Dr Lydia Bals is professor of supply chain and operations management at Mainz University of Applied Sciences, Germany. She joined the university in March 2014 and since 2008 she has also been a Visiting Scholar at the department for strategic management and globalisation at Copenhagen Business School, Denmark.
Here, Luca Gelsomino, academic director of the Supply Chain Finance Community, asks Dr Bals about her research into sustainable supply chain design (SSCD).
Gelsomino: Could you outline your background and experience in SCF?
Bals: In addition to my current roles with Mainz University of Applied Sciences and Copenhagen Business School, I spent five years in industry until the end of 2013 – most recently as head of the global department of procurement solutions at Bayer CropScience AG.
I was responsible for sustainability; methods; tools and systems; benchmarking and excellence, steering the international procurement solutions network in Germany, North America, France, India, China and Brazil and also promoting the company’s supply chain finance (SCF) programme with suppliers.
Before that I worked as a project manager at Bayer Business Consulting, managing projects in various functional areas and countries such as Spain, Mexico and Turkey.
Currently, my main research areas are sustainable supply chain management, offshoring/reshoring and procurement organisation and I have published in various academic outlets, including the Journal of Supply Chain Management.
Gelsomino: Tell me about your recent paper on sustainable supply chain design (SSCD) and why it’s important for practitioners to include sustainability in supply chain design?
Bals: Wendy Tate, who is professor of supply chain management at the University of Tennessee, has worked with me on research projects for about 12 years, originally in the area of offshoring.
When I returned to academia full-time in 2014, I was set to extend my research in the area of sustainability and global supply chains and had just seen a presentation by Yunus Social Business, a German investor company for social businesses. Its founder is the Bangladeshi social entrepreneur and Nobel Peace Prize winner Muhammad Yunus – perhaps best known for setting up the Grameen Bank and pioneering the concepts of microcredit and microfinance – and two alumnae from the EBS University of Business and Law in Wiesbaden, where I also graduated for my masters and PhD.
What struck me was that their social businesses are specifically designed to simultaneously fulfil either two areas of sustainability – social and economic – or even all three areas by also extending to environmental.
It’s important to emphasise that their business model recognises the need for the business to economically viable too, as this isn’t a charity. The philosophy they follow is that a charity dollar has just a single life, while a social business dollar actually has endless lives as it can be invested over and over again. That really hit a nerve.
So we embarked on this project four years ago and to date have published two main articles from it – one is about establishing a social-resource based view (SRBV) of the firm. Some readers might have heard about the RBV, which is centred very much on how to establish economic competitive advantage; we tried to extend it through various factors.
The second article, which I’ll outline, is about the sustainable supply chain design (SSCD). From our research on those social businesses and how they design their supply chains, we derived five main conclusions of practical interest:
- When designing your supply chain, you should consider all three sustainability parameters at least equally – rather than prioritising economic before considering social and environmental – and all three flows in the supply chain – material, information and financial – should be designed consciously.
- Design of your supply chain should also define both the outputs and outcomes of what you do. Outputs are products, such as affordable items for ‘bottom of the pyramid’ (BoP) markets, while examples of outcomes include better education and improved hygiene.
- When designing, don’t think about the flows too linearly. There might be forward and backward momentum for all three flows: materials, information and financial. As an example, it might be necessary to install a financial intermediary such as a microcredit institution in order to make the business model work.
- Remember to take into account stakeholders in all three areas of sustainability – economic, environmental and social stakeholders. These stakeholder groups also can help with the previous tasks, such as being clearer on your outputs and outcomes and thinking more creatively about potential parties to take over forward or reverse flows.
- Be aware that support chains – either for information or financial – might be designed in ways that mean even if you don’t achieve fully sustainable outputs in the first step, you might still reach sustainable outcomes.
Among the individual cases we analysed was a chicken farm that had actually been established to provide funding for a school; the structural point being that an auxiliary financial support chain was created. The outcome intent – education – had no direct link whatsoever with chicken meat production.
A larger scale, corporate example of exactly that mechanism is in the area of passenger flights. Whereas your output as an airline and a provider of air transport is inherently unsustainable environmentally, with an auxiliary chain of funds to a climate protection organisation such as Atmosfair, you can still get to a sustainable outcome.
Atmosfair is a German initiative that allows users to calculate their carbon footprint for flights and to donate a commensurate sum of money according to their CO2 calculator. When paid, they invest that sum into projects that offset your CO2 emissions.
Gelsomino: How would you describe the link between SSCD and SCF?
Bals: Ultimately, SSCD is about being creative and more open minded both in terms of stakeholders as well as the flows that are to be designed. We still think too much in physical chains in SCM, and our research highlighted that the information and financial flows can be key to getting to triple bottom line (TBL) sustainability!
Based on what we’ve discussed, the SSCD-SCF link can be quite easily drawn in terms of looking much more at – and appreciating much more – the financial flows in supply chains. SCF is a fantastic means drive this further.
Gelsomino: What are your future plans for this particular discipline: where are SCF and SSCD going?
Bals: A key project that immediately comes to mind is the one both of us currently work on, together with Wendy Tate and Cristof Bals of the Technical University, Dortmund. In this work we examine the interconnection between sustainability and SCF in more depth, because often suppliers – particularly those in the upper tier – can be those with the most acute need for funding in order to improve their environmental and/or social sustainability.
Programs such as the one by Puma that featured at the SCF Forum in Amsterdam in 2016 and 2017, are fantastic examples of efforts to derive some basic principles for other companies who want to leverage SCF for sustainability. As a preliminary finding, we can say that a series of interviews with various firms reveal that companies tend to reward those suppliers who perform well rather than focusing more on those suppliers who are struggling to help them move forward.
From a practical point of view that’s understandable, as the risk is so much lower when you reward those performers who are best in class. But from a research point of view we would also like to help advance the second route, the enabling scenario, because this is still where most of the potential improvement lies.
Any companies reading this that would like to get involved in this research, and be first to receive the results, are invited to get in touch. They will be warmly welcomed.
New technologies such as blockchain are now moving beyond being just concepts and are being applied to produce efficiencies. Will they fundamentally change SCF and SSCD over the next few years?
With distributed ledger technology, one of the potential areas of application that Wendy Tate and myself are currently studying in another research project is that of how these technologies might help enable circularity in supply chains.
The EU has expressed its ambition to move toward a circular economy, but our current supply chain management approaches are still much too focused on the physical flows of materials and are inherently conceived rather linearly. The old “cradle to grave” product thinking is still hard-wired in the current economic system.
Here, moving towards a common standard of a ubiquitously available material passport would absolutely help move things forward. Products would be seen much more transparently as what they are: a current, transitionary combination of resources, which could be used over and over again.
From the financial perspective, it would be possible to enable a thriving “secondary” market of resources. Increasing usage of such a resource market would also mean less use of energy, less transportation etc. is needed, as many of those resources are already in our vicinity.
The company we work with in this project, FBBasic , is a contact we made via the SCF Community at the Amsterdam forum in 2016. So it has really been a great event to connect theory and practice.
Considering your extensive experience in both industry and academia, do you perceive a distance between these two worlds? Could the SCF industry benefit from a stronger link with academia? And if so, what can practitioner and academics do to fill this gap?
In general, I do indeed perceive such a distance. It already starts with vocabulary. While I was still working at Bayer and attending research conferences in parallel, I always had to “translate” research findings into corporate language upon return.
For example, you would never say – in practice – that some ‘antecedents’ have been identified, but you would use ‘drivers’. Simple things like that. And often it is actually rather hard work to really summarise the actual, practical implication of research results, because – though not in all cases, of course – these stay rather hidden in the implications sections of journal papers or at research conference presentations. The famous “So, what?” question. I try to remind myself to always answer this question in my papers and presentations, though you really have to make a conscious effort in academia, maybe due to cultural differences.
Regarding the SCF industry specifically, there are huge opportunities for both sides in closer collaboration. For issues such as the one mentioned earlier, as how to leverage SCF for improvements in supply chain sustainability. Or, certainly, how to join forces moving the field forward by establishing common terminology and – ideally – work towards setting standards that the whole industry can use as a platform to build on.
Regarding how to bridge between research and practice, I think joint projects and exchange are key. In Germany some companies like to have a (part-time) PhD student work on a research topic of interest for the company in collaboration with academia. Or, of course, on smaller scale to cooperate with bachelor and master theses, and/or promoting internships in the SCF field among students. Joint projects also help overcome barriers such as the vocabulary issues mentioned earlier – both sides can learn to “switch hats” and broaden their perspectives more and more. Sometimes pragmatism and speed is of the essence, sometimes thoroughness and detail – united they make a winning combination!