In this article, John Manners-Bell outlines how sustainability can be used to overcome supply chain risk
Supply chain risk comes in many forms. Over the past few years the issue has risen to the top of many board room agendas, largely due to the impact which natural disasters have had on manufacturing in Asia. For example, the Japanese tsunami and the floods in Thailand taught manufacturers that they required much better visibility of the risks facing their suppliers in these disaster-prone countries. Piracy, corruption, terrorism, industrial unrest and cargo crime are other threats which are becoming better understood.
However, there are risks which are still to be fully recognised, not least the environmental and societal impacts of supply chain strategies and the consequences of ignoring them in the long term.
The Rana Plaza factory collapse in Bangladesh was an example where the lack of responsibility which many Western retailers and manufacturers took for their suppliers’ staff resulted in significant loss of life. Just-in-time delivery schedules and short manufacturing cycles in the electronics sector can lead contract electronics manufacturers in China to impose unreasonable and unhealthy working practices in order to meet demand. Even in Europe, the economics of the e-retail industry mean that many delivery drivers are working excessive hours for unsustainable amounts of money.
In many cases, the problem goes to the very heart of corporate supply chain strategy. There is a failure of ‘joined up thinking’ as regards to the three goals of Profitability, Environmental and Social awareness. What many companies fail to realise is that profit and socio-environmental outcomes are complementary not contradictory.
In a project recently undertaken by consultancy Accenture for the World Economic Forum, it was found that by initiating projects where social, environmental and economic benefits overlap, costs can be reduced by 9-16%; revenue can actually be increased by 5-20%; brand value increases by 15-30%; labour standards rise and GHG emissions fall by 13-22%.
The smartest companies see that there is much to be gained from adopting sustainable operational practices. For instance, companies which undertake driver training achieve a range of benefits. Vehicles are driven more efficiently, therefore cutting costs and increasing profits. However, a more economical driving style also reduces greenhouse gas emissions, is safer for driver and pedestrians or cyclists, and consequently reduces the risk to a company’s brand as well as insurance/litigation costs.
However, the best-in-class companies go a step further and adopt a ‘holistic’ approach. For a logistics service provider this offers the opportunity to enter the same peer group as many of its customers. It places it on the tender list of companies to whom sustainability is not a ‘take it or leave it’ buzz word. Companies such as Unilever live and breathe sustainability and they are only willing to work with suppliers who take the same approach.
This tripartite approach to supply chain management is critical to ensure long term sustainability, although striking a balance between each of these core ‘pillars’ – economic viability, environmental accountability and social responsibility – is challenging. Destroying value in the supply chain by burdensome government regulation is not welcome nor is it the answer.
What is clear is that economic, environmental and societal issues are bound tightly together, interwoven in deeply dependent relationships. In order to ensure a long term, sustainable future for global supply chains, companies must build collaborative, multi-stakeholder approaches to creating value which don’t impact on the environment or have a negative impact on people’s wellbeing.