Global Supply Chain Network for Sustainability

Global Supply Chain Network for Sustainability

Saturday, 22 June 2013

1.    Introduction

1.1   Supply Chain Sustainability – Definition:

Supply chain sustainability is the management of environmental, social and economic impacts, and the encouragement of good governance practices, throughout the lifecycles of goods and services. The objective of supply chain sustainability is to create, protect and grow long-term environmental, social and economic value for all stakeholders involved in bringing products and services to market. By integrating the UN Global Compact principles into supply chain relationships, companies can advance corporate sustainability and promote broader sustainable development objectives.

1.2   Importance of Supply Chain Sustainability:

There are numerous reasons why companies start a supply chain sustainability journey. Primary among them is to ensure compliance with laws and regulations and to adhere to and support international principles for sustainable business conduct. In addition, companies are increasingly taking actions that result in better social, economic and environmental impacts because society expects this and because there are business benefits to doing so. By managing and seeking to improve environmental, social and economic performance and good governance through- out supply chains, companies act in their own interests, the interests of their stakeholders and the interests of society at large.

•       A sustainable supply chain is one that includes measures of profit and loss as well as social and environmental dimensions (Carter and Rogers 2008; Linton, Klassen, and Jayaraman 2007).

•       Such a conceptualization has been referred to as the triple bottom line of financial, social, and environmental performance (Elkington 1994, 1998; Kleindorfer, Singhal, and Wassenhove 2005).

      

1.3   Developing sustainable global supply chains: three steps

To develop new supply chains or improve existing ones, executives must think at a number of levels. First, consider the big picture: what is motivating change in your business? What are the opportunities and risks? Once your motivations are clear, identify the levers that will increase your odds of success. Finally, put in place practices that will help you realize your desired outcomes.

1.3.1      Identify Motivators: the 5C’s Framework of Motivation

There are many reasons to address social and environmental issues in your supply chain. Understanding these issues will enable you to set goals and prioritize practices. The chart below lists the reasons cited by research, which align with five key areas:

1. Customers: access, attraction, retention, reputation, brand

2. Compliance: regulation, social pressure

3. Costs: efficiency, productivity, risk management

4. Competitive Advantage

5. Conscience: moral obligation, values

1.3.2      Assess Levers: the 7P’s Framework of Levers

Seven key levers can facilitate or inhibit your efforts to build a sustainable supply chain. Evaluate these levers to determine if you have influence over them and how to work with them.

Examples of each are given below (the italicized examples appear most often in the literature).

INTERNAL LEVERS

Purpose: alignment of sustainability with organizational strategy, history of CSR in the organization.

Policy: clear policy statements/codes of conduct, widely communicated policies, financial resources, training and workshops, incentives, transparent and measured outcomes.

People: leadership/management support, supportive organizational culture, change agents, staff with strong personal commitments and capabilities.

EXTERNAL LEVERS

Peers: industry collaboration.

Partners: trust in supplier engagement, dialogue with suppliers, long-term relationships with suppliers, third-party certification, shared vision with suppliers, experience sharing with suppliers, investment in suppliers, incentives in supply relationships, collaboration with suppliers.

Public policy: supportive regulation.

Power: organizational size, power over suppliers.

1.3.3      Improve Practices: Baseline Practices Framework for Sustainable Supply Chains

The following figure shows the four most prevalent practices in the literature for building sustainable supply chains: 1) Establishing a Code of Conduct; 2) Obtaining Third-Party Certifications; 3) Selecting Suppliers; 4) Monitoring Suppliers*. We consider these the ‘baseline’ practices that all organizations should embrace. These practices reflect a ‘command and control’ approach to supply chain management, in which the lead buying company dictates most rules and processes.

1.4   Motivation

Globalization has profoundly affected how companies are managed strategically and operationally.

Considering the environmental issues such as waste and emissions reduction, recycling, product design, and recovery and the social issues such as child labor, working conditions, bribery and corruption, there is seemingly no end to the complexity.

“Globalization + Public concern about social and environmental issues

= Increased complexity in managing supply chains”

2      Literature Review

Sustainable Supply Chain (SSC) is one of the main efforts to integrate the three dimensions of environmental, economical and social with supply chain management systems. This study conducts a Bibliometric analysis of the field by collecting data with respect to following parameters:

•       Source: Web of Knowledge

•       Topic Search: Sustainable Supply Chain

•       Time Span: Latest 5 Years

•       Language: English

•       Outcome: 541 papers

Productivity of Journals and Authors: Productivity simply indicates a number of papers published by authors or in journals in certain duration.

During last five years, IJPE, JCP, SCMIJ, IJLCA, BSE and IJPR are the most productive journals publishing Sustainable supply chain papers, as shown in table below:

Source Titles	Record Count
INTERNATIONAL JOURNAL OF PRODUCTION ECONOMICS	27
JOURNAL OF CLEANER PRODUCTION	26
SUPPLY CHAIN MANAGEMENT AN INTERNATIONAL JOURNAL	18
INTERNATIONAL JOURNAL OF LIFE CYCLE ASSESSMENT	15
BUSINESS STRATEGY AND THE ENVIRONMENT	12
INTERNATIONAL JOURNAL OF PRODUCTION RESEARCH	11
INTERNATIONAL JOURNAL OF PHYSICAL DISTRIBUTION LOGISTICS MANAGEMENT	10
BIOMASS BIOENERGY	9
EUROPEAN JOURNAL OF OPERATIONAL RESEARCH	9
JOURNAL OF SUPPLY CHAIN MANAGEMENT	9
COMPUTERS CHEMICAL ENGINEERING	8
ECOLOGICAL ECONOMICS	8
ENERGY POLICY	7
JOURNAL OF BUSINESS ETHICS	7
PRODUCTION PLANNING CONTROL	7

As shown in table below, Seuring, S is the most productive researcher. He has published 8 papers. Guillen-Gosalbez, G is the second productive researcher with 7 papers. Sarkis, J and Walker, H have also shown productive performance.

Authors	Record Count
SEURING, S	8
GUILLEN-GOSALBEZ, G	7
SARKIS, J	6
WALKER, H	6
KLASSEN, RD	5
VACHON, S	5
VERMEULEN, WJV	5
BEZZO, F	4
BLOEMHOF, J	4
GIAROLA, S	4
GUNASEKARAN, A	4
JIMENEZ, L	4
KOH, SCL	4
KRAVANJA, Z	4
LENZEN, M	4
PREUSS, L	4
WU, ZH	4

As per Web of Science Categories; Management, Environmental Sciences, Operations Research Management Science, Business, Engineering Environmental and Engineering Manufacturing constitute major portion of the work done in area of sustainable supply chain and the respective proportion has been shown in figure below.

There has been dramatic increase in sustainable supply chain publications in Web of knowledge to date, as shown in figure below.

Hence SWOT analysis of area of sustainable supply chain has been formulated in table below on basis of three dimensions viz. economical, environmental and social.

Strengths •       Ability to produce higher value-added products with greater emphasis on Health and Safety. •       Good relationships with local communities as well as government and enforcing bodies. •       Possibility to offset CO2 emissions.	Weaknesses •       Lack of formalized environmental management systems. •       Emphasis on quantity rather than provision of value added products and services. •       Limited understanding of the corporate sustainability concept and potential benefits. •       Insufficient internal communication.
Opportunities •       Identifying inefficiencies and improving financial and environmental performance through self assessment and monitoring. •       Improving internal and external communication. •       Improving public relations while attracting and retaining good quality people.	Threats •       Continued lack of understanding of key sustainability issues resulting in inability to respond to government and other initiatives on sustainability. •       Increasingly strict policies. •       Lack of data on sustainability parameters makes the company more open to criticism.

Finally, objectives for sustainability study have been proposed in generalized form which can be undertaken at any level in order to achieve sustainability:

•       To increase social and economic contribution to society by improving employment opportunities.

•     To increase the utilization of resources with minimized impact on environment in form of reduced greenhouse gases emission.

•       To provide safe and healthy work environment to employees and other stakeholders.

3      Problem Environment – “GARLOCK SEALING TECHNOLOGIES”

3.1  Introduction

Garlock Group of companies is acknowledged as the global leader in high-performance fluid sealing products for the world’s processing industries. These include chemicals and petrochemicals, refining, pulp and paper, power generation, semiconductor, primary metals, food and pharmaceuticals, mining and original equipment manufacturers, among others.

Garlock Founded by Olin Judson Garlock in 1887, Palmyra, NY in USA and now it became global organization with 16 global operations employing more than 2000 people and a distributor network that covers 80 countries. Garlock has 12 manufacturing facilities in the U.S., Canada, Europe, Asia and Latin America collectively produce the broadest range of over 100,000 high-performance fluid sealing products like Gaskets, Expansion Joints, Klozure Seals & Bearing Isolators, Butterfly Valves etc which are designed specifically for industrial applications.

3.2  Sustainable Business Model

Garlock India is 100 % subsidiary of Garlock USA and a marketing and servicing company of Garlock in India.  This company plays down steam part in total supply chain. Garlock India gets products from 12 different manufacturing facilities located in the U.S., Canada, Europe, Asia and Latin America for the Industrial customers located in wide spread parts in India. There are all 3 flows of supply chain material, cash and Information flow occurs.  Garlock India was facing some issues in their supply as listed below.

3.3  Issues in Supply Chain

3.3.1      Complex Supply Chain:  As Garlock India gets Material from Manufacturing Locations in 12 different countries and supply to Industrial customers in India this makes entire supply chain very complex. As this is cross boundary business activity, there were other issues Communication Gap in Order Processing, Wrong Material Supply from Plants, and stringent MOQ of the plant etc. exist in supply chain.

3.3.2      Financial Issues: Fluctuations in Foreign Currency Value like Dollar, Euro price hike is major financial issue for Garlock India. As small fluctuation in basic price will make impact on landed price due to increase in Import duty, Transportation cost etc. Also various Inco terms of different countries is also big issue.

3.3.3      Logistics Issues: One of major issues is logistic for Garlock India. In custom, some time custom officer doesn’t know about category in which these customized items falls. Hence he charge wrong, Excise, Custom Duties etc. Also sometimes material lost in the custom. Also estimation of freight charge for customized items during offer stage is very unpredictable some times.

As Garlock India deals in products for plant maintenance, their Industrial customers can not afford long delivery period. These customers situated in different states in India, there are several logistic formalities like Road Permit, Octroi etc. and sometimes Freight Forwarders unable to find correct address or they dispatch at Wrong Dispatch. Consignment Tracking is very problematic sometimes.

3.4  Steps towards sustainable supply chain:

Garlock India was facing issues in their supply chain. Company took few corrective actions which lead their supply chain towards the sustainability.

3.4.1      Scheduling of dispatches: Earlier Garlock’s manufacturing units made dispatches in single lots just on product readiness which was huge loss in transportation and all import procedures had to follow for every single which was wastage. Garlock India asked manufacturing plants for order consolidation and to make dispatches on single day in every week.

3.4.2   Reducing Transportation Cost: Consolidation of order and arrange all materials in single Shipment helps in reducing transportation cost. Also they start Importing by Sea for regular stock items instead of Air.

3.4.3    Online Tools:  Garlock India launched online tools for Shipment Tracking. Customer can get dispatch information and waybill just by putting purchase order no in Garlock website.  Also their manufacturing facilities launched web applications for having looked at Inventory. This is very helpful for Garlock India to pass on correct Information to the customers.

3.4.4  Resolving Logistics Issues: Material Insured for any lost in logistic; Timely Information exchange; All the requisite details during offer stage.

3.4.5     Reduced delivery Time: Keeping stocks of Semi finished goods and Keeping stocks of goods for regular customers by judging their consumption patterns.

3.4.6      Regular Interaction with the Customers: Knowing their future requirements.

4      Real Life Examples

While at one time addressing these social and environmental issues might have just been ‘nice to do,’ that is no longer the case. Companies that fail to manage such issues expose themselves to both operational and reputational risk. For example:

• Nike was publicly accused of using child labor in offshore factories in 1996. This criticism endured until 1998 when Nike’s CEO announced significant, long-term measures to improve working conditions at supplier factories.

• Mattel was forced to recall US$100 million worth of product when one supplier used lead-contaminated paint on the company’s toys in 2007. The company watched its stock price fall 18% in the months that followed and has since been the target of litigation.

• Apple faced renewed criticism in 2011 for both possible environmental indiscretions and a lack of transparency in its supply chain. Apple had previously admitted that in 2008 half of its suppliers’ factories for key products including iPhones and iPads weren’t paying valid overtime, one quarter weren’t paying workers minimum wage, and one quarter failed to meet environmental standards. Time will tell if such issues will permanently tarnish Apple’s ‘clean’ image.

5      Conclusion

The field of sustainable supply chain is fresh area and there is vast scope to work further addressing key issues in above mentioned three dimensions viz economic, environment and social.

6      References

•  Carter, C. R. and D. S. Rogers. 2008. A framework of sustainable supply chain management: Moving toward new theory. International Journal of Physical Distribution and Logistics Management 38 (5): 360ñ387.

• Elkington, J. 1994.Toward the sustainable corporation: Win-win-win business strategies for sustainable development. California Management Review 36 (2): 90ñ100.

•  Elkington, J. 1998. Cannibals with Forks: The Triple Bottom Line of 21st Century. New Society Publishers, Gabriola Island, British Columbia.

•   Kleindorfer, P. R., K. Singhal, and L. N. V. Wassenhove. 2005. Sustainable operations management. Production and Operations Management 14 (4): 482ñ492.

•  Linton, J. D., R. Klassen, and V. Jayaraman. 2007. Sustainable supply chains: An introduction. Journal of Operations Management 25 (6): 1075ñ1082.

•    www.webofknowledge.com

•     www.nbs.net/knowledge/supply-chains