Let Your Supply Chains Be Sustainable Too: Sound Advice from Luxembourg

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In their pursuit of sustainability, organisations’ initial and keenest focus is likely to be on their own operations. Nevertheless the supply chain is an aspect that demands at least equal commitment. In this article, we get advice from the Luxembourg Centre for Logistics and Supply Chain Management about how companies can address the issue, and about the centre’s active role in the drive to research and address sustainability in the supply chain.

Supply chains and the environment

Flows of goods and services – supply chains – are at the core of how economic prosperity is created. Decisions made by regulators, policymakers and firms, as well as consumers, shape the flows of goods and services. Regulators and policymakers (such as governments and international institutions) set the boundary conditions according to which firms and consumers operate; firms design and operate supply chains within these conditions to deliver goods and services to their consumers; consumers decide when and where to use these goods and services.

Yet, current practices in the management of these flows and supply have an adverse impact on the environment in which we live. There is an increasing awareness of this adverse impact and the necessity for forms of supply that safeguard the future availability of scarce resources, limit environmental impact and withstand the scrutiny of stakeholders concerned about potential reputational damage to the firm. World leaders and media have put sustainability on the agenda and the world is now pursuing the limitation and reduction of this footprint (see, e.g., the UN Sustainable Development Goals (UN, 2015) and the Paris Agreement (UNFCCC, 2015)).

The reality is that executives need to manage their organisations’ use of scarce resources, comply with regulatory requirements, and build and protect the value of their brands, regardless of their personal beliefs.

The decision you face

The C-suite faces increasing pressure to make supply chains more sustainable from an environmental perspective. Whether an executive believes that care for the environment poses “the challenge of our time” or is a climate sceptic may not make a difference in identifying the best path forward. The reality is that executives need to manage their organisations’ use of scarce resources, comply with regulatory requirements, and build and protect the value of their brands, regardless of their personal beliefs. On top of that, sustainable products have created a growing niche market, in particular in North America and Europe, and there is a growth opportunity in supplying to customers seeking these products.

Many firms have now launched initiatives to reduce the environmental impact of their supply chains. Numerous firms have made clear moves in declaring bold objectives. For instance, Maersk announced in 2018 the objective of having net-zero CO2 emissions from their operations by 2050. Delta, which has had carbon-neutral growth for several years, has recently committed $1 billion over the next 10 years to become the first carbon-neutral airline globally. And Nike is now committed to its Move to Zero initiative, whereby it will shift to renewable energy by 2025, reduce carbon emissions by 30 percent by 2030 (in line with the Paris Agreement) and divert 99 percent of footwear manufacturing waste from landfills. Evidently, the pressure is building up and firms are scaling up their commitment.

Green supply chain LCL eXplore Conference Panel

Translating your commitment to actions: first steps

The commitment itself is part of the long-term vision, the strategy of the firm, and a guiding principle according to which the organisation should operate. Translating the commitment into actions requires a closer look into the trade-off that businesses face. Changing decisions can come at a cost, but then there is the benefit, which is often harder to quantify. Decision makers should be aware of the trade-offs and understand how their decisions could affect the bottom line and the environment. Having a menu of options could make the process clearer to managers.

At the Luxembourg Centre for Logistics and Supply Chain Management, numerous past and ongoing research projects are dedicated to this topic. We engage research projects at both graduate and postgraduate levels. We work closely with firms, and several master’s thesis projects have been completed in order to help them in this respect. A typical finding in such projects is that considerable reductions in environmental impact can be (and are) achieved with minor or negligible cost increases. One example is a supply network design study at a large manufacturer with global operations, which found that the global carbon footprint due to transportation could be reduced by around 10 percent at an increased transportation cost of around 0.1 percent. This is possible by using more-direct, high-volume shipments to reduce the total travel distance, as well as geographically aligning the production locations of goods with their most important markets. At the master’s level, projects strive to provide decision makers with a clear decision-support tool for environmentally driven decisions.

At the doctoral and postdoctoral level, researchers are leading projects to identify gaps, develop tests and assess solutions to help firms in this respect at a more fundamental level, supporting not only firms, but also decisions at other levels, such as policy making. For instance, one PhD project considers a redesign of firms’ supply chains in a way that allows them to provide the required customer service, have a low negative environmental impact and yet be cost-efficient. Dual-sourcing supply chains is one such redesign. A dual-sourcing supply chain uses two distinct supply sources, e.g. local and offshore, recycler and non-recycler, or two distinct transport modes for shipments from one supplier. An example of such a sustainable dual-sourcing strategy is to replenish most products using an eco-friendly, but slow, transport mode, and a fast, but polluting, mode as an emergency source in the event of imminent stock-outs after a supply disruption, such as the coronavirus poses at present.

Translating your commitment to actions: the holistic approach

The challenges that firms face in making the transformation to more sustainable supply chains come in three broad categories. The first challenge is to gather and organise all the information that is relevant to assess the current or a proposed supply chain design. Sustainability impact comes in many forms during the life cycle of goods and services. The development of tools and methods to measure impact and use it for supply chain decision making is an ongoing challenge.

The second challenge is to redesign supply chains fundamentally with more detailed information about the sustainability impact. Sometimes this can be done within the context of a single firm, as the dual-sourcing strategy above illustrates. In many cases, sustainable supply chains will require different firms along the supply chain to align. This is also where the third category of challenges lie.

Alignment of different firms along a supply chain does not come naturally. It is incumbent on regulators and policy makers to develop a portfolio of instruments, such that they align the incentives of different decision makers along a supply chain to adopt more sustainable practices.

The University of Luxembourg is actively pursuing research to help firms face challenges in all three categories: (i) assessment of sustainability in all its relevant dimensions, (ii) design of more sustainable, yet economically viable, supply chain configurations, and (iii) alignment of incentives along long supply chains through policy and governance.

Students of the one-year master’s programme in Logistics and Supply Chain Management (lscm.uni.lu) can choose research projects addressing these challenges with companies that partner with the centre.

Created in 2016, the Luxembourg Centre for Logistics and Supply Chain Management (LCL) is part of the University of Luxembourg and a member of the Massachusetts Institute of Technology Supply Chain And Logistics Excellence (MIT SCALE) Network. The LCL conducts competitive research, trains doctoral candidates, offers a Master’s in Logistics and Supply Chain Management and delivers a range of knowledge-transfer activities for Luxembourg authorities and companies globally. Please visit lcl.uni.lu for more information on the centre and our educational, research and outreach activities.

References

  • United Nations, (2015). Transforming our World: The 2030 Agenda for Sustainable Development. Outcome Document for the UN Summit to Adopt the Post-2015 Development Agenda: Draft for Adoption. New York. 2015.
  • United Nations Framework Convention on Climate Change, (2015). Adoption of the Paris Agreement. Report No. FCCC/CP/2015/L.9/Rev.1, http://unfccc.int/resource/docs/2015/cop21/eng/l09r01.pdf.

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