Chapter 17: Sustainability and the Supply Chain

Sustainable Development

Development that meets the needs of the present without compromising the ability of future generations to meet their own needs.

Pricing of Sustainability

Firms are structured naturally to account for all factors that they have to pay for. It is important to incorporate suitable prices for the social and environmental impacts of different actions

One of the biggest opportunities to improve sustainability

For firms to design products that can be reused and recycled.

Pricing

Intelligent use of differential pricing can improve the utilization of assets, leading to resource reduction. Consumption visibility and differential pricing by load or time of the day have the potential to make a significant difference in the usage of energy by consumers.

Advantage of Relative Measure

Is more effective at capturing improvement.

Disadvantage of Relative Measure

Is the choice of basic unit because each category can be measured relative to dollars of sale, kilograms of output, or a variety of other units.

Advantage of Absolute Measure

It reports the full impact of the SC along with category being measure.

Environmental pillar

Measures affirms impact on the environment, including air, land, water, and ecosystems.

Environmental Leadership

Measures the actions that suppliers are taking to "manage waste, protect water quality, conserve water and energy, preserve biodiversity, and reduce agrochemical use."

Information

One of the biggest challenges to improved SC sustainability. The absence of standards for measurement and reporting has led to claims of improvements that are often not verifiable

The most concrete action out of the factors driving an increase on focus on sustainability; Much less?

Reducing risk and improving the financial performance of the SC; Customer demand or the desire to make the world more sustainable

Relative Measure

Reports the energy consumer per unit of output.

Absolute Measure

Reports the total amount of energy consumption

Scope over which category is measured

Scope1: GHG emissions Scope2: Indirect emissions from grid-sourced electricity Scope3: Other indirect emissions

carbon tax

Tax rate set directly by the regulatory authority Fixes the price of emission, but the quantity of emissions is decided by the emitters

Facilities

Tend to be significant consumers of energy and water and emitters of waste and greenhouse gases and thus offer significant opportunities for profitable improvement. Start with those that generate positive cash flows.

Command-and-control approach

The government or regulators set standards that everybody must adhere to. The problem is that they tend to be inflexible and rarely cost effective.

Sourcing

The majority of energy and water use and waste and emissions occurs in the extended SC outside their own enterprise.

SC goal for Inventory

To track landfill inventory and separate harmful additives and unused value.

Mutual Coercion

Whereby social arrangements or mechanisms coerce all participants to behave in a way that helps the common good. Can be attempted through a command-and-control approach or market mechanisms.

Cap and trade

a method for managing pollution in which a limit is placed on emissions and businesses or countries can buy and sell emissions allowances

Closed-loop supply chain

a supply chain designed to optimize both forward and reverse flows

emission tax

a tax that depends on the amount of pollution a firm produces

emission reduction

activities reduce hazardous air emissions, waste, water discharges, or the environmental impact of the company in the community.

workforce related factors (social pillar)

employment quality, health and safety, training and development, and diversity and opportunity

social issues (social pillar)

human rights and the impact on local communities

cap and trade system

market-based pollution control system in which the government sets an overall limit on how much of a pollutant is acceptable and issues vouchers to pollute to each company, which companies are then free to trade

Social Pillar

measures a firm's ability to address issues that are important for its workforce, customers, and society.

product innovation

reflects company's ability to reduce the environmental cost and burden for its customers through the development of eco-efficient products or services

Social Responsibility

the obligation of a business to contribute to society

resource reduction

-refers to using less of a resource -activities result in a more efficient use of natural resources in the SC

Firms activities that improve the environmental pillar

-resource reduction -emission reduction -product innovation

extent of recycling and remanufacturing depends on:

-the incentive to recycle/remanufacture -the cost to recycle/remanufacture

The "Three Pillars" of Sustainable Development

1. Economic 2. Environmental 3. Social Sustainability All must be reconciled for sustainability to occur.

Four key metrics for sustainability

1. Energy Consumption 2. Water Consumption 3. Greenhouse Gas Emissions 4. Waste Generation

Factors Driving an Increased Focus on Sustainability:

1. Reducing Risk and Improving the Financial Performance of the SC 2. Attracting Customers who value sustainability 3. Making the world more sustainable

Guide and Van Wassenhove Three Scenarios:

1. Return due to defect: problem with product 2. End of use: replaced by upgrade 3. End of life: replaced when obsolete or provides no utility for the user.

Two challenges that exist in a SC in the measurement and reporting of the social and environmental pillars:

1. The scope over which a category is measured 2. Use of absolute or relative measures of performance

approaches used to price emissions

1. carbon tax 2. cap-and-trade system By charging for emissions, both methods encourage firms to reduce emissions per unit of output

Tragedy of the Commons

A dilemma arising when the common good does not align perfectly with the good of individual entities.

Disadvantage of Absolute Measure

A drop in SC sales and production will show an improved absolute measure of energy consumption even though the company may not have changed anything.

greenwashing

A practice in which companies promote their products as environmentally friendly when in truth the brand provides little ecological benefit.

customer related factors (social pillar)

Accurate product information and labeling, along with the impact of the product on the customers health and safety

Transportation

Another driver wherein firms are likely to find several positive cash flow opportunities. product design can reduce transportation costs and emissions by reducing packaging and allowing a greater density during transportation

One of the biggest challenges to improve sustainability of the supply chain

Changing the customer's willingness to pay for a product that is produced and distributed by sc in a more sustainable manner but ends up costing more