Sustainable sourcing and supply chains offer true competitive advantage, argue Jeremy Hammant and Alan Braithwaite of LCP Consulting.
Over the past 40 years global supply chains have evolved to create and sustain growth and demand through their economic scale – delivering both lower costs and superior value.Without doubt this has contributed to global warming, pollution, environmental damage and longer termmaterial shortages. Sustainability is the catch-all termfor repairing the negative aspects of economic progress over the past 40 years. These issues have emerged because costs have been optimised for the short term, without recognition of the long-termimplications and cost to the environment,material availability and social welfare.
It is time for change.We argue, and can demonstrate, that the same supply chain design and planning approaches that have driven the boomyears can deliver sustainability, factoring in the longer-termeconomic costs.
In the words of Sir Rod Eddington in his report to government: “This is not a choice between being ‘rich and dirty’ or ‘poor and green’ – with the right design it will be possible to be ‘green and rich enough’.”
There is a realisation that our patterns of production and consumption are causing irreversible damage to the globally linked social, economic and ecological system. Failure to adapt and respondmay lead eventually to dire consequences, including social conflict, an inability tomaintain customary levels of supply and wealth, and potential for environmental destruction. A survey by Populus, in “The Times” on 26th December 2008, found that 60 per cent of respondents would try to buy the “most ethical and environmentally friendly products” that they could. The other 40 per cent will look for the best value formoney regardless of source.
This balance has not shifted by a statistically significant amount over the past fourmonths, notwithstanding the looming clouds of recession. The survey succinctly puts the core question behind the term“sustainability”: value today or long-termregulation of our activities to leave a better legacy for future generations?While a clearmajority are opting for the long-termlegacy choice, the dichotomy for political and business leaders is huge.
They are wrestling with conflicting priorities including short-termelectability, continued office, annual bonuses and shareholder dividends versus an undefinedmeltdown sometime in the future. So it should not be surprising that progress is rather slow in creating a combined regulatory and corporate response to the question of sustainability.
The perceived risk of change is one of “firstmover disadvantage”; adopting the new rules and scoring system whilemany others are still playing to the old ones. But changes to the rules are becoming established in the formof public accountability through corporate social responsibility standards and government commitments and changes to arrest climate change. The new rules are being set and companies are learning how to respond to them.
The skills of supply chainmanagement have amajor role to play in both corporate and governmental adjustments to deliver a sustainable future. Supply chainmanagement is built on the core concept ofminimising the end-to-end cost of the chain and/ormaximising its service performance by balancing the activities between the actors along the chain. Themathematical concept of an “objective function” for the total systemis embedded in supply chain thinking.
In the past, the end-to-end optimisation was often done with no recognition of the cost of returns, recoveries, replacement and environmental damage, inter alia.
Because the company did not pay for such costs and they were not easy to value economically, they were out of the picture. So, if society elects to change the “objective function” by putting a cost on the creation of emissions, depletion of materials, recovery of waste, and fair treatment for developing nations, then supply chains will be reconfigured to a new and more sustainable balance.
The tools that can support the achievement of this new balance are already defined, but not yet widely applied. The right tools create an end-to-end picture of time, cost, carbon and risk. These create a powerful fact-based visualisation, costing and carbon impact assessment of end-to-end chains. They allow supply chain designers to look beyond their own organisation and test the impacts of alternative product design, sourcing, logistics and customer service.
“Looking beyond” is the key term; our experience is that this process of understanding the extended chain always identifies substantial potential to redefine the chain and save cost and carbon. It is remarkable how often we find 20 per cent to 30 per cent gains in efficiency (cost and emissions) through the application of this end-to-end thinking. In the new“ethical world” these benefits can be used to put back the social element into the supply chain.
As wemove to an era whichmay come to be known as post-globalisation, the process of end-to-end redesign will be essential. Consumers will respond to better information from an end-to-end impact assessment, enabling themto exercise wiser choices.
For companies and government, the new skill will be to establish greater transparency and trust than has hitherto been the normin traditional adversarial commercial relationships. Learning to do this will be the great challenge.
If this achievement is widespread, then our experience suggests that it will generate another surge in economic productivity and support the attainment of the target of 60 per cent emissions reductions by 2050.
We can indeed be “green, ethical and rich enough”.