Best Practices in Sustainable Supply Chain Management

2.3. Recommendation: Supplier/customer integration

As Fine, C. Clockspeed advocates there is a definitive link between product characteristics and supply chain structure, as channel structure plays an important role in product success. Selecting the right supplier and forming the right type of relationships is important in building an effective supply network. Improper channel design can increase costs and create adversarial supply chain relationships as innovative products are best delivered through responsive supply chains while functional products are better served through efficient supply chains.

A critical challenge to sustainable supply chains is to select suppliers that follow the same guiding principles with respect to sustainability as the company, and to extend this up the supply chain to not only the direct suppliers but the entire supply chain. Critical sustainability NPD questions to address include:

• Which components should be made or bought?
• Which suppliers should be used for those products that are to be purchased?
• How should product design related issues be coordinated?
• What information technology infrastructure is needed to support supply chain operations?
• What enterprise production and inventory decisions best support optimal operation of the supply chain?
• What transportation strategies should be used to support the supply chain?
• What is the best way to coordinate demand planning and forecasting among all suppliers?

Sustainable supply chains are designed differently from conventional supply chains as an important change lies in searching and selecting the right partners for the supply chain. Selection takes place over time and may include co-evolving, collaboration, and joint product and process development. Co-evolving evolves by improved relationships amongst members. An example is a pork producer forming a partnership with an environmental engineering bureau with similar view on farming. With respect to co-evolving, joint growth in knowledge and partner development on environmental and social issues may assist toward a sustainable supply chain. Jointly implementing a code of conduct would improve the social aspect of SSCM. Collaboration with suppliers and customers is linked to the adoption of pollution prevention and innovative environmental technologies. Sustainable products require internal and external interaction and collaboration in NPD. Collaboration and joint development includes NPD and process development. Contract-based alliances raise organizational challenges for trust and data management sharing, interoperability, and communication. Joint product and process development includes holding regular meetings for enhanced communication, activities that focus on communication and trust-building toward better relationships, and a focus on improving joint decision-making. Process alignment and management is easier in collaborative arrangements like Joint Ventures. The more partners trust each other, the higher the quality and intensiveness of information exchange.

Buyer-supplier relationships continue to be critical to incorporating sustainability in NPD. Suppliers should be selected based on their technical superiority and cooperativeness so that a close relationship with critical suppliers can be formed. Successful implementation of new and more sustainable product designs depend upon suppliers' willingness to cooperate in sustainability improvements and to implement changes; however, many suppliers have little to no interest in sustainability particularly the further partners are from the end customer. Joint sustainability initiatives emphasize supplier/buyer relationships in NPD/SSCM lead by top management and linked to metrics. Shared values, goals, and understanding are important to the formation of a successful supply chain relationship. An often cited best practice in SSCM is the development of closer relationship with suppliers; however, building close relationships can be difficult. Trust and reliability make the relationship between the partners less exposed to opportunism risks and successful NPD includes process alignment with development partners. Practitioners should pay attention to monetary and non-monetary costs of implementing integration practices in NPD that may outweigh the benefits. Specifically, a moderate level of cross-functional integration, and either a low or extensive level of customer integration (not moderate) in NPD is recommended.

The purchasing manager's role and abilities to recognize environmental issues connected to suppliers is also important in NPD. The coordination between environmental, Research & Development (R&D) and purchasing departments has a significant influence on product improvement activities, particularly with respect to the environmental supply chain, and is an important feature of environmental supply chain cooperation. Cooperation with suppliers brings positive effects on supply chain management initiatives as the closer relations to suppliers concerning product-related activities are connected to higher tendencies for cooperation on environmental issues.

The supply chain network structure concerns the way supply chain members interact with one another including their long-term relationships, and selection and development of partners. Development of partners may include assistance and teaching of new methods and financial support even in developed countries. Selection may be by abilities and willingness to engage in sustainable practices. Issues surrounding political strength in supplier/customer relationships still exist. Research is still needed to address which company oversees and decides upon final processes, suitability of similar and different sustainability practices between supplier and customers, and differences in sustainability visions between corporations.

Information and product data flow across companies is important to successfully establish a joint product development with suppliers toward sustainable products. Extensive data collaboration with suppliers provides a chance to increase supply chain wide master data, which facilitates cross-functional work.

Environmental innovation and supplier involvement in the buying organization's processes is related to improved environmental performance. Environmental performance as measured by waste recycling, greenhouse gas reduction, and environmental innovation is positively related to supply chain strength. As demonstrated by Nestle, improved buyer-supplier relationships may lead to better environmental performance. As supply chain strength increases, the network becomes richer, proactive environmental management becomes a competitive advantage and a differentiation factor. Therefore, the adoption of standards (such as ISO14000) and corporate environmental behavior are positively affected by the quality and quantity of supply chain relationships. Building close bonds to a supplier and investing in the supplier's environmental awareness is the most important prerequisite for subsequent environmental work.

In any supply chain, supplier-buyer metrics need to be jointly delineated, monitored, and managed. Reflective control compares and evaluates the functionality to the needs of the supply chain, through financial metrics, key performance indicators, transparency, and information sharing. An example of reflective control is Qualitative Partner Control and Auditing, whereby certification by a third party, auditing and analysis occur through written scorecards used to evaluate suppliers. An environmental audit of a supplier is a good method to monitor supplier compliance with the requirements; however, audits are not commonly performed. Similarly, corporations need to institute activities that ensure that their suppliers use environmentally sensitive procedures, such as ISO-14000, or participate in an industry's voluntary code of conduct. ISO-14000 represents proof of environmental performance, the supplier's environmental ambitions, advancement of supply chain practices of the customer, and the ambitions of certification bodies. The value of ISO-14000 is a combination of the supplier's own environmental ambitions, advancement of environmental supply chain practices of the customer company, and the ambitions of the certification bodies. IKEA, Sony, Ericsson, and Volvo established detailed environmental and sustainability qualification schemes for their suppliers. In general, another best practice is to use environmental requirements to select new suppliers and continuously evaluate existing suppliers for sustainable practices. However, when reviewing suppliers located in different countries, the decision-maker should consider the level of environmental legislation enforcement. If the enforcement is weak, a requirement from a customer to demonstrate legislative compliance may carry different meanings, and therefore, requires different attention as compared to countries with advanced legal control and sanction systems.

Green purchasing is considered to have the most significant impact upon sustainability as roughly 60% of the cost of a product can be attributed to purchased materials. Research in green NPD dominates (e.g.) as suppliers play a significant role in green innovations. Within green purchasing research, specific issues addressed include cooperation and communication between supply chain members to achieve a proactive sustainability approach, risk management to identify environmental and social problems prior to public exposure, and analysis of the total life cycle of the product.

Life cycle analysis (LCA) addresses the environmental impact of every supply chain stage (from raw material extraction, through material processing, manufacture, distribution, use, repair, maintenance, to disposal or recycling), and in particular, focuses on supply chain partnerships. LCA is a comprehensive approach to evaluate environmental impacts of products and it is one of the most commonly discussed pro-active methods used. LCA emphasizes the physical substance flow and chemical changes, such as ozone depletion, smog formation, and acidification as it focuses on human health, ecosystem quality, and resource use. Chemical and toxic substances negatively influence a company's LCA, and therefore, reducing chemical and toxic substance use is of interest to company's pursuing sustainable products. Current research indicates a gap and need for a more holistic, relational research in this area. ISO-14000 provides principles, frameworks, requirements, and guidelines for LCA. LCA seeks to minimize the negative effects on the environment by looking at all phases of a product's life-cycle and taking action where it is most effective. LCA requires expertise, and assumes detailed information on products, parts, use, and production is available for all product life cycle phases. Therefore, LCA's effectiveness is limited in early product design and provides limited guidance to immature NPD organizations due to methodological problems, lack of knowledge, and data. Other problems with using LCA include weighting the various impacts against each other and the limited suitability for radical new products.

Evaluating supply chain partner's social sustainability can be difficult as many proposed indicators are dependent upon the economic resources available to a family (poverty, nutritional status, healthcare, life expectancy, and living conditions). In the US, corporations may be evaluated on the average wages versus the cost of living in the region, wage equity, gender and minority wage equity, healthcare benefits, philanthropic activities, educational initiatives, and workforce job safety. Potential indicators for social sustainability include: labor equity (distribution of employee compensation within an organization measured through average hourly labor costs to the total compensation package for the highest paid employee), healthcare (corporations role in providing and supporting healthcare of its employees and their families measured through healthcare expenses per employee versus market capitalization per employee), safety (of the workplace for its workers possibly measured as the ratio of average days not injured to the total days worked), and philanthropy (corporations play important financial roles within a community potentially measured through the ratio of charitable contributions to market capitalization). Another possibility is to consider the United Nations Division for Sustainable Development (UNDSD) measures, which promotes meeting basic needs through poverty reductions, human health improvements, and ecosystem protection as well as higher level needs such as education and gender equity. The UNDSD framework classified indicators first by primary dimensions (social, environmental, and economic), then by theme (e.g., education benefits, health benefits), and then by subtheme (literacy). For social sustainability, the categories include equity, health, education, housing, security, and population; however, many indicators may be difficult to incorporate into decision-making. Another method to ensure decent working conditions for the supplier employees is to providing training and expert knowledge. Doing so encourages environmental awareness and prepares the supplier for more advanced work.