CHAPTER 7

Standards in Support of Sustainable Supply Chain Management

Living in A World of Standards

• With over 23,000 Global Reporting Initiative (GRI) reports recorded in their database, sustainability reporting continues to grow. The GRI produces a comprehensive Sustainability Reporting Framework that is widely used around the world to enable greater organizational transparency. The framework, including the reporting guidelines, sets out the principles and indicators organizations can use to measure and report their material financial, environmental, and social performance. GRI is committed to continuously improving the guidelines, which are freely available to the public. www.globalreporting.org/
• The U.S. Securities and Exchange Commission (SEC) is drafting a new rule requiring companies to assess and report on their sourcing and chain of custody of certain “conflict minerals” as mandated by the Dodd-Frank Wall Street Reform and Consumer Protection Act.¹ These minerals—tin, tungsten, and gold—are typically mined illegally and in breach of human rights in the Democratic Republic of Congo and surrounding countries, and their sales are used to fund ongoing civil war. This is the SEC’s latest venture into reporting rules on social and environmental issues; earlier it adopted guidance on reporting climate change impacts and board diversity.
• Underwriters Laboratories, well known for establishing product safety standards and certification processes, issued a sustainability standard for manufacturing organizations, a certifiable standard framed around five topics: governance for sustainability, environment, workforce, customers and suppliers, and community engagement and human rights.²
• Clorox launched its Green Works line in 2008. This line consists of all-purpose cleaners, cleaning wipes, glass cleaners, toilet bowl cleaners, dishwashing liquids, and laundry detergents. With over 5,000 new products being introduced every year that claimed to be green or natural, the challenge facing Clorox was that of how to convince the marketplace that their products were truly green. To overcome this challenge, Clorox partnered first with the Sierra Club to review the formula and to earn third-party certification. Next, it worked through the EPA’s Design for the Environment (DfE) program in 2009. Finally, in 2010, it obtained the Natural Products Association Natural Home Care standard. The reason that Clorox focused on these standards was to secure trust from its customer base.

In all of these examples, we see sustainability being successfully pursued by companies and implications for supply chains. Yet, what we also see are some of the challenges encountered as these firms pursue sustainability.

For some, it was developing a system for sustainability; for others it involves securing the trust of target customers and in demonstrating a commitment to sustainability. In each of these instances, the firms involved turned to sustainability standards for the solution. Standards, while important, are only one of the many tools that are available to managers who want to make their supply chains sustainable.

Objectives

1. Review the sources and types of standards.
2. Highlight prominent standards supporting sustainability initiatives.
3. Understand how to apply these standards to enable the integration of sustainability into organizations and supply chains.

Standards—Providing Guidance and Structure

Simply put, a standard is a set of rules, guidelines, or characteristics for activities or systems. Typically set down in a formal document and established by a committee through consensus, the standard often provides metrics for assessing performance and offers a means for certification (formal recognition that the organization has satisfied certain minimum sets of requirements prescribed by the standard). In the case of certification, the process of certification is often done in one of two ways: (a) through self-reporting by the firm; and (b) through a formal certification process carried out by an impartial third party. It goes without saying, the latter is often viewed as being more credible in the marketplace.

Standards are a common feature in today’s business environment. In the United States today, there are over 100,000 standards at work. These standards come in many forms:

• Product-based standards (e.g., qualified products must deliver the features and performance demanded by consumers, in addition to increased energy efficiency).
• Performance-based standards (e.g., level of GHG emissions, grown using Fair Trade practices).
• Management system standards (e.g., ISO 14001 and the environmental management system).
• Personnel certification standards (e.g., a person who understands production and inventory management procedures because they are Certified in Production and Inventory Management (CPIM)—a professional certification standard developed and administered by
  the Association for Operations Management [APICS], the Association for Operations Management).
• Construction standards for buildings (e.g., Leadership in Energy and Environmental Design or LEED, and Living Buildings from the International Living Future Institute).

Standards can come from several different sources, the most important of which are the following:

• Governmental agencies (e.g., the United States Department of Agriculture with its Organic Standards Program, and Environmental Protection Agency’s Energy Star Program).
• Nongovernmental organizations (e.g., ISO, headquartered in Geneva, Switzerland, or the GRI).
• Professional societies (e.g., APICS with its CPIM certification program).
• Consultants/Consulting organizations (e.g., the cradle-to-cradle design standard developed by the McDonough Braungart Design Chemistry [MBDC] consultants).
• Individual Organizations/Firms. In some cases, such as with Abhold International’s Utz Certified or Starbuck’s and its Coffee and Farmer Equity (C.A.F.E.) program or Nespresso’s AAA ecolaboration program, an individual company with sufficient market presence or power can successfully introduce a standard.

Standards also have different levels of “intensity”:

• Mandatory: You must conform to the standard or you are not allowed to sell your product or compete. Failure to be certified can also result in being fined or otherwise punished.
• Quasimandatory: While certification is not legally required, it is so strongly encouraged that it is viewed as almost being mandatory. A good example is that of ISO 9000 (the quality process standard). Increasingly, to compete in many industries such as the auto or aerospace, or markets, you must first be ISO 9000 certified.
• Voluntary: This is the least intense of the standards. Certification is requested but not necessary. An example of this type of standard is the C2C design standard. Often, these standards, while driven by important goals and considerations, are voluntary because they have not achieved a sufficiently high level of acceptance/use to become viewed as quasimandatory. Within some industries, for example, office furniture, Steelcase has been able to differentiate its products with claims of having the most C2C certified products. This is particularly important when competing against Herman Miller—a company with a history of environmentally responsible design and awards.

Types of Standards

In general, standards can derive from either an absolute goal or from a relative outcome. An absolute standard is based on some performance goal that is independent of the process being studied, or a process that is theoretically capable of being a “best practice.” For example, the EPA mandates that certain manufacturing processes are only allowed a maximum number of pollution emissions per day. This mandate forms an absolute standard against which performance is compared. An example of the second type of absolute standard is given by a time and motion study, which calculates the absolute minimum time required to perform a given set of tasks.

Relative standards derive from reference points given by the past performance of the process, or given by the performance of other similar processes. In general, there are three major types of relative standards: (a) internal standards, (b) group standards, and (c) benchmarks.

An internal relative standard is defined by the past performance of the person or process that is being measured. The current performance is compared with the past performance and the difference is noted. For example, a manufacturing plant’s GHG emissions (a measure of waste) for a given month could be compared with its emission for the same month a year earlier. Such a standard is easy to implement; it is easy to understand; its goals and intentions are unambiguous. Yet, there are potential problems with this approach. First, it is often difficult to determine if differences in performance over time are due to changes within the process, or due to external factors outside the control of managers. For example, if our plant produced fewer emissions this year than it did last year at the same time, is it because we are more efficient, or are there other causes such as a reduced market share?

A group relative standard is based on the performance of other groups or processes that perform similar tasks as the ones we are interested in measuring. For example, we might compare energy conservation across different manufacturing plants within our plant network, or within our industry. We can also assess our supply base on dimensions of quality, environmental management systems, or human rights infractions. One use of this type of standard is to identify the best performer and to compare everyone else to this best performer. This approach deals with the limitations of internal relative standards, yet it has two shortcomings of its own. The first is the possibility that even the best performer in the comparison group is doing a poor job. The second and more troubling concern is how to determine what constitutes a comparable group. Few processes, people, or groups are completely comparable—differences exist. It is up to you, and/or the manager of a metric to attempt to identify and maintain a suitable group of comparable processes for comparison, recognizing that the group membership may change over time.

The ultimate form of relative standard is the benchmark, which is defined as a standard of performance representing the best in a given class of performers. In business, a benchmark is a widely accepted standard that denotes above average to “world-class” performance. Generally, there are three levels of benchmarks—best in firm (BIF), best in industry (BII), and best in class (BIC). The expected level of performance increases as we move from BIF to BIC benchmarks.

Establishing and using benchmarks can be costly. Consequently, benchmarking is usually reserved for strategically important processes. To appreciate the importance of benchmarking, consider the following story. A computer manufacturer operates its own division for supporting field service (repairs to computers). Inventory accuracy is important in this activity in order to ensure that needed parts are in stock to support field service personnel. After several years of hard work, this manufacturer had improved its inventory accuracy from about 75 percent to about 95 percent. Everyone in the division was proud, and others in the company were impressed, until at a conference one of the division managers learned that typical inventory accuracy levels in the pharmaceutical industry were 99 percent. Soon, the division managers sent a team to visit a drug company where they found that inventory accuracy was actually 99.99 percent. More important, the team learned many valuable lessons regarding how the drug company had achieved this high level of performance.

From this example, we can see that a benchmark is a standard of performance that represents the best or highest levels. How we define the “best” is a result of how we define the boundaries of the context in which we will search for benchmarks: within the firm, within the industry, or within all “comparable” operations. A question to ask is, “can we get to zero?”, i.e., zero waste, zero errors, zero emissions and backcast from this to look at what is feasible as BIF or BIC.

As another example of BIC benchmarking, consider that when a medical products manufacturer wanted to benchmark the integration of sustainability into the new product development process, they chose DuPont, a chemical company. Why a science-based chemical company? DuPont had created a sustainability index³ that assesses products over 11 different criteria, these include: climate change (measured in GHG emissions generated throughout the life cycle of the product), energy use, pollution (both air and water created during product use), material use (and recycled content), waste, disposal, ecosystems and biodiversity, water consumption, toxicological risk, use of nondepletable resources, and cradle-to-gate environmental footprint. DuPont’s ability to integrate dimensions of sustainability into a phased gate approach was known across industries. This process was “comparable” to the medical product’s new product development requirements.

Standards: Pros and Cons

In most cases, becoming or requiring certification is a time consuming and often expensive process. It requires top management support; a champion from within the company to make a business case to both the firm’s top management and to the rank and file that certification is both necessary and beneficial. It also entails marketing costs to explain the standards and its benefits/implications to key customers and/or stakeholders. Finally, it takes time to become certified—to learn about the standard; to do an initial audit with the goal of identifying those areas where the firm needs to do more work; to develop and implement a corrective action plan to address the issues uncovered in the audit; and, to then undergo final certification. Given the level of time and resources required, this raises a simple but important question—why become certified?

Standards are attractive because they offer management and stakeholders a number of advantages:

Standards are often based on codified “best practices.” Ultimately, a standard reflects the “best practices” that have been found to work in other organizations. That is, when a standard such as ISO 14001 is created, the committee responsible for creating it reviews all of the practices that are associated with effective/successful examples. These practices are reviewed and the most important practices are then identified. These practices form the foundation on which the standard is built. The advantage of this approach is that we are drawing on practices that we know are important and that we know work (and work well). This process simplifies life for the organization being certified (since they do not have research and identify these practices).

Standards provide a template for organizations interested in developing new systems. A template can be regarded as a guide to help organizations implement a new system or activity. This guide takes two forms. First, there is a process guide. This guide tells the organizations what activities they must implement and in what order. The second is a content guide. That is, the standard tells the organization what activities must be present if the organization wants to implement a certain system. For example, if you are interested in having an environmental management system, ISO 14001 will identify the minimum set of components that you must have for that system to develop.

Standards have marketing value. As we saw in the case of Clorox (described in the opening vignettes), adoption of standards can have strong marketing value. The reason—the standards convey credibility. For certain markets and customers, knowing that the firms that they are working with are certified in certain standards has a real value—a value that can be manifested in one of two ways. First, the certified firms are given preference when it comes to purchases. Second, the buyers are willing to pay a price premium for their products.

Standards provide strong signals regarding the organization’s intents. Closely associated with the preceding issue is the notion of signaling. Signaling is an approach whereby our actions are viewed as signals that we send to others. When we tell the market that we are actively pursuing a certain standard, we can be viewed as effectively sending the following signals: (a) the activity or system underlying the standard is important to our firm; (b) we are committed to this activity or system; and (c) we are willing to spend the time and resources to attain the necessary certification. In many cases, these are strong signals.

Standards are often supported by other organizations. Implementing a new standard is a major undertaking (as previously noted). What simplifies this process is that standards are often supported by an infrastructure consisting of consultants, educators, professional societies, and educational/training material. The consultants provide specific assistance in terms of what the standards mean, how the organization can implement them, whether the organization is ready, and what it must do to be ready. Similarly, educators help collect and consolidate material about standards, thus helping to improve awareness and learning about them. Professional societies such as APICS, Institute for Supply Management (ISM), Supply Chain Council (SCC), Council for Supply Chain Management Professionals (CSCMP), International Society of Sustainability Professionals (ISSP), and the Alliance for Strategic Sustainable Development (ASSD) (to name a few) provide support in many ways to organizations interested in exploring and implementing specific standards and tools. These organizations provide information. Through meetings (either at the national/international level or the more local chapter level), they provide venues where the organizations can meet and talk with others who have gone through the process or who are currently going through the process of implementing the new standard. The societies also help keep organizations up to date on changes taking place in the standards or their implementation. Finally, the standards are often accompanied by educational material in the form of books (available either online or through actual books sold by outlets such as Amazon), magazine articles, and online postings. Again, this provides needed information and guidance to the organizations so that they know that they are not alone in this effort.

Standards are often accompanied by metrics. As previously pointed out in Chapter 5, a metric consists of three interrelated elements: a measure, a standard, and a consequence. What this means to the organizations pursuing the standard is that they now know operationally how the standard and the performance associated with the standard is measured. They also know what the minimum level of acceptable performance is, so that they can evaluate their own levels of performance. Finally, these metrics, since they are common, enable firms to compare their levels of performance with those reported by others.

Standards simplify evaluation and assessment. This last advantage is most relevant when dealing with supply chains. With supply chains, we have a large number of different firms involved as suppliers. Without standards, we would have to individually assess each firm, its systems, and its performance. This is a very time-consuming and resource-intensive effort. Standards greatly simplify this process. To assess the supply chain partners, we simply determine whether or not they have attained the necessary certification. If they have, then we have one strong indication that they are acceptable.

Against these advantages, you have to recognize the downsides created by standards:

Standards often lag real leading edge practices. It takes time for a practice to be recognized as “best.” That is, the practice must be first implemented and its impact identified. Then, the practice must become known outside of the firm that first developed it. Next, the practice must show that it can persistently contribute to improved results. Then, it can become recognized as a best practice. What this means is that the practices that make up the basis of the standards may not reflect what is currently considered an innovative practice—there is always a lag.

Standards are not enough by themselves. Standards are often built around practices. These practices are generic in that they are intended to be applied to the largest number of organizations. Yet, for these practices to be truly effective, two conditions must be first met. First, they have to fit within the organization, its culture, and its past. If they don’t fit, the practices will not be embraced and implemented. Second, they have to be extended. That is, the practices have to be taken, used, and built upon to create new forms of value. It is the ability to fit and extend that often differentiates the firms that are successful with the implementation and usage of standards from those that simply just do enough to be considered certified.

Being certified does not necessarily mean that the firm really embraces the systems or the activities. This concern follows from the preceding point. Just because an organization is certified does not necessarily mean that the firm has achieved the desired outcomes. It is one thing to do enough to become certified in any one of the sustainability standards (e.g., ISO 14001). To be certified, all that is often required is for the firm to hire a consultant who can help the firm walk through the process and meet the requirements of certification. It is quite another thing to embrace sustainability and rebuild systems around standards. Certification is a long-term undertaking that requires an understanding of sustainability and its goals, top management, and significant investments of time and resources. Consequently, it often makes sense to take a limited view of certification and sustainability. When a firm attains certification in a specific standard, such as ISO 14001, this should not mean that the firm has a system that is built around sustainability. Rather, it should be viewed as the firm being certified—nothing more and nothing less.

Standards may not be attractive to firms who have achieved the same outcomes by pursuing different approaches. Standards often identify one way or path of achieving a specific outcome or implementing a specific system. There are other approaches that are as effective in the end. The problem is that to be certified, some firms may see an additional cost—that of changing their existing systems simply to meet the certification requirements. The resulting benefits may not be viewed as sufficient to offset the costs. The authors encountered such a situation when they studied ISO 14001. They encountered a firm that had developed a highly effective system for sustainability. Initially, when they became aware of ISO 14001, management thought that it might be useful to become one of the first American firms to achieve this certification. However, when they looked at the requirements for ISO 14001 certification and compared these requirements with the existing system, management came to the conclusion that they would have to invest extensively to meet the certification requirements. These investments were not seen as having any impact on the ability of the firm to improve its level of sustainability performance. As one manager put it to the authors, “this is an investment simply in paper and administration.” Consequently, the firm decided NOT to pursue ISO 14001 certification. Standards can discourage risk taking. Finally, standards identify desired objectives and appropriate approaches. As long as the firm pursues these objectives using approved approaches, it can expect to avoid problems. However, should the firm identify a new and potentially more attractive way of achieving these same objectives, then the firm assumes the costs of demonstrating that this cost is better. Consequently, firms may be discouraged for pursuing new and different approaches.

As can be seen from this discussion, standards are important. Yet, they are imperfect indicators of sustainability. Consequently, they should be leveraged with great care and alignment with your business model, that is, value proposition, capabilities, and key customers (Chapter 2). We next want to highlight some of the well-known sustainability standards. This list is not all inclusive, but instead a brief review and opportunity to get started in finding more information on standards that may be directly applied to your own organization.

Sustainability Standards

To this point, we have discussed the need for standards; we have also identified some different standards and certifications. In this section, we turn our attention to identifying the sustainability standards out there. The reality is that the number of standards related to sustainability is growing every day. Some of the more commonly cited sustainability standards are presented in Table 7.1. As can be seen from this table, these standards cover a wide range of sustainability-related issues.

Table 7.1 Examples of Sustainability Standards/Initiatives

What to Do With Standards and Certifications?

As you can see, there have been numerous sustainability standards developed to address issues of social equity, environmental quality, and economic prosperity of global production and trade practices. Despite similarities in major goals and certification procedures, there are some significant differences in terms of their development, target groups of adopters, geographical diffusion, use within supply chains, and emphasis on triple bottom line performance. Using these standards and certification properly requires that management address the following questions:

• Why? What is it that I am trying to achieve with the use of standards and certification? Am I interested in getting the standard because it is required for a contract or am I using the standard as a means to bring about significant change in the organization?
• What? What aspect of sustainability is it that I am trying to focus attention on?
• How much? How much time and what level of resources (money, personnel, expertise) do I need for this project?
• What standards? What are the appropriate standards that are consistent with the information generated by the prior two questions?
• Which standard? Of these various standards, which is the most appropriate one to use and how does it align with the business model of my organization (value proposition, capabilities, and key customers)?
• How to do it? What is the process of achieving certification? Do I want to do it by myself or through a consultant? What intensity should I apply to this certification, that is, mandatory, quasimandatory, or voluntary?
• What resources are available? What resources can I draw on to achieve this level of certification?
• What’s next? After I get certified, what am I going to do next?

Certification can be viewed as part of an ongoing process. If so, then there should be a next step and continuous improvement.

We have provided you many questions, but you, the reader have the answers. The goals of sustainability standards are to provide a platform for insight as to what is important while leveraging best practices. Standards help to level the playing field for companies, as well as their customers, investors, employees, and others, in assessing what it means to be a sustainable business. Standards go a long way toward helping all stakeholders understand and assess a full spectrum of social and environmental issues of importance today.

The standards above are a starting place for the application of rules, guidelines, and structure for activities or the development of new systems. The resources provide the full documentation and metrics for assessing performance while also offering a means for certification (formal recognition that your organization has satisfied certain minimum sets of requirements prescribed by the standard). These standards by themselves are not enough. We have provided information on a diverse range of standards, including structure, sources, intensity, types, and use as benchmarks. These standards also need the support of a range of tools in order to better manage processes and outcomes that align with Sustainable Supply Chain Management. More information on available tools will be discussed in the next chapter.

Summary

This chapter has focused on those developments necessary if we are to begin implementing the sustainable supply chain. These developments include: standards and verification of a more dynamic understanding of processes, products, and services. What we have presented in this chapter can be summarized as follows:

Standards play an important role in a sustainable supply chain and can be used to achieve a number of important outcomes. While standards are not perfect instruments; they should be leveraged for their alignment with a given business model and used carefully. There are a large (and ever-growing) number of standards appropriate to sustainability along with a process for the appropriate usage and implementation of standards. The focus on standards is part of process thinking (where standards can be viewed as giving managers either process templates or standards for performance).

The sustainable supply chain can be achieved. We have the rationale for sustainability; we have the components; and, now, in Volume 1 (Foundations) and this chapter, we have the standards to help make sustainability a reality.

Applied Learning: Action Items (AIs)—Steps You Can Take to Apply the Learning From This Chapter

AI: What sustainability standards are used in your industry?

AI: What sustainability standards align with existing core capabilities and your business model?

AI: Find examples of Integrated Reporting from companies in Europe or the United States?

AI: What standards or certifications do you and your suppliers possess?

AI: What new markets can you enter if you become certified to a sustainability standard?

Further Readings

The International Integrated Reporting Council (IIRC); The Integrated Reporting Journey: the inside story, http://integratedreporting.org/resource/the-integrated-reporting-journey-the-inside-story-2/

Dentch, M. P. (2016). The ISO 14001 Implementation Handbook: Using the Process Approach to Build an Environmental Management System, ASQ Quality Press.

International Living Future Institute; Living Product Challenge, https://living-future.org/lpc/ and the Living Products Hub in Pittsburgh, PA.

Visser, W. (2009). Landmarks for sustainability: Events and initiatives that have changed our world. Sheffield, UK: Greenleaf Publishing Limited.

Willard, B. (2012). The New Sustainability Advantage. Gabriola, BC: New Society Publishers.

¹See U.S. Securities and Exchange Commission (2013).

²Underwriters Laboratory and GreenBiz Group (2011).

³DuPont (2010).

⁴Kollmus et al. (2008).

⁵OECD (2013).

⁶ELM Consulting Group (2011).