Sustainability in chemical supply chains
Current state and ways forward
Growing Green - The ongoing sustainability movement has become a hot topic in the business world and within broader society. Issues such as renewable resources, waste management and working conditions have become omnipresent in the media. As a result, chemical companies feel the growing concern of customers, non-governmental organizations and regulators to ensure sustainable operations beyond the boundaries of the corporate entity.
In response to continuously growing stakeholder pressures, leading chemical firms have increasingly taken individual and joint measures to augment the status quo of ecologic and social sustainability in their supply chains. Yet the agendas of prominent industry conferences indicate that chemical companies are particularly concerned with economic aspects, namely the minimization of costs. We take this opportunity to assess the current state of sustainability in chemical supply chains and to suggest auspicious roads into the future.
Sustainability in Chemical Supply Chains Today
Chemical companies operate in a business-to-business context. On the supply side, the bulk of raw materials is provided by few large-scale suppliers from the oil and gas industry equipped with relatively high bargaining power. For example, Germany-based Bayer reports a sourcing volume of more than €18 billion, of which nearly 60% is spread over suppliers from Germany, the United States and Japan.
On the sales side, a wide range of industries demand basic and specialty compounds. The European Chemical Industry Council asserts that chemical products are processed at manufacturing plants of all sectors of the economy with health care, agriculture and automotive holding major shares. Industrial customers rely on chemicals as a nonsubstitutable input in their production processes but take advantage of their commoditized nature - particularly with regard to the basic types.
Chemical companies started to address sustainability by concentrating on the environmental dimension at the individual-firm level before extending it to suppliers' facilities and the logistics in between. This was largely aimed at differentiating themselves from competitors in order to augment economic performance through the reduction of production inputs and byproducts (e.g., water consumption, energy use, carbon emissions), the utilization of alternative raw materials (e.g., renewable resources) and the extension of the product range (e.g., eco-friendly products).
DuPont serves as a good example, placing a distinct focus on the environmental footprint of its supply chain activities.
Over time, chemical companies' endeavors on sustainability have advanced by including social concerns, joining forces in industry initiatives, and intensifying collaboration with suppliers and customers. In this sense, managing sustainability in chemical supply chains has become a mainstream approach primarily focused on minimizing reputation risks.
For example, AkzoNobel operates a risk-management system to continuously assess suppliers' performance against social and environmental criteria, and recently joined the "Together for Sustainability Initiative," which seeks to enhance the status quo of sustainability in chemical supply chains through shared audits. Moreover, life-cycle approaches are on the rise to address ecologic issues from cradle to cradle or cradle to grave. For this purpose, Dow Chemical teams up with its suppliers and customers.
In sum, the scope of sustainability in the chemical industry has evolved from a firm-level construct with a strong focus on green aspects to a chain-level approach attempting to address the triple bottom line of economic, social and environmental elements. Chemical companies from separate parts of the world seem to follow different philosophies on sustainability in supply chains. European firms (e.g., BASF, Bayer, AkzoNobel) are quite transparent about social and environmental issues in their supply chains, whereas U.S.-based businesses (e.g., Dow Chemical, DuPont) appear more restrictive on sharing such information.
Current trends indicate that economic aspects have moved to the top of the priority list for chemical companies. This does not come as a surprise when taking into consideration that chemical firms' sourcing costs already account for up to 50% of the corporate revenue, with the International Monetary Fund projecting a doubling of the cost for the industry's most important raw material - oil - for the 10-year period ending in 2021.
Given these underlying conditions, the question remains: What is the way forward for truly sustainable chemical supply chains based on the joint consideration of economic, social and environmental aspects?
Ways Forward for Sustainability
The output of chemical companies is utilized in almost all sectors. Accordingly, the manufacturing, utilization and recycling or disposal of chemical compounds is of concern beyond the chemical industry. The creation of truly sustainable chemical supply chains requires a joint effort beyond individual businesses - involving chemical companies, suppliers, customers and consumers. In consequence, an adaption of the primarily green-focused life-cycle approach enriched with social elements is a promising way to go.
With regard to supplies, chemical corporations may be increasingly tempted to switch raw-material sourcing regions to low-cost countries. Yet U.S.-based Exxon Mobil - the world's largest oil firm - has not defined mandatory social and green requirements for its suppliers (i.e., chemical businesses' sub-suppliers). Hence, one can hardly assume that raw-material suppliers from emerging markets (e.g., Brazil, China, Russia) currently ask their suppliers to eliminate environmental pollution and to uphold adequate working conditions. This allows the inference that the implementation of sustainable operations at suppliers' and sub-suppliers' facilities demands unceasing efforts from chemical companies.
Joining forces in industry initiatives to counterbalance to the large-scale oil and gas multinationals could be one way of advocating for chemical firms' economic, social and environmental interests in the short term. Intensifying research on alternative production inputs for chemical products may yield valuable options in the longer run.
Pursuing cross-industry sales - particularly basic types in developing nations - entails chemical companies' responsibility to provide at least elementary education on the handling and recycling or disposal of such compounds. Environmental pollution and exposure of workers to hazardous substances constitute persistent problems in the global textile industry with production hot spots in Asia's low-cost countries.
Recently, the chemical and pharmaceuticals company Merck and the Deutsche Gesellschaft für Internationale Zusammenarbeit have completed a project instructing workers and consumers in Indonesia, the Philippines and Thailand on the safe, environmentally friendly disposal of chemical waste. This is certainly a start, but more of such leadership is inevitably required.