Sustainabilty_and_Future_Supply_Chain_Management_in_Pakistan

Sustainability and the Future of Supply Chain Management Mahsum Naseem*, Mirza Aurangzeb **, Umair Ismail *** * Business Administration, University of the Punjab, Gujranwala Campus, Pakistan ** Business Administration, University of the Punjab, Gujranwala Campus, Pakistan *** Business Administration, University of the Punjab, Gujranwala Campus, Pakistan Abstract This paper studies the sustainability of Supply Chain Management (environmental, social and economical) in modern and future supply chains and examines its effect on a Pakistani Organization known as Boss Moulded Furniture. The global supply chain is entering into a new world of opportunities and challenges. Challenges include environmental protection, energy availability and increase in population. On the other hand modern and future supply chain will also be able to have an access on opportunities. These opportunities include outsourcing, vertical and horizontal integration and increases in telecommunication technology which enables supply chain to be connected more than ever before. After giving a brief description of challenges and opportunities that supply chains are facing and will be facing. This paper conducted a case study on Boss Moulded Furniture. Time horizon of this study is cross sectional and interview is used as a data collection method because of time, human and resource constraint. Energy crises is the main challenge that Boss faces and it makes Boss to use diesel to generate electricity and in turn it increases the cost of products. Boss is trying to conform to environmental legislations. When it comes to opportunities the findings shows that Boss is not very efficient to take advantage from them. Keywords: Sustainability, Integration, Sustainability supply chain management, Supply chain management Introduction Pakistan is an under developing country and with respect to industry it ranked 41st in the world and ranked 55th in worldwide factory output. The major industry includes fertilizer, cement, oil, chemical, steel etc. For every industry there exists a supply chain management system that ensures smooth flow of the organizational processes. In supply chains, organizations work together to ensure the simplest and most cost-effective flow of resources which is important to every supplier since supply chain activities can account for between 5 to 20 percent of sales. Many organizations realize that the future of supply chain management lies not only with individual firms, but with networks of allied organizations and technology have lead to offer greater potential for cooperation. To create a balance between the goals of high quality customer service and to lower the inventory and unit cost is the aim of supply chain management. Supply chain managements are facing a range of issues, including purchasing, the physical movement of materials, materials management, manufacturing management and supplier management. (Hines, T. 2004) "Supply chain strategies require a total systems view of the linkages in the chain that work together efficiently to create customer satisfaction at the end point of delivery to the consumer. As a consequence costs must be lowered throughout the chain by driving out unnecessary costs and focusing attention on adding value. Throughout efficiency must be increased, bottlenecks removed and performance measurement must focus on total systems efficiency and equitable reward distribution to those in the supply chain adding value. The supply chain system must be responsive to customer requirements." (Hines 2004, p76). Supply chains of today are facing a number of challenges like energy, increase in population and environmental changes. We are moving from a world where energy is abundant and cheap to the world where energy is limited and expensive (Hartmann, 2004). The majority of energy provided to these organizations is based on fossil fuels like oil. As the worldwide oil production is increasing the fossil fuel reserves are decreasing which ultimately creates pressure on supply chains. According to the United States (US) Energy Information Administration, there will be an increase of approximately one percent per year in worldwide energy consumption (United States Energy Information Administration, 2007). Another challenge that supply chains of today are facing is the increase in population. Current United Nations predictions states that up till 2050 the world population will increase to 9.2 billion, (United Nations, 2007). As the population increases, the demand for goods by the people increases which creates pressure on the supply chains as they have to meet the increasing demand for goods while remaining in the available resources. Another challenge that the supply chains are facing is that of environmental changes. The Intergovernmental Panel on Climate Change concluded that the warming of climate system is obvious as the rising sea levels, melting of glaciers and changing of ocean temperatures show (Intergovernmental Panel on Climate Change, 2007). Some effects of climate change are hypothesized by scientists such as increased flooding and coastal erosion, reduced quality and quantity of drinking water and food supplies, increased frequency and intensity of storms, elimination of animal and plant species etc. These climate changes can affect the supply chains as natural disasters like floods and storms may damage the road infrastructures and cause other serious damages. In addition to these challenges there are some opportunities as well like improvement in technology, particularly communication technology. Improvements in telecommunications lead to electronic supply chains that allow supply chain echelons to have real-time access to information, and improve their ability to track item movement and customer demand patterns. Technology improvements have also created some opportunities for consumers like two-way communication that enable them to communicate with companies, community organizations and other individual consumers. We did a case study on Boss Moulded Furniture situated in Punjab province of Pakistan. The city where it carries out its functions is Gujranwala. Pakson International Plastic Inc; was founded in 1991, and have been working to produce high quality moulded furniture, plastic steel furniture, households and moulded flower pots, etc with the brand name Boss in Pakistan. The impact of sustainability and opportunities and threats are analyzed in Boss. This paper is divided into five sections. In the first section it discuses introduction. In the second part literature review is presented. Research methodology is the third part of this paper. In the forth part findings are described and the paper is concluded in fifth section. Literature Review Sustainable supply chain management (SSCM) is an emerging field in today’s competitive environment. The term sustainability is the combination of social, economic and environmental responsibilities which has started to appear in the literature of management and operations and firms started to adopt this (Craig R.carter and Dale S.Rogers). Brundtland commission defines sustainability as “a development that meets the needs of the present without compromising the ability of future generations to meet their own needs’’ (WCED, 1987, p. 8). Shrivastava (1995a, p. 955) states that sustainability is the, “the potential for reducing long-term risks associated with resource depletion, fluctuations in energy costs, product liabilities, and pollution and waste management.” Dyllick and Hockerts took sustainability in terms of three cases i.e. business case (economic), natural case (environmental), and the societal case (social). A recent study (Linton, J.D.; Klassen, R.; Jayaraman, V.) showed that ‘consideration to the concept of sustainability is increasingly found in the management literature’. They found this by counting the keywords ‘sustainability’ and ‘sustainable development’ in economics, business and management articles between 1990and 2005. Elkington (1998, 2004), suggested a concept of Triple Bottom Line in which he considered economic, environment and social goals from macro economic viewpoint. As the supply chain involves the product from initial processing of raw material to the ultimate consumer (Jonathan D. Linton, Robert Klassen, Vaidyanathan Jayaraman). A focus of supply chain management (SCM) acts as a step that leads towards wider adoption and development of sustainability (Jonathan D. Linton, Robert Klassen, Vaidyanathan Jayaraman). The frequently adopted definitions of supply chain are that of Mentzer et al. (2001). They defined supply chain as “a set of three or more entities (organizations or individuals) directly involved in the upstream and downstream flows of products, services, finances, and/or information from a source to a customer” (Mentzer et al., 2001, p. 4f.). In another way they defined supply chain as “the systemic, strategic coordination of the traditional business functions and the tactics across these business functions within a particular company and across businesses within the supply chain, for the purposes of improving the long-term performance of the individual companies and the supply chain as a whole” (Mentzer et al., 2001, p. 18). Sustainable supply chain management (SSCM) has a direct link with supply chain management (SCM) because SSCM is merely an extension of SCM. Harland defines supply chain management (SCM) as “the management of a network of interconnected businesses involved in the ultimate provision of product and service packages required by end customers” (Harland 1996, p. 64). Seuring and Muller defines sustainable supply chain management (SSCM) by combining the definitions of supply chain management (SCM) and sustainability as “the management of material, information and capital flows as well as cooperation among companies along the supply chain while taking goals from all three dimensions of sustainable development, i.e., economic, environmental and social, into account which are derived from customer and stakeholder requirements” (Seuring & Müller, 2008, p. 2). SSCM is also defined by “as the strategic, transparent integration and achievement of an organization’s social, environmental, and economic goals in the systemic coordination of key inter organizational business processes for improving the long term economic performance of the individual company and its supply chains” (Carter & Rogers, 2008, p. 368) The global supply chain is entering a new world of challenges and opportunities (Benita M. Beamon). Supply chains are facing several challenges which include environment protection, energy availability and increase in population which creates burden on the abilities of supply chain to deliver goods and services according to the requirements of end users (Benita M. Beamon). The supply chain is pressured to become environmental friendly because of three requirements i.e. legislation, consumer pressure and waste (Richard Lamming and John Hampson). A society is facing a number of environmental issues that are due to the waste generated by the businesses (Benita M. Beamon) e.g. US produced 251 million tons of trash of which 32.5% or 82 million tons was recycled (Us Environmental Protection Agency, 2008). Between 55% and 65% of total municipal solid waste consists of residential waste while the rest is consisted of waste from school and commercial facilities (Us Environmental Protection Agency, 2006). ‘The development of environmental legislation is singularly the most important factor influencing the behavior of industry in the field of environment (Weford and Goldson, 1993, p.18). ISO 14000 standards provide a framework for environmental management systems (Hanson et al., 2004; Montabon et al., 2000; Tibor and Feldman, 1996). European Union (EU) also passed legislation that requires manufacturers to used environmental friendly material in the production process and also requires them to take back the used product (European Commission, 2008). In Germany a legislation is passed in which the Waste Packaging Ordinance Law (1991) and other associated DSD schemes (a private initiative set up in parallel with the national legislation) requires the supply chains to take back post consumer products in order to recycle them to use. 75% of consumers in USA say that their purchase decisions are influenced by the environmental initiatives taken by the company where as 80% of people agree to pay more price for products that are environmental friendly (Drumwright, 1994). This is the second requirement why companies try to make products that do not produce any harm to environment (Richard Lamming and John Hampson). UK purchases 600 million tones of materials annually and they produce 30 million tones of consumer goods and 30 million tones of food and the reaming tones are deposited as waste (Jones, 1996). Different varieties of methods have been put forward to overcome waste problems (Benita M. Beamon). One method is to use durable materials which can lasts for long (Benita M. Beamon). Second strategy is to make product packaging from post consumer content (Benita M. Beamon). In order to reduce cost of waste different companies analyze their competitors waste management practices and their annual cost of waste (Richard Lamming and John Hampson). Business in environment which is UK organization concludes that ‘Good purchasing will minimize the risk of breaks in supply chain … Since purchased goods and services represent the major proportion of total operating costs for many companies, and as quality, performance and design improvements become more important in maximizing value in products, there is an increasing strong link between environmental improvements and quality, and therefore long term profitability’ (BiE, 1992). This is the third requirement why companies try to make products that do not produce any harm to environment (Richard Lamming and John Hampson). Environment dimension of sustainability can be a competitive advantage for companies and hence companies take initiative to play an active role in different pollution prevention and other environmental practices e.g. life cycle management (LCM) (Facanha, C., and Horvath, A; Tsoulfas, G. T., and Psppis, C. P. (2006)). ‘Life cycle management (LCM) is called a business driven approach including environmental and economic aspects’ (Hunkeler et al., 2003). The supply chain of the future will have to face a greater impact of government’s legislations, face the consumer pressure and implement reforms to control the amount of waste by changing the process and materials used in production stage (Benita M. Beamon). Energy available to produce goods and services required for the increasing population has also a challenge for supply chain (Benita M. Beamon). Fossil fuels provide energy resources to societies and also power their supply chain activities (Benita M. Beamon). Oil is becoming scarce and oil prices are increasing day by day. So it put pressure on supply chain to produce goods and services at a reasonable rate (Benita M. Beamon). There is limited amount of oil in the world and we are closer to reach the peak of oil production (Hartmann, 2004). Increase in energy consumption also increases the demand for renewable and non-renewable energy resources (Benita M. Beamon). So the supply chain has to initiate plans that focus on the use of renewable energy resources (Benita M. Beamon). There are alternative ways to produce energy but each has its pros and cons and when these demerits are removed it will enable the supply chain to improve efficiency and reduce cost (Benita M. Beamon). Population is increasing continuously and it also posses a challenge for supply chain to work efficiently (Benita M. Beamon). According to the current UN prediction in 2050 the world population will be 9.2 billion. Increase in population when combined with limited resources can cause problems for people and it leads to a view that some populations and firms within population will remain and other disappear and for the survival, firms should control the usuage of resources (Hannan and Freeman 1988). Where supply chain faces challenges, a modern and future supply chain has also able to have an access to technology especially communication technology enabling the supply chain to communicate across supply chain parties and end users (Benita M. Beamon). Global supply chain models have been developed due to the changing environment in which modern and future supply chain will work (Marry J. Meixell, Vidyaranya B. Gargeya). Firms are now trying to outsource their products and services to both domestic and global locations (Marry J. Meixell, Vidyaranya B. Gargeya). The main reason behind outsourcing is the availability of cheap and skilled labor i.e. human resources (Benita M. Beamon). Natural resources are decreasing and their cost is increasing where as on the other hand human resources are increasing and it puts pressure on modern and future supply chain to keep the cost of goods and services reasonable and to do so they have to reduce their labor cost because supply chain managers consider labor cost the primary cost factor (Benita M. Beamon). Manufacturers today focus to set up their production units in foreign countries because of various reasons e.g. low cost labor, benefit from tariff and trade concessions, capital subsidies and reduced logistics cost (Ferdows, 1997). Therefore some firms view outsourcing as strategic initiative (Benita M. Beamon). Due to the creation of supply web firms are now able to track item movement, analyze customers demand patterns and at the same time increasing the opportunity of vertical and horizontal collaboration and communication (Benita M. Beamon). Integration facilitates in coordinating decisions across the supply chain and firms are engaging in Vendor Managed Inventory (VMI) and Collaborative Planning, Forecasting, and Replenishment (CPFR) (Sherman, 1998; Lewis, 1999). These soft wares provide firms with an opportunity to share sales and promotion information (Sherman, 1998; Lewis, 1999). Advances in communication technology, outsourcing and globalization when combined give an opportunity to supply chain to be more connected than ever before (Benita M. Beamon). Internet facilitates the communication process and enables the supply chain to get information about different matters across the globe (Jinesh Jain, G.S. Dangayach, Soumya Banerhjee). Due to the emergence of internet, coordination between different activities has increased like purchasing, material management, distribution, and therefore enable the supply chain to work better than before (Jinesh Jain, G.S. Dangayach, Soumya Banerhjee). E commerce is an emerging field and is beneficial in reducing cost, customer orientation, and changes in distribution system and shipment tracking (Jinesh Jain, G.S. Dangayach, Soumya Banerhjee). Development in information technology, improvement in e commerce and WWW based supply chain management application will surely change the way in which modern and future supply chain will work (Jinesh Jain, G.S. Dangayach, Soumya Banerhjee). Research Design and Methodology Interview technique is used as a data collection method. The objective of study is to get in depth knowledge about the various challenges (environment protection, energy availability and increase in population) that the Boss Moulded Furniture faces and how these challenges affect their current and future supply chain. Moreover, it is also examined that the opportunities (communication technology, integration and outsourcing) that Boss has and how it use its supply chain to take advantage from them. The research philosophy of our study is positivism. Positivist believes that the behavior of people can be explained in terms of cause and effect (May 1997). Deductive approach is used for this research. Time horizon of study is cross sectional and data was collected data at one point of time. Interviewing with Mr Abdul Rehman, the managing director of the company, most of the problems and challenges they are facing are identified. Questions asked were mostly revolved around the influences of following to effective and efficient Supply Chains: 1. Procurement of raw- material 2. Shortage of energy in Pakistan 3. Ever increasing fossil fuels prices 4. Drastic Population Increase 5. No Cooperation of Pakistan Government 6. Technological needs and challenges of advancement in Pakistan Significant Challenges which are faced by Boss Moulded Furniture in its Supply chains are identified. Relationship with suppliers and challenges in the procurement of raw materials are identified. Boss being a Pakistani organization are also facing some generic problems which are faced by every other organization of Pakistan, effect of which is significant on Supply Chains and is identified. Findings After visiting the Boss and interviewing with Mr Abdul Rehman who is the managing director of the company we come to know that the supply chain management is playing a very important role in the smooth working of the organization. The most important challenges faced in the supply chain of the organization are 1) The procurement of raw- material. The suppliers of the raw materials create artificial shortage to get higher margins. The price of raw materials (in this case) is derived from the oil and petroleum prices which are fluctuating quite rapidly. This rapid increase in the oil and petroleum prices leads to high raw material cost. 2) Shortage of energy is another major challenge which the supply chain of the company is facing. Due to the unprecedented energy shortfall in Pakistan the industrial sector is suffering in such a way that they are not being able to fulfill their orders which creates a negative image in the foreign market. 3) The increase in oil prices has always been a challenge for the supply chain which has resulted in the high freight charges that the company has to bear which increase the overall expense of the company leaving fewer margins for the organization. 4) With the increase in population the demand for the goods will also increase which will become a challenge for the supply chains of the company as they have to meet the increasing demand while remaining in the available resources. 5) Environmental effects also play an important role in pressurizing the supply chain of the company. Natural disasters like floods can cause destruction of the transportation infrastructure which ultimately affects the supply of the products across the country. There are different environmental legislations which are imposed by the government but unfortunately the industrial sector of Pakistan is not following these legislations. The biggest reason for this is the corruption in the Government sector of Pakistan. From technological view point there is no advanced technology according to the international standards e.g. communication technology. As we mentioned that Pakistan is a developing country and there is a need to make improvements in technology as the technology is advancing day by day and there are more opportunities available to update the machinery and to make the supply chains electronically function performing which leads the company to have real time access over information and to track the customer demand patterns. Conclusion Effective and Efficient Supply Chain Management plays a crucial role in success of any business venture. But as time goes on, resources known as inputs to supply chains are becoming scarce and on the other hand population is drastically ever increasing which immensely call for alternative ways to tackle with this problem. Since the problem is of generic nature and will be affecting all the organizations of the whole world but those who are trying to find new ways to minimize the adverse effects of this scenario will most probably be the only successful survivors in the future who might be enjoying the whole situation as winners. In case of Boss Moulded Furniture, they are facing the problems like shortfalls of energy in Pakistan and usage of expensive diesel into their productions which ultimately increases per unit cost of production of their goods. Artificial shortage which is often created by their suppliers to get extra paid is becoming a trend in Pakistan and on the other had it is also becoming a major problem for the organization. Since Boss Moulded Furniture uses diesel in its production, the overall worldwide increments in prices of fossil fuels very negatively influences the cost of manufacturing the goods. And this increment sometimes is not predicted at all because oil prices are ever increasing without any prior notification. Environmental effects in Pakistan also sometimes affect adversely. There is no infrastructure development, Roads are in bad conditions, Transportation of Raw Materials in turn is slowed down and which in turn slow down production. Government of Pakistan so far is not playing any notable part neither it is cooperating with the organizations currently nor it seems they have anything planned or researched for sustainability of current supply chains and even worse the future supply chains of overall organizations of Pakistan. On the other hand, Boss Moulded Furniture as an organization has nothing planned for future and all the challenges it will be facing in its supply chains in near future due to the scarcity of resources worldwide. References BiE, (1992). Benita M. Beamon (2008). Churchill (1979). Clark et al. (1984). Craig R.carter and Dale S.Rogers. (2008). A framework of sustainable supply chain management: moving toward new theory Drumwright, (1994). Dyllick and Hockerts. Elkington (1998, 2004). European Commission, (2008). Facanha, C., and Horvath, A; Tsoulfas, G. T., and Psppis, C. P. (2006). Ferdows, (1997). Fink, (1998). Hannan and Freeman (1988). Hanson et al., (2004); Montabon et al., (2000); Tibor and Feldman, (1996). Harland (1996), p. 64. Hartmann, (2004). Hines (2004), p76. Hines, T. (2004). Hunkeler et al., (2003). Intergovernmental Panel on Climate Change, (2007). Jinesh Jain, G.S. Dangayach, Soumya Banerhjee). (2010) Supply Chain Management: Literature Review and Some Issues. 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