Rd Supply Chain Strategy

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0.1

Supply Chain Strategy

and EvaluationFirst Report

P rofess or Ma rtin C ha rter, Aleksa ndra Kielkiew icz -Young , Alex Young , Andrew Hugh es

The C entre for S usta ina ble Des ig n

J anua ry 2001

The SIG MA Project - 2001

Supply Chain Strategy and Evaluation


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AcknowledgementsThe a uthors wish to tha nk all the orga nisa tions a nd peo ple w ho freely g a ve their time to help with this

research.




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Executive SummaryKey findings

This rese a rch inves tig a ted the ec onomic, so cial and e nvironmental impa cts in supply cha in ma nag ement

(SCM), a nd how different orga nisa tions a re ad dress ing the issue s o f sustainab le d evelopment. The ma in

findings of the res ea rch w ere:

There is a la ck of clarity in the d efinitions a nd s co pe o f the terminology used in S CM a nd s usta ina ble

SCM.

Definitions of supply chain, demand chain and value chain are sometimes used interchangeably,

although there are differences. Similarly, logistics is often substituted for SCM .

The term sus tainable supply chain mana g ement (S S CM) is not in co mmon usa ge a nd there is

considerable lack of clarity due to misunderstandings on the meaning and scope of the term

sustainable.

Most organisations have concentrated their SCM efforts on environmental issues e.g. environmental

S CM , supply cha in environmental mana g ement or green procurement. Thes e d efinitions de pend on

the scope of the organisations understanding of the term supply chain.

The mos t common tools for SS CM have be en environmentally ba se d, e spec ia lly whe re the

environmental drivers have been linked to business risk.

Social and ethical management strategies have appeared most commonly in the retail sector, where

customers consist of the general public and social and ethical issues are more salient due to the

physical association of the product with the supply source.

Key factors that have influenced successful SSCM have been the power of companies over the supply

cha in a nd the role o f business risk drivers in forcing comp a nies to ma na ge risk more e ffec tively into their

supply chains.

However, the key mea sure of the s ucce ss of SS CM tools a ppea r to be the a mount of buy-in from senior

management.

Further research is needed to determine a more thorough understanding of successful andunsuccess ful S SC M strateg ies and tools.




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The most advanced techniques

Some of the key management approaches to SCM today include outsourcing of procurement processes,

collaborative planning and partnerships between customers and suppliers, and Integrated Supply Chain

(IS C) de sign, involving a ll a reas of the orga nisa tion. Thes e a pproac hes a re c los ely linked to the lates t

advances in manufacturing technology including agile manufacturing and postponement technology. Dell,

Nokia a nd Tes co a re so me of lea de rs in S CM stra tegies a nd tools.

Organisations with long and complex supply chains, whether they are at the beginning (such as chemicals),

in the middle (such as logistics companies), or at the end (retail businesses) of the supply chain, are

increa singly needing to und erstand sus tainability as pects of their supply cha ins. S upply cha in sus tainabilityissues can range from child labour and exploitation of workers on the one hand to ozone depletion,

deforestation a nd g loba l warming on the other. These iss ues c an be b roken down ac cording to

environmental, so cial, and ethica l aspec ts. S ome of the tools used in susta inable supply cha in ma nag ement

(SSCM) include written policies and communications materials, pre-qualification of suppliers (using

environm enta l a nd/or so cial/ethica l criteria ), purcha sing g uide lines a nd s upplier pa rtnerships .




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Sector Findings

(i) Utilities - water and power companies

The utilities se ctor included w a ter and powe r compa nies . Analysis of wa ter compa nies revea led tools

used in environmental procurement such as pre-qualification using software tools, environmental

evaluation q uestionnaires for so urcing new suppliers a nd e ng a g ing suppliers in environme ntal iss ues a t

contrac t stag e. S ocial and ethica l iss ues w ere not found to be issues that we re examined in a ny depth.

Electricity c ompa nies were involved in s upplier dialogue a nd supplier se lf-a ss es sme nt of environmental

iss ues, while one c ompa ny promo ted IS O4001 as mo del of bes t pra ctice o f environmental ma na ge ment

for its partner ventures and interaction with suppliers.

(ii) Transportation

The tra nspo rtation sec tor wa s a na lyse d with a focus o n a utomotive, ra ilwa ys a nd log istics c ompa nies .

The too ls found in railwa y co mpa nies included tra ining for proc urement-sta ff in environm enta l iss ues ,

R&D pa rtnerships w ith suppliers, d evelopment of e nvironmental purchas ing ma nuals a nd supplier

environmental assessment. Again, there was little evidence of the use of social or ethical management

tools. However, the automotive companies had highly developed relationships with their suppliers

including requirements for ISO14001 certification, formal partnership programmes for decreasing

environmental impa cts a nd tra nsferring knowled g e to s uppliers o n e nvironmental bes t practice. The

automotive industry enco mpas ses soc ial and ethica l iss ues that nee d to be a ddresse d w ithin the supply

cha in, but manag ement tools a ddress ing these were not found. Log istics compa nies have programmes

to manage environmental issues both up the supply chain and down towards their customers, as

environmental bes t pra ctice a nd reverse logistics .

(iii) Information, Consumer Electronics and Telecommunications (ICT)

Telecommunications c ompa nies ha ve de velope d strong environme ntal stra tegies, es pec ia lly in supplier

a ss es sme nt and eva luation in area s s uch as risk (including ta ke-ba ck req uireme nts), ha za rdo us ma teria l

ha ndling a nd continua l improvement. There is s ome integra tion of these policies into q uality co ntrols,

but little c ontribution o n s ocial iss ues. Other too ls used included tra ining purcha sing a nd sa les sta ff inenvironmental aspects and supplier co-operation programmes.

Co nsumer electronics firms ha ve ha d la bour rig hts issues hig hlig hted in g loba l prod uction fa cilities , but

have developed strong environmental tools driven by legislative and business-to-business (B2B)

pressures. Pre-selection and evaluation of suppliers on environmental compliance issues, partnering

with suppliers to influence environmental performance and assisting suppliers to implement EMS

through loans were other tools identified in this sector.




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(iv) Retailing

This se cto r include d foo d, c lothing a nd DIY retailing . All retail se g men ts d iffered from the othe r sec tors

by including social and ethical issues into SCM , often alongside environmental issues. Food retailers

used a number of tools including so cial and ethica l auditing proces se s of high-risk suppliers on la bour

a nd working sta nda rds . The a im of thes e is to ens ure s upplier-co mplia nce with co mpa ny ethical policy,

environmental vetting of suppliers and partnering with suppliers to ensure that they were aware of

customer needs. Although there was little integration of environmental and ethical issues, both were

observed in supplier management.

The c lothing se ctor has a hig h profile in terms of soc ia l iss ues e.g . the use of child lab our. S ome of theenvironmental tools appearing here included environmental training of suppliers and knowledge

tra nsfer. Ethical tools used included third-pa rty s ocial a uditing a nd co mplia nce monitoring of s upplier

wo rking c ond itions a nd hea lth and s a fety practices . The DIY a rea fac ed s ome o f the sa me iss ues a s the

other retail sectors. One company has responded to the sustainability agenda through integrating both

environmental and s oc ia l co ncerns into a com plete a uditing proce ss for suppliers both a t contra ct sta g e

a nd throug hout the term of supply. Third pa rty certifica tion o f wood products a ga inst s ocial a nd

environmental iss ues ha s a lso bee n a do pted througho ut the DIY reta il indus try.

(v) Leisure and tourism

This se ctor included tour operators, a irlines a nd hotels. Tour operators face increas ing pressure to takeenvironmental and local social considerations into account when dealing with local host destinations.

S ome of the too ls used include e nvironmental certifica tion of tour operators a ctivities , ho st d es tination

education programmes and supplier partnerships. Most of these tools come from smaller operators,

with an absence of management tools from larger operators, especially in relation to social concerns.

Hotels have developed environmental purchasing guidelines and partnership programmes that aim to

produce greener practice including the minimisation of waste and increase in energy efficiency.

Developing local businesses to supply material and goods and encouraging supplier diversity were

so cial tools ide ntified in rela tion to S CM. There wa s no integration of environmental a nd so cial iss ues in

mana ging the supply cha in.

(vi) Public sector

The public s ector wa s a na lyse d a s a whole a nd no t split into differing se ctions , a s pub lic s upply cha ins

a re va st. Des pite various international and suprana tiona l res trictions by trade la ws , so me na tiona l, loca l

and regional governments are involved in promoting sustainable supply chain policies. Most of this is

undertaken by purchasing programmes within regional public authorities, with guidance booklets on

green procurement and material codes being the most active tools available for SSCM. Social issues

were not found to be integrated into the development of management tools or strategies.




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(vii) Building and construction

The building a nd c ons truction industry wa s a na lyse d und er house-builde rs a nd g eneral cons truction

companies. House-builders are facing problems in introducing construction systems that minimise

costs of materials and use recycled and energy efficient materials. However, material specification

guidelines have been produced for assessing environmental impacts and supplier partnerships have

also b een d eveloped between d esigners, constructors a nd environmental consultants to a ddress both

social and environmental issues of complete housing developments.

Generally, there is little integration of environmental and social issues into supplier management of

housing design. Some of the larger construction firms are actively involved in supplier assessment ofenvironmental management at the procurement stage and during supply contracts and are actively

trying to influence la rger suppliers to de velop formal EMS . Industry b od ies a lso produce environmental

supply chain workshops, but social issues such as labour sourcing are not commonly included in

supplier tools.

(viii)Chemical industries

The che mica ls s ector included pe troleum compa nies a nd c ompa nies involved in prod ucing pla stics ,

polymers and orga nic c hemicals, i.e. petrochemica l indus tries . Petroleum co mpa nies face human rights

and social issues from some of their supply source communities and this has led to business integrity

principles being developed in some cases that require buy-in by partner organisations and theintegra tion of a n e thica l policy into procurement g uide lines . How ever, the petroleum co mpa nies ha ve

been more proactive in auditing contractors on environmental duty of care and offering management

support and training in environmental best practice. Product stewardship of chemicals is a key issue

and this ha s led to the development of the Responsible Ca re programme which has b een a dopted b y

mos t chemica l compa nies . Tools unde r the umbrella of Respo nsible C a re ha ve included reverse

logistics of products and risk identification of supplier and customer practices. Supplier auditing of

environmental practices has also been developed. However, there appears to be a lack of social issues

used in SCM in this sector.




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Contents

0.2 ACKNOWLEDGEMENTS

0.3 EXECUTIVE S UMMARY

1.0 INTROD UC TION AND BACKG ROUND1.1 INTRODUCTION

1.2 OBJECTIVE1.3 S COP E

1.4 CASE STUDIES

2.0 METHODO LOG Y2.1 AP P ROACH

2.2 CAVEATS AND LIMITATIONS

3.0 KEY ISSUES3.1 BACKGROUND

3.2 D EFINITIO NS 18

3.3 OVERVIEW OF ADVANCED TEC HNIQUES AND KEY ISS UES IN S CM

3.4 OVERVIEW OF ADVANCED TEC HNIQUES AND KEY ISS UES IN S S CM

4.0 RES EARCH FINDING S AND ANALYSIS4.1 UTILITIES

4.2 TRANSP ORTATION

4.3 INFORMATION AND C OMMUNICATIONS TEC HNOLOGY (ICT)

4.4 RETAILING

4.5 LEIS URE AND TOURIS M

4.6 PUBLIC SECTOR

4.7 BUILDING AND CONS TRUCTION

4.8 THE CHEMICAL INDUS TRY

5.0 ANALYSIS AND C ONC LUSIONS5.1 KEY G AP S

5.2 CONCLUSIONS

5.3 RECOMMENDATIONS

6.0 REFERENCES7.0 APPENDICES

APP ENDIX A: CONTACTS AND INTERVIEWEESAPP ENDIX B: THE QUESTIONNAIRE SENTTO COMPANIES

APP ENDIX C: THE QUESTIONNAIRE SENTTO GOVERNMENTAL BODIES




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1.0.1

1.0



Introductionand background


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1.1.1

1.1IntroductionThe a im o f this report to co ntribute to the S IG MA projec t initia tive tha t a ims to a ss es s the fea sibility of to

developing an integrated sustainable (social, ethical, economic, environmental) management system. Given

the trends toward greater specialisation and global sourcing, lengthening supply chains, and increasing

a ttention o n so cial, ethica l and environmental iss ues, the S IG MA Project Mana g ement Tea m wa s interes ted

in better understanding sustainable supply chain management (SSCM) issues and what organisations in

different sec tors a re d oing to ad dress these issues.

Co mpa nies a re now realising tha t the value they provide to their customers is the sum of a ll the va lue a dd ed

along the supply chain. In the same way, the sustainability of the goods and services an organisation

provides is also the sum of all the social, ethical and environmental impacts of these goods and services

a long the supply cha in. Therefore, orga nisa tions a re beg inning to recog nise that they ha ve to identify,

understand, and manage sustainability issues within their organisation, but also co-operate with other

organisations in the supply chain to ensure that these issues are successfully managed throughout the

supply chain.




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1.2.1

1.2ObjectiveThe purpose of this report is to provide a n overview of the most a dva nced techniques in S CM and S S CM,

a nd a n overview o f the a pplica tion o f S S CM in eight se ctors . The initia l co nclusions from this o verview a re

aimed at providing stimulus for discussion for SIGMA project management and partners, and to provide a

ba se line for the rema inde r of the S upply Cha in a nd Eva luation res ea rch stra nd. The results o f the rese a rch

will then act as an input into the overall SIGMA project that aims to examine the feasibility of developing a

sustainability management system for public and private organisations.

On a more detailed level, the objectives of this report are:

to examine current terminology and definitions within the field of SCM ;

to identify the a dvanced techniq ues in SC M and S SC M and s trateg y for organisations;

to identify sustainability issues (social, ethical, environmental, economic) that organisations have

recognised and are addressing within their supply chains;

to identify lea de rs a nd the ce ntres of expertise /excellence in S S CM (i.e. a ca dem ia , rese a rch institutions ,

a nd think-tan ks);

to ide ntify the tools a nd s tra tegies tha t orga nisa tions a re using to inco rporate a nd integ rate sus tainability

iss ues into S SC M;

to identify the o bs tac les that orga nisa tions face when implementing sus tainability into their supply cha ins;

to identify gaps in knowledge, tools and strategies related to SSCM;

to develop initial conclusions.




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1.3.1

1.3ScopeThe res ea rch examined g eneral SCM iss ues a nd the stra tegies a nd a ctivities us ed b y orga nisa tions tha t aim

to incorporate a nd ma na ge sus tainability iss ues into their supply cha ins. The report beg ins b y g iving a n

overview of the d efinitions a nd the mo st up-to-da te techniques in S CM and S S CM. It then g oes on to e xamine

S SC M iss ues in eight se ctors:

utilities (wa ter, elec tricity);

transportation (rail, automobiles, logistics); informa tion a nd teleco mmunica tions technolog y [ICT] (consume r electronics, teleco mmunica tions );

retailing (foo d, clothing/sh oe s, do -it-yours elf hardw a re);

leisure and tourism (tour operators, airlines, hotels);

public se ctor;

building a nd cons truction (la rge s ca le c ons truction a nd house -building);

and chemicals (petroleum and petrochemicals).

The report is no t intended to be a n exhaustive a na lysis of ea ch of these s ec tors a nd is prima rily ba se d on

initia tives, information a nd c onta cts a vaila ble in the UK. The viewpo ints of se ctors a re b a se d o n de sk

research and a limited numbers of interviews, and should not be taken as representative of the sector.

However, the global nature of many supply chains and sectors has been captured by interviewing

represe nta tives from UK-ba se d Trans -na tiona ls (TNCs ). Also , wh ere po ss ible, individua ls from o ther

European countries and the US have been interviewed to add the global dimension. However, the report

should not be taken as representative of the supply chain activities and initiatives in all parts of the world. In

pa rticular, J a pa nes e S CM ac tivities a re un-represe nted.




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1.4.1

1.4Case stud iesA se t of cas e s tudies is d ocume nted in Append ix IV, which is b ound a s a se pa rate report.




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2.0.1

2.0Methodology




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2.1.1

2.1ApproachThe informa tion c onta ined in this repo rt is b a se d o n a review of the literature a nd interview s w ith com pa ny,

rese a rch, co nsultan cy, non-profit and g overnme nta l represe nta tives . Thes e individua ls w ere ide ntified via The

Centre for Sustainable Designs network and through additional desk research and correspondence with

releva nt ema il lists . This include d req ues ts for conta cts a nd /or orga nisa tions (private , res ea rch, non-profit,

g overnmental) working on s upply cha in a nd S S CM. In a ll, over 70 people were identified a nd c onta cted (see

Append ix I). The d es k res ea rch and se mi-structured telepho ne a nd e ma il res ea rch wa s und erta ken betwee n

26th July a nd 25th Aug ust 2000.




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2.2.1

2.2Caveats and limitationsHowever, d ue to the s hort dura tion o f the de sk resea rch a nd that it took plac e prima rily in Augus t, a tra ditiona l

time for holida ys, no t all the identified peo ple w ere a vaila ble to be interviewe d. B eyond this, m a ny reque sted

not to be interviewed or were restricted by company policy from being interviewed. In addition, many

identified people were environmental specialists or worked in environmental departments and were not

always knowledgea ble enoug h to ans wer some o f the more technica l ques tions o n supply cha in iss ues, such

a s thos e rela ted to s pecific too ls a nd me trics used to mea sure supplier performanc e, a nd/or had insufficient

knowled ge of orga nisa tiona l initia tives related to s oc ia l or ethica l iss ues.

Therefore, thes e interview s s hould be se en a s individua l reflections rather than a full a na lys is o f the

orga nisa tions they represented . To a chieve a more representa tive view of orga nisa tiona l position, it will be

necessary to undertake a series of in-depth interviews with a broader range of business function from each

organisation. In addition, board level directors should be interviewed to give a clearer strategic overview of

organisational approaches to sustainability and the relationship with supply chains. Given the time

constraints of stag e 1 of the resea rch a nd the number of sectors c overed, this w as not poss ible.

The s hort time pe riod for de sk res ea rch a lso mea nt tha t only a sma ll number of org a nisa tions in ea ch s ector

and sub-sector could be reached, and that those were mostly UK-based and more proactive in the field.

A few sub-sectors were removed from the interview schedule due to lack of response from organisations.

Therefore, interview s s hould no t be ta ken a s repres enta tive of the entire s ec tor.




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3.1.1

3.1BackgroundOverview of sustainable business thinking

Throug hout the eighties ma ny la rge c ompa nies sta rted to g a in suc ces s from po llution prevention e .g. 3M

PP P+ (Pollution P revention P a ys P lus), Dow WRAP (Wa ste Red uction Alwa ys Pa ys) programm e. Following

The Earth S ummit in Rio in 1992 many tra ns-na tiona ls sta rted to focus on eco -efficiency, a n a pproac h

de velope d b y the World B usiness Co uncil for S usta ina ble Developme nt (WBS CD). Since then o ther conce pts

ha ve also e merge d including Factor 4, 10, X and indus tria l eco log y, however thes e mod els tend to focus o n

environmental aspects of resource and energy reduction.

Businesses have some difficulties in tackling the ethical and social elements of sustainability, so the

integra tion of triple bottom line thinking is proving to b e co mplex a nd problema tic. Orga nisa tions suc h a s

the WBCSD appear to be separating Corporate Social Responsibility (CSR) and eco-efficiency e.g. WBCSD

a re not promoting a n integ rated mod el for business sus tainability. Howe ver, recently, the Brent S pa r, Og oni,

G MO a nd WTO (Sea ttle) incidents ha ve ens ured that sus tainability ca n no longe r just be se en a s a n

environm enta l issue , pa rticularly when w e live in a 24 hour CNN world. The m a jority of co mpa nies -

especially SMEs - do not consider business and environment issues when they do it is in a uncoordinated

and isolated ma nner, e.g . plan for was te, a pla n for energy ma nag ement but no EMS.

John Elkington, Chairman of SustainAbility encapsulated the context of sustainable business thinking in a

rece nt article (Elking ton 1999), "If Wa ve 1 marked the pe riod whe n the Wes t experienc ed a g rowing s ens e of

environm enta l respo ns ibility a nd Wa ve 2 wa s the e ra o f corpora te environm enta lism , Wa ve 3 will be the

g loba l sus tainability wa ve." Ta ble 1 shows the key elements of these three wa ves.

The first wa ve went ba ck to the sixties a nd Ra chel Ca rsons b oo k Silent S pring . The s eco nd w a ve followe d

industrial disasters: Seveso, Bhopal, Chernobyl and fed second wave of activism. Band Aid 1984 and Live

Aid 1985 exploited for the first time new media technologies to link concerned people around the world to

tac kle e nvironme ntal a nd de velopme nt iss ues. This is when indus try s tarted to push the respo nsibility

envelope, e.g . launch of Respo nsibility Ca re in 1985. Undo ubtedly, thoug h, the d isc overy of Antarctic ozo ne

hole created one big trigger for the second wave, with an effect that many leading politicians "went green."

The Exxon Va lde z s pill in 1989 trigg ered further prog ress . Then the Ea rth S ummit in 1992 crysta llise d the

vision o f ind ustry a s pa rt of the so lution. Norsk Hydro a nd Mons a nto publishe d first volunta ry environmen tal

performanc e repo rt.

Then in the late 1990s S hells plans to dispos e o f the B rent Spa r oil rig in the s ea , a nd a lleg ed neg a tive

impacts of local communities in Nigeria catapulted stakeholder dialogue onto the world stage. Elkington

sug g es ts The Third w a ve is a bo ut to brea k. Environm enta l justice, huma n rig hts, d iversity (biolog ica l, huma n,

social, ecological) and inter-generational equity are the top items on the sustainability agenda. A

sus tainability wa ve will build a new la ng uag e e .g. eco -a udits, IS O 14001 a nd LCA in the 1990s.




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3.1.2

Paradigm Shift

Subject 1950-2000: Cornucopian 2001-2050: Gaian

World views Firs t, second third worlds One world

Politics Ca pita lism vs . communism S oft vs . ha rd ca pita lism

Economy G rowth S us ta ina b ility

Focus Qua ntity, a dd ing volume Qua lity, a dding va lue

Mea sures Fina ncia l bottom line Triple bottom line

Ca pita l P hysica l, fina ncia l, intellec tua l Huma n, socia l, na tura l

G overna nce Exclus ive, sha reholders Inclusive , s ta keholders

S OURCE: ELKING TON, J . "THE THIRD WAVE," TOMORRO W, NO. 6 , VOL. IX, DEC EMBE R 1999, P P.40-42.

In the years ahead, there will be broader acceptance of the right to know greater corporate transparencya nd com pa nies will have to d emons tra te that s takeholder input is ha ving ma teria l busines s impa ct.4 The third

wa ve will focus on cha ng ing cultures co rporate, eco nomic a nd politica l. The level of emotional, politica l and

eco nomic energy that will be unlea she d in and increa singly "Ga ia n" wo rld (whether rig ht or wrong ) will ha ve

g rowing influence on b usiness functions .

As companies become increasingly responsible for the environmental, social, and ethical impacts of their

products, they will need to examine, identify and manage these impacts not only within their own

ma nufac turing or other ope rations, b ut throug hout their sup ply cha in. This is e sp ec ia lly true in produc t or

se rvice com pa nies a t the end o f the s upply cha in. For thes e c ompa nies , ma ny of the impa cts o f their a ctivities

are in their supply chains.

As companies increasingly outsource manufacturing and "purchase in" components, sub-assemblies and

increasingly whole products, impacts are shifted to earlier points in the supply chain, making SCM an

increa singly important business iss ue. Answ ering custom er inq uiries a nd e nsuring a cce ss to ma rkets in the

face of new reg ula tions will require c ompa nies to understa nd the e nvironme ntal, soc ia l, ethica l a spe cts o f the

ma teria ls a nd com ponents they buy from s uppliers. The a dvent of take ba ck reg ula tions in various ma rkets

is now extending companies responsibilities throughout their product's entire life cycle.

"[Sustainability] is not a soft issue, or a passing fad. When peop le are empowered with

know ledge and c hoic es, they will do what s best for themselves, their families, and their

communities. And in fiercely com petitive global market, where information is shared

instantly, consumers will virtually have all the know ledge and c hoic es in the world.Companies that do nt do the right thing w il l find that they are not sustainable."

(Willia m C la y Ford , J r., Ford Ch a irman).




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3.2.1

3.2DefinitionsThis s ection loo ks a t the terminology used in the field of S CM and S S CM, including its d efinitions , sc ope a nd

level of acceptance. Supply Chain Management (SCM) is a relatively new term for a concept that is still

evolving. Co nse q uently, there still exists a certain la ck of commo n understa nding in org a nisa tions a bout wha t

S CM mea ns a nd ho w it differs from o ther simila r terms, s uch a s d ema nd c ha in, va lue cha in and log istics ,

which a re som etimes used intercha nge a bly. This la ck of clarity is ca rried over into the c once pt of susta ina ble

supply chain management (SSCM), which at the moment is seldom used and as a term is subject to

cons ide rable misund erstand ing . This misundersta nding is complica ted by the g enera l la ck of a c lea rdefinition of sustainable.

Supply Chain

It was found in the literature and through the interviews that various terms are used interchangeably for

supply chain, such as demand chain and value chain. However, these terms convey slightly different

co nce ptua l mea nings . For exa mple, the Ma ss a chus etts Institute of Tec hnolog y (MIT), a lea ding US ins titute

researching supply chain issues defines supply chain as the flow of materials, information and funds

between different parties or organisational functions (Metz, 1998).

Acc ording to MIT, a single-sta g e supply cha in, typica lly representing a single orga nisa tion, incorporates a

range of material flow functions (receiving, processing, distributing and delivering), a complex array of

information processing and decision making functions (based on information flows from customers,

suppliers and internal functions), and functions for handling incoming and outgoing funds. In this model,

materials flow in one direction, funds flow in the other direction, and information flows in both directions

betwe en a ll functions . As m ore orga nisa tions bec ome involved in the cha in this b a sic single-sta g e mo de l is

multiplied rather tha n expand ed , with ea ch o rg a nisa tion representing a single-sta ge .

This rela tively ge neric d efinition o f a s upply cha in differentiates the term s lig htly from rela ted te rms, s uch a s

value chain and demand chain in that the latter two terms imply a customer focus, while the former

concentrates on the operational flows. For instance, value chain, a term coined by Professor Michael Porter

at the Harvard Business School in the US, is used to describe all the strategically relevant activities, such as

inbound logistics, operations, outbound logistics, marketing and sales, service, etc., that an organisation

performs to add value to its products or services for its customers (Kennedy, 1993). While this concept

includes ma ny of the sa me orga nisa tiona l functions a s the MIT supply cha in definition, the empha sis is

clearly on the customer and the customers needs, rather than on a description of the operational flows.

S imila rly, dema nd c ha in is a wa y of looking a t the steps involved in the creation of prod ucts a nd s ervices from

a customer viewpoint. From an organisational perspective, the concepts of value chain and demand chain

are conceptually important as they stress the need to focus material, financial and informational flows (the

MIT de finition o f sup ply cha in) from the p erspe ctive of cus tome r(s), without whom the s upply cha in wo uld

not exist.




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3.2.2

However, the MITview of the supply chain is not the only definition. Others, such as the UK-based Institute

of Log istics (IOL) hig hlig ht a m ultitude o f definitions of supp ly cha in, from the proce ss of supp lying c usto mers

from the factory to the tota l proc es s from ra w m a teria ls to the c ustome r. However, bo th point out tha t supply

cha ins a re intended to sa tisfy cus tomers. This de finition is muc h more c los ely related to the c once pts o f va lue

chain and demand chain described above; the initial desk research, it seems that at present, there is no one

a g reed de finition o f supply cha in.

This con clusion is reinforce d b y the interview s e .g . supp ly cha in de finitions vary co ns ide rab ly. For ins tan ce ,

most interviewees defined their supply chains as only representing their immediate 1st or 2nd tier suppliers.

Others s a w their supply cha ins a s representing only the proces s o f distributing a nd d elivering p roducts a ndse rvices to their customers. Only a few o f the mo st proac tive orga nisa tions (in terms of supply cha in iss ues)

de fined their supply cha ins a s stretching from their most d ista nt suppliers to the end -user, a nd everything in

between.

Thes e difference s d emons tra te a s ignifica nt la ck of conse nsus in the sco pe a nd und erstand ing o f the term

supply chain in many organisations, across all sectors. Often the difference related to the position of the

interview ee in the orga nisa tion a nd his/her pa rticular perspe ctive. In other words , peo ple in the purcha sing

department most often defined supply chain exclusively in terms of the organisations upstream suppliers,

while thos e in othe r functions ha d d ifferent perspec tives a nd d ifferent de finitions . Ta king the b roa de st

de finition of the s upply c ha in a s represe nting a ll ac tivities from resource e xtraction to the cus tomer (and ba ck

a g a in), this indica tes a significa nt la ck of integrated supply cha in thinking within ma ny orga nisa tions .

SCM

Given the lack of consensus on the meaning and scope of supply chain, it is not surprisingly that the

definition and understanding of the term supply chain management (SCM) also differs considerably. For

most interviewees, SCM denoted the management of that part of the supply chain which they recognised.

Again, this was very much based on the position and perspective of the particular person interviewed. For

purchasers, it meant the management of suppliers, for those in distribution, it meant the management of

distribution and delivery. Only in the most integrated supply chain organisations, such as Dell Computer,

Wa lma rt, Tes co a nd Volksw a g en, do es S CM appea r to mea n the integrated ma na g ement of materia ls,

information and financial flows from raw material extraction to end-user.

In so me o rg a nisa tions , nota bly governmental bod ies , the term SC M is no t cons ide red relevant, i.e. not pa rt

of the terminology used. In these organisations procurement is the term used to denote the relationship

betwe en the o rg a nisa tion, its d irect suppliers (vendo rs, c ontra ctors) and its cus tomers (va rious dep a rtments

and agencies). Rather than managing their supply chain, they manage the procurement process.

Another term that is commonly used interchangeably with SCM is logistics. However, some undertaking

resea rch in this a rea do se e a difference . For insta nce, a cco rding to P rofess or Ma rtin Christophe r of Cra nfield

School of Management in the UK, logistics is more focused on the planning and synchronisation of material

movements within an organisation and to the customer, while SCM is a more holistic term referring to the

management of information, materials, funds and relationships outside and through the organisation, from

the "suppliers supplier to the customers customer."




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3.2.3

This is just o ne view of logistics , ho we ver. The US -ba se d Co uncil of Logistics Ma na ge ment (CLM), de fines

log istics a s "tha t part of the supply cha in proces s tha t pla ns, impleme nts, a nd c ontrols the efficient, effective flow

and storage of goods, services, and related information from the point of origin to the point of consumption in

order to mee t cus tomers req uirements" (CLM, 2000). This de finition broa de ns the s co pe of logistics bring ing in

a customer focus. Similarly, Dr. Ian Canadine, former Director-General of the Institute of Logistics in the UK,

described logistics as "the management of the supply chain," with the supply chain being the total process from

raw materials to the customer, with an emphasis on satisfying the customer (Canadine, 1998).

From these definitions it can be seen that the definitions of SCM and logistics are still evolving (as are the

proces se s they d efine) and therefore, there is no universa lly a g reed d efinition a t this time.

SSCM

Given the uncertainties and lack of clarity involved in defining supply chain and SCM , it is not surprising

to find a considerable amount of confusion over sustainable SCM . In addition to the differences already

mentioned a bove, the d efinition o f sus tainable supply cha in ma nag ement (SS CM) is further confuse d b y a

lack of understanding and clarity regarding the term sustainable. Many of the interviewees had to ask what

we meant by the term sustainable before they could answer questions about it.

Some interviewees saw sustainable from a purely economic perspective, i.e. that SSCM meant the long

term profitability, or at least solvency, of the supply chain over time.

Of those that saw sustainability from the perspective of sustainable development, i.e. in the sense of

"[developme nt that] meets the need s of the present w ithout compromising the a bility of future g enerations to

meet their own needs" (WCED, 1987), the vast majority define this in terms of environmental sustainability

or more s pecifica lly environmenta l mana g ement. Most e fforts to integ rate s ocial, ethica l, a nd environmental

issues into SCM have so focused on environmental issues. From this has developed terms such as supply

chain environmental management (US-AEP, 2000) and green procurement, both of which focus on the

environmental as pec ts o f mana ging supplier/custom er relations hips, with the former taking a broa de r

approach and definition of supply chain and the latter being more concerned with the incorporation of

environmental iss ues into the purcha sing p roc es s with 1st tier suppliers. Many interviewe es claimed to ha ve

environmental programmes and not sustainability programmes. Many interviewees were aware that there

were other issues involved in sustainability and that they were not addressing them as thoroughly asenvironmental issues .

As for so cial a nd ethical iss ues, a few orga nisa tions , such a s B &Q, Co-ope ra tive Ba nk a nd The Bo dy S hop

in the UK, and Ben &Jerrys Ice Cream (now part of Unilever) in the US, are looking at social and ethical

iss ues in their supply chains, a long side environmenta l iss ues. For thes e orga nisa tions , SS CM does mea n the

integration and management of social, ethical, environmental and economic issues in their supply chains.




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3.3.1

3.3Overview o f advanced tec hniquesand key issues in SCM

Tra ditiona l SC M conce rns rela te to keeping price s low whilst p roviding high q uality products a nd se rvices .

The proces s a ims to d eliver products s oone r and mo re c ustomised to individua l need s, w hile the co sts to the

customer are reduced .

"Industry has realised that the quality and cost of their products depend on their suppliers throughout the

world" (Krut, R, Karas in, L. S upply C ha in Environme ntal Ma na g ement. Less ons from the lead ers in Electronic

Industry).

Historical development of SCM

The conc ept of SC M has moved from ma nag ing a two-process supply cha in to mana ging a seven-proce ss

supply cha in, a nd onto c o-ordinating ten a nd more proces ses linked into a n integ ra ted proce ss . (Metz, 1998).

The d evelopments in SC M ha ve bee n ena bled due to "the explosive development of computer technolog y a nd

communications technology". ICT ma kes it poss ible to have mo re information, more a ccurately and more

frequently, from more sources, from all over the globe. More efficient ICTalso makes it possible to digest, to

understand , a nd to a ct on the g rowing volume of information through more s ophistica ted a nalysis, mod ellingand decision-support capabilities. Another factor that contributed to the development of SCM has resulted

from the rise of "sys tem thinking" in business mana g ement. Metz s tates that:

"Better data and more advanced analytical techniques faci l itated better d ecisions among

more c omplex set of factors. In fact ever improving communications and analyses

continually enhance our abil i ty to make mo re com plex decisions"

(Metz , 1998)




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3.3.2

Some key points to note here are:

In the early 1960s SCM focused on the integration of warehousing and transportation i.e. Physical

Distribution Management (PDM). Improvements were made possible as a result of the growing

capacities in data communications between different parts of the distribution chain. In this phase the

following achievements were made:

inventory reduc tion (fa ster, mo re freq uent a nd more relia ble tra nspo rta tion);

fas ter order respons e times due to fas ter wa rehouse handling and fas ter trans portation;

optimisa tion of wa rehousing for better service a nd lower tota l cos ts.

The ne xt stag e o f SC M developme nts led to integra tion a cross corporate functions (interna l integra tion).

Manufacturing, procurement, a nd o rders ma nag ement functions were "ad ded " to S CM at this stag e.

Further developments have led to integration across supply chain (external integration), which is

considered by some the current stage of SCM. Suppliers have been a dde d a t one end a nd customers

a t the other, with S CM moving from a two to a se ven-function proce ss . The key c ompo nents o f this s tag e

are a dvanced ICT and training.

The next sta g e is expected to include the involvement of even more bus ines s functions , suc h a s prod uct

de velopme nt, ma rketing a nd cus tomer se rvice. It will req uire pa rticipation from product d es ig ners, a s

the design of products facilitates manufacture of customised versions, easier installation and

se rvicea bility- this is a lrea dy b eing s een in s ome com pa nies in the electronics a nd a utomotive se ctor.

How companies define their SCM

There a re a w ide variety of interpretations of SC M in orga nisa tions . Ma ny co mpa nies tend to focus a lmos t

exclusively on purchas ing function, a nd for those the s upply cha in usua lly end s w ith themselves , (as they a re

the customers to their suppliers). Some companies focus more on logistics, and SCM is primarily about

ma king sure that the interna l operations a re lea n a nd efficient.

Only a very few companies stretch their supply chain from their suppliers' supplier to their customer's

custom er, o r include e nd-of-life ma na ge ment o f their prod ucts a nd reverse log istics or take-ba ck s ervices . In

addition, even within a single company there appear to be differing interpretations of SCM and muchdepends on the background and a position of the person in a company. For example, it is quite common for

the environmental department (working on the incorporation of environmental issues in the supply chain) to

interpret the supply cha in q uite d ifferently tha n a person in purcha sing or log istics de pa rtment.




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3.3.3

One public sector organisation was addressing this by seconding personnel from the environmental

management department into the procurement department. Box 1 contains several examples of

interpretation of S CM in c ompa nies .

BOX 1: ORGANISATIONS RESEARCHED

Cable and Wireless (telecommunications)

S CM at C&W relates to the s ourcing o f prod ucts a nd s ervices which business req uires a nd the ma nag ement

the relations hips be twee n C&W (the c usto mer) and its s uppliers. The ma in bus ines s function involved in SC Mis the purchasing (procurement) department, although it deals mainly with 1st and 2nd tier suppliers, and

rarely rea ches beyo nd this. C&W is very c ustomer-orientated , but d o no t rea lly c ons ide r them a s a pa rt of

supply cha in. (Ma rk Ca nnon, Environmenta l Ma na g er)

Vauxhall (automotive)

Vauxhall considers their supply chain from suppliers supplier to the actual Vauxhall customer down the

cha in. End o f life and reverse log istics would not b e c ons ide red S CM iss ues. (Micha el Ga lley, Environmental

Manager)

SJ (rail)

At SJ , S CM is ma inly understoo d a s the procurement of goo ds a nd s ervice s from s uppliers. (Anna G ranholm-Thoren, Environmenta l Depa rtment)

Schenker-BTL (logistics)

S CM at Sc henker-BTL co vers se veral as pec ts: res pon sibility for "tra ditiona l" log istics b usines s, i.e. moving

goods from A to B; management information systems and establishing nodes and terminals; and the

purchasing function. (Ian Norde, Business Process Development)

Lucent Technologies (telecommunication)

S CM at Lucent Techno log ies is a bout ma na g ing rela tions hips with s uppliers, vendo rs or se rvices , i.e.

everything that c ontributes to c rea tion o f value in Lucent produc ts, including recyc ling a nd reverse log istics .

(Arjen S a lemnik, Environmenta l Po licy)

DSB (rail)

At DSB, SCM is understood as maintaining daily operations of the trains to the level that meets the targets

se t for them. This includes workshops (daily ma intenanc e), purcha sing a nd tec hnica l depa rtments. (Ma ts

Berg endo rf, Environmental Depa rtment)




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3.3.4

Key Issues in SCM

SC M fac es a rang e of key iss ues, a nd a s a business discipline or concept its s ucces s d epend on its a bility

to respond to a rang e of iss ues:

a g ility (respo nse to m a rket vo la tility);

time compression (reduction of "non-value added time in the pipeline");

g loba lisa tion o f supply cha ins;

deve lopme nts in ICT.

Acc ording to S co tt Elliot o f Hewlett-Pa ckard, (PDBP R, 1999), "S upply c hain ma nag ers s trive for high product

velocity, rapid mo vement of inventory through the value cha in. [The idea is to] move risk a s far upstrea m

as poss ible, a nd move customisa tion dec isions as far downs trea m as poss ible."

Management Approaches

S CM aims to d evelop the bes t solutions to cus tomer problems taking a cco unt of the nee d for ag ility and time

compression, while coping with long globalised chains of suppliers and customers, capitalising on growing

ca pa cities o f ICT. This o ften co mes do wn to orga nisa tiona l des ig n a nd cha ng e (e.g. through using B usiness

Process Re-engineering (BPR)), incorporating tea m ba sed a pproa ches, a nd a pproa ches b as ed o n close r co-

operation along the supply chain.




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3.3.5

The key ma na ge ment ap proac hes related to S CM include the following:

(i) Outsourcing

Outsourcing business functions to external specialists is one way in which organisations can reduce

costs whilst improving performance. One of the most common approaches for any company is to

outsource se rvices that a re not co re business for the o rga nisa tion, for example Pe rsonnel, Leg a l R&D,

Trans port and IT. Outso urcing is a lso be ing a pplied to the function o f P rocureme nt and P urcha sing . In

1999 Siemens set up S iemens Procurement and Log istics Se rvices as a sepa rate b usiness entity that

acts as a supplier to Siemens as well as external companies. It has around 400 staff and generates

around DM1.2 million a year in sales revenue from its purchasing and logistics services (Koppelman,

1999). Another example is P urcha sing S olutions UK, who provide purcha sing a nd niche S CM se rvices

for the h os pita lity indus try.

(ii) Collaborative Planning

Collaborative planning is a business process that relates Original Equipment Manufacturers (OEM's)

and their relationships to their suppliers. Suppliers are given access to the manufacturers data in real-

time, ena bling them to trac k manufac turers needs and respo nd to them a s soo n a s manufacturers need

suppo rt (Bo yso n a nd C orsi, 1999). The a dva ntag e o f this s ystem is tha t it allows the ma nufa cturers to

repla ce physica l inventory w ith informa tion. Inventories ca n be kept low a nd suppliers c a n d ea l directly

with custome r de ma nds , ra ther than relying upo n the manufac turers sta tic foreca st da ta. S ome logistics

companies have offices within clients facilities e.g. Lane Group and Body Shop.

(iii) Development of Supply Chain Partnerships

There are two b road a pproac hes to es tablishing environmental goa ls for suppliers e.g . reduce

substance X by 2005 or the supplier will be de-listed, or "we will work with you to help you reduce

substance X by 2005"

(iv) Integrated Supply Chain Design

An integra ted s upply cha in co -ordina tes a ll aspe cts o f the s upply cha in, including procurement, produc t

des ign and planning, order proces sing, mana ging inventory, trans portation a nd w arehousing, as well a s

cus tomer service. Thes e a g ile a nd flexible supply cha in arra ng ements a re cha racterise d by a "dyna mic

flow ma nag ement of prod ucts, informa tion, ca sh, a nd even idea s. The focus is on co -ordina tion a cross

the entire supply chain, both within a corporation and--critically--linking backwards to suppliers and

forward to customers and end-consumers." (Bovet and Sheffi, 1998). A successful integrated supply

chain is focused around customer needs, rather than the product. By organising supply chain this way,

the flow of raw materials and inventories can be reduced to a minimum and business risk can be

reduced a nd performanc e sa vings ca n be ma de. The integra ted supply chain is a ble to res pond rap idly

to constant changes in customer demand. ICTcan link all areas of the supply chain, thus eliminating

static forecasting from isolated parts of the supply chain, by providing management with data from thetotal supply cha in.




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3.3.6

Tools

The too ls to fac ilitate b etter mana g ement o f the supply cha in a re built a round the following iss ues:

customer focus at every stage in the supply chain;

a llow a g ile ma nufa cturing;

cheaper and more reliable transportation;

a dva nced use o f ICT;

wider ba ndw idth/globa l communications;

more powerful data processing;

information flows to all parts of supply chain;

co mputer-a ide d d ecision-suppo rt sys tems;

improvements in financial accounting ("soft technology"), e.g. activity-based costing (ABC) highlights

the financial trade-offs necessary to understand to design the supply chain;

q uantitatively b as ed performance mana ge ment;

metrics and mea surement of performance a t eac h sta ge of supply cha in;

reduced time;

reduced costs;

advanced organisation management concepts that facilitate better teamwork and communication

(horizontal communication);

tea ms from interrela ted functiona l operations wo rk toge ther to remo ve orga nisa tiona l barriers a nd find

improvements to supply cha in pe rforma nce (cros s-functiona l tea ms);

attention to organisation dynamics.




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3.3.7

Key concepts

Some key concepts are outlined in the following subsections.

(i) Real-time data-handling and ICT solutions

Using ad vanced ICT systems, da ta a nd information ca n be obtained from a ll parts of the supply cha in.

Information systems that are able to track and monitor all areas of the supply chain are necessary tools

for an integ rated supply cha in. There a re three levels of so ftwa re w ithin a n orga nisa tion tha t helps

mana ge the supply cha in:

decision support tools a nd supply chain planning systems;

Enterprise Reso urce P lanning (ERP) and order mana ge ment which support the operation of the

business and usually collect financial, customer service and accounting data;

execution systems which include transportation a nd wa rehouse manag ement, as well as shop f loor

management.

The key for the o rga nisa tion is to g a ther all this informa tion into the middle la yer ERP a s the s upply

changes occur, which delivers real-time data to management.

(ii) Supply Chain Learning (SCL)

Supply chains can be a conduit for best practice, which is in the interest of the complete supply chain

to a do pt. The s upply cha in sho uld ha ve a co mmon interest, which is to d eliver va lue to the c ustomer

a nd improve the c ore proces se s a long the whole s upply cha in. Po tentia l benefits of lea rning within the

supply chain can include risk reduction, technology transfer, and operational and strategic knowledge

development.




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3.3.8

(iii) Implementing manufacturing technologies

Latest techniques in manufacturing technology are key contributing forces that have helped in

increasing the efficiency of the total supply chain (Metz, 1998).

Agile Manufacturing. Manufacturing that is ab le to cha nge quickly be tween d ifferent production runs

at short notice, as well as producing low volumes efficiently is considered agile. It is agile

ma nufa cturing that helps a chieve mas s c ustomisa tion in prod uction, w hich is the a bility to cus tomise

product rang es q uickly for d ifferent cus tomer s pec ifica tions .

Pos tponement. Moving the finishing o f the product in the chain closer to the customer. The mos t

com mon a pplica tion o f this technique is pa ckag ing . An exa mple of this com es from G illette, where

basic razor blades are produced and shipped to distribution centres closer to the customer, where

they receive fina l packa ging. This fina l packa ging is d one to cus tomer order, so respons e times a re

q uicker and inventories of products a re low.

Production a t consumption. Distribution centres are production centres, a nd customers ma y "produce"

a "customised product on the spot".

Benefits from implementation of SCM into business operations

The key b usiness bene fits tha t ca n result from the implementa tion o f SC M are cos t red uction a nd va lue

enha nceme nt. This ca n be a chieved throug h:

reduction of lea d times a nd sho rter delivery time;

lower inventories ;

improved supplier relations;

highe r utilisa tion o f eq uipme nt/produc tion c a pa city;

improved legislative compliance;

risk reduction and security of supply;

crea ting new ma rket o pportunities ;

enha nce men t of produc t/se rvice q ua lity;

increased innovation;

raised prod uctivity.

Problems in the implementation of SCM

Ma ny interviewe es underlined that problems with S CM implementa tion a re a s a result of orga nisa tiona l inertia

and difficulties of corporate culture change. One key obstacle is that in most organisations people operate

(and think) in na rrow, c omp a rtmen talise d c ha nnels related to their field o f spec ia lity. To b rea k this a nd

implement horizonta l structures , a nd crea te cros s-functiona l tea ms remains o ne of the g reates t difficulties . A

solution to this has been seen as improved use of ICTe.g. intranet and extranet in creating cross-national,

virtual tea ms. However, there is so me evide nce that the us e o f "virtual solutions " ma y no t bring the results that

may be expected. Direct "human interaction" is of key importance overall and are very true in development

of sound SC M.




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3.3.9

Leaders in SCM

A number of compa nies ha ve bee n mentioned a s und erta king cutting edg e w ork in S CM. The s hort list be low

is intended to give just a few examples of companies that have been referred to as leaders in SCM :

Dell (computers): for its lea n S CM , which turned Dell into a rea l globa l supply c ha in co mpa ny.

Volkswagen-Audi (automotive): VW provides an example of a multi-stage supply chain working with its

de a lers to g et a dva nce order informa tion a nd a ctual orders electronically, feed ing the da ta d irectly into

the daily automobile production planning. VW is also working with its in-house supply plants and

co ntra ct s uppliers to de liver electronic pa rts a nd sub -a ss emb lies J ust-In-Time (JIT) for the d a ily

production s ched ule VW uses integrated supply cha in op erations in order to reduc e its present o rder-

to-delivery cycle time from many weeks to two weeks and eventually a few days.

Tes co (reta il): ha ve impleme nted very efficient S CM, using extra net for on-g oing c omm unica tion w ith

their suppliers, where information is updated every 24 hour.

Nokia (telecommunications): have managed to gain success worldwide with short life-cycle products,

SC M is s een a s ce ntral to the succes s.

Hewlett-Pa ckard: is know n for inclusion o f des ign a spe cts into S CM .

Centres of expertise

Professor Martin Christopher of Cranfield School of Management suggests that there are a number ofins titutes in the UK, tha t a re involved in res ea rch into S CM a nd rela ted fields . Trad itiona lly there is mo re of a

focus o n logistics a nd trans portation w here the lead ers a re C ra nfield Ce ntre for Log istics a nd Transpo rta tion

(Profess or Martin C hristo phe r, P rofess or Ala n Ha rriso n) an d Heriott-Wa tt University, Edinburgh, S co tla nd

(Profess or Alla n McKinnon). Other res ea rch c entres a re more focus ed on the inbound a spe cts o f the s upply

cha in, such a s purcha sing a nd procurement. The lead ing institutes in SC M a ppea r to be the C entre for

Rese a rch in Stra tegic P urcha sing a nd S upply a t the University of Ba th (Profess or Richa rd Lamming), and the

universities of G la sg ow, Durham, a nd Birming ham . Acco rding to P rofes so r Christophe r, UK institutes a re the

leaders in the filed in Europe.

However, there a re ma ny Europea n ce ntres involved in simila r work, s uch a s the University Eindhoven a nd

Era smus University in Rotterda m in the Netherla nds a nd Nykoping University in Sw ed en. Outside Europe,a cc ording to P rofes so r Ma rtin C hristophe r, the lea ding institutions in s upply c ha in issues a re predominantly

in the United States and these include State University of Ohio, State University of Michigan, University of

North Florida , MITa nd the University of Sta nford. Be sides the US , so me reco gnised work in S CM is c a rried

out in J apa n, however, the J apa nese tend to be more focused on the technica l aspec ts e.g . mode lling, w hile

the UK or US tend s to focus on ma na ge ria l implica tions . Non-a ca de mic ce ntres in UK, tha t have unde rtaken

resea rch into S CM include Institute o f Log istics a nd C ha rtered Institute o f Purchas ing a nd S upply.




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3.4.1

3.4Overview o f advanced tec hniquesand key issues in SSCM

This s ection explores s upply cha in susta ina bility iss ues fa cing orga nisa tions a nd e xamples of the ad vanc ed

strateg ies and mana ge ment prac tices being used. This s ection a lso looks a t some the orga nisa tions that a re

currently involved in projects , program mes a nd a ctivities on va rious a spe cts of S S CM.

Sustainability issues in supply chains

Current trends towards the increasing globalisation of consumption patterns, global sourcing, outsourcing

and specialisation are both causing and the result of increasingly long and complex supply chains. In

parallel, 24 hour CNN style news reporting and the explosive growth of the Internet are increasingly exposing

the unsustainable practices hidden in some supply chains e.g. use of child labour. Organisations with long

a nd c omplex supply cha ins, w hether they a re a t the beg inning (e.g. c hemicals), in the midd le (e.g. log istics

com pa nies ), or a t the end (e.g. c ons umer elec tronics, a utomotive, reta il, g overnment, etc.), a re increa singly

ha ving to co me to terms w ith the sus tainability a spe cts (particularly e nvironme ntal) of their supply c hains a nd

are needing to find wa ys of mana ging them.

Supply chain sustainability issues can range from child labour and exploitation of workers on the one handto ozone dep letion, de fores tation a nd g loba l wa rming o n the other. Thes e iss ues c a n be broken dow n

ac cording to environmental, so cial, and ethica l aspec ts. Below a re s ome examples:

(i) Environmental issues:

natural resource use;

emissions;

waste;

hazardous substances;

energy use;

los s o f biod iversity a nd d efores tation;

nuclear rad ia tion;

ozone depletion;

global warming.




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3.4.2

(ii) Social issues:

the role of the c ompa ny to the loc a l com munity;

direct a nd indirect employment in de veloping countries ;

inves tment in ed uca tion/tra ining.

(iii) Ethical issues:

la bour pra ctice s (e.g . child lab our, discrimina tion by race , g ende r and relig ion, wa ge iss ues, unions,

working hours, a nd e mployee privacy.)

irres pons ible ma rketing (e.g. ma rketing to c hildren a nd misrepresenta tion);

suppo rting oppress ive regimes;

hones ty, trust, respec t and fairness in co rpora te or orga nisa tiona l relations ;

bribery and corruption.

Des pite the list, o rga nisa tions implementing S S CM a ctivities a re still focus ed on e nvironmental iss ues.

This is pa rtly due to significa nt external pres sures to a dd ress these iss ues, in the form of sta nda rds ,

regulations a nd b usiness-to-business press ures , a nd pa rtly a s a result of environmental iss ues rece iving

increa sing a ttention in the med ia . For mos t of the o rg a nisa tions interviewe d in this report, e nvironme ntal

issues were already part of the corporate agenda with clear lines of responsibility within organisations

and an increa singly focus on s upply cha ins.

S oc ia l a nd ethica l iss ues w ere see n as les s ta ngible a nd more difficult to ad dress , the notable exception

was the retail sector where a number of initiatives have started. Some interviewees saw these issues as

too political (as meaning party political) and others indicated that social and ethical issues were not in

the lexicon of their organisations.

However, it should be noted that a few of the most proactive companies implementing SSCM have

found wa ys to a dd res s so cial and ethica l iss ues. For exa mple, B&Q (reta il), The B od y S hop (reta il) and

Co -opera tive Ba nk (financ ia l services ) in the UK and Ben &J errys Ice C ream (now owne d b y Unilever)

in the US have highly integrated social and ethical programmes in their organisations which also

a dd ress iss ues in their supply cha ins (along side e nvironmental iss ues).




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3.4.3

Advanced tools and strategies

Generally speaking, the ability of an organisation to engage in SSCM activities will depend on a number of

fac tors. In particular, it dep end s o n the a bility of the orga nisa tion to influenc e its sup ply cha in. This is no t an

iss ue of a bs olute s ize, b ut more one o f relative size a nd b uying powe r in its pa rticular market, a s w ell a s its

ability to leverage its position. For instance, Philips (electronics) is able to directly influence its packaging

suppliers, s etting requirements a nd working with them to d es ig n s ma ller, lig hter and more e nvironmentally

friendly pac kag ing s ystems , bec a use the co mpa ny represe nts a large p a rt of their business . However, Philips

ha s very little a bility to influence its plas tics suppliers, b eca use the a mount of plas tics Philips buys repres ents

a very small percentage of the plastics suppliers business.

On the other hand, some companies are willing to work with very small customers if they feel there is

so mething to g a in from it. For insta nce, Pa tag onia ha s worked with one of their textiles suppliers to d evelop

g reene r co a tings , even though P a tag onia repres ents a very sma ll pa rt of their bus ines s. The textile co mpa ny

is willing to work with Patagonia, because Patagonias environmental credentials helps to legitimise the

com pa nys e nvironmenta l cla ims a nd b eca use the results of the c olla bora tive wo rk will eventually be a ble to

be s old to other customers (Go od ma n, 1998). From this, it ca n be no ted tha t dominanc e in the s upply cha in

is not the only prerequisite for bringing about change. Other strategies include partnerships, to influence

larger customers and suppliers.

The following tools a nd s trateg ies represent the a dvanced techniques methods a nd a pproa ches used by

organisations to ma nag e their SS CM iss ues.

(i) Written policies and communications materials

Many companies use written policies, statements and other communications materials to inform their

supply cha in pa rtners a nd p otentia l suppliers a bout their sus tainability go a ls a nd e xpectations. Thes e

include letters, b rochures , a rticles in s upplier new sletters a nd throug h internet/intrane t.

(ii) Pre-qualification of suppliers

A common method for pre-qualifying suppliers is setting supplier requirements, such as certification to

ISO14001. Questionnaires are another pre-qualification tool and are perhaps the most common SSCM

too l use d. Throug h them, it is pos sible to a sc ertain if po tentia l sup pliers c omp ly with all releva nt

standards and regulations (however, these still tend to be environmentally focused) e.g. whether they

ha ve ISO14001 or EMAS , if they use certain res tricted subs tanc es , etc

(iii) Purchasing specifications

Another SS CM tool is to pla ce requireme nts in the s pec ifica tions for products a nd s ervice s they pla n to

purcha se . Throug h the spec ifica tions o rg a nisa tions c a n dema nd, for examp le, that suppliers do no t use

certain substances, that the products meet certain standards of recyclability or contain certain amounts

of recycled content, that life cycle data is provided or that the supplier will take back products or

packaging after use. Setting product or service specifications can be a powerful mechanism forinfluencing supply chains.




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3.4.4

(iv) Supplier/Customer Partnerships

Some of the more proactive organisations are going beyond just setting product and service

spe cifica tions a nd a re starting to e sta blish co -ope rative partnerships be tween c ustomers a nd s uppliers.

However, these pa rtnerships req uire openne ss , trust a nd trans pa rency. Des pite this, e xamples o f supply

chain partnerships are numerous. Partnerships can take range from working together on research and

de velopme nt projects to providing training a nd a ss ista nce . The ha llma rk of suc ces sful pa rtnerships is

go od two-wa y co mmunica tion.

(v) Supplier/Customer meetings

Thes e ca n be one -to-one me etings , seminars, wo rksho ps o r conferences . Meetings a llow o rga nisa tions

the oppo rtunity to sha re ide a s, w ork toge ther a nd s olve problems tog ether.

(vi) Validation of Performance

Va lida ting s upplier cla ims is a n impo rta nt part of the ma na g eme nt proc es s. Too ls for va lida tion include

reviewing questionnaires and documentation from suppliers, site visits, third-party audits.

(vii) Working with industry peers

S S CM is no t only a bout wo rking with suppliers a nd c ustomers, b ut also w orking with indus try pee rs to

develop industry best practice and standards. According to Lippmann (1999), the following

cha racteristics typify effective S S CM prog ra mmes :

top-level lea de rship;

cross-functional integration;

involving different supply chain related functional areas within the company (procurement, EHS,

ma nufac turing, ma rketing , R&D, d istribution);

integra tion into e xisting S CM proces se s (design, procurement, distribution);

effective communication within companies and with suppliers (internally and externally);

multiple information channels (mission statements, codes of conduct, meetings, questionnaires,

contrac t co nditions , s upplier new sletters, pe riod ic performanc e reviews );

effective proce ss es for ta rgeting, se lecting, w orking with a nd evaluating suppliers;

most target first-tier suppliers (they have the largest stake in the relationship), as well as contract

ma nufa cturers/suppliers that ha ndle ha za rdous s ubsta nces (corpora te reputa tion);

incorporate environmental performance as part of supplier solicitation, selection and monitoring to

ens ure tha t only environmentally a wa re s uppliers a pproac h them for business ;

work with suppliers to ensure continuous improvement over time;

willing ness to e nd rela tions hips which fail repea tedly to me et environmenta l expectations ;

a llow for co lla bora tion a nd joint problem s olving - leverag e the expertise of suppliers a nd e ng a ge them

as business partners to a ddress common environmental and business g oa ls.




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3.4.5

Supporting Organisations

Mos t of the interviewe es noted that there we re few if any centres o f excellence on S S CM. Furthermore, it wa s

noted that a ca demia, a nd resea rch institutes in general are lag ging far behind the a dvance d techniques .

However, there are some organisations that are involved in research and promotion of SSCM, or at least

some aspects of sustainability. In most cases this means environmental aspects.

The following o rga nisa tions a re involved in projects, progra mmes or ac tivities on va rious a spe cts o f SS CM.

They a re pres ented only as examples to de mons tra te the brea dth of current a ctivities .

(i) Business for Social Responsibility (BSR)

BSR promotes social, ethical and environmental corporate responsibility through benchmarking

studies, publica tions , the Business for S oc ia l Respo nsibility Educa tion Fund, a wa reness tra ining a nd

workshops.

BS R has a S upply Cha in Working G roup compo se d o f 12 lea ding co mpa nies in the field which is

looking at best practice and ways to promote supply chain issues

BSR also maintains an extensive website covering social, ethical and environmental issues in

corporate responsibility. However, their section on supply chain strategy and management deals

only with environmenta l iss ues. They refer to this a s supply cha in environmental ma nag ement

(SC EM). The we bs ite include s informa tion on d rivers a nd b ene fits of inco rporating environme nta l

iss ues into S CM, as well a s e xamples o f best-practice a nd links to other orga nisa tions working in the

field.

(ii) United States-Asia Environmental Partnership (US-AEP)

This orga nisa tion works c los ely with B usiness for Soc ia l Respons ibility (BS R) promo ting S CEM.

Among other ac tivities it has ca rried out a benc hma rking study on S CEM in the electronics se ctor.

Its key activities include: identifying and supporting international corporations who champion

greening of SCM (companies that not only green their own supply chains but also work to green

supply chains industry-wide); collaboration with US and Asian companies who seek to create

supplier outreach programmes; provision of technical assistance and training to Asian industry

a ss oc ia tions that provide expertise to Asian s uppliers; a nd suppo rt for the a ctivities of BS R.




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3.4.6

(iii) Business in the Environment (BiE)

BiE has developed a CD-ROM based tool for benchmarking suppliers, called Buying into the

Environment. It is modelled on the BiEs Index of Corporate Environmental Engagement, and

mea sures ten key a rea s o f environmental manag ement concern:

corporate environmental policy;

board member with environmental responsibility;

formal environmental management system;

environmental objectives;

mea surab le targets;

interna l audit proc es s;

employee e nvironmental prog ramme;

environme ntal stewa rds hip of products;

processes and services;

supply cha in programme, a nd;

environme ntal co mmunica tion with sta keholde rs.

(iv) Organisation for Economic Co-operation and Development (OECD)

The OECD resea rches a nd promotes g reen procurement in go vernment

(v) The International Council for Local Environmental Initiatives

The Internationa l Counc il for Loca l Environmen tal Initia tives (ICLEI) has a Europea n Ec o-Procureme nt

Initia tive, which ha s b ee n de sig ned for loca l a uthorities . The a im is to c omb ine the po we r of public

a uthority purcha sing to crea te a cumula tive d ema nd for g reener purcha sing p ra ctices . (ICLEI, 2000).

Some of the tools that ICLEI have produced include a workbook called "Green Purchasing in Europe",

1998, and a study on green purchasing structures and practices, 1997




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3.4.7

(vi) J apan Green Purchasing Network

The G reen P urcha sing Network (G PN) was se t up in 1996 to promote g reener purcha sing from

go vernmental orga nisa tions, c onsumers a nd b usiness es in J apa n. It has members from e nvironmental

NGOs, co nsumer groups a nd bus ines se s including S ony, Toyota , Ca nnon and Nippon S teel.

The G PN ha s prod uced g uidelines on purchas ing s pec ific produc ts ba se d o n its 3 core principles of

green purchasing. Some of the product groups include office furniture, personal computers,

refrig erators a nd w a shing ma chines. The principles that G PN uses include:

the environmental impact of the product over its life-cycle;

the environmental performance of the supplier;

benchma rking of products a cross a wide rang e of options.

As well as producing guidelines, GPN are involved in conducting surveys on the state of green

purchasing, establishing networks led by local governments and companies and awarding prizes to

outstanding members of the network.

(vii) European Green Purchasing Network

The Europea n G reen P urcha sing Network (EG PN) is o rg a nise d b y the Europea n Pa rtners for the

Environment (EPE) - which is a multi-stakeholder forum for consensus on sustainability actions. Its

members include local and national public authorities, trade unions, companies, environmental,

consumer a nd e thica l NGOs.

EGPN is designed to facilitate joint purchasing by public and private sector bodies, stakeholders, and

has established objectives for voluntary initiatives for purchasing (in conjunction with industry) for the

water sector, agri-foods, cars and information technologies and produced a workbook on green

purchasing.




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3.4.8

(viii)Adapt Supply Chain Environmental Train Project (ASCTP)

In 1997, CAP ITB Trust received 1.7 million from the Europe a n S oc ial Fund (ES F) to de velop ASC TP

a nd involved the follow ing project pa rtners to explore environme ntal ma na g ement training throug h the

supply chain: Blackburn College, Fife College, the Construction Industry Research and Information

Ass oc ia tion (CIRIA), Excel Wa ste Mana g eme nt Training , Kemira Ag ro UK Ltd, British Aeros pa ce ,

Reemploy a nd G EE Publishing. AS CTP c overed six se ctors:

construction;

agriculture;

aero-engineering;

food a nd d rink;

clothing and textile;

wa ste recycling.

The s upply cha in pa rtners w ere British Aeros pa ce , Kemira, Morrions Co ns truction an d Rem ploy. A

range of training material and courses were developed as part of the project focused on environmental

management, and transnational links were made with New Eco-Enterprise, Products and Services

(NEEP) network with participants from Germany, Italy, Spain, Denmark and the UK.

(ix) Project ACORN

Project ACORN is a two year project that was established in 2000, to develop a scheme for a staged

ce rtifica tion o f SMEs. ACORN is funde d b y DTI with suppo rt from DETR a nd m a na g ed by B S I with

co nsulta ncy s upport from 14000 &ONE Solutions . The a im to is c a sc a de environmental mana ge ment

throug h the supply cha in using a six sta g e mo del. There a re 28 mentor compa nies a nd 250 supply cha in

co mpa nies (suppliers a nd custom ers) involved in the project.

(x) Environmental Supply Chain Forum (ESCF) (UMIST, University of Manchester)

ESCF is a forum for professional purchasers, which promotes the integration of environmentalcriteria into purchas ing throug h tra ining , s eminars a nd cons ultanc y.

ESCF is currently involved in a project involving the construction, chemicals, automotive and

aerospace sectors.

It is a lso involved in developing a policy s tateme nt on environmental as pects of purcha sing w ith the

Cha rtered Institute of P urcha sing a nd S upply (CIPS ), for purchas ing profes siona ls. This will be

followed by the development of a guidance document, methodologies and training materials.

The project is funded via the EC .




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3.4.9

(xi) The Green Supply Chain Network and Project (University of Middlesex)

This projec t is foc use d o n S ME s uppliers in the North Lond on a rea (Lee Va lley reg ion).

It involves ma pping the s upply c ha in in this region, ide ntifying bes t practice a nd S ME s upplier need s

a nd bringing toge ther experts o n the iss ue. Activities include promoting loca l sourcing a nd wo rking

on packaging design issues.

There a re se veral pa rtners involved in the projec t including the Re g iona l S upply Netwo rk a nd

Business Link.

The G reen S upply Cha in Network is foc using o n five se cto rs: food , logistics, furniture, printing ,

clothing.

The project is funded via the EC .

(xii) The Centre for Sustainable Design (CfSD)

CfS D rec ently comp leted a tw o-yea r projec t entitled "E co -de sign Training for Ma nufac turing , Use a nd

End -of-life for SMEs " (ETMUEL). Pa rt of the pro jec t involved wo rking w ith larg e e lectron ics

com pa nies on s upply cha in pa rtnerships with S ME suppliers.

ETMUEL is funde d via the Ada pt prog ramm e of the Europea n S oc ia l Fund (ESF).

(xiii)TNO Institute of Environmental Science, Energy Research and Process Innovation

TNO has de velope d a so ftwa re tool for electronics c ompa nies to wo rk with their suppliers to de velop

more environmentally friendly electronics products.

(xiv)US projects

SSCM (primarily environmental) projects and research has been identified at the following US

institutions:

University of Oklahoma.

Ma ss a chus etts Institute o f Tec hnolog y (MIT).

Ba th University (New Aca de my o f Business ).

Carnegie Mellon.

Pennsylvania S tate.

Roc hes ter Institute of Tec hnolog y.

Clark University.




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4.0.1

4.0Research findings and analysisThe report a na lyse s eight broa d se ctors. Informa tion is ba se d on de sk res ea rch and the a uthors knowledg e

of the sectors. Interviews were undertaken because information provided should not be seen a necessarily

repres enta tive of the sub -se ctor or its s eg ments.




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4.1.1

4.1UtilitiesOverview

The utilities se cto r was formerly ma na g ed by p ublic s ec tor opera tors. With the libe ralisa tion o f the e lectricity

ma rket a nd the privatisa tion of co mpa nies there ha s b een ma rked improvements in service opera tions to the

co ns umer. With this improveme nt of se rvice , there ha s a lso b ee n the introd uction of environm enta l initiatives ,

such a s public e nvironmental reporting a nd energy efficiency a dvice. The utilities se ctor is cha racterise d by

high-energy usage needed to deliver common products, such as electricity and water, as well as maintain

the la rge infrastructure network tha t is us ed for de livery a nd s torag e o f thes e produc ts.

Since 1993, the procurement procedures of entities operating in the water, energy, transport and telecom-

munica tions se ctors a re go verned by Directive 93/38/EEC c ommo nly known a s the "Excluded S ec tors"

Directive or the "Utilities Directive". Any tendering for major supply contracts over a certain monetary value

for se rvice contrac ts a nd w orks c ontra cts ha ve to co nform to s pecific rules of compe tition. Even thoug h the

directive do es not use environme ntal or g eneral sus tainability criteria for deciding upon s uppliers, ma ny o f

the utilities are now building environmental criteria into procurement management policies as a first step into

environmental management of the supply chain.

The w a ter indus try is respons ible for the whole wa ter cycle, from ab straction of groundwa ter res erves a nd

surfa ce w a ter co llec tion a nd stora g e to collection of wa ste-wa ter a nd dispersa l of sewa g e products. This

mana ge ment of the whole cycle req uires a great de al of energy use a nd s o w ater companies look to reducing

the energy needed for supply of these services.

The e lec tricity ma rket in the UK gen era tes mo st o f its po we r throug h the b urning of foss il fuels. In 1995 oil

a nd g a s fired po we r g ene ration ma de up 64%of the tota l ma rket (The UK Elec tricity Sy ste m, 2000). The UK

government has now introduced a target for the UK electricity generation. By 2010 it expects that the total

co untry renew a ble electricity ge nera tion s hould be 10%.

Water

(i) Sustainability Issues

North Wes t Wa ter pointed out tha t two key issue s for sus taina bility an

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