Master Thesis
Research
Mechanisms for sensing sustainable
developments and issues within complex
supply chains
Radboud University Nijmegen
Nijmegen School of Management
Business Administration – Organisational Design & Development
G. C. van der Vliet
Date: July 9 2018
Student number: 4852397
Supervisor: Prof. Dr. K. Lauche
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Index
1. Introduction ... 3
1.1 Research Objective and Question ... 4
2. Theoretical background ... 5
2.1 Sustainable Supply Chain Management ... 5
2.2 Complexities of Sustainable Supply Chain Management ... 6
2.2.1 Complexity theory ... 6
2.2.3 Drivers of complexity ... 7
2.2.2 Challenges and consequences of complexity ... 8
2.3 Theoretical conclusion ... 10 3. Methodology ... 12 3.1 Research Design ... 12 3.2 Context description ... 12 3.3 Data collection ... 13 3.4 Data Analysis ... 15 4. Results ... 17
4.1 Collecting information about the supply chain... 18
4.1.1 Internal sources ... 18
4.1.2 External sources... 18
4.2 Enhancing sustainability performances within the supply chain ... 20
4.2.1 Reaching out to lower-tier suppliers directly ... 21
4.2.2 Reach out to lower-tier suppliers indirectly ... 21
4.2.3 Collaborating within and outside the supply chain ... 22
4.2.4 Reducing the amount of tiers ... 23
4.3 Prioritizing risks of the supply chain ... 24
4.4 Technologies supporting the approaches ... 24
4.4.1 Databases ... 25
4.4.2 Blockchain technology ... 25
4.4.3 Supplier engagement technologies ... 26
5. Discussion & Conclusions ... 27
5.1 Summary of findings ... 27
5.2 Theoretical implications ... 31
5.3 Practical implications ... 32
5.4 Limitations and future research ... 34
5.5 Reflection ... 35
References ... 36
Appendices ... 40
Appendix 1: NXP’s commitment to the UN’s Sustainable Development Goals (SDG’s) ... 40
Appendix 2: Interview guide ... 47
Appendix 3: Template statement card ... 51
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1. Introduction
Some argue that the sustainability concept has become a fundamental social value of our society (De Haan et al., 2014). Societal values are a set of common values, beliefs and attitudes shared by the majority of a regional population that represent the core societal practice within a region (Dietz et al, 2005). Organisations play an important role within our society regarding the realisation of these societal values (Achterbergh & Vriens, 2009). Aristotle stated that society should be ordered in such a way it creates conditions for citizens to live a “fulfilled life” (Wörmer, 2001). Institutions, in this case organisations, should contribute to this end by incorporating these sustainable values. The broader adoption and developments of sustainable values is powered by supply chain management practices, as these are highly relevant in addressing responsible behaviour at all stages of the supply chain (Ashby et al., 2012; Linton et al., 2007). Supply chain management considers the product from initial processing of raw materials to delivery to the customer (Ashby et al., 2012). For a lot organisations this incorporation process of sustainability can be an immense task due to the confrontation with complex organisational challenges.
As sustainability touches upon the concept of supply chain management to look at optimizing operations from a broader perspective, the complexity associated with defining, coordinating and interacting with stakeholders increases substantially (Matos & Hall, 2007; Linton et al., 2007). The wish and/or duty to meet the sutainability goals within large complex supply chains becomes even more challening. When organisation becomes more complex they could lose sight of sustainability issues and developments within their supply chain, especially those derived from deeper layers of the supply chain. For instance, layers at the level where raw materials are extracted. If not controlled, these developments and issues may not be perceived by supply managers untill it is too late (Blackhurst et al., 2018). This internationally occuring problem is also a clearly academic recognition of the need to develop a better and more focused understanding of sustainability, specifically in relation to supply chains (Ashby et al., 2012). Therefore, exploring the mechanisms that enable organisations to sense sustainable developments and issues that emerge from within their complex supply chains, doesn’t only contribute to this need, it also would be useful to supply- and sustainability managers that aim to incorporate sustainable values. Additionally, this would help them to improve the management of sustainable supply chain initiatives and thereby contribute to a more sustainable society.
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1.1 Research Objective and Question
The main problem, as outlined in the last sections, is that mature complex organisations find it challenging to engage in a desired manner with the sustainable developments and issues that appear from within their supply chain. The goal of this study is therefore to gain insight in what suitable mechanisms enable organisations to sense sustainable developments and issues within their complex supply chain. The outcomes of this research contribute to possible improvements in terms of managing sustainbility within complex supply chains. Thus, the objective of this research is:
to gain insight in suitable mechanisms that enable organisations to sense sustainable developments and issues from within their complex supply chain.
To realize the objective of the research the following research question should be answered:
“What are suitable mechanisms that enable organisations to sense sustainable developments and issues within their complex supply chain?”
To answer this research question, the research qestion is divided into a respectively theoretical, empirical and analytical subquestion:
1. What is already known about the current issues, challenges and their consequences in terms of sustainability within supply chains?
2. How do organisations currently address the challenge of sensing sustainability developments and issues within their supply chain?
3. What mechanisms can be proposed based on previous research and the findings of this study?
This research entails the following content: chapter 2 describes the theoretical background of the research, which answers the first subquestion. Subsequently, chapter 3 describes the used research methods, chapter 4 describes the findings of the research and answers the second subquestion, chapter 5 describes the discussion and conclusion and answers the third subquestion.
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2. Theoretical background
This chapter provides the theoretical background of the research. It starts with explaining the growing popularity of sustainabiltiy within the context of supply chain practices by describing the concept of sustainable supply chains management in section 2.1. Thereafter, the complexities are described in terms of issues, challenges and consequences of managing sustainability within supply chains. Finally, this chapter closes with a conclusion in order to answer the first subquestion ‘what is already known about the current issues, challenges and their consequences in terms of sustainability within supply chains?’.
2.1 Sustainable Supply Chain Management
During the last two decades, the focus on optimizing operations has moved from a specific organisation to the entire supply chain (Linton et al., 2007). Supply chain concisely can be defined as all activities of product supply from raw material to consumer, including supply of materials and parts, development and assembly, storage and monitoring of reserves, acceptance and management of orders, distribution through all channels, delivery to consumers and informational systems needed for monitoring off all these activities (Masteika & Čepinskis, 2015). Management of the supply chain is responsible for coordination and integration of all these activities into one continuous process. It connects all participants into one chain, departments into one organisation, as well as all external participants, including suppliers, people responsible for delivery, third party companies and informational system providers (Masteika & Čepinskis, 2015), with the aim of reducing costs, improving customer satisfaction and gaining competitive advantage for both independent companies and the supply chain as a whole (Serdarasan, 2016).
However, as supply chain management considers the product from initial processing of raw materials to delivery to the customer (and beyond from a circular economy perspective (Geissdoerfer et al., 2018)), it is also highly relevant in addressing responsible behaviour at all stages of the chain (Ashby et al., 2012). It is therefore an important discipline towards the broader adoption and development of sustainable goals (Ashby et al., 2012; Linton et al., 2007). This adoption started with the Brundtland Commission Report published in 1987. The Brundtland Commission report defines sustainable development as an ethical standard: “seeking to meet the needs and aspirations of the present without compromising the
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ability to meet those of the future” (WCED , 1987, p. 39). This definition indicates the multifacet nature of the concept, which is why a ‘one-solution fits all’-definition for sustainability should be abandoned Van Marrewijk (2003). Since then, the interest in sustainability related practices in supply chain management has grown slowly (Rajeev et al., 2017; Linton,et al., 2007; Carter & Liane Easton, 2011; Ashby et al., 2012). From the early 2000s, sustainable operation management practices together with the management of Elkington’s (1997) Triple Bottom Line (social, economic, and environmental domain), shifted awareness towards environmental and social standards for economic growth (Rajeev et al., 2017). This has since 2010 led to the emergence of sustainable supply chain management (Rajeev et al., 2017). Sustainable supply chain management is defined as “the creation of coordinated supply chains through the voluntary integration of economic, environmental, and social considerations with key interorganizational business systems designed to efficiently and effectively manage the material, information, and capital flows associated with the procurement, production, and distribution of products or services in order to meet stakeholder requirements and improve the profitability, competitiveness, and resilience of the organization over the short- and longterm” (Ahi & Searcy, 2013, p. 339).
2.2 Complexities of Sustainable Supply Chain Management
2.2.1 Complexity theory
Operating in a dynamic and uncertain environment, a supply chain is definitely a complex system with various companies, high number and variety of relations, interactions and processes between the companies, dynamic processes and interactions in which many levels of the system are involved and a vast amount of information needed to control this system (Serdarasan, 2016). The complex nature of both sustainability and supply chain extends the difficulty of managing the supply chain, so it is almost common sense to say that sustainable supply chain management concerns managing the complexity of the supply chain (Serdarasan, 2016). Therefore, this research adopts complexity theory, which claims that as system complexity (i.e. the number of elements and the degree to which these elements are differentiated) increases, it becomes more difficult to determine its performance outcomes (Crozier & Thoenig, 1976). Although there is still no universally accepted definition of supply chain complexity (Bode & Wagner, 2015), for the purpose of this study, this research relies on a structural perspective towards supply chain complexity. Therefore, the research of Choi and Hong (2002) is most relevant due
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to its conceptualisation of supply chain complexity from a structural perspective. Choi and Hong (2002) suggest that vertical complexity refers to the number of tiers; horizontal complexity refers to the number of suppliers in each tier; and spatial complexity refers to the extent of the dispersion among members within the network, such as geographic distance between a focal firm and its suppliers.
2.2.3 Drivers of complexity
The following general developments and changes are considered as drivers of the overall level of complexity of supply chains, as they directly affect the structure of modern supply chains: a focus on efficiency rather than effectiveness; the globalisation of supply chains; focused factories and centralised distribution; the trend to outsourcing; and the reduction of the supplier base (Jüttner et al., 2003).
Additionally, contingency theory suggests that as organizations differ in the tasks they perform and environments they face, the appropriate organizational structure in each case is a function of contingency variables (Walker & Jones, 2012). Thus, it takes the context under which management practices are effective into account.The contingency variables that affect the complexity of the supply chain are described next.
The first contingency variable is power, which is the ability to influence the activities of other members of the network (Tachizawa & Wong, 2014). A distinction can be maid between two tpyes of influence: economic (negotiation power) and non-economic (influence in industry). Its role in the complexity of supply chains is that the distribution of power influences the depth of collaboration between buyers and suppliers in networks. Dependency on suppliers is closely related to this variable, which is refered to as the the degree to which a firm relies on other members of the supply chain for critical resources, components, or capabilities (Tachizawa & Wong, 2014). The second contingency variable is stakeholder pressure, as it shapes conditions for managerial practices within supply chains (Tachizawa & Wong, 2014), such as sustainable behavior (Razaee, 2016). For example, companies with higher public visibility, will experience more pressure on addressing sustainability issues than companies that are less visible, which relates to stakeholder theory and institutional theory. Stakeholder theory intends to understand the relationship of the firm and its environment by articulating the fundamental question (Mitchell et al., 1997): which groups are stakeholders and which are not, and which require management attention? Institutional theory explains how generalized perceptions or assumptions of an entity are desireable, proper or appropriate within some socially constructed system of norms, values, beliefs, and definitions (Suchman, 1995). The third contingency variable is the type of product or service delivered.
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Products that consist of multiple customised components, require broad knowledge, skills and a high degree of new knowledge involved in production (Hobday, 1998). Complex products, such as cars, semiconductors and consumer electornics go hand in hand with a broad network of suppliers, which makes managing the supply chain more challenging, in contrast to simple products such as bolts, packaging and household tools. The fourth contingency variable is the criticality of materials, as it restricts the supply options and forces lead firms to extensive collaborations with certain suppliers (Frenzel et al., 2017). The fifth contingency variable is distance, as it increases information asymmetry and coordination efforts (Tachizawa & Wong, 2014). Distance encompasses three sub-dimensions: geographical, cultural, and organisational distance. Organisational distance, measured by the total length of the supply chain, particularly results in firms making use of multiple suppliers which leads to greater complexity and uncertainty (Wilhelm et al., 2016). The sixth contingency variable is knowledge resources, as it refers to the technical expertize to manage sustainability operations within the supply chain (Wilhelm et al., 2016). The lack of knowledge resources is an important incentive for lead firms to collaborate with third parties on i.e. the implementation of sustainable practices in the supply chain.
2.2.2 Challenges and consequences of complexity
The general complexities of the supply chain and the broader adoption of sustainable goals has led to multiple managerial challenges (Abbasi & Nilsson, 2012; Linton et al., 2007; Ashby et al., 2012; Carter & Liane Easton, 2011; Matos & Hall, 2007; Rajeev et al., 2017 and Quarshie et al., 2016). The challenges and their consequences can be divided into those concerning the general complexity of the supply chain and those concerning the incorporation of the sustainability practices in supply chains. Although these are describes seperately in the following subsections, they can be complementary to each other.
2.2.2.1 General supply chain complexity
Managing the supply chain complexity is seen as major challenge, as visibility and control appear to be thinning beyond the next tier of related organisations (Jüttner et al., 2003). This resulted in supply chains that are vulnerable to risk and disruption. Supply chain disruption is defined as “unplanned and unanticipated events that disrupt the normal flow of goods and materials within a supply chain, and, as a consequence, expose firms within the supply chain to operational and financial risks” (Craigheid et al., 2007, p. 132). Supply chains have faced challenges such as high demand variability, short life of products, and different expectations and requirements of customers (Kamalahmadi & Parast, 2016).
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Adapting to these challenges increased supply chain complexity and resulted in more instability and unpredictability (Kamalahmadi & Parast, 2016), which led to negative consequences for sustainable supply chain practices measured in different outcomes, such as an ad hoc approach regarding sustainability practices, reputation damage, decrease of performance of operations, complicate decision making, and health and saftey concerrns (Bode & Wagner, 2015; Jüttner et al., 2003). Due to these negative consequences, supply chain risk management attained popularity to explore how to best build resilience in supply chains (Brusset & Teller, 2017). Supply chain risk management is “the identification of potential sources of risk and implementation of appropriate strategies through a coordinated approach among supply chain risk members, to reduce supply chain vulnerability” (Jüttner et al., 2003, p. 201). Supply chain resilience is referred to as “the ability of a supply chain to return to normal operating performance, within an acceptable period of time, after being disturbed” (Brandon-Jones et al., 2014, p. 55).
2.2.2.2 Nature of sustainability practices
First, sustainability often can be difficult to quantify and make intangible, which contributes to the complexity in terms of how to measure, assess and monitor the effect of sustainability in supply chain acitivities and processes (Abbasi & Nilsson, 2012). The difficultty of measuring logistics’ environmental performance or uncertaintities in terms of returns and demands and environmental effects are examples (Linton et al., 2007; Abbasi & Nilsson, 2012). This holds true especially for social elements of sustainability (Ashby et al., 2012). They are difficult to attain as they often not present an appropriate goal for business. Additionally, several secondary effects of material flows which need to be addressed are difficult to cover (Abbasi & Nilsson, 2012). For instance how the combination of structural setup of logistics activities, the behavioural changes and the use of e-commerce contribute to each other and how all this in turn affects the environment. It’s because of these difficulties that decision makers are limited in what they can know (bounded rationality), thus rational calculations cannot guarantee optional solutions (Matos & Hall, 2007).
Second, sustainability is often associated with cost implications. There is a dilemma between reducing environmental impact of business acitivities and the inceasing financial costs (Bastas & Liyanage, 2018; Abbasi & Nilsson, 2012), such as the dilemma of the difficulties of incorporating environmental aspects in purchasing criteria and buying from low-cost vendor. It must pay to be green is the notion that is put forward, as this still is seen as the main driver in the supply chain (Abbasi & Nilsson, 2012). This does
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not necessarily contribute to the complexity of the supply chain, but makes the incorporation of sustainabiltiy within supply chain practices more difficult.
Third, inertia and difficulties in the interpretation of the sustainability are the two main factors that contribute to why the operationalisation of sustainability within supply chains is challenging (Abbasi & Nilsson, 2012). The interpretation of what sustainable development means in the economic, social and environmental dimensions in different parts of the supply chain makes it difficult to understand (Matos & Hall, 2007). As a consequence of the difficulties in interpretation, environmental issues are generally neglected or unrecognised in the design, policies and legislation (Abbasi & Nilsson, 2012). Inertia, the second factor, is a result of the fear of change towards realizing sustainable supply chains combined with difficulties of interpretation, the complexity of it and the focus on financial consequences (Abbasi & Nilsson, 2012).
Finally, due to complexities of the sustainability concept mentioned in this section, discrepency in mindset regarding embracing sustainability wihtin the company (i.e. the lack of engagement by top management) or the supply chain, is also seen as a challenge (Abbasi & Nilsson, 2012). This makes it i.e. difficult to incorporate sustainability management principles into the daily decision-making process and the processes carried out in supply chains, a great barrier. This challenge also plays a role in the attention that is devoted to the practice of issue selling in the context of sustainability. Namely, sustainability initiatives often conflict with short term financial goals and therefore become an issue to sell (Slawinski & Bansal, 2015). Issue selling entails “the process by which individuals affect others’ attention and understanding of the events, developments, and trends that have implications for organizational performance” (Dutton et al., 2001, p. 716).
2.3 Theoretical conclusion
In order to answer the first subquestion ‘what is already known about the current issues, challenges and their consequences in terms of sustainability within supply chains?’, the following conclusions can be drawn.
The complex nature of both sustainability and supply chain extended the difficulty of managing the supply chain, especially for supply chains that run hundreds or thousands of companies over multiple tiers. The complexities, which play a crucial role in the challenge to sense signals about sustainability
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developments and issues within the supply chain, refer to both the challenges in managing the general supply chain as well as incorporating sustainability practices. Together they make sensing sustainability developments and issues within the supply chain more complicated. The main challenges of the general supply chain complexity are managerial practices focused on reducing vulnerability, disruption, instability and unpredictability, as visibility and control reduce beyond the first tier suppliers. These challenges led to negative consequences for sustainable supply chain practices, such as an ad hoc approach regarding sustainability practices, reputation damage, decrease of performance of operations, complicate decision making, to health and saftey concerrns. The main challengesof the incorporation of sustainability within supply chains are the unquantifiability and intangibility of the concept, its cost implications, inertia and interpretation of the concept, and the discrepency in mindeset. These challenges led to difficulties in operationalising and incorporating sustainability within supply chain principles, and difficulties in measuring, assessing and monitoring the effectivity of the sustainability practices.
The complexity of the sustinability practices in supply chains is fed by several general developments, as they have directly affected the structure of modern supply chains: a focus on efficiency rather than effectiveness; the globalisation of supply chains; focused factories and centralised distribution; the trend to outsourcing; and the reduction of the supplier base. Additionally, several contingency variables affect the complexity of the supply chain: power/dependence, stakeholder pressure, type of product or service, criticality of materials, distance and knowledge resources.
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3. Methodology
This chapter discusses the execution and design of the research by describing the research design, context, and the utilized techniques for data collection and –analysis.
3.1 Research Design
The research question is ‘What are mechanisms that enable organisations to sense sustainable developments and issues from within their complex supply chains?’. Due to the explorative nature of this research question, open qualitative research is conducted to depict how organisations address the challenge of sensing sustainability developments and issues within their supply chain. The unit of analysis were the business practices intended to pick up signals from the supply chain, due to this research’s focus on the actions by orgaisations. Qualitative research is suited to gain these insights due to its nature of rich data collection of phenomena within their context (Bleijenbergh, 2015). The richness of qualitative data ensures that the researcher can make statements based on a relatively small amount of observations about specific phenomena in social reality (Bleijenbergh, 2015).
3.2 Context description
As the complexity of a supply chain is internationally recognized as a substantial barrier of the integration of sustainability, research within a multinational that produces technological products was considered as a valid case to answer the need of research in this field. These companies produce complex products that consist of multiple customised components, which are associated with a broad network of suppliers (Hobday, 1998). This makes managing the supply chain more challenging. NXP Semiconductors is a world-leading technology firm that works on these challenges. In order to frame the context of the research, a brief description about NXP and its processes is given, including a discription of their orientation towards sustainablity.
NXP is a listed technology firm with plants in 25 countries. Their headquarters is located in Eindhoven, the Netherlands. Approximately 900 employees work at their production center in Nijmegen and worldwide NXP counts around 40.400 FTE (NXP, 2017). The many processes used to manufacture
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semiconductors are complex and delicate and require a variety of specialized chemicals and materials, both in front-end manufacture (wafer fabs) and in back-end operation (assembly) (NXP, 2018). NXP uses more than 400 substances in roughly 2,500 process chemicals and preparations, along with the more than 2,000 product-related materials and sub-parts used by their manufacturing operations. Compared to other industry sectors, the semiconductor industry uses more chemicals and materials, but typically in lower volume and in a highly controlled way. NXP follows some of the toughest practical standards in the industry to regulate the use of hazardous chemicals, to protect their customers, their employees, and the environment. NXP supports the sustainable development goals with their existing programs and technology that contribute to progress to 13 of the 17 sustainable development goals1 set by the United Nations (NXP, 2018). The programs of NXP and products focus on ensuring healthy lives, achieving dignity, prosperity and justice for all people and protecting the planet for future generations. Appendix 1 demonstrates NXP’s commitment to the sustainable development goals.
3.3 Data collection
To ensure the quality of the research the qualitative research assessment criteria, credibility, transferability, dependability and confirmability, stated by Symon and Cassell (2012) are used to ensure integrity, transparency, honesty, and professionality. The steps taken to conduct this research, which are provided in this section and section 3.4, describe how these criteria and expectations are met.
In order to create a clear understanding of how organisations currently address the challenge of sensing sustainability developments and issues with their supply chain, ten representatives of global operating companies are interviewed. The respondents are chosen by relevance, as they hold manegerial positions and are related to sustainability practices within their supply chain. In order to generalize the findings of this research to different contexts as much as possible, these companies are different in terms of the products or services they provide or the sectors in which they operate. Table 1 provides an overview of the positions of the respondents with the participating companies.
1 On September 25th 2015, the United Nations set 17 sustainable development goals to end poverty, protect the planet and ensure prosperity for all, as part of a new sustainable development agenda. Each goal has specific targets to be achieved over the next 15 years (United Nations, 2015).
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Respondent Company Position
Respondent 1 NXP Semidconductors Senior Director Sustainabiility, Environment, Health & Safety
Respondent 2 NXP Semiconductors Director
Respondent 3 NXP Semiconductors Manager Environment, Safety and Health
Respondent 4 NXP Semiconductors Procurement Director Global Front End Materials & Procurement Site Head
Respondent 5 NXP Semiconductors Senior Sourcing Manager FE Chemicals & Gases
Respondent 6 Verité Senior Director of Advisory Services
Respondent 7 The Coca Cola Company
Director Global Workplace Rights
Respondent 8 Adidas Group Senior Manager – Development Partnerships Social &
Evironmental Affairs Asia Pacific
Respondent 9 ESCF Board member
Respondent 10 NCP for OECD-guidelines
Board member
Table 1: Respondents of research
Data was collected by means of semi-structured interviews. Semi-structured means that the open questions are formulated beforehand, but the interview still provides the opportunity to deverge from them and mention new subjects (Bleijenbergh, 2015). In this way specific information about supply chain practices regarding sustainability can be gained, while there maintains space for the respondent to add information. An interview guide was made, which is included in appendix 2, that served as an instruction during the interviews and shows the questions that were asked. The chance of disruption during the inteviews was reduced i.e. by showing empathy and by asking the questions in such a way the repsondents felt safe (Bleijenbergh, 2015). After permission of the respondents, the interviews were recorded and transcribed to prepare the interviews for the analysis. Thereafter, the transcripts were sent to the respondents to provide them the opportunity to sharpen the content when necessary.
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Subsequently, the content of the transcripts were treated confidential, which means that the respondents’ statements are used to substantiate the findings but are not tracable to their names. The transcripts were stored digitally in a confidential folder, which only the researcher and its supervisors had access to.
Although no documents were analysed in the purpose of this research, multiple documents of the participating companies were used as preparation for the interviews, such as auditable standards on social responsibility, supplier codes of conduct or risk assessment documents. As these documents provide insight in the management of suppliers and what standards are used in doing so, they served as tools to ask supplementary questions during the interviews.
3.4 Data Analysis
Due to the exploratory nature of this research a context analysis is conducted before the actual coding process. A context analysis is a ‘quick and dirty’ method that is suited for the analysis of qualitative data. This method roughly extracts the main themes and provides a first picture of the content by interpreting, discussing and categorizing the insights within a group (Stappers, 2012). To prepare the analysis, the transcripts were divided over the group members and statement cards were used to identify remarkable findings within the transcripts. The template of the used statement cards is included in Appendix 3. The statement cards are formatted so that the original quotes, which were considered to be remarkable, were provided with a short summary in own words. In order to be able to trace back the paraphrases within their context, the statement cards were also provided with the number of the transcript and the line number at which the quote started in the transcript. This resulted in 8-15 printed filled in statement cards per transcript and were brought to the analysis meeting. Subsequently, the actual analysis started by sharing and discussing the interpretations within the group. Together, the interpretations were grouped into themes and sub-themes until all the cards were fitted somewhere. The created sub-themes and themes were categorized by identifying and connecting different levels of importance, sequence, detail or abstraction.
After the context analysis, the actual coding process is conducted. Coding is an iterative process of attaching a label (code) to a section of text to index it as relating to a theme (Symon & Cassell, 2012). Open codes relevant to the specific question were developed inductively from the data, by the use of the computer-assisted qualitative data analysis program ATLAS.TI 8. Thereafter, these codes were clustered
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in groups, subthemes and themes extracted by the context analysis and compared with each other, in order to recognize patterns within the social phenomena. This process is captured in a codebook which is included in appendix 4. This codebook provides a quick view of the content and structure of the data, which consists of two tables. Table 1 presents empirical insight into the goal, motivations, issues and challenges around managing sustainability within supply chains and serves as support for table 2. Table 2 presents the three approaches companies adopted to address the challenge of sensing sustainability developments and issues within their supply chain: (1) they collect information about the supply chain, (2) they proactively improve sustainability performances within the supply chain and (3) they prioritize between complexity risks of the supply chain. The findings were taken into account to identify suitable mechanisms that enable organizations to sense sustainability developments and issues within their complex supply chain.
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4. Results
Companies have the challenge of sensing sustainability issues and developments within their supply chain. Therefore, these companies attempted to create as much visibility within the chain as possible. Three approaches can be distinguished in how companies attempt to realize visibility within their supply chain: (1) they collect information about the supply chain, (2) they proactively enhance sustainability performances within their supply chain and (3) they prioritize between complexity risks of the supply chain. Learning from experiences and findings in the supply chain business is portrayed as an important component in all approaches, as the respondents indicated always to be in need of better solutions. The three approaches are discussed in the same order in sections 4.1 to 4.3. Although the approaches are described seperately, they may show some overlap and could be complementary to each other. The participating companies may therefore have adopted a combination of approaches. For instance, the situation when a company receives information from a global NGO about investigations concerning labor condition issues within an area a critical supplier operates. The approaches were supported by technologies, which are therefore described in section 4.4. The four sections together answer the second subquestion: ‘how do organisations currently address the challenge of sensing sustainability developments and issues within their supply chain?’ Throughout this chapter multiple quotes of the respondents are used to substantiate the findings.
Before the three approaches are described it is important to note that the respondents were asked to frame the complexity of sensing sustainability developments and issues within their supply chain. One respondent portrayed the complexity as follows:
“The problem is that our supply chain is enormous and complex. If I consider our suppliers then I am talking about 9000 suppliers worldwide. […]. Every supplier has their own suppliers and those suppliers also buy their resources for their products from multiple suppliers. This leads to a very complex structure of the supply chain. […]. So, it is very difficult to increase the visibility of the supply chain.”
This narrative shows that the general supply chain complexity mentioned in chapter 2 of this research is confirmed.
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4.1 Collecting information about the supply chain
Collecting as much information about the supply chain as possible was seen as the most obvious solution respondents spoke about. This was done to create an accurate understanding of what is going on in their supply chain. For instance, in terms of the supply chain operations, suppliers, geographical locations of these suppliers, materials and the locations where materials are extracted. According to the respondents, the effort put into this process positively relates to the value of the information received, as the quote “the more we look, the more we find” indicated. To collect this information the respondents used internal and external sources. Internal sources are sources within the boundaries of the company and external sources are sources beyond the boundaries of the company.
4.1.1 Internal sources
Organizational members who work on sustainability issues in supply chains on a daily basis possess knowledge and experience in their field of expertise, and are therefore seen as a valuable source of information regarding these issues. Additionally, the importance of decentralizing own teams on the ground is also considered as a crucial source of information. The following quote describes this very well: “For example, social insurance is a big deal in China these days, suppliers don’t want to pay. If we didn’t have 5 to 6 people of our own on the ground and we had to rely on somebody else to tell us this, we probably would have needed a longer time to address it. Be being on the ground, speaking the local language, working with these suppliers, factories and local governments, we know these issues.” Respondents added that learning from their experiences in the supply chain business is important to sense future developments and issues, which in turn can serve as input for further investigation. For instance, NXP sees the fact that they have their own factories as a great advantage. They often test new sustainable standards on their own factories and evaluate the results before they are communicated externally.
4.1.2 External sources
Due to the worldwide reach of their operations and thereby their supply chain, the participating companies very much relied on the information they attained from sources beyond the boundaries of the own organization. The access to the knowledge of others increases the possibility to sense developments and issues within the supply chain. The most discussed external sources are NGOs, direct suppliers and
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local parties, which suggests that these are the most important sources used. The contact with these sources could result in partnerships or collaborations when the received information is considered valuable to the company and is desired for longer periods of time.
4.1.2.1 NGOs
NGOs, like Verité, possess a lot experience and knowledge in addressing sustainability issues in supply chains and were therefore considered very helpful. They establish reports and make them publicly available, i.e. reports of reputation scans of a certain company or a scan of the issues regarding sustainability occurring in a particular country. Moreover, NGOs can serve as a connector or mediator between the company and other stakeholders through their related business with many different types of companies. A respondent of NGO Verité described the broad range of companies they do business with: “We work with governments, international institutions like the ILO (International Labor Organisation), socially responsible investment funds, multilateral banks. The overwhelming majority of our work however is with companies, companies and their suppliers, their contractors, their service providers.”
4.1.2.2 Direct suppliers
The direct suppliers were considered as another important external source of information. The business relationships between a company and her direct suppliers creates an environment wherein it is in their own interest to share each other critical information related to sustainability developments and issues. Besides, the assessment of suppliers by means of audits and codes of conducts includes feedback which also contains valuable information.
4.1.2.3 Local parties
Also local parties were considered as an important external source, as the following quote indicates: “Because at the end of the day, in many instances if you don’t get on the ground you don’t really know what is happening.” Differences in norms, values and assumptions exist beyond borders of countries. By having local teams present on the ground speaking the country’s language provides the company valuable information about practices in regions the supply chain touches upon. Examples of these parties that were portrayed were trade unions, employee representatives, local NGOs and communities.
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4.1.2.4 Other external sources
Other named external sources that provide information are research agencies, the press, governmental bodies, corporate initiatives and customers. Research agencies in the field of supply chain management provide similar reports as NGOs about conducted research. The press primarily fulfills an important role in communicating catastrophic events such as tsunamis or tornados, which could have serious consequences for organizations. Governmental bodies fulfill an important role in communicating (local) legislation, which should be embraced by law. The OECD-guidelines are an example of legislation that multinational companies must adhere. An example of a corporate initiative given is the Responsible Business Association (RBA). The RBA is a collaboration of approximately 120 companies that collectively aims to establish common standards around sustainability issues within the industry. These companies all have their own expertise and can therefore provide each other crucial information.
4.2 Enhancing sustainability performances within the supply chain
The often intangible and unquantifiable sustainability concept is seen as a driver of the complexity within supply chains. Additionally, the concept of sustainability turned out to be still very new to many suppliers and it touches upon deeply entrenched business practices, which in some cases are not ethical or legal, such as issues around modern slavery (child labor, forced labor, poor working conditions and human trafficking), violations of workers’ rights (i.e. payment of wages, freedom of association and collective bargaining) or violations in terms of water, waste and carbon emission treatment. These were seen as major reasons why companies do not disclose and thereby hinder the visiblity of the chain.
Furthermore, improving sustainability performances within the supply chain provided additional information and experience which, as an unintended effect, reduced the chain’s complexity. Thus enhancing sustainability performances of the supply chain was beneficial in two ways: sustainability related issues within the chain were addressed and it reduced the chain’s complexity, which increased the chain’s visibility. Remarkable in this regard was that a moral value, the desire to do the right thing, determined the amount of effort spent in addressing certain sustainability issues. The following quote indicates this: “One of the reasons why we look deeper into the supply chain on de social domain by ourself is because it is about human beings. With respect to people we must act ethical.” The same respondent indicated that from that moment on they were better able to sense sustainabiliy related
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developments and issues within the chain. Therefore the following subsections describe the different ways of how companies increased the visibility of the supply chain by proactively addressing sustainability issues within their supply chain: reaching out directly to lower-tier suppliers and indirectly, collaborating within and outside the supply chain and reducing the amount of tiers.
4.2.1 Reaching out to lower-tier suppliers directly
Some of the participating companies reached out to suppliers from deeper layers of the supply chain directly by partnering, engaging, involving or influencing these suppliers to both improve their productivity and enhance the sustainability of the whole chain: “in the last five years there have been big improvements in the mills outreach and engagement with their own farmers. The mills themselves understand now that their only sustainability within the supply chain is the pin upon their relationship sustainability of the farmers who make up the supply of that mill.” Costs implications are an impeding factor for suppliers when they contemplate changes in terms of sustainability. These initiatives often involve capital investments and in a world where profit is still the main concern, these investments should have some positive return. Therefore, providing the suppliers education and consultation about how to incorporate sustainability principles into their business practices is seen as a valid tool to improve the sustainability performances of lower-tier suppliers. This was even considered to be a win-win situation, as it not only increases the suppliers’ knowledge about implementing sustainability within supply chains, but also provides the buying firm insight in the suppliers operations. Building awareness and knowledge about why the concept of sustainability is important is seen as the first phase within these consultation sessions. This could be incentivized by presenting a good business case in terms of why sustainability is important, both for the world as in terms of how it can help the business and reduce their costs. An additional benefit of such a business case is that it makes sustainability concepts less intangible and unquantifiable for suppliers and therefore reduces the complexity of the supply chain
4.2.2 Reach out to lower-tier suppliers indirectly
As some respondent found it too difficult to adopt the unfeasible burden of assessing the involved companies directly an indirect approach offered them a solution. To realize significant sustainable improvements in lower parts of the supply chain, many companies passed on the sustainability requirements, i.e. by means of a supplier code of conduct, to their tier-1 suppliers. In addition, they asked these suppliers to do the same to their tier-1 suppliers. So sustainability standards get cascaded down through the supply chain. By passing on “the torch” of sustainability standards to lower suppliers
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of the chain, companies aimed to establish one shared standard within the whole supply chain. They believed that this also increases the ability to sense developments and issues. Section 4.2.1 describes that the participating companies provided education and consultation to the suppliers about how to incorporate sustainability principles into their business practices. Education and consultation were also used to ensure that suppliers are able to comply with the requested code of conduct. A mentioned form of incentivizing suppliers to comply with sustainability principles that fits this indirect approach is the idea of self-assessments by suppliers. One respondent explains its potential “The issue with the audits is that the suppliers try to do their best to appear to be performing well. Their performances prior to audits seem to improve significant after the audits but after some time it just goes back to the original level or even worse. So, what we are trying to point is to come with a self-assessment by the suppliers and to motivate truthful declaration as much as possible. This can be achieved by means of frozen periods of guarantees of no penalty for example.”
4.2.3 Collaborating within and outside the supply chain
4.2.3.1 Within the supply chain
Collaborations with third parties, such as the parties mentioned in subsection 4.1.2, were considered crucial to address the sustainability issues within the chain. Furthermore, it helps companies to create more change leverage towards these issues. For instance convincing suppliers to comply with sustainability standards of the buying firm is considered as a challenge because it is highly dependent on the purchasing power you have over them. The following quote pictures this very well: “in some cases those suppliers, sometimes sophisticated large companies in their own right, say: ‘no, we won’t. This is how we do business and if you don’t like it, find somebody else’. That’s the case where you face the prospects of having to find an alternative supplier if you don’t have enough leverage.” However, when a substantial portion of their customers are saying the same thing, then the prospects for success were expected to be much higher. This is why multi-stakeholder initiatives such as the Responsible Business Association (RBA), a collaboration consisted of approximately 120 companies that aims to establish common standards around sustainability issues within the industry, were considered necessary. They build up more pressure on suppliers to change. Additionally, the purchasing power also determined how a key supplier is treated when he resisted complying with the expected requirements. In that situation it was considered more favorable to educate this supplier to ensure they are able to comply anyway instead of ending the business relationship.
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4.2.3.2 Outside the supply chain
Outside the own supply chain, reaching out to companies with purchasing power from other sectors also helped the companies to build more leverage. The following quote frames this very well: “The amount of rubber we bought last year compared to all the rubber that was produced in the world, I think ours was 0,006%. So, it is important to understand that we are very little buyers, we don’t have a voice. Therefore our strategy is to go to the ones who do have a voice, which in this case would be car companies from the automotive industry. These are companies that buy huge amounts of rubber.” Even collaborations with competitors were considered as an option by the respondents. Although there could be multiple reasons why companies believed that competitors should be avoided, the nature of some sustainability enhancement practices are precompetitive, which made collaborating with competitors interesting. The Better Cotton Initiative (BCI) of which Adidas is part of, is an example: “In Turkey Nike, Puma, ESO, Ikea and ourselves are working together within an organisation called the Better Cotton Initiative (BCI), to improve working conditions for farmers in cotton growing areas of Turkey.”
A remarkable perspective proposed by one of the respondents takes this collaborative approach a step further: the idea of considering the whole supply chain as if they are your own operations. Although none of the companies involved in this research had operations running on this perspective, this idea came from the understanding that in order to improve the sustainability of the supply chain, collaborations should be searched that focus on serving the supply chain as a whole. This means that companies should not invest in their own operations but also in operations of other companies in the supply chain in order to improve the collective sustainability performances of the whole supply chain.
4.2.4 Reducing the amount of tiers
Subcontracting was portrayed as a serious issue as it contributes to the stuctural complexity of the supply chain. Subcontracting was referred to as the situation in which an intermediary supplier subcontracts the work, which he is payed for to do, to another supplier at a lower cost. This increases the number of layers and thereby intensifies the undesired complexity of the supply chain. Therefore, the participating companies try to bypass subcontractors in order to simplify the structural complexity of the supply chain.
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4.3 Prioritizing risks of the supply chain
Due to the different challenges of sensing sustainability developments and issues mentioned throughout this chapter, a risk-based approach formed a solution for the participating companies to cope with the complexities. Risk assessments and analyses enabled companies to distinguish suppliers or groups of suppliers based on risks for the continuity of the company’s business, which made it easier to oversee the whole. Additionally, prioritizing between the divided groups was closely related to this because it determined the focus on particular suppliers or groups of suppliers and how they were approached. A main supplier who provided the buying company key resources got a higher priority than a supplier who relatively added less value to the business. The higher the proritiy for a supplier or a group of suppliers, the more the company wanted to stay informed about relevant developments and issues. They used risk factors in doing so, such as the amount of expenses to a certain supplier, the country where the supplier operates, alternative suppliers, the use of migrant workers or demographics. This kind of information may not always be available within the organisation and was therefore attained externally. As described in section 4.1 different parties acted as sources for this kind of information. An example is explained in the following quote: “For every country we have a risk analysis that basically is put together based on our own experience and research. So, we look at external resources like the US department of labor, trafficking in persons rapports, international transparency and global slavery, which all informs our country risk analysis. It’s a 3 or 4 paged document which gives your high risks and gives a sense of what is coming up.” The factors were used to calculate a score that refers to a certain risk level. The higher the score, the higher the risk to the business. For instance, NXP obliges every supplier that scores above 49% in their risk assessment to sign their supplier code of conduct in order to reduce the possible negative consequences and to sense developments and issues more quickly.
4.4 Technologies supporting the approaches
The respondents described three technologies that supported them in sensing sustainability developments and issues within the chain: databases, blockchain technology and supplier engagement technologies. The two latter technologies were not incorporated yet by any of the participating companies but were portrayed as having serious potential, as these technologies could enable the companies to even better sense sustainability developments and issues. An indicated implication to this
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regard is that technologies often rely on the available local infrastructure that enables the use of particular technologies. As not every country possess the required infrastructure, the technologies promoted could not be fully deployed, which is therefore considered to be an additional barrier to increase the visibility of the supply chain.
4.4.1 Databases
Databases provided the opportunity to gather, monitor and manage information, concerning events, location and materials. One respondent explains the benefit of their database: “We use a database in which all our bought materials are registered. For each material is described which supplier we qualified to do business with us. For each qualified supplier is indicated where its factories are located, so in which cities, countries, which length and latitudes. At the moment that something happens somewhere in the world that could affect our business negatively, I enter the length and latitudes, which I can fine on Google Maps, in our database. Our database then provides me all the suppliers who deliver our materials within a desired radius. In this way we know directly which of our materials or suppliers are affected by that event that could be a possible risk.” Standardizing these kinds of processes would make these kinds of databases easier to work with and were therefore also considered valuable. An implication of the described database is that it remains a reactive tool, while proactive tools are most in need. Therefore, technologies around artificial intelligence were portrayed as serious potential due to their predicted ability of interpreting information beyond the limits of the human mind.
4.4.2 Blockchain technology
The third technology that was mentioned as promising is the blockchain technology, which could improve the visibility and traceability of the supply chain. One respondent explains its potential: “the idea of the blockchain technology is that since you have those separated data preservations, the origin of the data cannot alternate because the original data is also stored somewhere else. So, nobody can simply type in a number and ship it. You keep a very trustworthy record of which operations took place where.” When for instance minerals are extracted, they can be registered and followed by this technology throughout the whole supply chain.
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4.4.3 Supplier engagement technologies
Due to the complex issues, technologies that enhance supplier engagement were considered as valuable. A digital environment where buying firms and their supplier can interact can enable two-way communication about different relevant topics. The following quote provides an idea of the possible benefits: “This environment should provide the suppliers all the information that they need, as well as the space to submit questions from both ways. We can communicate what the changes of our requirements are, which makes it easier for suppliers to engage with us. Providing them with feedback, listen to their concerns or to answer any questions.”
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5. Discussion & Conclusions
This chapter describes the discussion and conclusions of the research. First, a summary of the findings are provided in section 5.1, which provides an answer to the research question ‘What are suitable mechanisms that enable organisations to sense sustainable developments and issues within their complex supply chain?’. Thereafter, the theoretical implications are described in section 5.2, followed by the practical implications in section 5.3, the limitations and suggestions for future research in section 5.4. Finally, this chapter closes with a reflection of the researcher in section 5.5.
5.1 Summary of findings
The literature had indicated that the complex nature of both sustainability and supply chain extended the difficulty of managing the supply chain (Serdarasan, 2016). Visibility and control appear to be thinning beyond the next tier of related organisations (Jüttner et al., 2003), which resulted in supply chains that are highly vulnerable to risk and disruption. Companies have the challenge of sensing sustainability issues and developments within their supply chain, especially within supply chains that run hundreds or thousands of companies over multiple tiers (Jüttner et al., 2003). The main challenges can be divided into those concerning managing the general complexity of the supply chain and those concerning the incorporation of sustainability practices in supply chains. The main challenges of the general supply chain complexity are managerial practices focused on reducing vulnerability, disruption, instability and unpredictability (Kamalahmadi & Parast, 2016). These challenges led to negative consequences for sustainable supply chain practices, such as an ad hoc approach regarding sustainability practices, reputation damage, decrease of performance of operations, complicate decision making, to health and saftey concerrns (Bode & Wagner, 2015; Jüttner et al., 2003). The main challenges of the incorporation of sustainability within supply chains are the unquantifiability and intangibility of the concept (Abbasi & Nilsson, 2012), its cost implications (Bastas & Liyanage, 2018), inertia and interpretation of the concept (Abbasi & Nilsson, 2012), and the discrepency in mindset (Abbasi & Nilsson, 2012). These challenges led to difficulties in operationalising and incorporating sustainability practices and principles within supply chains and difficulties in measuring, assessing and monitoring the effectivity of the sustainability practices (Abbasi & Nilsson, 2012). Furthermore, several contingency variables affect the complexity of
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the supply chain: power/dependence (Tachizawa & Wong, 2014), stakeholder pressure (Tachizawa & Wong, 2014), type of product or service (Hobday, 1998), criticality of materials (Frenzel et al., 2017), distance (Tachizawa & Wong, 2014) and knowledge resources (Wilhelm et al., 2016).
The findings of this study showed that three approaches can be distinguished in how companies currently address the challenge of sensing sustainability issues and developments within their supply chain: (1) they collect information about the supply chain, (2) they enhance sustainability performances within the supply chain and (3) they prioritize between complexity risks of the supply chain. These approaches can be complementary to each other, so a combination of approaches was possible. Within the three approaches, respondents described additional mechanisms and incentivizes that supported the approaches, such as presenting a valid business case to convince suppliers to comply to the sustainability standards, a priotorizing mechanism, or multi-stakheholder initiatives. Additionally, three technologies were named that supported or could support the respondents to sense sustainability developments and issues within the chain: databases, blockchain technology and supplier engagement technologies. The two latter technologies were not incorporated yet by any of the participating companies but were portrayed as having serious potential, as these technologies could enable the companies to even better sense sustainability developments and issues. Technologies often are dependent on the available local infrastructure that enables the use of particular technologies, but often not is present. The three approaches are briefly discussed next.
First, the companies collected as much information about the supply chain as possible to create an understanding of what is going on, such as information about supply chain operations, suppliers, geographical locations of these suppliers, materials and the locations where materials are extracted. To collect this information internal and external sources were used. Internal sources are sources within the boundaries of the company, such as organisational members, local teams on the ground and own facilities. External sources are sources beyond the boundaries of the company which could result in partnerships or collaborations when the received information is considered valuable to the company and is desired for longer periods of time. The most important external sources are NGOs, direct suppliers and local parties.
Second, improving sustainability performances within the supply chain provided additional information and experience which, as an unintended effect, reduced the chain’s complexity. Thus enhancing sustainability performances of the supply chain was beneficial in two ways: sustainability related issues
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within the chain were addressed and it reduced the chain’s complexity, which increased the chain’s visibility. The moral value to do the right thing determined the amount of effort spent in addressing certain issues. Within this approach four additional approaches were distinguished: reaching out directly to lower-tier suppliers to improve their productivity and enhance the sustainability of the whole chain by means of education and consultation, reaching out indirectly to lower-tier suppliers by cascading sustainability standards via tier-1 suppliers down the chain, collaborating with parties within and outside the supply chain to build change leverage, and reducing the amount of tiers.
Third, to cope with the complexities companies conducted risk analyses, assessments and prioritized between the risks. Prioritizing determines the focus on particular suppliers or groups of suppliers and how they are approached. A main supplier who provides the buying company key resources got a higher priority than a supplier who relatively adds less value to the business. The higher the proritiy for a supplier or a group of suppliers, the more the company wanted to stay informed about relevant developments and issues.
Based on these findings, other suitable mechanisms can be proposed that improve the ability to sense sustainability developments and issues in the supply chain. These mechanisms should be focused on enhancing the predictability, visibility, traceability, stability or sustainability performances of the supply chain, as these are conditions that enhance the ability to sense sustainability developments and issues within the chain. Next, mechanisms that foster these purposes will be discussed.
First, as companies currently feel comfortable with the three mentioned approaches to sense developments and issues within their supply chain, the objective is then to improve the processes companies already have esthablished. To explain the focus on improving established approaches, as opposed to proposing new ones, the following mechanisms can be suggested. To enhace the operations which aim to collect information about the supply chain, Foerstl et al. (in press) propose mechanisms that enable companies to effectively process information of their supply networks. According to Foerstl et al. (in press) companies need to establish a fit between their context-dependent information processing needs (sustainability in this case) and their internal information processing capacity to perform effectively. Their model includes six information processing mechanisms, of which three increase information processing capacity and three directly or indirectly reduce information processing needs. For instnace, one of the information processing need reducing mechanism is the sustainability-driven supply chain modification. This concerns structural simplifications to the firm’s supply chain
