Building Sustainable Supply Chains: Does it make firms lean, green and profitable?
In recent years, organisations have been increasingly held accountable for environmental and social performance in their supply chains. The steady movement away from the traditional bottom line, based solely on profit and loss, is gaining momentum. Issues of climate change, geopolitics, labour conditions, and pressure from consumers have all played a role in shifting corporate focus toward the triple bottom line, the simultaneous achievement of environmental and social proficiency as well as financial performance. With companies facing increasing governmental regulation, can the concept of supply chain sustainability live up to expectations of profitability?
Green can be lean
At one time it would not have been uncommon for business leaders to say that it’s impossible to make environmental sustainability profitable. Even now the use of pollution control technologies such as low or zero-emission vehicles can be costly and complex in the outset, requiring a considerable culture shift within an organisation. But we can look at it in a different way. Waste minimisation, process controls and the use of newer and more efficient technologies can all reduce manufacturing costs and compliance charges in the long term. Pollution-preventing technologies can be found in every area of a product’s life cycle and early adopters can gain competitive advantage.
But can it be profitable?
Research undertaken by the Centre for Operations and Supply Chain Research (COSCR) in collaboration with international partners has shown it is possible for firms to increase profitability whilst also reducing environmental damages. It’s just not easy. A study of 203 Thai manufacturers revealed that some had implemented environmental sustainability tactics into an integrated business strategy across multiple business functions such as supply chain, marketing and human resources. Some manufacturers believe injecting sustainable practices into multiple areas within the business is ‘good business’. However, although this was shown to reduce environmental damage, it did not bring any cost-saving or profit. Only when manufacturers expanded their sustainable development efforts to their major suppliers and customers, can they start to positively affect the triple bottom line.
This involves information exchange, the integration of closed-loop processes and collaboration to jointly address environment issues. It could be that technical support and even financial assistance are given to suppliers.
Some companies appear to cherry-pick sustainable development practices that are easier or cheaper to implement. A second study based on a survey of 126 automotive manufacturers in China shows that, instead of cherry-picking low-hanging fruits, an integrated approach is the key to transforming production and supply chains operations so that they are resource efficient. This in turn contributes to growth in sales, profit and market share. Little benefit is gained if top management delegate environmental goals to different functional departments without developing a joined-up and comprehensive approach to sustainable supply chain development.
Lastly, a study conducted with Dr Serdal Ozusaglam and Dr Effie Kesidou from Leeds University Business School based on a sample of 36,645 firms from eight European countries shows that a joint implementation of environmental management systems (EMS), externality-reducing technologies (ERT) and efficiency-increasing technologies (EIT) is what is required to boost turnover and growth. Harmonising these practices is the tricky part. But with the right combination, building sustainable supply chains is most definitely lean, green and profitable.