8.4 Initiatives to Make Sustainable Supply Chains
Learning Objective
3. Describe various initiatives taken by organizations to make their supply chains sustainable.
The following material is adapted from A Lean Approach to Developing Sustainable Supply Chains by Gargalo, Pons, Barbosa-Povoa, & Carvalho, (2021) under Creative Commons Attribution License 4.0.
Corporations and their supply chains have to go through significant changes to become more sustainable as society is pressing for sustainable systems. To this end, it is critical to develop new methodologies to trim away processes and activities that add no value and, thus, derive more sustainable supply chains.
Worldwide stressors, such as climate change, a consciousness of social and environmental responsibilities, stronger competition and lower profit margins, have been forcing companies to vigorously maintain their competitiveness and commit to sustainable practices and performance management. As a result, both academics and industries are motivated to find the best way to simultaneously include all three aspects of sustainability (economic, environmental and social) to achieve meaningful and beneficial results.
Lean management has proven to be a handy and innovative tool to promote continuous improvement and is easily adaptable to include sustainability aspects. Due to the ongoing interest and need to implement corporate environmental and social policies, combining lean management and sustainability has become more popular. An increasing number of studies have proven clear positive impacts (economic, environmental and social) on the supply chain performance when lean is linked to sustainability. Since one of the lean operational goals is to keep or improve the production quality but reduce the use of resources, lean principles lead to more environmentally friendly operations due to lower waste produced and thus lower environmental impact. By reducing the number of materials used, the costs are also reduced, and therefore sustainability’s economic facet is likewise addressed. Increasing quality and efficiency leads to water and energy consumption improvements, which also gets reflected in the costs.
(Gargalo, Pons, Barbosa-Povoa, & Carvalho, 2021) CC-BY-4.0
Harvard Business Review (2020) has mentioned the rising number of corporations that pledged to work with companies that adhere to environmental and social standards. Standards are related to suppliers, and those suppliers have to comply with those commitments; otherwise, multinational corporations cease working with them. This action creates sustainable practice, smoothly spread worldwide within the global value chain. However, according to the article, realizing this practice is hard for corporations to comply with social and environmental standards simultaneously. In addition, multinational corporations faced scandals that arose from their standards because suppliers were aware that these standards violated them.
Villena and Gioia (2020), authors of the article from Harvard Business Review, have posted best practices for multinational corporations for promoting environmental and social responsibility:
- They have to establish long-term sustainable goals;
- First-tier suppliers must establish their own long-term sustainability goals;
- Lower-tier suppliers should be included in the global corporate sustainability strategy;
- An employee responsible for promoting sustainability programs to lower and first-tier suppliers;
- First-tier suppliers have to be annually assessed by asking about their safety, health, labour, and environmental practices in their workplace;
- Conduct a survey about the sustainability of the supply chain to comply with multinational corporations’ requirements within the company. There are many indicators and critical performance within the company to monitor supplier sustainability annually;
- Training first-tier suppliers to comply with their standards as well as providing incentives for using sustainability practices. The training and incentives led suppliers to increase awareness and make significant changes within the industry; (Villena & Gioia, 2020).
- Invite suppliers to the workplace and spread best practices related to the sustainability of the supply chain;
- Collaborating and cooperating with competitors to comply with these sustainable practices because fighting alone with this problem is impossible;
- Collaborative initiatives can increase awareness about sustainable practices and standards, increasing efficiency for suppliers and simultaneously satisfying customer needs. That is why suppliers will be willing to follow these requirements and be members of an association. Industry associations have a lot of benefits for parties and members because all of them are prominent actors in that scene;
- Collaborate with NGOs and international associations for adopting and spreading sustainable practices and strategies within all industries. Spread information about the importance of complying with economic, social, and environmental standards.
These best practices are recommended for companies to adopt, use and spread through the supply network.
Managers can potentially improve indicators and simultaneously make their supply chains more sustainable. Gargalo, Pons, Barbosa-Povoa, & Carvalho (2021) created a table of recommendations for each indicator (Gargalo, Pons, Barbosa-Povoa, & Carvalho, 2021).
The following material is adapted from A Lean Approach to Developing Sustainable Supply Chains by Gargalo, Pons, Barbosa-Povoa, & Carvalho, (2021) under Creative Commons Attribution License 4.0.
Table 8.1
Recommendations to improve indicators of the supply chain's overall sustainability
| Indicator | Recommendations |
|---|---|
| Material Value Added-Supply Chain (MVA-SC) | Redesign the production process, for example, by applying process intensification and/or process integration. |
| Energy Cost-Supply Chain (EC-SC) | Invest in equipment and vehicles that are more efficient, as well as investing in continuous heat integration |
| Total Inventory Level Cost (TILC) Entity Inventory Level Cost (EILC) |
Decrease the level of production and demand uncertainty. The production uncertainty can be reduced by implementing more robust production processes. Demand uncertainty can be decreased by identifying a significant buffer near the end customer to protect the supply chain from market uncertainties or by applying a production leveling technique (“heijuka”). |
| Backorder Cost (BC) | Improve supply chain coordination and inventory management policies. |
| Lead Time Factor (LTF) Operational Lead Time Factor (OLTF) |
Ideally, all activities should be located at the same place near the end customer. This is often not possible, so the recommendation is to find facilities that share material flows and locate them as close as possible. Using “just in time” methods such as pull systems or process synchronization also shortens the lead time. |
| Inventory Turnover (IT) | Reduce the inventory by gradually ensuring not compromising the service level or reducing the batches’ size and increasing the pick-up frequency. |
| Volume Flow (VF) | Redirect the flow of material to another path with a lower workload, or boost the work capacity acquiring newer and more effective equipment. |
| Ok-Parts (OK-P) | Implement failure prevention techniques (“poka yoke”) to reduce scrap and rework in every facility’s production processes. |
| Service Level Quantity Factor (SLQF) and Service Levels Time Factor (SLTF) | Improve the information sharing between the supply chain members to know the capacity constraints and each supplier’s inventory management. According to the collected information, find out how to deliver the required orders in the proper quantity and time. |
| Overall Thoughput Effectiveness (OTE-SC) | Implement kaizen workshops to decrease the production uncertainty (technical, organizational and quality losses, and changeover times). |
| Variability Lead Time (VLT) | Homogenize all the processes of the value stream to gain stability and ensure consistent results over time. |
| Bullwhip Effect (BE) | Adopt a centralized multi-echelon inventory control system since it presents a superior performance over independently operating site-based inventory. |
| Carbon Emissions (CE) | Implement more energy-efficient equipment, vehicles and facilities; and/or optimize the supply chain operations. |
| Waste Factor (WF) | Reengineer the production process to be more efficient and promote recycling policies. |
| Sustainable Energy (SE) | Improve energy efficiency and invest in renewable and sustainable energy sources. |
| Labour Equity (LE) | Improve the lowest salary and/or reduce the highest salary—decrease salary disparity. |
| Fatal Accident Rate (FAR) | Improve labor conditions by implementing robust security policies and provide training to the employees. |
| Corruption (C) | Organize workshops to raise awareness among managers and promote transparent communication of information. |
(Gargalo et al., 2021) CC-BY-4.0
Check Your Understanding
Describe various initiatives taken by organizations to make their supply chains sustainable.
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Overall Activity Feedback
It is crucial to understand various initiatives taken by organizations to make their supply chains sustainable. In addition, it is essential to know recommendations to improve indicators of the supply chain’s overall sustainability. As a result, managers can potentially improve indicators and simultaneously make their supply chains more sustainable. Lean management has proven to be a handy and innovative tool to promote continuous improvement and is easily adaptable to include sustainability aspects. Due to the ongoing interest and need to implement corporate environmental and social policies, combining lean management and sustainability has become more popular. An increasing number of studies have proven clear positive impacts (economic, environmental and social) on the supply chain performance when lean is linked to sustainability.
