Sustainable Supply chains: The challenges and potential

Supply chains: A Great Green Opportunity

 

Supply chains in my opinion are the one of the most, if not the most important function of business in todays markets. Supply chain shocks such the COVID 19, to the Suez Canal Bottleneck and Brexit created Billions in losses for companies and consumers.

 

And when you factor in the environment, you see how this is an area of concern. BCG wrote that 8 global supply chains are responsible for 50% of greenhouse emissions. These are centred around every day commodities such as food and raw manufacturing materials. 
However, this isn't to say that firms are operating in unsustainable ways like they did in the pre 2000s. Apparel companies like Nike and Adidas have regularly been in the news for questionable ethical and environmental practices when producing their goods but have made great strides in recent years to clean up their act, look to the Nike FlyKnit and AdidasFuture Loop product offering.

 

Therefore despite these issues, there is great potential for companies to influence their supply chains in way that not only would protect the environment in the long term and treat their workers appropriately, but also improve their bottom line. That being said, there are some challenges that that exist and will need to be addressed.

False Credentials

 

In a 2020 Harvard Business Review article, 3 MNC's considered "Leaders in sustainability each had their supply chains individually evaluated against the companies pledges to more sustainable practices. Despite their pledges, the study worrying found that all three of their supply chains had continuing with practices that were considered against company code.

 

Some of the main points included a lack of action in terms of health and safety, environmental protection and sexual harassment. When these findings were presented to the MNCs, their representatives were horrified and stated they would look to “work with their suppliers to remedy these issues”.

 

The question is, how is it that these MNCs are thought to have such huge control over their supply that they can deliver innovative and fresh products to market every year but not have any idea how the members of their supply chain are behaving?

 

In my opinion, this a question of visibility and I will elaborate on what that means: 1^st tier Suppliers vs 2^nd and 3^rd Tier suppliers.

 

I’m sure you have all heard of FOXCONN. The controversial supplier of manufactured apple iPhone. They handle the manufacturing and shipping of apple products to the consumer markets. They are what you would consider a 1^st tier suppliers, who Apple directly deals with and can influence.

 

Now Apple has made strides to control their whole supply chain, but many MNCs simply operate using one 1^st tier supplier that makes their final goods. The issue is that there are also 2^nd and 3^rd tier suppliers that conduct more specialised tasks. 

 

These suppliers are much smaller and not well known by the parent MNC and as a result their activities go relatively unnoticed. Their lack of size, knowledge and resources also means that they can struggle to implement new sustainable process. As a result, this can reduce the value of the work the MNC does towards sustainability.

 

My own suggestion

 

Now I have no real experience in the supply chain world, but I believe MNCs could learn a lot from Toyotas’ approach to building a strong network they can monitor and influence.

 

Toyota puts the supply chain network at the heart of their business and believes that knowledge and resource sharing are the keys to success. It’s done them well, as their cars have been able to dominate globally for over 40 years against established competition.

 

Toyota allows suppliers to join their network and have access to their knowledge and resources under the condition that the suppliers work with Toyota to become aligned with their beliefs and strategy. The result is a more innovative, efficient and sustainable supply chain with higher profits.

 

More MNCs could emulate Toyota’s strategy, but they need to willing to build those long term relationships with all of their suppliers by providing personnel and resources to help them improve. Only then will their supply chains truly have a chance of maximising their sustainability.

References: 

HBR Article "A more sustainable supply chain" by Veronica H Villena. Available at:https://hbr.org/2020/03/a-more-sustainable-supply-chain

"Toyota Production System and Supply chain" by Macharia Brown Available at:https://ctl.mit.edu/sites/default/files/Mac_TPS_thesis.pdf