Integral Logistics Management — Operations Management and Supply Chain Management Within and Across Companies

3.3.3b Proactive Environmental Involvement: Economic Opportunities for Environmental Commitment of Sustainable Supply Chains

Intended learning outcomes: Differentiate between opportunities and threats favoring proactive and reactive environmental involvement.

Continuation from previous subsection (3.3.3)

The situation for companies can be presented with two general options (with many intermediate levels in real application). As Figure shows, companies may decide to be proactively environmentally committed (light gray fields) or take a reactive position (dark gray fields). For both options, uncertainties lead to opportunities as well as threats.

Fig.        Selection of opportunities and threats favoring proactive rather than reactive environmental involvement. Adapted from [ScVo10].

When being environmentally proactive, the human factor is very important for creating opportunities. Internally, employees’ awareness can be raised, and the capability to deal with challenges and changing environmen­tal conditions can be increased. Further, strategic relationships with stake­holders from GOs, NGOs, and new customers can be developed. Also, productivity can be increased and international standards fulfilled, resulting in financial savings. Thus, being active increases planning security and lessens dependency on volatile prices.

Taking the reactive role may be advantageous in the short and medium term. Focusing on core competencies strengthens competitiveness, as investments in environmental changes may be postponed to a later point in time when technology is “adult” and reliable (“no experiments”). Company resources are used only where it is imperative to satisfy regulatory measures, which allows conservative budgeting.

Proactive commitment entails several risks for which competing polluters may gain competitive advantage (in the medium term). For example, a company may invest in a technology that reduces a certain kind of pollution. When regulation does not implement liability costs for this pollution, it results in a disadvantage for the company. Fulfilling standards may differ greatly from region to region, which hinders knowledge transfer. When engaging in (and marketing) “green” practices and products, the noncompliance of supply chain partners has a stronger impact and they may be more difficult to replace (“captive buyer situation”). The identified risks are rather of a company external nature. Perhaps a reason is that integrated approaches go hand in hand with higher interdependencies between, for example, companies, regulatory bodies, and supply chain partners.

There are various risks when taking the reactive environmental engage­ment position. A company may become vulnerable to regulation, market development, and liability costs as unanticipated developments emerge. Vulnerability to price shocks and supply disruptions is higher if no counter­measures have been taken (e.g., increased efficiency or alternative feedstock). Lower level of employees’ awareness leads to potentially missing out on cost-saving opportunities, and internal satisfaction may suffer due to a lack of environmental responsibility. With regard to a company’s visibility, a polluter image and negative reporting from the media and NGOs may lead to disadvantages in the long term.

Although this analysis considered mostly industries in the developed countries, many of the risks and opportunities may be applicable in other regions as well. Environmental regulations change and become more important as wealth increases. The relevance of these economic drivers may apply to virtually all industry sectors (with EIIs being especially affected). Therefore, searching for new approaches and solutions is an essential part of working towards long-term competitiveness. Also, earlier approaches need to be re-evaluated. Although they may not have been accepted in the past, they can become viable under the changed economic conditions. For further reading, see [Sriv07].

Course section 3.3: Subsections and their intended learning outcomes