How manager preferences impact supply chain sustainability

1 December 2017
From our ‘Thinking outside the box’ series
The growing interest in sustainable practices has made companies rethink the design of their supply chains, writes Behnam Fahimnia. They are now adopting a set of environmental and social performance measures.

Strategic supply chain decisions include determining the number and location of suppliers, manufacturing plants and warehouses. Such decisions have been traditionally made using cost-based performance measures (i.e., cost minimisation and profit maximisation goals). The growing interest of supply chain stakeholders (e.g., customers, governments, and non-governmental organisations) in sustainable practices have made organisations start rethinking the design of their supply chains by considering a set of environmental and social performance measures.

The environmental performance measures may include carbon-equivalent emissions, waste generation, energy consumption, water usage, the use and generation of hazardous materials, toxic substances and other pollutants, land use, and resource depletion issues. Social performance measures focus on human values and concerns such as labour practices and decent work conditions, local community issues, human rights, and other society and product responsibilities.

The trade-off analysis to balance economic, environmental and social performance of the supply chain is a very challenging and interesting task. Numerous analytical models and decision-support tools have been developed by researchers to tackle problems of this kind. However, these models are based on certain assumptions. Some assume that sustainability measures are always known, quantifiable, and prioritisable. In reality, there is always uncertainty in what performance measures are taken into consideration by individuals and the weighting of each measure – mainly due to variations in individual’s preferences.

Limited amount of research has been conducted on understanding how supply chain managers balance economic, environmental and social goals when making strategic supply chain decisions. Past research has focused on the theoretical/conceptual and modelling aspects of supply chain trade-offs, but the personal preferences of a supply chain manager are rarely been considered. We need to understand the situations upon which a supply chain design/configuration is preferred over another. Several factors may contribute to such decisions. Take for example, a supply chain manager’s risk aversion, or their familiarity with certain regions or suppliers, sustainability-related values, or the existence of sustainability policies within the organisation, and so on and forth.

Many supply chain managers may claim that they are supportive of sustainability initiatives and that they explicitly consider sustainability measures in their strategic decisions. However, a manager’s “willingness to pay” for creating sustainable supply chains is unknown, and research shows what they say is not what they do. This is an emerging area of research that aims to better understand the situations in which supply chain managers are willing to incorporating different sustainability measures.

An organisation’s vision statement and corporate policies indicate its level of support of sustainability initiatives. The question is to what extent managers and employees in various departments are committed to these organisational objectives and policies? There is so much evidence indicating that the strategic decisions of supply chain managers do not often align with corporate sustainability objectives.

Understanding and explaining the reasons for this lack of commitment and support is an interesting area of research. While most Australian companies have clear corporate sustainability goals, only some directional and unspecific support for sustainability practices are available at the department level. We know that in these companies no or very limited guidelines are available on how to interpret and operationalise the corporate-level sustainability goals.

There is mounting evidence that in these situations, supply chain managers predominantly apply their personal sustainability preferences in their decision-making. When there is lack of clarity in sustainability goals at the department level, a manager with unfavourable sustainability beliefs may has less intention to implement sustainability initiatives, and as such this attitude would inhibit achieving sustainability objectives at the corporate level.

Companies that set clear sustainability goals at the corporate level would also need to consider the benefits that may accrue from better commitment of the department-level managers. In particular, such study can help the top management identify and evaluate the intrinsic forces that act as ‘enablers’ or ‘barriers’ to incorporating sustainability initiatives in supply chain decision-making, thereby increasing the likelihood of aligning individual preferences with organisational objectives.

Future research on sustainable supply chain management should be directed to focus on understanding how individual level decisions are made and the relationship between these decisions and corporate sustainability goals and policies. At ITLS, we have a research team specialised in investigating a range of topics in this area. The team collaborates with companies in various industries to help supply chain practitioners make more informed decisions at strategic, tactical and operational planning levels.

Behnam Fahimnia is a Professor and Chair in Supply Chain Management at the University of Sydney Business School.