Substance Chain Management - a Conceptual Framework for Environmental Alliances Between Companies

Diplom-Biologin Kathrin Ankele

Ecological Economics Research Institute (IOeW), Giesebrechtstraße 13, D-10629 Berlin,

Germany, Tel.: +49 - 30 - 884 59 4-21, Fax: +49- -30 - 882 45 39

Limits to Company-Confined Activities

The increasing complexity of production systems, with corresponding international division of

labour, and the growing relevance of responsibility extending over the whole product life

cycle, point at limits to an individual company's efforts in environmental performance. If

environmental programmes are analyzed which companies publish in the context of their

participation in the Eco Management and Audit Scheme (EMAS) or the international

environmental management standard ISO 14001, it turns out that for a while already

preceding and succeeding stages of a company's activities are also taken into account.

A multitude of targets and measures in environmental programmes already relate to suppliers

and customers. With complex product chains, product-related environmental protection

depends considerably on the ecological quality of preceding and succeeding stages. But

companies will have to include those stages more systematically and more actively than they

do today so as to fully exploit the inherent optimization potentials.

The situation is best exemplified by a trading company that does not produce itself but

purchases all merchandise from suppliers: its assortment policy, its logistics, the disposal of

its products after use etc. determine its environmental performance, which it can only improve

in cooperation with other companies (suppliers, forwarding agents, disposal institutions … ).

The respective optimization potentials are not confined to the field of ecology, they also refer

to the economic area, and, in the sense of sustainability, have also social implications. But the

latter aspects will not be discussed here in more detail.

Entrepreneurial cooperation along a product chain with the aim of ecological optimization has

been introduced into the environmental debate as a new concept under the notion of

'substance chain management' by the inquiry commission "Protection of Humans and

Environment" of the 12th German Bundestag (see figure 1).

Partnership and Leadership: Building Alliances for a Sustainable FutureNovember 15-18, 1998 Seventh International Conference of Greening of Industry Network Rome

Inquiry Commission: "Substance Chain Management …

… is the target-oriented, responsible, holistic and efficient influencing of

material flows or material systems, with set targets coming from the

ecological and economic fields, and considering the social aspects.

Targets are developed at company level, at the level of the chain of actors

involved in a substance chain, or at the governmental level."

Fig. 1 The definition of 'substance chain management' on the part of the inquiry commission. Source: Enquête-Kommission "Schutz des Menschen und der Umwelt" (1993)

This concept takes into account different trends in current environmental policy: on the one

hand a changing orientation, turning from a media-based perspective to one that is based on

material flows, on the other hand the increasing importance of self-initiatives on the part of

industry and consumers.

Practical experiences with substance chain management and equivalent activities in recent

years have shown that usually an initiative is started in an individual company, a major part of

preparatory activities takes place there, and further companies along the product chain are

included only at that stage.

This insight confirms the relevance of company-internal information instruments and

management methods also for the solution of problems transcending the scope of the

individual company.

Starting Point: Company-Internal Environmental Management

An existing company-internal environmental management system provides a promising basis

for substance chain management projects. The present text will show the connection between

company-internal environmental management systems and substance chain management.

An environmental management system according to EMAS (and to some extent to ISO

14001) serves to continuously improve a company's environmental protection, to warrant

compliance with all environment-relevant laws and regulations, and to inform the public about

the company's environmental performance1.

A company formulates its environmental policy, which describes its long-term environmental

protection strategy and its target orientation. This policy is to cover important aspects like,

e.g., control and reduction of environmental impacts, product planning, and prevention of

accidents. An initial review identifies weak points with respect to legal compliance, to the

environmental management system (or of the organization of environmental protection if there

1 Since the characteristics relelvant in the context of substance chain management are more or less similar in EMAS, ISO 14001 and and other standardised environmental management systems, in the following only environmental managemernt systems in general are mentioned.

is no management system yet) and with respect to environmental impacts. In the next step,

the environmental management system is implemented. It orients by the needs of the

respective company and is supposed to ensure continuous improvement of the company's

environmental performance. Therefore, its tasks and processes have to be embedded into a

continuous process of eco-controlling. Weak points detected in the initial review are translated

into targets of an environmental programme, which has to be reformulated for each audit

cycle and which determines concrete quantitative goals, measures for their attainment and

temporal, financial and personal resources. Then follows the environmental audit, which can

be performed by internal or external auditors and which focusses on the effectiveness of the

environmental management system.

Three aspects are to be emphasized in a company's environmental management, which are

of relevance also in substance chain management:

• information,

• organization,

• communication.

The following chapters will individually discuss these aspects and describe where starting

points for substance chain management can be found.

The Site-Related Eco-Balance as a Data Base

EMAS or ISO 14001 do not explicitly require a site-related eco-balance, nevertheless it is a

very well suited information instrument to perform the required systematic gathering and

evaluating of data concerning environmental impacts.

An eco-balance ascertains, for a given period of time, all material and energetic inputs into a

company as well as outputs leaving it (see figure 2). Product-related or process-related

representation of a company's material and energy flows, combined with environmental cost

accounting that also orients by material and energy flows, allow to identify ecological and

economic weak points in a company's processes. Consideration of raw materials, auxiliaries,

and primary products on the one hand and of ways of product disposal on the other hand

extend the scope of action beyond company borders. This provides a starting point for

substance chain management along the product chain.

the site-related eco-balance

Input Output

raw materialsprimary productsauxiliariesenergywaterair...

productsbyproductsemissions intoair, watersolid wastewaste heatnoise...

Fig. 2 Diagram of a site-related eco-balance Source: own depiction, IÖW 1996

Process of Continuous Improvement

In the first place, an eco-balance is a static information instrument representing material and

energy flows that have occurred in a company up to a certain fixed day. Yet a company's

environmental performance can be improved continuously only if targets and tasks are

explicitly defined and organizationally integrated. This requires a controlling process including

the elements of planning, regulation and control. A tried and tested procedure in that sense is

eco-controlling. It allows to continuously formulate ecological targets, identify weak points to

be overcome and optimization potentials to be exploited, according to the environmental

programme. Since these activities are integrated into everyday business, they become a

matter of course and so do not gradually lose their effectiveness after implementation.

The Transition to Substance Chain Management

There is a fluid boundary between site-related environmental management and substance

chain management, which figure 3 below will explain diagrammatically. Substance chain

management transcends the borders of the individual company and comprehends preceding

and succeeding stages of a different vertical range. Substance chain management in this

context is not an end in itself, it is a sensible concept only if it is of use for the participating

actors. Objectives and expectations of cooperating partners often differ. And in any case,

cooperation has to be economically realizable to justify the additional expense, since

cooperative solutions often show increased complexity.

Basically, the same three aspects are of importance in substance chain management as in a

company's environmental management:

• information,

• organization,

• communication.

But complexity with respect to these aspects is higher, as several companies and maybe

further actors are involved (like stakeholders, governmental actors etc.). For reasons of

secrecy, information is not exchanged as readily as among different company-internal

departments. Goals related to a substance chain management project may differ among

companies and may hence provoke conflicts.

Correlation between site-related environmen talmanagement and substance chain management

extraction of raw ma terial

primary production

trade, use

disposal

Site-related EM

Substance chainmanagement

Fig. 3 Correlation between site-related environmental management and substance chain management. Source: own depiction, IÖW 1997

Like the similar company-internal process, a substance chain management project needs

technical, procedural, and power promoters to initiate and advance the process. Technical

promoters bring in the required know-how to make qualified decisions regarding product

alternatives. Procedural promoters know how to initiate and advance cooperation, hence

contribute with their organizational know-how. Power promoters are those that are able, due

to their market power, power to convince, etc., to achieve cooperation of other companies

respectively those that should absolutely participate in a specific cooperation along a product

chain.

Figure 4 below shows what phases are of importance in a substance chain management

project - with not each phase occurring in each project. Analogy with the above-listed steps of

the eco-controlling process is conspicuous. We may draw a somewhat simplified analogous

picture, showing a weak point at the beginning, which means need for action. Then follows

the search for alternatives. This search leads to the formulation of targets and definite

agreements on how to attain them. If that process is organizationally integrated in each

company concerned, this will allow to implement the respective measures and to continuously

monitor their impacts. Finally, the success of the described measures is judged by a target

performance comparison. Such a comparison might lead to a reformulation of targets.

phases in substance chain management

initiation

preparation

organization

implementation

successcontrol

ecological weakpoint(s)in the product life cycle,pressure for action,scope for action,partners, sales prospects

distribution of tasks,operative planning

definite agreementsamong partners

ascertaining techno-logical, ecological andeconomic impacts

target-performancecomparison

cooperation idee

starting point

continuation, change,abortion of the cooperation

controlling

Fig. 4 Phases in substance chain management Source: own depiction, IÖW 1996

Conclusion

Companies that strive for ecological optimization along the product chain will profitably base

their efforts on information instruments like eco-balance, EMAS, eco-controlling, or ISO

14001. Of essential relevance for successful substance chain management projects are,

apart from ecological information, a series of economic data. If a company changes its

accounting system to a material and energy flow cost accounting this will be of help for

assigning costs for environmental protection according to their causes and thus for identifying

further optimization potentials. Finally, it is quite sensible to extend the scope of 'classical'

quality control by including ecological criteria or integrating environmental and quality

management. So, substance chain management does not so much require the development

of new instruments as rather the adaptation and integration of existing ones.

Thesis for discussion

• Company-internal environmental management systems (EMS) in the participating

companies are a necessary basis for substance chain management. Those EMS provide

an organisation and procedures how to develop environmental targets as well as

instruments to realise and control the targets.

• Technical, procedural and power promoters are needed to initiate and advance the

process in substance chain management projects.

• Substance chain management is not an end in itself: the additional efforts for

communication and negotiations must result in additional outcomes.

• Substance chain management should not be understood as a modern synonym for well-

known environmental protection measures. Characteristics of distinction should be the

active and voluntary participation of more than two steps of the product chain, advantages

for all participants and ambitious ecological targets.

• Setting targets - especially ecological targets - is a difficult but necessary task in

substance chain management projects. It would therefore be useful to focus on the

realisation of accepted targets (as formulated in environmental policy plans).

• Substance chain management can not be applied to any product chain. A minimum

stability of the relationships between the participants is needed to implement an

information basis and a chainwide controlling system.

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