer profound repercussions—losing customers, being forced to find new suppliers, or having its supply chain disrupted. All rights reserved. It has six, 15-hour modules. For example, Pacific Gas and Electric (PG&E) uses response from the Electric Utility Industry Sustainable Supply Chain Alliance survey to gauge performance of its top tier suppliers on important aspects of environmental performance, including greenhouse gas emissions, energy and water usage, and waste generation. Even when they do attract attention (for sexual harassment problems, for example, or chronic overtime demands), we found that they do not feel the need to address the issues involved. If exemplary MNCs are having trouble ensuring good practices among their lower-tier suppliers, then “regular” firms, in all likelihood, are faring even worse at this. We focused our study on three “exemplary” multinational corporations that met five selection criteria: (1) They were included in the Dow Jones Sustainability Index. To understand the situation and develop ideas for tackling it, we conducted a study of three supply networks. Supply-chain sustainability is a business issue affecting an organization’s supply chain or logistics network in terms of environmental, risk, and waste costs. Building a sustainable supply chain isn't easy, but it is possible — and necessary. Work with major first-tier suppliers to map the firm’s supply network. Forest Positive Mobilising resources to build a forest positive future. Goods can also flow in a reverse direction in a supply chain from the customer back to producers for purposes such as returns, reuse and recycling. Supply Chain Management with Zara as an Example. Digital transformation and the growing sophistication of digital supply chain technologies are playing a major part in the evolution of supply chain transparency and sustainability. As a relatively young discipline, sustainable supply chain management is evolving, and new models of sustainable procurement are emerging. A supply chain is the end-to-end system that creates products and services and delivers them to the customer. And so on. By combining innovation, creativity, and modern supply chain technologies, these companies have developed sustainable solutions to keep their supply chains green, transparent, and more competitive than ever. We also studied a representative set of each MNC’s suppliers—a total of nine top-tier and 22 lower-tier suppliers, based variously in Mexico, China, Ta… Whether due to changing regulations or seeking good PR, many companies are working to reduce pollution and other issues in their chain. Many of the MNCs that have committed to it have faced scandals brought about by suppliers that, despite being aware of sustainability standards, have nevertheless gone on to violate them. • How is the role of the supply chain management affected? In fact, 83% of supply chain … It has six, 15-hour modules. We also analyzed the effects of more than 200 operational sustainability levers across approximately 500 company examples. 2016).However, major trends and shortfalls in SSCM research include the need to comprehensively address stakeholder influences and to elaborate upon appropriate approaches to … The hoped-for cascade effect was seldom occurring. They are also frequently located in countries where such regulations are nonexistent, lax, or not enforced at all. Awareness is key. Embracing environmentally sustainable … In Mexico we visited five lower-tier suppliers; all lacked environmental management systems, and four lacked procedures for handling red-flag social problems such as sexual harassment, retaliation by supervisors, and hazardous labor conditions. We know that logistics optimization through technological innovations and data integration can make supply chains more efficient and more financially sound. Of course, the main obstacle to implementing these changes is the associated cost. A high efficient SC would bring … Recognize suppliers that excel in programs sponsored by NGOs and international institutions. Green supply chain makes the applications of the key sustainable development strategy outstand. First, the MNCs’ engineering and procurement units often preapprove lower-tier suppliers, but their vetting criteria don’t include social and environmental considerations. The pattern is worrisome. SAP offers a comprehensive portfolio of software to help businesses maintain agility and move forward even in times of disruption. It’s an admirable idea, but it’s been hard to realize in practice. Sustainability concept and its relationship with supply chain management The concept of sustainability is designed around there elements, environmental, social and economic development. If companies are to deliver on both speed and sustainability in a meaningful way, it will require the ability to have real-time access to third-party logistics networks and deep, end-to-end visibility into their entire supply chain operation, including the most distant, low-tier suppliers. In order for a strategic supply chain sustainability plan to work, it’s important that benchmarks, targets, and guidelines are clearly spelled out. For MNCs, there are special challenges in governing lower-tier suppliers. These managers are responsible for maintaining a good and sustainable relationship with suppliers, focusing on reducing environmental impacts and improving social conditions throughout the supply chain. Photos © Edward Burtynsky, courtesy Howard Greenberg Gallery and Bryce Wolkowitz Gallery, New York / Nicholas Metivier Gallery, Toronto. Ideally, multinational corporations will use a combination of approaches—direct, indirect, collective, and global—to encourage sustainable practices throughout their supply networks. Several of these suppliers have started to set their own sustainability requirements for the suppliers they use. Audit suppliers regarding sustainability standards. Remember, all those suppliers were connected to model firms that were working proactively to encourage sustainability. One of the corporations we studied has created an award to recognize the suppliers that have improved the most in terms of CDP Supply Chain Program performance. They recognize that a single MNC cannot be expected to fight alone against the problematic labor or environmental practices of global suppliers. What we discovered was that many were violating the standards that the MNCs expected them to adhere to. Such predicaments are not uncommon. Many of the 22 lower-tier suppliers in our study are small or medium-size private firms that provide little information to the public—characteristics that, in effect, make them almost invisible. All partners in these supply cha… However, a responsible supply chain is not necessarily sustainable. Some suppliers have set sustainability targets of their own, ahead of receiving mandates from their customers. There are major supply chain sustainability and social responsibility elements to the program. One notable association is the Responsible Business Alliance (RBA), whose members include Intel, HP, IBM, Dell, Philips, and Apple. Another MNC includes the program’s ratings in its supplier scorecard and monitors those ratings annually. Fueled by consumer demands, increasing regulations and a mounting business case, steering supply chains in a more sustainable … https://www.hollingsworthllc.com/best-supply-chains-companies-around-world Some specific strategies within each type of approach are listed below. How successful supply chain management works is demonstrated by Inditex, one of the largest textile companies in the world based in Arteixo (Spain), with its fashion brand Zara. If you continue browsing the site, you agree to the use of cookies on this website. The MNCs we studied are all founding members of industry associations focused on developing sustainability standards, providing assessment tools, and offering training to first- and lower-tier suppliers. But, realistically, ours is a global economy and we will always have to rely on some international sources for certain raw materials and manufacturing capabilities. Supply chain sustainability is a complex issue, and the more people who are working to solve it, the better. And collaboration can make sustainability initiatives more feasible, because industrywide training is subsidized by members. Yet, in many other surveys, such as this recent report, Nielsen indicates that customers are willing to pay more for products that ensure green logistics practices and transparent supply chains. However, even before the pandemic was upon us, some fundamental changes to consumer behavior had been causing global supply chain managers to begin reevaluating their operations. Sustainable Supply Chain Initiative (SSCI) Launches Public Consultation on Primary Production Scope. But that seat maker may have a hard time getting its suppliers to follow suit. All these concerns mean that lower-tier suppliers are unquestionably the riskiest members of a supply network. The surveys seem to be having the desired effect: They’ve prompted first-tier suppliers to engage in internal discussions about whether they should and could alter their procurement practices (to adopt industrywide sustainability standards, for example). Contact the team. For example, Cargill has committed to creating a transparent, traceable, and sustainable palm-oil supply chain by 2020. Each was headed by an MNC considered to be a “sustainability leader”—one in the automotive industry, one in electronics, and one in pharmaceuticals and consumer products. The Center for Sustainable Organizations has listed examples of key areas of emphasis. But all corporations can and should do more. Sustainable Supply Chain Definition and Examples complete with current case study Slideshare uses cookies to improve functionality and performance, and to provide you with relevant … The progress is encouraging: According to the CDP’s 2019 supply chain report, 35% of the program members engaged with their suppliers on climate change in 2018, up from 23% the year before. Arguably, they need more incentives as well: Companies must reward them for hitting all three Ps—that is, not just cost, quality, and delivery goals but also social and environmental ones. The generic supply chain begins with the sourcing and extraction of raw materials. Dr. Madhav Durbha is the Group Vice President of Industry Strategy at LLamasoft, where his team helps customers and prospects solve various supply chain … In recent years a rising number of multinational corporations have pledged to work only with suppliers that adhere to social and environmental standards. They include lower-tier suppliers in the overall sustainability strategy. In other words, engineering and procurement address only the first of the proverbial three Ps of sustainability (profit), focusing on such issues as cost, quality, delivery, and technology, while overlooking the second and third Ps (people and the planet). That’s often because they’re struggling with sustainability issues themselves. There are two parts to your message—communicating your overall goals and then outlining the standards that each contractor and supply chain member must meet to contribute to those overall goals. Or Suppose it does business with a foam manufacturer that has many other big customers in the electronics, appliance, and health care industries—each of which has different sustainability standards. Many multinational corporations sincerely want to embed fair labor practices and environmental responsibility throughout their supply networks. Sustainable Supply Chain Definition. Use tools and data that those organizations provide for dealing with suppliers (contracts and scorecards). Collaboration can make sustainability initiatives more feasible. A supply chain is the end-to-end system that creates products and services and delivers them to the customer. We also interviewed 50 operations and supply chain leaders. Several directors of the three MNCs we studied viewed this as a big problem. End-to-end supply chain transparency is critical; sustainability initiatives must extend from raw materials sourcing, to last-mile logistics, and even to product returns and recycling processes. The problem, ironically, often starts with the MNCs themselves. These cover areas of environmental responsibility, labor practices, human rights, and corruption. A sustainable supply chain demonstrates a long-term commitment to procurement and supply chain management that considers "the environmental, social and … Companies looking to become more sustainable are increasingly looking beyond their own operations to the impact of their supply chains. The automotive corporation, for instance, has a strong commitment to supplier diversity. They must give their procurement officers better training and incentives to pursue supplier sustainability. They must then be shared – and agreed to – among all the stakeholders and suppliers across the chain. 29th September 2020. Copyright © 2020 Harvard Business School Publishing. As ethical supply chain practices become a greater and more immediate priority for businesses, compliance goals and sustainability benchmarks are also becoming more standardized. Consider the embarrassing scrutiny that Apple, Dell, and HP endured not long ago for sourcing electronics from overseas companies that required employees to work in hazardous conditions, and the fallout that Nike and Adidas suffered for using suppliers that were dumping toxins into rivers in China. Every aspect of supply chain sustainability … They require first-tier suppliers to set their own long-term sustainability goals. Sustainability goals and targets must come from something beyond the supply chain itself. Sustainable supply chains work by setting consistent standards. In addition, sustainability activities can create important efficiencies. Lower-tier suppliers are also the least equipped to handle sustainability requirements. In reality, you can promote both with certain simple and easy changes. Supply chain SC activities transform natural resources, raw materials, and components into various finished products that are delivered to end customers. We also interviewed representatives of industry associations (including the Responsible Business Alliance and the Automotive Industry Action Group) and NGOs (including the CDP and the Centre for Reflection and Action on Labour Rights) to gain a more comprehensive view of how each of these stakeholders helps MNCs disseminate their sustainability agendas throughout their supply networks. The MNCs we studied make a point of collaborating with international organizations and NGOs that share their goals. For instance, all three corporations have joined the United Nations Global Compact, an international effort to promote corporate social responsibility. There’s often no direct contractual relationship, and a particular MNC’s business often doesn’t mean that much to the lower-tier supplier. This poses serious financial, social, and environmental risks. The first-tier suppliers are then in a tough spot. When a customer places an order for a product, the … Another MNC annually surveys its first-tier suppliers to gather information not only about their health, safety, labor, and environmental practices but also about the sustainability performance of their lower-tier suppliers. (For the specific selection criteria, see the “About the Research” sidebar.) Some first-tier suppliers were already meeting that target; others have made substantial changes to do so (for example, by changing performance criteria for their purchasing managers). “The demon in this place,” one of them said, “is the [lower-tier] suppliers that I know the least about.” Another said, “I don’t have control over the ones that pose the highest risks, so I’m losing sleep over them.”. Typically, these MNCs expect their first-tier suppliers to comply with those standards, and they ask that those suppliers in turn ask for compliance from their suppliers—who ideally ask the same from their suppliers. A good way to start is by adopting the sustainability strategies used by the three MNCs in our study. Sustainable supply chain management should focus on improving recycling numbers, using more recycled materials, and reducing the amount of packaging used overall rather than eliminating all … Embracing big data is an essential principle of modern SCM, specifically real-time data which has the potential to improve the efficiency of a supply chain and negate potential risks to strategy. They are asking suppliers to cut their emissions, … Supply chain sustainability (SCS) is a holistic view of supply chain processes, logistics and technologies that affect the environmental, social, economic and legal aspects of a supply chain's components. While the first two decades of the sustainable procurement field focused on codes of conduct, supplier compliance, and auditing, procurement professionals in the vanguard today are looking to do much more with their sustainable procurement efforts. Work closely with relevant NGOs and international institutions interested in improving supply chain sustainability. Doing so would be not only prohibitively expensive but also unfair, because in most sectors, the major corporations use many of the same suppliers. One corporation, for instance, invites its most socially and environmentally responsible suppliers to join an exclusive group that enables them to strengthen relationships with the MNC and exchange best sustainability practices with one another. To move towards a sustainable supply chain one needs to include considered metrics into the specifications and evolve the procurement process. They can increase efficiencies for suppliers, who can use a standardized self-assessment or audit to satisfy many customers and thus avoid duplication. Quality improvement and on-time delivery commit to developing sustainability beyond first-tier suppliers are also the least equipped to sustainability! 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