Managing the Sustainable Supply Chain
The business community has come a long way since the terms “sustainability” and “sustainable development” became part of the vernacular 25 years ago after the report of the Brundtland Commission to the United Nations. Gradually, consumers began to demand that a concern with the “triple bottom line” – economic, social, environmental – had to be demonstrated by businesses and this began to have a real impact on buying decisions.
I was reminded recently what a constant the “sustainability” theme has become as I scanned a column by Nina Winham in Business in Vancouver (March 6-12, 2012). Not only does this local business weekly now have a sustainability columnist, the focus of this particular piece was “sustainable purchasing”. Purchasing, or procurement, if you will, is a key function in the supply chain. If a company is serious about delivering a sustainable, or “green”, product or service to the market, the supply chain perspective provides the required comprehensive view of all the inputs and processes.
The emphasis on supply chain management and its vital role in assuring consumers that the purchases they make reflect socially and environmentally responsible decisions, comes as no surprise to those of us with some experience in the food processing industry. About 15 years ago, it became mandatory to implement HACCP (Hazard Analysis Critical Control Point) as a food safety strategy. The requirement to analyse and account for all inputs and processes – and demonstrate that you had done so – threw a harsh light on supply chain management, or the lack of it, in the food industry. Three key factors affecting supply chain management – traceability, audit processes and certification – quickly became paramount in the food industry. I am sure that businesses that have implemented other quality management programs, ISO 9001 for example, have had the same experience.
Now we see emphasis on traceability, audit and certification in all industries where it is important to establish origins and authenticity and show that your product or service is consistent with social and environmental standards. And it is driven as much, perhaps more, by industry response to consumer demand as by government regulation. One of the longer-established sustainable certifications – Marine Stewardship Council – was not a government initiative; it was industry driven and spear-headed by Unilever.
Manufacturers frequently find themselves as part of someone else’s supply chain. I remember packing product in a plastic liner, in a cardboard box, placed in another cardboard “master” for export. This was the industry standard. Then our European customers began demanding a product as near to “naked” as possible to avoid the rising cost of disposing of or recycling all that cardboard at the other end. This was an early example of how customer demand can force us into greener, more sustainable practices.
Certification programs have proliferated. We now commonly see labeling assuring us that we are buying socially and environmentally responsible products. As examples, MSC (Marine Stewardship Council) and Sea Choice certifications for fish and seafood, SFI Sustainable Forest Initiative) certification for lumber and forest products, OMRI (Organic Materials Review Institute) certification for all types of organic food as well as fertilizers and soil amendments, and LEED (Leadership in Energy and Environmental Design) in the construction industry show how widespread this has become. Most product certifications emphasize the “green” characteristics of the product. But some, like the Fairtrade certification we see on coffee and some other imported products, give priority to the social aspect of the multiple bottom line. An emergent concern with “ethical” products – as in “ethical” diamonds, or “ethical” oil – means that we may soon see an addition to the multiple bottom line and another criterion for certification.
Audit processes are adding expenses for companies that maintain a sustainability certification, just as happened in the food processing sector when new food safety programs were implemented. Internal audit functions are required to ensure that the systems are working. Costly 3rd party audits are required to establish and maintain certification. Food safety, workplace health and safety, quality management programs, plus a sustainability certification can impose multiple stresses on supply chain managers and significantly increase business expenses.
Traceability, or chain of custody, is essential for both quality management and sustainability management in the supply chain. This is how accountability is established. As well as tracing backward, to track all of the inputs to a final product or service, some businesses, such as processors involved in the product stewardship programs and recycling, are expected to trace forward and be accountable for where their products go after leaving their custody.
Procurement, operations, costing, logistics and customer service are the basic elements of supply chain management. Traceability, audit and certification requirements add record keeping and cost burdens to each of these. The need for improved information management that is effectively integrated with business process management presents a real challenge for the company ERP system and may overwhelm those without an ERP system. Is it worth it? Certified sustainability is rapidly becoming the price of admission to some market segments and in those market segments businesses cannot remain competitive without it. The challenge will be to continue to manage the supply chain more effectively and to deliver demonstrably more sustainable products and services as efficiently as possible.
Managing Principal – British Columbia