Business organisations and the importance of sustainability
Business organisations are finding it increasingly important to engage in practices that take into account the interests of various stakeholders in the business environment instead of only focusing on profitability goals. While the primary objective of most business enterprises is to generate profits, conditions in the business environment demand that managers also pay attention to the impacts of the activities of the firm on other stakeholders (Harrison, Freeman, and Abreu 2015). Most recently, the concept of sustainability has become more than an option because of the need for companies to exploit resources and pursue core objectives while considering the impacts of these activities on the long-term future of the firm and humanity. Sustainability refers to the ability of organisations to pursue short and long-term business goals without hindering the ability of future generations to exploit resources and meet their needs (Kuhlman and Farrington 2010). Complex supply chains have made it even more essential for multinational corporations to manage supply chains for sustainability. Globalisation has enabled multinational companies to engage in international business by exploiting business opportunities in foreign countries. Some companies also obtain materials made in factories located in foreign countries. Supply chain sustainability in procurement is, therefore, an essential undertaking for contemporary organisations and a source of competitive advantage. This paper examines how IKEA, a multinational corporation, and retail giant, has implemented sustainability practices in procurement.
Sustainability and the Triple Bottom Line
Sustainability is grounded on three key pillars, also referred to as the triple bottom line. The concept of sustainability postulates that business organisations do not function in a vacuum and as such, should consider how their activities impact on people and the environment. The pursuit of profitability objectives should take into account social and environmental factors. The triple bottom refers to profits, people, and the environment.
People as a pillar of sustainability
People as a pillar of sustainability are an extension of the stakeholder theory. The stakeholder theory suggests that business enterprises should consider the needs and interests of various stakeholders in the course of pursuing profit goals. This is often referred to as the broad view of corporate social responsibility (Brown and Forster 2013). The most important issue for managers, therefore, should be to identify the stakeholders of the firm and how they are impacted by the activities of the enterprise in the market. Key stakeholders of the firm include customers, suppliers, shareholders, employees, and the local community. Meeting the needs of consumers gives the firm a competitive edge in the market. Employees are also important stakeholders because they give the firm a sustainable competitive advantage in the business environment. The performance of individual employees is significantly determined by the ability of the organisation to meet their needs. Employee motivation and job satisfaction are, therefore, crucial determinants of organisational performance. Suppliers are also a critical part of the firm because they enable the firm to obtain quality materials and products. Ensuring the well-being of suppliers enhances business continuity and long-term success (Meixell and Luoma 2015). Investors are also important stakeholders because they invest money in the enterprise and expect to achieve the return on investment. Without taking into account the interests of investors, the firm would find it difficult to raise capital for growth and expansion.
The environment pillar of sustainability
The environment pillar of sustainability focuses on the impacts of the activities of the organisation on the environment. Climate change has become a significant challenge in the modern world. The negative impacts of climate change are making it increasingly important for business organisations to engage in environmentally sustainable practices. Environmental degradation impacts negatively on population health and access to raw materials (Finkbeiner, Schau, Lehmann, and Traverso 2010). Most governments have also introduced laws that hold corporations accountable for the amount of carbon that they emit into the environment. The penalties levied against organisations for greenhouse gas emission impacts negatively on the profitability of business enterprises. Most business companies are also facing increasing pressure from consumers and non-governmental organisations to engage in environmentally sustainable practices especially along the supply chain (Meixell and Luoma 2015). Business enterprises that fail to address environmental pollution issues along the supply chain are often regarded as unethical and driven only by profit objectives (Golicic and Smith 2013). As a result, the brand image of such organisations is damaged and their competitive advantage negatively affected. It is, therefore in the interest of corporations to engage in practices that do not cause environmental pollution and degradation.
The profit or economic pillar of sustainability
The profit or economic pillar of sustainability suggests that business organisations should pursue profit objectives to meet the needs of shareholders and other stakeholders such as employees and the local community. Without achieving profitability goals, an organisation cannot meet the interests of its key stakeholders. As suggested by Friedman, the primary goal for managers should be to maximise shareholder returns (Garriga and Melé 2004). Shareholders invest their money in the hope of achieving the return on investment. Failing to fulfil this objective would compromise the long-term success of the firm. To motivate employees, the organisation must also return profits to remunerate workers competitively and boost their morale. However, the pursuit of profitability goals should never come at the expense of the other sustainability pillars.
Purchasing Activity at IKEA and Sustainability Strategies
IKEA primarily purchases raw materials from suppliers. These raw materials are mainly wood pieces that are used to design furniture products. The company aims to minimise the adverse environmental impacts of its activities along the supply chain.
The company aims to minimise costs through its product designs. This has motivated it to use minimal resources to manufacture products. The use of minimal resources reduces wastage and enhances environmental sustainability (Seuring 2013). The company has also developed a monitoring strategy to ensure that suppliers engage in environmentally sustainable practices. IKEA understands that wood is a valuable resource. It is also aware that some of its suppliers do not have the required permits to engage in wood harvesting. To prevent ethical challenges in the supply chain and ensure that it only purchases products from suppliers that have the necessary permits, the company has developed a robust monitoring system (IKEA 2018). Monitoring the supply chain plays a pivotal role in ensuring that the products or raw materials purchased are not produced illegally. Supply chain audit ensures that activities along the supply chain meet sustainability goals (Boström, Jönsson, Lockie, Mol, and Oosterveer 2015). The company also partners with local community organisations and non-governmental ones to ensure that wood is produced in an environmentally responsible manner. It works together with these companies to help loggers obtain permits and reduce illegal logging.
The strategy used by IKEA shows that multinational corporations should not ignore activities in the supply chain and merely focus on acquiring raw materials. The complex nature of global supply chains makes it difficult to determine whether raw materials have been produced legally and sustainably. However, by investing in supply chain management and partnering with local organisations, multinational corporations can enhance sustainable production along the supply chain (Brandenburg, Govindan, Sarkis, and Seuring 2014). The approach used by IKEA also shows that it is not sufficient to set rules for suppliers without taking the initiative to work towards improving sustainable production. As part of procurement activities, multinational corporations should actively seek to help producers to produce goods in a manner that does not violate laws and regulations and sustainability needs. IKEA has adopted a solution that does not only serve its short-term needs but also its long-term business goals. By building the capacity of farmers to produce wood in an environmentally sustainable manner, the company enhances its ability to access raw materials even in the future. It also shields itself from issues that may damage its brand image (Giannakis and Papadopoulos 2016).
The company has also set criteria for the wood products that it can purchase. Developing purchasing criteria ensures that the company has a well-defined process which guarantees that it only purchases wood products produced legally and sustainably. The company does not buy products that have been harvested illegally. It also purchases wood from High Conservation Value Forests. Wood supplied to the company must also be certified according to established standards. The purchasing criteria implemented by the firm not only encourages suppliers to engage in sustainable practices but also prevents it from purchasing wood products that have been produced illegally.
Conclusion
This paper finds that supply chain management is an important activity for multinational corporations especially in the age of globalisation. It is critical to ensure that sustainability practices are adhered to along the supply chain to enhance long-term business success. Companies that obtain raw materials from foreign countries have to develop appropriate strategies to ensure that these materials are produced sustainably. The report determines that supply chain auditing plays a pivotal role in ensuring that raw materials are not produced illegally. The organisation should also partner with non-governmental ones and local communities to ensure that the capacity of suppliers to produce raw materials sustainably is enhanced. It is also essential that organisations develop appropriate procurement criteria to ensure that the materials purchased meet the established sustainability standards.
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