Sustainable Supply Chains: Who's the Best (In Our Opinion)..

Students in my MBA610 Class, Sustainable Supply Chain Management, recently completed an evaluation of a set of 105 Fortune 500 companies.  The students assessed the companies using a maturity model framework based on on-going research in the Supply Chain Resource Cooperative.

The course was driven by the fact that global supply chains are now seen as a non-optional strategy for driving down labor and material costs in many industries, most notably apparel, footwear, toys, and other manufactured products.  With these dispersed foreign entities in supply chain, it is increasingly difficult to monitor and control working conditions, environmental compliance, and quality control.  Many low cost country suppliers fail to comply with weakly regulated environmental controls, resulting in severe on-going violations of global regulatory agreements.  To placate activists, organization have issued of corporate codes of conduct that appear on flashy web pages or color brochures, along with pictures of smiling children and green fields.  Those days are now gone.  This course will provide students with a maturity assessment based on current global regulatory guidelines, including ISO 14000 and the UN Compact and Fair Labor Association criteria that defines the journey ahead for organizations to address violations in their supply chain.  This maturity model provides clear actionable guidelines for senior leaders to adopt in their strategic supply chain configurations, and helps to provide a vision for future collaboration with global business communities and industry associations.  As part of the course requirements, each student was responsible for assessing a set of companies and providing background information, as well as assessing others’ work and providing an independent rating of sustainable supply chain maturity.

Results of the maturity guidelines provide a model for socially responsible investors, as well as consumers, to understand which companies are more socially responsible than others.  Most importantly, the framework emphasizes the importance of transparency and disclosure in global operations, and the need for continuous monitoring and improvement of global supply chain conditions on a global basis.  Although many companies seek to cover-up their environmental nightmares, our framework suggests that a characteristic of best in class environmental compliant supply chains is transparency itself.  Although companies often cater to value-norm driven interest groups concerned with community impacts, as well as investor groups concerned with corporate financial outcomes, the sustainable framework proposed addresses the overlapping interests of these groups.

The sustainable maturity model applies to any company that sources from a global network, including apparel, footwear, retailers, toy manufacturers, but also financial institutions and IT firms that offshore services. The framework is flexible enough to apply to any of these segments, yet provides specific guidelines that are actionable to managers.  The framework helps ensure that a company’s supply chain has the right checks in place to make sure LHR violations do not occur, as well as remediation and problem-solving when it is discovered that abuses have taken place.

And so now the results of the student analysis  (drumroll please)….

Best Overall Sustainable Supply Chains:

Banking – BNP Paribas, Citigroup

Automotive – BMW, Danaher, Daimler

Electronics – Vodafone, Dell, Apple

Retail – Hanes

Mining – Freeport

Several other trends were apparent.

The highest ranked components of sustainability include:

–       Code of conduct – availability

–       Internal evaluation

–       Code of conduct – penalties

The lowest ranked attributes included:

–       Evaluation of second tier suppliers

–       Independent evaluation of criteria

–       Supplier enforcements – codes of conduct

–       Independent evaluations of reporting

–       Use of code of conduct language in contracts

This effectively demonstrates that companies are often “making a public show” of their sustainable efforts, but in many cases truly doing little to enforce it in the industry.  Several other noted trends include the fact that:

–      German and European companies seem to dominate.

–      Electronics and automotive have stronger supply chains in general, and hence probably have more oversight over supplier management compliance to company policies.

–      Banking – strongly driven through regulatory oversight from OCC and other agencies – a trend which will probably continue to occur.

Overall, as companies continue to drive towards Business Process Outsourcing (see previous posts), sustainability is a nagging issue that they will need to continue to monitor, and no doubt, struggle with.