Environmental Supply Chain Management

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Courtesy of WYG

The significant impact that members of the supply chain have on organisations’ environmental performance, either through their actions or the products they supply, is increasingly becoming recognised throughout business. Examples of organisations which have faced legal action, financial loss, and damage to corporate image as a result of their supply chain partners' activities are numerous, and as environmental protection climbs the social and political agenda so the risks will increase.

In many cases action has been driven in response to specific events or pressure from stakeholders (and commonly both) with the full value to the business of this action only being realised subsequently. To exert some influence over supply chain partners’ approaches to environmental issues, control the associated risks, and realise further potential benefits, companies have developed proactive environmental supply chain management (ESCM) programmes to complement existing supply chain and environmental management activity.

However, it is not enough to blindly trust that general improvements in the environmental performance of supply chain partners will in turn improve the organisation’s environmental performance. Further more, the methodology employed so far is diverse in design and application, and the focus of initiatives sometimes open to question. The ESCM process must be structured, and concentrate on delivering benefit for the initiating organisation, while a commonly demonstrated by-product of this activity is the strengthening of supply chain partners, and the relationships with them.

Extent of involvement
The extent of engagement in ESCM activity varies greatly across commercial organisations and industrial sectors. It would be fair to say that many organisations have demonstrated good ESCM practice within individual projects without recognising it as such, while others have realised environmental benefits through general SCM initiatives.

Business in the Environment (1999) have attempted to gauge environmental engagement among the top 100 quoted companies in the UK since 1996 (and including the mid 250 quoted UK companies since 1998), across a range of environmental management parameters. Supplier focused initiatives represent one of the parameters surveyed. The results of this survey have consistently shown supplier focussed initiatives to be the weakest parameter, that is, the least adopted

Given the response rate to this survey, the true percentage involvement is probably lower than that stated, assuming that companies who have not responded are likely to be less environmentally engaged on the whole.

Organisations can be categorised into five types when relating to ESCM involvement* , namely;

The Blissfully Ignorant
Going Through the Motions
Control Management
State of the Art
Ground Breakers
* Adapted from Mackenzie 1999

State of the art and ground-breaking organisations are few in number with the blissfully ignorant accounting for the majority. However, larger organisations are beginning to respond to the need for ESCM programmes in increasing numbers and the standard is steadily shifting up the scale.

Much of the work on ESCM conducted to date has concentrated on the upstream (supply side) relationships. This is as a consequence of a number of factors, namely:

  • Influence is commonly greatest from customer to supplier (as opposed to vice versa).
  • Environmental problems are best dealt with at source.
  • Larger organisations potentially face the greatest risks (particularly in terms of corporate image) but tend to posses the most influence over the supply chain, upstream and downstream.
  • Organisations tend to come under greater scrutiny the closer in the chain they are to the end user.
  • Buying power has been seen as a tool for encouraging environmental activity among smaller enterprises by governments.

There is not as much evidence of organisations initiating dialogue with customers over the environmental probity of their products outside of a focussed environmental marketing strategy. Given some of the demands made by buying organisations on their suppliers to demonstrate environmental probity however, a proactive approach could well be advantageous by

  • Raising company profile.
  • Improving company image.
  • Building relationships and possibly dependency.
  • Creating new criteria and standards for the sector/competitors.
  • Helping the customer to shape ESCM strategy.
  • Prompting knowledge exchange.
  • Potentially avoiding prescriptive requirements imposed by customers.

The techniques applied in ESCM vary greatly in their sophistication and resource requirement. At the most basic level organisations tend to initiate activity on a reactive basis dealing with a specific issue in response to legislative, financial or moral pressures or crisis.

The first stages of ESCM are typified by environmental surveys and questionnaires of varying sophistication and levels of required detail. While potentially useful for assessment purposes the questionnaire has limitations and requires careful design and evaluation. In the majority of cases questionnaires concentrate almost exclusively on environmental management activity, ignoring actual performance, aspects or impacts.

The use of ISO14001 accreditation as a proxy for environmental probity in supply has become popular due to it’s international recognition and independent verification. However, the shortcomings of this approach are becoming realised and ESCM systems are being developed to move away from ISO14001 or EMAS as an all encompassing measure. It is worth noting that this change is only just beginning and some industry sectors (e.g. the motor industry) are still requesting (and starting to request) accreditation to a formal EMS standard.

Audit and independent verification of supply chain partners is commonly applied to substantiate information gathered, albeit that the extent of this activity will be governed by the level of perceived risk, and the availability of resources and competencies. Some organisations have built this process into existing health safety and quality audit processes to reduce resources requirements with varying degrees of success. This approach is highly resource intensive and not always practical or judicious.

Beyond the techniques mentioned above some organisations are beginning to develop partnerships with key suppliers in line with the current supply chain management vogue. The thrust of these partnerships is to improve stability and understanding in the relationship linking to risk reduction and financial performance improvement. Meetings and seminars can prove useful tools for developing the partnership approach and facilitating subsequent action. There is evidence however that the tendency to develop partnership approaches is beginning to revert to more adversarial ones, particularly in the most competitive markets. This could well set the tone for ESCM strategy also.

The most advanced organisations have taken ESCM beyond addressing purely commercial drivers in favour of looking at sustainability issues as embodied through product stewardship, life cycle thinking, and design for the environment. The initiatives of such 'ground breaking' organisations encompass social and ethical issues along with the environment, and support clearly defined corporate values relating to these issues.

Future developments
ESCM has presented difficulties for many organisations with regard to finding a practical and cost effective way of managing out the environmental risks and improving performance. The use of environmental performance indicators for supplier, service or product evaluation has, arguably, always been present. The selection, and analysis of the indicators which truly reflect performance though, has been lacking and as such has left a hole in any risk assessment process.

The publication ISO14031 (international standard for environmental performance evaluation) does provide a framework that could be applied to the selection of indicators by which to evaluate supplier environmental (and potentially ethical) probity. In view of this, a UK government sponsored ISO 14031 demonstration project is currently under way to assess the feasibility of this approach to ESCM, under the management of 14000 & ONE Solutions Ltd.

The use of performance indicators will provide a more cost effective supplier evaluation tool than has generally been applied, as well as allowing for the measurement of tangible and significant aspects of environmental performance, at a point or over time, by the assessor and the supplier. Indicators will also allow for benchmarking between suppliers and bolster overall company data availability. In addition it is likely that the introduction of environmental performance indicators will encourage wider use and allow for the tailoring of indicator sets as appropriate to the supplier’s resources and capabilities, an issue currently overlooked by many ESCM initiatives.

Social and ethical issues are commonly intertwined with environmental issues as demonstrated in sustainability thinking. In view of this there is a growing trend to incorporate ethical and environmental issues together in ESCM activity. Health and Safety issues are also being brought in, but recent experiences with introducing quality issues has prompted many companies to resist this.

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