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Environmental and Safety Issues in Supply Chain


Fadhili Kiyao
School of Management Studies
CUSAT, Kochi - 22

Abstract: Supply Chain like an open system depends mainly on the

environment. It can affect the environment or it can be affected by the
environment. In today's global and national economies, businesses
increasingly rely not only on its internal resources but also on external
resources by outsourcing of parts of their activities and processes. In order to
maintain successful performance and ensuring organization reputation is
maintained, ethical, health and safety, social and environmental standards
have become the key targets. The performances of Supply Management
Systems of organizations are not only evaluated based on their outputs but
also how they are able to address environment management, health and
risks management and their social responsibility. The main reason for
considering environmental and safety aspects on Supply and chain
Management is that, Consumers and regulators are increasingly concerned
with the effects manufacturing may have on the health and safety of workers
as well as the detrimental environmental impacts involved in the process
including questionable working conditions, product toxicity, sustainability of
packaging goods, waste management, and greenhouse gas emissions. This
report addresses the environmental and safety issues in supply chain
Key words: Environmental, Supply chain, Safety issues, supply chain risks,
supply chain environments, Supply Chain Management

Environmental Health and Safety (EHS) covers a wide range of environment, health and
safety management issues. EHS issues are major challenges that face companies in
today's business world. A major concern is the protection of employee's health in the
workplace, and today that is addressed with an increasing amount of federal and local
legislation. In addition companies are becoming more concerned with the environment in
their communities and where they do business. As well as local concerns, companies are
more aware of their responsibility of the health and safety of workers at vendors and
facilities along their complex supply chains [1].
Consumers and regulators are increasingly concerned with the effects manufacturing may
have on the health and safety of workers as well as the detrimental environmental impacts
involved in the process including questionable working conditions, product toxicity, and
sustainability of packaging goods, waste management, and greenhouse gas emissions.
The demand for products created from more sustainable materials and processes, along
with improved working conditions is growing. Organizations that are indifferent or
unconscious to environmental, health and safety (EHS) issues are quickly vilified in the
news and on social media, harming their brand and reputation. Because of this, assessing
environmental, health and safety risks are critical to your supply chain audit program.
Sustainability and environmental stewardship coupled with safe working conditions are all
necessary for maintaining and improving the bottom line. Companies that manage their
operational inputs, such as energy, water, and materials can reduce costs while also
reducing their environmental footprint and mitigating the impact on worker health within
their supply chains [2]. Successful companies use supply chains not only to reduce cost
and complement the product but also to nurture long-term valued-added relationships [3].


The linkage between economic and environmental issues in an inter-organizational context
receives significant attention from scholars and industrial practice. Emerging concepts like
Green Supply Chain Management (Green SCM), extending supply chain management
with ecological aspects like resource optimization and recycling, might be the first step
towards an ecologically responsible economy [4].
For years the producers responsibilities were finished when the product was on the
shelves in the shop or when the guarantee period was over. Supply chain (SC)
management was perceived as the planning and control of the flow of goods from the
sourcing base to the final consumers, accompanied with the necessary information and
money for the independent entities along that chain. Traditional supply chain management
focuses on low cost, high quality, reduced lead time and high service level. The
introduction of the Extended Producer Responsibility in a number of countries and
industries has changed the rules of the market behaviors. Nowadays manufacturers need
to take into consideration the post-consumption phase of their products, the so called endof-life phase (EOL): the environmental burdens incurred during different stages of the
product transfer from manufacturer to final user and then to the disposal site. The interest
in environmentally friendly supply chain management has risen considerably in recent
years. This can be seen by the number of initiatives taken by companies. Brand-owners
are very often perceived to be responsible for environmental problems in the entire supply
chain from to the sourcing base to end-of-life recovery issues. It is expected that the
manufacturers should reduce sources of waste and pollution throughout their entire SCs,
across multiple entities, upstream (suppliers) and downstream (distributors and
consumers). An environmentally friendly supply chain connects with partners who should

make managerial decisions with regard to environmental consequences. It enhances

competitiveness and creates better customer service, resilience and increased profitability.
Companies are forced to adopt ecologically responsive practices to meet legislative
requirements but they can also benefit from green behavior. For example, building the
technological and organizational capacity to collect, recycle and reuse waste or returns
stream can enhance the availability of materials as well as clear up the supply channels.
Companies are forced to adopt ecologically responsive practices to meet legislative
requirements but they can also benefit from green behavior. For example, building the
technological and organizational capacity to collect, recycle and reuse waste or returns
stream can enhance the availability of materials as well as clear up the supply channels.
Green SCM can reduce the ecological impact of industrial activity without sacrificing
quality, cost, reliability, performance or energy utilization efficiency, meeting environmental
regulations to not only minimize ecological damage but also to ensure overall economic
profit. Environmentally friendly supply chain management requires a continuous course of
actions in order to decrease the environmental impact of products and technology used by
a manufacturer and its pre-chain (supplies) and post-chain (collection, inspection and
reprocessing activities) [5].
2.1 Obstacles to implementation of environmentally friendly supply chain
Trade globalization, off shoring of manufacturing operations to low-cost countries, just-intime deliveries; all these stimulate growth of the international freight of goods between
continents and countries. Frequent and prompt deliveries require more means of transport,
whereas the absence of co-operation among companies and processes coordination result
in increased congestion on main roads. Additionally, aviation and maritime would
contribute an increasing share of emissions. Environmentally friendly transport operations
within the supply chain require an implementation of resource efficient policies, a reduction
of energy consumption, an introduction of cleaner energy and a better utilization of the
infrastructure. There are still obstacles on the way to the creation of an efficient
environmentally friendly transport system within the supply chain [4]. The central
obstructions are presented in Figure 1.

Fig. 1 Obstacles to implementation of environmentally friendly supply chain Management

The important role to play in the investments process should have not only regional and
national governances but also multinational and multimodal logistics operators. (Figure 2)

Fig. 2 Proposed environmentally friendly transport operations within Supply Chain


In today's global and national economies, businesses increasingly rely on the outsourcing
of parts of their activities and processes. Companies thus function and compete more and
more on a supply - chain level, in specific networks with their suppliers and service
providers. This outsourcing trend and growing importance of supply chains has its
implications for the working conditions and health and safety of workers of supplier and
contracting companies [6]. Supplier safety criteria should stem first from global safety
standards, as well as company policies and codes that protect its direct workforce.
Supplier safety should go beyond bare minimum requirements, however, and reference
International Labour Organization standards, as well as the United Nations Universal
Declaration of Human Rights. Beyond those standards, companies should enlist suppliers
committed to ensuring that their own vendorswhich companies have less direct influence
overare adhering to the same practices and policies. Suppliers can achieve this through
their own monitoring and training programs. Pre-screening and qualifying suppliers on
criteria like employee safety and health, reinforces the expectation that they conform to
established supplier sustainability standards [7].
Poor quality products, an unsafe work environment, or failure to comply with regulations
ranging from product safety to social responsibility, can cause business disruption,
financial loss, costly lawsuits, and long-lasting damage to the brand and corporate image
of organizations that are dependent upon supply chain vendor performance. In the
extreme, a brand, or even a company's reputation, can be damaged irreparably. The
crisis-catalyst may originate during any step in the supply chain process, from design to
raw materials, to production, or transportation. Most often the issue centers on
substandard materials or how well components or finished goods were designed and
produced. Recently, company reputations have been damaged by substandard social
responsibility practices of suppliers, even when the product quality was acceptable [8].


In order to ensure that environmental and Safety issues are maintained, companies have
taken various measures. The following are some of the companies that have addressed
their concerns.

4.1 Sony
Sony is committed to conducting its operations in a socially and environmentally
responsible manner and to sourcing from suppliers that share its values. Accordingly, in
order to enable positive change in its supply chain, Sony works closely with its suppliers
and subcontractors to address human rights, labor, health and safety, and environmental
protection issues related to the procurement of raw materials and components [9].

Fig. 3 Basic structure of the Supply Chain

a) Compliance with "Sony Group Code of Conduct" in Business
In May 2003, Sony adopted the Sony Group Code of Conduct, which stipulates the basic
standards to be maintained by all directors, officers and employees of the Sony Group in
order to emphasize and further strengthen corporate governance, business ethics and
compliance systems throughout the Sony Group. The code includes basic policies
concerning dealings with suppliers, categorized under such headings as "Fair
Procurement" and "Gifts and Entertainment," with which all personnel in the Sony Group
are required to comply [9].
b) Managing Chemical Substances in Procurement
Given the global nature of its suppliers, Sony has led the industry by introducing its own
global standards for management of certain chemical substances contained in products or
parts, called Management Regulations for Environment-related Substances to be
Controlled which are Included in Parts and Materials (SS-00259). To implement this
standard, Sony has established the Green Partner Environmental Quality Approval
Program for supplier qualification. Only suppliers that comply with Sony's standards for
management of chemical substances qualify for certification as "Green Partners." By
procuring parts and products only from certified suppliers, Sony realizes consistent
chemical substance management globally [9].
c) Participation in the Electronic Industry Citizenship Coalition (EICC)
Supply chains overlap considerably in the electronics industry, with multiple manufacturers
of finished products sharing the same subcontractors and parts suppliers. Accordingly,
there are fears that the introduction of independent, company-specific standards for
socially responsible management will cause confusion and constitute a significant burden
on companies in the supply chain. With the aim of improving processes in the electronics
industry supply chain, Sony, as one of the member companies, participated in the
establishment of the Electronic Industry Citizenship Coalition (EICC) in 2004. The EICC
formulated a basic code of conduct based on industry best practices and is working to
develop the tools, Web-based systems, and skills development programs for suppliers,
needed to create a framework for ensuring the code is upheld. As of March 2015, the
EICC consisted of over 100 participating companies from Europe, the Americas and Asia,
and members include manufacturers and OEM companies. In cooperation with the Global

e-Sustainability Initiative (GeSI) Supply Chain Working Group, consisting mainly of the
European telecoms sector and other electronics industry organizations, the EICC is
currently promoting social responsibility across the global supply chain [9].

Fig. 4 EICC Framework

4.2 Adidas Group
It was concern for their working conditions and well-being that led us to establish our
"Workplace Standards", the supply chain code of conduct which also covers workers
health and safety and provisions to ensure environmentally sound factory operations. As
our supply chain is large, multi-tiered and varied, we have a detailed and systematic
approach to managing the relationships with our suppliers. To enforce compliance with our
Standards we have a multi-level monitoring and enforcement process in place, including
the use of an innovative rating system for the assessment of our suppliers. The rating
results are shared with our Sourcing teams which then decide whether and to which extent
we continue the business relationship with a specific supplier [10].
a) Checking the rules are followed
In order to check if suppliers comply with our Workplace Standards, the Adidas Group
SEA team and commissioned third-party experts visit and audit the factories we work with.
In addition, independent auditors verify compliance and evaluate our programmatic
activities to implement our supply chain code of conduct. To facilitate workplace
improvements in factories we support our suppliers with training and capacity-building
initiatives, either conducted by our own staff or by other stakeholders and third-party
service providers [10].
b) Selecting new suppliers
In close cooperation with our business function Global Operations and other Sourcing
entities, all potential new suppliers are assessed by the adidas Groups SEA team. The

goal is to ensure that new suppliers meet our Standards. Our Sourcing teams can only
place orders with a new supplier if the SEA team has given approval. If factories do not
meet our standards, we reject them, but if the issues are ones that can be fixed we give
them a rigorous timeline to correct the issues, and go back and check again to see if they
have improved. If they have improved, they are approved as a supplier producing for the
Adidas Group. By setting a high entry bar for potential and new suppliers, we avoid getting
into business relationships with suppliers that have serious workplace issues and
insufficient means of improving unacceptable conditions [10].
c) Taking action over poor performance
When we check factories and find that the factory management is not treating their
workers fairly or if they don't have a safe and healthy workplace or are not meeting
environmental requirements, we take action. We issue warning letters asking that the
problems we have found be fixed. If the problems are not fixed after the first letter, we
send a second letter to stop orders, and if we have to send a third letter, we ask our
Sourcing team to stop working with the factory. If we find very serious issues at a factory,
such as life-threatening safety issues, we may immediately end our business relationship
and write to the local government and ask for their help to fix the issues that we have
found. This whole process is called enforcement [10].
4.3 Vodafone
"We work with our suppliers to help them meet our ethical, health and safety, social and
environmental standards and improve their performance through monitoring, assessments
and improvement activities. We spend billions of euros each year with suppliers on
network and IT equipment and services that enable us to operate our network, and on
products such as mobile phones, SIM cards and other devices that we sell to our
customers. We demand high ethical, health and safety, social and environmental
standards of all our suppliers. These are set out in our Code of Ethical Purchasing and are
integrated right from the start of our engagement with suppliers, in the initial qualification
process. We conduct regular site assessments to ensure compliance and if suppliers
consistently fail to meet our standards, we will not work with them. Sustainability is
embedded in our supplier management programme and we work directly with our
suppliers to help improve their sustainability performance. To target improvements further
down the supply chain, we require our suppliers to demand similar standards of their own
suppliers and we check that they do so. We also participate in industry initiatives to raise
standards across the sector", Vodafone says [11].
Vodafone addresses it priority areas to include the following:
Safety of contractors working on our network infrastructure in emerging markets
(see Health and safety)

Social and environmental standards in suppliers operations and factories

Mining of minerals in conflict regions


Various governments have introduced measures and rules to ensure that Environmental
and Safety Issues are addressed and maintained in Supply Chain Management. The
following are few examples which show how governments are concerned with
Environment and Safety in Supply Chain Management.
5.1 Chines Government
Companies doing business in China have had difficulty maintaining quality throughout the
supply chain, as illustrated by recent food and product safety scandals. For example, in
last years melamine-tainted milk scandal, inherent problems in manufacturing processes

and supply chains led to a breakdown of quality assurance. The scandal severely
damaged Chinas dairy industry; it took more than six months from the time the scandal
broke for dairy-product sales to recover 70-75 percent of their pre-scandal value,
according to one Beijing dairy analyst. To salvage consumer confidence, companies must
place new importance on quality assurance. And to achieve good quality control,
managers must build more accountable, transparent, and ethically managed supply
chains. Companies investing in China should be aware of several potential pitfalls when
trying to build and manage supply chains ethically in China. The PRC Administration of
Quality, Supervision, Inspection, and Quarantine (AQSIQ)Chinas primary quality
watchdoglaunched a food and toy recall system in August 2007. Under the system, if a
food manufacturer becomes aware of a defective or unsafe food product, it must halt
production and sales, notify vendors and customers, and report problems to AQSIQ and
other quality-control authorities. If the manufacturer does not voluntarily recall its product,
the government will order a recall [12].
The pharmaceutical industry is faced with the challenge of surviving and succeeding in an
environment that has become more complicated and uncertain, and one that is
characterized by rapid developments in science and technology, and organizational
change. The pharmaceutical industry faces relentless change and fluctuating demand
which creates immense challenges in anticipating best sellers and predicting volume. Like
the high-technology industry, pharmaceutical industry also suffers from many supply chain
ailments including raw material shortages, short product life, quality of the product, and
seasonal demand. Though India is growing with Information technology, Communication
systems, infrastructure, the industry is facing various supply chain risk and uncertainty and
hence Supply Chain Risk Management (SCRM) has become a vital part of this industry
5.2 America
Safety in American warehouses is regulated by a series of standards from the
Occupational Safety and Health Administration, commonly known as OHSA. The US
Congress created OSHA under the Occupational Safety and Health Act, which was signed
into law by President Nixon on December 29, 1970. The main focus of OSHA is to prevent
work-related injuries, illnesses, and deaths. Since the administration began, occupational
deaths have been cut by 62 percent and injuries have declined by 42 percent. At a federal
level OHSA inspects about 40,000 facilities per year, while the 26 state operated OHSA
organizations inspect another 60,000. OHSA can issue citations which result in financial
penalties up to $7,000 for non-serious violations, but can rise to $70,000 for repeat
offenders [14].

Environmental and safety issues are diversified in supply chain of all sectors. Supply
chain risk has become a major area of concern for companies in the agribusiness sector,
as well as for their customers, financiers, and external stakeholders. The threats that
environmental and social (E&S) risks pose to brand values and product quality are making
those risks more material, often reaching thresholds of major importance to the core
business of agriculture and food companies [15]. Within the supply chain, adulteration is
the key food safety issue. Adulterated food is food that is generally impure, unsafe or
unwholesome. Adulteration can be unintentional or intentional. This includes biological,
chemical or physical hazards. Intentional adulteration can be for economic or other
reasons, such as food defense. Additionally, other issues such as consistency, quality,
availability and price are of concern to all those in a company who are involved with the
supply chain [16]. Australia's dairy industry focuses on Promoting the food safety and

integrity of the Australian dairy industry food production system to domestic and
international markets, key customers, government regulators, industry stakeholders and
the general public; Monitoring the effectiveness of the Australian food safety and integrity
systems through the Australian Milk Residue Analysis (AMRA) Survey; Anticipating
emerging issues that may impact on the food safety and integrity of the whole chain
Australian dairy production system and developing and implementing management
programs to address these; and Aligning farm milk and meat food safety systems, as well
as other regulatory requirements, and reducing compliance costs [17]. In recent years, the
Air Force and, particularly, its suppliers have pursued various means to improve
performance, reduce costs, and otherwise adopt best industry practices. Such practices
include outsourcing, global sourcing, supply-base rationalization, single sourcing, just-intime deliveries, and lean inventories. While these practices offer many benefits in
efficiency and effectiveness, they can also make supply chains more brittle and increase
risks of supply disruptions [18].
Environmental supply chain management consists of the purchasing function's
involvement in activities that include reduction, recycling, reuse and the substitution of
materials. Despite the potentially important role that the purchasing function can play in a
firm's environmental activities, little research has been performed to date that examines
the factors that affect environmental supply chain management [19]. Environmental risks
are everywhere in the supply chain from discovery of improper hazardous waste
management to factory electrical fires which can impact a companys reputation, disrupt
production and affect overall performance of the business. Companies can implement a
variety of strategies to manage supply chain environmental risks utilizing operational and
strategic levers. To help, UL has outlined the following four easy steps to managing
environmental risks in the supply chain [20]:
Define what environment means to your company
Assess the environmental risks in your supply chain
Implement a robust supplier engagement program
Align corporate and supply chain environmental risk management goals






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