Starting at the source

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Starting at the source

Since the beginning, we have always talked about the environment being greener, but we neglected the social sides of matters, at least on the research side. Of course, there were people in ethics conducting research, but we were not confronting this topic sufficiently in the supply chain. Constantin Blome, Professor of Operations Management and Associate Dean for Research, University of Sussex Business School, takes his research path to criticize just like a mirror to pinpoint what the whole discipline probably has done and what should be considered for the future in research to do even a better job that helps people on the ground.

Constantin Blome

Just like there are many waves in the ocean, in the academic citation data too, we can already see that in the last year, the citation rate for sustainable supply chain research is far lower than what you would expect for Covid related research. While that's completely natural, we should not forget that there are so many topics and many questions unanswered for each of these waves, be it operations excellence, supplier management, or quality management. Of course, as research professionals, we have to jump on the new waves to address because there are societal needs, but I think, at the same time, we should not forget that we also address topics that are still out there in the more classical domains.

If you look at the supply chain, we typically have three challenges in this sustainable supply chain field… first, let's take the example of Nestle to understand what's happening in their upstream supply chain. Around 278,000 people are working in the upstream supply chain, but more than 25 million people are impacted through their upstream supply chain. If we calculate GHG emissions and water consumption, we would be surprised to realize that the footprint is enormous. It makes sense for firms to concentrate on ensuring sustainable supply chains. If you optimize your sustainable footprint, that would be great. Still, the big lever and the big necessity lie in the upstream matters, which is a bit difficult because the supply chain cuts through multiple institutional contexts. We did the sustainable procurement training for Nestle on a global roll-out happening from Switzerland for different categories. We aimed to help these firms during this journey because they had a question. We could help them understand how to better conduct due diligence in the supply chain, a chain of custody for different areas of cocoa, coffee, fish, etc., which proved to be quite insightful.

When it's the slaves that pay

Academically speaking, the most severe environmental and social breaches happened in the upstream supply chain. Lead firms have inadequate information about their lower tier suppliers and have limited control, and very often, it's the sub-suppliers that are not visible for the focal firm; however that's all clear, but we very often think about sustainable supply chain management from the focal firm side, and my view is that this is not really helping too much because we need to understand that there will be potential extra benefits for the focal firm. But we neglected the triple bottom line, as I mentioned earlier of the local people. Also translating to the Indian context, you might think about tree plantation, the garment industry if you can pursue sustainable supply chain management, one side of the coin is to think about the focal firms and then how they benefit and implement, but even more important is, of course, if you talk about sustainability that this happens on the ground, at the source, at the local site.

In our earlier studies, we realized that companies perform supply chain due diligence only to create an impression on their consumers that they are ethical firms. However, we figured that the objective costs, in comparison to their turnover, are minimal that they must spend if you look at the focal firm.

To ascertain that the rules are followed across the chain, typically, these focal firms assume their first-tier suppliers to comply with those standards, and they ask that those suppliers, in turn, seek compliance from their suppliers, and the cycle continues till the last supplier. The intent is to develop a seamless network of sustainable practices flowing smoothly throughout the supply chain. While it might sound like a great plan, it's often hard to implement.

To ensure that the best practices percolate down the value chain, lead firms need to empower their first-tier suppliers with hands-on training and even offer some incentives for adhering to sustainability practices. Such training has had a positive impact on the suppliers' operational processes. Focal firms need to understand that lower-tier suppliers are the least equipped to fulfill sustainability requirements due to no expertise and lack of resources. Additionally, these suppliers are in countries with non-existent or highly relaxed regulations. In the end, no matter what you do, they might not entirely change the supply chain as you expect.

The focal firms in the western world ask for sustainability certificates, but unfortunately, they always say that they cannot pay for it because the price is fixed through markets in competition, and in the end, they expect every member of the supply chain to pay for their due diligence costs. They cannot really charge higher prices, and then you can already make the mathematics up for yourself. In the end, this means the focal firm who benefits the most from sustainability standards because their consumers like their image and can protect against further issues and credit value. The local firms, which are not visible to their consumer, will not get more business. Supply development is one way to improve the local situation, and it must be the local government to bring the change.

As compared to other countries, legal regulations surrounding sustainability are quite different in India. These standards are not easy to adapt to and manage actively across the absolute supply chain. In the Western world, they lay a lot of emphasis on focal firms as responsible NGOs rightfully attacked the most powerful players in the supply chain. For instance, Zara was even held responsible for independent suppliers' failure in falling worker standards in Brazil. One more classic example of the Greenpeace campaign on KitKat demonstrated the impact that society can bring in enhancing sustainable paradigms of companies globally.

Blockchain & sustainable supply chain

Consumers increasingly today are demanding brands to be accountable for product integrity and process integrity, involving their third parties as well. Such circumstances demand focal firms to understand and manage the performance of their partners. With increased globalization, companies often do not know their tier III or IV suppliers, owing to limited visibility beyond the first tier. Many a times, due to a highly unorganized long tail of suppliers & distributors, producers don’t know who consumes or manages the materials they supply. In short, information flow and visibility between focal firm and their indirect suppliers in supply chains has traditionally been very low. In such scenarios, it becomes prudent to identify product or material sourcing and process activities that may include some unethical illegal practices, including human rights abuses, environmental damage, or fraud, which may lead to a great brand image damage later.

Traditionally, such lead firms have been deploying a a time-consuming process with no factual data to track suppliers’ performance. With the advent of latest technological advancements, blockchain technology is proving to be highly effective in addressing these challenges. What does it do? This technology facilitates all suppliers in a brand's supply chain to record information about their activities in a single, chronological, and unchangeable record.

Blockchain-enabled systems encourage sustainable production. Companies can utilize trusted and accessible data on environmental and social hotspots in the supply chain provided by blockchain-enabled systems. Companies can specifically support supply chain firms asking suppliers to reduce impact, and criteria such as carbon footprints can become procurement conditions—incentivizing greener practices. If these new age technological practices are deployed to their full potential, they can truly become the savior in ensuring sustainable paradigms and ultimately aid companies in becoming Green Crusaders.

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