Quarter Plenary, 27 June 2013

Sustainable Supply Chains: Moving Towards

Strategic Sustainability

Prof Suzanne Benn,

Professor of Sustainable Enterprise

UTS Business School

Understanding where corporations are in

terms of their sustainability trajectories

• ‘Sustainability’ is a term that needs to be understood in context – it is associated with longevity, but also with corporate environmental and social responsibility

• In assessing the capacity of corporations and firms to balance environmental, economic and social factors, a phase model of organisational sustainability provides a framework

* to analyse characteristics of organisations as they are

* indicates appropriate action to advance sustainability

These phases do not form a linear model, but are indicative characteristics of phases of organisational sustainability.

Rejection

(freeloaders & stealthy saboteurs)

Non-responsiveness

(‘bunker wombats’)

Compliance

(reactive minimalists)

Efficiency

(industrious stewards)

Strategic pro-activity

(proactive strategists)

The Sustaining Corporation

(transformative futurists)

The Sustainability Phase Model

From Dunphy, D. , Giffiths, A. and Benn, S., Organisational Change for Corporate

Sustainability, Routledge, London and New York, 2003; revised edition 2007)

1st Wave 2nd Wave 3rd Wave

Opposition Ignorance Risk Cost Competitive Transformation

Advantage

Rejection Non

responsiveness Compliance Efficiency Strategic

Pro-activity

The sustaining

corporation

• Highly

instrumental

perspective on

employees and

natural

environment

• Culture of

exploitation

• Opposition to

government and

green activists

• Community

claims seen as

illegitimate.

• Financial and

technological

factors have

primacy

• More ignorant

than

oppositional.

• Seeks business as

usual, compliant

workforce.

• Environmental

resources seen as

a free good.

• Focuses on

reducing risks of

sanctions for

failing to meet

minimum legal

and community

standards.

• Little integration

between HR and

environmental

functions.

• Follows route of

compliance plus

proactive

measures to

maintain good

citizen image.

• HR systems seen

as means to

higher

productivity and

efficiency

• Environmental

management

seen as a source

of avoidable cost

for the

organisation.

• Focus on

innovation

• Seeks stakeholder

engagement to

innovate safe,

environmentally

friendly products

and processes.

• Advocates good

citizenship to

maximise profits

and increase

employee attraction

and retention.

• Reinterprets the

nature of the

corporation to an

integral self-

renewing element

of the whole

society in its

ecological context.

Value

destroyers

Value

limiters

Value

conservers

Value

creators

Sustainable

business

Waves of Sustainability

Rejection Non-

Response Compliance Efficiency Proactivity

Sustaining

Organisation

Activism

against

sustainability

Risk loss of

business and

reputation

Inappropriate

use of science

BAU

Risk loss of

business and

reputation

Greenwash

Implement

environmental

awareness

Minimise

risks

Image

building

Systematic

EMS/ HRM

Emphasis on

reporting

Risk

avoidance

Improved

efficiency and

engagement

Proactive and

strategic

High level

interpersonal/

soft skills

Structural

redesign for

flexibility

Stakeholder

management

Transformative

culture

Redefine

business

relationships

and context

© Source: The Phase Model – Dunphy,

Griffiths and Benn, 2007

Phases of Organisational Sustainability

Auditing

Reporting

Systems

design

Innovative

capacity

Partnering

for renewal

What does this mean in terms of the establishment

of Sustainable Supply Chains?

• Organisations may demonstrate characteristics of more than one phase.

• They may easily reverse their positions - especially in phases 3 & 4.

• It becomes difficult to reverse in phase 5 and impossible in phase 6

without further radical transformation.

KEY FEATURES OF SUCCESSFUL CHANGE

• Moving to future fit - incorporating resource shortages and tensions

into business models,

• Working in partnership,

• Looking to cradle to cradle or industrial ecology or product service

arrangements,

• Integrating human and ecological sustainability.

A Definition of Sustainable Supply Chain

Management (SSCM)

‘…the management of material, information and capital flows as well as cooperation among

companies along the supply chain while taking goals from all three dimensions of sustainable

development, i.e., economic, environmental and social, into account which are derived from

customer and stakeholder requirements.’

(Seuring & Muller, 2008)

Importantly, this definition directs attention

to the significance of SYSTEMS THINKING

Systems thinking

Action learning

Critical thinking

Creativity

Sustainable Management of Supply Chains

involves recognition of the organisation as part

of a broader system

Life Cycle Thinking

Cyclical material and energy flows

• LCA, industrial ecology

Source: Crittenden et al, 2011; Dunphy & Perrott, 2011; Benn et al, 2011; Porter, 2008; Porter, forthcoming; Porter and Cordoba, 2009; Taylor, 2011

Interacting social systems/ networks

Iterative cycles of learning and dialogue

•Stakeholder engagement and dialogue

Complexity thinking

Emergence and bottom up change; Connectivity

•Experiential exercises (with attendant risks and opportunities).

What does systems thinking mean for SSCM?

Integrating three approaches to systems thinking

Rejection Non-

Response Compliance Efficiency Proactivity

Sustaining

Organisation

Activism

against

sustainability

Risk loss of

business and

reputation

Inappropriate

use of science

BAU

Risk loss of

business and

reputation

Greenwash

Implement

environmental

awareness

Minimise

risks

Image

building

Developing

awareness of

supply chain

risks

Systematic

EMS/ HRM

INCREASED

emphasis on

reporting

Risk

avoidance

particularly

reputational

risk

Improved

efficiency and

engagement

linked to

supply chain

Proactive and

strategic

High level

interpersonal/

soft skills

Focus on

certification

Structural

redesign for

flexibility

Stakeholder

management

Transformative

culture

Redefine

business

relationships

High levels of

transparency,

auditability &

accountability

upstream

/downstream

© Source: The Phase Model – Dunphy,

Griffiths and Benn, 2007

Phases of Sustainability incorporating SSCM

Auditing

Reporting

Systems

design

Innovative

capacity

Partnering

for renewal

Risks – pull factors

Social tendencies: 1. Globalisation

2. Demands for greater transparency (NGOs, media & public)

3. Pricing & quality issues (value for money)

4. Changes to modes of consumption

5. Shortage of natural resources

Can give rise to risks e.g:

1. Lengthy, complex chains difficult and costly to manage

2. Reputational risks arise from failure to manage supply chain

3. Lack of information or understanding of supplier capabilities, customer needs can inhibit innovation

4. Rising costs of raw materials may be inevitable

Opportunities – push factors

• Collaboration with stakeholders can integrate sustainable practice in the value chain and strengthen reputation in the eyes of suppliers and customers

• Collaboration & consultation with suppliers and customers can optimise quality and reduce costs, leading to development

of innovative services or products

• Certification of products and services as sustainable provides entry to new markets and increased market share

• Collaboration & consultation with upstream and downstream stakeholders in the value chain can ‘close the loop’ and reduce costs

Due to globalization, materials may be

produced in one region, used in another,

and managed as waste in a

third. The fastest growing waste stream

in the world is e-waste (i.e., obsolete

electrical and electronic products),

estimated at 20-50 million tonnes per

year .

http://www.unep.org/geo/pdfs/geo5/GEO

5_for_Business.pdf

2013 Report

So where are the opportunities?

• Leave the Freeloaders, Stealthy Saboteurs and Bunker Wombats to experience increasing isolation.

• The real opportunities begin with the Compliance Phase when it is likely that a corporation will become aware of the potentially adverse impact of failing to manage supply chains appropriately.

Let’s look more closely at the last three phases: efficiency, strategic proactivity and the sustaining corporation.

4. EFFICIENCY PHASE:

The Industrious Stewards

• Objective: Progressively eliminate waste and increase process and materials efficiencies. • Key business opportunity: Increase efficiencies by waste reduction and reorganisation.

Increased emphasis on reporting. • Typical actions:

– reduce resource use (energy, water, materials) – design/redesign buildings/plant to dramatically reduce ‘footprint’, create adaptable

spaces – move to front-of-pipe solutions to eliminate waste or return it to the production cycle

as a resource (e.g. biomimicry). – recycle/remanufacture (life cycle stewardship; cleaner production) – dematerialise –service provision rather than material production – redesign products: sustainably produced and environmentally friendly – meet international Global Reporting Initiative (GRI) guidelines.

• Potential business benefits: – cost reduction; savings – increased employee productivity – increased employee involvement/engagement – better teamwork and lateral communication.

“DO MORE WITH LESS”

5. STRATEGIC PROACTIVITY PHASE:

The Proactive Strategists • Objective: Pursue the strategic opportunities in sustainability. • Key business opportunity: Become market leader through pursuing the strategic potential of

sustainability. • Typical actions:

– commit strongly to sustainability – re-brand and build wider stakeholder support – be early in on new product/service demand curves – creatively destroy existing product designs, manufacturing models and re-invent the firm,

leapfrog competition by early breakthroughs – increase employee and stakeholder engagement to source innovative ideas – shift the prevailing business paradigm in environmental and social ideas – innovate with new models of stakeholder governance – concentrate on adding value and innovating, focus on certification self-reporting and/or

independent audit. • Potential business benefits:

– increased revenue and market share – stronger stakeholder support (reputation and commitment) – higher customer retention rates; faster attraction of new customers – established lead in developing new markets – employer of choice – attract and retain skilled managers and professionals – operate at high value-added end of market.

“LEAD IN VALUE-ADDING AND INNOVATION”

6.THE SUSTAINING CORPORATION PHASE:

The Transforming Futurists • Objective: Redefine the business environment in the interests of a more sustainable world and to

support the core strategies of the firm. • Key business opportunity: Create a constructive culture that continually renews the long-term

viability of the organisation. Focus on transparency, accountability, auditability upstream and downstream

• Typical actions: – participating in changing the ‘rules of the game’ to achieve sustainability – participate in public policy formation – reorganise the company’s supply chain to ensure that the whole production process is

sustainable – build human and relational capital – support dematerialisation and the growth of the knowledge-based economy – model best practice; support/publicise best practice elsewhere – participate in international agreements – seek external auditing of sustainability – influence capital markets to support long-term value-adding – build a constructive culture that encourages openness, debate, innovation and participation

• Potential business benefits: – global leadership of the sustainability movement – enhanced reputation and stakeholder support and involvement – increased share value – attraction/retention of talented, highly motivated employees.

“TRANSFORM OURSELVES: LEAD IN CREATING A SUSTAINABLE WORLD”

Perceived best practice model

Perceived best practice model

Good practice adaptive management

Three examples of attempts to establish sustainable supply chains in

highly complex circumstances

First, an Australian example:

Steel Stewardship Forum

Steel Supply Chain Stewardship:

Steel Stewardship Forum http://steelstewardship.com/

22

History

• 2007 APEC Ministers Responsible for Mining

• 2008 SSF ESTABLISHED

• 2010 SSF memorandum of understanding with the Australian Steel Institute.

• 2011 SSF has 13 members across the stewardship chain ±60 stakeholders

• 2012 SSF completes first two major projects

• 2013 Commence Phase 2 of Responsible Steel

Membership

24

2011-2012

25

• Two major projects commenced in parallel in July 2011 as

part of the pre-feasibility study.

• The Steel Chain Footprint

– A high level input/output mapping of the Australian steel chain to identify ‘areas of interest’ and direct attention towards improvement solutions. Mapping key materials and emissions

• Responsible Steel- Phase 1

– Aimed at developing a clear measurable sustainability certification process based on LCA principles and good science, and embracing the whole steel chain

• Both projects were completed on time in May 2012

Major Projects

Steel Chain Footprint

27

Responsible Steel – Phase 1

Second, the world’s largest retailer:

History

• Committed to improving its environmental track record in 2005 after environmental and social concerns began to erode its reputation

• Environmentalists cited its stores as sources of air and water pollution

• Labour unions blasted the company for offering employees low wages and poor health care benefits

• Walmart stores stocked with thousands of low cost products imported from developing countries with low-wage workers and often poor environmental regulations

Responses 2005 to 2013

• Increased energy efficiency of US trucking fleet and many buildings in USA, Canada and China

• Required suppliers to reduce packaging

• Stocked low carbon products such as compact fluoro light globes and organic merchandise

May 2013: Announces it will require its (100,000) suppliers to evaluate and disclose full environmental costs of products Plans to combine data on water use, greenhouse gas emissions, solid waste production, and worker ethics into a database shared worldwide, which can be used to form the first index of a product's lifecycle impact Envisions lifecycle assessments will provide data for product labels (e.g. printed data on pesticide use, distance travelled). Electronic scanning reveals product history.

Reactions

"Consumers will be choosing from good, better, and best. That's when sustainability becomes just as much a part of the product line as safety is now." (Michelle Harvey, Environmental Defense Fund consultant advising Walmart on the index.

A sustainability label … “may overwhelm consumers with information” "Half of the [community members] around me are at or near the poverty level. All the labelling in the world won't make a whole lot of difference even for the good working people in my community who care about environmental issues," (Michael Maniates, environmental science professor at Allegheny College in Meadville, Pennsylvania)

From Sweden:

Max’s Hamburgers

Max’s Hamburgers is a family owned chain with 75

restaurants, 3000 employees. It is a major

sustainability award winner and has quintupled its

profits since 2003.

Sustainability Principles 1-4

The Natural Step

In a sustainable society, nature is not subject to systematically increasing:

How Max is changing their business to meet this principle.

Concentrations of substances extracted from the earth’s crust,

• All restaurants are powered by 100% wind energy. • Toys requiring batteries have been removed from kids’ meals. • All company vehicles are low carbon.

Concentrations of substances produced by society,

• No GMOs are used in Max products. • All used fry oil is converted into biodiesel. • High recycling rates (e.g. cardboard, food wastes, metal,

electronic equipment, etc.)

Degradation by physical means,

• All fish procured from well managed ecosystems (MSC-certified). • Most paper products are FSC-certified. • Reforestation through Plan Vivo certified projects in Africa.

And, in that society, people are not subject to conditions that systematically undermine their capacity to meet their needs.

• No use of transfats. • Product lines have been remade into the healthiest of the

industry (by 2005). • More than half of the restaurants have at least one staff member

with a mental disability. • Max leadership program includes sections on sustainable

leadership that are based on the FIRO theory. • Max has partnered with TNS’ Real Change program to research

social sustainability.

The key to Building Sustainable Supply Chains in

two propositions:

Treat the supply chain as one integrated system

Within that supply chain integrate as many of the features of the Sustaining Corporation as are feasible