Sustainable Operations

• Dr. Mark Pagell, York University

• Mr. Stephen A. Dobson, York University

• Dr. Iuri Gavronski, Rio Grande do Sul Federal University (UFRGS)

Sustainable supply chain management (SSCM) is a subset of sustainable development focused on the development and management of the supply chain. The aim of SSCM is to create supply chains that perform well economically, socially, and environmentally.

Definitions: Sustainable Development and Sustainable Supply Chain Management

There are numerous conceptualizations of sustainability, sustainable supply chain management (SSCM) and sustainable operations (Seuring and Muller, 2008). We will follow convention and note that sustainable development is most often defined as “development that meets the needs of the present without compromising the ability of future generations to meet their own needs” (WCED, 1987). Sustainability is generally measured using a triple-bottom-line conceptualization of performance that includes social and natural dimensions along with the traditional bottom line of profits (Elkington 1999; Kleindorfer et al. 2005).

Seuring and Muler (2008) specifically define sustainable supply chain management as:

..the management of material, information and capital flows as well as cooperation among companies along the supply chain while taking goals from all three dimensions of sustainable development, i.e., economic, environmental and social, into account which are derived from customer and stakeholder requirements.

And Pagell and Wu (2009) note that

To be truly sustainable a supply chain would at worst do no net harm to natural or social systems while still producing a profit over an extended period of time; a truly sustainable supply chain could, customers willing, continue to do business forever... A sustainable supply chain is then one that performs well on both traditional measures of profit and loss as well as on an expanded conceptualization of performance that includes social and natural dimensions.

When combined this leads us to conclude that sustainable supply chain management is a subset of sustainable development focused on management of the supply chain. We will follow Seuring and Muller’s definition of what sustainable supply chain management is and use Pagell and Wu’s conceptualization of what a sustainable chain achieves to guide discussions of sustainability outcomes.

We note that we are explicitly looking at sustainable supply chain management not sustainable operations. This is a conscious choice based on the following:

1. From our perspective operations is included in supply chain management. sustainable supply chain management is then a broader and more inclusive focus.
2. A life-cycle assessment of the impact of a product or service on social and environmental systems will encompass the entire supply chain, not a single link’s operations. While we can certainly examine an individual member of the chain from an environmental or social performance perspective the impacts of the entire chain seem to be much more important.
3. Good (or bad) performance on environmental and or social outcomes by one member of the chain could be balanced and offset by the behaviour of other chain members.

What do we know about sustainability: Relationships among the elements of the triple-bottom-line

There is a developed body of literature that theorizes as to why sustainability is important (e.g. Gladwin et al., 1995) as well as how pursuing sustainability should be profitable (e.g. Hart, 1995). And there are now numerous case studies of leading organizations in the quest to become sustainable (e.g. Dobose, 2000; Farrow, 2000; Goodman, 2000; Maslennikova, 2000).

Theoretical discussions of sustainability tend to cover all three elements of the triple bottom line. Research, however has focused mainly on the relationship between social performance and operational performance, or the relationship between environmental performance and operational performance.

Sustainability is then well developed theoretically ,but robust and generalizable simultaneous examinations of all three elements of the triple-bottom-line are generally absent. This is especially true in the operations management literature where almost all of the research examines environmental issues while overlooking the people / social component of sustainability (Kleindorfer et al., 2005).

Although our aim is to eventually be able to talk about sustainability in it’s entirely, the field is not yet that developed. Therefore, we examine what we do know about the interrelationships between the elements of the triple-bottom-line.

What is the relationship between economic performance and environmental performance – or does it pay to be green?

In general the literature has found that it does pays to be “green” (e.g. Russo and Fouts, 1997; Christmann, 2000; Melnyk, Sroufe and Calantone, 2003; Pagell, et al. 2004).  Having said that we don’t know the limits of this relationship and we do know that some organizations have failed dramatically at being green (Walley and Whitehead, 1994; Hoffman, Gillespie, Moore, Wade-Benzoni, Thompson and Bazerman, 1999; Morris and Su, 1999; Beck, 2008).

What is the relationship between economic performance and social performance?

This question is difficult to answer precisely for two reasons. First, social performance has not been addressed by nearly as much research (that also examines business outcomes) as environmental performance.  And second, when these issues are addressed each test seems to operationalize social performance differently. That said, though not definitive, the literature points to a positive relationship between social performance and economic performance. At the highest levels of abstraction being socially responsible is linked to positive organizational outcomes (Orliztky, et al., 2003; Bauer, Koedijk, and Otten, 2005). At medium levels of abstraction investments in human capital are linked to positive organizational outcomes (e.g. Hitt et al., 2001; Collins and Clark, 2003). And while direct evidence does not exist at the operational / supply chain level of analysis, the literature (Brown et al.2000, Das et al. 2008) posits that protecting and enhancing employee well-being through improved health and safety will improve the  operational performance, suggesting that at least some efforts at improving  the social performance of the supply chain will have positive benefits for the chains economic performance.

Test of the entire triple-bottom-line.

While we would not expect there to be tests of the relationship between just environmental and social performance in the business literature, it is still disappointing that the only test we are aware that examines all thee elements of the triple bottom line, albeit in a limited fashion, is Pagell and Gobeli (2009). This work is limited by both a small sample from a single state in the USA and its measures.  Environmental performance is operationalized as emissions from the focal plant. And social performance is restricted to employee safety, which is operationalized as the number of violations of safety regulations at the same plant. Pagell and Gobleli (2009) find that social performance and environmental performance interact significantly with operational performance (see figure one). Still these results are intriguing because they suggest that high performance on all three dimensions of the triple bottom line is possible, which is another way of saying that organizations can truly be sustainable.  However, they also find that the highest operational performance in their sample accrues to those organizations who are the least sustainable. If one has a short term perspective then being sustainable is not as profitable as ignoring the social and environmental elements of the triple bottom line. However, numerous authors have noted that expectations on organizations in terms of social and environmental outcomes are continually rising (Waddock, 2006), and the question is quickly changing from if it pays to be responsible, to how to be responsible (e.g. Kleindorfer, Singhal and Van Wassenhove, 2005). We examine how supply chains may become more sustainable in the next two sections.  

Fig. 1 The relationship between environmental performance and operational performance at high and low levels of employee well-being.

Making operations more sustainable

Research in sustainable supply chain management has often focused on linking existing best practices in supply chain management to environmental and or social outcomes (Pagell and Wu, 2009). Building on what we already know does not in any way diminish these studies. As Corbett and Klassen (2006) note, including an environmental perspective with existing practices can lead to higher supply chain performance. However, it is also important to identify what is new, novel and unique about developing sustainable supply chains. That said often what is new in sustainable supply chain management is how an existing practice is performed. For instance Pagell and Wu (2009) propose that the practice of gathering additional data to insure transparency and traceability in the supply chain is a new activity that focal firms in the supply chain engage in to help become more sustainable. But this data gathering and assessment often occurs via supplier certification, which is clearly an existing practice. Therefore, rather than trying to create categorizations which will likely be artificial, not to mention subject to change over-time, in this article we will discuss what organizations do to develop and maintain sustainable supply chains via wide practice areas. Every attempt will be made to identify either what is truly different about an individual practice or how an existing practice has been modified to achieve triple-bottom-line goals.

Top management cognitions and priorities

There is a great deal of literature supporting the propositions that top managers need to be committed to being sustainable in a tangible way for an supply chain to make meaningful progress toward becoming sustainable (e.g., Klassen and Whybark, 1999; Ramus and Steger, 2000). Pagell and Wu (2009) propose that the following four activities are fundamental for creating and maintaining commitment.

1. The economic and non-economic elements of sustainability need to be aligned. Leaders in sustainable supply chain management create supply chains where the accomplishment of environmental and social goals also further business goals.
2. Sustainability is part of the daily conversation. Leaders in sustainable supply chain management discuss environmental and social issues as part of their daily conversation surrounding the management of the business, as opposed to treating these issues as something to be discussed occasionally or in isolation.
3. The organization has a guiding value or principal. This principal provides a succinct way for chain members to describe the chain’s values and how it conducts business.
4. Sustainability is everybody’s responsibility (Sarkis, 2001). Everyone in the chain is responsible for making the chain more sustainable.

This commitment must be translated into training employees to pursue sustainability goals (Starik and Rands, 1995), and then creating incentives for employees to use the training (Daily and Huang, 2001; Pagell and Wu, 2009). Without such incentives employees will continue to pursue only traditional goals (Handfield, Melnyk, Calantone and Curkovic, 2001) and managements’ stated sustainability priorities will be unmet.

Re-Conceptualizing the Supply Chain

Creating sustainable chains requires innovation in numerous areas, including rethinking the supply chain itself. The literature suggests three basic forms of re-conceptualization; changing what the chain does, moving toward closed loop systems and re-conceptualizing who is in the chain (Pagell and Wu, 2009).

Most supply chains are not sustainable, therefore creating a chain that is sustainable, or at least more sustainable than the industry norm requires at a minimum changes in product and process design. But becoming truly sustainable often requires more than just product and process redesign. Exemplars in sustainable supply chain management have to redefine what the entire supply chains does (Pagell and Wu, 2009) often via a move to a more service oriented strategy (Sharma and Henriques, 2005). Redefining what the chain does may be easier for small organizations (Hart and Milstein, 1999) which is important because small organizations on average have worse sustainability performance than large organizations (Min and Galle, 2001). Sustainability is then an opportunity both for small organizations and the wider community in that laggards may have the best chance of becoming leaders.

One of the other explicit ways to change what the chain does is to change how the focal firm in the chain envisions it role within the community and the supply chain. The eco-centric view suggests that organizations should consider the well-being of the members of the social and environmental systems where they do business (e.g. Shrivastava, 1995). A supply chain is not successful unless the communities and where the chain operates also thrive. In the sustainable supply chain management literature this can be evidenced in the discussions of supplier continuity (Pagell and Wu, 2009; Pagell, Wu and Wasserman, 2009) which is an explicit concern for the well-being of suppliers and the communities where suppliers operate. In order to provide continuity for suppliers, focal / buying firms need to change how they manage supplier relationships, often in ways that do not seem to provide direct benefits to the focal firm (Pagell, Wu and Wasseran, 2009).

Reverse logistics and closed loop supply chains are a component of changing what the chain does that are treated separately for two reasons. First, this is an area that has received a great deal of research interest both from an empirical and analytical perspective (e.g. Guide, Jayaraman and Linton, 2003). In addition to numerous models of reverse flows, the literature is clear that closed loop supply chains will require changes in product design (Krikke, Blanc and van de Velde, 2004) as well as relationships with other members of the chain (Pagell, Wu and Murthy 2007).

The second reason for treating closed loops separately is that rather than being viewed as part of a larger research stream in sustainability, this research is often treated as its own unique literature stream that deals mainly with technical issues (Pagell and Wu, 2009). With the notable exceptions of (Starik and Rands, 1995; McDonough and Braugart, 2000) there is little theoretical research that helps link creating closed loops to the larger notion of creating sustainable supply chains. Based on Pagell and Wu’s (2009) findings that most exemplars in sustainable supply chain management are just beginning to address creating true closed loop systems (in general not just for returns of products) we expect this research area to continue to grow and to become better linked to the rest of the sustainable supply chain management literature.

The final way that organizations are re-conceptualizing their supply chains is based on who is in the chain. The eco-centric view of the firm (or supply chain) would suggest that to create sustainable supply chains requires the inclusion of NGO’s, community members, and perhaps competitors in the chain, even though traditional chains either ignore these entities or treat them in an adversarial manner (Gladwin, et al., 1995; Shrivastava, 1995; Ergi and Herman, 2000; Seuring, 2004; Sharma and Henriques, 2005). There is empirical evidence that exemplars in sustainable supply chain management are indeed engaged in these behaviours (Pagell and Wu, 2009).

Internal operations

TQM, JIT, lean and other similar continuous improvement based philosophies have been considered operational best practice for decades. Continuously improving a production system via the elimination of waste is a fundamental component of well run operations. And waste reduction is also a fundamental component of reducing the environmental impact of the operations of an entire chain and or any link in the chain. So it should come as no surprise that TQM, JIT, lean and other associated continuous improvement based philosophies are linked to improved environmental performance as well (e.g. Clark, 1999; Curkovic, Melnyk, Handfield and Calantone, 2000; King and Lennox, 2001).

This linkage is explicated in the stream of research on [total quality environmental management] (TQEM). Total quality environmental management refers to business management practices that reduce or prevent environmental pollution achieved through [Total Quality Management] techniques (Albero, 1999).

The objectives of Total Quality Environmental Management are to (Jayathirtha, 2001):

• reduce waste and improve continuously,
• reduce resource depletion,
• reduce or eliminate environmental pollution,
• design products for minimal environmental impact in production, use and disposal,
• control environmental impact of raw material sourcing,
• control environmental impact of new developments,
• promote environmental awareness among employees and
• promote environmental awareness within the community.

The literature links these practices to simultaneous improvements in operational and environmental performance (e.g. Clark, 1999; Curkovic, Melnyk, Handfield and Calantone, 2000; King and Lennox, 2001). However, there is some literature that suggests that organizations that make use of continuous improvement based philosophies such as TQEM focus most of their efforts on incremental improvements of existing production systems, while avoiding radical innovations (Benner and Tushman; 2002,2003). TQEM and the like may then be most useful for making an existing operation or chain more sustainable, but a hindrance when an operation or entire chain needs to be radically changed (Pagell and Wu, 2009).

The social component of sustainable operations has generally been under-studied (e.g. Kleindorfer, et al., 2005). However, there is research linking worker –well being to operational and or environmental performance (Brown et al., 1995, Das et al., 2008; Pagell and Gobeli, 2009). And Pagell and Wu (2009) find that the investments that exemplars in sustainable supply chain management make in their workers and communities to support a social agenda often result in high levels of commitment from the employees. This commitment is translated into economic benefits when the employees are motivated by their commitment to the organization to help the chain innovate and compete.

Management of suppliers – certification, development and collaboration

Supplier development, supplier certification and collaboration with chain members, especially suppliers, are all traditional best practices in supply management that have also been linked to creating more sustainable supply chains (Zhu and Sarkis , 2004; Zhu, Sarkis, and Lai, 2008; Pagell and Wu, 2009). Certification is a tool that has traditionally been used to assess suppliers to reduce the risk of supplier non-conformance in areas such as quality and delivery. In the realm of sustainable supply chain management, certification is used to assess the risk of suppliers using banned or dangerous inputs, violating environmental or labour laws, not following a code of ethical conduct and so on. Certification is one of the few areas where social issues such as the use of sweat shop labour, are addressed explicitly in the literature (e.g. Teuscher, Gruniner and Ferdinand, 2005).

Collaboration with other members of the supply chain, especially suppliers, is a fundamental traditional best practice, that is also a tool for creating more sustainable supply chains (Carter and Carter, 1998; Zhu and Sarkis, 2004). Making these collaborations successful will require incentives to reduce the suppliers’ risk from engaging in what will be seen as new or novel activities (Goodman, 2000; Pagell, Wu and Wasserman, 2009).

Supplier development is also a best practice in traditional supply chain management, and one well suited to helping suppliers in environments where expectations are changing. Hence it is no surprise that supplier development is also a key sourcing practice for sustainable supply chain management (Wu, Pagell and Wasserman, 2009). Traditional supplier development activities are directed at helping the supplier be a better provider to the buyer and also have a significant role in creating more sustainable supply chains (Pagell, Wu and Wasserman, 2009). However, sustainable supply chain management often includes other supplier development activities whereby the buyer is helping the supplier to be a better supplier to other organizations and or a better member of the community (Pagell, Wu and Wasserman, 2009). These activities help suppliers and the communities they operate in to survive, so while they may not contribute to the buyer’s economic bottom line, they do contribute to the well being of other chain members and the wider community.

Certification, collaboration and development all depend on information sharing, which is a generic best practice for supply chain management. Pagell and Wu (2009) identify two types of information sharing that are directly linked to sustainable supply chain management; traceability and transparency. They define traceability as “an internal practice of sharing information among chain members about materials and methods (toxins, use of child labor, type of solvents used and so on) to optimize noneconomic chain performance and minimize risks.” Transparency is a related activity where buyers demand “information on the flow of money through their entire chain. The key difference between traceability and transparency is that with transparency the buying firm is demanding to know the profitability of every supplier in the chain, with the explicit goal of ensuring that chain members at origins... made enough of a profit to do more than just subsist.”

The initial intent of gathering this information, especially traceability is often risk reduction. However in the process of demanding, analysing and sharing the information collected as part of efforts to increase transparency and traceability supply chains gain increased knowledge about how processes are being done; knowledge which can be used to improve the chain as a whole. Traceability and transparency are often linked to supplier certification, but can also play a role in supplier development and supplier collaboration.

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Sponsored by: Elliot Bendoly, Emory University

Reviewed by: Anonymous

Accepted on: 2010-08-23 17:34:25 GMT