Steve Waddell offers advice and tips for companies looking to manage sustainable supply chain issues in a holistic manner.
Commercial exchange is usually thought of as the key driver in supply chain relationships. This also is the essential thinking that is behind the well-known stakeholder model with two concentric circles around the corporation, with the first “primary” one including suppliers, employees and customers and the second one including non-governmental organizations (NGOs), government and communities. However, approaches to sustainable development (SD) are breeding quite a different picture where relationships include key non-commercial drivers and the second circle becomes involved in core production issues.
This approach can be seen with Unilever’s approach to fish products; American banks developing profitable markets; Walmart selling lumber; Shoprite selling small growers produce; PlugPower selling hydrogen energy fuel cells; and with hundreds of companies working to sell products that embody triple bottom line concerns.
There are two core concepts behind this increasingly common approach. One grows out of the understanding that a business does not produce just what it wants to produce, but it also produces a lot of unwanted outcomes referred to as externalities or negative social, economic and environmental impacts. This opens up the definition of “production” and the idea that a business might also be able to achieve its commercial production goals and design in positive externalities.
The second concept reframes the secondary set of stakeholders in terms of their core competencies in relationship to production. While people think of full system recycling in terms of physical resources, the SD imperative is pushing the envelope to develop full systems production in terms of other resources—including NGOs and communities. That is why I call this approach full system coproduction (FSC).
FSC is emerging across industries and around the world. From analysis of 13 such examples of unusual NGO-business relationships, three types of FSC supply relationships emerge.
Front-end FSCs
This FSC is “front-end” focused because it brings consumer representatives into the production process. One of the best examples related to social-economic SD impact is with banking in the United States. In many cases banks have created very profitable banking and opened up an entirely new market by working with representatives from low-income communities. From the communities’ viewpoint, through the relationship they are finally getting access to market financial resources. In terms of the supply chain, the NGOs provide expertise in the development of products, aggregation of a market into a scale that is profitable, assistance with delivery channels and servicing support for purchasers of products. The latter gives a good illustration of how NGOs can help businesses rethink their whole approach to servicing. Traditionally banks took a legal enforcement route to enforce loan agreements that was costly, led to reticence to make loans, and was often ineffective; with the NGOs the approach shifts to education (banks can market, but low trust because of conflicting interest over wanting to maximize profits means they are poor educators) and peer support.
This approach can easily encompass environmental concerns. In fact, some banks have included environmental groups to help define more environmentally sensitive products in a very similar manner. Similar elements of this approach have been noted in road-building in Madagascar, and water and sanitation projects in South Africa. This approach seems particularly useful for infrastructure (banking being financial infrastructure).
Back-end FSCs
In the front-end FSCs customers are usually aware of the role of NGOs as non-traditional suppliers and are often in direct contact with them. In the back-end FSCs the customer is usually totally unaware that the product has been produced through a production chain that includes non-traditional suppliers. A good example of a back-end FSC is with Shoprite, a South African super market chain in South Africa. When it set up outlets in Zambia with fresh produce from its traditional large-scale South African suppliers, it put local farmers out of business. Tension led to creative dialogue that resulted in an arrangement where NGOs and the chain work with local farmers to build their capacity to produce on-time, in quantity and quality that the supermarket requires. The government was engaged to improve roads so the produce could be taken to market, and when the local subsidiary of the Indian multi-national Tata heard about the initiative it expressed interest in developing an appropriate bicycle to transport
the produce to market.
Sometimes these back-end FSCs can be global such as with the Forest Stewardship Council. Business and civil society have created the Council as a way to produce sustainable wood products—a different type of product than traditionally produced. This is done with particular reliance upon the input of environmental and community NGOs who work with wood producers to create the sustainable product. They supply expertise in terms of forests and environmental harvesting approaches; trust and competency working with communities; marketing support with a SD label for purchasers of wood products; and implicitly they also make a defensive contribution of protection against boycotts and other public protests.
This back-end FSC relationship has been noted in the Philippines with the production of high quality rice, and with fisheries and the Marine Stewardship Council. It seems particularly useful with respect to production of natural resource and agriculture goods.
Forward capacity-building FSCs
This type of FSC focuses upon the production of a healthy operating environment. Traditionally companies do this individually or in groups, trying to influence governments and others to do what the companies wanted. The classic activities are lobbying and public relations. In the face of the SD imperative, some have realized that this approach will not get us to where we have to go, since this is so focused upon narrow individual interest. A very different collaborative approach is illustrated by the Global Reporting Initiative. GRI is made up of companies and civil society organizations working together to improve triple bottom line corporate impact. Recognizing that even the most SD-sensitive companies cannot go far beyond the rules currently defined in the market, the initiative can be thought of as aiming to change the market ground-rules to support SD. GRI participants come from around the world and across industries.
The work of this type of FSC is particularly complicated and they are much fewer than the other two types. Given the depth and breadth of their vision, they are almost always set up as independent collaborating organizations. They have two “customers”: the participating companies that want to create a more sustainable supply chain, and those wanting more sustainable products. They address the large scale systems challenge process inherent in SD by creating strategies to coordinate the necessary change in the three key systems of civilization: political, economic and social.
Examples of this approach are found with Cisco Systems’ global strategy to train people for their high tech environment, and an initiative by a Thai NGO that helps companies locate in rural communities. This array suggests that this FSC type is applicable across industries.
These approaches to the supply chain suggest that the very term “supply chain” is attached to mental models that are barriers to sustainable development. Beneath the FSC approaches are full system and feedback loops, rather than the linear segments that are inherent in the concept of a supply chain. However, this systems perspective does not just focus upon negative externalities as has been the SD tradition—it begins to think about the creation of both internally and externally positive impacts that redesign can produce. The logical extension applied to a topic such as new product development suggests that such development will be heavily guided (if not led) by a full system collaboration. This means that when a product emerges, it will much more intelligently reflect competencies of such disparate interests as government, environmentalists and community activists. Indeed, this is the very direction that some companies are going. PlugPower’s technological competence is production of hydrogen fuel cells, but the company is particularly interested in a multi-stakeholder approach to posit this technology as part of community development and environmental impact strategy.
Development of these FSC strategies can be much enhanced by understanding them as societal learning and change strategies. SD in intimately connected to the need for fundamental reorganizing of our societal systems, and FSCs are achieving this complex goal. (For other articles on societal learning, collaboration and related topics go to:
www.thecollaborationworks.com/pub.html.)
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Steve Waddell is the Founder and Director of The Collaboration Works. This piece reprinted from Ethical Corporation magazine, a GreenBiz News Affiliate.
