How can companies create more sustainable supply chains?
11/30/2022
5 min
Share
Faced with increasing pressure from consumers and other stakeholders, and the challenges caused by the global pandemic or energy crisis, there has been increasing focus on the sustainability and resilience of companies’ supply chains and management of logistics. We spoke to two IÉSEG faculty members, Verena Ehrler and Ronald McGarvey , about the pressures on supply chains to address environmental and social challenges and how companies can look to develop more sustainable practices.
What do we mean when we talk about sustainable/green supply chain management?
Ronald MCGARVEY:
There has clearly been a realization in society that a lot of our current consumption practices aren’t sustainable from an environmental standpoint. There’s also been increasing concern over the last 20 years about the social aspects of our consumption. Therefore, sustainable supply chain management is about trying to address how we can provide the goods and services that that society expects, while still managing the increasingly limited resources at our disposal and promoting human development and a sustainable society.
Verena EHRLER:
I would just add that it is important to ensure that we include logistics in this discussion. Indeed, as Ron mentions, the social considerations are often forgotten or receive less attention. Human resources, salaries and working conditions are, for example, all central elements in sustainable supply chain and logistics management.
Ronald MCGARVEY:
Indeed, unfortunately there are still examples of slave labor in the production of certain commodities. Firms, therefore, are rightly under increasing pressure from society to ensure that human resources involved in their supply chain – even those many tiers upstream in the supply chain – are in line with societal values.
Why has the issue of sustainable logistics or supply chain management become so important for organizations and companies worldwide?
Verena EHRLER:
Clearly, there has been a recognition that we can no longer take our natural resources (soil, water, air etc.) as unlimited and for granted. There is an interesting study from the Swiss Re Institute, which estimates that the world stands to lose a remarkable 10% of its economic value if temperature increases stay on the current trajectory, and both the Paris Agreement and 2050 net-zero emissions targets are not met.
We need to consider not only these economic costs but also the fact that climate change impacts are likely to be irreversible, having consequences, for example, on where and how we can live or produce food. Taking action is, therefore, important for every sector, and supply chain management and logistics have a particularly crucial role to play.
Ronald MCGARVEY:
Discussions on international supply chain management are completely intertwined with the issue of deindustrialization in the west. A driving factor in the offshoring of manufacturing from Europe and North America has been the labor advantage for production in developing economies.While it has brought some positive impacts, there has been increasing recognition and focus on the human rights and social problems that have been caused. A lot of the economic rationale for moving production to developing economies has not included the concomitant negative externalities, particularly the fact that many of these countries have historically had weaker social and environment protections than western economies. There is an increasing recognition that this simply isn’t sustainable.
Looking to the future, what are the steps that are required to help organizations become more sustainable in terms of this supply chain or logistics management?
Ronald MCGARVEY:
I can’t over stress the importance of knowing your supply base. Put simply, this means that companies need to know the source of their materials all the way back into the earth. So far, very few firms have that detailed of an understanding, although the biggest firms are often ahead of smaller companies in terms of traceability.
To do this well, organizations need to understand what their upstream supply chains beyond just their tier 1 suppliers, which is challenging because obtaining this information can be expensive, complex and time-consuming.
In many cases, this means investing in your supply base and suppliers to ensure they have the know-how and the resources to go to their upstream suppliers and understand their environmental practices and their human rights, hiring and workforce practices. There is no ”free lunch” here, companies have to be willing to pay more to conduct these activities. But this raises the (still unaddressed) question of how those costs get passed along to consumers.
Verena EHRLER:
Internalisation of external costs is key. Sustainable supply chain management (SCM) must not be more costly than non-sustainable SCM. There is no economic logic to this. Another key element is linked to Ron’s point about transparency. It is crucial that companies provide information to consumers, so they know what they are spending their money on. Here, we already see that some companies are very committed and make huge efforts. They communicate what they are doing and may even openly talk about what they have not managed to do or would like to do in the future.
Ronald MCGARVEY:
In the agriculture sector, for example, there are a number of examples with coffee and chocolate companies that position and market themselves as offering more sustainable solutions. They work with partners to identify farmers and then the firm invests in the farmers for example in terms of training or sustainable production methods. Collaboration is therefore also a key aspect in this regard.
Why do you think there is a shortage of talent in the supply chain sector?
Verena EHRLER:
The logistics and supply chain sector really needs more qualified staff and is struggling to find the talented people it needs. Demand for these profiles has grown so much as the sector has gained momentum and importance. Schools like IÉSEG can play a key role by training and teaching next generations for the sector, and by ensuring that sustainability is a core element of the approaches taught.
I also think there is an opportunity to make supply chain management and logistics more attractive for women as a working field. There is a great opportunity for Schools like IÉSEG to contribute here.
Ronald MCGARVEY:
Indeed, I believe there aren’t many better (career) fields for those who are looking to achieve an impact. The bottom line is that in many sectors the overwhelming majority of (carbon) emissions originate from the supply chain, rather than inside the walls of the firm. Many environmental problems and human rights concerns are therefore occurring ‘upstream’.
The people who are getting into the supply chain now are going to have an opportunity to really help society solve the sustainable production conundrum.
