Reinforce the Supply Chain

Why invest in
a sustainable
supply chain?

Overall gains—starting in operations.

Upstream and downstream investments in
greening supply chains are linked to
operational gains between 10% and 12%.

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Investment in upstream and downstream environmental practices respectively produced gains of 10.5% and 11.8% in operational performance. These gains were derived from lower costs and higher quality of operations.

The research, comprised of 31 studies, also pointed to gains in overall financial performance using indicators such as ROA, return ratios, earnings and profit. Upstream practices such as working with suppliers to solve environmental issues were associated with a 7.3% gain in financial performance. Downstream practices, such as improving logistics and distribution, were associated with a 4.2% gain in market performance.

Takeaway
Focus first on environmental efficiency of supply chain operations, which can quickly grow the bottom line through cost savings. Re-strategize over time to include other aspects of sustainability, once the ripple effect sets in and other benefits, such as financial gains, emerge.
Source: Golicic, S.L., & Smith, C.D. 2013. A meta-analysis of environmentally sustainable supply chain management practices and firm performance. Journal of Supply Chain Management, 49(2): 78-95.
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Infographic
Case Study

From Philanthropy to Prosperity:
How One Coffee Project Strengthened a
Supply Chain


Tim Hortons

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Public interest in the fair trade concept was on the rise in 2004. A Tim Hortons survey suggested customers were concerned about the welfare of coffee growers. Even restaurant franchisees requested that corporate headquarters attend to the issue.

Fair trade certified coffee was an option—but no certification provided the hands-on training, education and technical support that Tim Hortons believed were necessary to improve farming practices and lift farming families out of poverty. Moreover, many certified labels only require 30% of coffee to be ethically sourced, creating a smokescreen on core issues.

To respond effectively, Tim Hortons needed to sift through multiple intermediaries, including roasters, distributers and exporters, and go back to the origin of the supply chain.
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What is the best approach to developing a sustainable supply chain?

Collaboration is key.

Don't coerce—collaborate.
Include not only suppliers but customers
in your sustainable supply chain strategy.

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Collaborating with suppliers produces gains in process-based performance such as on-time delivery and flexibility; collaborating with customers increases product-based performance—particularly product quality.

In a study of the North American packaging industry, responses from 84 plants demonstrated that collaborative initiatives with suppliers and customers reduced the proportion of rejected and returned products; this demonstrates an overall improvement in product quality. Initiatives included partnering on pollution reduction, joint planning to address environmental issues as well as setting and achieving collective goals. The study also reaffirmed that supplier collaboration does indeed improve delivery performance and overall supply chain flexibility.

Takeaway
Collaborate to develop your suppliers rather than simply cutting those that can’t immediately adapt to new standards. Don’t forget that your customers can also be an integral part of your sustainable supply chain strategy, especially around quality.
Source: Vachon, S., & Klassen, R.D. 2008. Environmental management and manufacturing performance: The role of collaboration in the supply chain. International Journal of Production Economics, 111: 299-315.
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Framework

Use the Global Supply Chain framework to build responsive and responsible supply chain operations.

How do environmentally efficient operations link to a firm's financial performance?

Modestly, robustly and positively.

Companies that do right by the
environment do better financially.

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Q&A with Jon Johnson, Academic Director, Richard Stockton College
NBS: If the link between corporate environmental performance (CEP) and corporate financial performance (CFP) is so small, as identified in your paper, why is it significant?

Author: Although modest, the relationship between corporate environmental performance and financial performance is positive. In the large majority of circumstances, environmental performance is positively linked with financial performance. Simply put, companies that do right by the environment also do better financially than companies that do not. There is no penalty or bottom line cost to environmental performance.

NBS: What should managers watch out for?

Author: Corporate environmental performance is a modest predictor of financial performance, but the reality is just about everything is a modest predictor of financial performance; many variables go into it. The key is that companies generally benefit both from response to demands—legislative or otherwise—and from proactive environmental initiatives. Research shows that regardless of reactive or proactive initiatives, the relationship is positive.

NBS: What can managers take from this research?

Author: Managers should adopt any initiatives that grow financial returns. It’s wise to develop environmentally efficient operations for corporate environmental performance, which may also lead to non-financial advantages such as improved reputation.
Source: Dixon-Fowler, H.R., Slater, D.J., Johnson, J.L., Ellstrand, A.E., & Romi, A.M. 2013. Beyond "does it pay to be green?" A meta-analysis of moderators of CEP-CFP relationship, Journal of Business Ethics, 112(2): 353-366.
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Can an environmental management system (EMS) like ISO 14001 help operations?

Yes, if you don't cut corners.

Certified environmental
management systems,
such as ISO
14001, are linked with a greater change in
performance than non-certified systems.

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An environmental management system (EMS), such as ISO 14001, helps a company focus on and improve processes. For example, a formal, certified EMS helps to focus on waste reduction and efficiency of processes to generate real, long-term gains.

In a survey of 1222 managers in US manufacturing firms, certified systems were related to greater change in performance than non-certified systems—all other factors influencing performance remained the same. Hence, certified systems create greater impact than informal or even formal non-certified systems.

Takeaway
A certified EMS triggers a long and hard look at operational processes. It helps to identify critical areas for improvement.
Source: Melynk, S.A., Sroufe, R.P., & Calantone, R. 2003. Assessing the impact of environmental management systems on corporate and environmental performance. Journal of Operations Management, 21: 329-351.
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Who benefits from environmental risk management?

Lenders and borrowers of financial capital.

Solid environment risk management
improves investor perception of a firm's
operations—meaning they will lend
money a lower cost.


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Environmental risk management includes waste treatment, reducing toxicity of emissions, pollution prevention and other operational initiatives.

Investors perceive environmental risk management as insurance, and they reward firms with lower borrowing costs. At 267 publicly traded US firms, environmental management (like waste treatment and reduction of the toxicity of emissions) was linked with a 2.6% lower cost of borrowing.

Takeaway
Buffer your operations with solid environmental risk management. Not only will this increase resource efficiency, it will also decrease your financing costs
Source: Sharfman, M.P., & Fernando, C.S. 2008. Environmental risk management and the cost of capital. Strategic Management Journal, 29: 569-592.
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