By Jerry Haar
The drive towards green supply chain management in the US is halfway towards achieving success. Industry leaders have made sustainability a priority, but there still exists a gap in the alignment of goals between smaller suppliers, who occasionally lack the resources make supply chains more eco-friendly.
On 28 May, the Biden administration announced it had reached an agreement with 13 other countries in the Indo-Pacific region to coordinate supply chains in an effort to lessen the countries’ dependence on China for critical products and allow them to better weather crises like wars, pandemics, and climate change.
The term “supply chains” itself rose to prominence in the wake of the COVID-19 pandemic, especially due to the severe production and distribution problems surrounding personal protection equipment, followed by shortages and shipping disruptions of consumer and industrial goods, most notably semiconductors.
Beyond operational issues surrounding supply chains, all supply chains are challenged by sustainability. Today, sustainability is usually understood as “green” supply chain management; and supply chains, recognisably, have a far greater impact on the environment than any other part of their operations.
The aim of green supply chain practices is to help industries reduce their carbon emissions and minimise waste while maximising profit. A good example is the use of paper instead of plastic (a petroleum-based product). Not only is rethinking input materials one way of utilising and implementing green supply chain practices, but so are reusing waste or by-products, curtailing packaging, redesigning processes, and optimising transport.
In addition, there are links between improved environmental performance and financial gains. General Motors, for example, reduced disposal costs by $12 million by establishing a reusable container programme with its suppliers.
Just what is the current status of the adoption of GSCM in the United States, in general?
Due to more environmental awareness among the general population, the public sentiment and pressure from activists is forcing many organisations to adopt green practices in various parts of their value chain1. Organisations have realised the environmental impact of their practices and have become more conscious of their corporate and social responsibilities2.
Indeed, major industry players have been taking significant steps towards sustainable supply chain management practices. To illustrate, Gartner, a technological research and consulting firm, released their annual report entitled “Global Supply Chain Top 25”, in which companies were scored on environmental, social, and governance (ESG) initiatives3. This report identified 19 companies (out of the top 25) that achieved the highest-possible ESG scores, and among them were industry leaders such as Cisco Systems, Schneider Electric, PepsiCo, Intel, and more.
Just what are are the primary forces and factors that are driving green supply chain adoption and implementation?
Since the late 2000s, the adoption of green supply chains has been propelled by a number of drivers. In a review of drivers of sustainable supply chain management (SSCM), German logistics researcher Muhammad Saeed and Wolfgang Kersten4 classified external and internal factors responsible, which can broadly be summarised as follows: (1) external drivers (market pressures, societal pressures, regulatory pressures) and (2) internal drivers (corporate strategy, organisational culture, organisational resources, organisational characteristics).
Recognisably, there are primary forces and factors impeding green supply chain adoption and implementation. In a recent literature review by Leffering and Trienekens for Business Management and Organisation Group (BMO)5, the authors identified three key barriers to green supply chain management adoption, namely: (1) implementation cost of sustainability in the supply chain; (2) supply-side obstacles; and (3) lack of governmental subsidies. A more comprehensive list of barriers compiled by Leffering and Trienekens is found in the chart below:
In 2021, MIT’s Center for Transportation and Logistics (MIT CTL) and the Council of Supply Chain Management Professionals (CSCMP) published a “State of Supply Chain Sustainability”, research providing insight into the barriers that 20 enterprises face to the successful adoption of sustainable supply chains in the United States6. Most of the interviewees cited that developing partnerships and bringing suppliers on to the same page with regard to sustainability is the key challenge. This is because the expectations and enthusiasm related to GSCM between the supplier and manufacturer may vary widely. Often, these suppliers are small enterprises with a different set of priorities and concerns from the environment.
Next, industry leaders typically deal with large and complex supply chains, which complicates reviewing whether the standards set by policy and supplier codes of conduct for sustainability are followed to satisfaction or not. Additionally, any transgressions on the suppliers’ side do end up harming the corporate customers as well, creating further challenges to identifying and managing risks to the company.
For instance, Toyota has managed to create a sustainable global chain accounting for human rights, labour environments, and the natural environment in all regions from which they source materials7.
When it comes to greening of supply chains and the role of government, it is not surprising that, as with all major issues with broad implications for public policy, the federal government plays an important role.
While many state legislatures have regulations and policies in place affecting GSMC adoption, it is the regulatory authority of the federal government that has wide-ranging impact. The US General Services Administration (GSA) has recognised the need to reduce energy and environmental footprints and hence collaborates with industry partners to create best practices for supply chain management in the services provided to the federal government. This is a case of leading by example, whereby all government contractors are expected to abide by green supply chain management practices.
As an example, GSA has been a member of CDP Supply Chain, a third-party supply chain disclosure system, since 2015. Surprisingly, government contractors are not required to report their energy and environmental performance data through CDP. In fact, only a small proportion of these contracts report their sustainability impact performance.
On the other hand, in 2021, the Biden administration signed Executive Order 14017 on America’s Supply Chains, ambitiously titled “Plan to Revitalize American Manufacturing and Secure Critical Supply Chains in 2022”. Broadly, the plan intended to make American supply chains more sustainable and resilient, with a greater environmental impact. The 2022 report, based on four 100-day supply chain reviews, shows that while there are significant accomplishments in certain areas, much more needs to be done, particularly in the GSCM for mining and energy sectors.
The administration’s plan promotes investments in sustainable domestic production and processing of rare minerals and carbon fibre, while ensuring that the US can rely on multiple sources. The administration has updated mining regulations and reformed mining laws to account for sustainable and responsible practices. The core responsibilities have been assigned to the Department of Energy (DOE), which is tasked with creating an integrated “mine waste”, critical element extraction, separation, and refinery plants. Additionally, in February of 2022, the Mining Innovations for Negative Emissions Resources (MINER) Program of DOE made available $44 million in funding for “commercial-ready technologies that give the United States a net-zero or net negative emissions pathway toward increased domestic supplies of copper, nickel, lithium, cobalt, rare earth elements, and other critical elements required for a clean energy transition”8. The impact that this plan would have on GSCM in the US remains to be evaluated.
Congress also plays a role in supply chain management as they, as well as the executive branch, are concerned with GSCM adoption, as it has taken steps to make US supply chains more sustainable. In June 2021, Representative Tim Ryan (D-Ohio) introduced the Critical Supply Chains Commission Act, in the wake of recent supply chain shortages and failures during the COVID-19 pandemic. The bill proposes setting up a National Commission on Critical Supply Chains that can address the current gaps in US supply chains, exposed during the pandemic and consequences, to help make them more sustainable, robust, and resilient. Admittedly, the bill did not advance beyond the assigned sub-committee, but it clearly shows the interest of legislature in intervening in American supply chains and their long-term sustainability.
Overall, the state of GSCM in the US is halfway towards achieving success. From private corporations’ perspective, industry leaders have made sustainability a priority and are revamping their supply chains to make them greener. But there does indeed exist a gap in the alignment of goals between smaller suppliers, who occasionally lack the resources to institute changes in traditional supply chains to make them more eco-friendly, or small and medium-sized enterprises (SMEs) who have to maintain capital for day-to-day operations and need profits to fund growth, thereby being unable to prioritise sustainability 9.
On the administrative front, the US government has become more aware of the need for sustainable supply chains.. However, we have yet to see a collaboration between the government, NGOs, and large and small private enterprises such that all parties operate harmoniously with the same goal of sustainable supply chains. An alliance of this nature is essential to achieving further progress on GSCM.
About the Author
Jerry Haar is a professor of international business and executive director for the Americas in Florida International University’s College of Business. He is also a global fellow of the Woodrow Wilson International Center for Scholars in Washington, DC.
References
- https://www.dw.com/en/activist-investors-pressure-firms-to-go-green/a-60570878
- https://www.cnbc.com/2022/01/25/activist-investors-greenwashing-backlash-change-is-coming-to-business.html
- https://www.gartner.com/en/newsroom/press-releases/2022-05-26-gartner-announces-rankings-of-the-2022-global-supply-chain-top-25
- https://www.mdpi.com/2071-1050/11/4/1137
- Document available at: https://edepot.wur.nl/521624
- chrome-extension://efaidnbmnnnibpcajpcglclefindmkaj/ https://sscs.mit.edu/wp-content/uploads/2021/07/State-Sustainable-Supply-Chains-MIT-CSCMP.pdf
- https://www.toyota-tsusho.com/english/sustainability/social/supply-chain.html#:~:text=The%20Toyota%20Tsusho%20Group%20has,supply%20chain%20in%20each%20region.
- https://www.whitehouse.gov/briefing-room/statements-releases/2022/02/24/the-biden-harris-plan-to-revitalise-american-manufacturing-and-secure-critical-supply-chains-in-2022/
- https://posey.house.gov/news/documentsingle.aspx?DocumentID=396921
