COLLABORATION: THE KEY TO A SUSTAINABLE SUPPLY CHAIN ​​– PART 2

In the first part of this article, we present collaboration initiatives as key elements for building economically, socially and environmentally sustainable supply chains, making a historical rescue of the competitive strategies of these chains over the last century and showing why the new challenges force us to seek a more sustainable management model. In this second part, we will revisit some established practices in relations with customers and suppliers and discuss some new indicators that reflect sustainability in the three dimensions of the Triple Bottom-Line.

GREENDEX

Developed by the National Geographic Society in partnership with GlobeScan, Greendex is a measure of consumer behavior towards sustainable consumption. This index is calculated based on data collected in a survey currently carried out in 17 countries with 17.000 participants. It analyzes the behavior of these consumers in 65 areas divided into four large groups: housing, transportation, food and goods. Countries are then given scores and ranked according to the environmental impact caused by their consumption pattern. Low rates imply large impacts.

Figure 1 presents a diagram with some of the variables analyzed by the survey for Greendex calculations, as well as the weight attributed to each one1.

Figure 1 – Variables analyzed by Greendex Source: 2010 Grendex Report

Research to create the Greendex began in 2008 and involved the participation of 14 countries, including Brazil. The country participated in all editions and always maintained a prominent position, always being among the three highest indexes in the survey. It is currently the second country with the highest score, surpassed only by India (2010 Greendex).

Figure 2 – Brazil's Greendex score  Source: 2010 Grendex Report

What is generally observed in the results of the survey is that the so-called developing countries are the ones with the best results and have been demonstrating a tendency to increase these rates, reflecting an increasingly sustainable consumption.
Obviously, one can question the result of this research by saying that developing countries, with a per capita income lower than that of developed countries, have less consumption power and, therefore, obtain a better score in the index. However, the fact that they improve their results as they industrialize shows a concern with the use of less polluting technologies and a more conscious consumption.

Figure 3 – Overall score on Greendex 2010 Source: National Geographic

In the 2010 edition, the main responsible for the increase in these indexes, in most of the participating countries, was the housing area. This result reflects an awareness on the part of most consumers regarding energy resources and rationalization of water consumption. The other areas showed mixed results; depending on the country, they may have increased or decreased.

However, an interesting result of the 2010 survey was that, although the “Goods” area had mixed results, consumers, in general, are increasingly inclined to purchase environmentally friendly products, even if they pay more, and tend to reject certain products for environmental reasons. This result is very important for companies, as it indicates that their customers are considering the environmental risk posed by a product as an increasingly important factor when deciding whether to consume it or not.

And Brazil, is it following the world trend?

The country, as previously mentioned, has the second highest Greendex index. Some highlights of Brazil in this research were in the area “Housing”, in which Brazilians presented the best result of all the countries surveyed, and “Food”, in which Brazil obtained the second worst index, as a result of the diet of Brazilians are rich in beef, which has a negative impact on the index.

In the “Goods” area, Brazil has the 4th highest index. Around 27% of consumers declared that they always reject products that are harmful to the environment and 25% always prefer products that are friendly to the environment. The conclusion of the research is that, in countries like Brazil and China, consumer behavior has changed and is moving towards more sustainable consumption.

It was also pointed out, in this research, that the great barrier to sustainable consumption, reported by consumers, is the lack of reliable information on the part of companies about the true environmental impact of their products. Only 12% of consumers in Brazil see the efforts of national companies to guarantee a cleaner environment.

It follows, then, that in addition to companies having to adapt to this “greener” demand, they must have clarity and transparency in their communication with consumers and society in general.

Next, an instrument that allows this communication will be presented: the socio-environmental balance sheets.

SOCIAL AND ENVIRONMENTAL BALANCE SHEET

The balance sheet of classical accounting is an accounting statement that aims to show the equity of an organization or entity at a given time. This statement emerged to meet managerial needs that, with the growing importance of shareholders and investors, has become a valuable communication instrument about financial results for companies. Profit was the most important thing, as it made it possible to assemble discounted cash flows over time to evaluate a company and, therefore, price its shares.

However, as highlighted in the previous section of this article, looking at the Greendex results, evaluating a company's performance based solely on the logic of profit is no longer sufficient for consumers. In a world that is increasingly concerned about the environmental and social impacts caused by human actions, a company that wants to enter and survive in this market must also be transparent in its commitments and attitudes towards society. The company's responsibility is no longer restricted to the shareholder, it also affects other audiences.

It is in this scenario that socio-environmental balance sheets have been gaining prominence. These statements gather information on the situation of companies with regard to social and environmental issues. A social report includes the enterprise's profile, its principles and values, corporate governance and economic, social and environmental performance indicators – the Triple Bottom-Line. As an example, Banco Santander's 2010 socio-environmental balance sheet can be cited, which contains information ranging from the exploitation of water resources to the measures taken by the company to combat the exploitation of child labor.

In other words, the transparency currently required by society is presented in these balance sheets, which may also be called Corporate Sustainability Report, Social Report and Socio-environmental Report, among others.

The idea of ​​socio-environmental transparency is not so new. The concept of corporate social responsibility dates back to the Great Depression of 1929. At the time, however, social responsibility was strongly linked to charitable actions. It was only from the 1960s onwards, with the Vietnam War, that consumers began to demand more information about the environmental and social impacts of companies, and the term socio-environmental responsibility began to take on the forms it has today.

In Brazil, it was only in the 1990s that the concept gained strength, with the help of entities such as the Brazilian Institute of Social and Economic Analysis – Ibase. The first Brazilian social report was published in 1986 by Nitrofértil and its main concern was to inform its employees about its actions. Currently, it is estimated that 300 Brazilian companies publish socio-environmental balance sheets. Among them, three most used models can be identified:

Model Ibase – is one of the oldest and presents, in detail, numbers related to the projects and actions of a social and environmental nature of the companies. It is a simple and voluntary model. Petrobras and Bradesco are some of the prominent companies that use this model;

Ethos Institute Model – uses Ibase data, but presents them in more detail with the help of indicators. In addition, it also has environmental impacts such as pollution and deforestation;

GRI (Global Report Initiative) – this balance sheet model is used internationally and presents the organization's economic, social and environmental information. Several companies in the world use it, such as Microsoft and Unilever. An advantage of this model is that it can be used for comparison with other companies.

Social balances are still recent in the country; however, they are already starting to be valued and seen as photographs of the company's activities and their impact on society and the environment. It is the most efficient mechanism to provide the transparency increasingly demanded by consumers. However, in Brazil, there is still no obligation for companies to publish their socio-environmental balance sheets in a standardized way, allowing comparison with other companies and the historical evolution of sustainable initiatives.

SUSTAINABLE S&OP

As we saw above, around 300 Brazilian companies publish their socio-environmental balance sheets annually. A much larger number, however, declare in their mission, vision and values, a concern with environmental and social sustainability. How many companies openly declare that their mission is only to generate profit for their shareholders? How many say that their values ​​are to maximize their financial results, even if this means subjugating weaker suppliers, forcing them to offer poor working conditions to their employees, or degrading the environment? Answer: none! Much easier is to read on the companies' websites that they intend to grow “preserving the environment” and “respecting society”.

It was to be expected, therefore, that the day-to-day operations would reflect its stated values. Recent news seems to indicate that this is not the case. It is enough to look at the news, or even the socio-environmental balance sheets, to realize that “sustainable” initiatives are often not related to the operation or other aspects of the business, seeming to be more related to the old welfare and charitable vision. In the operation, the search for the maximization of the financial result continues, without concern for social and environmental issues, which are relegated to a specific department within the areas of Marketing or Investor Relations.

In an attempt to bring the company's strategic values ​​into the day-to-day operations, an alternative is to incorporate sustainability indicators into the S&OP (Sales and Operations Planning) process, which, as we saw in last year's survey results, is already a reality in the planning of Brazilian companies.

Traditionally, S&OP indicators are related to effectiveness, when the company faces capacity constraints to meet demand, or efficiency, when it needs to reduce its operating costs. Both, however, are related to profitability, not considering environmental and social issues. In the same way that one of the main contributions of the S&OP process is to align the companies' strategy with commercial and operational decisions, making everyone understand the reasons for the decisions taken, it can also serve as a strong ally for the the company's sustainability intentions are reflected in its operations.

For example, instead of just measuring the amount of diesel oil consumed in an operation (efficiency), why not also measure greenhouse gas emissions (environmental sustainability)? Measuring customer satisfaction is fundamental for the company (effectiveness/efficiency), but why not carry out satisfaction surveys with the communities surrounding where the company operates (social sustainability)? Perhaps this is seen by some as something out of the business context, or even dreamy, as was the discussion about the importance of the logistics service in the customer's purchase decision in the early 1990s in Brazil. Today, 20 years later, the need to measure service dimensions, such as availability, cycle time or delivery time consistency, seems obvious.

Thus, the Sustainable S&OP (Susteinable S&OP) is nothing more than considering the environmental and social impacts of the operation, in the same way that the demand and the operational capacities to meet the same are analyzed, with defined indicators and targets.

SUPPLIER DEVELOPMENT

A company that declares concern for social issues and the environment in its strategic values ​​cannot achieve results by acting in isolation these days. It is part of a long and complex chain, and turning a blind eye to what happens outside its legal “borders” is, at the very least, a form of self-deception. Thus, a company that wants to change its values ​​and become truly sustainable must look beyond its borders and increasingly seek collaborative strategies with its suppliers and customers.

The supplier development program (PDF) is one of them. It consists of initiatives aimed at improving the capacity and conditions of current suppliers or in careful selection processes for new partners. As the ability of a company to offer a product with quality and at the right time is strongly linked to its suppliers, the PDF is a way of also ensuring competitiveness for the organization.

A traditional supplier development program generally addresses aspects related to meeting deadlines, providing quality items, offering competitive prices, good supplier history and references, and compliance with past agreements. For example, Honda's supplier development program encompasses the maintenance of its suppliers, including component development and design, joint problem solving and knowledge sharing in a direct shop-floor study. This, however, is not enough from the perspective of the Triple Bottom-Line.

For example, a company that hires a supplier after a rigorous selection process, always concerned with the quality of the product, invests in it in such a way that it is always able to deliver the product with an excellent quality level; however, for this, the supplier exposes its workers to degrading situations. What is the position of this company in a market that, as shown in this article, has developed a posture of greater concern for the environment and social aspects, and that demands the same from organizations?

Another example is the Inditex group, owner of brands such as Zara, Massimo Dutti and Pull&Bear, with a presence in 78 markets on five continents and more than 5,2 stores, making it the largest textile group in the world. In August of this year, the group announced the review of the production system of its Zara suppliers in Brazil. This action was motivated by the issuance, by Brazilian authorities, of 52 infraction notices against two subcontractors that produce clothes and supply to Inditex in the national territory. The seamstresses of these suppliers were subjected to long working hours, with salaries ranging from R$ 246,00 to R$ 450,00. After the discovery of these cases, the company's shares in Spain fell by 4%.

A supplier development program appears, then, as an important tool for the development of a sustainable supply chain, as it looks and evaluates beyond operational aspects.

Initially, the company must make clear its goals and objectives, including the socio-environmental aspect. When selecting and evaluating suppliers, in addition to the usual capacity and quality parameters, those related to the supplier's environmental and social responsibility must be analysed. Does he make good use of natural resources? Are your processes harmful to the environment? What conditions are your workers exposed to?

If the supplier has deficiencies in any of these aspects, such as, for example, if it has emission levels of polluting gases above those expected by the contracting company, the cause of such deficiency must be identified and an improvement project must be created, estimating costs and schedules so that it can be presented and defended in the company's decision-making sphere.

The supplier development process is an important tool for continuous improvement of the company's quality and a powerful generator of competitive advantage. This advantage, currently, is not only linked to the quality of products. The development of suppliers can also contribute to the emergence of a sustainable chain that is increasingly demanded by society.

COLLABORATIVE CONSUMPTION

A recent initiative that promises to transform relationships in supply chains in the coming years is collaborative consumption, driven by the growth of social networks. The principle is very simple: rather than owning goods, consumers want the benefits of using them. For example, a drill press stays turned on, on average, only 15 minutes during its entire useful life. In fact, people don't want the drill, but the holes it is capable of making. The same occurs with cars, which are stopped for 22 hours a day, that is, 92% of the time. Apart from car enthusiasts, what people want is the possibility of getting around comfortably.

There are already countless websites encouraging the exchange of products over the Internet, loans, donations or even the rental of items of little use or specific use. The chart below, taken from the book What's Mine Is Yours, shows the evolution of the car market, even reaching – with the use of social networks – car rental between people. On the UFRJ campus, on Ilha do Fundão, Rio de Janeiro, engineering students have recently created a website to offer and request rides, which has been a great success and has created a veritable parallel transport market.

Figure 4 – Evolution of the car market Source: What's Mine Is Yours

In this new market, reputation is more important than credit and the logistics area plays a fundamental role, more important than production, as access is what really matters to customers, not ownership. Thus, it is possible to believe that the consumption relationship can become more sustainable.

Table 1 – Transformation from mass consumption society to collaborative consumption Source: What's Mine Is Yours

The table above, also taken from the book What's Mine Is Yours, summarizes the transformation of the mass consumption society towards the collaborative consumption of social networks.

FINAL CONSIDERATIONS

It is no longer enough for companies to maximize their profit and turn a blind eye to the impact they have on society and the environment. In a world with increasing access to information and more sophisticated levels of demand, initiatives such as sustainable S&OP and supplier development are presented as means for companies to adapt to this new and growing demand.

This article sought to present, in general, some collaboration initiatives and indicators that can lead to significant changes in traditional relationships in the supply chain, making it more competitive and more sustainable. We can summarize these initiatives in five attitudes of transformation:

Create indicators that reflect a true concern for the environment and society;

Be transparent;

Incorporate sustainability indicators into the operational planning process;

Feel responsible for your business partners;

Rethink your business consumption pattern.

Remember: many current “truths” were not true about 20 years ago and companies that did not envision and anticipate new needs are not there to tell their stories.

BIBLIOGRAPHY

Botsman, Rachel; Roo, Rogers. What's mine is yours: The Rise of Collaborative Consumption. New York: Harper Business, 304 pages, 2010.
Bowersox, D.; Closs, D.; and Cooper, MB Supply Chain Logistics Management. New York: McGraw-Hill, 480 pages, 2009.
Capra, Fritjof. The hidden connections. 5th ed. São Paulo: Editora Cultrix, 2006.
Ghemawat, P. Competition and Business Strategy in Historical Perspective. The Business History Review, v. 76, no. 1, 2002.
Gulati, R.; Lavie, D.; Singh, H. The nature of partnering experience and the gains from alliances.Strategic Management Journal, v. 30, No. 11, 2009.
Mintzberg, H.; Ahlstrand, B.; Lampel, J. Strategy Safari: A Roadmap Through the Wilds of Strategic Planning. Porto Alegre: Bookland, 2000.
Green Logistics Panorama, ILOS – Institute of Logistics and Supply Chain, 2010.
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1 – To see the detailed Greendex calculation, access the page http://environment.nationalgeographic.com/environment/greendex/?source=A-to-Z

Authors: Leonardo Julianelli and Jessica Silva