Transcript Session 4: Sustainable Supply Chains as a Lever of

Session 4: Sustainable Supply Chains
as a Lever of Competitive Advantage
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Approach to Sustainable Supply Chain
Management (SSCM): Overarching Framework
Framing the Issues
Session 1: From
Sustainable Development
to Sustainable Supply
Chains
Preparing for
Implementation
Session 4: Sustainable
Supply Chains as a Lever
of Competitive Advantage
Session 5: Integrating
Sustainability into the
Supply Chain
Session 2: Governance of
Supply Chains: From
Compliance to Voluntary
Standards
Session 3: Governance of
Supply Chains: Introducing
International Labour
Standards
Assessing Impact
Session 8: Measuring
and Communicating on
Sustainable Supply Chain
Performance
Session 6: Managing
Stakeholder Relations
Session 7: Building Supply
Chain Partnerships
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Session Objectives
 Identify the links between strategy, competitive
advantage and Sustainable Supply Chain
Management.
 Understand the strategic and complex nature of
Supply Chains.
 Explore the possibility of gaining Competitive
Advantage (CA) through SSCM.
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Session Outline
Unit 4.1: Introduction
Unit 4.2: Situating SC strategy within corporate strategy.
Unit 4.3: Strategic and complex nature of SCs
Unit 4.4: SSCs as a lever of Competitive Advantage
Unit 4.5: Conclusion
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Unit 4.1: Introduction
 Convergence of mainstream business practices and sustainability.
 “Not only is it (sustainability) the right thing to do as responsible global
citizens, but it’s the right thing for our business.” (Christopher J.
Nassetta, President & CEO, Hilton Hotels Corporation)
 “We cannot choose between [economic] growth and sustainability –
we must have both” (Paul Polman, CEO, Unilever)
 Businesses exploring new sources of competitive advantage through
SSCs (Markley and Davis, 2007)
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Mainstreaming Sustainability
“Sustainability will become considerably more important to
my company over the next three years”.
Strongly agree
46%
Somewhat agree
41%
Neither agree nor disagree
9%
Somewhat disagree
3%
Strongly disagree
1%
Source: The Economist Intelligence Unit Report: “Managing for Sustainability”, February 2010
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Video and Class Discussion
Sodexo: Mainstreaming Sustainability into the SC
http://www.youtube.com/watch?v=nZ_M_rFOVM&feature=related
Identify the sustainability challenges that Sodexo is
addressing in its supply chain.
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Unit 4.2: Situating SC Strategy within
Corporate Strategy
Many definitions of strategy:
“Strategy is the means by which… organisations achieve
their objectives” (Grant, 2010, pp. 16)
“Strategy is the pattern of objectives, purposes, or goals
and the major policies and plans for achieving these goals,
stated in such a way as to define what business the
company is in or is to be in and the kind of company it is or
is to be” (Andrew (1971), cited by Grant, 2010, pp. 18).
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Defining Strategy
“The determination of the long-term goals and objectives of an
enterprise, and the adoption of courses of action and the allocation
of resources necessary for carrying out these goals”
(Chandler (1962), cited by Grant, 2010, pp. 18).
1. Strategy is focused on achieving certain goals.
2. Critical actions involve allocation of resources.
3. Strategy implies some consistency, integration, or cohesiveness
of decisions and actions. (Grant, 2010)
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Corporate and functional strategies




Corporate strategy is creating a fit among a company’s activities.
Its success depends on doing many things well… and integrating
them. (Porter, 1996)
Basic Strategy Questions:
1) Where to compete?
2) How to compete? (Grant, 2010)
Functional/ divisional strategies inform and support overall
strategy (Marketing, HR, Finance, Operations, etc).
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Operations Strategy
Operations Strategy is concerned with setting broad policies
and plans for using the resources of a firm to best support its
long-term strategy. It involves decisions that relate to
process designs and the infrastructure required.
Operations strategy includes supply chain strategy,
manufacturing strategy, delivery strategy, etc.
(Chase et al, 2007)
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Supply Chain strategy
Central idea is to apply a total system
approach to managing the flow of
information, materials, and services from
raw material suppliers through factories
and warehouses to the end customer.
(Chase et al, 2007)
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Group and Class Discussion
Sketch the organisational chart of your
company or of a selected company or
industry and locate the supply chain
function/ department.
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Unit 4.3: Strategic and
Complex Nature of SCs
 It is advocated that “supply chains compete, not companies”
(Christopher, 1992).
 “It is absolutely crucial that we strengthen our supply chain
capabilities to win in the market…we are currently not at par with
competition” (new Unilever CEO - Paul Polman, Feb. 2009)
Effective management of complexities in the SC is key.
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Often Multiple SCs
(Handfield and Nichols Jr., 2002)
From the basics
To the intricate
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Internal and external linkages

Internal Chain: portion of SC within an individual organisation –
Order transmittal (sales), order entry (material planning), order
preparation (purchasing, manufacturing, warehousing), order
shipment (distribution and transportation), etc. Requires crossfunctional teams.

External Chain: portion of SC outside an organisation –
collaboration is important and inter-organisational teams
required.
(Handfield and Nichols Jr., 2002)
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Numerous stakeholders and Networks
Conservation
NGOs
Local
community
Suppliers
Manufacturers
Investors
Warehouse
Retailers
Industry
Associations
Regulators
Consumers
Sectoral
Groups
Consumer
Advocacy
Groups
Certification
Agencies
National/local
governments
Media
Trade
Unions
Workers
Trade
Associations
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Diverse and unique risks
 Actions and events inside the company (policy, operational,
organisational, system, forecasting, capacity, resources, supply,
security, delays, etc).
 Events outside the company (demand, inter-organisational,
technology, disruptions, natural disasters, resources, social, etc).
Little or no control over
events in the SC.
(Simchi-Levi et al, 2003)
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Conflicting Objectives in the SC
(amended from Simchi-Levi et al, 2003)
SC Process/
Stakeholder
Suppliers
Purchasing
Objective
High prices, long lead times, steady demand,
low variability.
Large volumes, low costs, flexible delivery time.
Manufacturers
Stable production runs, high productivity and
quality, low cost of production, flexible in-bound
supply.
Distribution and
warehousing
Customers
Low inventory, low transport costs, quick
replenishment capability
Low prices, high quality, wide variety, constant
availability or short lead time.
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Another layer of Complexity - Sustainability
SCs more vulnerable today due to:
 Scrutiny from non-traditional SC stakeholders.
 Changing customer demands.
 Changing regulations.
 Rising social and environmental awareness.
Businesses that effectively manage these
complexities are likely to gain competitive
advantage
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SSCs as a lever of
Competitive Advantage
 Businesses constantly exploring new sources of
competitive advantage.
 Competitive strategy is about deliberately choosing a
different set of activities to deliver a unique mix of
value. (Porter 1996)
 Competitive advantage is the extent to which a firm is
able to create a defensible position over its competitors
(McGinnis and Vallopra, 1999)
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Sources of Competitive Advantage
Customers attracted by different product/ service
attributes (low prices, quality, innovativeness, etc).
Companies seek to offer desired attributes.
1) Cost Leadership (e.g. Southwest Airlines and Easyjet);
2) Differentiation (e.g. Apple, Sony, etc).
CA through SSCM is more of a differentiation strategy.
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SCs and Competitive Advantage
“Differences among competitors’ value chains
are a key source of competitive advantage”
(Porter, 1985: 36) as valuable SC activities enhance
existing resources & capabilities and/ or
produce new ones.
Resources and capabilities underlie successful
competitive strategies (Dobson et al, 2004).
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Resources and Capabilities
 Financial: equity, bonds, bank loans, etc.
 Physical: technology, computers, equipment, etc.
 Human: experience, intelligence, training, skills, etc.
 Organisational: culture, reputation, coordinating systems,
formal and informal planning, etc.
 Capability: the capacity for a team of resources to perform some
task or activity.
Resources are the source of capabilities. Capabilities are the
main source of competitive advantage.
(Barney, 2007; Porter, 1985)
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Enhancing SSC competitiveness:
 Improving operational efficiencies.
 Enabling better working environments that increase productivity.
 Engaging consumers and increasing loyalty.
 Developing partnerships that open new markets.
 Benefiting from the competencies of diverse stakeholders (NGOs,
research institutions, civil society, regulatory agencies,
competitors, etc)
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Significant shifts required to gain
competitive advantage through SSCM
Opportunistic
Strategic
Short-term
Long-term
Maximizing profit
Fair share
Accountability
Unclear
Shared
Transparency
Limited
Full
Engagement
Low-level
High-level
Nature
Timeframe
Focus
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Competitiveness entails new SC models
From...
Short-term contractual relations...
To...
...Long-term collaboration
Challenges require long-term solutions and partnerships with non-traditional
SC partners (NGOs, competitors, government entities, etc).
Creating company value...
...Creating shared value in the SC
Value created should benefit business, SC partners and society.
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Way Forward:
 Develop a sustainability vision/ mission.
 Integrate sustainability concerns into SC policies and practices.
 Enhance existing resources and capabilities and/ or build new ones.
 Set performance targets and measure progress.
Top management commitment and leadership is key
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Sample sustainability visions
“Our vision is a world in which all people's basic
requirements - such as shelter, clean water, sanitation
and reliable power - are fulfilled in a way that sustains
our environment”.
http://www.caterpillar.com/sustainability/vision-missionstrategy
“We envision a supply chain that profitably yields
high-quality, safe products without supply
interruption while leveraging our leadership
position to create a net benefit by improving
ethical, environmental and economic outcomes”.
http://www.aboutmcdonalds.com/mcd/sustainability/ou
r_focus_areas/sustainable_supply_chain.html)
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Sample SSC Mission Statement
Nokia
“At Nokia, we work hard to anticipate risk, demonstrate company
values, enhance our governance practices, increase employee
satisfaction, and look after the environment and communities where
we do business. We expect the companies in our supplier network
to take a similar ethical business approach and to demonstrate
progress and achievements in these areas as well as in educating
and overseeing the practices of their own suppliers. Our aim is to
ensure that environmental, ethical and health and safety issues, as
well as labour practices, are not separate add-on features, but are
embedded within all our sourcing processes, including supplier
selection and relationship development.”
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Sample SSC Mission Statement
L’Oréal
“We are committed to building strong and lasting relationships with our
customers and our suppliers, founded on trust and mutual benefit. We
do business with integrity: we respect the laws of the countries in which
we operate and adhere to good corporate governance practices….We
are mindful of our impact on the natural environment…We are
committed to the respect of human rights. We want to end the
exploitation of children in the workplace and the use of forced
labour…We actively seek out and favour business partners who share
our values and our ethical commitments.”
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4.5: Conclusion
 Sources of Competitive Advantage becoming rarer.
 SC sustainability can be a lever of Competitive
Advantage.
 Proactive SSC policies and strategies: adopt a clear
vision/ mission statement
 Senior management commitment is essential.
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Additional References
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Chase, R. B., Jacobs, F. R, and Aquilano, N. J. (2007), “Operations Management for
Competitive Advantage”, International Edition, NY, McGraw-Hill/ Irwin
Christopher, M. (1992), “Logistics and Supply Chain Management: Strategies for
Reducing Costs and Improving Services”, London, Pitman Publishing.
Dobson, P., Starkey, K. and Richards, J. (2004), “Strategic Management: Issues and
Cases”, Oxford, Blackwell Publishing, pp. 51-85.
Grant, R. M. (2010), “Contemporary Strategy Analysis: Text and Cases”, 7th Edition,
John Wiley and Sons, Ltd.
Handfield, R. B. and Nichols Jr. E. L. (2002), “Supply Chain Redesign: Transforming
Supply Chains into Integrated Value Chains”, NJ, Financial Times Prentice Hall.
McGinnis, M. A. and Vallopra, R. M. (1999), “Purchasing and Supplier Involvement in
Process Improvement: A Source of Competitive Advantage”, Journal of Supply Chain
Management, 35 (4), pp. 42-50.
Porter, M. (1996), “What is Strategy?”, Harvard Business Review, NovemberDecember, pp. 61-78.
Porter, M. (1985), “Competitive Advantage: Creating and Sustaining Superior
Performance”, New York, Free Press.
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