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Quarter Plenary, 27 June 2013
Sustainable Supply Chains: Moving Towards
Strategic Sustainability
Prof Suzanne Benn,
Professor of Sustainable Enterprise
UTS Business School
Understanding where corporations are in
terms of their sustainability trajectories
• ‘Sustainability’ is a term that needs to be understood in context – it is associated with longevity, but also with corporate environmental and social responsibility
• In assessing the capacity of corporations and firms to balance environmental, economic and social factors, a phase model of organisational sustainability provides a framework
* to analyse characteristics of organisations as they are
* indicates appropriate action to advance sustainability
These phases do not form a linear model, but are indicative characteristics of phases of organisational sustainability.
Rejection
(freeloaders & stealthy saboteurs)
Non-responsiveness
(‘bunker wombats’)
Compliance
(reactive minimalists)
Efficiency
(industrious stewards)
Strategic pro-activity
(proactive strategists)
The Sustaining Corporation
(transformative futurists)
The Sustainability Phase Model
From Dunphy, D. , Giffiths, A. and Benn, S., Organisational Change for Corporate
Sustainability, Routledge, London and New York, 2003; revised edition 2007)
1st Wave 2nd Wave 3rd Wave
Opposition Ignorance Risk Cost Competitive Transformation
Advantage
Rejection Non
responsiveness Compliance Efficiency Strategic
Pro-activity
The sustaining
corporation
• Highly
instrumental
perspective on
employees and
natural
environment
• Culture of
exploitation
• Opposition to
government and
green activists
• Community
claims seen as
illegitimate.
• Financial and
technological
factors have
primacy
• More ignorant
than
oppositional.
• Seeks business as
usual, compliant
workforce.
• Environmental
resources seen as
a free good.
• Focuses on
reducing risks of
sanctions for
failing to meet
minimum legal
and community
standards.
• Little integration
between HR and
environmental
functions.
• Follows route of
compliance plus
proactive
measures to
maintain good
citizen image.
• HR systems seen
as means to
higher
productivity and
efficiency
• Environmental
management
seen as a source
of avoidable cost
for the
organisation.
• Focus on
innovation
• Seeks stakeholder
engagement to
innovate safe,
environmentally
friendly products
and processes.
• Advocates good
citizenship to
maximise profits
and increase
employee attraction
and retention.
• Reinterprets the
nature of the
corporation to an
integral self-
renewing element
of the whole
society in its
ecological context.
Value
destroyers
Value
limiters
Value
conservers
Value
creators
Sustainable
business
Waves of Sustainability
Rejection Non-
Response Compliance Efficiency Proactivity
Sustaining
Organisation
Activism
against
sustainability
Risk loss of
business and
reputation
Inappropriate
use of science
BAU
Risk loss of
business and
reputation
Greenwash
Implement
environmental
awareness
Minimise
risks
Image
building
Systematic
EMS/ HRM
Emphasis on
reporting
Risk
avoidance
Improved
efficiency and
engagement
Proactive and
strategic
High level
interpersonal/
soft skills
Structural
redesign for
flexibility
Stakeholder
management
Transformative
culture
Redefine
business
relationships
and context
© Source: The Phase Model – Dunphy,
Griffiths and Benn, 2007
Phases of Organisational Sustainability
Auditing
Reporting
Systems
design
Innovative
capacity
Partnering
for renewal
What does this mean in terms of the establishment
of Sustainable Supply Chains?
• Organisations may demonstrate characteristics of more than one phase.
• They may easily reverse their positions - especially in phases 3 & 4.
• It becomes difficult to reverse in phase 5 and impossible in phase 6
without further radical transformation.
KEY FEATURES OF SUCCESSFUL CHANGE
• Moving to future fit - incorporating resource shortages and tensions
into business models,
• Working in partnership,
• Looking to cradle to cradle or industrial ecology or product service
arrangements,
• Integrating human and ecological sustainability.
A Definition of Sustainable Supply Chain
Management (SSCM)
‘…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, i.e., economic, environmental and social, into account which are derived from
customer and stakeholder requirements.’
(Seuring & Muller, 2008)
Importantly, this definition directs attention
to the significance of SYSTEMS THINKING
Systems thinking
Action learning
Critical thinking
Creativity
Sustainable Management of Supply Chains
involves recognition of the organisation as part
of a broader system
Life Cycle Thinking
Cyclical material and energy flows
• LCA, industrial ecology
Source: Crittenden et al, 2011; Dunphy & Perrott, 2011; Benn et al, 2011; Porter, 2008; Porter, forthcoming; Porter and Cordoba, 2009; Taylor, 2011
Interacting social systems/ networks
Iterative cycles of learning and dialogue
•Stakeholder engagement and dialogue
Complexity thinking
Emergence and bottom up change; Connectivity
•Experiential exercises (with attendant risks and opportunities).
What does systems thinking mean for SSCM?
Integrating three approaches to systems thinking
Rejection Non-
Response Compliance Efficiency Proactivity
Sustaining
Organisation
Activism
against
sustainability
Risk loss of
business and
reputation
Inappropriate
use of science
BAU
Risk loss of
business and
reputation
Greenwash
Implement
environmental
awareness
Minimise
risks
Image
building
Developing
awareness of
supply chain
risks
Systematic
EMS/ HRM
INCREASED
emphasis on
reporting
Risk
avoidance
particularly
reputational
risk
Improved
efficiency and
engagement
linked to
supply chain
Proactive and
strategic
High level
interpersonal/
soft skills
Focus on
certification
Structural
redesign for
flexibility
Stakeholder
management
Transformative
culture
Redefine
business
relationships
High levels of
transparency,
auditability &
accountability
upstream
/downstream
© Source: The Phase Model – Dunphy,
Griffiths and Benn, 2007
Phases of Sustainability incorporating SSCM
Auditing
Reporting
Systems
design
Innovative
capacity
Partnering
for renewal
Risks – pull factors
Social tendencies: 1. Globalisation
2. Demands for greater transparency (NGOs, media & public)
3. Pricing & quality issues (value for money)
4. Changes to modes of consumption
5. Shortage of natural resources
Can give rise to risks e.g:
1. Lengthy, complex chains difficult and costly to manage
2. Reputational risks arise from failure to manage supply chain
3. Lack of information or understanding of supplier capabilities, customer needs can inhibit innovation
4. Rising costs of raw materials may be inevitable
Opportunities – push factors
• Collaboration with stakeholders can integrate sustainable practice in the value chain and strengthen reputation in the eyes of suppliers and customers
• Collaboration & consultation with suppliers and customers can optimise quality and reduce costs, leading to development
of innovative services or products
• Certification of products and services as sustainable provides entry to new markets and increased market share
• Collaboration & consultation with upstream and downstream stakeholders in the value chain can ‘close the loop’ and reduce costs
Due to globalization, materials may be
produced in one region, used in another,
and managed as waste in a
third. The fastest growing waste stream
in the world is e-waste (i.e., obsolete
electrical and electronic products),
estimated at 20-50 million tonnes per
year .
http://www.unep.org/geo/pdfs/geo5/GEO
5_for_Business.pdf
2013 Report
So where are the opportunities?
• Leave the Freeloaders, Stealthy Saboteurs and Bunker Wombats to experience increasing isolation.
• The real opportunities begin with the Compliance Phase when it is likely that a corporation will become aware of the potentially adverse impact of failing to manage supply chains appropriately.
Let’s look more closely at the last three phases: efficiency, strategic proactivity and the sustaining corporation.
4. EFFICIENCY PHASE:
The Industrious Stewards
• Objective: Progressively eliminate waste and increase process and materials efficiencies. • Key business opportunity: Increase efficiencies by waste reduction and reorganisation.
Increased emphasis on reporting. • Typical actions:
– reduce resource use (energy, water, materials) – design/redesign buildings/plant to dramatically reduce ‘footprint’, create adaptable
spaces – move to front-of-pipe solutions to eliminate waste or return it to the production cycle
as a resource (e.g. biomimicry). – recycle/remanufacture (life cycle stewardship; cleaner production) – dematerialise –service provision rather than material production – redesign products: sustainably produced and environmentally friendly – meet international Global Reporting Initiative (GRI) guidelines.
• Potential business benefits: – cost reduction; savings – increased employee productivity – increased employee involvement/engagement – better teamwork and lateral communication.
“DO MORE WITH LESS”
5. STRATEGIC PROACTIVITY PHASE:
The Proactive Strategists • Objective: Pursue the strategic opportunities in sustainability. • Key business opportunity: Become market leader through pursuing the strategic potential of
sustainability. • Typical actions:
– commit strongly to sustainability – re-brand and build wider stakeholder support – be early in on new product/service demand curves – creatively destroy existing product designs, manufacturing models and re-invent the firm,
leapfrog competition by early breakthroughs – increase employee and stakeholder engagement to source innovative ideas – shift the prevailing business paradigm in environmental and social ideas – innovate with new models of stakeholder governance – concentrate on adding value and innovating, focus on certification self-reporting and/or
independent audit. • Potential business benefits:
– increased revenue and market share – stronger stakeholder support (reputation and commitment) – higher customer retention rates; faster attraction of new customers – established lead in developing new markets – employer of choice – attract and retain skilled managers and professionals – operate at high value-added end of market.
“LEAD IN VALUE-ADDING AND INNOVATION”
6.THE SUSTAINING CORPORATION PHASE:
The Transforming Futurists • Objective: Redefine the business environment in the interests of a more sustainable world and to
support the core strategies of the firm. • Key business opportunity: Create a constructive culture that continually renews the long-term
viability of the organisation. Focus on transparency, accountability, auditability upstream and downstream
• Typical actions: – participating in changing the ‘rules of the game’ to achieve sustainability – participate in public policy formation – reorganise the company’s supply chain to ensure that the whole production process is
sustainable – build human and relational capital – support dematerialisation and the growth of the knowledge-based economy – model best practice; support/publicise best practice elsewhere – participate in international agreements – seek external auditing of sustainability – influence capital markets to support long-term value-adding – build a constructive culture that encourages openness, debate, innovation and participation
• Potential business benefits: – global leadership of the sustainability movement – enhanced reputation and stakeholder support and involvement – increased share value – attraction/retention of talented, highly motivated employees.
“TRANSFORM OURSELVES: LEAD IN CREATING A SUSTAINABLE WORLD”
Three examples of attempts to establish sustainable supply chains in
highly complex circumstances
First, an Australian example:
Steel Stewardship Forum
History
• 2007 APEC Ministers Responsible for Mining
• 2008 SSF ESTABLISHED
• 2010 SSF memorandum of understanding with the Australian Steel Institute.
• 2011 SSF has 13 members across the stewardship chain ±60 stakeholders
• 2012 SSF completes first two major projects
• 2013 Commence Phase 2 of Responsible Steel
2011-2012
25
• Two major projects commenced in parallel in July 2011 as
part of the pre-feasibility study.
• The Steel Chain Footprint
– A high level input/output mapping of the Australian steel chain to identify ‘areas of interest’ and direct attention towards improvement solutions. Mapping key materials and emissions
• Responsible Steel- Phase 1
– Aimed at developing a clear measurable sustainability certification process based on LCA principles and good science, and embracing the whole steel chain
• Both projects were completed on time in May 2012
History
• Committed to improving its environmental track record in 2005 after environmental and social concerns began to erode its reputation
• Environmentalists cited its stores as sources of air and water pollution
• Labour unions blasted the company for offering employees low wages and poor health care benefits
• Walmart stores stocked with thousands of low cost products imported from developing countries with low-wage workers and often poor environmental regulations
Responses 2005 to 2013
• Increased energy efficiency of US trucking fleet and many buildings in USA, Canada and China
• Required suppliers to reduce packaging
• Stocked low carbon products such as compact fluoro light globes and organic merchandise
May 2013: Announces it will require its (100,000) suppliers to evaluate and disclose full environmental costs of products Plans to combine data on water use, greenhouse gas emissions, solid waste production, and worker ethics into a database shared worldwide, which can be used to form the first index of a product's lifecycle impact Envisions lifecycle assessments will provide data for product labels (e.g. printed data on pesticide use, distance travelled). Electronic scanning reveals product history.
Reactions
"Consumers will be choosing from good, better, and best. That's when sustainability becomes just as much a part of the product line as safety is now." (Michelle Harvey, Environmental Defense Fund consultant advising Walmart on the index.
A sustainability label … “may overwhelm consumers with information” "Half of the [community members] around me are at or near the poverty level. All the labelling in the world won't make a whole lot of difference even for the good working people in my community who care about environmental issues," (Michael Maniates, environmental science professor at Allegheny College in Meadville, Pennsylvania)
From Sweden:
Max’s Hamburgers
Max’s Hamburgers is a family owned chain with 75
restaurants, 3000 employees. It is a major
sustainability award winner and has quintupled its
profits since 2003.
Sustainability Principles 1-4
The Natural Step
In a sustainable society, nature is not subject to systematically increasing:
How Max is changing their business to meet this principle.
Concentrations of substances extracted from the earth’s crust,
• All restaurants are powered by 100% wind energy. • Toys requiring batteries have been removed from kids’ meals. • All company vehicles are low carbon.
Concentrations of substances produced by society,
• No GMOs are used in Max products. • All used fry oil is converted into biodiesel. • High recycling rates (e.g. cardboard, food wastes, metal,
electronic equipment, etc.)
Degradation by physical means,
• All fish procured from well managed ecosystems (MSC-certified). • Most paper products are FSC-certified. • Reforestation through Plan Vivo certified projects in Africa.
And, in that society, people are not subject to conditions that systematically undermine their capacity to meet their needs.
• No use of transfats. • Product lines have been remade into the healthiest of the
industry (by 2005). • More than half of the restaurants have at least one staff member
with a mental disability. • Max leadership program includes sections on sustainable
leadership that are based on the FIRO theory. • Max has partnered with TNS’ Real Change program to research
social sustainability.