Sustainable Supply Chain Management

Joe Sarkis:

Having circularity can help reduce or add to those resilience aspects. That's a co-benefit from a business side. But also circularity and supply chains closing the loop means that you don't have to extract materials from sources, from endangered areas, you have the co-benefit of carbon emissions. So I look at the idea of co-benefits instead of trade-offs.

Michael Torrance:

Welcome to Sustainability Leaders. I'm Michael Torrance, Chief Sustainability Officer at BMO. On this show we will talk with leading sustainability practitioners from the corporate, investor, academic, and NGO communities to explore how this rapidly evolving field of sustainability is impacting global investment, business practices, and our world.

Disclosure:

The views expressed here are those of the participants and not those of Bank of Montreal, its affiliates, or subsidiaries.

Alma Cortés Selva:

Welcome back to another episode of Sustainability Leaders. I am Alma Cortés Selva, a Senior Advisor at the BMO Climate Institute. In today's episode we will be talking about supply chain management and sustainability. I am joined today by Yanji Duan, assistant professor at the Department of Marketing and Logistics from the University of Florida, North Florida. Joseph Sarkis, professor of management from Worcester Polytechnic Institute, and Serena Zhu, assistant professor from the Department of Management Information Systems from San Diego State University. Thank you so much and welcome to the show. Yanji, Joe, and Serena, if you don't mind introducing yourself, telling us a little bit of your background, and your field of research.

Yanji Duan:

Hello, Alma, and the BMO team. Thank you very much for inviting us for today's discussion. I'm Yanji Duan, an Assistant Professor of Logistics at the Coggin College of Business at University of North Florida. I earned my PhD in supply chain management from the University of Arkansas. And my research primarily explores the supply chain transparency and the impact of sustainability-related issues on various stakeholders, primarily consumers. Recently I'm working with Dr. Sarkis and Dr. Zhu focusing on how technology can facilitate firms in better communicating their sustainability practices and be more transparent about their supply chain which can leads to benefits like increased sales or enhanced reputations. I'm passionate about advancing the field of sustainable supply chain management and hope that our work can help make the earth a better place.

Joe Sarkis:

Hi, Alma, nice to meet you, nice to meet everybody here. Who am I? I'm Joe Sarkis from Pressure Management at Worcester Polytechnic Institute but I slowly evolved into the field of supply chain management about 30 years ago. And during that time I was beginning to look at environmental issues. Environmentally conscious manufacturing where sustainability was called environmental issues. And now I'm at WPI for the last 10 years and working in the area of sustainable supply chains and now circular economy. And looking at it from a technological perspective which we'll be talking a little bit about today.

Serena Zhu:

Hello everyone my name's Serena. I am Assistant Professor at SDSU. Prior to joining SDSU I was at the University of Alabama in Huntsville. I just recently joined SDSU in the ... July last summer and I have been enjoying my best winter ever so in a very happy mode. My PhD was in operations and the supply chain management from WPI with the supervision of Dr. Sarkis. My interest of doing sustainable supply chains, circular economy, and a blockchain, everything, was brought up by Dr. Sarkis. We did the research at the nexus of quite a few different emerging concepts like circularity, Industry 4.0, smart technologies, digitalization. Everything was the buzzword today. I came from a marketing background before joining PhD so I am quite doing a lot of my analysis looking at individual values and the perspectives.

Alma Cortés Selva:

Thank you so much for that background it's very impressive. How much carbon emissions are coming from supply chain? Give us an average. And then size wise, how much are we talking about?

Joe Sarkis:

Oh, wow. The short answer is a lot. So it's everywhere. Anywhere from extraction of materials all the way to end-of-life management and closing the loop. Depending on where you draw the boundary, the numbers could be very different. But a longer answer, going further on this, is that emissions amounts really depend on a number of factors. For example, the industry, the product, the material type, the processing, the distribution. Is it local? Is it global? And maybe a few dozen other factors. There is no such thing as an average supply chain because the supply chain could be from your kitchen to your mouth, for example. All the way from Central Africa to China to the United States. So you could see how the variations in what you define as a supply chain becomes an issue. And if you're looking at what we call the upstream supply chain where the materials flow into a company, it depends a lot on the type of industry.

The idea here is very simple. If you draw the boundary just around a single company, their emissions, no matter how big the company is, is not going to be as much as the chain which considers maybe hundreds if not thousands of companies. So realistically a very large company with many facilities throughout the world. 90% sounds about right where most of the emissions are from the supply chain.

Alma Cortés Selva:

Thank you. That's why we're talking about supply chain, that's how important it is. Serena, there are two approaches for supply chain and then achieving greenhouse gas reduction. Can you explain the two streams and then the two approaches that are being studied in supply chain management?

Serena Zhu:

There are actually multiple ways to differentiate two, or more than two streams depending on where to reduce carbon emissions on the supply chain and how to reduce carbon emissions on your supply chain. In this paper we categorize in terms of where you reduce the carbon emissions. So one stream that we feel like it's more of a reactive approach, you seek for multiple ways that you can reduce carbon emissions outside of your focal company. That is, for example, you want to look for a supplier that has better environmental performance. The supplier can help you mitigate more carbon offsetting in their site. If you look at the entire supply chain network you actually achieve the reduced carbon emissions. So that is looking for the functional and operational processes where you can reduce carbon emissions. Sometimes it's outside of your company, sometimes it's within the company.

Whereas within the company, the stream too, we're looking at how a company can conceptualize and develop some performance measurement looking at exactly how we can measure each aspect of the product journey, logistic journey, and carbon footprint amongst all the activities on the supply chain. So the second stream, we will conclude this more proactive because you do it looking for a strategic change. This focus on how to quantify your carbon footprints across your supply chain activities. Like a real change more strategically, more proactive for companies to look at their real activity around carbon footprints.

Alma Cortés Selva:

The other term, if you don't mind, we cover first is sustainable consumption. That's another term that comes up along with the two streams. What's sustainable consumption?

Serena Zhu:

Sustainable consumption refers to either individual or a company, that use of goods and services, that not only meet the basic consumer demand while we are looking for the needs and the demands for ... From future generations. So it is more like a consumption model that emphasize minimizing environmental impact and promoting resource efficiencies throughout the life cycle of a product or service. So I can provide two examples both from individual and firm perspective. If we look at our individual consumers, we can go to a Starbucks and then buy a ... Bring in a reusable coffee cup. So by doing this activity you're contributing to sustainable consumption. You're contributing to the depletion of natural resources and the accumulation of landfilled waste. So by doing this you are already part of the sustainable consumption as an individual consumer.

From the company side, like Starbucks, they can implement initiatives to promote such use of reusable cups by offering discounts to consumers who bring in their cups. So by doing this they're also part of the sustainable consumption. So by doing so companies and consumers can collaboratively contribute to sustainable consumption. But overall, sustainable consumption is that we're not only looking at shorter-term demand needs but we're looking at long term for future generations.

Alma Cortés Selva:

Joe, an important aspect that you touch on the research, the three of you, was the digitalization of carbon emissions, especially digitalizing carbon emissions information disclosure for the consumers as an effective solution to achieve the emissions reduction. You mentioned blockchain technology and being used in supply chain management. Can you guide us through the process? What are the advantages, disadvantages? How you're using these tools, the technology tools, to reduce emissions?

Joe Sarkis:

Now, what is blockchain technology? And this is one of the disadvantages. People don't really know what blockchain technology is. They've heard about it. Is it Bitcoin? Is it the shady stuff? All of these things limit the acceptance of blockchain technology more than anything else. First of all, we like to call blockchain technology a multi-stakeholder information technology. Now what do we mean by multi-stakeholder? That it's just not one individual that's managing the information, or one company that's managing the information, supposedly many stakeholders. Stakeholders could be the supply chain members, partners in the industry, customers. But it goes beyond that. It could be communities, the government. It could be NGOs who are monitoring. It could be the media who has access to information. On the blockchain, it depends on where you draw the circle.

There's something called a private blockchain and a public blockchain. The public blockchain is the one most people are familiar with. Bitcoin can be traded to anybody anywhere in the world. But there's also something called the permission blockchain which allows certain access to certain data and so on. One of the limitations of blockchain is that it could be inefficient, unscalable, and that's why you might want to link it with other tools, artificial intelligence, big data. Serena mentioned Industry 4.0. Transparency is one of the things that it allows. Everybody in the blockchain who has permission can see the data and can contribute to the data if necessary.

Another characteristic of blockchain technology, if it's well done, is traceability. This is where the block of data is added on to another block of data as a chain. And that block of data supposedly is what they call immutable, it cannot be changed. Once the block is on there the tracing of the history of any material product and who added it, the timing, and so on is available for all to see. It never changes and everybody can see it so you can trace the flows of whatever information, products, materials, transactions that occurred over time. I gave you a very high summary of it. It's interesting, there's a lot to do there. The disadvantages are people don't understand it, the technology is still emerging. Companies are unwilling to invest in something that they don't know if it gives them a competitive advantage or a disadvantage. That's part of the competitiveness discussion that we're going to be having related to what consumers believe as well.

Alma Cortés Selva:

A great segue for Yanji. Can you give us a little bit of the flavor of how it's entering the psyche of consumers, retailers, logistics? How is it affecting it? Because Joe gave us the big overview picture. Now, jumping into the consumer side and then the retailers and logistics.

Yanji Duan:

Sure, definitely. Actually, this also connect with what Serena just said about sustainable consumption, and what Joe just mentioned about the blockchain. In one of our recent study that aim to study how consumer react to firms disclosure about their decarbonization efforts along their supply chain, we found that when retailers and logistics service providers use blockchain technology to share their carbon offset initiatives it positively affect how consumer perceive those companies. Essentially, when business demonstrate that their commitment to reduce their carbon footprint it resonates well with consumers enhancing the firm's reputations. Consumers also show a more favorable attitude towards those companies. Because they appreciate their efforts in environmental responsibilities.

And we also find that the transparency provided by blockchain helps in building trust between consumer and the companies. When companies disclose their environmental initiatives in a verifiable way, as Joe mentioned that there are several way in the blockchain, then you cannot falsify any information, and all the information is verified. When the firms provide disclosed information in this way it not only validates their commitment to sustainability but also empowers consumers to make informed decisions. This increased trust leads to a better perception of the firm, from the consumer's perspective, indicating that consumer value honesty and a clear communication about the firm's sustainability efforts.

Moreover, our findings suggest that the impact of blockchain-supported carbon data goes beyond just improving consumer's perceptions. It also aligns with consumer's growing preferences for businesses that actively contribute to environmental sustainability, especially when we talk about younger consumers who cares more about carbon crisis that we're having right now. This is just a quick outlook of our findings. And I will talk more about it later how we conduct the experiment and so on.

Alma Cortés Selva:

Let me quiz you a little bit more. It seems the consumers care. Then you're mentioning in the study that consumers are willing to pay a premium for carbon neutral shipping. How much is the premium? How much do they care? We're putting monetary value to how much people care and how much consumers are willing to chip in.

Yanji Duan:

Yeah, this is an interesting question. And honestly, the answers to it is not actually what we originally expected. For example, we gave consumers free shipping options. Free shipping. 2.99 for carbon neutral shipping. Which if you go to many of the e-commerce website right now you see that you pay a little bit additional premium for shipping carbon neutral. And further, they can choose 4.99 for carbon neutral shipping with the blockchain traceabilities. So we have 200 participants in our study, about 1/17 or 58% prefer free shipping. Interesting enough though, we also found that among the rest, which is 83 participants or 32% of the total people that in our study, they overwhelming would favor blockchain supported carbon neutral shipping. So instead of paying 2.99 for carbon neutral shipping, those who care about sustainability will even be willing to pay more, which is 4.99 for carbon neutral shipping, with the capability of tracing the carbon offsetting process.

This shows that when it comes to being eco-friendly and having the ability to trace the impact, some consumers are willing to pay extra. Essentially, if we provide a carbon offset informations, especially with the blockchain to back it up, consumers actually are more likely to choose and even pay more for shipping that is better for the planet. And regarding to how much exactly, in our study we only have three options: free, 2.99, and 4.99. But we didn't study exactly how much percentage that the consumer want to study because that wasn't our purpose. Instead, our purpose is to study will consumer willing to pay for it or not. And I think that a future study can build on our research and study exactly how much percent more consumer are willing to pay for this.

Alma Cortés Selva:

One more question before the final question. Where do you think the field moving towards then given some of the current events? Because you were trying to do research doing positive effects, and then with the legislation we're seeing more like the stick rather than the carrot. Where do you see the research going for your field?

Joe Sarkis:

There's the regulatory aspect which you touched upon. And regulations are no longer going to be regional, they're not going to be just by state. For carbon emissions, it has to be a global regulatory process. So what you're going to see more of is lots of global regulations. You actually see this in the European Union a lot more than in the United States where there actually are going to be trade issues, there's traceability. And as Yanji mentioned, being able to go due diligence throughout the supply chain. You'll be seeing companies and regulations being fined or being looked at from a broader supply chain emissions perspective rather than just an individual company for whatever regulatory mechanism they'll be using. And that's the scope 3. So that's one direction.

The other direction that I see companies and sustainability, that I'm looking into or we're going to be looking into in the future, is the idea of co-benefits. One of the areas that we look in, that we have been studying, is circular economy, recyclability, and so on. Now, that eliminates hard waste, land waste from the supply chain if you have a circular system. The other aspect of a circular system is that it's more resilient. You have wars, you have famines, and you have something called pandemics. I don't know what a pandemic is anymore. You have pandemics that can hurt your supply chain. Having circularity can help reduce or add to those resilience aspects. That's a co-benefit from a business side.

But also circularity and supply chains closing the loop means that you don't have to extract materials from sources, from endangered areas so biodiversity. And what else about circular economy? For example, the aluminum supply chain. If you do recycling of aluminum it's only 5% of the carbon emissions from ... When you compare it to raw material extraction. So you have the co-benefit of carbon emissions, you have the co-benefit of resiliency, you have the co-benefit of materials, and green usage, hazardous waste, and you have the carbon emissions co-benefit. When you consider the whole package there's going to be a lot of win-win ... Multiple wins. And if you can find those that's what's going to get companies to change. So I look at the idea of co-benefits instead of trade-offs as a direction that the sustainable supply chain may be going in. And there's many more, but I think those two or three are some of the more important things.

Alma Cortés Selva:

Any final thoughts from you Joe, Yanji, Serena?

Serena Zhu:

Dr. Sarkis just mentioned co-benefits, I just want to add a little bit on that. Traditionally in the literature on most of the practices are ... A lot of priorities are going to benefits around the traditional financial measures like performances, market shares, sales, and everything related to dollar signs. But both sustainable supply chain and smart technologies, digitalization, we encourage firms not only looking at the financial measures benefits but also looking at some benefits around social and environmental emissions. Because we feel like in the future when you invest in building capabilities around sustainability and blockchain, you essentially have a lot of capabilities going beyond the financials. You can have more resilience, more capabilities to mitigate risks and uncertainties. Those things will eventually will create more safeguards for your business continuity. Just don't look at the shorter time adopt a more forward-looking perspective.

Yanji Duan:

I wanted to add from a different perspective since I'm more like consumer person in the group. As I mentioned earlier, that consumers are constantly changing. And the way they think also is very different. If you compare consumers 50 years ago compared with the current consumers, you'll probably have completely different findings. And as the younger generation they start to ... They're more aware of the issues related to sustainability, related to carbon emissions that they might behave completely differently. And their mindset, their mentality can be completely different from the prior findings. So another thing I think can be an important avenues for future research is how consumers ... Younger generation, the consumer especially, how they perceive on this sustainability-related issues. Future research can still have a lot of work to do in this area as well. And in corroborating what Serene and Dr. Sarkis just said.

Alma Cortés Selva:

Thank you so much for joining us and explaining a little bit about sustainable supply chain. I hope to see you in another episode.

Michael Torrance:

Thanks for listening to Sustainability Leaders. This podcast is presented by BMO. You can find our show on Apple Podcasts, Spotify, or your favorite podcast player. Press the follow button if you want to get notified when new episodes are published. We value your input so please leave a rating, review, and any feedback that you might have. Or visit us at bmo.com/sustainabilityleaders. Our show and resources are produced with support from BMO's marketing team and Puddle Creative. Until next time, thanks for listening, and have a great week.

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