The Potential of Sustainable Supply Chain Management for Corporate Competitiveness

Bachelor Thesis 2016 39 Pages

Business economics - Business Management, Corporate Governance


Table of Content

1 Introduction

2 Theoretical Background
2.1 SSCM Definition
2.2 Concept of Competitiveness

3 Impact of SSCM Practices on Competitiveness ± Theoretical Perspective
3.1 Triggers and Relevance of SSCM
3.2 Overview of SSCM Practices
3.2.1 Internal Practices
3.2.2 Practices along the Supply Chain
3.3 Influence of SSCM Practices on Sources of Competitiveness
3.3.1 Cost Savings
3.3.2 Image and Customer Loyalty
3.3.3 Human Resources and Innovation
3.3.4 Covering multiple Sources of Competitiveness
3.4 Factors that influence the Potential of SSCM Practices
3.4.1 Focal Firm Factors
3.4.2 External Factors

4 Impact of SSCM Practices on Competitiveness ± Practical Perspective
4.1 Nike
4.2 Scandic Hotels

5 Discussion

6 Conclusion and Outlook



Sustainable supply chain management (SSCM) is a growing field of research as well as already implemented by several firms. In order to help a firm determine if SSCM should be considered as something to implement the question shall be answered if and in which magnitude SSCM holds potential for a firm¶s competitiveness. Competitiveness is deter- mined by the chosen sources of cost savings, image and customer loyalty as well as hu- man resources and innovation. Through a review of literature existing influences of SSCM practices on competitiveness have been collected and other factors to consider determined. Two practical examples are also given. Two main findings have been made: Mainly positive influences of SSCM practices on defined sources of competitiveness could be found; hence potential of SSCM for corporate competitiveness exists. Taken into consideration the aforementioned factors 66&0¶V potential for corporate competitiveness is high, if SSCM itself is successfully implemented, if the firm acts as first mover and if it acts now.

1 Introduction

In nowadays society it is becoming increasingly difficult for firms to set themselves apart from their competitors - with continuing globalization firms all over the world have ac- cess to the same resources and technology becomes increasingly advanced leaving few possibilities to be innovative (Markley, & Davis, 2007). Another development in our so- ciety is the increased talk about sustainability, it has become a widely used word by dif- ferent groups. Governments are releasing laws to foster sustainability, different organiza- tions are fighting for more sustainability in our world and firms are increasingly making it a part of their business (Carter, & Liane Easton, 2011). Especially sustainable supply chain management (SSCM) has received increasing attention both in research as well as by corporations (Seuring, & Müller, 2008). Combining these developments the question arises if there is a connection between SSCM and corporate competitiveness. The purpose of this work therefore shall contribute to this sector of research by answering the question: How great is the potential of SSCM to impact a ILUP¶V competitiveness? In other words, can it be considered as something a firm can implement to influence their competitiveness and if so in which way and strength? To assess this, first a theoretical background will be given on SSCM as well as a definition for the underlying concept of competitiveness for this thesis in chapter 2. In chapter 3 an overview of practices that can be accounted to SSCM will be outlined and complemented by research findings that cover the influence of SSCM practices on corporate competitiveness. Factors that are also of relevance to ultimately determine the potential of SSCM shall be included as well. To this theoretical perspective the examination of two practical examples shall be added in chapter 4 in order to be able to discuss the PDJQLWXGH RI 66&0¶V SRWHQWLDO WR LPSDFW FRUSRUDWH FRPSHWLWLYH ness in chapter 5. Finally, concluding remarks, the final answer to the initial question as well as an outlook for the future development will be given in chapter 6.

2 Theoretical Background

2.1 SSCM Definition

Wittstruck and Teuteberg (2012) state that SSCM builds on the adoption of supply chain management (SCM) concepts or rather extends these concepts. SCM has been defined as [...] the systemic, strategic coordination of the traditional business functions and the tactics across these business functions within a particular company and across businesses within the supply chain, for the purposes of improving the long-term performance of the individual companies and the supply chain as a whole (Mentzer, DeWitt, Keebler, Min, Nix, Smith, & Zacharia, 2001, p. 18).

To cover the term sustainability the often cited report by the World Commission on En- vironment and Development (1987) is considered, sustainable development is seen as a process by which the need of present generations can be satisfied while the capability of future generations to meet their needs is not compromised. One central concept to sus- tainability is the triple bottom line consisting of the social, economic as well as environ- mental dimension (Elkington, 2004). Before an overall definition of SSCM is given it VKDOO EH QRWHG WKDW 66&0¶V SRWHQWLDO VKDOO EH HYDOXDWHG IRU the focal company (Handfield, & Nichols, 1999). The focal company can be described as the firm ruling or governing the supply chain, establishing direct contact to the consumer and being responsible for the design of product or service according to Handfield and Nichols. To give an overall definition of SSCM the definition formulated by Carter and Rogers (2008, p. 368) was chosen; they define SSCM as ³the strategic, transparent integration and achievement of DQ RUJDQL]DWLRQ¶V VRFLDO HQYLronmental, and economic goals in the systemic coordination of key interorganizational business processes for improving the long-term economic per- formance of the individual company and its supply chains ´

To fully understand this definition, it should be noted that the authors did a review of sustainability literature and include risk management, transparency, strategy and culture as supporting facets of sustainability. Risk management refers to the ability of a firm to comprehend and be able to deal with economic, environmental and social risk (ibid.). Carter and Liane Easton (2011) summarize transparency as proactively engaging and FRPPXQLFDWLQJ ZLWK D ILUP¶V VWDNHKROGHUV DV ZHOO DV KDYLQJ traceability and visibility throughout the supply chain, upstream and downstream. Strategy points out that the sustainability initiatives of a firm and corporate strategy must be closely intertwined (Carter, & Rogers 2008). Culture calls for a deeply ingrained organizational culture, which embodies high ethical standards combined with respect for society and the natural environment (Carter, & Liane Easton 2011). At this point it shall be acknowledged that the given definition here can be seen as the ideal, ultimate form of SSCM.

2.2 Concept of Competitiveness

According to Ajitabh and Momaya (2004) a multitude of different models and theories defining competitiveness exist. Generally speaking competitiveness can be described as the capability to outlast ones competitors at the market (Murtha, & Lenway, 1994). Ajit- abh and Momaya (2004) state competitiveness as a multidimensional concept that can be used at country, industry and firm level. This paper will solely look at the firm level and especially focus on sources of competitiveness. Ajitabh and Momaya (2004) declare sources as assets and processes within an organization that give competitive advantage, which can be tangibles or intangibles.

To give further detail which sources of competitiveness will be looked at in this paper it has to be taken into account first that Ajitabh and Momaya (2004) have noted in their literature review that there is not one model solely used by practitioners, but that a certain flexibility exists. Hence, a set specific for this paper has been chosen. Firstly the catego- rization by Ajitabh and Momaya (2004) has been of influence which groups sources in Assets, Performance and Processes. Examples for Assets are Reputation, Human Re- sources and Technology. Performance includes amongst others the connotations Cus- tomer Satisfaction, Productivity, Price, Cost and Profitability, whereas Processes ranges over Innovations, Quality, Flexibility, Adaptability and Manufacturing, to name an over- view. Secondly, the authors Vilanova, Lozano and Arenas (2009) have been of influence proposing five key dimensions for competitiveness; namely Performance, Quality, Productivity, Innovation and Image. Thirdly and lastly Rao and Holt (2005) impacted the selection by considering the following variables to investigate competitiveness in their study: improved efficiency, quality improvement, productivity improvement and cost savings.

The underlying concept of competitiveness for this paper consists of the following sources of competitiveness, categorized as follows:

In the first category all influences relating to cost savings shall be reported.

Secondly image and customer loyalty has been chosen following Bryan (2007) who points out the limitations of systems solely measuring tangible performance and stresses the importance of intangibles such as reputations.

Furthermore the coupling of human resources and innovation shall build one category, these aspects have been arranged in conjunction since innovation is seen as ultimately developed by people.

These sources shall not be described to detailed, in order to be able to include all kinds of found effects and influences.

3 Impact of SSCM Practices on Competitiveness ± Theoretical Perspective

3.1 Triggers and Relevance of SSCM

This section shall address the question which factors can be seen as triggers for the development of SSCM and why firms should consider it in the first place.

First of all environmental changes shall be recognized. There is strong evidence that we are moving from a world with abundant, cheap energy to a world of restricted and expen- sive energy (Hartmann, 2009). As Beamon (2008) notes, nowadays existing society is built majorly on fossil fuels, but supplies are not infinite. Firms therefore face challenges such as price fluctuations of traditional energy resources (Wu, & Pagell, 2011). Busi- nesses also have an important role in conserving resources since they transform natural capital into man-made capital by the means of production processes (Winkler, 2010).

Furthermore today's firms face pressures and incentives from different groups (Seuring, & Müller, 2008). Firstly firms have to comply with all modes of governmental control, ranging from regulations and legislation from local municipalities to national and multi- national governments (ibid.). Linton, Klassen and Jayaraman (2007) for example observe the development of the European Union as a very important proponent of sustainability. The authors point out that changes in policy force manufacturers to deal with restrictions, new requirements for their products or to address new issues such as take-back laws.

Secondly firms face increased transparency of their environmental and social actions (Carter, & Liane Easton, 2011). Stakeholders put increased pressures on firms to incorporate sustainability aspects (Reuter, Foerstl, Hartmann, & Blome, 2010). Consumers are making buying decisions at least partly based on perceived environmental stewardship of firms as well as corporate responsibility aspects (Beamon, 2008).

This increased awareness and transparency in combination with an increasingly global supply base with spend volumes shifting to emerging countries puts companies highly at risk of reputational damage as well (Reuter et al., 2010). Environmental misconduct or engagement in socially unacceptable practices is no longer seen solely as mishap at the supplier level, but will throw a bad light at the downstream firm as well (Seuring, & Müller, 2008).

Why should supply chains be considered to address this rising prominence of sustainability as well as to deal with aforementioned pressures? Supply chains overlook the product from the initial step of processing of raw materials all the way through the delivery to the customer (Linton et al., 2007). Furthermore as Gupta and Palsule-Desai (2011) note, the processes for designing, purchasing, producing and distributing products in global markets account for a major part of resources being consumed and have environmental impact, so therefore play a central role for sustainability. Carter and Liane Easton (2011) also point out that especially supply chain managers have an advantageous position to impact the environmental and social performance of their firms.

3.2 Overview of SSCM Practices

The following section shall give an overview of the variety of practices and activities that can be accounted to SSCM. This shall be done by subdividing possible measures into internal measures of the focal company and practices that can be assigned to the functional stages of a supply chain.

3.2.1 Internal Practices

To incorporate dedication to sustainability on a strategic level and in company values has to be practiced in order to fulfill the definition of SSCM (Beske, & Seuring, 2014). This can be implemented via additional decision steps relating to the triple bottom line when new strategies are evaluated (ibid.). Wittstruck and Teuteberg (2012) also suggest firms to communicate their SSCM activities externally such as by publishing sustainability reports. By doing so firms can communicate their sustainability goals and visions and find partners with similar guidelines faster.

In the governing position as the focal company, measures to encourage collaboration should be developed as well (Beske, & Seuring, 2014). Wittstruck and Teuteberg (2012) name information sharing as an important practice, they suggest the defining of common interfaces to exchange information or rather setting up a cross-company IT network. To enhance communication and collaboration the organization of interdepartmental and interorganizational meetings is suggested by Beske and Seuring (2014).

Beske and Seuring further point out risk management practices should be included as well, the most common practice is the adaptation of standards by the focal firm as well as the development of a Code of Conduct to ensure a unified sustainability strategy.

3.2.2 Practices along the Supply Chain

Possible practices of SSCM along the functional stages of the supply chain shall be given in this section. According to the definition SSCM practices lie at the intersection of the triple bottom line dimensions (Carter, & Rogers, 2008). However, during the review of literature it has been noted that at the current point of time few papers cover SSCM in its ideal form of considering economic, environmental and social issues simultaneously. This is supported by the literature review of Seuring and Müller (2008). The authors notice that 31 from 191 reviewed papers in the field of SSCM could be classified as sustainable, the majority of papers, 140 papers, focuses primarily on the environmental dimension (the economic dimension was assumed to be covered for all papers). Mitra and Datta (2014) name the difficulty to identify relevant social items as an explanation for this un- derrepresentation of social issues, they state social aspects are more individual as well as less clear and complex. As Carter and Liane Easton (2011) further notice the terms 'sus-tainability' and 'environment' have been used interchangeably at a point of the development of the concept of sustainability as well, but the understanding of the term as well as the triple bottom line approach is emerging as increasingly uniformly understood nowa- days. To not limit the overview of practices and their influences on competitiveness, prac- tices from the field of Green Supply Chain Management (GSCM), which addresses espe- cially the environmental dimension (Mitra, & Datta, 2014), have been included in this thesis from this point on, since environmental aspects have been a leading focus of re- search and can be seen as building blocks of SSCM.

Purchasing practices

As Carter, Kale and Grimm (2000) note purchasing holds a special position since it de- cides which materials and components enter a firm. A first practice therefore is the selec- tion of suppliers by environmentally friendly behavior or rather predefined criteria as well as monitoring of ongoing fulfillment of these criteria (Mitra, & Datta, 2014). Requiring suppliers to adopt standards is common; this can be seen as an approach for risk reduction as well (Beske, & Seuring, 2014). The minimum required performance by a focal firm can be represented through environmental management systems such as ISO 14001 and social approaches such as Social Accountability 8000 (Seuring, & Müller, 2008). To ed- ucate suppliers and help them in setting up environmentally friendly practices is also pos- sible (Mitra, & Datta, 2014). This mentoring role hence goes beyond evaluation and to- wards guiding and supporting suppliers such as through awareness seminars (Rao, & Holt, 2005). Urging suppliers to provide environmentally friendly materials is another purchasing practice (Mitra, & Datta, 2014).

Manufacturing and logistics practices

These practices relate to product and process design, packaging, storage, transportation and distribution.

Possible measures of design include the designing of products using biodegradable or rather recyclable materials as well as to include aspects to facilitate easy disassembly of products, if reuse or recycling at the end of product life is a possibility (Mitra, & Datta, 2014). An advanced technique is life cycle assessment, it assists in determining how a product should be designed to minimize its environmental impact throughout its life and afterwards (Linton et al., 2007). There are other possibilities to develop sustainable prod- ucts via measuring such as calculating the carbon footprint of singular products as well as the entire supply chain and using this information as basis to lower the footprint (Beske, & Seuring 2014). To establish cross-functional teams consisting of focal firm as well as supply chain partner personnel for joint product development and design is advised by Vachon and Klassen (2008). Beske and Seuring (2014) further this practice by including stakeholders in the development phase of the product.

During manufacturing processes Rao and Holt (2005) list the minimization of energy and resource consumption as well as striving to minimize harmful air emissions and solid and liquid waste generation. The usage of alternative environmentally friendly resources as preferred choice of energy and the replacement of conventional sources such as coal and oil is remarked by Mitra and Datta (2014). The usage of by-products such as the use of waste heat is also possible (Linton et al., 2007). To include health and safety considerations in terms of working conditions of laborers and the supply chain personnel in its entirety is mentioned by Carter and Rogers (2008).

Packaging also includes choosing environmentally friendly and recyclable solutions (Mitra, & Datta, 2014). To use minimal and lightweight packaging is a possible measure (Carter et al., 2000). To consider reusable packaging is also an alternative (Mollenkopf, Closs, Twede, Lee, & Burgess, 2005).

Safe warehousing and storage is an aspect of sustainable storage solutions (Mitra, & Datta, 2014). To redefine processes and eliminate the use of warehousing altogether is pointed out by Wu and Pagell (2011).

In terms of transportation, environmentally friendly transportation is a measure to exploit (Rao, & Holt, 2005). Another aspect is to achieve economies of scale in transportation via full truckloads (Mitra, & Datta, 2014). To investigate transport routes and mode of

transports in terms of energy efficiency is another measure, climate should be considered for example in terms of need for air conditioning and hence higher energy consumption (Kumar, Teichman, & Timpernagel, 2012).

Reverse supply chain activities

Taking the perspective of Gupta and Palsule-Desai (2011), SSCM covers the entire organizational decisions related to the entire life cycle of a product and therefore includes post-use recovery and reuse activities as well. Seuring (2013) takes a differentiating proach by applying the term 'forward' to supply chains and stating reverse and closed-loop supply chains as neighboring fields. To give a complete overview of practices possible activities after consumer use shall be outlined roughly.

Reverse logistics shall be considered which holds the potential activities of product re- covery of reusing, remanufacturing as well as recycling (Kumar et al., 2012). This re- quires collection, transportation and inspection activities by firms (Mitra, & Datta, 2014).

Mitra and Datta (2014) note that not all reverse logistics activities are a free choice of companies since legislation in several countries has been passed that holds manufacturers responsible for recovery or disposal of their products or packaging after use. It shall be noted at this point that proactive and reactive GSCM practices can be differentiated, pro- active strategies represent voluntary adoption of GSCM practices, reactive strategies im- ply the adaptation of GSCM practices due to pressure from legislation, customers or com- petition (ibid.).

If products cannot be recovered and need to be disposed, environmentally friendly disposal is an option (ibid.).

As can be seen a wide variety of practices can be accounted to SSCM. This section does not claim to include every possible practice, the aim was to give an overview.



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Title: The Potential of Sustainable Supply Chain Management for Corporate Competitiveness