Fueled by consumer demands, increasing regulations and a mounting business case, steering supply chains in a more sustainable … Our Coalitions . Of course, the communication of your goals is essential. Another MNC annually surveys its first-tier suppliers to gather information not only about their health, safety, labor, and environmental practices but also about the sustainability performance of their lower-tier suppliers. The United Nations Global Compact has laid out 10 criteria for measuring supply chain sustainability. United States These cover areas of environmental responsibility, labor practices, human rights, and corruption. That’s often because they’re struggling with sustainability issues themselves. To avoid this, MNCs should set convergent sustainability goals and align the incentives for all functions that interact with first- and lower-tier suppliers. The Strategic Role of Procurement in Building Sustainable Supply Networks,” by Verónica H. Villena, Production and Operations Management (May 2019), and “On the Riskiness of Lower-Tier Suppliers: Managing Sustainability in Supply Networks,” by Verónica H. Villena and Dennis A. Gioia, Journal of Operations Management (November 2018). But as we’ve already noted, there’s plenty of room for improvement in what they’re doing. First, the MNCs’ engineering and procurement units often preapprove lower-tier suppliers, but their vetting criteria don’t include social and environmental considerations. They task a point person on staff with extending the firm’s sustainability program to first- and lower-tier suppliers. Digital transformation and the growing sophistication of digital supply chain technologies are playing a major part in the evolution of supply chain transparency and sustainability. The raw materials are then taken by a logistics provider to a supplier, which acts as the wholesaler. They are asking suppliers to cut their emissions, … They frequently place orders that exceed suppliers’ capacity or impose unrealistic deadlines, leading supplier factories to demand heavy overtime from their workers. Collaboration can make sustainability initiatives more feasible. Many of the 22 lower-tier suppliers in our study are small or medium-size private firms that provide little information to the public—characteristics that, in effect, make them almost invisible. As sustainable practices become more prevalent and accessible, it is important to continue to explore new ways that we can maintain an ethical supply chain. The MNCs we studied are all founding members of industry associations focused on developing sustainability standards, providing assessment tools, and offering training to first- and lower-tier suppliers. Awareness is key. The authors studied the supply networks of three MNCs considered to be sustainability leaders. However, even before the pandemic was upon us, some fundamental changes to consumer behavior had been causing global supply chain managers to begin reevaluating their operations. Get in touch. In our research, we identified a few critical shortcomings in their operations when it comes to developing sustainability beyond first-tier suppliers. One of the corporations we studied has created an award to recognize the suppliers that have improved the most in terms of CDP Supply Chain Program performance. Companies should consider adopting the best practices featured in this article, such as establishing long-term sustainability goals and including lower-tier suppliers in an overall sustainability strategy. (3) They had been involved in industrywide supply-chain sustainability efforts. Several directors of the three MNCs we studied viewed this as a big problem. (Risk here is assessed along labor, health and safety, environmental, and ethical dimensions.). We also analyzed the effects of more than 200 operational sustainability levers across approximately 500 company examples. Today, it is a much more holistic term. Firms can also borrow some of the specific strategies that our MNCs use to spread good practices throughout their supply networks. Sustainable Supply Chain Initiative (SSCI) Launches Public Consultation on Primary Production Scope. Currently, SSCM plays a crucial role in mature markets as well as in emerging economies (Esfahbodi et al. But our customer didn’t give us enough notice to hire enough skilled people to do the job.”, First-tier suppliers, for their part, rarely concern themselves with their own suppliers’ sustainability practices. Many multinational corporations have committed themselves to using suppliers with sustainable social and environmental practices, but suppliers—especially those low in the supply chain—often don’t comply with standards. A sustainable supply chain is one that fully integrates ethical and environmentally responsible practices into a competitive and successful model. Many multinational corporations sincerely want to embed fair labor practices and environmental responsibility throughout their supply networks. Sustainable supply chain management should focus on improving recycling numbers, using more recycled materials, and reducing the amount of packaging used overall rather than eliminating all … A second-tier electronics supplier is unlikely to refuse a request from Flex for a compliance audit, because it knows that Flex itself has passed this audit and that most other top-tier electronics suppliers, to stay competitive, will probably start issuing similar audit requests. Select high-performing suppliers to pilot new sustainability initiatives. Consider the embarrassing scrutiny that Apple, Dell, and HP endured not long ago for sourcing electronics from overseas companies that required employees to work in hazardous conditions, and the fallout that Nike and Adidas suffered for using suppliers that were dumping toxins into rivers in China. There is a sustainability course for you. For example, Pacific Gas and Electric (PG&E) uses response from the Electric Utility Industry Sustainable Supply Chain Alliance survey to gauge performance of its top tier suppliers on important aspects of environmental performance, including greenhouse gas emissions, energy and water usage, and waste generation. A company’s entire supply chain can make a significant impact in promoting human rights, fair labour practices, environmental progress and anti-corruption policies. Through understanding ways to mitigate ethical supply chain problems, this gives hope to many companies to move towards a greener manufacturing process. The MNCs we studied make a point of collaborating with international organizations and NGOs that share their goals. Countless reasons to adopt a more sustainable supply chain exist, from taking advantage of government benefits to committing to a mission that speaks to your customers. Furthermore, most lower-tier suppliers are not well known, so they receive relatively little attention and pressure from the media, NGOs, and other stakeholders. A second problem is lack of sustainability training and incentives for procurement officers. • How is the role of the supply chain management affected? In 2018, we’ll continue to see progress in sustainable supply chains. They have established long-term sustainability goals. All of the 52 procurement employees we interviewed (at MNCs and at suppliers) said they needed more training to properly pursue supplier sustainability on behalf of their firms. But the reality is that their suppliers—especially those at low levels of the chain—often violate sustainability standards, exposing MNCs to serious financial and social risks. Supply-chain management therefore has a significant impact on key social and environmental challenges. The generic supply chain begins with the sourcing and extraction of raw materials. Those officials should take a hands-on approach to collecting data about suppliers’ capacity, monitoring indicators of their sustainability performance, and engaging with them in continuous improvement projects. The hoped-for cascade effect was seldom occurring. But cost efficiency and sustainability aren’t mutually exclusive. Thus, green supply chain … Evaluate first-tier suppliers by using sustainability performance indicators that capture their requirements for lower-tier suppliers. Contact the team. To understand the situation and develop ideas for tackling it, we conducted a study of three supply networks. Starbucks is a leading brand that claims to be sustainable; Let’s see if Starbucks could be considered a case study for the success of sustainability in supply chains SSCM encourages governance practices at all levels of lifecycles of goods and services that … Goods can also flow in a reverse direction in a supply chain from the customer back to producers for purposes such as returns, reuse and recycling. Of course, the main obstacle to implementing these changes is the associated cost. But that seat maker may have a hard time getting its suppliers to follow suit. Figure 1 identifies four broad strategies for supply chain management: legal, ethical, responsible, and sustainable. Embracing big data is an essential principle of modern SCM, specifically real-time data which has the potential to improve the efficiency of a supply chain and negate potential risks to strategy. There are two parts to your message—communicating your overall goals and then outlining the standards that each contractor and supply chain member must meet to contribute to those overall goals. Sustainable Supply Chain Definition and Examples complete with current case study Slideshare uses cookies to improve functionality and performance, and to provide you with relevant … Generic Supply Chain. Starbucks is a leading brand that claims to be sustainable; Let’s see if Starbucks could be considered a case study for the success of sustainability in supply chains Photos © Edward Burtynsky, courtesy Howard Greenberg Gallery and Bryce Wolkowitz Gallery, New York / Nicholas Metivier Gallery, Toronto. If they have poor or dubious sustainability performance, then an MNC that does business with them can endanger its reputation and suffer profound repercussions—losing customers, being forced to find new suppliers, or having its supply chain disrupted. We rely on logistics service providers for all of our transportation and much of our distribution center operations and work with them to drive efficiency improvements and innovations to make our supply chain more sustainable. … A good way to start is by adopting the sustainability strategies used by the three MNCs in our study. We also interviewed 50 operations and supply chain leaders. Forest Positive Mobilising resources to build a forest positive future. New standards of supply chain The good news is that research from APICS, Supply Chain Management Review, and Loyola University Chicago found that more companies are prioritizing ethical supply chains. A supply chain is the end-to-end system that creates products and services and delivers them to the customer. A third shortcoming we observed is that although our three MNCs devote considerable effort to developing their first-tier suppliers’ sustainability capabilities, they have little direct contact with their first-tier suppliers’ procurement personnel. While sustainability is central to research on supply chains, there has been relatively little research on diversity and impact on supply chain sustainability performance. It requires its first-tier suppliers to allocate 7% of their procurement spending to minority suppliers. To alleviate that problem, MNCs could invite suppliers’ procurement personnel to their sustainability training sessions (along with environmental, health, and safety personnel) and encourage them to participate in industrywide sustainability training. MNCs, too, are handicapped by ignorance. 1700] defined SSCM as “the management of material, information and capital flows as well as cooperation among companies along the supply chain while taking goals from all three dimensions of sustainable development, that is, economic, environmental and social, into account which are derived from customer and stakeholder requirements. They should send their suppliers a more consistent message that economic, social, and environmental requirements are all important. If you continue browsing the site, you agree to the use of cookies on this website. And typically they don’t know much about the sustainability requirements imposed by MNCs—but even if they do, they have no incentive to comply. In reality, you can promote both with certain simple and easy changes. Consider the electronics maker Flex, a full member of the RBA and a first-tier supplier for many MNCs. Yet, in many other surveys, such as this recent report, Nielsen indicates that customers are willing to pay more for products that ensure green logistics practices and transparent supply chains. Even when they do attract attention (for sexual harassment problems, for example, or chronic overtime demands), we found that they do not feel the need to address the issues involved. They are also frequently located in countries where such regulations are nonexistent, lax, or not enforced at all. Supply Chain Management with Zara as an Example. And on two occasions, firms have made changes to comply with MNC requirements (such as using key performance indicators to monitor supplier sustainability). (For the specific selection criteria, see the “About the Research” sidebar.) Industry associations have a unique power over both first- and lower-tier suppliers, as most of their members are major players in their sectors. The three MNCs have also created preferred-supplier programs aimed at fostering peer learning about sustainability. Product design is the first step before actual birth or existence of the product in the … For the procurement professionals we interviewed, cost savings were unquestionably the top priority, followed by quality improvement and on-time delivery. In order for a strategic supply chain sustainability plan to work, it’s important that benchmarks, targets, and guidelines are clearly spelled out. Supply Chain for an e-Commerce Company. But, realistically, ours is a global economy and we will always have to rely on some international sources for certain raw materials and manufacturing capabilities. Remember, all those suppliers were connected to model firms that were working proactively to encourage sustainability. A company’s entire supply chain can make a significant impact in promoting human rights, fair labour practices, environmental progress and anti-corruption policies. +1-800-872-1727 Our research suggests that isn’t yet happening in a meaningful way. Companies tend to focus on their top-tier suppliers, but the real risks come lower down. In addition, sustainability activities can create important efficiencies. Each was headed by an MNC considered to be a “sustainability leader”—one in the automotive industry, one in electronics, and one in pharmaceuticals and consumer products. Use tools and data that those organizations provide for dealing with suppliers (contracts and scorecards). They must give their procurement officers better training and incentives to pursue supplier sustainability. Supply chain and logistics news. Provide training and foster peer learning among first-tier suppliers to help them improve their procurement practices with lower-tier suppliers. Examples include fundamentally redesigning the supply chain network by decentralizing production using 3D printing or developing innovative business models that include both the public and private sectors. 2016).However, major trends and shortfalls in SSCM research include the need to comprehensively address stakeholder influences and to elaborate upon appropriate approaches to … A responsible supply chain, for example, must also be legal and ethical. Definition of Sustainable Supply Chain Management (SSCM): SSCM may be perceived as the proper management of related environmental, social, and economic impacts in constructing and maintaining effective and efficient global supply chains. “We don’t comply with this requirement ourselves,” the representative told us, “so how could we ask our own suppliers to do so?”. Some specific strategies within each type of approach are listed below. They must emphasize social and environmental responsibility, along with economic considerations, at every level of the supply chain. There is a sustainability course for you. We also studied a representative set of each MNC’s suppliers—a total of nine top-tier and 22 lower-tier suppliers, based variously in Mexico, China, Taiwan, and the United States. 2 Notes: 2 We interviewed more than 50 operations and supply chain leaders at global corporations, as well as our own and external experts in environmental sustainability. Alternatively, MNCs could engage the top executives at their first-tier suppliers and explain the importance of building a sustainable supply network, with the goal of motivating them to catalyze the dissemination of sustainability requirements to lower-tier suppliers. Not surprisingly, that can lead to situations in which preapproved lower-tier suppliers violate the sustainability requirements of the MNCs they work with. In recent years a rising number of multinational corporations have pledged to work only with suppliers that adhere to social and environmental standards. Sustainable supply chains work by setting consistent standards. We also interviewed representatives of industry associations (including the Responsible Business Alliance and the Automotive Industry Action Group) and NGOs (including the CDP and the Centre for Reflection and Action on Labour Rights) to gain a more comprehensive view of how each of these stakeholders helps MNCs disseminate their sustainability agendas throughout their supply networks. As a result, those people are poorly informed about the MNCs’ sustainability requirements and cannot communicate them clearly to their own suppliers, much less enforce them. Sustainability goals and targets must come from something beyond the supply chain itself. Or Product Design. To understand the situation and develop ideas for tackling it, we conducted a study of three supply networks. The first-tier suppliers we interviewed noted that the MNC periodically checks to see if the target is being met and creates opportunities to help them network with minority lower-tier suppliers.

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