Sustainable Supply Chain Management PDF

Sustainable Supply Chain Management – SGM3 Nathan Kunz (Bern University of Applied Science) ▶ Institute Berner Sustainable Business Fachhochschule | Haute école spécialisée bernoise | Bern University of Applied Sciences Teacher Introduction Berner Fachhochschule | Haute école spé...

Sustainable Supply Chain Management – SGM3 Nathan Kunz (Bern University of Applied Science) ▶ Institute Berner Sustainable Business Fachhochschule | Haute école spécialisée bernoise | Bern University of Applied Sciences Teacher Introduction Berner Fachhochschule | Haute école spécialisée bernoise | Bern University of Applied Sciences Prof. Dr. Nathan Kunz Professor of Sustainable Supply Chain Management Research ▶ Sustainability in global supply chains ▶ Humanitarian logistics and supply chain management ▶ Social Innovation & Entrepreneurship Teaching ▶ CSR Management (BSc) ▶ Sustainable Startup Challenge (BSc) ▶ Global Supply Chains (BSc) ▶ Sustainability Management (MSc) ▶ Expansion Modules (MSc) Berner Fachhochschule | Haute école spécialisée bernoise | Bern University of Applied Sciences Prof. Dr. Nathan Kunz ▶ Background 1996 – 2000 Vocational Training (Car Mechanic) 2000 – 2003 BSc (Automotive Engineering), Bern University of Applied Sciences 2004 – 2010 Cofounder & Deputy Director, Digger Foundation 2007 – 2010 MSc (International Business), University of Neuchâtel, Switzerland 2011 – 2013 PhD (Operations Management), University of Neuchâtel, Switzerland 2013 – 2015 Postdoc, INSEAD, France 2014 – present Lecturer, EPFL & University of Neuchâtel, Switzerland 2015 – 2023 Associate Professor, University of North Florida, Jacksonville, USA Since 2023 Professor, Bern University of Applied Sciences Berner Fachhochschule | Haute école spécialisée bernoise | Bern University of Applied Sciences Agenda for today ▶ Supply Chain Management – Quick refresher and key terms ▶ Supply Chain Risks ▶ Application ▶ Sustainable Supply Chain Management ▶ Supplier management ▶ Sustainable products ▶ Legal Frameworks for Supply Chains Berner Fachhochschule | Haute école spécialisée bernoise | Bern University of Applied Sciences 5 Supply Chain Management Quick refresher and key terms Berner Fachhochschule | Haute école spécialisée bernoise | Bern University of Applied Sciences 6 Typical structure of a supply chain Focal company Berner Fachhochschule | Haute école spécialisée bernoise | Bern University of Applied Sciences Lambert, 2014 7 Realistic structure of a supply chain Berner Fachhochschule | Haute école spécialisée bernoise | Bern University of Applied Sciences Lambert and Enz, 2017 8 Supply Chain Management (SCM) Relationship Management Information, Product, Service, Financial and Knowledge Flows SUPPLIER SCM: NETWORK FOCAL COMPANY Integration of END CONSUMERS DISTRIBUTIVE NETWORK relationships between MATERIALS Procurement Distribution organizations along the chain in order to Manufacturing jointly establish competitiveness Berner Fachhochschule | Haute école spécialisée bernoise | Bern University of Applied Sciences Chopra & Meindl (2007) 9 What is a "focal" company? ▶ Three criteria 1. Ensures market access and is visible to end customers. 2. Shapes the product’s basic characteristics and environmental impact (product design). 3. Selects suppliers and decides on the distribution channels through which their products reach the end customer, thus shaping and controlling the value chain. Müller and Seuring (2013) Berner Fachhochschule | Haute école spécialisée bernoise | Bern University of Applied Sciences 10 Why global supply chains? A direct consequence of globalization! Globalization offers: ▶ Access to larger markets ▶ Comparative cost advantage (access to cheaper resources from other regions) Berner Fachhochschule | Haute école spécialisée bernoise | Bern University of Applied Sciences 11 Supply Chain Risks Berner Fachhochschule | Haute école spécialisée bernoise | Bern University of Applied Sciences 12 Supply chain risks (1) NYT, Nov 1, 2023 Bloomberg, Oct 17, 2023 Berner Fachhochschule | Haute école spécialisée bernoise | Bern University of Applied Sciences 13 Supply chain risks (2) France 24, Nov 4, 2023 WSJ, Oct 4, 2024 Bloomberg, Nov 1, 2023 Berner Fachhochschule | Haute école spécialisée bernoise | Bern University of Applied Sciences 14 Rana Plaza Disaster April 24, 2013 1138 dead, 2000 injured 27 global clothing brands Berner Fachhochschule | Haute école spécialisée bernoise | Bern University of Applied Sciences 15 Supply chain risks in the apparel industry: Solutions Solutions implemented following the Rana Plaza disaster ▶ Better building standards for factory buildings ▶ But what standards are acceptable? Who controls? Corruption risk? ▶ Authorities take more control (RMG Sustainability Council) ▶ But unclear decision-making structure and limited enforcement ▶ Compensation for victims ($30 million) ▶ But who pays for what? Who produced my products? (Limited traceability) ▶ How is the money distributed? ▶ Higher prices are paid to suppliers ▶ But this increases production costs ▶ Will employees receive higher wages? Berner Fachhochschule | Haute école spécialisée bernoise | Bern University of Applied Sciences 16 What can we learn from the case of Rana Plaza? ▶ There are no simple solutions ▶ Many supply chain risks stem from a lack of sustainability ▶ Labor exploitation  Accidents, strikes ▶ Unfair treatment of suppliers  Bankruptcy, supply interruption ▶ Limited traceability  Compliance risk ▶ Sustainability must be considered as a central element of supply chain management ▶ This is the objective of sustainable supply chain management Berner Fachhochschule | Haute école spécialisée bernoise | Bern University of Applied Sciences 17  Many supply chain risks stem from a lack of sustainability 3 dimensions of sustainability Labor exploitation - Strikes Unfair supplier - Accidents contracts - Boycotts - Bankruptcy of - Fines suppliers - Quality problems CO2 emissions - Climate change - Transportation disruptions - Hurricanes Intensive agriculture - Lower yield Berner Fachhochschule | Haute école spécialisée bernoise | Bern University of Applied Sciences 18 Application: Supply Chain Risks for BYD Automotive Berner Fachhochschule | Haute école spécialisée bernoise | Bern University of Applied Sciences 19 What supply chain risks does BYD Automotive face? 1. Please identify supply chain risks that stem from a lack of sustainability at BYD Automotive 2. Please identify possible measures to reduce these risks for the company Miro Board Supply Chain Risks Berner Fachhochschule | Haute école spécialisée bernoise | Bern University of Applied Sciences 20 Sustainable Supply Chain Management (SSCM) Berner Fachhochschule | Haute école spécialisée bernoise | Bern University of Applied Sciences 22 Sustainable Supply Chain Management (SSCM) ▶ The supply chain offers important starting points for improving the sustainability performance of products and companies ▶ Definition of SSCM: ▶ “The strategic, transparent integration and achievement of an organization's social, environmental, and economic goals in the systemic coordination of key interorganizational business processes for improving the long-term economic performance of the individual company and its supply chains" (Carter & Rogers, 2008, p. 368) Berner Fachhochschule | Haute école spécialisée bernoise | Bern University of Applied Sciences 23 Challenges for SSCM ▶ Most modern supply chains have three or more tiers of suppliers and sub-suppliers. ▶ Focal company can have several thousand suppliers, with employees all over the world. ▶ Exchanging information and ensuring transparency becomes more complex with each new supplier level. Berner Fachhochschule | Haute école spécialisée bernoise | Bern University of Applied Sciences 24 Challenges for SSCM ▶ Supply chains are often dynamic  The network of potential and actual suppliers is constantly evolving ▶ Various stakeholders offer incentives or exert pressure on companies and their suppliers ▶ Regulatory authorities (country of the focal company, third countries, E.U., U.N., etc.) ▶ NGOs exert public pressure on companies to improve sustainability ▶ Customers increasingly prefer sustainable products, but are often not prepared to pay a price premium Berner Fachhochschule | Haute école spécialisée bernoise | Bern University of Applied Sciences 25 2 Strategies to make supply chains more sustainable 1. Supplier management for risks and performance ▶ Evaluation and selection of suppliers on the basis of economic and sustainability aspects ▶ Reactive approach, to avoid risks ▶ e.g.: certified supplier (ISO 14001, ISO 26000, SA8000) 2. Supply chain management for sustainable products ▶ Influencing supply chains to deliver sustainable products ▶ Proactive approach to promote the implementation of sustainability in supply chains ▶ e.g.: certified products (organic cotton, fair trade coffee) Seuring and Müller (2008) Berner Fachhochschule | Haute école spécialisée bernoise | Bern University of Applied Sciences 26 Supplier Management Berner Fachhochschule | Haute école spécialisée bernoise | Bern University of Applied Sciences 27 Supplier management ▶ Consumers hold focal companies responsible for unsustainable practices of their suppliers ▶ Companies define sustainability standards for their suppliers ▶ Goals ▶ Reducing environmental or social risks ▶ Reduce economic losses for the focal company ▶ Ensuring the long-term performance of the supply chain ▶ Assumption: Sustainability risks can turn into economic risks  Choosing a "sustainable" supplier leads to long-term profits ▶ Potential risk: A "sustainable" supplier… ▶ will probably charge higher prices  higher costs ▶ may produce unsustainable products  sustainability risk Berner Fachhochschule | Haute école spécialisée bernoise | Bern University of Applied Sciences 28 Supplier management: Process 1. Commit supplier Code of conduct, certificates, etc. 2. Evaluate supplier Monitor the company, assess risk 3. Control supplier Audits (first, second, third party) 4. Develop supplier Develop action plans for improvement Hahn, 2022 Berner Fachhochschule | Haute école spécialisée bernoise | Bern University of Applied Sciences 29 Supplier Management A More Sustainable Supply Chain By Villena and Gioia, 2020 (HBR) Berner Fachhochschule | Haute école spécialisée bernoise | Bern University of Applied Sciences 30 'A More Sustainable Supply Chain' ▶ The challenge of controlling lower-tier suppliers ▶ Four approaches of controlling suppliers ▶ Direct: Control Tier 1 and Tier 2 suppliers ▶ Indirect: Control Tier 1, make Tier 1 responsible to control Tier 2 suppliers ▶ Collective: Multiple focal companies work together ▶ Global: Multiple companies, NGOs, government work together (Multi-stakeholder initiatives) Berner Fachhochschule | Haute école spécialisée bernoise | Bern University of Applied Sciences 31 Key findings (1) ▶ Companies spend most energy controlling their top-tier suppliers, but the greatest sustainability risks come from lower-tier suppliers ▶ Limited visibility (for the focal company, the public, the media) ▶ No contractual relationship ▶ Limited pressure mechanisms ▶ Fragmented supply chains ▶ Limited knowledge of sustainability standards ▶ Focal company often concentrates on cost reduction and technical features ▶ Limits the sustainability efforts of suppliers ▶ Procurement teams should be rewarded for their performance in the three dimensions of sustainability (Profit-Planet-People) Berner Fachhochschule | Haute école spécialisée bernoise | Bern University of Applied Sciences 32 Key findings (2) ▶ Fragmented supply chains: A single company cannot drive change alone ▶ Sector-wide approaches are required ('Collective' & 'Global' approaches of Villena and Gioia 2020) ▶ Multi-stakeholder initiatives (MSIs) ('Global' approach of Villena and Gioia 2020) are effective instruments for achieving greater sustainability at the entire industry level ▶ Examples: ▶ Forest Stewardship Council (FSC) ▶ Better Cotton Initiative ▶ Roundtable for Sustainable Palm Oil (RSPO) ▶ Swiss Platform for Sustainable Cocoa (SWISSCO) Berner Fachhochschule | Haute école spécialisée bernoise | Bern University of Applied Sciences 33 Sustainable Products Berner Fachhochschule | Haute école spécialisée bernoise | Bern University of Applied Sciences 34 Sustainable products ▶ Develop and sell products that have a limited negative environmental and social impact during their life cycle ▶ Considers the footprint of the product from production to end-of-life ▶ Measured by a Life Cycle Assessment (LCA), both in terms of environmental (eLCA) and social (sLCA) impacts ▶ This strategy requires a high level of transparency in the supply chain and close cooperation between supply chain partners Berner Fachhochschule | Haute école spécialisée bernoise | Bern University of Applied Sciences 35 The challenge for sustainable products: Commoditization kWh Berner Fachhochschule | Haute école spécialisée bernoise | Bern University of Applied Sciences 36 The challenge for sustainable products: Commoditization ▶ Every fruit is the same ▶ It is impossible to trace the "sustainable" product in the supply chain ? Palm Oil Supply Chain (Brack et al., 2016) Berner Fachhochschule | Haute école spécialisée bernoise | Bern University of Applied Sciences 37 Decommoditization of the supply chain ▶ As long as the supply chain cannot distinguish a sustainable from a non- sustainable product, the focal company cannot pay a price premium for sustainability. ▶ De-commoditization: "Focal company moves its suppliers out of commodity supplier status by granting above-market prices, offering long-term relationships, and engaging in supplier development." (Gold et al., 2013, p.787) ▶ Implications: ▶ Requires fully traceable (and segregated) supply chains ▶ Enables long-term contracts with suppliers ▶ Cooperation with suppliers improves their performance ▶ Paying premium prices ensures the economic survival of suppliers and workers Berner Fachhochschule | Haute école spécialisée bernoise | Bern University of Applied Sciences 38 Example of Sustainable Products Sustainable Cocoa Berner Fachhochschule | Haute école spécialisée bernoise | Bern University of Applied Sciences 39 Chocolate: Last Week Tonight with John Oliver (HBO) https://www.youtube.com/watch?v=FwHMDjc7qJ8&t=212s Berner Fachhochschule | Haute école spécialisée bernoise | Bern University of Applied Sciences 40 Legal Frameworks for Supply Chains Berner Fachhochschule | Haute école spécialisée bernoise | Bern University of Applied Sciences 41 Most important legal frameworks for supply chains ▶ Switzerland: Responsible Business Initiative - counter-proposal to initiative ▶ Germany: Supply Chain Due Diligence Act (LkSG) ▶ European Union: ▶ CSRD – Corporate Sustainability Reporting Directive ▶ CSDDD – Corporate Sustainability Due Diligence Directive ▶ EU DR – EU Deforestation Regulation Berner Fachhochschule | Haute école spécialisée bernoise | Bern University of Applied Sciences 42 Switzerland: Non-financial reporting obligations ▶ Non-financial reporting obligations for large companies ▶ From 500 employees and > CHF 20 million balance sheet total or > CHF 40 million turnover ▶ Report on core elements such as the environment (CO2 targets), social issues, employee concerns, human rights, anti-corruption measures ▶ EU Reporting Standards can be used ▶ From January 1, 2024 PWC, 2023 Berner Fachhochschule | Haute école spécialisée bernoise | Bern University of Applied Sciences 43 Switzerland: Minerals and metals from conflict areas ▶ Due diligence obligations and transparency regarding minerals and metals from conflict areas in the value chain ▶ For companies that exceed thresholds for the import and processing of minerals and metals ▶ Fines of up to CHF 100,000 ▶ As of January 1, 2023 PWC, 2023 Berner Fachhochschule | Haute école spécialisée bernoise | Bern University of Applied Sciences 44 Switzerland: Child labor ▶ Due diligence and transparency regarding child labor in the value chain ▶ For companies that offer products or services that can be suspected of having been manufactured or provided using child labor. ▶ Compliance with certain internationally recognized regulations exempts the company from Swiss obligations (ILO, OECD, UN). ▶ Fines of up to CHF 100,000 ▶ As of January 1, 2023 PWC, 2023 Berner Fachhochschule | Haute école spécialisée bernoise | Bern University of Applied Sciences 45 Switzerland: Raw material extraction ▶ Transparency for companies active in the extraction of minerals, oil, gas or wood ▶ Companies are obliged to report annually on payments to state institutions ▶ As of January 1, 2022 PWC, 2023 Berner Fachhochschule | Haute école spécialisée bernoise | Bern University of Applied Sciences 46 European Union: CSRD, CSDDD, EU DR Berner Fachhochschule | Haute école spécialisée bernoise | Bern University of Applied Sciences 47 EU: CSRD – Corporate Sustainability Reporting Directive ▶ Sustainability reporting for companies in the EU, which may also affect Swiss companies with subsidiaries in the EU. ▶ From 2029: Reporting required for parent companies from third countries with at least one large EU subsidiary (or branch > EUR 40 million turnover) and > EUR 150 million consolidated turnover in the EU. ▶ The CSRD requires companies to provide consistent and transparent sustainability-related information about their business practices ▶ New European Sustainability Reporting Standards (ESRS) Berner Fachhochschule | Haute école spécialisée bernoise | Bern University of Applied Sciences 48 EU: CSDDD – Corporate Sustainability Due Diligence Directive (1) ▶ Binding framework concept that helps companies to assess and manage sustainability risks and impacts along their value chains. ▶ Link between variable remuneration for members of administrative and management bodies and a company's sustainability goals. ▶ Due diligence: requires companies to identify actual or potential negative impacts on human rights and the environment and to take measures to mitigate their effects. PWC, 2023 Berner Fachhochschule | Haute école spécialisée bernoise | Bern University of Applied Sciences 49 EU: CSDDD – Corporate Sustainability Due Diligence Directive (2) ▶ Applies also to companies outside the EU with a net turnover of more than EUR 150 million in the EU, or with a net turnover of more than EUR 40 million, of which 50% in a high-risk sector. ▶ SMEs are not directly affected by the directive. However, these companies could be indirectly affected if they are part of the value chain of companies that fall within the scope of the directive. ▶ Currently being transposed into national law by the Member States (not yet in force). PWC, 2023 Berner Fachhochschule | Haute école spécialisée bernoise | Bern University of Applied Sciences 50 EU: EUDR – Regulation on deforestation-free products ▶ Aims to guarantee that the products consumed by EU citizens do not contribute to deforestation worldwide. ▶ Mostly affects commodities with a deforestation risk: ▶ Cocoa ▶ Coffee ▶ Palm oil ▶ Cattle ▶ Wood ▶ Any company who places these commodities on the EU market must be able to prove that the products do not originate from recently deforested land. swissinfo.ch, Oct 31, 2024 Berner Fachhochschule | Haute école spécialisée bernoise | Bern University of Applied Sciences 51 Thank you for your interest! Berner Fachhochschule | Haute école spécialisée bernoise | Bern University of Applied Sciences 52 References and Further Resources Berner Fachhochschule | Haute école spécialisée bernoise | Bern University of Applied Sciences 53 References and further resources ▶ BCG & WEF (2021), Net-Zero Challenge: The Supply Chain Opportunity ▶ EQS & HS Ansbach (2023). Status quo and its impact of the implementation of the Supply Chain Act ▶ Chopra & Meindl (2007), Supply Chain Management. Strategy, Planning & Operation. Prentice Hall. ▶ Fairphone (2023), Supply Chain Engagement report ▶ Hahn (2022), Sustainability Management (Textbook) ▶ Lambert (2014), Supply chain management: Processes, partnerships, performance (4th ed.). Ponte Vedra Beach, FL: Supply Chain Management Institute ▶ Öbu (2023) (Association for Sustainable Business), Working Group "Sustainable Supply Chain Management" ▶ PWC (2023), Regulatory developments in the ESG area ▶ SWISSCO (2023), Swiss Platform for Sustainable Cocoa (multi-stakeholder initiative) Berner Fachhochschule | Haute école spécialisée bernoise | Bern University of Applied Sciences 54 References and further resources ▶ Carter, C.R. and Rogers, D.S., 2008. A framework of sustainable supply chain management: moving toward new theory. International Journal of Physical Distribution & Logistics Management, 38(5), pp.360-387. ▶ Gold, S., Hahn, R. and Seuring, S., 2013. Sustainable supply chain management in “Base of the Pyramid” food projects—A path to triple bottom line approaches for multinationals? International Business Review, 22(5), pp.784-799. ▶ Lambert, D.M. and Enz, M.G., 2017, Issues in Supply Chain Management: Progress and potential, Industrial Marketing Management, 62 (2017) ▶ Müller, M.; Seuring, S., 2013. Sustainable management of value chains. In A. Baumast, & J. Pape (Eds.), Operational Sustainability Management (pp. 243-258). Stuttgart: UTB Ulmer. ▶ Villena, V.H. and Gioia, D.A., 2020. A more sustainable supply chain. Harvard Business Review, 98(2), pp.84-93. Berner Fachhochschule | Haute école spécialisée bernoise | Bern University of Applied Sciences 55