The challenge of sustainable supply chains (2023)

Modern production is global, and globalization continues through pandemics, wars, xenophobia and trade wars. It persists because global supply chains improve product quality while reducing costs. Globalization continues as communications, information and even transportation technology continues to advance and become relatively cheaper. The sustainability issue for those who make or sell goods and services is: how does a company ensure that what it makes or sells does not consist of components that destroy the environment or use child or slave labor during production? What's out of sight can't be out of mind, and this is at the heart of the sustainable supply chain challenge.

One of the issues still to be discussed in the proposed US Securities and Exchange Commission.CO2 Disclosure RuleHere's how the SEC should deal with “Scope 3” emissions: emissions that are outside of the organization's control but within its supply chain. Scope 1 emissions are those that arise directly during production and Scope 2 emissions are those that are indirectly caused by the use of what is produced. These are relatively easy to identify and measure. However, governments looking to regulate greenhouse gas reporting recognize that supply chains also need to be regulated.

IfDieter Holgerrecently observed inThe Wall Street Journal:

"A host of supply chain regulations have been enacted in recent years and more are on the way, exposing companies to potential penalties and public criticism for negligence, lawyers said. The rules emerge when companies, particularly small and medium-sized ones, have limited visibility into their supply chains and struggle to expand their oversight, sustainability analysts say. One of the most important pieces of legislation on the horizon is the European Union's Corporate Sustainability Due Diligence Directive. The proposal, published last February, would require the largest companies operating in the EU to identify, prevent and address human rights and environmental risks in their supply chains, such as: B. minimum age, occupational safety, pollution and loss of biodiversity.

Supply chain relationships are not casual encounters, but contractual and formal interactions between organizations. The quality of a product or service is agreed and payment is exchanged. Companies that buy supplies need to add elements of environmental and social sustainability to the definition of quality and develop methods to ensure quality control. There will always be unscrupulous vendors cutting corners on contracts or orders and cheating, but there are old ways of uncovering such practices and they simply need to be expanded to cover these new quality items. We have seen this in other areas of regulation, such as automotive safety. Defective airbag recalls are perhaps the best-known example of quality control principles being applied to ensure regulatory compliance.

The picture of a supply chain is too simplistic as companies often rely on multiple suppliers for the same supply and their suppliers are also served by suppliers. It may make more sense to speak of supply networks rather than chains, replacing the linear picture of a chain with the more complex and multidimensional picture of a network. In a 2020 article about theHarvard Business Review,Veronica H. Villena and Dennis A. Gioiareported on their study of the sustainability practices of multinational corporations (MNCs) and their suppliers and found that:

An increase in recent yearsnumber ofMultinational corporations have committed to only working with suppliers who meet social and environmental standards. Typically, these multinationals expect their Tier 1 suppliers to comply with these standards, and they require those suppliers in turn to require compliance from their suppliers, who ideally require their suppliers to do the same. It's an admirable idea, but it was difficult to put into practice. Many of the multinationals that have committed have faced scandals caused by suppliers who, while aware of sustainability standards, have breached them. What's more, all of these scandals involved first-class suppliers. The practices of the lower-tier providers are almost always worse, exposing companies to serious financial, social and environmental risks."

The method they propose to improve the performance of multinational company supply chains is to train their own procurement staff or buyers so that they understand that the definition of a quality supply includes not only their technical requirements, but also the environmental one and social sustainability of delivery extends .villain and joyconclude that top management of multinational companies must:

"...inform your clients and create incentives to pursue ecological and social goals in addition to economic goals. These officials need to take a hands-on approach to collecting data on suppliers' capacity, monitoring indicators of their sustainability performance and engaging with them on continuous improvement projects.”

The challenge of sustainability in the supply chain is no different from the general challenge of sustainability management. The goal is more thoughtful and careful management. The focus is on precision. What resources must be used to produce that good or service, and how do we ensure that the production process is efficient and does not create more waste or environmental impact than necessary? Are the people involved in the production of the good or service also treated well? Our goal is for workers to be healthy so they can continue participating in production while improving their lives, skills and the organization's production capacity.

In a supply chain or supply web environment, this requires communication and effort in building relationships between suppliers and customers. Instead of sitting back and waiting for sustainable supplies to be delivered automatically, engage with suppliers and identify their roadblocks to sustainability. In a notable effort along these lines, Walmart has a program they're working with HSBC Bank to reward sustainable suppliers with faster bill payments and access to capital. Some suppliers may require technical support to ensure compliance with sustainability quality criteria. Procurement officials could help them access such assistance.

Formalizing sustainability requirements through regulations will help top management take these factors more seriously. Anticipation of the emergence of regulations in Europe and the United States is already making itself felt. Large accounting firms are trying to add sustainability experts to their audit teams, and companies are beginning to realize that sustainability is about more than public relations. Advocate General firms employ environmental lawyers or have experienced legal analysts who carefully review environmental and labor laws and regulations. While conservatives, who view regulation as inherently anti-corporate, will likely seek to discourage these practices, it would be more helpful if they could focus on ensuring that the rules promote, rather than hinder, the organization's productivity and effectiveness. More enlightened work practices can result in more motivated and productive workers. Production that generates less waste and uses less energy and water reduces costs. This is just good management, and regulation can at best encourage best management practice.

Sustainability management and careful use of people and natural resources will be the way to continue economic growth without destroying the planet. The old management philosophy that you have to break a few eggs to make an omelet is just that - old and outdated. Relatively free markets are the best way to create the wealth we all depend on, but let's end this illusion that there ever was a totally free and unregulated market. Rules and regulations are necessary and have always existed; For example, try "Thou shalt not steal." The rule of law has never been more important in this crowded and interdependent world. We can face the challenge of sustainability in the supply chain, a process that has already started.