Supply chains may operate within legal and responsible guidelines, but still not be sustainable. New guidelines and collaborations are needed that assess supply chain performance in the context of societal and environmental limits.
A growing number of companies are looking to build sustainability into their supply chains. This is due, in part, to mounting pressures to disclose supply chain information. The growing emphasis on supply chain sustainability is commendable, but there is a problem: Most sustainable supply chain initiatives do not actually address sustainability at all.
To be sustainable, a supply chain must operate within the thresholds imposed by nature and society. Currently, most supply chain initiatives do not make reference to these thresholds. This means we cannot tell if they are sustainable or not.
Strategies for Supply Chain Management
Figure 1 identifies four broad strategies for supply chain management: legal, ethical, responsible, and sustainable. These strategies are hierarchical. A responsible supply chain, for example, must also be legal and ethical. However, a responsible supply chain is not necessarily sustainable.
First, there are supply chains that operate within legal limits and comply with agreed-upon contractual requirements. All partners in these supply chains must follow, for example, established legal, building, and environmental standards. These supply chains focus on doing what is legally required. Legal requirements for supply chains continue to evolve. For example, the UK’s Modern Slavery Act 2015 contains a provision on transparency in supply chains.
Next come ethical supply chains. These focus on how organizations ought to behave. All supply chain partners might be expected to exceed legal minimums through, for example, compliance with a code of conduct or adhering to broader voluntary principles, such as fighting corruption. Ethical supply chains expect all partners to honorably conduct their business. Examples of supplier codes of conduct are widely available. For example, the Electronic Industry Citizenship Coalition’s Code of Conduct sets supply chain standards in the electronics industry.
Third, there are supply chains that operate responsibly. Partners in these supply chains are committed to continual improvement, considering stakeholder interests, and making positive contributions in their communities. This could, for example, include implementing efficiency-oriented improvements or investing in capacity-building initiatives in local communities. Responsible supply chains focus on making things better. Supplier-assessment questionnaires often focus on what suppliers are doing with respect to these issues. A good example is provided by Ceres.
Last are sustainable supply chains. These require that all partners behave legally, ethically, and responsibly. However, they must also consider how their actions are situated in the broader sustainability context. A supply chain is sustainable only if its activities can be supported by nature and society over the long term. This is what the other strategies miss. Sustainable supply chains focus on doing what lasts by operating within established thresholds that recognize the limits of environmental and social resources in varying contexts.
Unfortunately, research has shown that there has been little work on connecting performance to environmental or social thresholds. For example, a recent review of 2,555 supply chain metrics found that none explicitly addressed sustainability context. Another review of approximately 40,000 corporate responsibility reports found that only 5% referred to ecological limits.
Some emerging business initiatives, however, do show promise. The Science Based Targets Initiative provides an example of nearly 200 businesses committing to science-based targets on greenhouse gas emissions. Some individual companies have gone well beyond this. Unilever, for example, has established a number of science-based targets as a part of its Sustainable Living Plan, many of which directly affect the company’s supply chain.
This discussion has three key implications. First, there is a hierarchy of priorities in a supply chain. In a sustainable supply chain, economic activity must take place within environmental and social thresholds or limits. Clearly, sufficient economic performance is a key feature of a sustainable supply chain. However, once environmental and social thresholds are set, they come first.
The second implication is that there is a need to establish thresholds. Agreed-upon thresholds are currently lacking, but there are some starting points. For example, looking beyond the business initiatives outlined above, the Planetary Boundaries identify science-based environmental thresholds. For social issues, reference points are less clear, but the Sustainable Development Goals and Oxfam’s social foundations provide starting points. A key challenge, however, is that none of these have been designed to apply to supply chains.
A third implication is that the unit of analysis is the entire supply chain. Clearly, some company (or group) needs to take the lead in getting started. But, attention cannot be restricted to that focal company. Given that companies are increasingly being held accountable for actions deep in their supply chains, a sustainable supply chain is only as strong as its weakest link.
These implications raise a number of challenges. For example, supply chains are often complex, with varying levels of clarity. Establishing protocols for boundary setting, data collection, and analysis is complicated, as is determining whether the chain is operating within environmental and social thresholds. That assumes those thresholds can even be established. There is room for debate on what the thresholds should be, but this is a debate that needs to be had.
What makes a supply chain sustainable? A sustainable supply chain requires more than just following the law, undertaking audits, or increasing transparency. It is more than getting better relative to itself or to another chain. These are all positive and such efforts must continue — but to determine if a supply chain is sustainable or not, however, we need external environmental and societal reference points.
Critically, these reference points must come from something beyond the supply chain itself. They must take into account the need to sustain the supply chain’s activities over the long term. Until those thresholds are established and employed, it will be impossible to tell if a supply chain is sustainable or not.
In the interim, sustainable supply chain management requires setting science-based targets, developing metrics that take sustainability context into account, and building relationships with players across the chain. These will provide a strong foundation for setting and staying within key environmental and social thresholds.
Source: MIT Sloan Management Review