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III. Trends & Challenges for Integrating a Sustainable Supply Chain
There is an increased presence and growing evidence of organizations taking practical approach to integrate sustainability within their daily supply chain operations. Companies that take the initiatives in developing innovative supply chain strategies and integrating sustainability within their operations are more likely to stay ahead on supply chain performance over a long period of time (Sroufe & Melnyk, 2017). Adopting principles of sustainability throughout the supply chain operations are no simple task and do not happen over-night. Therefore, supply chain managers must carefully decide on how to implement sustainability in their products and services, and promote environmental practices.
Companies have been faced with numerous barriers and limitations to their sustainable initiatives resulting some challenges for proper integration of a sustainable supply chain solutions (Alzawawi, 2014). These drivers are considered internal pressures that happen within the organizations or external pressures which include aspects outside of the organizations, but have a great influence on the organization’ internal activities (Alzawawi, 2014). Furthermore, Alzawawi introduced several external drivers, such as government regulations, customers, competitors, suppliers and society. These external drivers have greatly influenced organizations to include social and environmental practices into their daily supply chain operations. According to Alzawawi (2014), “Organizations are obliged to adopt transparency after all those pressures to respond to investors and stakeholders’ expectations and to satisfy the legislative and regulatory compliance.” Many organizations are now seeing external drivers as a requirement to assure all of their products and services are environmentally sustainable.
The external drivers played an important element to the integration of sustainability into the supply chain processes. For example, governments have been influential through policy and regulations which enforced to give tax cuts or reductions for organizations that employ green initiatives in their supply chain operations. Alzawawi addressed that it is critical for companies to be on board and respond to the government pressures and regulations due to the growing and recent trend towards achieving sustainability in the United States and Europe. Failure to comply with governmental environmental regulation may result to high penalties and fines. Organizations that are incompliance can potentially lead up to lost productivity, bad publicity and even plant closure. As a result, this could have some environmental and human health consequences.
Not only customers play an important aspect in any businesses, but they have been increasingly aware of the environmental impact of purchasing goods that are sourced over long distances. Customers are considered external drivers or pressures that primarily give existence to organizations. Companies must always consistently serve and provide customers to stay in operation. Alzawawi (2014) has confirmed that companies tend to give much concern to achieving what their customers’ demands to ensure customer satisfaction. Her statement proves relevant because customer demands have a positive influence on the environment and companies. With the widespread concerns of environmental awareness, companies achieve higher customer satisfaction to attain higher quality products, stay in business and create a maintainable competitive advantage (Alzawawi, 2014).
External drivers arise from a broad range of stakeholders, including competitors and suppliers. According to Alzawawi (2014), “To become more alert to customers’ needs, companies must achieve competitive advantages for themselves. The integration of sustainability in supply chain activities was formed mainly to improve competitiveness among rivals.” A sustainable supply chain can enhance competitive advantage for the company by offering a collaboration of social and environmental awareness. Furthermore, collaboration with suppliers is another driving force for the integration of sustainability into the supply chain processes (Alsawawi, 2014). The integration with suppliers generally deals with barriers including organizational culture, information systems compatibility, and lack of top management commitment (Kim and Chai, 2017). Suppliers have played a critical role when it comes to integration of sustainable solutions because they provided valuable insights and ideas employed in implementing environmental projects (Alsawawi, 2014).
Moreover, people and society are considered external pressures due to their growing demands and concerns due to their usage of environmentally products (Alsawawi, 2014). Pressures from society have been high, and companies have been advised to adopt green supply chain practices to show that they have a sense of social and environmental responsibility. Companies should also consider the welfare of society and the impact organizations have on the local communities because every people should at least have a desire to fulfill their moral obligation and motivate sustainability.
Aside from the internal and external pressures, companies have also been faced with obstacles to integrate sustainability within their daily supply chain operations. Such internal obstacles are considered resource costs, lack of knowledge, lack of training, lack of integration of information technology (IT) systems, and poor organizational structure (Alsawawi, 2014). Nowadays, consumers are endlessly seeking for lower prices; however, the resource costs incurred to integrate sustainability into the supply chain processes are generally expensive and not reasonable enough to offer low selling price to their customers. According to Alzawawi (2014), “An investigation of green purchasing practices in US firms revealed that resource cost concerns are the most serious obstacle for taking environmental factors into account in the purchasing process.” Lack of knowledge is another obstacle for integrating a sustainable supply chain approach. Alzawawi (2014) indicated that employees should be well informed and aware of the benefits concerning the importance of integrating sustainability into the supply chain management. In addition, lack of training of employees with little knowledge can be another major hindrance (Alsawawi, 2014). In order to achieve green supply chain approach to their businesses, employees should be highly motivated enough and well trained prior to introducing them to a whole new concept to adopt. Furthermore, Alzawawi (2014) stated that the integration of information technology (IT) system into the green supply chain approach is a major requirement for the new concept to be adopted successfully.
The lack of integration of IT system is another obstacle for organizations when incorporating sustainability practices to optimize the needed resources. Companies need to combine programs and sustainability actions to work, and run smoother and easier by creating an effective supply chain planning and implementation (Alsawawi, 2014). Lastly, the lack of supportive corporate structures or lack of top management commitment has been considered an internal barrier for establishing a sustainable supply chain approach. Top management commitment is vital to company’s success for green initiatives or any sustainability project in supply chain. The managers need to clearly and effectively communicate to the employees that sustainability is a critical element of the core value of the company. Tay, Rahman, Aziz & Sidek (2015) also addressed that top management is critical, and they should be fully committed to service excellence because any quality improvement efforts could be doomed to failure from the start.
On the other hand, companies that are faced with external obstacles could have negative environmental impacts in their supply chains. These external barriers or obstacles include regulations, poor supplier commitment, competition and uncertainty, customers’ unawareness of sustainable green products, and lack of green practitioners (Alsawawi, 2014). All of these obstacles have served as major limitations or drawbacks for implementing a sustainable supply chain. Failure to adopt sustainable practices could result of fines and penalties, which could negatively impact the firm’s financial bottom line by affecting their operating costs (Sanders, 2012). Not only companies that are noncompliance, but they could be more prone to environmental or human health damages, as a result could tarnish the company’s reputation.
One of the major concerns for organizations when implementing a sustainable supply chain solution has been traffic congestion, as well as the related current infrastructure issues around the world. Whether the country is developed or not, and developing, the current logistics infrastructure has not kept up with the pace with the level of economic activity. The production of goods has dramatically risen which led to billions of products in transit every day. Transportation of goods was essential and requires a large amount of fossil fuels to be used. The burning of fossil fuels caused GHG (greenhouse gas) emissions, such as carbon dioxide which has led to a negative impact on our environment and individual health (Dey, et. al., 2011). Nevertheless, the geographical length of supply chains has increased immensely, along with the environmental issues of fuel use and emissions (Grant, Trautrims & Wong, 2017). Due to a lack of prior investment and funding, this resulted to alarming shortage of capacity on roads, ports and railways. This problem also has created traffic and gridlock on motorways, container vessels have been waiting to be unloaded at ports. Moreover, bottlenecks on the railways have been a common problem in many countries, as well as increased carbon emissions adding more cost to suppliers and customers alike. As the rise of economic growth and development continues, traffic congestion is more likely to affect the logistics and supply chain management for many years to come.
The forces of globalization and expanding world markets have been prevalent and imperative in today’s competitive and globalized economy. According to Aziz, Jaafar & Tajuddin (2015), “In a globalized world, rapid development of industry has contributed towards the economic growth.” Economic growth and improved wealth of nations comes with the emergence of new markets and greater flow of transporting products across borders which expands access to markets worldwide. Economic growth and development in transport are closely related because as economies grow, more transport is needed to move the freight that economic growth inevitably generates (Blanchard, 2010). Supply chain managers must find ways to expand the global infrastructure to reduce the congestion affecting transport networks.
Outsourcing of goods and services have increased exponentially, further adding to congestion. This is a significant impact on the environment due to the increased consumption of limited natural resources. The growth of outsourcing has resulted to increased security measures particularly for a much higher volume of containers, which have added delays at both the points of origin and destination.
Another challenge towards a more sustainable supply chain is the massive amount of food waste around the world. According to the Food and Agriculture Organization (FAO), “We waste approximately one-third of the food produced for human consumption which amounts to over 1.3 billion ton a year globally (Derqui, Fayos & Fernandez, 2016).” The food industry must find the best optimal solutions to minimize the environmental impact by reducing food waste. The environmental effects of food waste have contributed significantly on the use of natural resources such as land, water and energy across the food supply chain. The excessive use of all these resources could have negative environmental impacts on climate change which amounts huge costs to society and around the world (Derqui, et. al., 2016). The effects of climate change could lead to crop failures, drought, continued rising prices, depletion of energy and other natural resources could affect the quality of human life (Derqui, et. al., 2016). These issues have a tremendous negative impact on the natural environment. Supply chain managers must take the proactive approach on the social and environmental issues because “food waste arises as a problem that must be tackled appropriately to guarantee sustainable growth on our planet (Derqui, et. al., 2016).”
The growth of e-commerce has risen rapidly around the world. According to Grant, Trautrims & Wong (2017), “The retail e-commerce sales for the United States have increased more than five-fold between 2002 and 2014.” This increase of e-commerce sales has significant relevance for the logistics and supply chain management sector (Grant, et. al., 2017). This imposed enormous amount of pressures and challenges for supply chain managers to ensure every parcel delivery are expedited, punctual and reliable. In addition, the development of omnichannel retailing, consumer’s entire online shopping experience linked to sales and fulfillment must be seamlessly integrated across all channels of interactions (Grant, et. al., 2017). All of these challenges have an impact on the sustainability of transport which contributes to the reduction of natural resources such as oil and emissions (Grabara, 2014).
The lean approach of just-in-time (JIT) practices have made significant impact in a company’s supply chain management strategy (Grant, et. al., 2017). With a consequent impact on the carbon footprint, the JIT philosophy resulted to smaller and more frequent movements of products and materials. JIT has contributed to increase shipments and movements in short time-frames. As more customers demand JIT deliveries from their customers, it is more likely that shipment sizes have been reduced while delivery frequencies increase. Companies must think hard for alternative strategies to reduce the supply chain’s carbon footprint. In addition, supply chain managers must find a feasible solution that enables the benefits of JIT to be gained without jeopardizing the environment (Christopher, 2011). This has been a major challenge because companies practicing JIT philosophy in their supply chain have been more energy intensive than ever before.
Evangelista, Santoro and Thomas (2018) argued that there have been relatively few literature reviews in the area of environmental sustainability in the third-party logistics service providers (3PL). Most research studies on logistics and sustainable supply chain have focused primarily on the manufacturing sector, rather than the environmental sustainability in the logistics service providers (Evangelista, et. al., 2018). Despite the growing environmental problems from government regulators’ pressures, scarcity of energy resources and the increase of greenhouse gas emissions (GHG), companies will need to find solutions and adopt measures to reduce the negative environmental impact of their own logistics activities (Evangelista, et. al., 2018). It has become a top priority for most companies to find ways to reduce the negative environmental impact on the environment. In order to protect the company’s brand reputation, supply chain managers will need to seek the best tool to monitor their supplier or service providers’ performances. For example, Mattel Corporation, a toy manufacturing company, failed to monitor the quality of their suppliers’ materials (Dey, et. al., 2011). As a result, Mattel suffered massive financial loss, recalled over 14 million of toys and forced to pay $2.3 million in civil penalties (Dey, et., al., 2011). Unfortunately, Mattel discovered that their suppliers were using excessive levels of lead in their toy surface paints without Mattel’s agreement (Dey, et. al., 2011). This is one prime example companies faced in managing their global supply chains and receiving full responsibility of their supplier’s negligence. It is imperative for Mattel to keep pace with the strict regulation and also be more proactive on social and environmental issues. They too must develop sustainable operations and work closely with their suppliers to develop eco-friendly raw materials and find the most efficient ways to reduce waste.
Aside from the social, ethical and environmental pressures, companies have been faced with greater challenges, as well as various types of risks associated in their global supply chain. One major risk facing logistics and supply chain functions is supply disruption risks. Kim & Chai (2017) define “supply disruption as unknown events that hinder the flow of materials in the supply chain, thereby leading to various negative effects on the supply chain.” Essentially, it is an unforeseen event that interferes with normal flow of goods and materials within the supply chain (Grant, et. al., 2017). To help mitigate supply disruption risk, companies must identify, assess and employ continuous improvement process within their global supply chains (Kim, et. al., 2017). Failure to mitigate disruption in logistics and supply chain operations, not only cause loss of productivity and revenue, but also loss of human lives. According to Grant, et. al., (2017), “173 people were killed in the Tianjin explosion in 2015.” It is significant for supply chain managers to identify the risks and their monetary impact because any disruptions in the global supply chain could affect their operational, financial and supply chain performances. This allow them to make well informed decisions with respect to the environment, human health and safety and most of all, their company’s financial bottom line.
As companies adopt sustainability initiatives in their global supply chains, they will continue to face greater challenges from several risk factors. The vulnerability of global supply chains with sustainability approach is more likely to increase the level of supply chain risks (Mand, Singh & Singh, 2013). Such risks associated from outside parties of a supply chain is supply risk which is caused by natural disaster, and cyber breach or attack (Grant., et. al., 2017). Supply risks involve disruption of supply inventory and schedules which can lead to inability to supply customers according to promised delivery dates. Whereas, demand risks involve disruption of physical distribution of finished goods (Grant, et. al., 2017). For example, truck drivers on strike can lead to such disturbance or a major fire incident in the warehouse which could disrupt the timely outbound logistics delivery (Mand, et. al., 2013). Any variation in demand could mean higher cost of inventory. Furthermore, security risks involve information systems security, freight breaches and vandalism (Mand, et. al., 2013). For example, this could lead to the loss of sensitive data and disruption production. All of these risks cannot be avoided and supply chain managers must carefully assess which risk factors have the most impact in their supply chain operations, and plan a risk mitigation to prevent any negative effects on the global supply chain. The supply chain managers must understand the bigger scope and know how their actions can impact the risk to the overall global supply chain activities.
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