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w w w . i m d . c h N o . 18 3 AUGU S T 2 0 10
Being proactive about supply chain environmental management The attention dedicated to environmental
In the nineties, global trade volumes started
issues has drastically increased over the
to grow at a faster pace. As a consequence
last 25 years. Governments have become
of such globalization, the complexity of
involved
and
supply chain networks has increased and
participated in events such as the Earth
the ability to regulate them through national
Summit (1992), the World Summit on
environmental policy has been reduced.
Sustainable Development (2002) and the
In the last decade, it has become clear
UN World Summit (2005). They have further
that to be truly sustainable, focusing on the
shown their commitment to sustainability
environmental performance of individual
by approving increasingly stringent policies,
firms is not enough. Life cycle or supply chain
e.g. on the emission of ozone depleting
thinking needs to be taken into account. In
substances, the use of chemicals and the
2002, the Life Cycle Initiative was launched
disposal of electronic waste. In the mid-
by the United Nations Environment Program
nineties, firms started to feel this regulatory
(UNEP) and the Society of Environmental
and public pressure and some began
Toxicology and Chemistry (SETAC) to promote
to proactively report and take action on
sustainable consumption and production
improving their environmental performance.
patterns through life cycle management.
A multitude of organizations, standards
Since then, NGOs and consumers have
and guidelines have been developed both
increasingly been demanding environmental
internally by companies themselves and by
and social accountability from firms for their
external government agencies to support
entire supply chains.
sustainability efforts by businesses.
With this evolution in ideas, supply chain
Over the last quarter century there has
environmental
been a clear evolution in thinking about
emerging as a new frontier. Guidelines are
sustainable development. In 1983, The
being developed to incorporate a supply
Bruntland Commission provided the first
chain dimension into corporate sustainability
definition of the term as “…development
initiatives. For example, the Greenhouse
that meets the needs of the present
Gas Protocol, a corporate accounting
without compromising the ability of future
and reporting standard developed by the
generations to meet their own needs.”
World Resources Institute (WRI) and the
One decade later, it became evident that
World Business Council for Sustainable
businesses needed to get more involved.
Development (WBCSD), includes scope
They therefore, needed to move beyond
3 emissions. These encompass all GHG
traditional financial performance to the
emissions from operations not owned or
“triple bottom line,” a term coined by the
controlled by a firm. However, there is still
British environmentalist John Elkington
a clear lack of well-established, robust
in 1994. It describes how to determine and
methods for measuring and reporting
measure an organization’s value creation
supply chain environmental performance as
ability by taking into account environmental,
respondents to a survey by the Greenhouse
social and economic aspects, or the 3Ps –
Gas Protocol Product and Supply Chain
planet, people and profits.
Initiative unanimously indicated.
in
sustainability
issues
1
management
(SCEM)
is
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Ralf W. Seifert (IMD, EPFL)
Joana M. Comas (EPFL)
In our analysis, the electronic equipment and automobile sectors stand out as those with the most proactive approach, and a high number of positive/proactive actions were identified in their reports. In contrast, the clothing sector obtained the lowest score. Even leading firms in this last sector seem to be more concerned with social rather than environmental issues. 2. Supply chain vs. firm orientation We identified different supply chain or life cycle stages whose environmental performance was meant to be improved by the firms’ actions. These stages are materials extraction, raw materials, packaging, tier 2 suppliers, firm, additional, downstream echelons, distribution,
Figure 1: Timeline of the attention paid to environmental issues
product use, product disposal, packaging disposal, Today all stakeholders – customers, governments,
total and external. The tier 2 supplier category includes
communities and other pressure groups – are thus
the operations of the companies supplying products or
pushing for a supply chain approach to sustainability,
resources to the primary suppliers of the analyzed firm.
but to what extent is such an approach integrated
The additional category includes building construction and
into actual practice? Do firms really take a supply
demolition, business travel, employee commuting and
chain approach or do they remain firm-oriented? To
equipment not core to a firm’s operations such as office
what extent does SCEM vary across sectors?
equipment. The downstream echelons category refers
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we thoroughly analyzed the
to those entities that act as intermediaries between the
corporate responsibility (CR) reports of firms that
analyzed firm and the final customers (e.g. retailers or
are recognized sustainability leaders (i.e. Gold or
dealers). The total category covers a whole supply chain
Silver Class companies in the SAM Sustainability
or product life cycle, e.g. it applies when conducting a
Yearbook 2009) to assess their SCEM practices.
life cycle assessment (LCA). The firm category applies
We studied twelve companies covering six sectors
to actions improving the performance of the firm overall
(automobiles, building materials and fixtures,
or particular processes it owns that are not covered in
clothing and footwear, computer and electronic
other categories. The external category refers to any
equipment, food producers and general retailers).
activities outside of the supply chain (e.g. efforts to protect
In our research,
biodiversity in a local natural park). 1. Firms’ proactiveness
We measured the emphasis that each company gives
We identified different types of actions as the
to the aforementioned supply chain/life cycle stages
proactive efforts that firms make in SCEM and
and again, we observed significant differences across
measured the number of actions in the most recent
sectors. Figure 3 presents the number of actions for each
CR report (as of 1 May 2009) of each company. This
firm in each stage. We observed that firm-orientation
indicator, which can be interpreted as a measure
prevails given that 39.5% of actions on average referred
of the firms’ SCEM proactiveness, strongly varied
to the firm stage. The sector most focused on this stage
across sectors, but remained similar within them,
and therefore most firm-oriented is, without a doubt,
as shown in Figure 2. From the 12 firms that we
the building materials sector which invests heavily in its
analyzed, we obtained a total of 3,205 actions.
manufacturing base. On the other hand, the sector with the highest dispersion across the different supply chain/life cycle stages and, therefore, the most supply chain-oriented, is the computer hardware and electronic equipment sector, which has made widespread use of outsourcing in the past decades. Finally, we can observe that certain stages, such as tier 2 suppliers and downstream echelons, receive relatively little attention.
Figure 2: Number of actions/proactive efforts per firm
Being proactive about supply chain environmental management
Figure 3: Firms’ attention to different supply chain or life cycle stages and stages subject to major regulation and public pressure
3. The effect of regulation and public pressure
patterns. Consumer awareness of the greenhouse gas
Particular supply chain or life cycle stages are
emissions from vehicle and computer use is increasingly
subject to major regulation such as EU environmental
determining customer choices. As a consequence,
directives. For example, the product disposal stage
firms in these sectors are dedicated to developing
in the electronics sector is affected by the Waste
technologies that are more fuel and energy efficient
Electric and Electronic Equipment (WEEE) directive,
during the product use phase.
which is intended to implement the extended producer
In
responsibility (EPR) principle. This explains the
manufacturing is often outsourced and public pressure,
outstanding efforts of this sector to put the necessary
therefore, falls on the suppliers’ stage. This is why
reverse logistics infrastructure in place to facilitate
suppliers working for branded companies are subject to
equipment recycling by consumers. The raw materials
important monitoring and auditing processes.
used by this sector are also regulated by the EU
Nestlé, the world’s largest food producer, also feels
Restriction on Hazardous Substances (RoHS) Directive,
consumer pressure at the suppliers’ stage and
which also explains why this life cycle stage receives
responds to it with the implementation of multiple
considerable attention.
supplier training programs. With the same objective of
The use phase of automobiles is subject to emissions
improving environmental performance upstream in the
standards and in the EU, vehicle fuel efficiency must be
supply chain, Unilever has set quantitative targets on the
available to customers. This explains the efforts of firms
percentage of the sourced tea and palm oil to be certified
in this sector to develop less polluting technologies and
according to the standards set by the Rainforest Alliance
the sector’s focus on the use stage.
and the Roundtable on Sustainable Palm Oil (RSPO).
Processes for the production of building materials, like
This explains why these companies dedicate particularly
cement, emit significant amounts of greenhouse gases
high attention to the suppliers and the raw materials
the
clothing
and
footwear
sector,
product
and other air emissions (nitrogen oxides, sulfur oxides,
categories, as we also observe in Figure 3.
particulate matter) and are therefore tightly regulated.
We can observe then that regulation and public pressure
Since these processes are generally owned by the firms
are key determinants of whether firms adopt a supply
we analyzed in this sector (Holcim and CRH), this sector
chain approach to environmental management, and
displays a very clear firm orientation, with relatively little
explain why taking a supply chain or firm-oriented
attention paid to other stages of the overall supply chain.
approach varies across sectors.
If apart from regulation, we identify those life cycle stages subject to strong public pressure, we observe similar
4. Beyond regulation and public pressure
These are just some examples supporting the business
Although regulation and public pressure are powerful
case for sustainability. Direct financial benefits, competitive
drivers for supply chain environmental management,
advantage arising from consistent company standards and
leading companies are proactive and go beyond them, often
the development of new lines of business are some of the
for financial reasons. For example, in 2008, HP voluntarily
reasons to voluntarily adopt more sustainable practices. The
diverted 92.3% of its non-hazardous waste from landfill,
perception of a zero-sum relation between environmental
saving nearly $7.7 million from reusing items and avoiding
and financial performance is progressively declining as
landfill costs. The company also generated $2 million in
more evidence that these two can go hand in hand becomes
revenue by selling material to recyclers.
available.
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as EU directives also voluntarily choose to comply with these
5. Managers’ actions
high standards in regions with less stringent regulation.
Having highlighted the need to be proactive and to take a
As Dell’s 2008 CR report notes, “Even though the trend
supply chain approach in managing environmental issues,
toward producer responsibility has accelerated the pace of
we invite managers to ask themselves the following
legislation in the US, we are committed to implementing
questions and take the necessary actions to provide
our Product Recovery Policy without legislative mandates,”
satisfactory answers. What is our degree of management
and “As of the beginning of 2007, all Dell-branded
and control over our environmental performance in the
products worldwide were compliant with the EU RoHS
supply chain? Are we measuring, setting targets and
requirements.” Going beyond compliance and satisfying
taking action for different environmental issues at the
the highest requirements can help companies to achieve a
different supply chain and product life cycle stages?
first-mover advantage and reduce the costs of managing the
What is our upstream and downstream reach? Are we
complexity arising from having products that need to comply
assuming responsibility for supplier performance? Do we
with different standards, depending on the country in which
do so beyond tier 1 suppliers? Are we taking an active role
they are produced or sold.
in educating customers about the environmental impact of
Thinking beyond regulation and also beyond the firm’s supply
their choices? Are we leveraging downstream echelons’
chain, proactive companies also look for opportunities to
proximity to customers in this task?
reduce environmental impact in other sectors. Given that
The benefits of supply chain integration have been proven
the large batches required for cost-effective book printing
for traditional operational and financial performance. It is
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end up in 25% of books going unsold, HP has recognized
now time to take supply chain integration to the next level
a market for on-demand-printing technologies. These allow
by comprehensively improving corporate environmental
for a reduction in the number of unsold books and therefore
performance. Not only is it the right thing to do for firms as
a lower paper, ink and energy consumption as well as lower
corporate citizens, but it is a chance to improve efficiency
waste generation.
and create new business opportunities.
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World merchandise trade volume by major product group, 1950-2007. International Trade Statistics by the World Trade Organization. http://www.wto.org/english/res_e/statis_e/its2008_e/its08_charts_e.htm (accessed 20 July 2010). A corporate accounting and reporting standard. GHG Protocol, World Business Council for Sustainable Development (WBCSD) and World Resources Institute (WRI), 2004. Supply chain and life cycle survey: summary of results. GHG Protocol, World Business Council for Sustainable Development (WBCSD) and World Resources Institute (WRI), May 2008. The present article is based on a research paper: An analysis of the supply chain environmental management practices of sustainability leaders. Comas, J.M. and Seifert, R.W. (2010). Findings from the U.S. book industry: environmental trends and climate impacts. Book Industry Study Group and Green Press Initiative, 2008. For further reference on the business case for corporate sustainability: The Business Case for Corporate Sustainability: Literature Review and Research Options. Salzmann, O., Ionescu-Somers, A., Steger, U. European Management Journal, February 2005.
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