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Sustainable and Transparent Supply Chains

An article repository used in teaching

March 2022

The conflict in Ukraine is only the latest jolt to global supply chains. Disruptions caused by the Covid-19 pandemic, climate-related events, and geopolitical tensions were already undermining their rationale. As companies rethink sourcing, they will have to consider new factors concerning geography and geopolitics, logistics, decarbonization and sustainability, and suppliers’ health.

March 27, 2020

The majority of companies did not heed the lessons of the natural disasters of the last decade and, as a result, suffered severe supply disruptions when the Covid-19 pandemic struck. To make sure the same thing doesn’t happen the next time around, they should map their supply chains in depth, which includes identifying alternate sources of items; changing the way they assess the performance of their procurement function to include revenue assurance and not just cost savings; and incorporate disruption-related metrics in their evaluations of suppliers.

For two decades progressive thinkers have argued that a more sustainable form of capitalism would arise if companies regularly measured and reported on their environmental, social, and governance (ESG) performance. But although such reporting has become widespread, and some firms are deriving benefits from it, environmental damage and social inequality are still growing.

This article, by Timberland’s former COO, outlines the problems with both sustainability reporting and sustainable investing. The author discusses nonstandard metrics, insufficient auditing, unreliable ESG ratings, and more. But real progress, he says, requires not just better measurement and reporting practices but also changes in regulations, investment incentives, and mindsets.

In the past, considerable physical and temporal distance separated a supply chain’s upstream activities from the manufacturer and its downstream stakeholders. Now, the proliferation of technology, especially mobile devices, and the pervasive use of social media have brought upstream risks much closer to the eyes, ears, and voices of downstream stakeholders, including consumers, business customers, news media, regulatory agencies, and nongovernmental organizations.

At the same time, supply chain risks grow significantly as supply chains span more legal jurisdictions, different types of business practices, and widely varying cultural norms. In this context, transparency becomes the vital process of managing risks by accessing, learning from, and acting on supply chain information. By itself, transparency is an increasingly important capability for companies. But as part of a company’s broader attempts to build supply chain resilience—the ability to recover from and reduce the impact of key risk events—transparency’s role is pivotal.

March 2020 Increasingly, multinational corporations (MNCs) are pledging to procure the materials and services they need from companies committed to fair labor practices and environmental protections. But the reality is that their suppliers—especially those at low levels of the chain—often violate sustainability standards, exposing MNCs to serious financial and social risks.

Engineering and procurement units often preapprove lower-tier suppliers, but their vetting criteria don’t include social and environmental considerations. In other words, engineering and procurement address only the first of the proverbial three Ps of sustainability (profit), focusing on such issues as cost, quality, delivery, and technology, while overlooking the second and third Ps (people and the planet). Not surprisingly, that can lead to situations in which preapproved lower-tier suppliers violate the sustainability requirements of the MNCs they work with. The first-tier suppliers are then in a tough spot. Like it or not, they have to work with preapproved suppliers—but they are held accountable if those companies mistreat workers or harm the environment. As one exasperated manager said while describing this conundrum, “I am just using the supplier you asked me to use!”

August 2019 The concept of supply chain transparency was virtually unknown 15 years ago, yet today it commands the attention of mid- and senior-level managers across a broad spectrum of companies and industries. The reasons for this increased interest are clear: Companies are under pressure from government, consumers, NGOs, and other stakeholders to divulge more information about their supply chains, and the reputational cost of failing to meet these demands can be high. This article clarifies the meaning of supply chain transparency and offers guidelines to map and extend progress. The recommendations derive from the experience shared by dozens of companies up and down the supply chain across industries of all sizes over the last decade

With the best of intentions, companies up and down supply chains experiment with isolated efforts to improve sustainability—only to encounter a long string of unanticipated consequences, often in the form of financial, social, or environmental costs.

That’s partly because most firms respond in a piecemeal way to pressure from customers, shareholders, boards, employees, governments, and NGOs. For instance, they demand that suppliers change their materials to environmentally friendly ones or move manufacturing closer to end markets to reduce emissions from transportation. And they tweak their own operations by using compact fluorescent lamps, recycling more of their materials, and so on.

Lee’s research shows that it’s much more effective to take a holistic approach to sustainability and make broader structural changes, as shirt manufacturer Esquel, steelmaker Posco, and others have done. Such changes can include reinventing processes, developing new kinds of relationships with business partners, and even collaborating with competitors to achieve scale.

Stakeholders increasingly hold corporations accountable for supply chain partners’ actions, as we’ve learned from widely publicized recalls of tainted pet food and lead-laden toys. Clearly, sustainability is a competitive concern. The core managers overseeing your supply chain must own and tackle it as aggressively as they do cost, quality, speed, and dependability.


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