Abstract Number: 020-0360
Title: A Maturity Model for the Strategic Design of Sustainable Supply Networks
Authors: David Allan Kirkwood, Leila Sadat Alinaghian, Jagjit Singh Srai
Affiliation: Institute for Manufacturing, University of Cambridge
Corresponding Author Address:
Dr David A. Kirkwood
Institute for Manufacturing,
17 Charles Babbage Road,
Cambridge,
CB3 0FS
United Kingdom
Tel: +44 1223 760504
Email:
POMS 22nd Annual Conference
Reno, Nevada, U.S.A.
April 29 to May 02, 2011
Abstract:
Global supply network (SN) design has developed in recent years from traditional lowest landed-cost analysis to the more strategic concept of SN configurations that drive the selection of particular archetype network structures of constituent actors which have a complementary set of operational capabilities. These approaches have required the development of supply chain maturity models that support SN analysis and design. The growing global emphasis on the sustainability agenda has driven industrial practitioners to increasingly report on corporate social responsibility and triple bottom line, and whilst some corporate sustainability maturity models exist there is only a nascent understanding of the importance of the supply network. From a consideration of recent literature in sustainability maturity models and supply network design, a framework is proposed that enables both an objective means for both evaluating network maturity and informing reconfiguration for improved sustainability performance.
1 Introduction
This paper presents a methodology for the genesis of a framework which enables the assessment of the maturity of asupply network, with a particular focus on those elements which are pertinent to sustainability. The framework takes the form of a maturity model, onto which the capabilities of focal firms may be mapped through the use of carefully designed questionnaires, to produce a snapshot of the current state of the company, and the desired or required future states based upon their business model requirements.
The framework is developed from the integration of three distinct areas of operations management research literature: network design (in particular supply networks); sustainable industrial systems; maturity model development. The area of overlap of these research themes has been the subject of a limited number of academic studies to date, and as such presents a fertile area for new research. Each of the three domains will be explored in detail in the sections below.
This paper is structured as follows. In the introductory section a brief overview of the three research themes is presented. In subsequent sections, key dimensions from the literature are developed and the areas of overlap derived, leading to the generation of an integrated hierarchy of sustainable network design. An initial maturity model is then proposed and some test analyses of exemplar firms is carried out to test the model using secondary data. Finally a proposal for more rigorous case study testing is described together with a suitable data gathering methodology and toolset.
1.1Supply Network Configuration & Capabilities
The translation of ideas and opportunities arising from corporate strategies into viable products and services relies on many operational components. Foremost amongst these is the understanding of the role of the network of partners, suppliers and customers and how this enables value creation and capture. Successful actors can no longer view supply chains from a purely functional logistics and procurement perspective, but rather as a criticalnetwork of elements of the integrated industrial system.
The operational field of Supply Chain Management (SCM) now recognises the need to adopt a holistic approach that involves a strategy for aligning requirements of all critical partners upstream and downstream in the supply network, such that SCM both managed and drives total business excellence [1]. However, in order to manage the network it is necessary to develop a series of descriptors by which the network may be understood, and a means of measuring the performance of the network such that it may be improved or adapted to changing business requirements.
From a variety of sources in the literature on supply networks the distinct but related concepts of configuration and capability have arisen [2,3]. The role of network configuration as an enabler to achieve some of the business and SC network goals has been well documented in the literature. This concept has been borrowed from the Configuration school of thought of strategic management concerning how types of configurations are used in directing attitudes, attention, influence, resources, motivation and effect with the strategic management is seen as being to maintain stable states while recognising the need for period transformation. The configuration may be considered as a series of complementary tools used to provide a descriptor for all elements of the network. These have been described by Srai as Hierarchy (which describes the upstream and downstream links between actors and their geographical disposition); Materials and Information flow (which describes the exchange of goods and information between sites; Relational Governance, which looks at the management of the network; and Product Structure, capturing product lifecycle (PLC), inventory churn, new product implementation (NPI) timescales etc [3].
These tools can be deployed to assess particular configuration types against “traditional” supply chain measures of performance, and this method has been tested in a number of industrial sectors [3]. A recent publication demonstrated that this concept could be further extended to addressing at least one dimension of sustainability, whereby the methodology for determining the energy footprint of a regional operation of an MNC was described in terms of the supply network configuration [4].
Dimensions of Network Capability and Maturity
Of more relevance to this study is the concept of network capabilities, which is closely linked to network maturity. The term capability has a number of meanings amongst both academics and practitioners, depending on either the philosophical school of thought or the context. For the industrial practitioner, a capability is typically a process or a quality function, supported by a particular organisational competence. In the academic literature, capabilities are either considered from a resource-based view (RBV) perspective [5,6], which considers primarily the internal strengths and weaknesses of actors, or the extrinsic “environmental” view, which considers the ecosystem and opportunities and threats from outside the network [7]. Other approaches, intermediate between these two boundary conditions, exist and these are detailed elsewhere.
Most contemporary treatments are concerned with classifying capabilities into a hierarchy, with descriptors such as “ordinary”, “meta” and “dynamic”. Whilst a detailed review of these is beyond the scope of this current work, it is worth noting that herein sustainability is considered as a “meta” capability of the company, in that it is an intrinsic property of the actors within the network, whilst recognizing that in fact it is also part of a larger extrinsic dimension beyond the network itself.
Maturity models have been long established in industry as means by which process performance, in particular quality functions, may be monitored and reported. For functional processes where Key Performance Indicators (KPIs) may be readily assigned these are widespread, and indeed through regulatory bodies like SCOR there exist a standard set of KPIs which may be applied cross-sector to give comparable performance targets.
1.2The Sustainability Challenge and the GlobalIndustrial Systems
Sustainability has been described as “the ability to meet the needs of today without impacting the needs of tomorrow” [8,9]. The imperative to address the sustainability agenda has been described as one of the greatest challenges for the human race over the coming decades[10]. The reasons for this are many and compelling. From the societal perspective, the combined pressures of a rapidly expanding population with increasing expectations of standard of living are at presentmutually incompatible. This is particularly true in several of the key emerging economies such as China and India. The natural biological capacity of the Earth has been estimated to be on the order of 2.1 global hectares per person – currently usage is on the order of 2.7 global hectares per person on average [11]. This is not a static situation - the population is increasing monotonically, as are people’s expectation for increased standards of living. This is coupled with a growing awareness of environmental issues amongst consumers which has driven a greener industrial agenda.
At the policy level, there is a growing regulatory landscape that is still evolving, with far reaching energy and climate change targets which have direct impact on the industrial system in terms of energy sourcing, logistics transportation, plant infrastructure management etc. Often policies are imposed without adequate consultation with industry resulting in high cost burdens in meeting new legislation (e.g. imposition of the REACH directive). Ongoing uncertainty in the provision of fiscal incentives, such as Feed In Tariffs to aid adoption of renewable energy solutions, act as a deterrent to update by industry as it is difficult to forecast costs associated with energy into manufacturing location decisions [12].
It is increasingly recognised that industrial systems have been a major driver in raising the quality of life of peoples around the world, however it is also understood that manufacturing systems are a major influence on the deterioration of the global environment. Some experts suggest that the industrial system can account for 30% or more of greenhouse gas generated in industrialised countries [13].
In response to these concerns, many manufacturing businesses, in particular larger MNCs, are on an ever increasing basis attempting to report a measure of their sustainability performance.There is however limited uniform consent across industrial sectors as to the level of sustainability reporting required. Some reports go well beyond compliance reporting and an increasing number are using third party reporting structures e.g. the Global Reporting Initiative (GRI). Many however focus on those items which can be easily addressed, such as delivery optimisation, especially in the area of complex product provision where accurate assessment of the impact of the whole value chain is not currently possible to measure.The UK government’s Carbon Trust Initiative, and support for Carbon Trading schemes, etc. are all beginning to shape the terrain over which businesses conduct themselves to address the sustainability agenda, but this is still at a nascent stage and adoption is limited on the global scale.
2Research Gap and Methodology
In order to understand the holistic impact of sustainability upon the strategic design of supply networks, a literature review was conducted in the pertinent academic and business press. From an integration of the various dimensions of literature arising in the three distinct research fields of network design, sustainable industrial systems and process maturity descriptors, an initial Sustainable Network Design Maturity Model (SNDMM) is developed.
It is recognised that to rigorously test the model, the case study approach would be more suitable due to the volume and complexity of data required to be analysed in order to map the sustainability impact on a complex MNC supply network, and a proposal for doing this is outlined at the end of the paper. Initially the approach to mapping the network capabilities of the focal company will be outlined, then the potential metrics by which this supply network may be assessed from a sustainability standpoint will be examined.
The research gap identified was that, based on the literature reviewed, there currently exists no holistic integrated methodology for mapping and measuring “sustainability” performance across the supply network for complex product systems. Current measures approach the problem from the processes employed by the focal firm, and current product-based approaches do not contain sufficient comprehension of network design to adequately tackle complex networks of high value manufacturing systems.
From the research gap, the following research question is proposed: How can supply network configuration and capability research be adapted to provide a means for assessing the sustainable performance of a firm across its network? It is not possible to address this rather large question in one work alone, and separate research is ongoing with the aim of demonstrating the supply network configuration can provide a mechanism by which the energy footprint of a network can be rationalised [4]. In the work described herein, the following two assumptions are made:
- Sustainability is a meta-capability of an industrial actor and as such contains processes and competencies which may be measured
- In order to understand sustainability in a holistic fashion a network approach is required
From building upon these, the aim of the research is to demonstrate that it is possible to integrate dimensions pertaining to sustainability into network design maturity models in such a way that suitable modification of tools designed to measure network performance will result in a measurement of sustainability performance in a manner complementary to, but further reaching than, current GRI reporting standards.
3 Literature Review
The domain of sustainability literature is vast arena and in the last ten years alone there have been in excess of 10000 academic publications containing the word “sustainability” in the title. As such, the literature review in this study was constrained by the following boundary conditions – the initial review was of the last five years of publications and there must also be mention of the terms capability / maturity in the abstract, key words or title. Current literature on sustainable industrial systems may be split into three broad categories, strategy, reporting and (process) capabilities. Each of these will be considered in turn.
3.1 Strategies for Sustainability
Modern approaches to network design using maturity models have recognized that performance must be led and aligned with corporate strategy and leadership. Recent literature has extended this approach to include elements of sustainability in a variety of forms, and these are summarised in table 1. Schneidermann (2009) described a green enterprise model which attempted to align strategy with process capability [14]. Seven elements of sustainable strategy were described, namely focus & orientation; image marketing; superior product offering; supply chain support; leveraging “green” as an innovation catalyst; leadership and engagement; decision making processes. These in turn were described in a nascent model consisting of four levels of maturity, however limited detail was given on how each of these strategy elements could be assessed.
Other authors have considered how triple bottom line reporting (expanded in the following section) can be integrated with supply chain strategy. Reefke et al. found that TBL was generally considered as a stand-alone element, not integrated with SCM and strategy, and that improvements in the reporting system were required to improve the maturity of integrated sustainable supply chain management [15]. Similarly, the integration of life cycle management (LCM) in strategic decision making requires the construction of new frameworks which enable this integration [16]. Mio (2008) linked CSR strategy to GRI score in an attempt to correlate the impact of organisational complexity on ability to generate high GRI scores. In particular, the following sustainable strategy elements were considered: materiality; stakeholder inclusiveness; sustainability context, together with several elements of reporting communication [17].
Table 1 : Sustainable strategy dimensions
Key to the construction of sustainable strategies is the balance between internal organisational design (or redesign) and a full understanding of the extrinsic forces. Simchi-Levi (2010) classified these external factors into the following dimensions: globalization; rising logistics costs; rising risk; increasing labour costs; increasing sustainability concern; increasing volatility of markets [18]. Table 1 lists all of the strategy dimensions of sustainability elucidated from the literature reviewed.
3.2 Sustainable Reporting
In terms of reporting of sustainability performance, the concept of the Triple Bottom Line [19](alternately denoted as TBL or 3BL depending on the citation) is now commonplace in global MNC reporting, although the exact constituents of the Environmental, Social and Economic components of the TBL vary from company to company. From the basic three level approach originally described, further treatments have been extended to consider the overlapping domains. Key themes which arise in each of the three areas are as follows (these are also summarised in table 2).
Environmental reporting consists of some concept of impact upon the environment, resource utilisation efficiency, total resource consumption (as opposed to that reused and recycled) and the associated emissions from industrial processes. Footprinting techniques, such as the GRIG3 or PAS 2050 have been developed to provide frameworks for this and are gaining international acceptance [17]. Some recent publications have attempted to link TBL elements with process standardisation and science and technology with the eventual goal of producing a sustainable maturity model for manufacturing [20].
The economic element of TBL has traditionally been the most comprehensively addressed and may be understood in terms of the flexibility of demand/capacity management, the agility of the supply chain to adapt to new products and markets, the robustness to withstand risk and uncertainty, a measure of competitiveness and growth (often jointly expressed as market share). Indeed, the concept of sustainability has traditionally been interpreted in those terms by SCM literature, i.e. the ability to sustain the business, and continues to be referred to in these terms even in contemporary publications [e.g. 21, 22].
There has however been more limited literature on the societal aspects of sustainability reporting, in the main due to the lack of clearly defined metrics to assess societal impact of the industrial system. In the academic literature, dimensions have been proposed such as measuring the growth of income for employees and secondary employees, the displacement inflicted on communities through operational decisions, the mobility required of human resources, the engagement with the surrounding communities, and an understanding and admission of the connectivity between the industrial system and outcomes for secondary or tertiary stakeholders.
The final literature domain pertinent to reporting is that of communication – this refers both to the substance and method or medium by which information is communicated. In particular, for sustainability communication to be meaningful and inform both external stakeholders and act as a means by which internal improvements may be driven, it must communicate accurately, comprehensively, in a balanced and systematic view, and also contain a time based element for progress or change. At a more strategic level, it should be a key component of sustainable marketing and demonstrate how CSR is integrated into the strategy and leadership components of the corporation. It is recognized that many earlier attempts to communicate sustainable performance were in fact “greenwash” of existing information [23, 24].