How to create sustainable supply chains

Globalisation has been fundamental to lifting many millions of people out of poverty. The unbundling and outsourcing of production by Western manufacturers has led to the industrialisation of developing countries and consequent improvement of standards of living. Whilst this is the case, manufacturers and retailers have a duty to ensure that they are fully aware of their suppliers’ environmental practices and working conditions and take active steps to ensure that they comply with a globally acceptable standard. This is not only a moral responsibility but also in their own long term commercial interests.

There are many examples where the supply chain practices of global manufacturers have fallen far short of what would be considered acceptable behaviour in Western markets. For example, just-in-time delivery schedules and short manufacturing cycles in the electronics sector have lead contract electronics manufacturers in China to impose unreasonable and unhealthy working practices in order to meet demand. In the ‘fast fashion’ sector, the Rana Plaza factory collapse in Bangladesh was an example where the lack of responsibility which many Western retailers and manufacturers took for the work conditions of their suppliers’ staff resulted in significant loss of life. Even in Europe, the economics of the e-retail industry mean that many delivery drivers are working excessive hours for unsustainable amounts of money.

In many cases the problem goes to the very heart of corporate supply chain strategy. There is a failure of ‘joined up thinking’ as regards the three goals of Profitability, Environmental and Social awareness, the so-called ‘Triple Advantage’. What many companies fail to realise is that profit and socio-environmental outcomes are complementary not contradictory.

In a project recently undertaken by the World Economic Forum with the support of consultancy Accenture, it was found that by initiating projects where social, environmental and economic benefits overlap, costs can be reduced by 9-16%; revenue can actually be increased by 5-20%; brand value increases by 15-30%; labour standards rise and GHG emissions fall by 13-22%.

The smartest companies see that there is much to be gained from adopting sustainable operational practices. For instance, companies which undertake driver training achieve a range of benefits. Vehicles are driven more efficiently, therefore cutting costs and increasing profits. However a more economical driving style also reduces greenhouse gas emissions, is safer for drivers and pedestrians or cyclists and consequently reduces the risk to a company’s brand as well as insurance/litigation costs.

The ‘triple advantage’ approach to supply chain management is critical to ensure long term sustainability although striking a balance between each of these core ‘pillars’ – economic viability, environmental accountability and social responsibility – is challenging. What is clear is that economic, environmental and societal issues are bound tightly together, interwoven in deeply dependent relationships. In order to ensure a long term, sustainable future for global supply chains, companies must build collaborative, multi-stakeholder approaches to creating value which don’t impact on the environment or have a negative impact on people’s wellbeing.

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Author: John Manners-Bell is the Chair of the World Economic Forum’s Global Agenda Council on Logistics and Supply Chain. The World Economic Forum’s Network of Global Agenda Councils is the world’s foremost interdisciplinary knowledge network dedicated to promoting innovative thinking on critical global issues, regions and industries, and incubating projects, campaigns and events for the public good. 

Image: The Pierre building is seen through a stairway. REUTERS/Adrees Latif.