Supply chain innovation is a double edged sword for sustainability

In complex global supply chains, the balance of innovation and sustainability is a double edged sword. Being sustainable demands creativity in business operations, but innovation also carries the risk of creating unsustainable practices and products.

The basis of innovation is thinking, or doing things, differently. Whether sustainability is the core reason or a by-product, it should be considered in equal measure to other goals such as market disruption or cost reduction. Sustainable innovation and procurement can take many forms, from alternative supplier selection criteria, to new raw materials, to taking packaging back to the drawing board.

Two good practice examples come from Young's Seafood and the UK brewer, hotelier and wine merchant, Adnams.

Young's recognised that unsustainable fishing would have deep impacts on its long-term goals. Its innovation was the Fish for Life procurement policy, which required suppliers to prove they were adhering to strict management protocols approved by Young's, as well as showing a commitment to constant improvement. Establishing this initiative helped Young's recognise its own business model had to change. The company stopped purchasing North Sea cod because of the poor condition of fish stocks. Its commitment also touched other areas of their business, such as policy setting and development, where they lobbied for more robust management of European fisheries.

At Adnams, what started as innovation behind corporate social responsibility became a cost-saving initiative too. The development of new lightweight bottles saved on raw materials and eventually transportation costs as the lighter-weight bottles took less energy to deliver. Its East Green beer, marketed as the first carbon-neutral beer produced in the UK, is made using locally produced high-yield quality barley. Adnams chose a variety of hops which is more pest-resistant, reducing the need for the use of chemicals - protecting the environment and also reducing costs. Its energy-efficient supply chain and innovative brewing methods have enhanced the brand as well as the company's sustainability.

Equally, innovation for the wrong reasons can lead to disastrous results. A high profile example is Boeing's continuing nightmare regarding the development and introduction of its 787 Dreamliner aircraft.

Boeing's aim was to improve operational efficiency, leading to better value for airlines, with fuel savings of 20% and a cost per-seat per-mile 10% lower than for other aircraft. Its innovative fuselage made from composite, lightweight materials would also reduce replacement and maintenance costs.

All this was to be done by outsourcing development on a significant scale, with more than 30% of components coming from outside the US. The first issue was unproven technological innovation, which increased risk and ultimately led to delays and increased costs. Offshoring added more risk and cost due to long supply chains and the need for continuous communications and on-site involvement.

An innovative assembly outsourcing model was also used, with strategic partners and additional supply tiers. But knowledge gaps between these partners and suppliers caused difficulties both in terms of developing different parts and partners' ability to manage suppliers.

With production setbacks the Dreamliner entered service three years late. Overheating battery problems caused the airline to be grounded for four months earlier this year and the Dreamliner's problems still continue. Innovations designed to manage work and cost out of the business, resulted in managing risk in by using methods that weren't appropriate.

The key word about how businesses can achieve greater success in sustainable procurement is appropriateness. It's is about knowing what to do to and what not to do to deliver strategic goals within specific supply chain and market circumstances.

Despite a complex and volatile global environment, it may be more appropriate to use short supply chains in terms of time and distance in order to balance cost and risk, with easy-to-access knowledge and expertise and lines of communication. It also requires flexibility and the ability to gain scale without incurring the disproportionate overhead that currently accompanies growth.

When it comes to sustainability and innovation, organisations can take advantage of appropriate opportunities to increase it though their suppliers. This includes involving suppliers in processes, especially current and new product (and service) developments. Building trust and demonstrating openness and an information sharing culture from the outset can also be key, as can working with the supply base to help it improve its competitiveness in both cost and quality.

Gerard Chick is chief knowledge officer at Optimum Procurement, a specialist procurement outsourcing and advisory company.

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