The Risks of Sustainability in Supply Chain Management
The Risks of Sustainability in Supply Chain Management
By Muhammad Zahrif
In recent years, customers, employees, investors and governments have put increasing pressure on companies to demonstrate greater environmental stewardship and social responsibility. This comes at a time when the business case for sustainable operations grows stronger every year.
For many businesses, supply chains have come into focus because they use a lot of resources and money and are frequently a source of unnecessary waste. Thus, supply chain sustainability has emerged as a key corporate goal. Companies have started to measure the environmental and societal impact of their goods and services, from the beginning to the end of their life cycles.
What Is a Supply Chain?
A supply chain is a coordinated network of all the companies, facilities and activities involved in developing, manufacturing and delivering a business’s products.
What Is Supply Chain Management?
Supply chain management is the practice of coordinating sourcing, production, inventory management and transportation among all the participants in a supply chain to maximize efficiency and customer satisfaction. Many businesses realize major time and cost savings by evaluating and improving supply chain management.
What Is Sustainable Supply Chain Management?
While conventional supply chain management focuses on the speed, cost and reliability of operations, sustainable supply chain management adds the goals of upholding environmental and societal values. This means addressing global issues such as climate change, water security, deforestation, human rights, fair labor practices and corruption.
How Can a Supply Chain Be Sustainable?
Companies around the world have taken steps to lower their carbon emissions, cut back on waste and improve labor conditions. By tracking sustainability metrics in supply chain management (SCM) systems, they monitor multifaceted programs that, for example, prioritize renewable energy, recycle products and materials or encourage greater social responsibility among suppliers. Companies can also use intelligence and pre-defined rules to ensure that products aren’t being shipped unnecessarily. For example, making sure products are sent from the closest distribution center as opposed to one on the other side of the country.
Why Is Sustainability Important in the Supply Chain?
Research has shown that, for most companies, the supply chain is responsible for the bulk of their environmental impact. By their very nature, supply chains often involve energy-intensive production and transportation as goods are made and moved around the globe. Therefore, organizations can often make the biggest difference by making changes to their supply chain rather than other business operations.
The complexity of myriad supplier relationships and border crossings also makes supply chain sustainability challenging. This complexity can hinder visibility into important operational considerations such as labor conditions at a supplier’s factory that is thousands of miles away.
The Risks That Can Occurred in the Sustainability in Supply Chain Management
A recurring theme surrounding sustainability risk is the idea that companies should focus solely on environmental risk. Supply chain sustainability risk is broad, however, and encompasses a range of different aspects and sources, including:
- Health and safety – preserving health and well-being to employees, contractors, and those exposed to supply chain operations.
- Environmental – minimizing damage to the environment through pollution/resource reduction, waste management, sustainable sourcing, and biodiversity
- People – working alongside suppliers to enhance local communities in the form of safe work, fair wages and hours, education, infrastructure improvements, and protection from child labor/modern slavery and discrimination
- Ethics – effectively governing over poor business conduct that could take the form of bribery, fraud/embezzlement, or misconduct.
- Regulatory – ensuring compliance with laws and legislation to protect the organization from loss of critical operations/ business licenses and legal
- Reputation and finance – providing the organization with a positive brand image and Attracting customers, investors, and employees and enhancing competitiveness; ultimately protecting a company from a damaged reputation and financial loss.
Example of the Risks That Occurred in the Sustainability in Supply Chain Management
Tech giants Apple, Google, Microsoft, Dell, and Tesla are all being sued by a human rights group International Rights Advocates, for alleged poor oversight of their Cobalt supply chains, which enabled the use of child labor in mining operations in Democratic Republic of Congo (DRC). The class action lawsuit claims that, although each company has specific policies prohibiting the use of child labor in its supply chains, they all have failed to effectively implement such practices.
The DRC produces around 60% of the world’s cobalt and, with a history of poor working conditions and labor practices, tech groups and car makers face a growing dilemma around how to effectively manage this emerging risk in their supply chain. The tech groups are currently investigating the claims but are at risk of significant reputational and financial damage.
Combatting Supply Chain Sustainability Risks
Implementing a supply chain sustainability risk management framework and supplier engagement strategy require collaboration and communication between numerous functions and stakeholders across the supply chain. A risk appetite and supplier engagement strategy will determine an organization’s capability and capacity to engage with suppliers in terms of:
- Number of suppliers to engage with – includes direct suppliers as well as Tier 2 and
- Contract management – depth of contractual agreements with suppliers
- Supplier relationship management – dedication to work alongside suppliers to improve sustainability
- Performance management – monitoring supplier performance against contractual
- Internal practices – establishing internal practices to support sustainability culture across own
Conclusion
Supply chain sustainability has emerged as a key corporate goal. Companies have to measure the environmental and societal impact of their goods and services, from the beginning to the end of their life cycles. To ensure the sustainability in supply chain management, companies have to measure every risk that can occur and prevent them by evaluating the collaboration and communication between numerous functions and stakeholders across the supply chain.
References :
https://en.wikipedia.org/wiki/Supply_chain_sustainability
https://www.investopedia.com/terms/s/scm.asp
https://www.techtarget.com/searcherp/definition/supply-chain-sustainability
https://www.mckinsey.com/business-functions/sustainability/our-insights/starting-at-the-source- sustainability-in-supply-chains
https://www.adlittle.com/en/insights/viewpoints/sustainability-supply-chain-risks-and-rewards
https://www.computerweekly.com/news/252509170/Mining-deaths-lawsuit-against-major-tech- companies- dismissed#:~:text=The%20lawsuit%20against%20Alphabet%2C%20Apple,subsequently%20benefiting% 20from%20%E2%80%93%20forced%20labour
https://www.techtarget.com/searcherp/definition/supply-chain-sustainability