Unit 6: Design for Embedding Systemic Sustainability

the Organisation and its Supply Chain

Dr. Miles Weaver, Edinburgh Napier University Business School

m.weaver@napier.ac.uk @DrMilesWeaver

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Learning outcomes

Learning Outcome Key Concept

LO 6.1Critically appraise how a sustainable business can create sustainable value by taking a systems perspective: upstream, in its business processes and downstream.

Systems Thinking;

Functional Strategy

LO 6.2Explain the emergence and importance of managing the supply chain to underpin the efficient and effective running of a business and opportunities for improving sustainability Sustainable

Supply Chain Management(incorporating

TBL)LO 6.3

Evaluate the various different supply chain decisions that benefit the natural (planet) and social (people) environment as well as involve the business in less cost in the long term as the result of a better use of resources (e.g. to impact on profit/surplus)

After this lecture and independent study you should be able to:-

#BSSD17Systems thinking in connecting & aligning responsible business practice

• Systems thinking may represent the next phase in the evolution of sustainability (The Guardian, 15/10/2012. Accessed: 21/2/15)

Allows us to:• See the whole

– To embed sustainability inc. from source and re-use/recycle [as part of a circular economy)

• Think differently– Identify new business opportunities– Develop ‘shared values’ & ‘common space’

(Weaver et al., 2016)

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Systems thinking is the ‘field of knowledge for understanding change and complexity through the study of dynamic cause and effect over time’’

(Maani and Cavana, 2006)

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‘Bolt-on’ or ‘embed sustainability’ (I)(Laszlo and Zhexembayeva, 2011)

Bolt-on sustainability Embedded sustainabilityGoal Pursue shareholder value Pursue sustainable value

Scope Add symbolic wins at the margins

Transform core business activities

Customer Offer “green” and “socially responsible” products at premium prices or with diminished quality

Offer “smarter” solutions with no trade-off in quality and no social or green premium

Value capture

Focus on risk mitigation and improved efficiencies

Reach across all seven levels of sustainable value creation

Value chain

Manage company’s own activities

Manage across the product or service life cycle value chain

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‘Bolt-on’ or ‘embed sustainability’ (II)(Laszlo and Zhexembayeva, 2011)

Bolt-on sustainability Embedded sustainabilityRelationships Leverage transactional

relationship. Stakeholders such as customers, employees, and suppliers are resources to be managed and sources of input

Build transformative relationships. Co-develop solutions with all key stakeholders including NGOs and regulators to build system-level change

Competitor Operate only in win-lose mode in which any gain is competitor’s loss

Add cooperation with competitors as potential sources of gain

Organisation Create a “scapegoat” department of sustainability

Make sustainability everyone’s job

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‘Bolt-on’ or ‘embed sustainability’ (III)(Laszlo and Zhexembayeva, 2011)

Bolt-on sustainability Embedded sustainabilityCompetencies Focus on data

analysis, planning, and project management skills

Add new competencies in design, inquiry, appreciation, and wholeness

Visibility Make green and social responsibility highly visible and try to manage the resulting scepticism and confusion

Make sustainability performance largely invisible but capable of aligning and motivating everyone

Advice to those blind men:We need to be following those elephants …

We discussed:• Some organisations ‘bolt-on’

sustainability to create business opportunities and mitigate risk. Feeling the parts.

• Call towards ‘embedding sustainability’ with the goal of ‘Sustainable Value’ and implementing sustainability-driven initiatives throughout the organisation. Seeing the whole.

• But the real elephant in the room is about following that tail and trunk. Both upstream and downstream.

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Context: The “Yes, but ….”• We must be concerned with the efficient and effective use of resources

– don’t just appear in a business … resources are inputs, part of a supply chain

– Not just an impact from a business … outputs that may be the inputs to another organisations supply chain

• We agreed that the natural environment underpins all competitive advantages. These eco-systems are at the source of these supply chains.

• There are a limited number of organisations that hold sustainability leadership positions although the standards/norms are evolving (the ‘level playing field’).

The competitive battle is won or lost in an organisations supply chain?“Supply chains compete, not companies" (Christopher, 1992)

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Inputs from upstream sources to a business

Inputs Environmental concerns

Raw materials Deletion of forests;Harm caused by toxic materials like pesticides, solvents

Fuels Depletion of oil, coal, natural gas;Pollution created by fossil fuels, hazards of using nuclear energy

Cannon (2012, pg. 145)

Organisation (sits within a supply chain)Inputs Outputs

All issues involved in resource consumption

All issues involved with pollutant emissions

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Outputs downstream towards the customer

Outputs Environmental concerns

Products Product safety;Health consequences of products such as tobacco, liquor, fats, beef, etc.,

Packaging Refuse created by packaging

Servicing Reliability, hazards of failure

Cannon (2012, pg. 145)

Organisation (sits within a supply chain)Inputs Outputs

All issues involved in resource consumption

All issues involved with pollutant emissions

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Creating sustainable value:Evaluating organisational system “impacts”

Laszlo (2008)

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Levels of strategic response: functional strategy level• We discussed previously the four

levels of strategic response suggested by Banerjee (2001)

• We are concerned this week at the functional level. This level underpins an organisations competitive strategy.

– Functional strategy - planning operations for different functions (e.g. marketing, human resources, manufacturing/service operations)

– Banerjee (2001) argued most actions focused around manufacturing (especially where cost advantage possible)

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Organisational considerations(Adapted Banerjee, 2002 to incorporate also social impacts)

Corporate focus• Research & Development, product

stewardship, regular audits, commitment stated in mission statement, sustainability goals, cross-functional with responsibility for sustainability teams

Note those in italics are concerned with corporate strategy.

Employee focus• In-house paper/bottles/cans recycling

programme, special training programmes, newsletter communicating on sustainability initiatives/activities/actions, car-pooling scheme, rewards for new sustainability ideas

Marketing focus• Product and packaging redesign around

sustainability impact, offering products /services that cater for sustainability conscious consumers, co-operative alliances with environmental/social organisations, stakeholder integration, specific programmes to educate consumers on sustainability issues, firm advertises sustainability efforts

Manufacturing focus• Waste reduction, utilising sustainable

energy sources, recycling waste produced during manufacturing, use recycled materials wherever possible, using recycled content of raw materials, specific environmental standards/sustainability code for evaluating suppliers

Employee focus

• Many pressures come from within!– New recruits “questioning” norms– Existing workers “raising

questions” about practices

Key: • Information• Recruitment• Training (i.e. induction)• Development programmes

• Winning active co-operation

Change requires:(Cannon, 2012)

1. Buy-in2. High levels of communication

and participation3. Endorsement for adaption or

innovation4. Progress and success

recognised and disseminated5. Leadership acts together and

transmits consistent messages6. Holistic view adopted7. Change backed by training and

development of at risk staff

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Marketing focus

• New product development increasingly influenced by efforts to reduce the negative effects of innovations while strengthening their positive features (Cannon, 2012)

• Green imagery– Packaging– Labelling

• Green washing?

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What’s in a label? Do you care?

On Youtube

Manufacturing focus: Savings reported at M&S on early adoption of Plan ‘A’

“Savings on initiatives such as being more energy efficient in stores and distribution centres (£13.5m saving last year), using less fuel (£2m), hanger recycling and reuse (£1m), and packaging reductions (£11m) more than outweighed any investments M&S made in Plan A projects.”

M&S (June, 2011)

A WIN-WIN?Society and recyclingBanerjee (2001) survey on managerial attitudes showed recycling was most commonly performed activity

Story of aluminium recycling:

• If society recognises the value of a material and puts systems to recover it, significant resource savings can be made

• Recycling rates as high as 90 – 95% (Cannon, 2012)

A WIN-WIN?“It’s waste reduction stupid!”• Banerjee (2001) survey on

managerial attitudes showed most actions focused around manufacturing (especially where cost advantage possible)

• As usually cost reductions follow

• Lean production techniques– Toyota production system

• Rely heavily on and gain many of their returns from waste reduction (Cannon, 2012)

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Lean thinking = ‘mindset’ + ‘toolbox’• The key principle of Lean is

relatively straightforward to understand: it means moving towards the elimination of all waste in order to develop an operation that is faster and more dependable, produces higher quality products and services and, above all, operates at low cost.

• Eliminate waste by involvement of people + continuous improvement

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Eliminating waste (Muda)= using less of everything

• Waste is anything that does not add value from the customer point of view

• Storage, inspection, delay, waiting in queues, and defective products do not add value and are 100% waste

• Ohno (1988) seven wastes (shown right)

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Origins of Lean/JIT:Toyota Production System (TPS)

‘leanness’ is doing more with less– E.g. hrs/car

LOW COST HIGH CUSTOMERSATISFACTION

TO DELIVER

TWICE THE NUMBEROF MODELS

ONE THIRD THE NUMBEROF DEFECTSWITHIN TWO WEEKS OF ORDERING

HUMAN EFFORT

FACTORY SPACEPRODUCT DEVELOPMENTTIME

50% LESS

50% LESS30% LESS

90% LESSIN-PLANT INVENTORY

LEAN vs MASS PRODUCTION

Source: Womack, J.P. Jones, D.T. & Roos, D. (1990), The Machine That Changed the World, Simon & Schuster, London

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A thought …

Does

?

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Impact of ISO Standards

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Continuous improvement and standards:Environmental Management Systems (EMS)

• ISO 14001 - Internationally accepted standard to put in place an environmental management system (EMS) (superseded BS 7750)

• Eco-management and Audit scheme (EMAS) – voluntary EU initiative designed to improve corporate environmental performance

• 29% of firms do not have an EMS in place although acknowledging rising cost of energy (70%), waste management (45%) and carbon emissions (30%) (BSI, 2006)

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Time series of companies in EU27 which are certified by ISO 14001 (European Environment Agency, published 05 Apr 2013)

http://www.eea.europa.eu/data-and-maps/figures/number-of-organisations-with-registered-1

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In your own time …ISO 14001 - the world's EMS standard

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Benefits of an environmental management system (BSI, 2006)

Benefits include:• 94% recognise it can improve

performance• 54% believe it can enhance

corporate reputation• 1 in 10 believes it enhances

competitive advantage and achieves cost savings

• 76% believe customers will be more interested in companies with an EMS in the next 10 years

…. becoming/now a norm?

SUSTAINABLE SCM

LO6.2 Explain the emergence and importance of managing the supply chain to underpin the efficient and effective running of a business and opportunities for improving

sustainability

LO6.3 Evaluate the various different supply chain decisions that benefit the natural (planet) and social (people) environment as well as involve the business in less cost in the long term as the result of a better use of resources (e.g. to impact on profit/surplus)

#BSSD17

Unlocking the potential in a supply chain:the Opportunity• Supply chain professionals are in an outstanding position to impact

sustainability practices (Carter and Rodgers, 2008)

• We will now expand the concept of sustainability from an organisation to supply chain perspective

Cost Improve CorporateReputation

The concept of sustainable value must take a supply chain perspective

"supply chains compete, not companies" “Supply chain is the new value chain”

(Christopher, 2002; 2011)

• Supply strategies significantly impact upon a firms performance (Christopher and Ryals, 1999, Keah-Choon et al., 1999)

• Companies have far too often attempted to optimise their own value chains, without considering the effect of these decisions on their suppliers or customers (Chopra and Meindl, 2004)

• Generally, the adoption of Green SCM practices by manufacturing organisations leads to improved environmental performance and economic performance which, in turn, positively impact operational performance (Green et al., 2012)

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Bean to cup example

Defining Sustainable SCMCarter and Rodgers (2008)

• “strategic, transparent integration and achievement of an organisation’s social, environmental, and economic goals in the systemic coordination of key interorganisational business processes for improving the long-term economic performance of the individual company and its supply chains”.

Sustainability: the triple bottom line

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Sustainable SCM Carter and Rodgers (2008)

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SSCM: Win-Win situations• Carter and Rodgers (2008) offer a variety of environmental and social

issues that a firm can undertake which can improve as well as harm the economic bottom line

Can Harm?Little help?Some social/environmental initiatives can fail? (as do others). Need to understand why (i.e. link between quality and sustainability, price premium)

Sustainable SCM Practices

Carter and Rodgers (2008) suggest this area is large!

True sustainability intersects at all three areas

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WIN-WIN: Potential economic advantages(intersections of economic with social and/or environmental performance)

• Cost savings due to reduced packaging waste (Mollenkopf et al., 2005; Rosenau et al., 1996), and the ability to design for reuse and disassembly (Christmann, 2000; Hart, 1995; Shrivastava, 1995)

• Reduced health and safety costs, and lower recruitment and labour turnover costs resulting from safer warehousing and transportation and better working conditions (Brown, 1996; Carter et al., 2007).

• Lower labour costs – Better working conditions can increase motivation and productivity, and reduce the absenteeism of supply chain personnel (Holmes et al., 1996; McElroy et al., 1993).

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WIN-WIN: Potential economic advantages (intersections of economic with social and/or environmental performance)

• Proactively shaping future regulation – companies that proactively address environmental and social concerns can influence government regulation when this regulation is modeled after a company’s existing production and supply chain processes, leading to a difficult-to-replicate competitive advantage for companies and their suppliers (Carter and Dresner, 2001).

• Reduced costs, shorter lead times, and better product quality associated with the implementation of ISO 14000 standards, which provide a framework for environnemental management system (Hanson et al., 2004; Montabon et al., 2000; Tibor and Feldman, 1996).

• Enhanced reputation – engaging in sustainable behaviour can make an organisation more attractive to suppliers and customers (Ellen et al., 2006), to potential employees (Capaldi, 2005), and to shareholders (Klassen and McLaughlin, 1996).

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For reference:Supply chain decisions impact the resource footprint (Adapted Christopher (2011), pg. 248)Design Source Make Deliver Return

• Focus on opportunities for reuse and recycling

• The choice of materials for both the product and the packaging

• The physical characteristics of the product

• Location of suppliers can impact differentially on a resource footprint

• Environmental implications of supply source e.g. food miles

• Society and ethical issues

• Improve energy efficiency

• Reducing waste, rework and scrappage (inventory)

• Reduce/ eliminate pollutions and emissions

• Minimise transport intensity

• Optimise network configuration

• Reconsider transport modes

• Develop ‘reverse logistics’ capability

• Manage product end-of-life

• Create closed looped supply chains

Environmental decisions - Social decisions - Hybrid (both)

Progress to date?• A study by Haung et al., (2012)

identified some pressures for SMEs to adopt Green SCM practices (study of Chinese managers):

– Most SME managers lack experience and theoretical knowledge to implement

– the pressures from environmental laws and regulations having the most significant influence for Chinese manufacturing SMEs to adopt Green SCM practices

Summary and a thought to leave you with …

Summary: • Sustainable Value is won or lost in an organisation

operation and supply chain. • We need to think in terms of ‘systems’ to achieve

lower costs and better use of resources. – Systems thinking – Natural resource based green supply chain management

(see Shi et al., 2012)• There are many WIN-WINs activities and actions

such as adopting lean thinking

But some questions for the “systems thinker”:• Who ‘owns/controls/governs’ a sustainable supply chain? Is there a need?• Where do you draw the line (set the ‘boundary’) to create sustainable value?

• But where do you start ….. At source (our ecological environment)?

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“I am of the opinion that my life belongs to the community, and as long as I live it is my privilege to do for it whatever I can. I want to be thoroughly used up when I die, for the harder I work the more I live. Life is no ‘brief candle’ for me. It is a sort of splendid torch which I have got hold of for a short moment, and I want to make it burn as brightly as possible before handing it on to future generations.”

— George Bernard Shaw

I CAME TO your shore as a stranger, I lived in your house as a guest, I leave your door as a friend, my earth

- Rabindranath Tagore