Logistic 12A - KCM

Supply Chain of the future
Sustainable Supply Chain

Management
Learning Objectives
• Define sustainability and explain its role in supply

chain management
• Identify environmental and social costs inherent in
supply chain activities
• Describe methods of measuring and implementing
sustainability
Arun Dev Bhattarai 2

Learning Objectives(Cont.)
• Explain the supply chain sustainability model

• Identify specific changes organizations can make to
support a sustainable supply chain
• Understand the role of incentives for successful
sustainability efforts

What is sustainability?
• Sustainability has become a key priority in the design

and operation of supply chains in the twenty-first
century
• A focus on sustainability allows a supply chain to
better serve more environmentally conscious
customers while often improving supply chain
performance

What is sustainability?(Cont.)
• The activities involved in SCM impact sustainability

concerns
• biodegradable product packaging,
• responsible product disposal,
• control of manufacturing and transportation emissions,
• sustainable sourcing practices

• The activities involved in SCM impact sustainability

concerns
• biodegradable product packaging,
• responsible product disposal,
• control of manufacturing and transportation emissions,
• sustainable sourcing practices
Perhaps one of the biggest issues to rise to prominence across every aspect of
business and society in the opening years of the twenty-first century has been
‘sustainability’.

• The definition of sustainability that is most widely

used originates from the United Nations Brundtland
Commission, which reported in 1987:
meeting the needs of the present without
compromising the ability of future
generations to meet their own needs

• Sustainability is indispensable when both present and

future generations depend upon the same set of
limited resources
• The resources of the Earth used on the input side of
supply chains are borrowed from the future and must
be stewarded as such

• The waste output of supply chains must be disposed

of responsibly

• There are four documented types of payoffs that

come with improving a company’s sustainability
performance
• Financial payoffs
• reduced operating costs
• increased revenue
• lower administrative costs


performance(cont.)
• Customer related payoffs
• increased customer satisfaction
• product innovation
• market share increase


performance(cont.)
• Customer related payoffs(cont.)
• improved reputation
• new market opportunities


performance(cont.)
• Operational payoffs
• productivity gains
• reduced cycle times
• improved resource yields
• waste minimization


performance(cont.)
• Organizational payoffs
• employee satisfaction
• improved stakeholder relationships
• reduced regulatory intervention


performance(cont.)
• Organizational payoffs(cont.)
• reduced risk
• increased organizational learning

The triple bottom line
• Sustainability can be further augmented by adopting

the parallel idea of the ‘triple bottom line’
• The triple bottom line concept emphasizes the
importance of examining the impact of business
decisions on three key arenas

The triple bottom line(Cont.)
• Environment- Planet (e.g. pollution; climate change;

the depletion of scarce resources, etc.)
• Economy- Profit (e.g. effect on people’s livelihoods
and financial security; profitability of the business,
etc.)
• Society- People (e.g. poverty reduction; improvement
of working and living conditions, etc.)

• These three elements – the 3Ps of people, profit and

planet – are inevitably intertwined

• We can build on the triple bottom line philosophy to

where sustainability is concerned
• ensuring the long term viability and continuity of the
business
• contributing to the future well-being of society

Greenhouse gases
and the supply chain
• These gases include carbon dioxide, methane and

nitrous oxide and various fluorocarbons
• These emissions as they relate to an activity are often
referred to as its ‘carbon footprint’
• As a result of increased economic activity around the
world, the level of these greenhouse gases has risen
significantly over the years

Greenhouse gases
and the supply chain(Cont.)
• Some of the major causes of greenhouse gases arise

from industrial activities such as manufacturing,
energy production and transportation
• The 3Rs of sustainable supply chain management –
reduce, reuse and recycle – are now starting to
receive much more attention in most companies
today

Environmental and
social sustainability
• There are two types of sustainable practices

• Environmental sustainability is the preservation of diverse
biological systems that remain productive over time
• Social sustainability involves maintaining societies’ long-
term well-being
Environmental and
social sustainability are
interconnected

Environmental and
social sustainability
• Environmental Sustainability
• Environmental sustainability is the sustainability practice
that deals with either pollution or resource depletion
issues
• Social Sustainability
• Social sustainability consists of either economic or
population issues

SCM decisions and
related environmental effects

Evaluating sustainability
in supply chain management
Supply Chain
Sustainability Model

in SCM(Cont.)
The Supply Chain Sustainability Model provides

the elements of a successful sustainability strategy
and shows how they are related

in SCM(Cont.)
• Model Inputs
• The external context of SCM pertains to
government and market-based influences
• In all countries, government regulations impose
burdens on industries to follow minimum health
and safety standards

in SCM(Cont.)
• Model Inputs – External Context

• The external context of SCM
• government regulations
• In all countries, government regulations
impose burdens on industries to follow
minimum health and safety standards

in SCM(Cont.)
• Model Inputs – External Context(cont.)

• The external context of SCM(cont.)
• market-based influences
• market influences on the sustainability model
depend upon where the company does
business

in SCM(Cont.)
• Model Inputs – Government External Context

• the disposal of hazardous or toxic waste,
• control of various emissions pollutants,
• no employee discrimination,
• safe working conditions,
• provide minimum wages,
• no child labor
in SCM(Cont.)
• Model Inputs – Market based External Context

• consumer tolerance for pollution
• access to information
• corporate social responsibility

in SCM(Cont.)
• Model Inputs – Internal Context

• The ability of a supply chain to become sustainable
also depends upon its internal context
• pressure to increase revenue
• pay dividends to shareholders
• dominant strategies
• decision-making procedures
in SCM(Cont.)
• Model Inputs – Business Context

• proper use of energy resources
• sustainable transportation system
• uniform labor and inspection standard

in SCM(Cont.)
• Model Inputs – Human and Financial Resources

• the implementation of sustainability programs
requires a significant upfront allocation of company
resources
• capital is needed to adequately educate pertinent
employees to detect sustainability issues
• employees must be equipped with sufficient
resources to act on revelations of risk
in SCM(Cont.)
• Leadership
• Leadership involves factoring all the ‘‘inputs’’
(external, internal and business contexts, as well as
human and financial resources) into management
decisions

in SCM(Cont.)
• Leadership(cont.)
• The most effective leadership comes from a clear
commitment to sustainable performance on the
part of top management that is effectively
communicated through all the layers of the
organization

in SCM(Cont.)
• Leadership(cont.)
• Leaders must be sufficiently knowledgeable and
committed to their vision to translate it into actual
performance
• Leaders must demonstrate commitment to
sustainability, search for risks and opportunities
associated with sustainability, and foster a
sustainable corporate culture
in SCM(Cont.)
• Processes
• A sustainability strategy is a plan that guides the
company and it supply chain toward long-term
profitability that protects consumers, employees,
and the environment
• This strategy is put into place by a combination of
internal structures and programs
in SCM(Cont.)
• Processes(cont.)
• Sustainable structures should be integrated
throughout the organization and between supply
chain members
• Management systems, such as programs and
actions, must be aligned in order to achieve
sustainability
in SCM(Cont.)
• Programs to promote sustainability should tie
incentives and rewards with effective
environmental and social sustainability
performance

in SCM(Cont.)
• Sustainability actions should be both internal (such
as training employees or site audits) and external
(such as supplier audits and public accountability)

in SCM(Cont.)
• Sustainability performance
• Sustainability performance is the overall metric
designed to reflect organizational performance
along multiple dimensions
• all positive and negative impacts on all of the
company’s stakeholders

in SCM(Cont.)
• Sustainability performance(cont.)
• One of the most critical variables in evaluating
corporate sustainability performance is the
definition of stakeholders

in SCM(Cont.)
• Stakeholders’ reaction
• At minimum, supply chains should consider impacts
of their activities on
• stakeholders,
• customers,
• suppliers,
• employees,
• surrounding communities
in SCM(Cont.)
• Financial performance
• Social reputation is a significant success factor in an
informed, competitive market
• Process improvements can lead to multi-million
rupees energy savings and increase shareholder
return on investment

in SCM(Cont.)
• Financial performance(cont.)
• Sustainable decisions can lead to decreased
incidents of legal fees and penalties
• lower packaging and distribution costs
• companies that invest in the health and welfare
of their employees realize benefits in terms of
increased productivity and employee loyalty
in SCM(Cont.)
• Feedback
• Effective feedback loops enable leaders to take data
relating to outputs and outcomes and translate
them into improvements in internal processes

in SCM(Cont.)
• Feedback(cont.)
• Feedback mechanisms must not rely solely on
monetary information but must include
Performance criteria relating to
• environmental,
• social,
• economic matters
Principles of sustainability
• Being able to spot critical sustainability issues, and

offer adequate solutions, is a crucial managerial skill in
today’s business environment
• For key ‘‘issue spotting’’ tools, the following nine
principles of sustainability applies:
• Ethics
• Governance
Principles of sustainability(Cont.)

principles of sustainability applies(cont.):
• Transparency
• Business Relationships
• Financial Return
• Community Involvement and Economic
Development
Principles of sustainability(Cont.)

principles of sustainability applies(cont.):
• Value of Products and Services
• Employment Practices
• Protection of the Environment

Why sustainability?
• Why implement sustainable measures in SCM? There

are at least four reasons:
• Legal compliance with government regulations
• Maintain positive community relations
• Increasing revenue
• Satisfy moral obligations

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Supply Chain of the future

Sustainable Supply Chain

• Define sustainability and explain its role in supply

Arun Dev Bhattarai 2

• Explain the supply chain sustainability model

Arun Dev Bhattarai 3

• Sustainability has become a key priority in the design

Arun Dev Bhattarai 4

• The activities involved in SCM impact sustainability

Arun Dev Bhattarai 5

• The activities involved in SCM impact sustainability

Arun Dev Bhattarai 6

• The definition of sustainability that is most widely

Arun Dev Bhattarai 7

• Sustainability is indispensable when both present and

Arun Dev Bhattarai 8

• The waste output of supply chains must be disposed

Arun Dev Bhattarai 9

• There are four documented types of payoffs that

Arun Dev Bhattarai 10

• There are four documented types of payoffs that

Arun Dev Bhattarai 11

• There are four documented types of payoffs that

Arun Dev Bhattarai 12

• There are four documented types of payoffs that

Arun Dev Bhattarai 13

• There are four documented types of payoffs that

Arun Dev Bhattarai 14

• There are four documented types of payoffs that

Arun Dev Bhattarai 15

• Sustainability can be further augmented by adopting

Arun Dev Bhattarai 16

• Environment- Planet (e.g. pollution; climate change;

Arun Dev Bhattarai 17

• These three elements – the 3Ps of people, profit and

Arun Dev Bhattarai 18

• We can build on the triple bottom line philosophy to

Arun Dev Bhattarai 19

• These gases include carbon dioxide, methane and

Arun Dev Bhattarai 20

• Some of the major causes of greenhouse gases arise

Arun Dev Bhattarai 21

• There are two types of sustainable practices

Arun Dev Bhattarai 22

Arun Dev Bhattarai 23

Arun Dev Bhattarai 24

Arun Dev Bhattarai 25

The Supply Chain Sustainability Model provides

Arun Dev Bhattarai 26

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• Model Inputs – External Context

Arun Dev Bhattarai 28

• Model Inputs – External Context(cont.)

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• Model Inputs – Government External Context

• Model Inputs – Market based External Context

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• Model Inputs – Internal Context

• Model Inputs – Business Context

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• Model Inputs – Human and Financial Resources

Arun Dev Bhattarai 35