In 1979, Philip B. Crosby published the book “Quality is Free”. For many of its readers, this little book opened new horizons. It contained the revolutionary idea that quality did not add cost to the product. On the contrary, he preached that adding quality to the product or process was, at the very least, a break-even situation. He wrote that the quality of doing a right thing was really an exercise in "getting people to do better all things worthwhile that ought to be done anyway." This is also a good description of sustainability. And like the quality movement of the past, building sustainability into products and processes can also be seen as “Free”.
INTRODUCTION
In 1979, Philip B. Crosby published the book “Quality is Free”. For many of its readers, this little book opened new horizons. It contained the revolutionary idea that quality did not add cost to the product. On the contrary, he preached that adding quality to the product or process was, at the very least, a break-even situation. He wrote that the quality of doing a right thing was really an exercise in "getting people to do better all things worthwhile that ought to be done anyway." This is also a good description of sustainability. And like the quality movement of the past, building sustainability into products and processes can also be seen as “Free”.
At the time Crosby wrote “Quality is Free,” corporate managers' careers generally evolved from a specific function, such as production or sales, and they tended not to have much experience with quality-related issues. But if ignorance of quality management was the norm in 1979, it is unlikely that it is still the case today, as quality is woven into the fabric of organizations today. Almost all successful companies around the world work to achieve quality in all their products and processes.
While, currently, quality is understood as a critical competitive variable and something that companies have to do to stay in the “game” of the market, many managers still do not have a good understanding of sustainability. It is likely that, as with quality, sustainability will become an integral part of companies' businesses over the next few years. Sustainability must also become a critical part of every company and every supply chain.
Having a sustainable supply chain is much more difficult than just having a sustainable company, although you could argue that to have a sustainable company you need to have at least one or two of your supply chains sustainable. Sustainable supply chain means that there are several companies working together, in an orchestrated way, to offer value to the final consumer in terms of products and services, always in a favorable way, both for the companies involved and for the consumers. Figure 1 presents a model 1 of sustainable supply chain key elements.
Note that the model in Figure 1 includes the “triple bottom line,” which is a theoretical approach to performance measurement that addresses three areas that need to be measured, both within the enterprise and throughout the supply chain. The “triple bottom line” consists of the environment, society or social responsibility, and economic performance. Nike represents the “triple bottom line”, as illustrated in circles on the model, with the headings “planet”, “people” and “profits”. In this approach, companies should consider their performance concomitantly in each of these areas, and not just focus on one of them.
Of course, economic performance is the main focus of most companies. Milton Friedman2 points out that the social responsibility of companies is fundamentally to increase their profits. Evidently, a company cannot stay in business for long without profitability. However, short-term profitability should not be the only metric to apply to a company or its supply chain partners. To achieve longevity, the organization must also do the “right thing” by respecting the environment and natural resources. But by thinking about environmental costs and using fewer resources, it is also possible to lower costs, both in the short and long term. Thus, it is not enough just to emphasize economic or environmental performance; it's much better to focus on the intersection of both.
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Figure 1 - Sustainable Supply Chain
The same idea is valid for society or social responsibility. The company also needs to consider its role in the community and how it develops its employees as an important part of its future success. However, these initiatives cannot exist without considering the impacts on long-term profitability. It would be interesting for the company and its partners throughout the supply chain to look at the “triple bottom line” model as similar to “Maslow's Hierarchy of Needs”. In 1943, psychologist Abraham Maslow developed the concept of the hierarchy of needs in the article “A Theory of Human Motivation”. This theory is illustrated in Figure 2.
Maslow's Hierarchy of Needs is often presented as a pyramid. The lowest levels of it are made up of the most basic needs, while the most complex needs are located at the top. Maslow's model suggested that humans need to meet their basic needs before moving on to other needs. This is similar to the “triple bottom line”. For a company to survive, it must first generate revenues above costs. But once it can do that, it must also consider its impact on people and the planet.
The best place for a company to operate is in the center of Figure 1. It should try to move toward the intersection of environmental or green performance, societal or socially responsible performance, and economic performance. It is in this region that the company and its supply chain will be best positioned to prosper in the long term.
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Figure 2 - Maslow's Hierarchy of Needs
Achieving success in each of the parts of the “triple bottom line” can be reinforced by the parts of the sustainable supply chain model that we call “enablers”, which are:
1. Strategy
2. Organizational Culture
3. Transparency
4. Risk Management
Each of these catalysts is discussed briefly.
to follow.
STRATEGY
Sustainability must be an integral part of companies' corporate strategies. It is important to include sustainability at the top level of strategic development so that it is pervasive throughout the corporation and preferably along the supply chain. Wal-Mart is investing in the implementation of environmental and social responsibility in all its internal areas and in its suppliers. The goal is to achieve “zero waste” in all operations by 2025, and it is an important part of its corporate strategy.
Patrick Cescau, Global President of Unilever, said: “We have reached a point where sustainability, including social responsibility, is not just fundamental to business strategy. Sustainability will increasingly be a critical factor for business growth… the pace at which companies adopt the concept of sustainability, in terms of consistency and speed, will determine which of them will succeed and which will succumb in the coming decades.”
Donald J. Bowersox, professor emeritus at Michigan State University, coined the term “operational continuity” as a way of describing the concept of strategic sustainability. After all, the objective of any company is to achieve longevity, and operational continuity is the focus to be pursued in pursuit of longevity.
In the article “New Age of Carbon”, Stephen Stokes and Kevin O'Marah of AMR Research3 suggest that companies need to build a “portfolio” approach to addressing sustainability. Stokes advocates addressing companies' “organizational metabolism” as an integral part of their strategy. They write: “There is no one-size-fits-all solution for reducing greenhouse gas and greenhouse gas emissions or achieving energy efficiency.”
Leading companies such as Coca-Cola, Procter & Gamble, Dell and Dow Chemical are taking approaches that integrate a range of actions that should not be considered or incorporated in isolation. Instead, one should
consider an integrated approach that takes into account both the total costs and benefits of actions, in terms of environmental and social responsibility.
Business leaders may ask, “How do you choose between sustainability and profitability?” That's the wrong question. Currently, companies have to choose both options simultaneously – they cannot be considered separately. It's like asking, "Should my company choose quality or profitability?" At some point, profitability is dependent on quality. A reasonable strategic question might be: “How do you build sustainability, at the lowest possible cost, in a way that best ensures the long-term profitability of your company and your supply chain?”
A sustainable supply chain strategy is not just a long-term view of the company and its chain. It also includes the permanent search for higher levels of productivity for the businesses involved. However, productivity should not be pursued at the expense of the environment or stakeholder groups such as employees and suppliers. Productivity is doing more with less, without taking advantage of those members of the supply chain with little bargaining power. It is a question of reducing the need for resources for the operation.
ORGANIZATIONAL CULTUREThe culture of sustainability within companies and throughout the supply chain must be deeply ingrained. A historical example of this type of management in an organizational culture is related to Henry Ford and the Ford Motor Company. When Ford developed the amazing manufacturing facilities in River Rouge, he built many sustainable systems. In 1919, he not only built a state-of-the-art assembly line for Model T automobiles, but also designed the industrial park with the philosophy of “zero waste” in mind. In addition to the assembly line, a steel plant was also built where the raw iron ore arrived and was very quickly transformed into steel, which next to it would become an automobile.
He brought his friend Harvey Firestone to the park to make Brazilian rubber tires. The Ford boxes, specifi ed for receiving the parts, were designed so that the wood could be reused for the floor of the car. Ford also used the leftover wood to start a new business with his brother-in-law called Kingsford Charcoal, which produced charcoal. As much as possible, he worked to reduce waste. Many years later, his River Rouge plants became the inspiration for Toyota's Taichi Ohno when he was developing the Toyota production method.
In both cases, Ford and Toyota, the central idea that was rooted in the organizational culture was the reduction
waste. This idea has always been part of Toyota's culture and is again a fundamental tenet of Ford Motor Company's philosophy of sustainability. In the days of the Model T, three days after receiving iron, rubber, and miscellaneous parts, an automobile was produced. Amazingly, Ford's River Rouge plant continues to operate sustainably. It is a good example of an organizational culture embracing the idea of sustainability.
This idea can resonate throughout the entire supply chain. For example, the culture Ford built was also adopted by tire supplier Firestone. A company that emphasizes the prudent use of resources and care for those around it can profoundly influence its suppliers. As one purchasing manager at a Fortune 500 company said, “I can do more to improve sustainability with one purchase order than a thousand protesters can do with all your efforts.”
TRANSPARENCY
A third enabler for achieving a sustainable supply chain is transparency. And consumers around the world are demanding that companies embrace sustainability. As indicated above, purchasing managers are building sustainability requirements into their requests for proposals. Pressure from consumers and other stakeholders such as suppliers, customers and distribution channel partners, NGOs, government bodies and trade associations are increasing the pressure on companies to make their operations available for greater public scrutiny. Increasingly, demands for transparency about business practices along the supply chain are increasing.
In the long term, it is simpler and cheaper for a company to operate with transparency in economic, social and environmental aspects. It's easy to understand the impetus for transparency that is coming from stakeholders involved in the supply chain. Greater transparency allows everyone to have broad visibility of what is happening in the chain, promoting better orchestration of production and logistics activities.
On the other hand, transparency of operations inhibits the illegality that thrives in obscure corners of the supply chain. By illuminating the “blind spots” of the chain, risks can be reduced and bottlenecks alleviated. Keeping corporate wrongdoing confidential has become very difficult and extremely risky.
Transparency aims not only at reporting to stakeholders, but also their active engagement. Companies use feedback to modify operations and make them more sustainable. This feedback enables process improvements in the supply chain.
Transparency can be improved through vertical coordination across the chain as well as horizontal coordination across networks. For example, audit procedures commonly adopted by a cluster (group) of industries can allow for a single, effective supplier audit in terms of sustainability, promoting transparency and supplier sustainability while reducing transaction costs involving these industries. As noted by Nike, “Transparency of all outsourced production facilities will promote greater collaboration, sharing of monitoring information and reinforcing remediation expectations of all involved. It could also ease the burden on suppliers when dealing with audit requirements common to different buyers.”
RISK MANAGEMENT
In a recent study, IBM identified risk management as the second biggest threat to global supply chains, right after visibility (IBM Global Services, 2009*). It is important to look at the supply chain management approach from a risk management perspective. In this sense, supply chain visibility can be considered as part of the risk management strategy. Note that part of a good risk management strategy is to reduce “blind spots” in the supply chain. Avoiding supply interruptions is part of a risk management strategy.
Risk management also includes contingency planning for supply chain events, such as product recalls and end-of-life product disposal planning. In the United States, several states are developing “e-waste” laws that govern the end-of-life disposal of consumer electronics products. Laws are currently being refined that carry heavy penalties for improper disposal of items such as computers or monitors. So companies are trying to adjust their reverse logistics operations to account for the risk of improper disposal.
Reducing “Headline Risk” is another important part of a risk management strategy. If a company or one of its suppliers operates in an unsafe manner and employees are injured or killed, the repercussions have profound negative impacts in all directions of the supply chain. Therefore, companies must examine both their own operations and those of the rest of their supply chain, to make sure that these are secure and that business transactions are ethical and beyond reproach, thus preventing a disastrous moral lapse that could eventually appear. in newspapers or in the media in general.
In 1989, it was reported that one of Nike's suppliers would have employed children in one of its factories. Even though he was proven innocent, the negative publicity lasted a long time. Nike had strong arguments that they were not guilty. However, their arguments were perceived as hollow because a member of their supply chain was acting inappropriately. After the incident, the company changed the way it dealt with its supplier base to make sure that it would never suffer similar embarrassment again.
As these words are being written, commentators around the world are tearing Toyota apart over problems encountered with the braking system on some of its automobiles. For Toyota, the “News Headline Risk” is raising an unbearable storm, and is having a clear negative impact on its sales and profitability. They went from being perceived as the most respected automobile company in the world to something far less flattering.
Another part of risk management is related to agility. Agility, in this context, means responding quickly and credibly when a serious problem arises, as was the case with Toyota. The company and its suppliers need to be imbued with agility, at least in critical parts of their operations. Quick response to a serious problem can prevent a deadly crisis.
Finally, 2008 and 2009 were the worst years for the economy in many parts of the world. Many companies have experienced a 40% reduction in demand or more. This recession has moved around the globe faster than any crisis in the past. Ironically, global supply chains for products, services, and fi nancial flows facilitated the spread of the recession. In this sense, risk management strategies in the supply chain are essential to mitigate any crises and, consequently, contribute to the success of companies.
Conclusion
There is much more work to be done around the concept of sustainability and sustainable supply chains. As with the quality movement in the past, we believe that sustainability is not just a short-term fad. Companies in Brazil and around the world must learn about the real meaning of the concept and embrace it for themselves and their supply chain partners. It's certainly not something a successful company will be able to ignore for long. Increasingly, companies are being asked to be sustainable and encouraged to incorporate sustainable ideas in both directions of their supply chain.
Bibliography
Maslow, AHA. Theory of Human Motivation. Psychological Review 50, 1943, pp. 370-96.
Marc J. Epstein. Making Sustainability Work: Best Practices in Managing and Measuring Corporate Social, Environmental and Economic Impacts. Greenleaf Publishing Limited, Sheffield, UK, 2008.
Stephen Stokes, Kevin O'Marah. The New Carbon Age. AMR Research, Boston, MA. Monday, June 29, 2009.
Nike Corporate Social Responsibility Report 2004, p. 29.
1 A Framework of Sustainable Supply Chain Management: moving toward new theory; Craig R. Carter and Dale S. Rogers, University of Nevada, College of Business Administration, Reno, Nevada, USA; The International Journal of Physical Distribution & Logistics Management; Vol. 38 No. 5, 2008; pp. 360-387.
2 Celebrated economist who defends economic liberalism and the reduction of State functions in the face of market dominance. Nobel Prize in Economics in 1976.
dale rogers
https://ilos.com.brDale Rogers is Professor of Logistics and Supply Chain Management at Arizona State University and Practice Leader in Sustainability, Reverse Logistics and Supply Chain Finance at ILOS. He has worked on consulting projects at companies such as Ford, Coca-Cola and Motorola. Dale is Chairman of the Reverse Logistics Executive Council and the Sustainable Supply Chain Council.
