Sustainability and sustainable growth

A topic mentioned more frequently, and for good reason, is sustainable growth. But what precisely is sustainable growth? According to a United Nations (UN) report from 1987 that has set the standard, it is “development that meets the needs of the present without compromising the ability of future generations to meet their own needs”. Can sustainable growth be achieved while simultaneously running a profitable company? Of course. Companies that genuinely manage to promote sustainable ideas earn not only goodwill but also money.

The awareness that we must be frugal with our resources and that we are all accountable for the environment we pass on to our children and grandchildren compels people to a greater extent to choose services and products that are proven to be manufactured in a sustainable manner. What does it take to succeed in a sustainable world? We would like to say that it is a mix of investments, new thinking, daring, givens and soul-searching. Let us share our view of Sustainable Demand Chain Management with you.

How sustainable is your Supply Chain?

Sustainable development that enables future generations to meet their own needs can only be achieved by all of us today playing a part in implementing measures that protect and improve the natural, economic and social spheres. With regard to logistics, Sustainable Demand Chain Management currently involves evaluating the trade-offs between these three environments in a concerted effort to create those conditions conducive to sustainability. With ever-increasing pressure to minimize environmental impact within all areas of everyday living, including industrial production, transportation, construction and individual lifestyles, the drive for comprehensive and sustainable development is now enormous. This rush for sustainability is now a priority in Demand Chain Management, where the emphasis is on the front end of the Supply Chain – the customers – when making important strategic decisions on how to achieve greater customer satisfaction. This is all the more relevant with many customers now demanding that their suppliers show credentials, like ISO 14001, to prove that they take environmental care seriously.

But what is sustainability?

The World Commission on Environment and Development defines it as “Meeting the needs of the present without compromising the ability of future generations to meet their own needs.”

For Sustainable Supply Chains, this raises the challenges of:
1. Addressing the issue of sustainability and determining how to incorporate it into daily decision-making processes.
2. Understanding the trade-offs that exist between sustainability issues and optimal Supply Chain efficiency.
 

Today, the prime parameter used to measure the impact of industry on the environment – and hence sustainability – is CO2 emissions. In 2004, a study by the European Commission showed that after energy use, transport was the largest contributor to CO2 emissions, and the only sector where these are increasing. Road freight represents 90% of total freight volumes within the EU-25 countries.

The main drivers for Sustainable Supply Chains are twofold:
1. Ever-tougher rules and regulations, such as the RoHS and WEEE Directives, which must be complied with.
2. Continuously rising fuel and energy prices that motivate finding more cost-effective solutions throughout the
Supply Chain.

Who is responsible and what is the risk?

In a LEK Consulting carbon footprint report published in 2007, the following question was posed: “Who should take the biggest role in minimizing the carbon footprint of the products and service you buy?” About 38% of respondents said that manufacturers and producers were responsible, 25% said the government, and 20% said they were personally respons-ible. From these replies it can be seen that people in general do expect companies to reduce the environmental impact of their business activities. But is there a conflict between sustainable development and economic growth? One answer to this vexing question is given by the International Monetary Fund (IMF), which in 2008 published the data in Figure 3 on the projected reduction in GDP (Gross Domestic Product) in 2040 caused by cutting carbon emissions when compared with adopting no emission-control policies. What Figure 3 shows is that the cost of imposing emission-control policies is estimated at a 2.6% reduction in GDP on a worldwide basis. In comparison, the baseline is an expected growth of the world economy by about 2.3 times between 2007 and 2040!

Achieving greater sustainability along the chain

Now let us look at the non-value adding sustainability stress resulting from Demand Chain Management (Figure 4) and examples of how this can be minimized. And as it is the Demand Chain, we will work backwards from customer demand along the chain of Distribution, Production and Sourcing. Customer demand essentially comprises the goals of increased earnings and a unique competitiveness through more efficient flow of goods, services and information. This involves such activities such as just-in-time delivery to avoid capital being tied up in inventory, and extensive information gathering that encourages good decision-making when defining business strategies and goals that affect production, warehousing and transports. Compared with the push processes of traditional Supply Chains, Demand Chain Management offers the advantages of pull systems generated by customer needs.

Three key issues

In order to produce meaningful data that can lead to improved decision-making which promotes Sustainable Demand Chain Management, three key issues must be considered right at the beginning of a logistics project.

1. Measure it

Logistics is a science not an art. And just like all scientific endeavors, no advances can be made in Sustainable Demand Chain Management when data are not measured. Simply put, if you don’t measure it, you can’t manage it. Thus all parameters such as CO2 emissions (transportation modes, distances, frequency), costs (production materials and their environmental effect) and the environmental credentials of suppliers must be measured to produce credible data on sustainability upon which one can act. The following case study shows what data measurements can lead to. Boots, a chain of chemist shops in England, engaged an independent company to investigate the amount of CO2 emissions that eight of its shampoo types caused along their supply chain from raw materials to product use. To the surprise of Boots, it was found that 93% of all CO2 emissions came from product use, whereas only 7% could be attributed to Boots’ manufacturing and delivery. A simple response to this could have been for Boots to point out that CO2 emissions were not its problem, but this would not have changed the picture. Instead, the company took the responsibility upon itself to try and improve things by means of an advertising campaign that encouraged consumers to use less water at a lower temperature when they washed their hair. Boots thus used facts and figures to turn potential indifference into a brand-building activity that encouraged their customers to promote sustainable development.

2. Take a holistic view

Strategic actions in general have a larger scope than tactical and operational actions. They also set limitations and create opportunities for actions taken at subsequent levels. If we look at Figure 6, it can be assumed that the higher the strategic level actions, the more sizeable the potential for impact on the lower levels. Consequently, the focus at the beginning when making an assessment should be on a strategic level and then, if relevant, the other levels in the hierarchy should be evaluated when they support the strategy. A holistic view is paramount in order to avoid sub-optimizations.

3. Understand the trade-offs

It is imperative to understand the trade-offs between traditional Supply Chain efficiency (cost and service) and sustainability issues. This can be seen in the previous section on centralized distribution, where such distribution may prove of financial benefit to the company that implements it, but ultimately it may lead to an increase in CO2 emissions resulting from, e.g. an increased demand for transport. Young’s Seafood is a good example of the complexity of making trade-offs in certain cases. As you can see from the arguments presented in this article, implementing a production strategy that includes the maintenance of sustainable development and improving the financial and working conditions of employees contributes to social stability that benefits all involved.

Read on > Case studies about sustainability