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Wealth Creation Instead of Value Creation: Sustainability in Supply Chains

Green plant growing from pile of coins

Nothing lasts forever.

At some point - knocking on wood - this pandemic, which has seriously overshadowed questions of sustainability, will be over.

But the issue remains with us, of course. After all, even after COVID-19, climate change will continue, workers in emerging countries will continue to receive starvation wages far too often and companies will again be expected to take concrete approaches to sustainability and corporate social responsibility.

This is also the assumption of the European Union (EU), which is announcing an initiative on sustainable corporate governance for 2021 that will address, among other things, the management of supply chains and the due diligence of companies for their supply chains.

This is an evergreen issue that is not only being imposed on companies, but one that politicians and society are now also taking on more strongly. There is no question that there is a great need for action here, not only for the benefit of supply chains, but for all of us.

That is why, at the end of last year, Technical University Dortmund and Technical University Berlin completed a project academy for the German Research Foundation DFG. Together with colleagues from other universities of applied sciences, we worked on three topics.

1. Ethical principles as the basis of supply chains

Morals and the market economy do not always share the same views, and from our good position in a global comparison, despite our coronavirus burden, it seems obvious to preach to other people in emerging countries, for example, that they should send their children to school and not to the cotton field.

But applying ethical principles to the management of our supply chains forces us to shift perspective and recognize why we would probably do exactly the same thing in their position and send our children out into the field. And depending on how we behave as consumers and producers, this will either continue or it will change in such a way that these children, or at least their subsequent generation, will also receive a school education because their parents earn enough.

Morality has more to do with wages and bread in faraway countries than we can imagine in this country.

2. Measurability of sustainability in supply chains

The measurability of sustainability in supply chains has been a burning issue of every purchaser and supply chain manager for years.

Purchasers are still trained, assessed, incentivized and paid according to spendings and savings. So, if a non-sustainable supplier is a few cents per unit cheaper than a sustainable supplier - and they cannot (yet) measure, quantify and state the sustainability disadvantage in monetary terms - the former is more likely to be selected. This is not acceptable, but unfortunately is still happening too often.

So we have to be able to measure as quickly as possible which is not really well and uniformly measurable up to now: What effects does the sustainability of a supplier have? And how can this be offset against savings? We need to get to the point where we can price in a supplier’s sustainability. This means that in the future the focus should not always be on purchase prices and that the more sustainable supplier will reliably be awarded the contract.

3. Best practice for improving sustainability

In the future, we will need many more good examples showing how we can address both environmental and social aspects and at the same time follow the economic principle, harmonizing the triple bottom line of people - planet - profit.

Because that is what characterizes sustainability: Anything we use and consume is not only recycled, but also fed directly back into the value chain - in the sense of a circular economy - so that our scarce resources can be used more efficiently and better protected, for the good of us all.

The findings of the successfully completed academy on all three outlined topics, which I would like to recommend to everyone, are available in book form under the title Sustainability in Global Value Chains.

If these approaches are indeed adopted, the current management of value chains will in the future be transformed into a genuine 'wealth creation chain management'. And if we succeed in this transformation, it would be a century of success for the economy and humanity.

That would be a nice New Year's resolution - and if everyone follows, it will definitely be a good one.