Increased profitability has always been one expectation of efficient supply chain management. However, along with financial concerns, key stakeholders in companies are also concerned about the social and environmental aspects of performance. Pressures from stakeholders that include consumers, investors, and employees have resulted in the development of a strategic approach to supply chain management based on operational sustainability. Sustainability is based on the triple bottom line aspects of social, environmental, and financial performance. “Many experts are predicting that sustainable supply chain operations will, in fact, become an integral part of supply chain strategy and operations” (Blackhurst et al., 2012).
More companies are recognizing that sustainability is becoming a leading indicator of long-term business health along with traditional financial indicators. In addition, more consumers are becoming aware of the environmental and social impact in the production of the products they buy. “Over the next few decades sustainable development will constitute one of the biggest opportunities in the history of commerce” (Markley & Davis, 2007). Corporate capability in lean operations, minimizing waste, recognizing social responsibility in human capital, and producing products in an environmentally responsible way makes sustainability in supply chain management an “effective strategy for seeking competitive advantage and securing stakeholder approval” (Markley & Davis, 2007).
Recent media reports on child labor in foreign factories have added to consumer awareness in social accountability. In October 2012, Foxconn (a China-based contract manufacturer of Apple), admitted that under-age workers were found in their factories.
“Incidents and allegations of sweatshop-like conditions at Foxconn have caused constant embarrassment for Apple and other electronics companies” (Kroll, 2012). Other manufacturers including a subcontractor of Samsung admitted to having found child labor and poor factory conditions. Allegations such as these can spread rapidly through today’s cyberspace and threaten to negatively impact sales and market share.
Corporate compliance in social aspect of sustainability has become a standard and many now have a corporate compliance officer in an executive position that reports directly to the CEO and the Board of Directors. In addition, many companies are investing more heavily into direct auditing and continual inspection of their factories and suppliers to assure adherence to standards such as SA 8000 (international standard to protect the basic human rights of workers).
Aside from the negative impacts of human rights conditions at factories, there is a large liability to companies not adhering to law or regulatory requirements. The Foreign Corrupt Practices Act (FCPA) prohibits the bribery of foreign officials, and can lead to serious legal consequences for offenders. “Official statistics show that 400 American firms have collectively paid $300 million in bribes and other questionable payments to foreign governments, political parties and also directly to the accounts of government officials” (FCPA, 2013). In 2012 alone, more than 10 large international companies paid fines in the tens of millions of dollars with executives embroiled in criminal prosecution. These firms included Eli Lilly, Tyco International, Oracle, Allianz, Pfizer and others (SEC.gov, 2013). Legal liability, in addition to adherence to ethical behavior, may be a real driver to meeting the goals of social sustainability.
Growing awareness in environmental challenges both from the public and corporate sectors makes environmental sustainability a critical part of the triple bottom line. The importance of implementing strategies toward environmental sustainability has resulted in the development of global standards. These global standards include ISO 14000 for environmental management and the Greenhouse Gas Protocol (http://www.ghgprotocol.org/). These standards are included in more and more supplier contracts as part of a sustainability effort.
One opportunity for environmental sustainability is to make logistics greener and more efficient. Companies like Kimberly Clark and Johnson & Johnson have analyzed their trucking and delivery routes and have cut millions of miles of travel thereby reducing carbon emissions without sacrificing customer service levels. These companies have also rebalanced their products loads amongst their distribution centers to add to the savings. EA Logistics took several initiatives to a greener operation such as “switching their delivery trucks to biodiesel, improving the aerodynamics of trucks used for even local deliveries, and retrofitting its Chicago warehouse with energy and water efficient lighting and fixtures” (McCue, 2010).
There are a number of opportunities for greener operations in distribution center and warehousing. Obvious examples may be better routing to and from warehousing facilities, and more efficient use of machinery during the loading and unloading of trucks. ProLogis, a developer of warehouses and distribution centers in eighteen countries, has gone a step further. Before building a facility, ProLogis considers the lifecycle of building materials, the emissions associated with clearing land for a facility, and even the commuting distances of construction personnel, all of which would add to carbon output. ProLogis analyzes every opportunity including doing a “lifecycle analysis of the buildings in the works, looking at the energy required to take then down at the end of their useful life, and what percentage of materials could be recycled” (McCue, 2010).
While green initiatives are popular with public perception, making it part of a strategy for environmental sustainability requires an investment in time and money. When shippers tout compliance in sustainability, many customers still look for the cheapest alternative. The cost of compliance may have to be absorbed by shippers, but may also be passed down the supply chain to the customer. “Three-quarters of companies that awarded logistics contracts included environmental targets but Transport Intelligence found 54 percent didn’t provide for the added costs of such compliance” (Hoffman, 2008).
Sustainability in supply chain management is a global affair. China is a leader in contract manufacturing as confirmed by its large trade deficits with the West. Yet, China is recognizing a real need to monitor sustainability and improve conditions. From an environmental viewpoint, China has challenges, including that 75% of its lakes and about half of its rivers have been polluted, one in four die of respiratory diseases, and “international survey on the environmental sustainability of 24 selected countries in 2001 puts China near the bottom of a ranking of environmentally clean countries” (Birken et al., 2009). Regarding social accountability, workers rights are beginning to be addressed by the Chinese government. Minimal wage and healthcare laws were recently enacted, and some rare strikes by Chinese employees have put social accountability in the media. A recent study showed that the “importance of good relationships with employees was mentioned as being of great importance to the future prospects of companies” (Birken et al., 2009). As opposed to Western countries where change is initiated through a democratic process, which can be lengthy and arduous, change in China toward sustainability may lie with the government instead of the corporate sector. “The determination of the Chinese government to create and follow its own sustainable development pathways is a significant force for change” (Birken et al., 2009).
Applying the triple bottom line to supply chain management has been shown to produce sustainable and effective business outcomes. Risk management is improved by recognizing the social and environmental risks in addition to financial risks of supply chain operations. Enforcing ethical standards and becoming a partner in social accountability can greatly reduce legal liability. More efficiency can be identified in several areas including cost of material, logistics, energy, etc. Enhancing green and lean initiatives in production results in reduced costs and more market acceptance of the final product. As more companies monitor sustainability in the supply chain and make triple bottom line goals a reality, many are seeing true financial returns. “A recent survey suggests 30% of manufacturers are gaining new profits directly from sustainability initiatives, showing a clear opportunity for bottom-line results by implementing sustainability” (Blackhurst et al., 2012).
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