John Manners-Bell, CEO, Transport Intelligence and Chair, Logistics and Supply Chain Global Agenda Council, World Economic Forum

Supply chain management concepts were originally developed with one goal in mind: to optimise  business value by ensuring that product reached the end-user in the most effective way possible. The adoption of supply chain practices has undeniably resulted in massive economic benefits, both in the emerging as well as the developed world. It has provided more consumer choice, economies that are more resilient to recessionary pressures, as well as improved living standards for many millions of people in poverty stricken regions.

However the gains have not been completely without cost. Just in time supply chains are heavy and inefficient users of transport services due to the trade off between the high cost of inventory ownership and the low (financial) cost of transport. On occasion this can result in what could be described as sub-optimal operational decisions such as the more frequent use of smaller vehicles.

Many have argued that this trade off is in fact artificial as it doesn’t take into account transport’s external costs such as the effect of carbon emissions on the environment.  Political pressure and lobbying has made many manufacturers, retailers and logistics companies more aware of the impact of their businesses on the environment, and carbon reduction measures are now an integral part of most companies’ strategic development plans.

However there is a third factor which companies need to take into account if they are to create truly sustainable supply chains – that of the societal impact of their businesses. Perhaps one of the defining features of the next decade will be the pressure that retailers and manufacturers come under to justify sourcing decisions from a corporate and social responsibility (CSR) perspective.

There have been growing calls for companies to demonstrate that they implement ethical policies when it comes to the conditions in which their suppliers’ employees work. No longer is it morally acceptable for manufacturers to out-source production or for retailers to purchase goods from suppliers without having full visibility of these issues.

That the CSR dimension is critical to supply chain has been evidenced by the huge reputational damage caused by catastrophes such as the Rana Plaza factory collapse in Bangladesh in 2013. Over 1100 people died in the disaster, implicating a number of international retailers whose goods were being produced in unsafe conditions.

This tripartite approach to supply chain management is critical to ensure long term sustainability although striking a balance between each of these core ‘pillars’ – economic viability, environmental accountability and social responsibility – will be challenging. Destroying value in the supply chain by burdensome government regulation is not welcome and nor is it the answer.

A smarter solution lies in convincing senior management that increasing visibility of supply chains in order to audit the corporate behaviour of their suppliers can provide them with the capability to make smarter sourcing decisions, especially in the case of a supply chain disruption. An opaque supply chain may not only hide unethical behaviour but also creates high levels of vulnerability and fragility from unknown risks.

This is not to say that governments and non-governmental organisations (NGOs) do not have a role to play in facilitating the development of these pillars. Companies can be nudged towards best practice and in an ideal world a partnership approach can successfully bring about positive results to all constituents.

In China, for example, consumer electronics manufacturer Apple is now working alongside the Fair Labor Association, a network of socially responsible companies, to ensure that the working practices of its main supplier Foxconn conform to a globally acceptable standard.

A combined corporate and governmental approach has also worked elsewhere in the developing world. High tech manufacturers and governments have worked together in East Africa to create a reverse logistics solution, thereby reducing the amount of product being dumped and minimising harm to the environment and human health.

What is clear is that economic, environmental and societal issues are bound tightly together, interwoven in deeply dependent relationships. In order to ensure a long term, sustainable future for global supply chains, companies must build collaborative, multi-stakeholder approaches to creating value which don’t impact on the environment or have a negative impact on people’s wellbeing.

John Manners-Bell is Chair of the Logistics and Supply Chain Global Agenda Council of the World Economic Forum, a grouping of senior academic, logistics and supply chain professionals. The theme of this year’s programme is ‘Logistics and Supply Chain: A Force for Good’ which seeks to showcase best practice in ethical and environmental practice within the context of highly effective supply chains.