Sustainable Supply Chain Management in Oil Industry

In this article, e extend our series of articles concerning the oil and gas industry's supply chain. Our primary focus is on the contemporary emergence of sustainability as a pivotal aspect within the supply chain, signifying a significant shift towards responsible and eco-conscious practices in the oil and gas sector. This transition seeks to strike a balance between energy production and environmental preservation for a more sustainable future.

Introduction

The oil and gas (O&G) industry plays a crucial role within the global supply chain, encompassing various elements such as international and national transportation, information technology infrastructure, export/import services, material handling, inventory visibility and management, and procurement processes. Consequently, this sector presents an opportunity for the development of a commendable model for the integration of sustainability principles into Supply Chain Management (SCM). Sustainability, in this context, pertains to harmonizing the three essential facets of sustainability, namely environmental, economic, and social, in the context of a highly dynamic market environment.

There are substantial advantages associated with the adoption of sustainable practices within the O&G supply chain. From an economic perspective, these advantages encompass enhanced return on investment, financial gains, cost reductions, increased sales turnover, improved market share, heightened competitiveness, and more. Environmental benefits involve the promotion of cleaner production methods, the conservation of valuable resources, the efficient use of energy, the reduction of pollution, the minimization of waste, and the mitigation of carbon footprints.

Factors Affecting SSCM

Historically, Supply Chain Management (SCM) primarily centered on optimizing the efficiency and responsiveness of production and product delivery systems. However, in contemporary times, ecological concerns have gained prominence within the realm of SCM (Seitz and Wells, 2006).

It is noteworthy that the adoption of sustainable practices becomes more likely when their substantial advantages are recognized. such as brand image, gaining a competitive edge, achieving financial benefits, cultivating customer loyalty, expanding market share, enhancing energy efficiency, and reducing carbon dioxide emissions (Choudhury et al., 2018). Further, an effective SSCM focuses on Green Supply Chain Management and environmental management processes (Erkul et al., 2015).

In a noteworthy contribution, Lakhal et al. in (2007) delved into the parameters of GSCM, introducing the concept of the 'Olympic green supply chain,' which embodies five key principles: zero waste in the product lifecycle, zero usage of toxic substances, zero waste in activities, zero wastage of resources, and zero emissions.

Furthermore, research by Yusuf et al. (2013) presented statistical evidence demonstrating a positive correlation between sustainability practices and the Operational Performance Ratio of the examined supply chain, highlighting the tangible benefits of sustainability in SCM.

Barriers to SSCM

Raut et al. (2018) utilized the ISM approach to discern and construct a model of the critical impediments facing Sustainable Supply Chain Management (SSCM) within the Oil and Gas sector. Their investigation highlighted the prominence of four pivotal factors: 1) commitment from top management, 2) economic implications, 3) knowledge and training, and 4) governmental regulations. Additionally, they underscored the influence of climatic changes on the feasibility of adopting SSCM in the O&G sector.

In a related study, Ahmad et al. (2016) probed the impact of external factors, encompassing energy regulations and transition, competitive dynamics, stakeholder pressures, and financial stability, on the overarching sustainability objectives of O&G supply chains. Their analysis culminated in the identification of 'financial stability' and 'stakeholder pressures' as the preeminent determinants significantly shaping sustainability objectives within this context.

Analytics of SSCM

• Gardas et al. (2019) introduced an Interpretive Structural Modeling (ISM) approach and a Multi-criteria Decision-Making (MCDM) tool, to assess factors impacting Sustainable Supply Chain Management (SSCM) within the Oil and Gas (O&G) industry. They systematically identified SSCM determinants and examined the strength of their interrelationships and their influence on operations.
• The key determinants were discerned through the expertise of 18 industry specialists and included the following: 1) Collaborative Green Logistics, 2) Co-operation and Information Sharing with Suppliers and Customers for Joint Action, 3) Green Purchasing and Production Management, 4) Competitive Pressure and Internal Organizational Factors, 5) Eco-friendly Design and Environmental Management, 6) Regulatory Pressure, and 7) Operational and Business Performance. Furthermore, a questionnaire survey with 490 responses, utilizing a seven-point Likert scale, was conducted for analysis.
• Their findings revealed that Collaborative Green Logistics exerted a substantial influence (0.562) on operational performance, while Green Purchasing and Production Management exhibited a moderate impact (0.332), while Competitive Pressure and Internal Organizational Factors had the least pronounced effect (0.001).
• Interestingly, the study indicated that O&G companies adopted SSCM not merely due to regulatory pressures but primarily to maximize profits while simultaneously bolstering environmental efficiency by reducing pollution, minimizing carbon footprint, conserving energy resources, enhancing competitiveness, and expanding market share. Moreover, it highlighted market volatility and fluctuating oil prices as significant barriers, emphasizing that implementing sustainable practices could pose substantial costs and potentially impact the industry's financial stability.

References:

1. Ahmad, W. N. K. W., Rezaei, J., de Brito, M. P., & Tavasszy, L. A. (2016). The influence of external factors on supply chain sustainability goals of the oil and gas industry. Resources Policy, 49, 302-314.
2. Choudhury, N., Raut, R. D., Gardas, B. B., Kharat, M. G., & Ichake, S. (2018). Evaluation and selection of third party logistics services providers using data envelopment analysis: a sustainable approach. International Journal of Business Excellence, 14(4), 427-453.
3. Erkul, M., Kaynak, H., & Montiel, I. (2015). Supplier relations and sustainable operations: the roles of codes of conduct and human resource development. International Journal of Integrated Supply Management, 9(3), 225-249.
4. Gardas, B. B., Raut, R. D., & Narkhede, B. (2019). Determinants of sustainable supply chain management: A case study from the oil and gas supply chain. Sustainable Production and Consumption, 17, 241-253.
5. Raut, R., Narkhede, B. E., Gardas, B. B., & Luong, H. T. (2018). An ISM approach for the barrier analysis in implementing sustainable practices: the Indian oil and gas sector. Benchmarking: An International Journal, 25(4), 1245-1271.
6. Seitz, M. A., & Wells, P. E. (2006). Challenging the implementation of corporate sustainability: The case of automotive engine remanufacturing. Business Process Management Journal, 12(6), 822-836.
7. Y. Lakhal, S., H'Mida, S., & Islam, M. R. (2007). Green supply chain parameters for a Canadian petroleum refinery company. International journal of environmental technology and management, 7(1-2), 56-67.
8. Yusuf, Y. Y., Gunasekaran, A., Musa, A., El-Berishy, N. M., Abubakar, T., & Ambursa, H. M. (2013). The UK oil and gas supply chains: An empirical analysis of adoption of sustainable measures and performance outcomes. International Journal of Production Economics, 146(2), 501-514.