ESSAY: On Sustainable (Doughnut) Supply Chains

My first two books “Supply Chain Strategy and Financial Metrics ” and “Strategy-Driven Supply Chain ” have helped supply chain managers world wide better phrase their daily struggle through the “Supply Chain Triangle of Service, Cost and Cash ”. During COVID many companies have been service driven. We were in a sellers’ market, where demand was largely exceeding supply. Companies were making crazy costs and willing to commit extra cash to extra inventories to keep their congested supply chains flowing. With economic indicators on red, today we’re cost and cash driven. Everybody is canceling or slowing down orders to their suppliers. As demand slows down we’re sitting on huge piles of expensive inventory. It illustrates a global cross-industry end-to-end bullwhip at play in the triangle.

The first two books link supply chain to strategy and financial metrics. They explain how different strategic positions lead to a different balance in the triangle, a different balance between margin and capital employed. They provide improved models to map the strategic trade-offs to supply chain complexity and variability, how to design the appropriate supply chain response, be aware of the costs and capital employed that requires, to be able to close the loop and see whether the intended proposition is financially sound. We discuss how the different planning processes in a company, strategic planning, financial planning (FP&A), tactical operational planning (S&OP), and short-term operational planning (S&OE) all impact the financial value generation (the balance in the triangle). We argument why these planning processes should be more natively integrated and how that could lead to a new role for supply chain.

The obvious question ever since has been “how do you tie in sustainability”. Sustainability features increasingly more prominent on the supply chain agenda. My answer so far has been “good question”.

So I started reading about sustainability. I can recommend ‘Mastering the Circular Economy’ from Ed Weenk, EngD and Rozanne Henzen , and the must-read classic ‘Cannibals with Forks’ from John Elkington which first introduced the principle of the triple bottom-line. Based on these inputs I have made earlier attempts to link sustainability to the supply chain triangle. From the ‘triple bottom-line’ I derived the ‘triple triangle’ which captures the reality that supply chain managers are managing a financial triangle while having to understand and managing the impact on a planet triangle and a people triangle. https://www.dhirubhai.net/pulse/essay-triple-bottom-line-triangle-bram-desmet/

My last read has been ‘Doughnut Economics’ from Kate Raworth. Kate introduces the idea of a doughnut. She explains how the current economic model is overconsuming resources and is leaving big parts of the global population deprived of basic needs. To become sustainable we need to introduce the concept of a social foundation, a minimum threshold we need to reach for all human beings; and an ecological ceiling, a maximum level of pollution and resource usage we need to respect. Within those two limits there is a safe zone. Economic activity should happen within that safe zone.

Mapping the ideas of doughnut economics to the triple triangle is shown in the illustration above. There are two important changes. First you see the triangles have been tilted. In the financial triangle service or sales comes first. We are addicted to growth as Kate Raworth would say. Cost comes second and the impact on cash comes third. For the people and planet triangle it is probably fairer to see the ‘utility’ and the ‘costs’ on a continuum. Stress and burnout are on a continuum with work-life balance. Water pollution is on a continuum with universal access to healthy drinking water. That continuum is better reflected by a vertical line, hence the tilted triangles. Second instead of ‘trying to maximize the Return on Humand Capital Employed’ or the ‘Return on Eco Capital Employed’, Kate Raworth basically installs a social foundation and an ecological ceiling, which is probably more practical and leads to something more actionable.

In her book, Kate Raworth defines the social foundation in terms of ‘access to food’, ‘mortality rates’, ‘life expectancy’, ‘access to education’, … She defines the ecological ceiling in terms of ‘amount of carbon dioxide’, ‘ocean acidification’, ‘nitrogen and phosphorus loading’, … She comes with metrics and measurements to define the respective undershoot and overshoot in the social and ecological dimension. The list can be a starting point for companies to define their own impact. In my role as the CEO of Solventure, a consulting company, we have a material impact on the work-life balance of our people. We can question how we want to balance growth and financial returns with the impact on our people triangle and what we consider the minimum of our social foundation.

I can warmly recommend the book of Kate Raworth. If we truly want to become sustainable and truly balance across the three triangles, we’ll need to rethink what we define as the intended output of our (professional) lives. Raworth arguments that economic thinking of the last 100 years has put economic growth and shareholder financial profits first and foremost. It is my first read that debunks the myths of existing economic theory and proposes alternatives. It is one of the few books I will read twice, to intensify the learning and start changing my own mental models.

Have you read Kate Raworth? What does the above figure trigger with you? Your ideas and comments are as always most welcome!