Monday, April 21, 2014

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.

Thursday, April 3, 2014

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.