Simply put, this means that companies need to focus on three aspects of their operations: the economic, environmental and social impacts. By and large, economic goals used to form the sole basis of business practices and strategy, while social and environmental impacts were addressed in separate programs and campaigns.
But now the mindset is about building strong connections and interactions between all three issues. This means a three-way equilibrium: a good financial performance requires a sound environmental and social performance.
Determining and Delivering a Competitive Asset
Public exposure of poor employer practices in supply chains can seriously damage a company's financial performance, market share and business image. This happened after the collapse of the Rana Plaza clothing factory, the discovery of unethical practices at Apple's production facilities, and the observations by Finnwatch – a Finnish NGO – of employee mistreatment in Asia. When it comes to environmental issues, we need only look close to home (Talvivaara) or slightly farther away (British Petroleum) to find similar examples.
But this is just one side of the coin. Being a responsible corporate citizen is not just about disaster avoidance and reputation management; the bar should be raised much higher than this. As well as promoting social and environmental responsibility in the supply chain, well planned actions can provide a competitive edge and image boost (consumer confidence can help to grow market share and even raise price levels), while creating cost savings.
Managing Risks and Identifying Opportunities
The Finnish financial newspaper Kauppalehti featured an article on October 23rd discussing the prospect of a circular economy, in which companies in various sectors use the surplus, waste and by-products of each others' production processes, and save huge amounts in material costs – not to mention protecting the environment. Effective distribution route planning saves fuel – as well as money and the environment – and component recycling takes the pressure off purchasing cost planners and landfills. Decent pay and labor force training represent an investment in the future, providing employees who are more qualified and committed, and more loyal when local markets begin to take off and alternative career opportunities emerge. According to a recent article in the Guardian online publication, extremely low raw material prices and, as a result, the low wages paid to farmers are forcing entire generations to leave the land, which will result in huge foodstuff shortages and price hikes. This scenario could be avoided by paying a fair price to farmers for their produce.
If companies want to identify both the risks and opportunities facing them, they need to conduct a careful supply chain analysis from the social and environmental perspective as well as on an economic basis.
Katri Kauppi works as Assistant Professor, Logistigs at Aalto University School of Business and is a instructor at Aalto EE.