Sustainable Operations

Challenge

It is a challenge for many companies to connect a sustainable product philosophy with the reality of its value chains. New product introductions have to be synchronized with the requirements of a globally distributed value creation. Planning, procurement, production and distribution do not just take place in a few sites close to the company’s headquarters, but throughout to a global distribution network. To make global value chains flexible, it is therefore essential to create an “end-to-end” perspective from customers to the supplier and back – thus integrating the entire system and making it transparent. Until now sustainability has played merely a minor role in the development of these tools.

Corporate sustainability mainly has to do with maintaining internal requirements in terms of safety and environmental protection, which were recommended by jurisdiction or industry associations. In addition, issues like saving energy costs and water usage, preventing the creation of waste and reducing CO2 are linked to corporate sustainability. Externalities, which are factors of production, that are available to the company free of charge but have not been included in financial records, are not yet taken into account.

Solution

Management of the value chain as an end-to-end system. Integration of planning processes: The ability to respond quickly to changes is an important competitive advantage for companies that have to face the demands of rapidly changing markets. Through Sales & Operation Planning they connect operational planning of the value chain with financial planning. The trend goes towards integrated business planning as the currently highest level of planning integration. To understand and evaluate impacts of value chains, it is nevertheless still necessary to integrate several precursors of suppliers and partners. A new challenge in terms of planning is the consideration of externalities in planning processes. When taking into account externalities many decisions that make sense from today’s planning perspective would have a different outcome. This can lead to a shift of overall value creating activities.

Appreciation of procurement: In order to make sure that procurement takes sustainability into account many companies are using "purchasing guidelines for sustainable procurement". This is usually an amendment to existing codes of conduct aiming at compliance and requires suppliers to work sustainably. Active supplier management has always been the responsibility of the purchasing department. Because value creation has become more complex and volatile, the importance of pro-active and intensive supplier management has increased. While cost-cutting measures are day-to-day practice in well-organized purchasing departments, sustainable procurement is still in its infancy. Purchasing departments often don’t have the correct knowledge or methods at hand. Those are necessary to take into account reuse of components or Design-for-Reuse in their purchase decisions.