SNHU Implementing a Green Procurement Strategy Discussion

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Business Finance

Southern New Hampshire University


Discuss and prioritize the drivers, barriers, and practices of greener procurement as mentioned in CH 6 (attached) & highlighted in Sustainability and Luxury (attached).

  • How do regulation, customers, competition, and the suppliers themselves shape the policy of a company?
  • How does this affect the financial arm of its triple bottom line and a company's operational priorities?

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CH 6: Sustainable purchasing and procurement The idea that it is not products competing with each other but supply chains directs the view on sustainability away from an intra-organizational perspective to the inclusion of suppliers, sub-suppliers, customers and service providers. Businesses do not exist in isolation and their sustainability performance is judged on the final overall impact of their supply chain. Consumers hold companies accountable for their wider supply chain, regardless of how peripheral a supplier might be to a brand. Much of the environmental and social impact often stems from earlier stages in the supply chain and the suppliers’ and customers’ operations add to the sum of the sustainability balance. In an organization aiming for sustainability, the procurement activities are given a crucial role in reducing environmental and social footprint as they mainly control emissions stemming from the upstream supply chain by selecting suppliers, making wider sourcing decisions and determining collaboration and interaction with suppliers. This chapter starts with a look at the development of the procurement function, what sustainable procurement is, why it is crucial to a company’s sustainability efforts and what the main drivers and barriers for sustainable procurement are. We are looking at ‘green’ (or environmentally sustainable) procurement but also explicitly include the growing area of social responsibility. Initially, sustainability in businesses was mainly concerned about the environmental dimension, as social aspects are relatively well protected in Western countries. Increasingly, however, a more complete view on our modern global supply chains raises concerns about the social impact of what we buy from other parts of the world. After covering green and socially responsible procurement, this chapter will go deeper into how they actually work and how they support sustainability improvements in the supply chain. The role of procurement in the supply chain The role of the procurement function changed significantly with the genesis of the idea of competing supply chains. From simple sourcing and buying, procurement developed into the boundary-spanning function that links the company to the downstream suppliers. Due to an increase in specialization, global competition and a focus on core competencies, supply chains started to involve larger numbers of international suppliers – resulting in an increase of complexity and the need to coordinate and manage suppliers in a structured way. Today’s supply chains usually show a high proportion of third-party spending (the services and products that are bought in from outside) (Booth, 2010). With the increase in outsourced activities, the selection and management of suppliers became much more important for a successful supply chain. When mapping supply chains, suppliers are structured into tiers. The first tier of suppliers consists of those closest to the focal organization. Their suppliers are then referred to as second-tier suppliers, etc. Picking the ‘right’ supplier for a particular product or service has a strategic dimension. Supply chain maturity, stages of the product lifecycle, sourcing risk, importance of the sourced good and plenty more considerations need to be made in strategy frameworks (Booth, 2010). How green is your pint? Muntons Maltings Malt is one of the key ingredients for beer brewing and is made from roasting barley. Like other grains, it is a food product grown on farmland. Farming itself is a major contributor to greenhouse gas emissions and the growing of cereals accounts for 5 per cent of land use globally. With a rapidly growing world population, the land occupied for farming will increase tremendously. At the same time, rising temperatures caused by global warming make crops more vulnerable to damaging organisms, meaning more pesticides need to be used or the agriculturally used land is expanded even further. Although in the UK farming contributes only 1 per cent of overall CO2 emissions, it causes 7 per cent of NOx (nitrous oxides) and CH4 (methane), which have a much stronger effect on global warming. The atmospheric warming effect of a ton of CH4 equals the effect from 25 tons of CO2 and one ton of NOx emitted has the same effect as 295 tons of CO2. Another major emission from food production comes from the consumption of fresh water. The waste water stemming from malting could be treated to the standards for human consumption so that 70 per cent of the process water could be saved. But the water treatment creates a trade-off with CO2 emissions, as 1.23 kg of CO2e is required for the treatment of one ton of water. Muntons Maltings analyzed their malt supply chain from the farm to the sold malt and discovered that almost two-thirds of the overall carbon footprint stemmed from the initial barley growing and therein nitrogen fertilizers are contributing almost half of the footprint and N2O from soil nitrogen losses. The largest contributor within the malting operations is the consumption of energy (gas and electricity), mainly in a process called kilning, in which the malt is dried in an oven-type facility. The specifications from customers usually request a final moisture level of around 3 per cent. However, achieving a moisture level of 3 per cent uses 45 per cent more carbon emissions than a level of 3 per cent; and even a moisture level of 4 per cent needs 25 per cent more emissions than the 6 per cent level. Although that would require a bit more haulage overall to deliver the same amount of dry weight, the emission increase from haulage is negligible in comparison to the huge potential carbon savings in the kilning. An essential part of becoming greener was then to talk to the farmers in the upstream supply chain to substitute previously used fertilizers with biofertilizers. At the downstream direction of the supply chain, Muntons’ customers needed to be consulted on higher levels of moisture in the malt. Customers did not really require such a low moisture level for their operations and were willing to accept higher moisture levels (also because the energy saved meant that prices could be lowered too). A higher moisture level than 3 per cent was simply something nobody ever looked into before and customers had been using the standard 3 per cent level that they were accustomed to. The footprint analysis and collaboration with supply chain partners on either end enabled Muntons to reduce the carbon footprint of their malt significantly on their mission to be the greenest maltster in the world. SOURCE With the number of tiers and the number of suppliers the complexity increases and monitoring the supply chain – including all sub suppliers – is a difficult task. Nevertheless, customers and consumers tend to hold companies responsible for what is happening further down their supply chain (Wilhelm et al, 2016). Furthermore, the large share of the activities in the supply chain being outside an organization’s core boundaries also means that to improve sustainability, an organization must include all its suppliers and supply chain activities whether they are within direct control or not, as businesses are often being held accountable for unsustainable behavior anywhere in their supply chains (Grimm et al, 2016). What is sustainable procurement? The aim of sustainable procurement practices is the inclusion of sustainability issues in the procurement strategy and in procurement decisions, for example in sourcing decisions or supplier selection. Similar to the development from a debate focused only on ‘green’ to a wider supply chain perspective, this chapter does not want to limit the discussion to the dimension of the natural environment but addresses all parts of the triple bottom line. Sustainable procurement has increasingly often an ethical perspective. Social injustice (for example the situation of farmers in less developed countries) and the violation of basic human rights (for example in child labor or modern slavery) triggers consumer reactions in two ways: avoidance of particular brands and retailers or the support of ‘good’ products like Fairtrade-labelled coffee. Beyond consumers punishing or rewarding businesses for bad or good behavior, businesses also face legislation that aims to make them behave responsibly. Areas covered by legislation are, for example, bribery and corruption and modern slavery, but also embargoes against certain products and the conducting of business with certain countries and individuals. Such legislation can be issued by national governments, for example the trade restrictions against Russia and Russian individuals by the European Union and the United States after the invasion of Ukraine, or by international bodies like the United Nations, for example the trade sanctions against North Korea. As legislation is usually accompanied by punishment for its violation, which can be financial or sometimes even imprisonment of decision makers, it becomes a compliance topic for businesses. Although the terms ‘procurement’ and ‘purchasing’ are often used interchangeably in the literature, they are distinctly different. Procurement has a more strategic positioning and covers all activities of acquiring goods or services (including the purchasing function), whilst purchasing is described more narrowly as the functions and activities of the buying process (Vitasek, 2010). Consequently, we have to differentiate between the more strategic picture of procurement and the more operational perspective of the purchasing activity. The focus on procurement as a key function for making supply chains greener and more socially responsible is based on stakeholder theory and the idea that in many cases the customer has the more powerful position in the supply chain and can therefore lead a supply chain towards more sustainability. However, the idea that the buyer is always in a stronger power position in the supply chain relationship is a common misperception. In supply-side-dominated markets with little and fragmented buying power on the demand side, this theory will not hold. Businesses are also in a global competition over resources; if companies from one part of the world impose tough sustainability requirements on their suppliers, those suppliers may look into selling to customers in other parts of the world. Additionally, in-sourcing operations if no suitable external supplier is available may often be more of a theoretical option. Nevertheless, on many occasions the push for a more sustainable supply chain needs to come from the customer or even consumer side. The pressure on the downstream supply chain to support sustainability initiatives often needs leadership from the larger and more powerful actors. Public procurement can play a crucial role in the leadership for green and sustainable procurement. Within the European Union, around a seventh of the overall GDP is spent through public procurement by authorities from all levels, whether it’s spending through municipalities, state governments or the European Union’s own budget. However, much public spending occurs in the construction and maintenance of buildings and physical infrastructure and the importance and impact of sustainability considerations in public procurement would be mainly in this area (Erdmenger, 2012). But even in areas where public spending is not the main buyer, the insistence on sustainable practices from public authorities can stimulate the creation of a market for more sustainable products and services. Public spending can hereby provide the base demand to enable the development of new products which can then also be acquired by commercial buyers (Crespin-Mazet and Dontenwill, 2012). Sector-wide initiative against modern slavery in UK construction UK construction and facilities management companies have for some time been under media and public scrutiny for the labor conditions in their supply chains. Media coverage about slave labor on overseas sites, particularly in the Gulf region and for the Qatar World Cup, is threatening the companies’ reputations and investors’ perception of the companies’ risk profile. Although these companies do not sell to end consumers and hence have less to worry about in terms of brand damage cost, institutional stakeholders may be less willing to invest and cooperate, and potential staff less inclined to join if these companies are being seen as unethical in the public eye. In 2015, the UK passed the Modern Slavery Act, effectively combining a number of previous acts and other measures into a targeted piece of legislation to combat modern slavery. Slavery was an unlawful criminal activity already, but the Modern Slavery Act went beyond slaveholding and also legislates aspects of victim protection and reporting duties for businesses on their measures against modern slavery in their operations and supply chains. The passing of the Modern Slavery Act made a response to slavery and other ethical labor issues more urgent. Construction, facilities management and building supplies businesses decided to collaborate in a sector-wide response, led and coordinated by an industry-wide body called Action Sustainability, as they share many ethical issues in their supply chains. The marketleading large companies in the sector are all at the downstream end of the supply chain, using many much smaller contractors and suppliers in their activities. Those smaller contractors often use further subcontractors and their own material suppliers, leading to a fragmented supply chain with usually little or no end-to-end visibility. The highest risk for slavery and unethical labor practices, however, lies towards the upstream end of the supply chain, making the larger downstream companies reliant on the support of their contractors and suppliers for any slavery eradication efforts. The selection of and relationships with contractors and suppliers are naturally managed by procurement departments and it was hence their key task to introduce procurement guidelines that allow companies in the sector to identify modern slavery risks and to consider modern slavery in their selection process for contractors and suppliers. The collaboration also created information and education material for contractors and suppliers in the sectors’ supply chains. Being aware that the much smaller contractors and suppliers cannot produce in-house capabilities, the larger companies realized there was a need and responsibility to educate the supply chain instead of ‘pushing the problem down the chain’ if they wanted to achieve real improvement beyond mere legal compliance box-ticking. Drivers and barriers for sustainable procurement Generally, the drivers and barriers for sustainable procurement can be divided into two groups: external drivers and internal drivers. Next to the above-mentioned pressure from customers, external drivers are also under pressure from the general public, governmental regulation and legislation, investors, and the desire for a competitive advantage by gaining a positive and sustainable image (Walker et al, 2008). The main internal drivers are personal commitment of managers and investors, and the wish to reduce costs by a reduction of waste, pollution, brand damage or litigation costs. The drivers are somehow interlinked; for example, an internalization of costs for emissions through governmental regulation backs the internal driver to save costs through sustainable practices. Sustainability violations in the supply chain in essence became a commercial risk to business organizations and with procurement departments often being involved or in charge of selecting suppliers, sustainable procurement was driven by risk considerations. The adoption of sustainable procurement practices is going hand in hand with an everincreasing need to improve the visibility and transparency of supply chains. The need for transparency is not only required to monitor sustainability but also other risks and potential disruptions in the supply chain. Visibility is also required for formally conducted supply chain audits (Awaysheh and Klassen, 2010) and for operational improvements such as keeping inventory levels down. Although sustainable procurement is considered a strategic decision needing top management support, at a purchasing level, sustainability is actually more connected with the personal and ethical values of a company founder filtering into the wider organization and related to middle-management support. The increase in sustainability requirements on the supply chain has certainly given the supplier selection process – and therefore procurement departments – more strategic and operational importance in business organizations. The internal adaptation of sustainable practices in organizations can be categorized into four groups: resistant, reactive, receptive, and constructive adaptation (Walton et al, 1998). Resistant adaptation of sustainable practices means that organizations only adapt such practices if there is no way around it. The attitude here is that sustainability issues are per se ‘antibusiness’. There is no intrinsic motivation to improve sustainability in the organization and sustainability-related laws are followed only by the letter but they do not feed into policies or strategy of the organization. Reactive adaptation derives from the mere ambition to comply with environmental and social responsibility law and to avoid penalties. Solutions often focus on reducing the harm from emitted pollutants – for example by collecting and disposing of waste – and not on reducing emission levels in the first place. Environmental and social issues are appreciated but with no change of current processes and solutions are usually happening at the end of the supply chain with only incremental solutions. Receptive adaptation starts considering possible competitive advantages coming from sustainability improvements, but the translation into operational processes and procedures is still minimal. Constructive adaptation embraces the value of integrating product and process design into the sustainability planning. These companies also maximize the benefits from environmental initiatives as well as from the productivity of resources. These four levels of internal adaptation of environmental and socially responsible practices, however, do not go beyond the organization’s boundaries. To achieve truly environmentally and socially responsible practices, the involvement of more supply chain members is crucial. Achieving sustainable procurement may often start at an operational level, but needs to develop into an integration of sustainability considerations in the strategy. From its focus on the operational side of the supplier–customer relationship, it therefore started to include more and more supply chain stakeholders, developing the discussion further into the downstream and upstream supply chain and into making the entire supply chain management more sustainable. Whilst the wish for cost reduction is a major internal driver for sustainable procurement, cost concerns are also a major barrier. Customers may aim for the lowest possible price and are not willing to pay a premium for more sustainable products. Costs associated with the implementation of sustainable practices are even more significant for small and medium-sized companies with fewer resources at their hands for investment. A managerial attitude of seeing ecology and social responsibility in a trade-off with economy increases the cost barrier even further. Not knowing how to make procurement more sustainable can be an internal barrier too. Incorporating sustainability issues at a concrete, practical level appears to be difficult for many managers, even if they accept the necessity for more sustainability in their procurement. Managers are used to addressing issues of efficiency or governance in their interaction with suppliers and are often simply ‘illiterate’ in how to address sustainability. In such situations, the development of suppliers can be a way to improve the sustainability performance and development targets can be included in supply contracts. A lack of legitimacy is another barrier. Paying only lip service to sustainability and working on sustainability purely from an advertisement perspective for ‘greenwashing’ purposes prevents individuals from buying into the agenda and committing to sustainability improvements. We already mentioned the importance of including other supply chain actors in sustainability improvements in the supply chain. Before we look further into this, we discuss what external drivers and barriers determine whether organizations embark on the implementation of sustainable supply chain practices or not. Regulation can be considered a major driver for organizations’ environmental and social compliance efforts. Although compliance is not a guarantee of improved environmental and social performance, it is related to involvement in sustainable practices in purchasing. Improvement in sustainability performance is more likely to be seen in those companies who adapt and integrate sustainability into their supply chain rather than using a reactive adaptation strategy. Nevertheless, regulation is a motivator for new solutions for reducing environmental and social impact at a low cost. Regulation can be the initial trigger to start thinking about new ways of doing this and for reducing wasteful activities, therefore leading to improved production yields. Customers are drivers for sustainability considerations in supply chains and procurement in many ways. This pressure can stem from the final consumer, and is then carried up the supply chain. Consumer-facing companies are particularly exposed to pressure groups and environmental campaigners. Large, high-profile corporations with much buying power are also often seen as being in the driving seat of demanding sustainability improvements in the upstream supply chain and therefore face most attention from campaigns and media and the most potential threat of negative publicity. In a business environment, competitors also act as drivers for better supply chain practices. Competitors may become technology leaders or guide the industry to norms and legal frameworks, thereby driving other companies down the same route. Solution and innovation leadership amongst competitors can mean a competitive advantage since the pioneers often set the industry standards for future developments. When competitors gain a competitive advantage because of their supply chains’ sustainability, companies have to respond to this challenge by implementing sustainability improvements themselves. Increasing public awareness and the influence of non-governmental campaigning groups are among the societal drivers for sustainable supply chain practices. Pressure groups and campaigners often have the potential to publicly embarrass companies and thereby influence customers and lawmakers. Suppliers as a possible driver for sustainable supply chains have received little attention in academic research. Some argue that suppliers are generally not the driving force behind sustainable supply chain practices but can support their implementation and provide valuable knowledge (Carter and Dresner, 2001). In addition, the ability for supply chain integration and collaboration with customers is an essential contributor to sustainability improvements. New products and services developed with other customers can also make the supplier the more knowledgeable partner for sustainability improvements. Many of the external drivers can also act as external barriers. Regulation can reduce innovation or lead to changes that want to satisfy the law rather than achieving objective sustainability improvements. These can also be industry-specific. Regulatory priorities (for example to ensure a free market) might prevent organizations from sourcing the most environmentally friendly and socially responsible option. Suppliers may not be willing to share more information in the supplier–customer relationship, preventing further integration necessary to make the supply chain more sustainable. Depending on the power balance in the relationship, customers may not be able to convince their suppliers about suggested changes and suppliers therefore become a barrier for improvements. Drivers, barriers and practices vary across different industries. Sectors are adapting to sustainable supply chain practices at different speeds. Market structures, ownership, governance, industry-specific regulation, and the contextual situation put organizations into more or less individual situations. Procurement frameworks Knowing about the internal and external drivers and barriers leads us back to how companies can actually achieve sustainable procurement. As mentioned earlier, purchasing and procurement functions developed into the concept of managing supply chains. Consequently, sustainable purchasing and procurement must develop into sustainable management of supply chains (or supply networks). The main idea for the development from purchasing to supply management was published by Kraljic in 1983. His matrix framework categorizes supplied items into four sections according to their profit impact and their supply risk: strategic (high profit impact – high supply risk), bottleneck (low profit impact – high supply risk), leverage (high profit impact – low supply risk) and non-critical (low profit impact – low supply risk). Whilst suppliers of strategic items are managed in a partnership with a lot of collaboration and innovation between the supply chain partners, bottleneck items are mainly about volume insurance and control. The supply of leverage items is focused on making the most use of purchasing power and short-term and spot buying. The supply of non-critical items is aiming at efficient ordering processes and standardization. Consequently, the supply chain relationships between customer and supplier vary between the item classifications, therefore requiring different approaches for integrating sustainability in the procurement activity. For strategic items, sustainability as a performance criterion leads to new product development and innovation with the suppliers, benefiting from each other’s knowledge to minimize the environmental and social impact of supply chains. Due to the close relationship, sustainability will also become a priority for the supplier and within the supplier’s organization. Figure 6.1 Kraljic matrix SOURCE Adapted from Kraljic (1983) Bottleneck items are probably the most complicated ones for adding sustainability to procurement, as the buying company does not have much power to force the supplier into sustainability improvements or to change suppliers. Buying organizations can try to push for industry-wide standards and regulation to improve the sustainability of bottleneck items. Improving the sustainability of leverage items, however, may be easier. Sharing best practices with suppliers enables sustainability improvements. Solutions consider a reduction of material intensity, using recyclables with a focus on leading into lower costs. For non-critical items, sustainability needs to be included in the supplier selection criteria. To keep processes simple and efficient, certifications can be used for the achievement of the sustainability criteria. Since the number of potential suppliers is sufficient, suppliers who do not comply can be changed easily (Krause et al, 2009). For all items the supply risk may increase as the number of potential suppliers is cut by those that do not satisfy the sustainability criteria or do not want to contribute to the sustainability agenda. Although the actions for achieving sustainability differ between the item categories, sustainability must be part of the agenda in all of them. Sustainability may become more and more a common performance criterion and therefore eventually develop into an order qualifier (Krause et al, 2009). Sustainability performance measures may also be raised as sustainability becomes common practice and buying organizations need to keep pace with the developments and sustainability performance level increases. Understanding that sustainability must become a criterion in procurement decision making, we now need to understand how sustainability of an offered product or service can actually be judged, which is essential when suppliers are compared in a selection process. Sustainability labels and certifications To simplify the selection of supplier certifications and labels, external and most often independent organizations can be used. Certifications show that the supplier is following certain standards set by the awarding organization. The burden of monitoring and auditing the supplier is therefore shifted to an external auditor, usually paid for by the supplier, who is charged by the awarding organization for the use of the awarded label. Certifications are mainly used for suppliers of non-critical items and leverage items; nevertheless, they are also found in other supplier categories. Certifications and labels are also a way to avoid the pressure from campaigners as they provide evidence that the company fulfils the set standards. However, these standards are determined by the awarding organization and often only focus on a particular aspect rather than the overall sustainability of the product or service. In the following paragraphs, we are going to look at some of the more well-known environmental certifications. Fairtrade The Fairtrade label is awarded through national bodies that form part of the international Fairtrade organization. It focuses on ethical aspects and aims to help producers from developing countries out of poverty. Chocolate, coffee, cocoa, sugar, bananas and other agricultural commodities are the main products certified with the label. The retail value of Fairtrade-certified products in the UK exceeded £1.3 billion in 2011. It certifies that farmers are supplying in longterm contracts and are paid a stable and ‘fair’ price. The long-term engagement enables the farmers to invest into the development of their farms and provides them with a more predictable stream of income than the global spot prices for commodities. Farmers are also paid a premium for their products which can only be used for the social and economic benefit of their workers and communities. It also favors small-scale farmers and cooperatives to support rural communities and their development (Fairtrade, 2012). Maritime Stewardship Council The label of the Marine Stewardship Council (MSC) was founded by the environment protection organization WWF and the frozen fish producer Unilever (WWF, 2012). It focuses on setting standards for the sustainability of wild-captured fishing. It is not auditing any fishing businesses itself, but simply sets standards for fisheries and supply chain traceability. A product can apply the MSC label if the product can be traced back under MSC standards to an MSCcertified fishery. The MSC considers the fishing stock levels, the fishing operations and the managerial procedure towards sustainability (MSC, 2012). Despite the recognition of its achievements in environmental benefits, it has been criticized for setting its standards too laxly (Smith, 2011). Rainforest Alliance The Rainforest Alliance ecolabel does not focus on a single product category but on the protection of the rainforest in the production of a product. It also has wider considerations towards the empowerment of forest communities and the establishment of sustainable business opportunities for small- and medium-scale enterprises in these communities. The Rainforest Alliance is a nonprofit auditing organization for its own frog-themed ecolabels and the Forest Stewardship Council (FSC) ecolabel. The FSC itself is – similarly to the MSC – only a standardsetting organization, and does not get engaged in the auditing process. Accreditation is aimed at the producers and at the traceability through the supply chain to avoid the mixing of certified wood with others (FSC, 2012; Rainforest Alliance, 2012). Carbon Trust The Carbon Trust is an independent non-dividend-paying limited organization. Since its creation in 2001, it has helped clients to cut CO2 emissions by 60 million metric tons (MtCO2) and save £5.5 billion in energy costs. Any profits made are reinvested into the trust, whose aim is to ‘accelerate the move to a global low-carbon economy’ through work for and with business and public sector. The trust is engaged in advising decision makers, supporting the development of new technology and the assessment of carbon footprints. It measures and certifies the carbon footprint of organizations, products and supply chains. For the carbon label certification, clients have a choice of the two most widely accepted carbon footprint standards: the Publicly Accepted Standard (PAS) 2050 by the British Standards Institution (BSI) and the Department for Environment, Food and Rural Affairs; and the Greenhouse Gas Protocol of the World Business Council for Sustainable Development (WBCSD) and the World Resources Institute (WRI). In contrast to other labels it does not only focus on one particular aspect or industry sector, but covers all areas of the supply chain (although it ignores the social and economic dimensions of the triple-bottom-line concept). It awards two labels: one merely shows that an organization is working with the Carbon Trust, while the other one requires active reduction of the measured carbon footprint, with such activities assessed every two years for recertification. Organizations applying the label to their products can decide whether they want to display the carbon footprint per unit within the label or not (Carbon Trust, 2017; Greenhouse Gas Protocol, 2012). LEED LEED (Leadership in Energy and Environmental Design) is the certification of the US Green Building Council (see also Chapter 4 on warehousing), which sets standards towards the sustainability of buildings. The standards vary in scope and requirements depending on the type and purpose of the building and differentiate between new constructions, existing buildings and refurbishments. Those applying for certification need to submit the details of their building and pay a charge for the review and certification of the building. Different to other environmental labels is the award of different achievement levels. The best-performing buildings gain platinum status, followed by gold, silver and certified (USGBC, 2012). ISO 14001 Labels and certifications are not only applied in a consumer-facing environment. Manufacturers and other business customers also have a need to assess the environmental performance of their suppliers. In this setting, the International Standards Organization developed standards for environmental management systems. These are part of the ISO 14000 series. Most notable is ISO 14001, which sets standards for the establishment and improvement of environmental management and aims to engage organizations in a continuous improvement process of their environmental management. However, the ISO does not perform any audits or certifications itself, but simply develops standards at an international level, leaving the certification to independent auditors. Consequently, certifications in the 14000 series often go hand in hand with certifications of the ISO 9000 series on quality management and ISO 19000 series on auditing standards. The ecolabel image shows ISO 14001 certification by the British Standards Institution. Beside the costs and time resources associated with ISO certification, the use of the ISO 14001 standards is also subject to other criticisms (Murphy, 2012). Adopting the ISO 14001 standards does not specify environmental targets, so achievements therefore depend solely on the organization’s ambition, which makes comparison across sites, units and organizations difficult (Coglianese and Nash, 2001). The adoption of ISO 14001 can also lead to a focus on establishing formal structures, procedures and policies rather than on increasing efficiency and improving sustainability. The formal set-up may also not always reflect the reality of activities in the organization (Meyer and Rowan, 1977). Another criticism is that the comprehensiveness of the ISO 14001 standards varies widely from vague generalizations to detailed goals. Targets and their achievement can be seen as a rather mechanical process within a set regime of rules, limiting staff in choice and using their individual skills for improvements (Matthews, 2003). The ISO 14001 also does not include the supply chain and supplier selection; its scope is limited to the accredited unit and may in some cases ignore the main sources of a product’s emissions (Krut and Gleckman, 1998). Labels and certifications in general are subject to limitations and criticism. The focus on particular aspects of sustainability makes a comparison and sourcing decisions difficult. When comparing products and suppliers in a sourcing decision, the question becomes, what makes one product more sustainable than another? A widely applied and accepted way of evaluating the environmental balance of sourcing options is the use of lifecycle assessments. The manufacturing of one product may be causing more emissions than an alternative product but be more favorable in terms of maintenance and disposal, or a socially favorable option may cause more CO2e emissions. Hence, the foundation of such a lifecycle assessment is to cover all emissions and impacts from cradle to grave (Schmidt and Frydendal, 2003). Lifecycle assessment A full lifecycle assessment (LCA) is the most comprehensive and also most commonly accepted way of determining the impact of a product or service. Depending on the complexity of the assessed product and its supply chain, the assessment can become an extensive activity. To reduce the resource intensity of an LCA, average values are often used, for example for the carbon emissions per kilometer from a 40-tonne diesel lorry or the use of a unit of main grid electricity. However, the more average values are used, the less exact and specific an LCA becomes. An LCA consists of four steps. First, the scope of the assessment needs to be defined: what function, system or product is to be assessed; the definition of a functional unit; assumptions; and, importantly, the boundaries. The assessment is an iterative process and boundaries may be adjusted throughout the exercise. Nevertheless, standards like PAS 2050 now determine boundaries for the assessment. Although LCAs were initially developed for environmental emissions, and in particular greenhouse gases, the principle can be applied to any impact that a supply chain may cause. Examples of a functional unit can be the emissions ‘per visit’ for a service, per kilogram of a product, the usual lifetime of product (for example energy savings from the improved energy efficiency of an electrical item), or per driven kilometer. Second, within the boundaries, all input is recorded and assessed in an inventory analysis which forms the basis of the assessment. Collecting data hereby is often a more complicated task than initially anticipated and transferring input into functional units needs some consideration. Third, following the analysis of the input side, all emissions are evaluated in an impact assessment. This is connected to the inventory data; all inventory data is put into impact categories and then processed within each category. As a result, the contributors to a particular impact can be grouped together. They can have different weightings, depending on their impact; for example, within the group of greenhouse gases that contribute to global warming, some have worse effects than others and therefore need to be factored differently. In the last step, the interpretation, the results from inventory analysis and impact assessment are connected to gain knowledge about the environmental impact of the assessed product and to make recommendations on improvements (BSI, 2011). As thorough LCAs have the potential to require significant resources, different levels of detail and sophistication have evolved. The most accurate investigation can be found in a detailed LCA, where all parts are evaluated in detail individually. This requires expert knowledge about the processes and emissions occurring at the individual stages of the supply chain. It also differentiates between global impact and regional impact. The major disadvantage of the detailed LCA is the effort that is needed to assess the supply chain to such a level of detail. Therefore, more simplified methods – conceptual LCA and simplified or streamlined LCA – evolved. The conceptual LCA is positioned at the opposite extreme to the detailed assessment. It qualitatively examines what factors and areas in the lifecycle need to be focused on and then only assesses those. This can, however, only be used as guidance for management, as the limited scope does not comply with the ISO standards for an LCA. The streamlined LCA is placed in between these two approaches. It allows a comprehensive assessment, but rather uses generic data and does not measure each aspect individually. Therefore, it contains all relevant aspects but does not require the effort of a detailed LCA. Using generic data, however, means the assessment loses accuracy. Simplification can also be achieved through a screening stage in which insignificant emission contributors are identified and then do not need to be assessed in the analysis. Through this process, the LCA focuses on the key contributors, where the most environmental improvement potential lies (BSI, 2011). The definition of the boundaries for an LCA crucially influences the overall result and environmental performance of a product. The most comprehensive guidelines and definitions for boundaries of LCAs exist in the area of greenhouse gases and carbon footprints. Standardized guidelines limit deviation in the assessment activity and simplify carbon footprint evaluations. PAS 2050 is currently the most commonly applied standard for carbon foot printing. For example, it provides a threshold so that inputs in the inventory analysis can only be deemed insignificant if they contribute less than 1 per cent of the lifecycle greenhouse gas emissions of a product. When assessing greenhouse gas emissions, the time dimension of the greenhouse gases’ impact influences the results. A range of greenhouse gases exists and their impact can be more short term or long term after they are released. Depending on the chosen time horizon, the impact of greenhouse gases such as CO2 equivalents changes. The PAS 2050 standard sets 100 years as the time horizon for the impact of emitted greenhouse gases, which needs to be included in the lifecycle assessment. It also specifies how carbon storage is allowed to be considered and that land use changes are included for the first 20 years (Sinden, 2009). The significance of system boundaries is shown in a study on the carbon footprint of office paper. The study applies three approaches: ISO 14040/14044, PAS 2050 and the framework by the Confederation of European Paper Industries (CEPI). Unsurprisingly, the industry’s framework considers the least number of materials in its system boundary and the PAS 2050 standard still included significantly more materials than the ISO standards. In the assessment using the CEPI framework, only 90 per cent of greenhouse gas emissions were accounted for. Cut-off rules were comparatively narrow; for example, in transportation using the CEPI framework only the journey to the distribution platform is taken into consideration. The ISO 14040/14044 standards considered 98 per cent of greenhouse gas emissions compared to the assessment using the PAS 2050 standard. However, they also required significantly less effort in the data collection. The study allocated carbon footprints per ton of office paper of 860 (CEPI), 930 (ISO 14040/14044) and 950 kgCO2e (PAS 2050). However, when it comes to labelling products with a carbon footprint, the functional unit of a ‘sheet of A4 paper’ might be more accurate, as produced sheets can be of different weight categories depending on their thickness and density (Dias and Arroja, 2012). Charcoal BBQ versus LPG grilling Having a barbeque is a popular way of preparing food on a sunny day. Over the years several fuel options developed, the most commonly used probably being the more traditional charcoal and LPG (liquefied petroleum gas) from gas cylinders. Maybe most consumers simply chose the option that they perceive as more convenient or they are used to, but even in such a sourcing decision environmental performance can be compared. Johnson (2009) compares the carbon footprint of these two barbeque methods in an LCA. Considered in the system boundaries are the production of the fuel, use and disposal (for charcoal) of the fuel, and production, use and disposal of the grill and cylinder. Charcoal is made of wood heated under a deficit of oxygen. Sometimes it is argued that the wood used is waste wood, but nevertheless it needs to be included in the inventory analysis as the wood could otherwise be used for energy generation or other forms of use. Charcoal in the UK is mainly imported from outside the European Union. LPG is liquefied and filled into cylinders in which it is transported to retailers and final customers. The consumption of charcoal or LPG in a barbecue session was estimated through a test program of grill sessions by experienced amateur grillers. Although the consumption of fuel varies a lot between users depending on the amount of meat, the design of the grill, cooking style and personal preferences towards the amount of charcoal, these variations have much larger amplitude for charcoal than for LPG. For LPG, most grillers stayed within a range of 25 to 45 per cent of the food’s weight, whereas charcoal consumption varied from 30 to 140 per cent. The consumption of firelighters was fairly consistent across charcoal barbecue sessions. Charcoal ashes are disposed of via municipal waste services. The calculations assumed 150 grill sessions over the barbecue’s lifetime, with 1.5 kg of meat, 525 g of LPG or 733 g of charcoal and 115 g of firelighters per session. The production of the LPG grill causes more CO2e emissions than the charcoal alternative. Additionally, LPG is transported in cylinders, which need to be manufactured and can only be reused for a certain time and number of refills. On the other side, the firelighters consumed over the lifetime of a charcoal barbecue add up to 74 kgCO2e. The biggest difference is the fuel. The production and combustion of LPG emits so much less CO2e than the charcoal that the emissions from the cylinder system are more than compensated for. Only if waste wood was used to produce charcoal do the two fuel alternatives almost draw even. Assuming a lifetime of 150 grill sessions for both types, in total each LPG barbecue session causes 2.3 kgC02e, the equivalent of driving an average European car for 13km. In comparison, each charcoal barbecue session emits 6.7 kgC02e, almost half of it stemming from the charcoal combustion. LPG grilling appears to be the more environmentally friendly solution, mainly due to the greater efficiency in production and cooking. SOURCE Johnson (2009). For suppliers, their customers’ requirements will matter the most when adopting an LCA standard. In particular, small and medium-sized enterprises may not have the resources to run a detailed LCA and need to fall back on standards that allow them some level of simplification. For suppliers, it is essential to understand what frameworks their target markets apply and how environmental performance feeds into the decision making. Comparing purchasing options One clearly needs to differentiate between the more strategic perspective of procurement, which includes market analysis, supplier portfolio management, etc., and the more operational dimension of purchasing. We covered the strategic perspective in earlier parts of this chapter. Making use of LCAs and supplier portfolios become part of the operational perspective. Quantifying the sustainability advantage of one supplier over another is difficult and evaluating the value of improvements even more so. The consideration of sustainability performance can be a knock-out criterion (for example only suppliers achieving a particular certification are considered in the first place); it can be measured in monetary values and compared, or form part of the decision in a multi-criteria analysis (all criteria are scored and, for example, 20 per cent of the decision may be allocated to the score in social responsibility performance). Quantifying the monetary value of more sustainable products is a difficult task. Similar to the environmental LCA, the lifecycle costs need to be measured. The results of the lifecycle costs can then be used in cost–benefit analysis or cost-effectiveness analysis. The cost–benefit analysis looks at the positive and negative effects on the welfare of the environment. This approach considers environmental and other sustainability costs only if these external effects can be monetarized (for example health care cost savings due to fewer respiratory illnesses if exhausts from a factory are reduced). But it cannot capture the costs of unethical actions such as child labor other than through the damage to the brand or lost business. Hence, ethical expectations towards suppliers will be communicated and potential suppliers not matching these standards will not be considered. The cost-effectiveness analysis limits its focus on the project. The cost-effectiveness approach can be used to investigate and compare solutions on the way towards a specific target. The target itself, however, is most times not measured in money but in a unit of environmental impact. If several impact categories are considered, each category can be weighted (Pierrard and Faßbender, 2003). Organizations need to evaluate their own sustainable supply chain performance to benchmark themselves against their competition. Often managers in supply chains are confused about what to measure and why for sustainable supply chains. The confusion arises from being traditionally focusing on cost in relation to output (for example service performance like the proportion of on-time, in-full deliveries). Measures for environmental performance, however, are mostly looking at inputs and emissions, examples being the electricity consumed, fuel consumption, number of pallet movements and vehicle utilization. A monetary measure of environmental performance is often preferred by managers (Shaw et al, 2012). Ethical aspects, however, are usually binary in nature; either the company uses forced labor or it doesn’t. Summary Procurement is a crucial lever to improving the sustainability of the overall supply chain, and becomes even more crucial if most of a supply chain’s impact is caused outside the organization. Much pressure to improve sustainability performance usually comes from the customer end of the supply chain, which is why concentrations of buying power like public procurement and the procurement practices of industry leaders play an essential role in the development of more sustainable products and supply chain practices. The individual drivers and barriers vary between sectors, market segments, countries and companies. However, regulation clearly plays a key role, especially for those companies that have little intrinsic motivation to improve their sustainability and the internalization of external costs makes it easier for companies to consider sustainability issues in their purchasing decisions. In a different way, labels and certifications simplify sustainability in procurement as they set standards and take auditing and monitoring burdens off the buying side. Implementing sustainability into procurement becomes particularly difficult when more sustainable products are more expensive and when sustainability achievements are hard to measure in a monetary value. Performance targets and sustainability specifications are needed to direct purchasing managers in the execution of their tasks. References Awaysheh, A and Klassen, R D (2010) The impact of supply chain structure on the use of supplier socially responsible practices, International Journal of Operations & Production Management, 30 (12), pp 1246–68 Booth, C (2010) Strategic Procurement: Organizing suppliers and supply chains for competitive advantage, Kogan Page, London BSI (2011) The guide to PAS 2050: grow to carbon footprint your products, identify hotspots and reduce emissions in your supply chain [online] available at [accessed 03 January 2017] Carbon Trust (2017) About us [online] available at: [accessed 03 January 2017] Carter, C R and Dresner, M (2001) Purchasing’s role in environmental management: crossfunctional development of grounded theory, Supply Chain Management, 37 (3), pp 12–26 Coglianese, C and Nash, J (2001) Environmental management systems and the new policy agenda, Chapter 1 in C Coglianese and J Nash (eds) Regulating from the Inside: Can environmental management systems achieve policy goals? 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The paper analyses a case of innovation in the native wool produced in Italy (Tuscany) as a driver of a sustainable fashion supply chain; the aim is to investigate the resulting concept of sustainability and its relations with luxury. Our methodology is based on ethnographic interviews carried out with actors of the local fashion supply chain. Simone Guercini is Professor of Marketing at the University of Florence (Italy). His areas of research expertise are business-to-business and crosscultural marketing, fashion industry and branding. He has published among others in Industrial Marketing Management, Journal of Fashion Marketing and Management, Management Decision, Journal of Customer Behaviour and Journal of Business-to-Business Marketing. Silvia Ranfagni is Assistant Professor of Marketing at the University of Florence (Italy). Her research interests include innovation, internationalisation and brand management with special reference to the fashion and cultural industry. She has published in national (Finance, Marketing and Production) and international journals (Arts Marketing, Journal of Fashion Marketing and Management, Management Decision). u ! u ! Department of Economics and Management, University of Florence, Via delle Pandette, 9, 50127 Florence, Italy Department of Economics and Management, University of Florence, Via delle Pandette, 9, 50127 Florence, Italy * Simone Guercini and Silvia Ranfagni share the final responsibility for this paper. Simone Guercini wrote the first section; Silvia Ranfagni wrote the remainder. 76 JCC52_Guercini_Ranfagni.indd 76  JCC 52 December 2013 © Greenleaf Publishing 2013 23/11/13 4:13 PM sustainability and luxury Sustainability and its constitutive dimensions S ustainability is a subject that is attracting the attention of management scholars. This is due to the diffusion in firms of sustainability as a driver of strategic orientations (Siegel, 2009). Firms that are driven by sustainability, seen as ‘meeting the needs of the present without compromising the ability of future generations to meet their own needs’ (Brundtland Commission Report, 1987), plan their business respecting the environment and all its resources. Their strategies contemplate the preservation of the environment (Berns et al., 2009) and are based on the efficient use of resources. This leads to business behaviours that minimise reliance on natural resources (Pullman et al., 2009) and reduce waste and pollutants in productive processes (Gordon, 2007) by encouraging the use of alternative energy sources, by recycling and by erecting barriers to contamination. Although sustainability is an environmental issue, it is also studied in its social, organisational and economic dimensions (Closs et al., 2010) (Table 1, column 1). Respect for the environment can become an expression of a firm’s social responsibility (Montiel, 2008) and of its active role in the creation of a better society (social dimension). Initiatives to promote an egalitarian society by reducing poverty, the disparity in access to resources for consumption and unfair working conditions (Closs et al., 2011) are combined with initiatives undertaken for a clean and uncontaminated environment. Environmental sustainability as social responsibility can generate a ‘corporate sustainability’ pushing firms to meet ‘the needs of the direct and indirect stakeholders (such as shareholders, employees, clients, pressure groups, communities, etc.), without compromising the ability to meet the needs of future stakeholders as well’ (Dyllick and Hockerts, 2002, pp. 131). This leads to continuity in the fulfilment of stakeholders’ expectations and, thereby, the creation of conditions for preserving businesses that are socially and environmentally based. In order to be successful, this business has to be contextualised in an organisation where sustainability is incorporated in the firm’s core ideology (Lubin and Esty, 2010; Closs, et al., 2011), constituting a business philosophy (organisational dimension). More specifically, sustainability becomes the basis of the ‘shared, relatively coherent interrelated sets of emotionally charged beliefs, values and norms that bind some people together and help them make sense of their worlds’ (Trice and Beyer, 1993, p.33). As a component of the firm’s culture, it drives corporate behaviours through business principles whose legitimation requires at least two levels of organisational participation (Colbert and Kurucz, 2007; Lozano, 2012). An internal level is based on ‘social engagement’ (Mackey et al., 2007): a firm’s human resources gain the awareness of working for environmental and social benefits considered as sources of competitive advantage. An external level is based on a relation of ‘partnership’ not only with stakeholders (Peloza et al., 2012), but also with all the supply chain’s actors (suppliers, manufacturers, etc.) (Sheth, Sethia and Srinivas, 2010; Allen et al., 2012): all of them collaborate by respecting activities fostered by the JCC 52 December 2013 JCC52_Guercini_Ranfagni.indd 77 © Greenleaf Publishing 2013  77 23/11/13 4:13 PM 78 JCC52_Guercini_Ranfagni.indd 78 Economic Environmental Sustainability as a source of positive performance. This implies the preservation in the firm and in all its interacting economic subjects of a sustainability-oriented culture (Morgalis and Walsh, 2001; Ambec and Lanoies, 2008). Economic Organisational (3) Luxury and sustainability convergences fostering sustainable luxury Authenticity Sustainable luxury as potential Rigour driver of performance. This requires lasting common behavioural rules and a formal organisation to create and maintain a common sustainable culture within the supply chains. Sustainable luxury as a Collective sharing sustainable project shared by a Quality technical community of entrepreneurial competences actors. The results in terms of sustainable productions depend on the actors’ productive skills. Sustainable luxury as a way to assert the territorial identity of the natural resources used in production. Sustainable luxury as use of Durability natural resources (native wools) Rarity favouring the conservation of their sources (local sheep breeds) (2) Dimensions of sustainable luxury Sustainability as corporate social responsibility Social (Montiel, 2008; Closs et al., 2011). There may follow a ‘corporate sustainability’ aimed at meeting long-term stakeholders’ needs (Dyllick and Hockerts, 2002) Organisational Sustainability as a firm’s core ideology, driving corporate behaviours (Lubin and Esty, 2010; Closs et al., 2011). Its legitimation requires the sharing of sustainable business principles among stakeholders and all the supply chain’s actors. Social Environmental Sustainability as respect for the environment and for all its resources (Gordon, 2007; Berns et al., 2009; Pullman et al., 2009) (1) Dimensions of sustainability Source: Scientific management literature. Empirical research on the Tuscany native supply chain Table 1 Sustainability and sustainable luxury: a comparison based on scientific contributions and empirical research simone guercini, silvia ranfagni  JCC 52 December 2013 © Greenleaf Publishing 2013 23/11/13 4:13 PM sustainability and luxury objective of sustainability. Both levels require homogeneous codes of conduct as a useful guide to simplifying the sharing of common business principles. The environmental, social and organisational dimensions of sustainability can be read in terms of economic impact (economic dimension). The possibility of transforming respect for the environment, seen also as a social responsibility, into positive performance depends on the ability of the underlying firm to embed over time a sustainability-based culture that involves internal human resources and all the interacting economic subjects. In this regard several studies (Margolis and Walsh, 2001; Ambec and Lanoie, 2008) show how firms with this ability can achieve positive performance in a shorter time and with a greater continuity than firms that do not undertake sustainable business. The relation between sustainability and performance is in any case bidirectional: it is not only sustainability that influences performance, but also performance that acts as a driver of investments in sustainability (Siegel and Vitaliano, 2007). This twofold relation seems to characterise luxury sustainability especially in fashion; here sustainability can be an engine of performance, but at the same time it is the result of a firm’s positive performance. Now we investigate the relation between sustainability’s environmental dimension and luxury, focalising our attention on the fashion industry. Sustainability and luxury: a possible combination Sustainability is progressively affecting different economic sectors where firms react to the economic advantages of the ‘green economy’ by interpreting and managing in a new way their relations with the environment (De Simone and Popoff, 2000; Atkinson, Dietz and Neumayer, 2007). Luxury, more than others, is a sector marked by a growth of sustainable productions and, thus, by the development of business models based on sustainable supply chains (Hoffmann and Manière, 2012). More specifically, environmental preservation drives luxury firms to redefine their sourcing, manufacturing and distribution processes, gaining efficiency, fostering innovation and increasing brand value (Kapferer and Bastien, 2012). Taking advantage of a new business opportunity, they draw on the green consumer generations who search for sustainable brands and recognise sustainability as a distinctive element of corporate brand identity. It follows that luxury and sustainability, concepts apparently in opposition, can coexist and even be joined. We now investigate the converging meanings of luxury and sustainability focusing then on sustainable luxury fashion brands. Luxury is a word used in everyday life to qualify products and services that produce great human involvement, exist in a limited supply and are recognised for their value. It is a hallmark of beauty (Kapferer, 1997) and, more in general, objects of desire that, even though devoid of utility, provide pleasure. Luxury differentiates people who possess it: the simple use or display of luxury goods brings esteem, thus enhancing notoriety, prestige and status among social JCC 52 December 2013 JCC52_Guercini_Ranfagni.indd 79 © Greenleaf Publishing 2013  79 23/11/13 4:13 PM simone guercini, silvia ranfagni classes (Vigneron and Johnson, 2004). As a consequence, luxury produces psychological and social benefits through the exclusivity it communicates (Pantzalis, 1995). The degree of luxury a consumer derives from a product, however, depends entirely on what the person (consumer) believes that other people (consumers) believe about the product (Bernstein, 1999). Thus, luxury is a perceptive reality and has a subjective nature. Overall luxury is inessential, superfluous, exclusive and ostentatious; it is the exact opposite of sustainability. On the basis of its constitutive dimensions analysed in the previous section, sustainability entails environmental conservation, produces a social impact, and fuels cultures that underpin shared behaviour codes. Sustainability, then, is an indispensable, collective and an ideological phenomenon. Despite this conceptual distance, luxury and sustainability, especially in its environmental dimension, converge in the features of durability and rarity, which constitute possible bridges between them. Luxury can be defined as the business of lasting worth, which does not pass in the wake of fashion, almost as though it were characterised by an everlasting existence (Hoffmann and Manière, 2012). In this regard Kapfarer (2012) points outs that 90% of all Porsches produced are still being driven and that Louis Vuitton provides after sales services to any genuine LVuitton product, no matter when it was purchased. Durability is the heart of luxury as well as of environmental sustainability, whose fundamental objective is to pursue the protection over time of natural resources. Luxury’s durability impacts on environmental sustainability: luxury’s long life reduces waste in the use of natural resources, favouring their preservation. Luxury, however, is also rarity (Martin and Tischner, 2001; Manfredi and Robins, 2012). Luxury derives value from an objective rarity, which may be due to the use of rare materials (skins, leathers, pearls, etc.) in addition to a rare craftsmanship. Its value, then, depends on the uniqueness of its constitutive resources and thus on environmental sustainability. It is the preservation of natural resources that contributes to generating luxury’s rarity. Rarity and durability join together luxury and sustainability, making them interconnected: luxury depends on sustainability and, at the same time, sustainability finds in luxury a potential ally. Luxury brands, exploiting durability and rarity, make sustainability a way of evoking the brand’s eternity and of reinforcing brand awareness. Sustainable business behaviours can act on existing brand identity, increasing its perceived quality and its exclusivity, and producing, as a result, higher levels of sales and of customer loyalty. Sustainable luxury brands draw on durability combining its sense of environmental conservation, which marks sustainability, with its eternal nature, which is innate in luxury (Guercini and Ranfagni, 2012; Kapferer, 2012). Fashion brands (such as Gucci and Hermès) develop productive processes with low environmental impact together with the use of recycling and of sustainable materials. In so doing, they seek to conserve the environment, but also their original brand values, creating a bridge between past, present and future. More specifically, pursuing durability of natural resources, they realise sustainable products as a way of rendering their history relevant to the present (see Gucci’s use of ecofriendly packaging). 80 JCC52_Guercini_Ranfagni.indd 80  JCC 52 December 2013 © Greenleaf Publishing 2013 23/11/13 4:13 PM sustainability and luxury Sustainable luxury fashion also involves rarity, which is characterised by both sustainability and luxury and based on the limited availability of natural resources (Guercini and Ranfagni, 2012). Luxury fashion brands (see Vivienne Westwood) may produce collections using rare natural resources such as hemp and special cottons. These materials make the collections particularly unique and exclusive. Moreover, luxury’s exclusivity is generated not only by the use of limited natural resources, but also by their exploitation in rare combinations of dissimilarities at the base of collections. The same sustainable collection integrates clothing items ideal for various occasions (work, leisure, etc.) and opens the path for a mix of different styles (Gucci and Hermès are good examples). Thus, luxury fashion brands combine the rarity of resources with the uniqueness arising from clothes’ heterogeneities. In the following sections our aim is to study a particular case of textile and clothing supply chain to delineate better the concept of sustainable luxury. In other words, we seek to investigate sustainability and examine how sustainability relates with luxury, going beyond rarity and durability and the single environmental dimension. We will focus on sustainability in fashion and, taking for granted that rarity and durability are shared features of both luxury and sustainability, we will ask whether it is possible to expand this common base considering the other dimensions of sustainability. Research objectives and methodology The case of sustainable supply chain analysed in the paper is the result of research we have carried out within the cross-border project MEDLAINE. The project was financed by the European Fund for Regional Development and involved a number of institutional partners with the aim of recovering native wools through their use in textile productions. Our research was focused on the Province of Grosseto (Tuscany) and covered a three-year period (2009–2012). It accompanied the planning stages and creation of a textile and clothing supply chain which is sustainable-luxury based, locally extended and grounded in the use of raw wool produced by indigenous sheep. We present some results of our research identifying the distinctive features marking the local supply chain in terms of sustainability dimensions and of relations between sustainability and luxury. The luxury, seen as rarity and uniqueness, stems in the case under investigation, from the autochthonous nature of the local wool. It is, that is to say, an expression of a unique natural resource, independently of an existing brand identity perceived as exclusive by the market. Methodologically, the research was based on the analysis of secondary data and ethnographic interviews (Spradley, 1979). While the secondary data (texts on local history, databases, economic programming documents, etc.) provided a picture of the local economic and productive structure, the ethnographic interviews sought to identify: (a) products that can be created using native wool, (b) the actors of the supply chain, along with their respective roles and mutual relational processes, JCC 52 December 2013 JCC52_Guercini_Ranfagni.indd 81 © Greenleaf Publishing 2013  81 23/11/13 4:13 PM simone guercini, silvia ranfagni and (c) the techno-economic feasibility conditions of the emerging supply chain. The interviews involved owners of firms considered representative of the local economy and some of which, as we will see, are key actors in the native supply chain. Each interview was further developed through subsequent contacts over the course of about two years (Guercini, 2004). The contacts were useful to deepen the analysis, but also to verify the interpretation of the interviews carried out. The firms included in the research were three sheep farmers, two garment makers, a textile craftsman, and a dye-works manager. Other interviews were concentrated on seven firms from the nearby district of Prato, integrated in the local supply chain, as providers of particular manufacturing skills. All firms mentioned in the article are anonymous respecting privacy and a standard practice in ethnographic research reports. Main results The driver of the luxury supply chain: native wool The engine of Grosseto’s native supply chain is a unique resource rooted in the territory. This resource is the raw wool produced by autochthonous breeds of sheep, which are currently at risk of extinction. The use of this wool in productive processes makes it possible to turn waste material into an exclusive productive resource and at the same time to slow down the progressive disappearance in the territory of autochthonous sheep breeds. These sheep, bred for their meat, count as many as 20,000 head in the Province of Grosseto; their numbers were declining while the dairy sheep population was growing, reaching some 150,000. The main reason for this decline lies in the financial imbalance involved in the management of autochthonous sheep: that is, they require continuous running expenses, corresponding, however, to earnings that are periodic and temporally concentrated. This is not surprising given that they are not marketed, at least in Italy, throughout the year but rather principally in the winter in correspondence with the Christmas and Easter holidays. There is no such imbalance with dairy sheep, which, while involving higher labour costs, produce a good, milk, which is sold on a regular basis, as it is a raw material employed in a variety of dairy products. The use of the raw wool from autochthonous breeds and its role as a driver in the textile and clothing supply chain has provided an incentive for sheep farmers to maintain the indigenous breeds in their herds. It has allowed them to recoup the cost of shearing (€3 per head) and to relieve themselves of the disposal of wool waste. In the past, the wool was sold below cost (at 35 cents per head) to Middle Eastern carpet producers, or it was eliminated abusively. It was usually burned or buried in the fields, thus becoming a potential source of pollution. Its transformation from waste to raw material in addition to making it a resource capable of generating economic benefits also contributes to maintaining the peculiar characteristics of the territory in terms of both autochthonous sheep breeds and environmental quality. 82 JCC52_Guercini_Ranfagni.indd 82  JCC 52 December 2013 © Greenleaf Publishing 2013 23/11/13 4:13 PM sustainability and luxury Native wool and its roots in the territory The local luxury supply chain arose from the recovery of a local resource and has become a way to enrich the territory from which the resource originated and with which it enjoys a symbiotic relationship. This territory is the Province of Grosseto, and in particular the Maremma, a vast area marked by its rugged natural landscape and wealth of local traditions. The Maremma has a long shoreline and extends inland. The beaches and cliffs of the coast attract tourists in the summer, while the inland is occupied mainly by agricultural businesses active in animal husbandry and the cultivation of vineyards and olive groves. The territory has a history of rural traditions. One, whose image is alive in the collective mind of the local population and strikes the attention of the visitor, is the cowboy-like buttero, the traditional sheepherder wearing the typical outfit, consisting of jacket with game bag, vest and sturdy pants made of fustian, coarse cotton and raw wool. The jacket is easily recognisable by the pocket with the flap, reinforcing the pocket itself, and the game bag with ample room for food and ammunition. The native wool originated in this territory, of which it is a genuine expression and integral part. The sheep farmers recount, in fact, how in the past rural families used it to make clothing accessories for work in the fields. Among these were the vest and hand-made heavy woollen stockings. Indeed, there were people in the area who knew how to wash, dye and weave wool, working with small quantities to satisfy family needs. If on the one hand the processing of native wools goes back to rural traditions, on the other, the semi-finished fabrics made from these wools find their natural utilisation in the products created by local garment makers and inspired by the traditions of the buttero of the Maremma. The creation of collections with native textiles, in fact, is considered by garment makers as a way of highlighting what is special about their products, thereby enhancing their exclusiveness and uniqueness: in this way a local style finds a ‘home’ in a local resource. Since the collections combine indigenous resources with local traditions, their perceived value derives from the effect that the image of the territory generates in the mind of the consumer. The native chain, then, retrieves a natural resource along with its territory and its traditions. To achieve this, it builds a bridge between the past and the present: through native wool it synthesises and at the same time renders contemporary the uniqueness of a territory, which presents authenticity as its hallmark. Indeed, it is in its relation with a genuine territory that indigenous wool enhances its exclusiveness and becomes a source of authenticity. As a result it fuels a sense of luxury that combines excellence, uniqueness and originality. The native luxury supply chain: a community of specialised firms The activities of the supply chain are carried out in the Region of Tuscany. They are concentrated in the area surrounding Grosseto but they extend also to the district of Prato. Grosseto hosts the largest nucleus of actors in the supply chain, consisting of 15 sheep farmers and two garment makers (garment maker 1, JCC 52 December 2013 JCC52_Guercini_Ranfagni.indd 83 © Greenleaf Publishing 2013  83 23/11/13 4:13 PM simone guercini, silvia ranfagni garment maker 2). In the district of Prato there is a specialised pool of six firms coordinated by a local wool mill (textile firm 1) which distributes the raw wool, stored in its warehouses, and manages the various productive activities involved in the transformation of the raw wool into semi-finished fabric. Each of the six firms performs specific tasks in the process of transformation. In these first two years in the experience of the native supply chain these actors have been part of a small business community; that is, they have participated actively and spontaneously in a business project, sharing aims and activities. They are all family enterprises and have notable technical competence, a combination which gives rise to sustainable products with a high grade of technical know-how. The firms of the Prato district provide skills needed to overcome the intrinsic limits of indigenous wool. It coarseness, in fact, has an irritating effect on the skin; and the fact that it is composed of short and long staples leads to a yarn which breaks easily. It was necessary to devise a complex process specially designed to make the wool as attractive as possible to the market. Stages of particular importance are the oiling and the finishing, which make the wool softer, and the raising, which increases the resistance of the yarn. Currently, about 3,000 kg of wool are processed each year, yielding 500 metres of fabric, which serve to make at least 200 items of clothing (Table 2). The time lapse between the shearing and the production of the fabric runs from three to four weeks. Once finished, the fabric is sent to two garment makers in Grosseto who employ it to create new collections that allude to the tradition of the buttero or to develop existing ones by creating the ‘same’ products using new fabrics (see www In the production process, the garment makers employ their own production skills, occasionally supplemented by those of local workshops. The distribution network of native products is small and specialised: it consists of single-brand shops which the garment makers have set up in the area and a few national retailers specialised in the sale of high quality tailor-made items. The products of the supply chain enjoy a high level of positioning; each bears the label ‘Tuscany Wool’, accompanied by the brand name of the garment maker. Since the brands of these garment makers are known mainly at a local level, they contribute very little to the creation of a sense of exclusivity of the products Table 2 The native supply chain: actors, outcomes and potentiality Source: Empirical research Supply chain actors (1) Current situation (2) Potential situation (3) 15 farmers Wool produced: 3,000 kg 2 garment makers 1 woollen mill (coordinator) Pool of six specialised firms (1 scouring, 1 unravelling, 1 spinning, 1 warping, 1 weaving and 1 finishing) Fabric produced: 500 kg Garments produced: 200 Average price: €400 Supply chain sales value: €80,000 Wool produced: 40,000 kg (2 kg per sheep) Fabric produced: 25,000 metres Garments produced: 10,000 Average price: €400 Supply chain sales value: €4,000,000 84 JCC52_Guercini_Ranfagni.indd 84  JCC 52 December 2013 © Greenleaf Publishing 2013 23/11/13 4:13 PM sustainability and luxury of the local industry. It follows that the exclusivity is not to be attributed to the value of the brand but rather to the uniqueness of the material used as well as to the territory and the traditions it evokes. This uniqueness is reinforced by production processes that are locally based. The need for organisation of the Tuscan supply chain The native supply chain offers growth potential to participating firms (Table 2). The exploitation of this potential implies the establishment in the supply chain of enduring rules of collective behaviour to create and maintain a common sustainable culture that is considered essential for transforming the potential of a shared entrepreneurial project into a genuine source of business activity. From this follows a convergent entrepreneurial way of thinking: the single players must not feel that they are autonomous entities within the supply chain but rather interdependent actors that contribute to collective rather than individual growth. The business community does not merely share objectives and activities but actually coordinates itself on the basis of a collective project. The Tuscany supply chain has formalised the relations among actors through the form of the consortium that brings the current business community together under durable rules designed to reduce the risk of individual decisions that could undermine the solidity of the supply chain relations. In this regard, taking advantage of its central role within the chain, textile firm 1 decided on its own to sell indigenous fabrics that exceeded the demand of the local garment makers to firms outside the local industry. In so doing the firm acted in a way that, unless blocked by collective supply chain rules, could result in a loss of the perceived value of native collections; this loss would be all the greater if the purchasing firms occupy a low market positioning and regard the indigenous wool as a transient business; that is, one not stemming from a business culture based on environmental sustainability. The formal organisation of the supply chain helps to create a collective culture, which serves as a barrier against opportunistic behaviours both internal and external. This is the case of international luxury firms, which, increasingly on the lookout for exclusive natural resources for their collections, attempt to establish direct relations with individual farmers. Exploiting the bargaining power connected with their brand strength, they try to convince farmers to sell. This leads to a loss of control over the native wool, which is the resource on which the entire supply chain depends. This risk can be reduced if farmers are formally bound to a chain project and act in pursuit of collective goals. The ability to create and maintain a culture founded on a common project is an indispensable prerequisite for protecting the exclusiveness of a supply chain based on the relation between a natural resource and the territory and for developing its identity in relationship with the market. It is in fact on the basis of a shared collective culture that a successful supply chain brand can be developed as a synthesis of a recognised common identity. JCC 52 December 2013 JCC52_Guercini_Ranfagni.indd 85 © Greenleaf Publishing 2013  85 23/11/13 4:13 PM simone guercini, silvia ranfagni Discussion Our work shows that the concepts of sustainability and luxury enter into a relation of coexistence. The relationship, however, can vary in nature. On the one hand, sustainable luxury can strengthen the exclusivity of a brand. This is what happens in luxury brands where sustainability enhances their perceived value. On the other, sustainability may be not so much an instrument as the source of luxury. This is the case of the sustainable luxury in the Tuscan supply chain investigated; luxury in fact, stems from the native wool, which is a unique and limited natural resource, obtained through the conservation of local sheep breeds at risk of extinction. It is the sustainability of native wool, then, that gives rise to the luxury of goods produced from that wool. Both sustainability and luxury share the rarity and the durability of a unique natural resource that does not increase the perceived value of existing brands. Rather, it generates exclusive goods destined for a life of their own, detached from an identifying brand. It follows that luxury is sustainability and sustainability is luxury. The case analysed highlights how sustainable luxury includes not only an environmental, but also a social dimension (Table 1, column 2). The recovery of native wools, in fact, is a way of asserting a territorial identity. Native wools are, in fact, a synthesis of local traditions and expression of a rugged, natural land, which preserves over time its originality. The luxury deriving from them expresses an exclusivity based on authenticity, which translates into an authentic sustainable luxury. Moreover, the sustainability of native wools embedding territorial naturalness increases the exclusivity of the resulting luxury goods. Thus, luxury resides not only in native wools, but also in the authenticity of the territory they evoke. Sustainable luxury is comprised also of an organisational dimension; in fact, it cannot exist without an entrepreneurial organisation sharing a common sustainable project (Table 1, column 2). In the Tuscany supply chain, this organisation is made up of a community of entrepreneurs who participate voluntarily and actively to create a sustainable production. The combination of specialised skills they possess emerges in products whose exclusivity and sustainability are due not only to the native wools they are made from, but also to the technical know-how involved. Sustainable luxury presupposes therefore a project shared within a community and quality in terms of productive competences. The resulting products, though destined for a high market positioning, may be high-priced but not so high as to be the sole prerogative of the luxury segment. Thus, sustainable luxury can be an accessible luxury, shared by a community of consumers who identify with the underlying sustainability project. It is the social value of the project and not just the price that determines the selection of the market segments. The economic dimension (Table 1, column 2) of the Tuscany experience of sustainable luxury finds its assumption in the definition and conservation of common behavioural rules to preserve a sustainable supply chain culture; this entails the organisational formalisation of the community aggregating all the supply chain’s actors. The convergence towards lasting organisational principles contributes to turning the shared sustainable project into actions aimed at achieving joint 86 JCC52_Guercini_Ranfagni.indd 86  JCC 52 December 2013 © Greenleaf Publishing 2013 23/11/13 4:13 PM sustainability and luxury economic objectives defined at the level of supply chain. The economic dimension depends on the organisational one. Consequently, for sustainable luxury rigour becomes a distinctive feature, indispensable as a driver of both positive performance and the cohesion of entrepreneurial intents. Our research shows that sustainable luxury covers all the dimensions of sustainability. It is precisely the analysis of sustainable luxury’s dimensions that points out how luxury and sustainability can converge not only in rarity and durability, but also in authenticity, collective sharing, quality and rigour (Table 1, column 3). Sustainability is related to natural resources seen as original and genuine environmental essences that can be even a manifestation of a territorial identity; to the extent to which luxury preserves these essences expressing possibly also the territory embedded in the underlying natural resources, it becomes an expression of authenticity. It follows that authenticity in sustainable luxury can contribute to reinforcing its exclusivity. Also collective sharing and quality characterise sustainability and luxury. Just as sustainability preserves open collectively shared spaces, so is luxury based on shared values joining its producers and consumers. Sustainable luxury is a collective luxury based on a common project aggregating entrepreneurs; the consumers’ recognition in the project constitutes a basic assumption for the development of sustainable luxury. Moreover, sustainability pursues environmental quality; likewise luxury is based on the quality of the specialised competences and technical skills that are involved in production. Sustainable luxury requires productive quality and specialisation as conditions impacting on the production’s exclusivity. Finally, rigour joins sustainability and luxury. Sustainability searches for the conservation of an environment that is governed by natural laws. Luxury, too, is based on rules: if created, it involves organisations that follow specific codified organisational behaviours. Sustainable luxury presupposes lasting common principles in the supply chain to maintain a convergent mindset for generating positive levels of performance. In terms of managerial implications, from our research it emerges that a sustainable luxury: (a) is authentic, if an expression of natural resources embedding territorial originality; (b) is a collectively shared luxury based on a convergent sustainable project; (c) requires quality in terms of productive competences; and (d) presupposes organisational rigour. While authenticity and technical skills influence the perception of the value of luxury, the collective sharing and the rigour impact, respectively, on the development of the sustainable luxury’s business and on its performance. It follows that sustainable luxury is a luxury that respects and at the same time exploits the environment to express, in addition to exclusivity and immortality, also originality, spirit of community, qualitative superiority and inflexibility. Ultimately, luxury and sustainability are not antithetical, but compatible concepts; indeed, their integration can give rise to a concept of luxury based on new basic elements. Drawing on the results emerging from the analysis of the Tuscany supply chain, we seek to continue our research. In particular we will analyse other similar textile and clothing supply chains to validate the results of our study, expanding a comparison between sustainable luxury in fashion brands and sustainable luxury’s experiences in JCC 52 December 2013 JCC52_Guercini_Ranfagni.indd 87 © Greenleaf Publishing 2013  87 23/11/13 4:13 PM simone guercini, silvia ranfagni native chains. This comparison will deepen the relation between sustainability and luxury investigating also the business models underlying this relation. References Allen, M.W., Walker, K.L., and R. Brady (2012) ‘Sustainability Discourse with a Supply Chain Relationship: Mapping Convergence and Divergence’, Journal of Business Communication 49 (3): 210-236. Ambec, S. and P. Lanoie (2008) ‘Does it Pay to be Green? A Systematic Overview’, Academy of Management Perspectives 22 (4):45-62. Atkinson, G., Dietz, S. and E. Neumayer (2007) Handbook of Sustainable Development (­Cheltenham, UK: Edward Elgar). Berns, M., Townend, A., Khayat, Z., Balagopal, B., Reeves, M., Hopkins, M., and ­Kruschwitz, N. (2009) ‘The Business of Sustainability: What it Means to Managers Now’, Sloan M ­ anagement Review 51 (1): 20-26. Bernstein, L. (1999) ‘Luxury and the Hotel Brand: Art, Science or Fiction?’ Cornell Hotel and Restaurant Administration Quarterly, 40 (February): 47. Closs, D.J., Speier, C. and N. Meacham (2011) ‘Sustainability to Support End-to-End Value Chains: the Role of Supply Chain Management’, Journal of the Academy of Marketing Science 39 (1): 101-116. Colbert, B.A. and E.C. Kurucz (2007) ‘Three Conceptions of Triple Bottom Line Business Sustainability and the Role for HRM’ HR. Human Resource Planning 30 (1): 21-29. De Simone, L. and F. Popoff (2000) Eco-Efficiency. The Business Link to Sustainable Development (USA: MIT Press). Dyllick, T. and K. Hockerts (2002) ‘Beyond the Business Case for Corporate Sustainability’ Business Strategy and the Environment (11): 130-141. Gordon, D. (2007) ‘Using Lean to Meet Quality Objective’, Quality Progress 40 (4): 55-56. Guercini, S. (2004) ‘Developing the researcher-manager interface in the case analysis process’, Management Decision, 42 (3/4): 464-72. Guercini, S. and S. Ranfagni (2012) Social and Green Sustainability and the Italian Mediterranean Fashion Brands, EUROMED Congress Marseille (28-29 June): 1-15. Hoffmann, J. and I. Coste-Marnière (2012) Luxury Strategy in Action (USA: Palgrave McMillan). Kapferer, J. N. (1997) ‘Managing Luxury Brands’, Journal of Brand Management 4 (4): 251–260. Kapferer, J.N. (2012) ‘All That Glitters is not Green: the Challenge of Sustainable Luxury’, The European Business Review November, Kapferer, J.N. and V. Bastien (2012) The Luxury Strategy: Break the Rules of Marketing to Build Luxury Brands (London: Kogan Page). Lozano, R. (2012) ‘Orchestrating Organizational Changes for Corporate Sustainability’, Greener Management Journal (57):43-57. Lubin D., and D. Esty (2010) ‘The Sustainability Imperative’ Harvard Busine...
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Implementing Green Procurement Strategy




Implementing Green Procurement Strategy
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