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.