Hau L. Lee

<article-ideainbrief class="article-ideainbrief">
 <h4 class="ideainbrief-title">The Idea in Brief</h4>
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  <p>Firms often take a piecemeal approach to sustainability. They demand that suppliers replace materials with greener ones, for instance, and they tweak their own operations with recycling, energy-efficient equipment, and the like.</p>
  <p>Although these changes often seem worthwhile individually, they may in the grand scheme generate unintended consequences, such as higher financial, social, or environmental costs.</p>
  <p>Companies should pursue broader structural change instead, as the shirt manufacturer Esquel, the steelmaker Posco, and others have done. This means identifying opportunities that span the supply chain, reinventing manufacturing processes, and even linking up with competitors to tackle challenges of scale. The result can be a greener supply chain that requires less capital, has much lower operating costs, and provides a competitive advantage.</p>
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</article-ideainbrief><p>Hong Kong–based Esquel, one of the world’s leading producers of premium cotton shirts, faced a quandary in the early 2000s. Apparel and retail customers such as Nike and Marks &amp; Spencer had begun asking the company about its environmental and social performance. Its leaders anticipated scrutiny from other customers as well, since more of them were demanding that a greater portion of the cotton in their shirts be grown organically. But the crop required a lot of water and pesticides, especially in poor and rapidly developing countries, where Esquel’s cotton was grown and processed.</p>

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<p><span class="reprint">Reprint: R1010C</span></p>
<p>With the best of intentions, companies up and down supply chains experiment with isolated efforts to improve sustainability&#8212;only to encounter a long string of unanticipated consequences, often in the form of financial, social, or environmental costs. </p>
<p>That&#8217;s partly because most firms respond in a piecemeal way to pressure from customers, shareholders, boards, employees, governments, and NGOs. For instance, they demand that suppliers change their materials to environmentally friendly ones or move manufacturing closer to end markets to reduce emissions from transportation. And they tweak their own operations by using compact fluorescent lamps, recycling more of their materials, and so on.</p>
<p>Lee&#8217;s research shows that it&#8217;s much more effective to take a holistic approach to sustainability and make broader structural changes, as shirt manufacturer Esquel, steelmaker Posco, and others have done. Such changes can include reinventing processes, developing new kinds of relationships with business partners, and even collaborating with competitors to achieve scale.</p>
<p>Stakeholders increasingly hold corporations accountable for supply chain partners&#8217; actions, as we&#8217;ve learned from widely publicized recalls of tainted pet food and lead-laden toys. Clearly, sustainability is a competitive concern. The core managers overseeing your supply chain must own and tackle it as aggressively as they do cost, quality, speed, and dependability.</p>

Don’t Tweak Your Supply Chain—Rethink It End to End

Don&rsquo;t Tweak Your Supply Chain&mdash;Rethink It End to End

Reprint: R1010C With the best of intentions, companies up and down supply chains experiment with isolated efforts to improve sustainability—only to encounter a long string of unanticipated consequences, often in the form of financial, social, or environmental costs. That’s partly because most firms respond in a piecemeal way to pressure from customers, shareholders, boards, employees, governments, and NGOs. For instance, they demand that suppliers change their materials to environmentally friendly ones or move manufacturing closer to end markets to reduce emissions from transportation. And they tweak their own operations by using compact fluorescent lamps, recycling more of their materials, and so on. Lee’s research shows that it’s much more effective to take a holistic approach to sustainability and make broader structural changes, as shirt manufacturer Esquel, steelmaker Posco, and others have done. Such changes can include reinventing processes, developing new kinds of relationships with business partners, and even collaborating with competitors to achieve scale. Stakeholders increasingly hold corporations accountable for supply chain partners’ actions, as we’ve learned from widely publicized recalls of tainted pet food and lead-laden toys. Clearly, sustainability is a competitive concern. The core managers overseeing your supply chain must own and tackle it as aggressively as they do cost, quality, speed, and dependability.

Don’t Tweak Your Supply Chain—Rethink It End to End

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