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Master Thesis
Business administration—Supply Chain Management University of Groningen
Assessment of Sustainability as a Possible Sixth Dimension in Operations Strategy: The case of Dutch shipper organizations
By Zhang Wei
Email: w.zhang.4@student.rug.nl Student number: S2162342
First Supervisor: Prof.dr. Jack AA van der Veen
Second Supervisor: Drs. Ing. Justin Drupsteen
Date: 2013/06
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Abstract
Traditionally, in the academic literature, Operations Strategy is centered around five performance measures, namely Cost, Quality, Speed, Dependability and Flexibility. Existing literature suggests that Sustainability could be seen as a strategic decision variable in Operations & SCM. However, there are only limited works address that whether sustainability could be seen as a new performance objective. The overall purpose of this research is to explore how sustainability plays a role in the operations strategy by Dutch shipper organizations. In this study, a research framework is developed to test whether sustainability could become the sixth performance objective compare with other traditional five performance objectives and how the relationship between sustainability and other performance objectives are built. The tested framework indicates that sustainability should definitely be added as a sixth performance objectives. Comparing to other traditional performance measures, trade-offs indeed exist between sustainability and other five. The findings are discussed in terms of theoretical and managerial relevance and possible future studies.
Key Words: Sustainability, Performance Objectives, Trade-offs
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Table of Content
1. INTRODUCTION ... 4
2. RESEARCH DESIGN ... 10
2.1 Sample and company information ... 10
2.2 Unit of analysis ... 10
2.3 Interview protocols ... 11
2.4 Data collection and analysis ... 11
3. LITERATURE REVIEW ... 13
3.1 Defining supply chain strategy and sustainable development strategy ... 13
3.2 Traditional five performance objectives ... 14
3.3 Assessment of relationships between sustainability and five traditional performance objectives ... 16
3.4 The result of literature review (research framework) ... 21
4. RESEARCH FRAMEWORK ... 22
5. DISCUSSION ... 35
5.1 Factors influence strategic position ... 35
5.2 Sustainable operations strategy and sustainable operational excellence ... 36
5.3 List of performance measures for sustainability ... 36
5.4 Trade-offs VS alignment ... 37
5.5 Order winner or order qualifier ... 38
6. CONCLUSION ... 39
REFERENCE ... 41
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1. Introduction
The essence of Supply Chain Management (SCM) is to improve the efficiency and effectiveness of business processes (Fawcett and Magnan, 2010). However, till today many practitioners seem to be unable to capture the value of SCM as an integrated concept to formulate their operations strategies (Moberg, Speh and Freese, 2003).
One of the most manifest trends in SCM is sustainability development and implementation. Sustainable development is described by the World Commission on Environment and Development (WCED) (1987, p.43) as
―development that meets the needs of the present without compromising the ability of future generations to meet their own needs‖. A sustainable supply chain is one that performs well on traditional measures of economic perspective as well as on an expanded conceptualization of performance that includes social and environmental dimensions (Kleindorfer and Singhal, 2005). Comparing to the traditional five key performance objectives in Operations & Supply Chain Management (Quality, Speed, Dependability, Flexibility and Cost), Sustainability in SCM is becoming a new core competence for organizations, because simply trading resources is a common commodity which can be easily copied by competitors (e.g. Linton et al., 2007). Moreover, in Jayaramanet al.
(2007) it is mentioned that the focus of operations strategies has moved from local optimization (for individual organizations) to global optimization, i.e., considering the supply chain in its entirety. Especially Jonathan et al.
(2007) raised the systematic issues that ‗exist at the interaction of sustainability, environmental management and supply chains‘ as one of major consideration. In addition, from the perspective of markets and customers, they gradually prefer to purchase the product with sustainable characteristic such as easy to recycle and no waste after use (Craig and Liane, 2011). On the other hand, from a company‘s perspective, the organization‘s interest in sustainability is due to widespread attention for sustainable business solutions both from internal need that companies feel that sustainability should be part of their DNA and also from a diverse group of stakeholders (Seuring and Muller, 2008). Most organizations are focusing on progress the ideas of sustainability to different internal and external stakeholders in terms of its suppliers, customers and service providers. Obviously, sustainability within organizations is clearly linked to higher performance due to better reputation (Becchetti, Ciciretti and Hason, 2009), which is also beneficial for their stakeholders when sustainability is taken into consideration. Thus, to meet the needs for both customers and companies themselves, organizations need to differentiate themselves from their competitors and being sustainable could be a way to do this. The urgent is that many organizations need to deal with encountered difficulties such as lack of capital and short vision or different opinion of board management in their efforts towards sustainable business development strategy and to tackle their activity depends largely on their responsibility towards their partners and stakeholders (Dyllick and Hockerts, 2002).
Therefore, in order to be more sustainable for organizations, build complete sustainable operations strategy could be the prerequisite. However, back to the developing history of supply chain, there was a problem that most enterprises failed to distinguish operations strategy and operational effectiveness. A distinction should be made to clarify the different meanings between operational effectiveness and operations strategy. According to Porter (1996), operational effectiveness and strategy are both essential to superior performance, which, after all, is the primary goal of any enterprise. But they work in very different ways. Operational effectiveness indicates that it is
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not possible to improve on a performance measure unless at the expense of another performance measure.
Generally, in multi-criteria decision making, this is referred to as ‗Pareto Optimality‘. ‗Pareto optimality‘ is a state of allocation of resources in which it is impossible to make any one individual better off without making at least one individual worse off. A Pareto improvement is that ‗given an initial allocation of goods among a set of individuals, a change to a different allocation that makes at least one individual better off without making any other individual worse off‘ (Wikipedia). Literally, operational effectiveness includes but is not limited to efficiency. It refers to any number of practices that allow a company to better utilize its inputs by, for example, reducing defects in products or developing better products faster. In contrast, operations strategy is about being different; it means deliberately choosing a different set of activities to deliver a unique mix of value. Basically, operations strategy means performing different activities from rivals or performing similar activities in different ways. In terms of the operations strategy for the company, an enterprise can outperform rivals only if it can establish a difference that it can preserve. It must deliver greater value to customers or create comparable value at a lower cost, or do both. (Gebner, Schulz and Kreeb, 2002) Thus, as the concept of sustainability takes root in the organization‘s culture, most business leaders try to find out the available sustainable operations strategy and their corresponding performance measuring system (William and Michael, 2002). Based on the published articles, triple bottom line, triple top line, reverse logistics, value crafting and ecological foot print have already drew people‘s attention to develop sustainability from different perspectives. Some companies already applied those framework or tools in their operations strategy. Theoretically, most of them are an extension based on the concept from the perspective of People, Planet and Profit. In the field of sustainable development planning, several new assessment tools such as life-cycle assessment developed for the analysis of trade-offs have also been used to investigate the trends representing the different dimensions of sustainable development and helped management to consider the suitable implementation tools for the specific scenario in the company.
According to Slack and Lewis (2002), the main operations strategy for every company is to perform well on all five traditional performance objectives simultaneously. However, nowadays, the argument about whether adding sustainability as a 6th performance objective in operations strategy draw a lot of attention from practitioners in business practice. Theoretically, the five (or six) performance objectives can strengthen each other, but in business daily operations, sometimes it is difficult for the individual company to distribute equal attention on each performance perspectives. Some authors summarized that focusing on a specific performance objective will take the risk of declining other performance objectives (e.g. Hayes and Pisano, 1994; Slack and Lewis, 2011). Skinner (1969, 1974) defined this as a trade-off. Luukkanen and Vehmas (2012) also give a definition of this ‗trade-off‘ as a balance achieved between two or more desirable but incompatible features or as a situation where the selection of one feature results in the loss of another feature. Basically, it is difficult and even dangerous for a company to focus on all performance objectives, because they will probably end up second best on all of them (Hayes and Wheelwright, 1984). In most situations, companies must make choices regarding which performance objective should receive the greatest investment of time and resources. Hence, instead of trying to perform well on all performance objectives, organizations should determine which specific performance objectives they want to pursue and how they want to achieve those. In essence, SC operations strategy is all about making trade-offs.
More specifically, the essence of strategy is about making choices and choosing to perform activities differently than rivals do (Porter, 1996). It is understandable that organizations intend to perform well on all six performance objectives, but amongst these six there are some that are more important to the individual organization than others.
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Different SC operation strategies apply to different situations and to different organizations; there is no ―one size fits all‖. To be able to achieve a balance among all six performance objectives, the organizations have to make a well developed assessment of their supply chain first and incorporate suitable strategies in supply chain. Besides, in some cases, it is also possible for company to focus on two or multiple performance objective because two or multiple performance dimensions would contribute to one direction and emerge synergic impact for their performance. One online dictionary (Wikipedia) defines synergy as ‗the interaction of two or more agents or forces so that their combined effect is greater than the sum of their individual effects and cooperative interaction among groups, especially among the acquired subsidiaries or merged parts of a corporation, that creates an enhanced combined effect. The key point is to formulate suitable operations strategy to create well synergy reaction among those aspects. But in general, in business practice, trade-offs are inevitable. Operations strategy is choosing which of the performance objectives to focus on. And that so far the trade-offs were between 5 performance objectives. This thesis wants explore to which extent sustainability should be a 6th in operations strategy. One way of approaching this issue is to see to which extent trade-offs between the classical 5 and Sustainability are needed.
In addition, the objective of this study is to present and test a framework to identify and map how shipper organizations consider sustainability as part of their competitive operations strategy which mostly refers to their strategic position and how they pinpoint sustainability in their performance objectives list. Basically, shipper organizations mostly refer to the enterprises that deliver their products or services by their own logistic department or by hiring a third party agency to perform the transportation activities. Nowadays, shipper organizations are facing more and more pressure from their stakeholders (Midilli and Dincer, 2005). It is more arguable from environmental perspective that how those shipper organizations could minimize ‗green house effect‘
to maintain sustainable development by reducing noxious gases such as CO2 emission (Handfield and Walton, 2005) Therefore, requirement of adding sustainability to their performance objective list has become an urge. As a specific stakeholder in the whole supply chain, demands from customers, government rules and a renewed vision from top management forced shipper organizations to take sustainability into consideration. Shippers are already juggling the various performance measures, and it seems that sustainability is only adding to this complexity.
Therefore, the strategy perspective of sustainability is still not clear for shipper organizations (Gebner, Schulz and Kreeb, 2002). In this thesis, it is researched to which extent the sustainability dimension would contribute to the firm‘s operations strategy and to explore how the trade-off choices are made between sustainability and other traditional performance objectives based on the assessment of organization‘s supply chain. Furthermore, another aim is to provide a scientific contribution from academic level to the field of supply chain management to reconsider the priority within key performance objectives of operations strategy. This research aims to achieve these by finding circumstances and characteristics that are distinctive for this relationship by adopting a case study which will be more related to Dutch shipper organizations. Therefore, based on the above descriptions, we propose our Central Problem Statement (CPS) as follows:
CPS: Is sustainability part of the organization operations strategy: the case study for Dutch shipper organizations.
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The paper is organized according to the following research model, see Figure 1. In section 2, the main research method which is used for answering the research questions will be introduced and data collection process will be presented. In section 3, a review of the operations strategy regarding sustainable development in terms of people, planet and profit is demonstrated. Then a review of current literatures is made about the assessment of six performance objectives and whether an organization should make trade-offs between Sustainability and the other, traditional, KPIs within their operations strategy.. Section 4 covers the data analysis process from three interviewed companies within this research. Also a conceptual framework for three cases is tested based on literature review. Finally, the conclusions are presented in section 5, also including the managerial implications, research limitations and potential ideas for future research.
Figure 1. Research model
With the development of performance measure system, five traditional key performance objectives are the root for the operations strategy list. However, whether sustainability should be added to this list is still not a widely accepted routine, neither in theory nor in practice. In Dutch shipper organizations, competitive operations strategy (which refers to strategic position) will determine the formation and combination of their performance objective list. In general, strategic position will be determined by firm capabilities, market and customer demand, product type, company vision, and legal and social requirements (Gebner, Schulz and Kreeb, 2002). Those elements transfer strategic position into specific performance objectives. As mentioned above about the distinction between operational excellence and strategy, in order to achieve the former, company can improve on all performance measures simultaneously. However, according to ‗Pareto Optimality‘, it is not possible for companies to optimize operations strategy in all aspects. Strategic trade-offs must be made by managers so as to determine where the strategic position company intends to be. Therefore, instead of trying to perform well on all performance objectives, an organization‘s supply chain should determine which specific performance objectives it wants to pursue and how it wants to achieve those. After top management set the priority from those performance objectives, trade-off and synergy choices will be formulated in their O&SC strategies. Basically, there is a
Strategic position
Traditional five performance objectives:
Quality, Speed, Dependability, Flexibility, Cost
Order winners vs.
Qualifiers
Trade-off vs.
Synergy Vision
Company Capabilities
Product Type
Legal & Social Requirements Market &
Customer
O&SC Strategy
Sixth: Sustainability?
Added?
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discussion that not all traditional performance objectives have trade-off with sustainability. Some of them need to be aligned with sustainability (Madu, 2012). This research is to determine whether sustainability should be part of performance objectives and how it interacts with other traditional performance objectives. And another crucial objectives of this thesis is to help shipping organizations with a clear framework that would allow them to make steps in the ‗right direction‘ such as explicitly formulate a strategy in which sustainability does play an important role in their operations strategy.
Research question 1: To what extent the organization’s operations strategy regarding strategic position will be influenced by company’s vision, product type, company capabilities, target customers, and legal and social requirement from government when sustainability is added as sixth performance objectives?
In general there are many factors why sustainability can be highly ranked in the operations strategy (i.e., other KPIs are traded-off against Sustainability), namely company‘s vision, company‘s capabilities, market and customer, product type, legal and social requirements. One of the important factors in the list is ‗company‘s vision‘; this factor is special because it is about the ‗free will‘ of the organization whereas the others are determined by ‗outside factors‘. It is therefore interesting to see to what extent the organization‘s vision is determining the sustainability ranking. In addition, vision is one of the decisive factors which will influence managers to determine their short term or long term operations strategy. Although they do not take sustainability into their current operations strategy, vision of sustainable development could still encourage them to reconsider their future operations strategy. Basically, strategy is all about making choices. Speaking one step further, strategic position will be highly depended on how the choices are made by managers. In terms of sustainability, the concept triple bottom line gives managers a truly concrete tool or framework to consider sustainability from three aspects, namely economic, society and environment. To specifically narrow the scope of this research for those three dimensions, some detailed indicator will be considered in order to formulate well structured sustainable operations strategy.
Research question 2: If sustainability is indeed added as a sixth performance objective, what trade-off decisions should be made as part of the corporate’s operations strategy?
In most situations, focusing on one aspect will at the expense of another aspect. It‘s impossible and even dangerous for operations strategy to take all performance objectives into consideration. Therefore, for shipper organizations, switching their focus from traditional performance objectives on sustainability will lead to the sacrifice of other aspects. In those cases, trade-off decisions must be made in order to achieve a rebalance. But to what extent those tradeoff decisions will be made is still an unexplored issue.
Research question 3: In which situations would sustainability be treated as an order qualifier or order winner for creating operations strategy of shipper organizations?
According to Slack and Lewis (2008), the criteria required in the marketplace could be divided into two groups, order qualifiers and order winners. An order qualifier is a characteristic of a product or service that is required in order for the product or service to even be considered by a customer. In contrast, order winner is a characteristic that will win the bid or customer‘s purchase. Whether sustainability is categorized as order winner or order
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qualifier depends on the specific market, industry and society the firm operate in (Chopra and Meindl, 2007). For instance, a manufacturing company operating in an environmentally conscious society such as Germany might classify sustainability as a hygiene factor; one that the firm must possess in order for its products and services to be considered by the customers. However, in developing countries where there is an absence of effective environmental legislation and sustainability does not carry much weight in the market, some firms may choose to go green as a strategic move towards differentiation. Therefore, order winner and qualifiers are both market-specific and time-specific; they work in different combinations in different ways on different markets and with different customers. Hence, firms need to develop different strategies to support different marketing needs, and these strategies should adjust over time.
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2. Research Design
As mentioned in the previous section, the aim of this study is to gain insight about the possibilities whether sustainability could be added as sixth performance objectives and tests the framework of sustainable operations strategy in shipper organizations. The main methodology of this paper will mainly be literature review together with some case studies. Due to the special context of the involved company of EVO, the analysis in this chapter will start with the elaboration of shipper organizations‘ background information. In addition, in order to answer the research questions, several models will be developed as the research tools. Then the process of data collection will be highlited. The last section will be on the topics validity and reliability.
2.1 Sample and company information
EVO represents the interests of 20,000 companies in the Netherlands that transport goods for their own account or contract this out to a professional transport company. They come from all sectors of industry, including wholesale, retail, construction, agricultural and business services. All the members of EVO are users of freight services across all modes of transport: deep sea shipping, short sea shipping, air transport, road transport, rail and inland waterways. They operate both within Europe and overseas. EVO brings the views of member companies to the notice of political authorities not only at regional level, but also in The Hague and Brussels. In addition, EVO also convey their own and their members‘ views to carriers in all modes of transport, both directly and through their organizations. Considering the special context of this shipper association, most shipping organizations involved in this research would be the enterprises with their own logistic department or transportation system.
2.2 Unit of analysis
Basically, this study is about framing the ―what‖ of operations strategy from a general perspective. That is, what constitutes an operations strategy of a firm; what components can be found in a firm‘s operations strategy? And especially whether Sustainability is a component of operation strategies in shipper firms. This study focuses on what all shipper organizations have in common, namely an operations strategy. It is assumed that the components of operations strategy are the same for all organizations, but at the same time that each organization will have a different individual operations strategy. The unit of analysis in this thesis is distinguished by single cases and multiple cases, as well as holistic and embedded units. Specifically, unit of analysis would be operations strategy relates to (a part of the functional strategy of) a single autonomous corporation. Following Eisenhardt and Graebner (2007), multiple-case studies have the advantage of providing a stronger base for theory building, although single-case studies can generate higher descriptions of a specific phenomenon. Holistic cases contemplate outward influences to an organization or individual, whereas an embedded unit of analysis focuses on different subunits within an organization or individual (Lamnek, 2005). Therefore, a holistic multiple-case design is chosen for the analysis of stimuli and an embedded multiple-case design is chosen for the response side in this thesis.
In addition, the essence of the research method in this paper is explorative research since no previous research ever addressed the same problem as in this paper. Exploratory research is conducted for a problem that has not been clearly defined. It helps determine the best research design, data collection method and selection of subjects.
It should draw definitive conclusions only with extreme caution. Given its fundamental nature, exploratory
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research often concludes that a perceived problem does not actually exist. Therefore, based on the truth that this paper is to explore a potential performance objective, multi case research could be more convincible in an academicals level. To specify and narrow the scope of this research in the field of shipping companies, the most significant units are the logistic or the supply chain department in shipper organizations. Especially, the operation and supply chain function of an individual company will be taken into consideration. This could build a well developed basis to guarantee the accuracy and reliability of the results.
2.3 Interview protocols
As mentioned above, several EVO members with their supply chain departments or logistic system will be involved into this research. According to the focal company which is a shipping company association, the final results will be reported to this shipper association in order to enable them to provide consultancy service for their EVO members. In addition, based on the literature, this thesis research postulates a framework (including all performance objectives, the possible trade-offs required, assuming that strategy is a matter of choosing, distinguishing between qualifiers and winners, etc.). This framework is tested for a few cases (shipper organizations) to verify how it works and to adjust the framework. As a matter of fact, formulating operation strategies plays the most substantial part for managers to operate their business. As the statement in pervious part, the purpose of operations strategy is to maintain the competitive advantage by being different for a company.
Nowadays, determination of priorities to build operations strategy within a given set of performance objectives has become a bottleneck for many companies in their endeavors for improving the performance of their supply chain management. In order to determine the trade-off of how sustainability interacts with other five performance objectives in the shipping company, a well structured research must be developed. Based on the article from Cai et al. (2009), performance measurement is critical for companies to improve supply chain‘s effectiveness and efficiency. But here in this paper, more discussions will be in the strategic level instead of operational effectiveness and efficiency. Differentiation could be formulated by applying a distinctive operations strategy to help organizations to build competitive advantages. Decision makers in supply chain usually focus on developing measurement metrics for evaluating performance. In business practice, once the supply chain performance measures are developed adequately, managers have to identify the critical performance objectives that need to be improved. However, it‘s difficult to identify the intricate relationships among different performance objectives.
Determination of priorities within a given set of performance objectives has become a bottleneck for many companies in their endeavors for improving their supply chain (Laszlo and Dunsky, 2010).
Previous studies mainly focus on the knowledge and information for supply chain performance measurement, improvement methods, and supply chain operations. However, a practical guideline which can be used as an assessment to test the relations between sustainability and other performance objectives and finally help to adjust operation strategies is still under developed. Many organizations have a hard time making strategic decisions. It is difficult to determine what the best choices are. Based on literature, there is a lack of knowledge on making operational strategic choices by organizations. Sometimes, companies have made implicit choices that are not well communicated and therefore do not guide the organization in a clear direction.
2.4 Data collection and analysis
Based on the specific context of the target organization EVO, a case study (with EVO as the case) with multi
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cases (individual organizations that are member of EVO) as the main approach would be applied to implement the research activities. In order to formulate a well developed structure to elaborate how sustainability could contribute to the framework of operations strategy, the final framework which will be tested through several individual shipper organizations will be presented with the following pieces of information. Firstly, specific company background information will be given to have a general idea of their main business area, market area, and vision etc. Secondly, a concrete assessment of the company‘s operations strategy regarding six performance objectives will be demonstrated by a spider diagram (as in Figure 2) from 1 to 10 scale. Thirdly, it will be discussed how each shipper organization incorporates sustainability into their operations strategy. Based on the information from both company website and face to face interview, a more detailed sustainable development strategy will be illustrated to show how sustainability plays a role in their operations strategy. This will also be demonstrated from people, planet and profit theory to visualize the concrete approach regarding sustainability.
Fourthly, the trade-offs between sustainability and each five traditional performance objectives in their daily operation will be reviewed. Finally, a conclusion will be given to wrap up companies‘ operations strategy regarding sustainability for shipper organizations. Due to several shipper organizations will be involved into this research, the specific situation for each company will be analyzed separately.
The formats were used as the following method: written formats which are mainly from company website were available beforehand so that the interview guidelines could be based on the documented sustainability concepts.
All interviews would be audio-taped and transcribed into summarizing protocols directly after the interviews. The transcription followed the steps of summarizing content analysis: the definition of abstraction levels, selection process, reduction by summary, category building process and the iterative review of categories by analyzing the material. The summarizing protocols were then transferred to a database for internal and cross-case analysis. In addition, comprehensive documentation analysis of the responding sustainability activities of shipper organizations would be conducted. The documentation is consisted of short reports, structured questionnaires and the sustainability sections of the company websites, as well as sustainability reports, if available.
Figure 2. Performance Measurement of six performance objectives
0 2 4 6 8 10Quality
Speed
Dependibility
Flexibility Cost
Sustainability
Performance Measurement
Performance Measurement
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3. LITERATURE REVIEW
In this section a theoretical lens will be developed to gain a more in-depth understanding of the operation strategies and the trade-off choices to cope with those decisions in the context of shipper organization. Firstly, in order to have a clear overview of sustainability from different perspectives, a review of supply chain operations strategy and sustainable development strategy will be presented. Secondly, a discussion of how traditional performance objectives and sustainability interact and how the complete supply chain is involved in becoming sustainable will be made. Thirdly, an elaboration on the assessment of six performance objectives in supply chain and the dynamics of the specific trade-off between sustainability and traditional performance objectives will be illustrated. Finally, a research framework which will be tested in shipper organizations will be structured at the end of this section.
3.1 Defining supply chain strategy and sustainable development strategy
Before to take a closer look at the specific trade-offs and the research framework which will be tested in shipper orgniazations, understanding how sustainability fits in supply chains is the prerequisite. In the paper of Gebner et.
al, it shows that the focus on operations has moved from a specific facility or organization to the entire supply chain. Although optimization is now pursued over the supply chain as a whole, the aim is the same: ‗whether the greatest value can be produced at the lowest possible cost‘ (Handfield and Nichols, 1999). In most cases this aim asks organizations to differentiate from their rivals and to make trade-offs from a cost perspective (Leenders and Blenkhorn, 1988). This focus on the entire supply chain helps to focus on a more overarching development of sustainability. In order to understand the basic idea of SCM, a definition will be given. Mentzer et al. (2001) give the following definition: ‗Supply Chain Management can be defined as the systemic, strategic coordination of the traditional business functions within a particular company and across businesses within the supply chain, for the purposes of improving the long-term performance of the individual companies and the supply chain as a whole.‘
This could leads to a widely discussion for improving the long-term performance for single company.
As previously mentioned, the interaction between the supply chain and sustainability is important. This is why organizations need to take into account the triple bottom line concept, which is the most common used concept in the management of sustainable supply chain (Seuring and Müller, 2008). Social, economic and environmental (or people, profit and planet) factors have to be taken into consideration to an operation set of performance criteria (quality, cost, dependability, speed and flexibility) (Ageronet al., 2012). Environmental sustainability emphasizes management of natural resources while social sustainability emphasizes management of social resources including people‘s skills and abilities, institutions, relationships and social values (Ahmed and McQuaid, 2005). According to this thinking, sustainable supply chain management needs to be defined. Carter and Rogers (2008) defined sustainable supply chain management as ―the strategic, transparent integration and achievement of organizations social, environmental and economic goals in the systematic coordination of key inter-organizational business processes for improving the long-term economic performance of the individual and its supply chain‖. In addition, Linton et al. (2007) discussed that a sustainable supply chain as one that performs well on traditional measures of profit and loss as well as social and environmental dimensions. These definitions have two direct implications.
First, specific environmental performance criteria have to be applied by all the partners in the supply chain (Awasthiet al., 2010). Second, the promotion of responsible corporate environmental and social behavior should be encouraged (Lu et al., 2007), as more ethical issues about employee‘s working environment are emerged recently (e.g. the Bangladesh drama in textile manufacturing and the many employee suicide issues at the Apple manufacturer partner Foxconn.). Nowadays, sustainability is seen as a synthesis of economic, environmental and
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social development, the triple-bottom-line (e.g. Elkington, 1997; Bai and Sarkis, 2010). Thus, it is obvious that being sustainable as a supply chain is much more than simply being environmental friendly. Legal and social requirements from government, reliability commitment from customers, all of those contribute to the concept of sustainability. In recent years, to integrate ethical aspects, corporate social responsibility (CSR) has also become a significant objective for the assessment of sustainability.
As mentioned, the purpose of operations strategy is to maintain the competitive advantage for a company. Some researchers believe that the concept of competitive advantages applies most appropriately to firms and products (Loorbach et al., 2010). For a firm regarding to its operations strategy, competitive advantages are the ability to produce the right goods and services of the right quality, at the right price, at the right time (Audrone and Manuela, 2010). In addition, it also means meeting customers‘ needs more efficiently and more effectively than other firms do. In terms of sustainable operations strategy, there is a difference between sustainable as ‗long-term‘ (e.g. a sustainable competitive advantage relates to an advantage that is not easily copied by competitors) and sustainability in people, planet and profit aspects. Feurer and Chaharbaghi (1994) ever proposed a holistic definition of competitive advantages, taking into account the sustainability: ―Long-term competitive advantage is relative to other strategic superiority such as cost-driven advantage or quality-driven advantage and not absolute.
It depends on shareholder and customer values, financial strength which determines the ability to act and react within the competitive environment and the potential of people and technology in implementing the necessary strategic changes. Competitive advantages can only be sustained if an appropriate balance (specific trade-offs) is maintained between these factors which can be of a conflicting nature‖. This definition is given based on long-term competitive advantage. The Development Assistance Committee of the Organization for Economic Cooperation and Development (OECD) defines sustainable development strategies from people, planet and profit perspectives as: ―A coordinated set of participatory and continuously improving processes of analysis, debate, capacity strengthening, planning and investment, which integrates the economic, social and environmental objectives of society‖ (OECD DAC, 2001). In other words, a sustainable development strategy should not be seen as just another plan but rather as a new approach to planning that places the emphasis on strategy development as a process. A sustainable strategy should be regarded as an effective, iterative process of consensus seeking whereby an underlying vision is conceived, targets are formulated, instruments to accomplish those targets are identified and the progress achieved is monitored, with findings fed back to signal the way forward for continuous improvement (OECD, 2002: section 2.5.3). In addition, following the concept of people, planet and profit, most sustainable operations strategies are created around those three aspects although not much articles elaborate a complete sustainable operations strategy. For environmental aspect, carbon footprint reduction is one of the most important indexes for companies to achieve environmental friendly in sustainability. In terms of social aspect, the improvement will focused on such as health and safety, quality of life, occurrence of accidents, human resources management, knowledge levels and education of employees. As for profit or economic aspect, there is no doubt that earning profit is the root for operating the business. Without earning profit, sustainable development could not be formulated and implemented.
3.2 Traditional five performance objectives
Assessing the performance of an organization at any time is hardly ever straightforward. With the development of a performance measure system, more and more performance objectives can be utilized to evaluate the efficiency and effectiveness of a company. Basically, an excellent performance measurement system should be looking forward (rather than only backward such as financial results), balanced (no mono-focus), in line with strategy, and quick (i.e. performance is available quickly after the actions so that still changes can be made). For instance, the
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balanced scorecard is a strategy performance measurement tool which can be used by managers to keep track of the execution of activities by the staff within their control and to monitor the consequences arising from those actions (Craig and Liane, 2011). Traditionally, five generic performance objectives are well developed to help supply chain managers. But most companies are facing the pressure from being ethical, being environmental friendly and maintain the economical scale at the same time. Organizations gradually realized that they could not just consider traditional performance indicators in model supply chain system, factors from social perspective should also be taken into account (Craig and Liane, 2011). Adding sustainability as the sixth performance objective is one of the new trends for companies to meet the need from economical, environmental, and social requirements (Strohhecker and Größler, 2012).
In order to establish the connection between five traditional performance objectives with sustainability, understanding the practical meaning of quality, speed, dependability, flexibility, and cost is the prerequisite before further research. Quality mainly refers to the specification of a product or service. It can also means that the products and services have ‗fitness for use‘ (Juran, 2010) or doing things right by providing error free goods and services, which will satisfy the customers. In addition, conformance quality is more a concern on the operations function in organizations. It refers to the operation‘s ability to produce goods and services to their defined specification reliably and consistently. At its most basic, speed indicates the time between the beginning of a process and its end. This may relate to both internal and external events, for instance, order lead time is the time between an order has been placed and the order is delivered. The term dependability is about doing what has been promised and agreed. Basically, it is about ‗just in time delivery‘, the more on-time for delivery, the better customer satisfaction. Confusion, complexity and lack of control are some of the root causes of poor dependability.
Another is disconnection between Sales and Operations; Over-promising to the customers without adding the required capabilities or resources would also lead to unaccepted result. Flexibility refers to ‗the ability to be bent‘, which could be translated into operational terms as the ability to adopt different states. A clear result of responding to a dynamic environment is that organization change their products and services and changes the way they do business. A supply chain is more flexible if it could be able to product a greater variety of products or services.
Also an operation that moves quickly, smoothly and cheaply from operating on one level to another should be considered more flexible than one that can only achieve within the same change level. The last and widely concerned term - Cost - mainly indicates any financial input to the operation that enables production and providing service. For companies that compete directly on price, cost will be clearly their major performance objective. Even for firms that compete on other performance objective rather than cost, it still is considered as one of the priorities as well.
From the arguments for each traditional performance objectives above, none of these ever addressed environmental and social issue in performance measurement and operations strategy. Therefore, to meet the new requirements from being sustainable development, the need for making trade-offs between sustainability and other five performance objectives by organizations should be in the list of their operations strategy. It might be that the two performance objectives are clearly contradictory such as shorter waiting times (which refer to speed) normally require faster transportation mode (which emits more CO2), better working circusmstance needs more investment.
Although there might be also other sources for making trade-offs like the time, money and energy that organizations can invest to achieve incomparable types of products, the certain groups of target customers they would like to serve, since the focus of this paper is sustainability, only the trade-offs between sustainability and each traditional performance objectives will be investigated Therefore, to define those trade-offs more specifically, assessment of relationships need to be addressed in organizations‘ operation strategies.
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3.3 Assessment of relationships between sustainability and five traditional performance objectives
From the book of Slack and Lewis (2008), the idea of trade-offs is at the heart of how operations pursue to improve the efficiency and effective over time. As mentioned for the trade-offs earlier, if a particular company was trying to set and achieve many of these targets internally, they would generally fall into a lower level of planning or be viewed as part of a continuous improvement approach. Conflict between two competitive objectives whereby superior performance in one will ultimately results in lower performance in another. In addition, due to a distinction between operational efficiency and operations strategy has already been made in section 1, the following relations between sustainability and each of the traditional performance objectives will be presented and ultimately contribute to the testify of the framework of how sustainability plays a role in shipper organizations‘ operations strategy.
Assess the relationship or trade-off between sustainability and quality
To facilitate the transformation process from traditional management approach to sustainability management, quality management principle, popularized by Deming, Juran, Crosby et al., could play an important role. (Ascıgil, 2010; Hwang, Wen, & Chen, 2010; Rocha, Searcy, & Karapetrovic, 2007; Isaksson, 2006). In quality-driven sustainable management, an adjusted framework (see figure 2 below) was presented based on the article from Kuei and Min (2013) to make the transformation to integrate quality management principles into sustainability management. All the steps in this transformation process are to set the footstone to take sustainability into consideration in the assessment of quality management. Those specific steps include reuse and improve the performance of appropriate localities and planning to transport and infrastructure; design for minimum waste, effective use of resources for lean construction, and energy savings; design for life, respect people, seek to minimize the adverse social impacts, and maximize the positive social impacts.
Figure 3. Quality-driven Sustainability management – linking quality management principles to content variables of sustainability management (Source: Wikipedia)
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In business practice, trade-offs are indeed existing between sustainability and quality. For example, in the field of power generating by natural resources, the application of sun collectors or windmills might be sustainable to produce electric power all kinds of daily consumption, yet the power supply cannot be totally guaranteed because those new energy generator highly depend on whether condition (Fawcett et al., 2012). Without constant supply of natural resources such as light or wind, those green energy machines may not keeping energy provision. In addition, for food supply, genetic modification might boom the production rate of crops such as grain and barley.
However, the quality of those modified food cannot be surely healthy for human body. Specifically, genetic modification can improve the face-value quality of products. And it sure is good for business (offering exactly what customers are looking for; also a measure of quality). However, some argue that such modification is
‗un-natural‘ and will have bad long-term effects in sustainability (disturbing the natural balance that nature is keeping so that consumer will run the risk of uncontrollable side-effects on the long term). Yet others claim that the face-value quality might look good but that the long term health issues are unknown, so that in the long term the quality might turn out to be pretty bad after all.
Moreover, in the ecosystem of rain forest, the production of hardwood tree is one of the controversial trade-off between sustainability and quality. Managers aim for sustainable forest management to keep hardwood tree renewing itself by using silviculture practices that include harvesting, promoting regeneration, controlling insects and disease, fertilizing, applying herbicide treatments, and thinning. However, although tropical hardwood is the best quality wood, using it too much might destroy the rain forest all together.
Another example could be in the field of agriculture. Fertilization can increase the growth rate and amount of plant material, thus possibly increasing the number of wildlife that can inhabit a site. Invasive species control maintains an area's structure and native composition. Overall, fertilization makes the crops better (higher quality) but might destroy the environment when used for too long a period. Also, management can also harm the ecosystem; for example, machinery used in a timber harvest can compact the soil, stress the root system, reduce tree growth, lengthen the time needed for a stand to mature to harvest ability. Machinery could damage the understory, disturbing wildlife habitat and prevent regeneration as well.
Assess the relationship or trade-off between sustainability and speed
In the area of assessment and trade-off between sustainability and speed, more specific aspects from both two performance objectives need to be developed. Based on the triple bottom line theory, environmental and economical influence should be considered as the ways to evaluate the sustainability. In terms of speed, several researchers addressed geographical supplier location and mode of transport especially in combination with each other could be the main factors which can determine lead times for product or service delivery (Enarsson, 1998;
Yang and Chen 2006; Rodriguez et al., 2006;Ku et al., 2009). This can be considered to explore the trade-off.
Basically, there is a trade-off applies to delivery lead time and environmental impact. In the delivery of products and services, this trade-off can be expressed by looking at how the mode of transport and the geographical supplier location are constantly offsetting each other. First of all, transportation is one of the main contributors to air pollution via the emissions of hydrocarbons, nitrogen oxides and carbon monoxides (McKinney et al., 2007).
Motor vehicles are responsible for approximately 80% of the carbon footprint emissions in urban area and are a significant source of particulate matter (Lee, 2013). To achieve sustainable transportation actions, it is necessary to
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reduce travel needs, encourage greater efficiency in the transport system and promote slow modes. Road transport is commonly used for short distances (short delivery lead time), but has the highest environmental impact per delivered unit. Normally, greenhouse gas emission by truck is 35% higher when compared to train transport and 45% higher than transportation by boat or barge (Wikipedia). In other words, while other modes of transport like waterway or railway offer a lower environmental impact per product, their delivery time is longer. Therefore if the distance between the supplier and customer increases, the mode of transportation will change from road to rail to water. Although this assumption does not reflect reality completely, in general it is reasonable to assume that if distances increase, companies are forced to change their mode of transport due to geographical boundaries. Thus, by choosing road, rail or water transport, supplier distance, lead time, and environmental impact are setting each other off. This leads to the following dynamics. When supplier distance increases, lead time increases (slower mode of transport such as boat or train and more distance to be traveled), but the environmental impact decreases (smaller amount of emissions per unit). But this is an assumption which is not always realistic because speed could become more important than Sustainability, (e.g. in rush-orders which might be done by Air cargo just to ensure that the customers get the materials as soon as possible). This issue will be addressed in the trade-off between sustainability and dependability. In another way around, when supplier distance decreases, lead time decreases (faster mode of transport such as truck and less distance to be travelled), but the environmental impact increases (larger amount of emissions per unit). Therefore, the trade-off between building a sustainability supply chain and maintaining an acceptable delivery lead time is a dilemma for managers in their focused strategy especially when they choose suppliers and target markets.
In addition, another example could be mentioned to illustrate the trade-off between sustainability and speed.
Intensive agriculture and animal farms could boast the profit and accelerate the production rate for crops and meats. However, on intensive pig farms, the animals are generally kept on concrete with slats for the manure to drain through. The manure is usually stored in slurry form (slurry is a liquid mixture of urine and feces). During storage on farm, slurry emits methane and when manure is spread on fields, it emits nitrous oxide and causes nitrogen pollution of land and water. Poultry manure from factory farms emits high levels of nitrous oxide and ammonia. Therefore, somehow in order to generate more slurry to boost the production speed of crops, more nitrous oxide will be emitted and harm the environment.
Assess the relationship or trade-off between sustainability and dependability
Dependability is defined as to do business as the companies promised to their customers. Basically, dependability plays a significant role in measuring the business performance of organizations as intangible resources which is more related to organizations‘ reputation. Assessing dependability with sustainability would be integrated by most performance measurement system not only for upstream suppliers but also downstream customers. From the literature, there appears to be no manifest trade-off between dependability and sustainability. But indirect relations indeed exist. In E-business field, products and services could be delivered as promised and agreed is one of the most significant factors in organizations‘ operations strategy. Basically, E-commerce is leading to ‗thin‘
transportation volumes; individual shipments to individual customers and high return compared to the traditional brick-and-mortar shops where full truckloads can be used. For most shipping organizations, they even treat dependability as their operation‘s priority. In addition, the same rule could be applied in the product transformation in whole supply chain. For example, the building collapse recently in Bangladesh created widely discussion for corporate ethical responsibility and supplier dependability. A couple of apparel companies in European country were out of stock since Bangladesh has the majority of their suppliers. The main reason for this
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building collapse is because Bangladesh‘s government didn‘t treat their workers in an ethical way which leads to poor dependability to their customers. Moreover, same arguments could be suitable here in the food industry where diseases (mad cow disease, chicken flew, and many more) as seen as consequence of non-sustainable way of intensive bio-industry. Basically, those cases are presented from social aspect of sustainability which proves that the trade-off between dependability and sustainability has an indirect relation.
In addition, dependability is also one manufacturing objective affected by the system parameter, time.
Sustainability could be in conflict with this objective if sustainable initiatives result in increased unreliable delivery of materials throughout the supply chain. This could occur if additional processes are added to the production process in order to comply with sustainable principles as well as a problem if the supply of environmentally friendly raw material is not reliably available.
Another example could be in the field of shipping companies. As mentioned earlier in e-commerce, in order to guarantee the promised delivery date for the customers, the products in small quantities will be shipped without full truck load, which leads to a lot of inefficient transportation. This is not environmental friendly and will also increase the cost for those shipping companies. Moreover, in food industry, keeping large stocks of perishable products, just in order to ensure that those goods are available draws widely discussion by manufacture. Due to the special characteristic of perishable food, throwing away large quantities indeed is not following the path of sustainable development (Wikipedia).
Assess the relationship or trade-off between sustainability and flexibility
Flexibility in supply chains has enabled responsiveness of chains to achieve higher service level, faster delivery and customization of products. Most companies are eager to make their supply chain competitive through incorporation of flexibilities at appropriate level but at the same time they are expected to be green and sustainable (Shukla et al., 2010). Initially, flexibility in manufacturing systems has gained lot of attention and lead to creation of new manufacturing systems (Shukla et al., 2010). Naturally, from the perspective of triple bottom line of sustainability, all cost is associated with flexibility like cost of damage to environment, excessive use of natural resources, extra material consumption, waste disposal, recycling, increased emission of green house gases in atmosphere, congestion and traffic problems like accidents, delays are the result of lacking awareness of sustainability or could be individual preference of people/organizations who are well-aware but do not care too much. . For instance, few customers prefer to buy winter cloth made with animal fur. Based on this customer demand, some apparel companies will produce this kind of cloth to achieve flexibility but kill precious animals.
In addition, most SMEs are easily dovetailed into production systems of large enterprises precisely due to their larger manufacturing flexibility to cope with uncertainty in terms of volumes, product range and variety.
Basically, for the supply chains which are rigid and have not exhibited much flexibility but take sustainability as the main mission and show high level of responsibility towards social and environmental aspects, most not-for-profit organizations and their supply chains are focusing on such as achieving environmental friendly and respect people instead of considering flexibility for their product. In terms of focusing on flexibility to achieve high levels of responsiveness and agility without concerns for the environment, society, and primarily driven by the profit, those supply chains fell into self-centric. Apparel, electronics goods are the examples to show this trade-off.
