Interview from: FREIGHTWAVES

Sustainability metrics to join cost, customer service considerations

Supply chains are striving to improve sustainability as companies downstream demand it. As sustainability gains importance in the eyes of companies, consumers and investors, educating the next generation of supply chain professionals will need to adapt. 

FreightWaves asked Matt Waller, dean of the Sam M. Walton College of Business and a supply chain management professor at the University of Arkansas, about how supply chain education may evolve.

Waller is also a FreightWaves adviser and will speak at FreightWaves’ The Future of Supply Chain event in Northwest Arkansas in May.

The interview has been edited for clarity and length.

FREIGHTWAVES: How do you think sustainability will impact supply chain education in the future?

WALLER: “Business logistics is about managing the flow and storage of inventory such that total costs are minimized and customer service targets are achieved. These total costs include inventory holding costs, transportation costs, cost of poor service, material handling costs, labor costs, etc. Minimizing these costs while hitting various customer service targets did not used to be subject to the visibility of customers, but that is changing.  

“Now we cannot just minimize these costs subject to customer service targets, but we must also consider how the way we are trading off these costs against one another affect customer perceptions, such as preferences for certain types of sustainability and how customers perceive these to be good for the environment. 

“Everything will eventually become visible, and eventually more and more metrics will be measured and made public. The effect of all of this must be taken into account when setting various customer service targets and when trading off these costs.”

FREIGHTWAVES: Can you provide an example of the trade-offs you mentioned?

WALLER: “To achieve a given fill rate, a firm can hold more inventory and use slower transportation, or it can hold less inventory and use faster transportation. Similarly, for a given level of inventory, a firm can use slower transportation and achieve lower fill rates. 

“Also, to achieve a given fill rate, a firm can hold more inventory and use less reliable transportation, or it can hold less inventory and use more reliable transportation. These are basic examples of such trade-offs. All of them will have different impacts on sustainability metrics.”

Read: 5 reasons to attend FreightWaves’ Future of Supply Chain event

FREIGHTWAVES: Can you list specific aspects of sustainability that you think will be most prominent in supply chain education in the future?

WALLER: “As I mentioned earlier, business logistics is about managing the flow and storage of inventory such that total costs are minimized and customer service targets are achieved. Supply chain management is about integrating business processes between functions within a company and between firms in a supply chain. 

“Such integration includes things like sharing information, including information relevant to sustainability. So one of the most prominent aspects of sustainability that will be prevalent in the future will be metrics of sustainability and how those metrics are affected by decisions in logistics and supply chain management. In addition, systems theory will be critical to understanding sustainability and supply chain management.”

Waller recommended reading The Luxury Paradox: How Systems Thinking and Supply Chain Collaboration Can Bring Sustainability into Mainstream Practice from the Journal of Business Logistics to learn more.

FREIGHTWAVES: How is the Sam M. Walton College of Business at the University of Arkansas adapting to the industry’s rising demand for sustainable supply chains?

WALLER: “We are collaborating with industry partners on environmental, social and governance and conducting research on topics relevant to sustainability and ESG in general.  We have been collaborating with J.B. Hunt Transport Services Inc. on this topic, and we also have The Sustainability Consortium.”

Tyler Cole, director of carbon intelligence at FreightWaves, brought attention to the importance of including sustainability in supply chain education.

Cole said: “There is no doubt that higher education is bracing itself for an explosion of interest in sustainability and supply chains. Historically strong supply chain schools should be doubling down to develop future leaders capable of understanding and valuing network risk and maximizing stakeholder value. The days of narrow focus on reduced costs and maximized share value are long behind us. I look forward to seeing more and more graduate and doctoral case studies demonstrate the value of resilient, sustainable supply chains.”