Challenges to Supply Chain Sustainability

Abstract

Supply chain management is the concept of having product reach its end user and the cumulative effort of multiple organizations which represent the supply chain. These organizations must work to operate in an effective and efficient manner to cultivate a sustainable competitive advantage. To create a competitive advantage, many supply chains partner with an extensive network of suppliers, manufacturers, and retailers. Most supply chains operate internationally and are made up of many parts. As supply chains become globalized and their reach grows, they begin to impact many parts of the world and society at large. Due to the growing power of supply chains, we must now consider their effects on the environmental, social and economics of the areas in which they operate. The growing pressure from governments and the very customers they service this issue has come to the forefront. The sustainability concern must address where the company receives it supplies, how products are manufactured, and where is it produced. This paper will address how supply chains are integrating sustainability methods to address social, economic and environmental issues.

Introduction

Supply chains are complex networks made up of suppliers, manufacturers, warehouses, stores and customers dispersed around the globe. These networks work together utilizing global optimization to increase profits and reduce costs for the companies. The globalization of manufacturing and new technologies have allowed supply chains to expand their reach. These new tools have allowed the free movement of goods and services across the world. As supply chains continue to grow, they have moved more towards outsourcing a majority of the integral parts that make up the business. For example, companies located in the US may utilize many manufacturers in different parts of the world. This allows them to reach different markets as well as lower supply chain costs. This move increases the complexity of supply chains and their dependency on international suppliers making them harder to control. The focal companies who create these supply chains are also responsible for controlling and monitoring the components of the supply chain that support them. The sustainability of supply chains refers not only to the economic success of the companies but also the social and environmental impact of the supply chains. The companies who head the supply chain are also held responsible for the actions of their suppliers within the supply chain. The companies are accountable for the economic and social consequences of their suppliers.  This, in turn, affects the sustainability and future success of the supply chain.

The sustainability of a supply chain has become a growing concern for many companies. This is due, in part, to the concerns of customers, regulatory policies, and business interests. These factors have made it apparent that supply chains must not only focus on their success but also the needs of the communities they operate in and serve. The relationship among society, the environment, economic, and industrial development integral to the concept of sustainability (Hutchins, Sutherland, 2008, p.2). Companies are responsible for understanding and controlling their logistical actions the consequences it has on communities. To address these issues, supply chain managers must reflect on the relationship with the suppliers. They must attempt to deliver a product made by a socially, economic and environmentally responsible process to the market. Policies must be set with the intent of creating a standard and establishing requirements for what is expected from all aspects of the supply chain. Aside from internal controls, customer standards have a huge impact in shaping the supply chains operate. Whether it be in determining suppliers based on their treatment of workers or environmental impact customers’ voice can alter the sustainability of a supply chain. Additionally, government agencies have created standards to help aid supply chains meet expectations. Standards such as ISO 26000 provide companies with a direction in socially responsible terms of operating. ISO 14000 series set a voluntary standard for companies to assess and implement environmental policies.

Recently many customers have become conscious of the products they purchase as awareness around the source of products has increased within the general population. This directly impacts the supply chains that provide these products.  As consumers are looking for socially and ethically sourced items, the companies, and the supply chains must also move towards the same direction. As more and more products are outsourced to developing countries, treatment of workers and working conditions have become ethical concerns. As recently as 2017, chip manufacture for Apple and Amazon among others, Foxconn, has faced scrutiny for the working conditions of its factories. This type of publicity has put a lot of pressure on Apple to act against their supplier. The social impact of a supply chain not only affects the company’s reputation but can be used as a tool to improve conditions for the working people.

Another concern for customers is the environmental impact of supply chains. As the world heads towards an increasing green future, supply chains are facing increased pressure to comply. Companies are now applying environmentally friendly philosophy with the development chain of new products being integrated into their networks. Considering that supply chains involve many factories, transportation methods, and resources to create the final marketed product, the environmental impact is enormous.  From the sourcing of materials to the election of suppliers and purchasing management supply chains must be environmentally conscious. This idea must consider what the supply chain produces, as that can influence the environmental stance of the company. Establishing a standard to reduce pollution and creating an energy efficient supply chain can be beneficial for the sustainability of the supply chains. Companies are identifying new methods to solve the issue of sustainability. From sourcing reusable packaging to utilizing cleaner forms of transportation to move products throughout the supply chain.

Lastly, the economic impact of supply chains can be one that leaves a long-lasting effect on the communities involved. It is no mystery that the use of environmentally and socially sound methods help ensure the people involved see improvements within their communities. Obtaining materials from ethical sources that provide equal pay and treatment of the workers help the people within the community. Using environmentally progressive sources also helps ensure the communities are not polluted and can sustain the people who live and work in those areas.  The focal companies of major supply chains must keep in mind their impact on many aspects when they provide economic opportunities. A sustainable supply chain not only provides jobs, but it helps bolster an economy and lifts people out of poverty. It provides the opportunity for smaller business to prosper and holds larger sectors responsible. Focal companies have the responsibility of crafting short term and long term economic sustainability for the communities they operate within.

Discussion

The social, economic, and environmental responsibilities of supply chains have become a growing concern in supply chain management. Focal companies that run these chains have started to take more responsibilities to improve the life cycle of products from raw material to final product and after. The impact of environmental decisions of a supply chain was first considered because of the move towards green and sustainable trends.

Government agencies and ISO 14000 standards have paved the way for cleaner and environmentally sustainable supply chains. Supply chains have begun to implement these voluntary programs and adhere to criteria set by different government agencies. According to Forbes, supply chains have seen about a 70- percent increase in regulations from 2007 to 2009 related to product materials (Westervelt, 2012). Regulations and standards such as the Electronic Industry Citizenship Coalition (EICC), influence how supply chains operate and influence their suppliers to do the same. ISO 14000 help consider the supply chains final product impact on the environment from the start to the end of the life cycle. It provides sustainable raw material extraction methods, manufacturing, and disposal options before and after the lifecycle.

With the growing number of regulations and the move towards a sustainable future, supply chains have begun to incorporate these approaches to current and new supply chains. They are also increasing awareness of the relationships within the supply chain. This begins by creating standards for the supplier to follow and performing audits to track and trend all aspects of the supply chain to ensure it is meeting requirements. To reduce pollutants such as greenhouse gasses, they are using new technologies to forecast distribution routes and optimize transportation methods.

In one study, the flow of product of locally produced foods was investigated to determine and develop efficient distribution systems. Tools such as GIS and Route Logix Software were used to develop and map new distributions methods. The best scenarios reduced transportation distances by 93- percent, 92- percent for transport distance and 87- percent for the number of routes (Bosona, Gebresenbet, Nordmark & Ljungberg, 2011). These types of tools are being applied to solve not only the issue of transportation costs but also the effects of supply chain distributions systems on the environment. The greenhouse gasses emitted from production and transportation of goods accounts for 45- percent of the pollution produced by emerging economies like China and India. Companies that operate in these countries have found new sources of income, enhanced public relations and reduced costs from implementing green initiatives (Plambeck, 2012).

Therefore, it is key for supply chains to implement changes to their systems to improve the quality of the environment and remain sustainable. Decisions such as optimizing distributions, choosing organic alternatives, and holding suppliers to standards will help lower environmental impact.

Corporate responsibility expands beyond environmentally friendly policies. Currently, it is not clearly defined what role supply chains should play regarding the social implications of their actions. There are standards available such as ISO 2600 and the EICC. Although these create a start for change within, these are not mandatory forms of regulation. It makes it the government’s job of holding many multinational corporations accountable for human rights issues. A place where this abuse of laborers within a supply chain is most apparent is in the raw materials sector. As this is the beginning of the supply chain, it typically contains many low wage workers. The working conditions, human rights violations, and insufficient pay create terrible conditions. Most workers also experience hazardous working conditions.

This is seen in the collapse of the Rana Plaza in Bangladesh. The plaza which produced clothing for major international brands collapsed, causing the death of 1,134 people (Safi & Rushe, 2018). The news of this not only held the factories responsible but also the brands. Due to the threat of losing these big brands, factories have started to make improvements. This is a partial solution to the issue. Many factories operate with sub-contractors who are not within the scope of these changes. The bad press threatens to disrupt supply chains so they have to find alternatives or create new standards of the suppliers in question.

Recently, the increased awareness of supply chains and the working conditions of workers has brought to the forefront the issue of social responsibilities. Leaders of supply chains are realizing they are being held socially accountable. The lifecycle of a product should promote people, human health, and fulfill basic needs. Human health refers to the safety, equity, and quality of life of the supply chain workers.

The International Labour Organization has brought more attention to the conditions in the area and suggests standards set by the focal companies can create the greatest change. The ILO has taken the issue of supply chain due diligence and is working to partner workers, employers, and governments. The goal is to implement clear policy commitment to develop solutions to human rights concerns. Global supply chains are beginning to implement responsible supply chain management using tools such as audits, risk, and self-assessments. Risk assessments determine their risk of non-conformance with standards. Self-assessments help understand the practice of the different components of their supply chains. Lastly, performing audits of the facilities that operate within their scope to evaluate the facilities labor, ethics, and occupational health risks can minimize their negative social impact. These steps, in addition to increased transparency, are beginning to create the social change needed within the global supply chain.

Another move companies are making is a systematic approach to solving social issues. Companies in the same industries are combating issues together by applying similar standards and requiring the upstream supplier to comply. This empowers the workers, fosters decent working conditions, and enforces social change along a supply chain. Unity between focal companies can drive policy changes from governments and within.

The social corporate responsibility has only recently become an issue. Prior globalization companies created their own products and were only concerned with their treatment of workers. Now they must consider the supply chain as a whole. The new regulations and systematic approach to social issues are moving in a positive direction. Responsible customers are another driving force of change. Ultimately, the supply chains play the biggest role in the sustainability of socially conscious forms of production and consumption of goods.

In addition to social and environmental, supply chains also have a major impact on the economic status in the areas they operate. From the idea of the triple bottom line, at the center of sustainability, there is an intersection between environmental, social and economic performance (Carter & Easton, 2011). For this reason, corporate focus on improving the social and environmental impact of the entire supply chain is economically beneficial. A study of the economic performance of supply chains in Japan found that suppliers reducing waste can lead to an internal green product, a process that enhances competitive advantage (Hayami, Nakamura, & Nakamura, 2015).

As developing countries continue to perform upstream operations of supply chains, the income gap between these countries and developed countries continues to increase. The low wage workers receive little from the downstream capital gains. The continued improvements regarding social traits, such as increased pay and educating, are important in the short and long-term economic effects of supply chains. These improvements eventually create a long-term sustainability plan of action for the economic success of global supply chains.

Conclusion

The global supply chain has become an increasingly complex network of international suppliers, distributions centers, and customers. To sustain the continued growth and success of focal companies, the implementation of green supply chain management, increased social initiatives are being executed. This, in turn, is creating better economic conditions within the communities supply chains operates. The corporate social, economic and environmental responsibilities are continually increasing as consumer consciousness, government regulations and standard business practices are implemented. The success of supply chains can only be achieved with consideration of these factors, which promote sustainability.

References

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