Challenges and propositions - Part 5 of 5

The fifth major challenge raised in the research studies is related to the difficulties of small and medium sized enterprises (SMEs), as they may be uncertain about the benefits of upgrading to new sustainability standards and codes of conduct. They may also lack the knowledge, skills, time, financial and human resources in responding to the social and environmental requirements of global buyers and supply chains. It was exemplified that currently, several large Logistics Service Providers (LSPs), intermediaries/ forwarders, carriers, and shippers have Corporate Social Responsibility (CSR) policies, but many small and medium-sized ones do not. SMEs are also likely to lack the bargaining power required to co-develop suppliers who fail to comply with standards. This challenge is felt more by SMEs that operate at the bottom of the pyramid and in developing countries.

To increase the adaptive capacity of SMEs, their “agency” and “decentralized decision-making” capacities while interactions with other stakeholders and actors of supply chains should increase. In designing the previously highlighted sustainability-oriented schemata, SMEs and new startups should receive sufficient support and incentives to deal with the difficulties of adaptation to new schemata and comply with standards, licenses, and labels.

Challenges and propositions - Part 4 of 5

The fourth major challenge raised in the research studies is related to difficulties in corporate governance of sustainable supply chains. This is due to the fragmented nature of supply chains as well as the logistics industry since each stakeholder can be a part of several other chains, can belong to a variety of economic sectors and business federations, can have contracts with various organizations, and can be regulated by different rules and laws. Fragmentation can increase because of the increase in outsourcing, offshoring, internationalization, market expansion/ diversification, and moving downstream in the chain.

Corporate governance difficulties are also due to the many contexts in which supply chains operate. These can vary from a local place to urban areas, regions of a country, and different countries. This increases the difficulties in carrying out the following:  audit and control of all the processes, activities, and stakeholders; transparent tractability in the chain; collaboration among the stakeholders; acceptations and adaptation to a wide range of corporate codes of conduct, standards, certificates, labels, norms, bureaucracies, administration processes, rules and laws especially in a multinational environment where consensus among stakeholders or a social dialogue may be lacking.

There is also considerable heterogeneity in sustainability practices between and within industries/ businesses based on their size, constellation, customer demands, segments, and market place. This heterogeneity encourages different governing mechanisms and legislation.

As highlighted in one of the research studies, another obstacle is the reluctance of businesses to accept legislation or to participate in initiatives. One example is night deliveries where the receiver must be present when the delivery is made, which is not always acceptable. There are additional concerns about higher driver wages, higher reception/ dispatch costs, and safety when it comes to night deliveries. Another example is the construction and operations of a UCC (Urban Consolidation Center) initiative that may ultimately be doomed to failure if the potential customers refuse to participate. Some evidence-based studies attest that businesses with frequent, differentiated, and high-volume deliveries are less willing to use UCC services where much of the urban freight is already consolidated at the intra-company level or by parcels carriers. Businesses dealing with valuable goods as well as those which demand higher frequency, punctuality, and logistics quality are more reluctant to participate. Difficulties can also emerge for a single UCC as it may be unable to handle the wide range of goods moving in and out of an urban area, due to such factors as different handling and storage requirements. Obligation and compulsion can also threaten the sustainability of UCCs by making the potential customers as well as the private sector unwilling to participate and/ or pay.

Another research study showed that there are also concerns over transparency, accountability, and credibility of self-regulatory initiatives, standards, and codes of conduct, as well as third-party or external auditors and certifiers.

As mentioned in the previous blog post, investigating the complexity profile can be beneficial to embody a supply chain. It subjectively clarifies the scale of a supply chain (i.e., the contextual level at which it is positioned); the holism of a supply chain (i.e., its boundary and what is included in it); and clusters as well as prioritizes the goods, services, resources, and stakeholders. This can help decision-makers and other actors of a supply chain to understand the extent of the sustainability aspects that have to be developed in goods, services, and emerged resources. It may also help to reduce knowledge asymmetry and tackle corporate governance difficulties by better understanding the nature and degree of the responsibilities of a supply chain in relation to its emerged resources as well as the ones shared among the stakeholders.

Although it was highlighted in the previous blog post that setting globally agreed minimum schemata/ norms/ preferences/ codes of conduct are needed, the schemata should also consider the different requirements of different industries/ businesses. In other words, one shoe does not fit all: one schema cannot be suitable for different industries or markets. Sustainability-oriented schemata should be adapted to different requirements of different types of industries/ businesses – while adjusted inside every industry/ business – and should consider changes at different stages of development. Furthermore, due to co-properties, goods and services offered by a supply chain change and are changed by changes in the surrounding environments. A sustainable supply chain co-adapts with the sustainability-oriented values and schemata/ norms/ preferences defined in its surrounding environments. The new schemata for governing a sustainable supply chain should encourage adaptation of emerging sustainability oriented norms, regulations, technologies, and infrastructures in the surrounding environments.

The subsystems adapt to the schemata by self-organizing without an internal or external controller or centralized decision-maker if they have enough autonomy and the agency capacity for decentralized decision making. However, to increase trust and efficiency as well as to reduce probable opportunistic behaviors, further top-down governing mechanism can be defined. Using further bottom-up mechanisms can bring innovation, democratic values, and competitive advantage to a supply chain.

There is also a need for independent agencies to periodically scan and modify the sustainability licenses and labels. This may increase trust among authorities and stakeholders as well as acceptance of new schemata/ norms/ preferences, standards, requirements, and rules. However, due to the fragmentation of supply chains and the impossibility of controlling all the subsystems, the responsibilities should be shared and integrated into their behavior, strategies, and operations. Without operationalizing the strategies, sharing the responsibilities, taking part and initiatives, turning intent into action, and continuity or commitment sustainability will be washed.

Challenges and propositions - Part 3 of 5

Dealing with increasing complexity is the third emerged challenge in making supply chains sustainable.

The first dimension that contributes to this complexity is related to difficulties in evaluating sustainability in supply chains due to: subjectivity in defining their changing boundaries and involved organizations and individuals; multiple ways that their interactions and activities affect or are affected by their surrounding environments (natural, organizational, business, and social environments); as well as multiplicity of interests and differences in: expectations, cultures, social practices, local conditions, contextual settings in which the decisions are made, and legal requirements.

Due to these, evaluation of sustainability in complex supply chains lacks a meaningful, adequate, or unified indicator, standard, or label. The indicators, standards, or labels neither consider the changes over time nor the interactions among all the triple bottom lines. It might also be counterproductive to measure or assess all the negative effects of supply chains activities. Furthermore, it might be difficult to measure or assess sustainability in intangible resources or shared responsibilities or corporate responsibilities especially when they vary at different stages of development.

The second dimension is related to leakage/spillovers in open supply chains as a result of the shift of emissions from one sector to another (e.g. from transport to production of electricity) or from one country to another. Leakage might also happen when a stakeholder evades its responsibilities or externalizes its social and environmental degradation costs by transferring to/sourcing from places or stakeholders with looser regulations and standards.

The third dimension is related to several trade-offs existing in sustainable development of supply chains whereas making one part sustainable leads to unsustainability in another part. There are also several conflicts of a paradoxical character which simultaneously exist in managing, governing, and developing sustainable supply chains.

One example of the trade-offs is between economic gains and environmental damages. For instance, exports, free trade, or geographical positions might lead to imbalances in both goods and resources flows and even increase mobility and consequently environmental damage/degradation. Shorter delivery times, just-in-time (JIT), lean production, and higher service levels might be counted as a competitive advantage by leading to economic gains while speed up the supply chains, sacrifice full utilization of resources [due to small order problems, less than truckload (LTL), empty running], increase packaging and handling services, and lead to transport and traffic intensities. E-commerce might also decrease person transport while increase goods transport. Another exemplary observation in recent years is that shifting/off-shoring the upstream parts of supply chains to developing/emerging countries has accelerated social and economic growth while might decelerated employment in the home country and at the same time deteriorated the natural environment due to longer transport distances among the supply chains stakeholders.

There are also examples of trade-offs in re-bound effects when, for example, energy efficiency or cheap fuel encourages higher consumption and mobility; improvements in infrastructure increase safety and security while at the same time encourage mobility and consequently lead to environmental degradation. Another example is the trade-offs existing in the production of non-fossil fuels. To cite an instance, extracting biofuels from biomass may lead to higher income for rural communities, increase food output per hectare (productivity), and industrialize agriculture and forestry, while at the same time increase land price, food prices, hunger, deteriorate the cultural carrying capacity, or endanger biodiversity. Urbanization and industrialization may also strain the availability of biomass sources especially in developing countries.

Some examples of paradoxes in managing, governing, and developing sustainable supply chains are: a) coopetition (simultaneous existence of cooperation and competition); b) increase in the self-regulatory survival capacity by an increment in variety which is also a hindrance to rapid adaptation; c) simultaneous processes of innovation, i.e. learning and internalizing new ways and discarding those ways that are older and less effective; d) increasing freedom and autonomy for sake of self-organization and creativity while setting restrictions and rules for sake of controlling the work routines, management, and governance or taking advantage of capabilities emerged by bundling the resources; e) increasing diversity while organizational unity and integrity; f) pollution reduction from goods, services, and resources in parallel with increasing diversity for (co-) evolutionary sustainability or for developing intangible resources; g) encouraging increased consumption for economic growth while decrease it for environmental protection; h) investment during economic recession; i) developing core competency/division of labor/division of perception and being multi- as well as inter disciplinary/holistic; j) centralization of decision-making for increasing efficiency and simultaneously its decentralization for making the supply chains/networks democratic, resilient, and robust.

Complexity profile (please refer to my doctoral dissertation) can facilitate recognition of primary and secondary stakeholders and degree of environmental, social, and economic responsibilities to each stakeholder. Nonetheless, due to nonlinearities of interactions, even a small or secondary stakeholder may have a great impact on the supply chains over time. Investigating the complexity profile can also be beneficial in benchmarking, life cycle assessment (LCA), and labeling of goods and services by clarifying the scales and details in description of supply chains. Although subjectivities in evaluation cannot be omitted, setting globally agreed minimum schemata/ norms/ codes of conduct/ requirements/ standards can reduce subjectivity, ambiguity, and leakage/ spillovers. As supply chains are open systems with global interactions and  damages, such an agreement sounds beneficial. It can also simplify benchmarking and labeling of goods and services and ultimately make the choice easier for customers and end consumers. Those who behave proactively by creating and following further criteria might gain a competitive advantage. However, what should reactively be considered and what should be proactively done is an opportunity for further research and empirical investigation.

To deal with the trade-offs, a more holistic view on the system as well as the investigation of the complexity behavior (i.e., effects of interactions) should be taken into account. However, paradoxes simultaneously co-exist and cannot be completely resolved, since the generation of solutions only creates new paradoxical situations in new circumstances. A complexity theory perspective can also be beneficial in correct handling of changes and context-dependency in making supply chains sustainable. It may help the stakeholders to learn from the interrelationships and grasp emergent properties as well as gradual/ evolutionary, radical/ revolutionary, co-evolutionary, and (co-) adaptive changes over time. 

Challenges and propositions - Part 2 of 5

The second emerged challenge in making supply chains sustainable is related to difficulties of operationalization. Following factors may contribute to the challenge of making sustainable supply chains operationally feasible by creating inertia i.e. a fear and high resistance to change.

Knowledge asymmetry

Although awareness about triple bottom lines is increasing, it became apparent from the research studies that knowledge asymmetry regarding all of their criteria has also increased as they are interpreted differently in practice. Due to the wide range of criteria that come under umbrella of macro definition of sustainable development offered by the Brundtland Commission, it is difficult to interpret all the triple bottom lines and their criteria from the micro levels and what it concretely means in different parts of supply chains. In addition, there is knowledge asymmetry regarding nature and extend of responsibilities of businesses which makes it difficult to comprehend among whom the responsibilities are shared in the supply chains. Due to difficulties in translating the triple bottom lines into relevant and prioritized activities for every process and/or stakeholder, they are rarely addressed beyond triadic relationships in the supply chains.

Change of mind-sets and behavior

Another obstacle towards operationalization is related to difficulties in changing the stakeholders’ mind-sets and behaviour.

Although there are evidence-based scientific claims about environmental and social problems caused by supply chains activities, there are still resisting mindsets that reject the claims or ignoring mindsets that erase the claims. Changing the mindsets becomes further challenging when the cultural or organizational distances in the supply chains increase. It also became apparent in the research studies that long-term strategic thinking; visionary leadership; and engagement or commitment by the co-workers might be lacking. Reluctance to turn intent into action and lack of consensus or misalignment between behavior or practice and visions will wash the sustainability as its talk cannot walk.

Difficulties in change of behavior may also be due to reductionist, positivistic, objective, and linear ways of thinking; compartmentalization and lack of completeness in perceiving sustainability; bounded rationality i.e. imperfection of human reasoning and impossibility of  taking completely ideal decisions; and satisficing i.e. behavior that satisfies limited aspirations without optimizing.

Uncertainties

Uncertainties can also hinder operationalization. For example, as highlighted in the research studies, there are strategic uncertainties regarding sustainability consequences of supply chain design such as time perspectives regarding changes in logistical set-ups and infrastructures; government legislations/ regulations and decisions; localization of production or primary industries; sourcing of material and components; facility location of static resources; commercialization of new clean technologies; competitive advantages and strategies formulated by stakeholders; and the nature of future fossil-free fuels and renewable energies and infrastructural changes for their production and distribution especially in global markets.

In addition, there are also a number of operational uncertainties or dilemmas in choice of the existing fuels, routing of the vehicles/fleet, negotiation of contracts, quality and timing in return flows in reverse logistics, unexpected/unforeseen incidents like order cancellation, delivery-time changes, consumer behaviour and demands, traffic congestion, road construction, flea markets, natural disasters, weather changes, accidents, mechanical failures, etc.

In order to decrease knowledge asymmetry, themes of sustainability have to be well understood and all the stakeholders should be persuaded. Researchers and media have a great responsibility for reducing the existing gap and inertia by providing scientific claims and sharing knowledge.

A pattern of sustainability emerges if the values and norms are understood, pursued, and integrated into behavior, strategies, and operations of all stakeholders as well as their organizations and interrelationships. Without operationalizing the strategies, sharing the responsibilities, and taking part and initiatives sustainability will be washed. In order to walk the talk of sustainability, “taken for granted mindsets” need to be changed and inertia against the operationalization of innovative processes need to be minimized.

As supply chains are dynamically transformative systems, all uncertainties existing in their transitions towards the sustainability targets cannot be omitted. However, the authorities should give the stakeholders enough confidence that the long-term targets will be persuaded, transparency in regulations and norms will be guaranteed, and innovative acceptable solutions will be fostered. In addition, resilience and self-organizing capacities of supply chains in dealing with uncertainties should increase.

Challenges and propositions - Part 1 of 5

Five major challenges were emerged after classification and synthesis of challenges identified in the research studies (data were collected from: systematic literature review, documents of the research projects, survey and interviews with a sample of logistics companies). The five major challenges and propositions for tackling them are briefly explained in the following blog posts.

The first major challenge is to ‘shift the values’ in the supply chains where the non-economic pillars of sustainable development are equally weighted with the economic pillar.

One difficulty in shifting the values is short-term profit maximization, based on the underlying logic of theory of the firm and transaction cost economics in supply chain management, which discourages the inclusion of human and environmental degradation costs or social responsibilities. While corporate social responsibility and environmental concerns are regarded as very important for the future of supply chains, costs and revenues are still the main drivers. This is troublesome since sustainable development, like any type of development, might initially be costly. To cite examples, it is initially costly to redesign the supply chains, change the logistical set-ups, develop new infrastructures, develop clean technologies, find alternatives for non-renewable natural resources, change the physical resources like the fleets, educate the stakeholders about their responsibilities, and apply for certifications.

Another difficulty is to change the customers’ priorities. It became apparent from the research studies that customers still give priority to financial criteria like delivery time, price, functionality, and service-rate ahead of environmental and social criteria like emissions, pollutions, recyclability, and working conditions as well as rights of workers. This becomes even more troublesome in global markets as well as businesses with low profit margin where fair trade and business ethics are clearly ignored. Non-economic aspects are mostly considered when customers or legislators demand or accept.

To shift the sustainability values, new business models should be developed that evaluate non-economic values on equal terms with economic ones. Both top-down (e.g., tougher harmonized global regulations and norms) and bottom-up (e.g., customers’ initiatives) mechanisms can facilitate the development of such models.

The higher costs in developing long-lasting environmentally sustainable solutions (such as  clean infrastructures, technologies, vehicles, and fossil-free fuels) should dynamically become normalized for supply chains stakeholders. Regulations should encourage development of such solutions by, for example, adjusting the juridical laws, giving subsidies and incentives, and encouraging research and innovation.

Social sustainability - Part 2

LTH also has responsibility in sustainable development of its [internal and external] human as well as societal capitals. It takes responsibility by generating, sharing, and commercializing scientific engineering/technical knowledge. [Social] sustainability should be integrated in its courses, research programs/projects, culture and behavior. Below are some exemplary measures for developing social sustainability in our faculty:

A) Taking care of health, safety, and security of human capitals [such as employees, researchers, students] and their working environments

B) Respecting the rights of human capitals (such as: equitable/fair opportunities for registering in courses and applying for scholarships, equitable/fair treatment of students and researchers while considering their differences and different needs, equitable/fair employment opportunities, written contracts, legal wages and compensations, gradual increase in the minimum wage rate in accordance with economic growth, retirement funds, maternity leave, fair working hours, decent working conditions, fair return on contributions, freedom of movement and association, right to collective bargaining, right to strike, inclusion in decision-making/ democratic decision-making)

C) Avoiding: all forms of discrimination based on nationality, ethnicity, race, gender, religion, class, or wealth; forced labor; bonded labor; and harassment and abuse.

D) Developing the intangible organizational culture by: creating a learning context; exploiting innovation and creativity; attracting, retaining and motivating the human capitals [even the alumni] and protecting their dignity, well-being, satisfaction, loyalty, and commitment to work; fostering diversity while at the same time [organizational] integrity and inclusion; protecting the brand, reputation, and trust

E) Integrating the codes of ethics in all activities such as: sourcing from ethical or socially responsible suppliers; fair distribution of resources; avoiding obscure contract terms; avoiding corruption, extortion, bribery, and illegal payments; being honest and transparent; and conducting business consistent with common societal shared norms and values

F) Taking responsibility for development of societal capitals locally to globally such as: social investments, social innovation, supporting public services, community development, and philanthropy

G) Assessing and benchmarking development of human and societal capitals; setting and following standards, guidelines, and codes of conduct; publishing reports; and taking initiatives

H) Increasing the scale and diversity of collaboration and joint actions with different stakeholders.