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Most Firms Focused on Improving Supply Chain PR and Risk, not Environmental Impact, Report Says

Most companies’ efforts to improve their supply chain sustainability is focused on managing risk and public relations, not on actual improvements to the environment or worker safety, according to a new study (pdf).

The study by researchers from the U.K.’s Warwick Business School and University of Bath School of Management reviewed 25 years’ worth of academic and industry research. It found that instead of instituting preventative policies, companies use expensive and ineffective actions against suppliers after disruptions have already occurred.

“Many companies today talk about developing ‘sustainable’ supply chains, but they’re actually talking about managing risk and preventing public relations crises,” said Stephen Brammer, PhD, a professor at the Warwick Business School and the report’s lead author. The result of their after-the-fact approach, he said, is that, “In the end, nobody wins.”

Recent examples of companies that have failed to manage such issues include Mattel and Apple, the report said. “Apple faced renewed criticism in 2011 for both possible environmental indiscretions and a lack of transparency in its supply chain. Apple had previously admitted that in 2008 half of its suppliers’ factories for key products including iPhones and iPads weren’t paying valid overtime, one quarter weren’t paying workers minimum wage, and one quarter failed to meet environmental standards.”

A few years earlier, in 2007, Mattel was forced to recall $100 million worth of product when one supplier used lead-contaminated paint on the company’s toys, the researchers said. The recall involved the removal of over 18 million toys.

Brammer found that the best companies in this field think about their supply chains as opportunities for competitive advantage, and collaborate with suppliers to monitor progress and help them improve.

“If supplier employees are experiencing high levels of injury, your company should send staff to do on-site training. If some suppliers are less productive than others, don’t just drop them. Hold supplier conferences where the laggards can learn from the leaders and everyone can share best practices,” Brammer said.

The study advocates a baseline of minimum supply chain practices that all companies should embrace, based on four actions: establishing a code of conduct, obtaining third-party certification, selecting suppliers and monitoring suppliers.

But this model has shortcomings. Depending on their relationships and resources, companies may be able to move to the next stage of supply chain practice by incorporating consultation, development and learning (see chart).

The researchers found that companies including Coca-Cola, Ikea, Unilever, Nestlé India and Mountain Equipment Co-Op all show evidence of taking such steps to improve their supply chain practices.

The research was funded in part by the Purchasing Management Association of Canada, Industry Canada, Suncor Energy and the Network for Business Sustainability, a non-profit based at the University of Western Ontario’s Richard Ivey School of Business.

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2 thoughts on “Most Firms Focused on Improving Supply Chain PR and Risk, not Environmental Impact, Report Says

  1. This is partly because so much manufacturing is not handled internally anymore so they have a hard time policing their own sustainable practices because when you look at the bulk of large corporations they handle this outside the US where regulations and rules are much more hands off.

    ISO and other international standards need to be enforced more on a global level to even the playing field. While companies complain about the cost of doing business in the US vs other locations if you are doing things the right way we should have a set of rules that everyone should work with for the good of humanity. In the long run cutting corners at one end just increases costs somewhere else as a result. Nothing operates in a alone.

  2. I have been reviewing the above report with great interest this past week. Overall its a great report, chock full of timely and detailed data. I recommend it to all supply chain and sustainability practitioners.

    And while I agree with most conclusions, where I differ is in the idea that “risk management” is not a necessarily good thing when it comes to sustainability in the supply chain. In fact it may be a starting point that gets companies going down the right path that Dr. Brammer and his colleagues advocate. In my experience, many larger, deep pocketed enterprises are often left “holding the (financial) bag” for misguided or misdirected contractor and supplier environmental or social impacts. That is simply inequitable and does not allow for accountability to be placed in the right places. Leveraging risk (through contract provisions or specs) to the appropriate buckets may often be the first “driver” that motivates suppliers to change behavior towards sustainability (because they feel it in the pocket). This in turn may drive sustainable innovation- all the better from my point of view. It’s not always the best course of action to take, but an important ones that I have seen play out time and again in the business marketplace.

    In the end all willing stakeholders usually come out winners and those who refuse to play…well, that’s business.

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