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