MS3124

GLOBAL SUPPLY CHAIN MANAGEMENT

LECTURE 10:
SUSTAINABILITY

DR. FAN SAI KIT

1
 AGENDA

• Framework of SSCM
• Introduction of ESG
• Key Components
• Benefits & Challenges
• Strategies
• Case Study
FRAMEWORK OF SUSTAINABLE
SUPPLY CHAIN MANAGEMENT
(SSCM)

The triple bottom line

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FRAMEWORK OF SUSTAINABLE
SUPPLY CHAIN

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 INTRODUCTION OF ESG
• Environmental
• Carbon emissions
• Resource management
• Pollution and waste
• Renewable energy
• Social
• Employee welfare, diversity and inclusion
• Human right
• Community engagement
• Customer privacy
• Governance
• Board diversity and independence
• Executive compensation
• Anti-corruption policies

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 KEY COMPONENTS OF
SSCM

1. Sustainable Procurement
2. Eco-Friendly Production
3. Green Logistics
4. Product Lifecycle Management
5. Stakeholder Collaboration

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 1. SUSTAINABLE
PROCUREMENT f

• Involves integrating sustainability principles into

procurement decisions to minimize adverse impacts on
the planet and society.
• 3 Principles:
• Economic: Ensuring cost-effectiveness while supporting local
economies and businesses.
• Environmental: Reducing environmental damage through
responsible sourcing and resource use.
• Social: Promoting fair labor practices, diversity, and ethical
treatment of workers.

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 ELEMENTS OF SUSTAINABLE
PROCUREMENT

1. Policy and Governance

2. Supplier Engagement
3. Sustainability Criteria
• Set clear criteria for evaluating products and services in the
framework
4. Lifecycle Costing
Total cost
of ownership
• Evaluate the TCO →

5. Risk Management
• Identify, assess and mitigate risks associated with
unsustainable suppliers or products.

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 EXAMPLE OF SUSTAINABLE
PROCUREMENT

A British multinational consumer packaged goods company:

Unilever Responsible Sourcing Policy

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 2. ECO-FRIENDLY
PRODUCTION

• Process of manufacturing goods or services in a way that

minimizes environmental harm while promoting
sustainability.
• 3 Objectives:
• Reduce Environmental Impact: Minimize pollution, carbon
emissions, and resource depletion.
• Enhance Resource Efficiency: Optimize the use of energy,
water, and raw materials.
• Promote Sustainable Practices: Incorporate renewable
energy, recyclable materials, and circular economy principles.

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 PRINCIPLES OF ECO-
FRIENDLY PRODUCTION

• Energy Efficiency
• Water Conservation 1h5
• Material Optimization
• Waste Reduction
• Pollution Control

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 EXAMPLES OF ECO-
FRIENDLY PRODUCTION

• Tesla
• Uses renewable energy in manufacturing facilities.
• Designs electric vehicles with recyclable materials.
• Implements closed-loop recycling for batteries.

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WHAT IS THE CARBON FOOTPRINT OF
SOLAR PANEL MANUFACTURING?

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 3. GREEN LOGISTICS
• The process of managing the movement, storage, and flow of goods in a
way that minimizes environmental impact while maintaining efficiency.
• Components:
• Sustainable Transportation
• Optimized Routing and Scheduling
• Eco-Friendly Warehousing
• Green Packaging
• Reverse Logistics
• Technology Integration

• Challenges:
• High Initial Costs
• Infrastructure Limitations
• Complexity in Implementation
• Regulatory Challenges
• Consumer Expectations

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 EXAMPLES OF GREEN
LOGISTICS IN ACTION
• 1. DHL GoGreen Program
• DHL aims to achieve zero emissions by 2050.
• Uses electric and hybrid delivery vehicles.
• Implements carbon offset programs to reduce emissions.

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 4. PRODUCT LIFECYCLE
MANAGEMENT (PLM)

• The process of managing a product’s entire lifecycle, from

conception and design to production, distribution, usage,
and end-of-life disposal.
• Objectives:
• Reduce environmental footprint across the product lifecycle.
• Encourage resource efficiency and waste reduction.
• Promote a circular economy by designing products for reuse,
recycling, or remanufacturing.
• Align with corporate sustainability goals and regulatory
compliance.

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 PHASES OF PRODUCT
LIFECYCLE MANAGEMENT
IN SSCM

Concept and Design Phase

• Goal: Develop sustainable product designs that minimize
environmental and social impacts.
• Practices:
• Use eco-design principles to create energy-efficient and
durable products.
• Select sustainable materials (e.g., recycled, biodegradable, or
renewable resources).
• Conduct Life Cycle Assessment (LCA) to evaluate
environmental impacts during design.
• Tools & Techniques:
• CAD software with built-in sustainability analysis tools.
• Circular economy principles to design for reuse or recycling.

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 PHASES OF PRODUCT
LIFECYCLE MANAGEMENT
IN SSCM

Production Phase
• Goal: Implement green manufacturing practices to minimize
resource consumption and waste.
• Practices:
• Use energy-efficient machinery and renewable energy
sources.
• Optimize processes to reduce material waste and emissions.
• Implement lean manufacturing to improve efficiency.
• Tools & Techniques:
• Real-time monitoring systems for energy and waste
management.
• Adoption of Industry 4.0 technologies (IoT, AI) for process
optimization.

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 PHASES OF PRODUCT
LIFECYCLE MANAGEMENT
IN SSCM

Distribution and Logistics Phase

• Goal: Ensure eco-friendly transportation and storage of
products.
• Practices:
• Optimize transportation routes to reduce fuel consumption.
• Use green packaging materials that are reusable or
biodegradable.
• Collaborate with logistics partners who follow sustainable
practices.
• Tools & Techniques:
• Route optimization software to minimize emissions.
• IoT-enabled fleet management systems for fuel efficiency.

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 PHASES OF PRODUCT
LIFECYCLE MANAGEMENT
IN SSCM

Usage Phase
• Goal: Extend the useful life of products and reduce
environmental impact during use.
• Practices:
• Design products for energy efficiency during use (e.g.,
appliances with low energy consumption).
• Provide consumers with guidelines for eco-friendly product
usage.
• Offer maintenance and repair services to prolong product
lifespan.

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 PHASES OF PRODUCT
LIFECYCLE MANAGEMENT
IN SSCM

End-of-Life Phase
• Goal: Ensure responsible disposal, recycling, or repurposing
of products and materials.
• Practices:
• Implement take-back programs to recycle or refurbish used
products.
• Partner with waste management companies for proper
disposal.
• Design products for easy disassembly and material recovery.
• Tools & Techniques:
• Reverse logistics systems for efficient collection of end-of-life
products.
• Material recovery technologies for recycling and
remanufacturing.

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 CASE STUDIES OF PLM
IN SSCM

• 1. Patagonia
• Design: Uses recycled materials and designs products for
durability.
• Production: Minimizes waste and emissions in
manufacturing.
• End-of-Life: Offers a “Worn Wear” program to repair, reuse,
and recycle old garments.

Used Patagonia® Clothing & Gear |

Worn Wear – Patagonia Worn
Wear®

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 5. STAKEHOLDER
COLLABORATION
• The process of engaging and working with all parties
involved in the supply chain to achieve sustainability goals.
• Rationale:
• Shared Responsibility
• Improved Transparency
• Innovation and Knowledge Sharing
• Risk Reduction
• Key Stakeholders:
• Suppliers
• Customers
• Employees
• Governments and regulations
• Public

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 EXAMPLES OF STAKEHOLDER
COLLABORATION IN SSCM
Coca-Cola’s Water Stewardship Program
• Works with governments, NGOs, and local communities to improve water efficiency and replenish water
sources.
• Demonstrates effective collaboration for shared environmental goals.

Water Stewardship

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 BENEFITS OF A SUSTAINABILITY
SUPPLY CHAIN
Environmental Benefits
• Reduced carbon emissions and waste.
• Conservation of natural resources.
• Improved ecosystem health and biodiversity preservation.

Economic Benefits
• Cost savings from energy efficiency and waste reduction.
• Increased brand loyalty from eco-conscious consumers.
• Access to new markets with sustainability-focused policies.

Social Benefits
• Improved working conditions and fair wages.
• Enhanced reputation among stakeholders.
• Contribution to global goals like the UN Sustainable Development Goals (SDGs).

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 CHALLENGES IN IMPLEMENTING A
SUSTAINABILITY SUPPLY CHAIN

High Initial Costs

• Investments in green technologies, infrastructure, and certifications.

Complexity in Supply Chains

• Difficulty in ensuring compliance across multiple tiers of suppliers.

Consumer Awareness
• Educating consumers about the importance of sustainability and fostering behavioral
change.

Regulatory and Policy Barriers

• Navigating diverse sustainability regulations across different regions.

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 STRATEGIES FOR BUILDING A
SUSTAINABLE SUPPLY CHAIN
Adopt Green Technology
• Invest in renewable energy, energy-efficient machinery, and digital tools for supply chain
optimization.
Collaborate with Stakeholders
• Work with suppliers, governments, and NGOs to align sustainability goals.
Monitor and Measure Progress
• Use key performance indicators (KPIs) to track sustainability metrics (e.g., carbon footprint,
water use).
Leverage Certifications and Standards
• Obtain recognized certifications such as ISO 14001 (Environmental Management) or Fair
Trade.
Promote Circular Economy
• Focus on reusing, recycling, and reducing waste at every stage of the supply chain.

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 CASE STUDY
COMPANY BACKGROUND

• IKEA Group

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 COMPANY BACKGROUND
• Company Overview
• Was founded in Sweden in 1943 by Ingvar Kamprad when he was 17
years old.

• He named the company with an acronym for his initials and the village in
which he grew up, Elmtaryd, Agunnaryd

• In 2019, €41.3 billion in sales.

• 225,000 employees around the world in 2021

• Home furnishing market with no comparable global competitor

• 60% of its sales were in furniture, most of it was designed and sold in
unassembled flat packaging.

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 COMPANY BACKGROUND

• Supply chain in 2013

• Nearly 60% of production take place in Europe, 33% in
Asia and Australia

• Relied Heavily on third-party manufacturers

• IKEA factories manufactured 25% of its own particleboard.
• Invested €550 million in 2013 to expand its own board
manufacturing capacity by 66%. (increasing the number of
plants from 2 to 6)
• Owned and operated 38 furniture manufacturing plants
worldwide.

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 COMPANY BACKGROUND
Europe:
277 stores
North America: 60% Purchasing value
71 stores 19 Distribution Centers
3% Purchasing value 11 Trading Offices
6 Distribution Centers 36 IKEA Production Units
1 Trading Offices
1 IKEA Production Units Middle Asia:
East: 79 stores
17 stores 33% Purchasing value
5 Distribution Centers
12 Trading Offices
Africa: 2 IKEA Production Units
3 stores

South America:
2 stores
1% Purchasing
value
1 Trading Offices Oceania:
11 stores
1 Distribution Centers

Map of countries with IKEA stores Legend: 460 stores worldwide

Current market locations Future market locations

Suspended market locations No current or planned market locations

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Source: List of countries with IKEA stores - Wikipedia
 CASE INTRODUCTION
• IKEA Group’s CEO created the role of Chief Sustainability
Officer (CSO) in 2011, which was responsible for formulating
and implementing the company’s strategy.

• Seeking transformational change to enable the company to

better anticipate and address sustainability issues.

• Announced its “People & Planet Positive strategy”, which

focused on three areas:
1. A more sustainable life at home for consumer.
2. Resource and energy independence for the company.
3. A Better life for people and the communities touched by
IKEA.

Creating a positive impact through sustainability (ikea.com) 32

 SUSTAINABILITY
• Wood Supply Chain in 2013
• 384 wood supplier in 50 countries
• Lease nearly 500,000 hectares of forest in Russia, Republic of
Karelia and Slovakia. (Size of Hong Kong: 111,400 Hectares)
• 14 million cubic meters of round wood equivalent to 1% of all
industrial wood sourced on the planet.

Forest – Volume of Sawmill / Boardmill Component Furniture

wood Harvested - Volume of wood after Manufacturer Manufacturer
(million m3) sawmill (million m3) - Volume of wood after - Volume of wood after
manufacturing (million manufacturing
m3) (million m3)

Solid Wood 6.3 3.2 1.6 1.5

Particleboard 7.7 5.5 5.0

Region East Europe West and North South Europe Asia and North America
Europe Australia
Wood 44% 27% 13% 12% 4%
Procurement 33
 SUSTAINABILITY
• Sustainability Concerns
1. 1.6 billion people worldwide relied on local forests for their
livelihoods – including food, clothing, or shelter.
• Harvesting virgin forests and clearing wood for plantation
risked substantially disrupting many people’s lives.

2. Inevitably affected biodiversity and ecological processes.

• Converting natural habitats to timber plantations
substantially reduced biodiversity.

3. Deforestation was a leading contribution to global climate

change by preventing photosynthesis from sequestering
atmospheric carbon into the soil.
• Also reduced long-term wood availability.

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 SUSTAINABILITY
• Wood Sourcing Standards
• In 2000, IKEA Group develop its code of conduct the IKEA
Way on Purchasing Products, Materials and Services
(IWAY).

• To specify minimum acceptable standards for working

conditions and environmental protection at its
manufacturing suppliers.

• In 2013, IKEA Group’s 90 auditors conducted 917 audits

and approved 100% of the company’s home furnishing
suppliers.

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 SUSTAINABILITY

• IWAY forestry standard prohibited sourcing wood:

1. From forests that had been illegally harvested
2. From forestry operations engaged in forest-related social
conflicts
3. Harvested in geographically identified intact Natural
forests or High-Conservation Value Forests
4. Harvested from natural forests in the tropical and
subtropical regions being converted to plantation or non-
forest use
5. From officially recognized and geographically identified
commercial genetically modified tree plantations

Watch how IKEA works with forest management - YouTube

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 SUSTAINABILITY

• IWAY forestry standard also specified conditions under

which wood would qualify from “More Sustainable
Sources”:
1. Wood certified to the Forest Stewardship Council’s (FSC)
“Forest Management” and “Chain of Custody” standards
2. Pre- and post-consumer reclaimed wood (recycled).

• FSC was created in 1993, in the wake of the failure of

governments and NGOs at the 1992 Earth summit to
achieve a consensus on measures to fight deforestation.

Forest Management Certification | Forest Stewardship Council (fsc.org)

What do the FSC Labels on a Product Mean? - YouTube 37
 ACHIEVING A SUSTAINABLE
WOOD SUPPLY CHAIN

• Implementing the People & Planet Positive strategy.

• Integration of sustainability concerns into core business

decisions.

• CSO want to construct a framework for how the

interrelated tactics might be integrated into a coherent
strategy.

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 ACHIEVING A SUSTAINABLE
WOOD SUPPLY CHAIN

• Four potential options was unclear which was preferable in

term of risks, profits, and growth. And what were the
tradeoffs.

• Option 1: Owning more Forests

• Option 2: Driving Higher Procurement Targets and Standards

• Option 3: Using More Particleboard

• Option 4: Using More Recycled Wood

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See Lecture10- Four options.docx
 ICE

1. For each of 4 options shown in page 39, state their

advantages and disadvantage.

2. Which option(s) should IKEA Group pursue to address

IKEA’s Wood Supply Chain sustainability? Which has the
highest leverage of IKEA?

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 SUMMARY
• Framework of SSCM
• Key Components
• Sustainable Procurement
• Eco-Friendly Production
• Green Logistics
• Product Lifecycle Management
• Stakeholder Collaboration
• Benefits & Challenges
• Strategies
• IKEA Case