Journal of Cleaner Production 225 (2019) 857e867

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Journal of Cleaner Production

journal homepage: www.elsevier.com/locate/jclepro

Supply chain sustainability risk and assessment

Ming Xu a, b, *, Yuanyuan Cui a, Meng Hu a, Xinkai Xu a, Zhechi Zhang a, Sai Liang c,
Shen Qu a
a
School for Environment and Sustainability, University of Michigan, Ann Arbor, MI, 48109-1041, United States
b
Department of Civil and Environmental Engineering, University of Michigan, Ann Arbor, MI, 48109-2125, United States
c
State Key Joint Laboratory of Environment Simulation and Pollution Control, School of Environment, Beijing Normal University, Beijing, 100875, China

a r t i c l e i n f o a b s t r a c t

Article history: Risk on the supply chain from various sustainability-related factors has increasingly become relevant to
Received 9 January 2019 companies in many industries. There however still lacks a comprehensive method to quantitatively
Received in revised form evaluate supply chain sustainability risk taking into account the triple bottom line of sustainability
26 March 2019
(economic, social, and environmental). This study develops a framework to evaluate supply chain sus-
Accepted 28 March 2019
Available online 5 April 2019
tainability risk by measuring supply chain-wide operational risk, social risk, and environmental risk to
form an aggregate metric. A set of indicators readily available in literature are used to represent various
aspects of supply chain sustainability risk. Risk assessment space and materiality analysis are then used
Keywords:
Sustainable supply chain
to prioritize resource allocation among supply chain stages from two distinct perspectives for mitigating
Risk supply chain sustainability risk. Two case studies are provided to demonstrate the application of the
Supply chain sustainability risk developed framework, representing two main types of supply chain structure. The apparel industry
Apparel example represents the deep-structure supply chain driven by relatively simple products, while the
Automotive automotive industry example represents the broad-structure supply chain driven by more complex
products. While the case studies focus on industry-level assessment for demonstration purpose, the
developed framework can be flexibly applied to evaluate supply chain sustainability risk for specific
companies in any industry.
© 2019 Elsevier Ltd. All rights reserved.

1. Introduction chain management aims to meet economic, social, and environ-

mental triple bottom line across the entire supply chain for mul-
For many companies in various industries, supply chain man- tiple stakeholders (Supply Chain Sustainabili; Dyllick and Hockerts,
agement is one of the most important tasks in their daily operations 2002; Steurer et al., 2005). An increasing number of studies have
and long-term planning. A supply chain involves multiple stake- developed theoretical frameworks and analyzed empirical cases to
holders including multi-tier suppliers and customers often located evaluate and improve the economic, social, and environmental
in different locations. In addition to business performance of the performance of supply chains. For example, studies have summa-
supply chain (e.g., efficiency, timeliness, stability), environmental rized key categories, initiatives, and practices of sustainable supply
and social implications of the supply chain have been increasingly chain management 1,7,8,9, proposed metrics to measure the supply
perceived as integral parts of supply chain performance by stake- chain sustainability (Clift, 2003; Hassini et al., 2012; Hutchins and
holders. Subsequently, sustainable supply chain manage- Sutherland, 2008; Xu et al., 2010), developed frameworks for sus-
mentdmanaging the supply chain to meet the economic, social, tainable supply chain management (Hassini et al., 2012; Hutchins
and environmental triple bottom linedhas become increasingly and Sutherland, 2008; Xu et al., 2010; Mota et al., 2015; Liang
relevant for business managers and stakeholders (Beske and et al., 2016; Tajbakhsh and Hassini, 2015), investigated the in-
Seuring, 2014; O'Rourke, 2014; Tseng et al., 2019). teractions between suppliers and buyers within a sustainable
Unlike traditional supply chain management, sustainable supply supply chain (Liang et al., 2015; Busse, 2016; Ro et al., 2016), and
revealed critical factors influencing sustainability practices in
supply chains (Foerstl et al., 2015; Grimm et al., 2014). Empirical
* Corresponding author. School for Environment and Sustainability, University of studies have also investigated supply chain sustainability in many
Michigan, Ann Arbor, MI, 48109-1041, United States.
industries including food (Grimm et al., 2014; Egilmez et al., 2014;
E-mail address: [email protected] (M. Xu).

https://doi.org/10.1016/j.jclepro.2019.03.307
0959-6526/© 2019 Elsevier Ltd. All rights reserved.
858 M. Xu et al. / Journal of Cleaner Production 225 (2019) 857e867

Leat and Revoredo-Giha, 2013), chemical (Reuter et al., 2010), environmental risk (Fiksel, 2010). However, existing studies only
mining (Kusi-Sarpong et al., 2016), and diaper (Adhitya et al., 2011). evaluate supply chain sustainability risk from specific aspects (e.g.,
These studies provide important tools and insights on the evalua- economic, social, or environmental). There still lacks an integrated
tion of supply chain sustainability and decision support to improve framework to quantitatively evaluate supply chain sustainability
supply chain sustainability. risk taking into account the triple bottom line. Given the increasing
One important component of supply chain management is to concerns on sustainability and globalized supply chains in many
assess the risk posed by both external and internal factors to the industries, it is crucial to provide a complete picture of supply chain
stability and efficiency of the supply chain (Christopher and Peck, sustainability risk to allow business managers and stakeholders to
2004). Similarly, sustainable supply chain management also in- make informed decisions for not only improving supply chain
volves the assessment of supply chain sustainability risk (Barry, sustainability but also mitigating supply chain sustainability risk.
2004). In particular, supply chain sustainability risk means a po- Knowledge of supply chain sustainability risk scatters in the
tential sustainability-related condition or event that can provoke literature across many disciplines. This study develops an inte-
harmful stakeholder reactions within the supply chain (Hofmann grated framework to assess supply chain sustainability risk for a
et al., 2014). For example, water scarcity in a remote location company or industry. The supply chain sustainability risk in this
where a supplier is located poses a supply chain sustainability risk study comprises all three aspects of sustainability, including oper-
to a company if the supplier relies on water for its operation and ational (economic) risk, social risk, and environmental risk. A set of
production. Understanding supply chain sustainability risk can help indicators readily available from literature are used to quantify
companies improve the resilience of supply chains (Waters, 2011; various aspects of supply chain sustainability risk. Risk assessment
Xu et al., 2011). Fig. 1 illustrates the relationships among supply space (RAS) and materiality analysis are then used to prioritize
chain management, sustainable supply chain management, supply resource allocation among supply chain stages from two difference
chain risk management, and supply chain sustainability risk man- perspectives (triple bottom line and location vs. activity) for miti-
agement. In particular, supply chain sustainability risk manage- gating the overall supply chain sustainability risk.
ment, as a component of sustainable supply chain management, Lacking company-specific information, this study uses two in-
expands the scope of supply chain risk management by including dustries (apparel industry and automotive industry) as examples to
supply chain risk factors associated with social and environmental demonstrate our framework and provide insights on supply chain
aspects of sustainability. sustainability risk for these two industries.
Studies have evaluated sustainability risks on economic (Altay
and Ramirez, 2010; Wever et al., 2012; Bierkandt et al., 2014; 2. Method
Khanna and Bakshi, 2009; Okuyama and Santos, 2014; Alonso et al.,
2007) and social (Altay and Ramirez, 2010) performance of supply Pillars of sustainability include three aspects, economic, social,
chains and proposed various conceptual frameworks for supply and environmental. This study constructs the supply chain sus-
chain sustainability risk management (Hofmann et al., 2014; Foerstl tainability risk framework by integrating three components:
et al., 2010; Scholten and Fynes, 2017). Other studies have focused operational risk, social risk, and environmental risk (Fig. 2). In
on the quantitative evaluation of operational risk (Bhattacharyya particular, the operational risk reflects the economic loss resulting
et al., 2010a), supplier sustainability risk (Foerstl et al., 2010), and from the disruption of information and material flows along the
supply chain (Bhattacharyya et al., 2010b). This study uses opera-
tional risk to represent the economic risk. The operational risk and
environmental risk in our framework are considered as manage-
able by the company through its actions, while the social risk is
more difficult to manage for the company as social factors are
largely exogenous. Each of the three sustainability risk categories
further consists of sub-category level indicators.
Given the complexity of supply chain sustainability risk, we
develop the framework in a modular fashion so that future
improvement can be easily implemented on particular components
without the need of updating all components. In addition, we

Fig. 1. Relationship of supply chain management, sustainable supply chain manage-

ment, supply chain risk management, and supply chain sustainability risk manage-
ment (the focus of this study). Fig. 2. Supply chain sustainability risk components.
 M. Xu et al. / Journal of Cleaner Production 225 (2019) 857e867 859

choose existing indicators from literature as the sub-category level indicators to represent society-related social mainly based on data
indicators instead of developing these indicators on our own. availability. GSI is then calculated by summing up these ten in-
Because these sub-category level indicators were developed not dicators using equal weight and ranges between 0 and 100. Higher
specifically for supply chain sustainability risk assessment, they GSI indicates higher risk.
might not be the perfect indicators for our purpose. However, these Geopolitical factors have significant impacts on disruptions of
“off-the-shelf” indicators ensure easy and fast application of our global supply chains (Kaufmann et al., 2011). Governmental pol-
method. Developing sub-category level indicators specifically for icies, actions, and stability can significantly impact the supply chain
supply chain risk assessment is a much bigger endeavor which sustainability risk. The Global Governance Index (GGI) comprising
represents an important and interesting future research avenue. five of the worldwide governance indicators (WGI) (Kaufmann
Also for easy and fast application, we tentatively assign equal et al., 2011) is adopted to quantify this impact. The WGI has been
weight (1/3) to each of the three component risks. Clearly weights used in criticality assessment (European Commission (EC), 2010;
for each risk highly depend on stakeholders and can be very sub- Nuss et al., 2014; Sonderegger et al., 2015), including six indicators.
jective. There are sophisticated methods to determine weights for In this study, political stability and absence of violence/terrorism,
specific stakeholders, which can be readily applied based on our government effectiveness, regulatory quality, rule of law, and
framework in future for specific stakeholders. control of corruption indicators are regarded as the most critical
factors of governance influence on the supply chain. The voice and
2.1. Operational risk accountability (VA) indicator is less relevant to the supply chain
sustainability risk, and thus not included in this framework. How-
The operational risk from the supply chain is multifaceted ever, our framework can be flexibly extended to include this factor
(Sodhi and Tang, 2012). Indicators of the operational risk should and others if data are available. The GGI is calculated by averaging
capture the potential items disturbing production activities in each the five component indicators, ranging also between 0 and 100.
stage of the supply chain. Companies have different compartments Higher GGI indicates higher risk.
facing various stages of the supply chain, such as the upstream
supply (i.e., purchasing), internal processes (i.e., manufacturing, 2.2.2. Social risk from multiple locations in supply chains
storage, and internal distribution), and downstream demand (i.e., For a stage within the supply chain, manufacturing and pro-
sales). In addition, corporate-level operations are also integral part duction processes take place in various countries/regions. Some
of the supply chain. Thus, the operational risk in our framework stages are predominantly concentrated in only a few areas, while
includes four parts as shown in Table 1: supply risk from upstream others are more widely distributed around the world. In general,
suppliers, process risk from the company's internal processes (or the more concentrated the distribution of a segment is in one
internal supply chain), demand risk from downstream customers, location, the more impact the location has on this segment. This
and corporate-level risk from key factors associated with the study adopts the Global Supply Concentration (GSC) to quantify the
company. proportional contribution of one location to a particular stage in a
supply chain. It is implemented with the estimated global supply
2.2. Social risk shares.
To obtain the social risk score for one stage within the supply
Different stages of modern supply chains are usually distributed chain, the first step is to calculate the social risk for each location
in different locations across the world. Local socioeconomic con- related to this stage by combining GSI and GGI. Then, the GSC is
ditions largely determine the social risk of a supply chain. This used in this stage to allocate weights to different locations. The last
study combines social risks of each location to assess the overall step is to add up all locations’ weighted social risk scores to get the
social risk for a supply chain. social risk score for this stage (SCSRsectori):

Xn  
2.2.1. Social risk assessment for one location 1
SCSRsec tori ¼  GSIlocation j  GSClocation ij
Social risk involves two aspects: the society and governance. j¼1
2
This study uses two indices to assess the social risk for a specific
location: the Global Social Index indicating society-related issues,
and the Global Governance Index indicating governance-related
issues. This study assigns equal weights to both indices and take 2.3. Environmental risk
the sum of GSI and GGI to obtain the social risk score for the specific
location. Environmental risk captures potential impacts of environmental
The Global Social Index (GSI) comes from the Social Hotspots’ factors on the supply chain. Although methods assessing environ-
classification system (SHDB, 2016). This study uses the following mental risk on supply chains are available for specific environ-
ten indicators with equal weights: child labor, forced labor, exces- mental factors such as water scarcity (Sonderegger et al., 2015), to
sive working time, unemployment, injuries and fatalities, toxics the best of our knowledge, there is no comprehensive, off-the-shelf
and hazards, gender inequality, human health issues, drinking method to evaluate the impact on supply chains considering mul-
water, and sanitation (Appendix A4). This study chooses these ten tiple environmental factors. Therefore in this study we use life cycle

Table 1
The components of the supply chain operational risk.

Supply Risk Process Risk Demand Risk Corporate-level Risk

 Supplier failure  Design  Forecasting  Financial

 Supply commitment  Yield  Change in technology  Supply chain visibility
 Supply cost  Inventory  Change in consumer preference  Information technology (IT) systems
 Capacity  Receivable  Intellectual property
 Exchange rate
860 M. Xu et al. / Journal of Cleaner Production 225 (2019) 857e867

environmental impacts based on life cycle assessment (LCA) as a analysis comprises risk assessment space (RAS) analysis and ma-
proxy for environmental risk of the supply chain, because higher teriality analysis, which are two risk prioritization methods. In
environmental impact generally means higher risk from related particular, RAS analysis assesses each stage's risk based on three
environmental factors. dimensions comprising operational, social, and environmental
Specifically, LCA is a widely used analytical tool to assess the risks, while materiality analysis does this based on two dimensions
environmental impacts throughout the whole life-cycle of a prod- comprising the location-based risk (LBR) indicating the potential
uct: raw material acquisition, manufacturing, transportation, usage, risk relevant to the supplier's location and activity-based risk (ABR)
and end-of-life (International Organization for Standardization, indicating the potential risk relevant to the manufacturing activity.
2006). There are two popular life cycle scopes. “Cradle to gate” RAS analysis and materiality analysis prioritize the stages of a
includes raw material production and manufacturing/assembly supply chain from different perspectives to guide businesses to
stages; and “cradle to grave” including raw material production, allocate resources for improvement.
manufacturing/assembly, transportation, usage, and end-of-life.
Since supply chain sustainability risk mainly concerns about pro- 3. Case studies
duction stages of the supply chain, the “cradle to gate” scope is used
in this study. However, this framework can be flexibly extended to This study demonstrates the application of the supply chain
the “cradle to grave” scope. sustainability risk assessment using two examples representing
First, traditional LCA focuses on environmental impacts of spe- two broad types of supply chain structures. In general, the structure
cific products, while our framework focuses on industry-average of a supply chain is determined by the final product structure,
impacts of the supply chain. This study thus uses the concept of which includes two main categories: deep structure and broad
the Average Product, which has average industrial material inputs, structure (Bowersox et al., 2002). A deep-structure supply chain has
material outputs, and efficiency, as the functional unit to represent a large number of sub-stages which must be done sequentially to
the average environmental impacts of the supply chain. produce the final product. A broad-structure supply chain has many
Second, data need to be collected for material and energy flows components which must all be simultaneously available for the
of the Average Product, including raw material inputs, material and initiation of the manufacturing in the higher-level stage. For service
energy inputs of manufacturing/assembly processes, energy and industries including e-commerce, the structure of supply chain can
water uses for original equipment manufacturers (OEM), and be the combination of both broad structure representing the vari-
emissions/discharges to the environment. ety of products associated with service industries (e.g., food,
Third is to assess the life cycle environmental impacts and furniture, electricity, water needed for a restaurant) and deep
convert those impacts into an environmental risk score to be structure representing each of the specific supply chain for a
compatible with operational risk and social risk. This study uses the particular product (e.g., the supply chain for electricity).
ReCiPe endpoint method (Goedkoop et al., 2013) from the ecoin- This study uses the apparel industry as the example to represent
vent database (ecoinvent and ecoinvent - th, 2017) to assess envi- the deep-structure supply chain, because the apparel industry in-
ronmental impacts. This method consists of three damage cludes many sub-stages which need to be done step by step in order
categories with associated weighting: Human Health (40%), to product the final product. This study also chooses the automotive
Ecosystem Quality (40%), and Resources (20%). The ReCiPe scores industry as to represent the broad-structure supply chain, because
illustrate the relative importance of specific life cycle stages within its supply chain includes multiple components which have to be
the supply chain in terms of environmental impacts. This study simultaneously available for automotive manufacturing/assembly.
hence regards that a life cycle stage's environmental risk is posi-
tively correlated with its environmental impact. The ReCipe points 3.1. Deep-structure supply chain: apparel industry
are converted into an environmental risk score (ERi) ranging be-
tween 0 and 100: 3.1.1. Supply chain mapping
This study divides the apparel supply chain into six stages
ERi ¼ ReCiPei=Max ðn ReCiPeÞ  100 ERi including raw material production, fiber production, spinning,
1
. weaving, dyeing, and tailoring (Bruce et al., 2004; Jin, 2006). Fig. 3
¼ ReCiPei Maxðn ReCiPeÞ100
1 presents the global apparel supply chain mapping that indicates
national shares at each stage of the apparel supply chain (Appendix
where i indicates a sector in the supply chain, nn indicates the total A for details).
number of sectors in the supply chain, and ReCiPei indicates the
ReCipe point of sector i. 3.1.2. Supply chain sustainability risk quantification
Operational risk. The dyeing stage has the highest operational
risk among all of six stages for the apparel supply chain, while raw
2.4. Procedure of supply chain sustainability risk assessment material production has the lowest risk (Table A1-7). Moreover,
fiber production, spinning, and weaving have the second highest
To apply our framework to evaluate supply chain sustainability risk. The highest operational risk in dyeing comes from its high
risk involves three steps: supply chain mapping, supply chain demand risk and corporate-level risk. This makes sense from two
sustainability risk quantification, and supply chain sustainability reasons. First, consumers tend to switch their preferences quickly
risk analysis. in the apparel industry, which results in difficult demand fore-
Supply chain mapping captures major stages of a supply chain casting. Second, there is no large organization that has the capacity
and supply portions of regions in each stage. To develop a mapping and willingness to address supply chain issues associated with the
of the supply chain, one should first consider the specific type of the dyeing stage which is dominated by small- or medium-sized
supply chain and then dividing the supply chain into stages companies, making it even more risky (Singh, 2011).
accordingly. The two case studies described later demonstrate how The operational risk assessment results identify the hotspots as
supply chain mapping should be based on the type of supply chain. targets for actions to reduce potential economic losses for the
The supply chain sustainability risk quantification step evaluates global apparel industry. Stakeholders of global apparel industry
the risk using the above framework. Supply chain sustainability risk should pay special attentions to the dyeing stage, especially the
 M. Xu et al. / Journal of Cleaner Production 225 (2019) 857e867 861

Fig. 3. Supply chain mapping for the global apparel industry.

changes in the market preference and corporate management risk for the global apparel industry.
challenges. RAS analysis. Fig. 4A visualizes the supply chain sustainability
Social risk. The global apparel supply chain spans across mainly risk of the global apparel industry. Each axis represents the
23 countries/regions. Social risk scores of these 23 countries/re- percentile normalization of operational, social, and environmental
gions are assessed (Appendix A4). Take China as an example for risks of each stage. The normalized supply chain sustainability risk
demonstration, given the importance of China in the global apparel is calculated as

rffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffi
Xt¼3;i¼6 nh i h io
Normalized SCS Riskt ¼ t¼1;i¼1
si;t  minðst Þ = maxðst Þ  minðst Þ 2
vffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffi
u t¼3;i¼6  2
u X  minðst Þ
Normalized SCS Riskt ¼ t ½si;t  2 q
½maxðst Þ  min½ðst Þg
t¼1; i¼1

industry. The GSI of China is calculated by aggregating four main

components: labor rights and decent work, occupational health where s represents the risk score of each stage, t represents each
and safety, human rights, and community infrastructure (Table A4- dimension (i.e., operational, social, and environmental), and i rep-
1). The GGI of China is calculated as the average of its five com- resents each stage in a particular dimension. The six dots show the
ponents, which are converted directly from the WGI database rankings of supply chain sustainability risks for each of these six
(Table A4-2). stages. Longer distance of the spot to the origin means higher risk.
Based on each country/region's GSCs indicated by the global Detailed results are provided in Table A5-2. It is clear that the
apparel supply chain mapping, each stage's social risk score is ob- dyeing stage is ranked the first in terms of the overall supply chain
tained (Table A4-3). The trends in GSI and GGI among all supply sustainability risk for the apparel industry (144%), followed by fiber
chain stages are almost synchronous, indicating that the social production (132%), weaving (131%), spinning (126%), tailoring
impact is usually correlated with the governance impact. (109%), and raw material production (4%).
The raw material production stage has the lowest social risk. The RAS analysis shows the overall risk of each stage taking into
Fig. A4-1 shows that South Korea and the U.S. have relatively low account operational, social, and environmental risks altogether.
social risks (lower than 35 out of 100 maximum) in the raw ma- Despite the significant sustainability risk faced by all stages except
terial production stage. These two countries contribute to over 25% raw material production, the composition and nature of risks for
of the raw material supply for apparel industry (Table A1-1). The each stage are quite different. Due to the highest operational and
tailoring stage has the highest social risk. Fig. A4-2 shows that so- environmental risks, the dyeing stage is the most important hot-
cial risks of major locations of the tailoring stage are higher than 50 spot for improving supply chain sustainability of the global apparel
out of 100 maximum. industry. In contrast, the spinning and tailing stages have high
Environmental risk. Table A3-1 shows that dyeing has the operational and social risks, but marginal environmental risk
highest environmental risk within the global apparel supply chain. mainly due to the absence of chemical or biological processes
The main contributor to the environmental risk of the dyeing stage involved in production. Finally, each type of risk proves to be
is the water pollution from the dye use which can cause significant nontrivial in fiber production and weaving.
impacts on human health, ecosystem quality, and resource deple- Since the barriers to enter the apparel industry are low, up-
tion. The fiber production and weaving stages have the second and stream suppliers of the apparel industry are mostly small com-
third highest environmental risks within the apparel supply chain, panies. Those small companies are difficult to monitor, which leads
respectively. Production of electricity used in these processes to the difficulty of effective implementations of actions. One sug-
contributes the most to their environmental risks. Details about the gestion for the apparel industry to improve its supply chain sus-
environmental risk are shown in Appendix A3. tainability is to improve the transparency and supplier engagement
of key stages, with particular focus on important contributors to the
3.1.3. Supply chain sustainability risk analysis overall supply chain sustainability risk. For example, industrial or-
Risk assessment space (RAS) analysis and materiality analysis ganizations, which serve to increase the apparel supply chain vis-
are further conducted to analyze the supply chain sustainability ibility, should monitor overall sustainability risks of key parts of the
862 M. Xu et al. / Journal of Cleaner Production 225 (2019) 857e867

Fig. 4. Supply chain sustainability risk analysis of the global apparel industry.

supply chain with special attention on the environmental impacts the potential risk relevant to the supplier's location as LBR and the
of the dyeing stage. potential risk relevant to the manufacturing activity as ABR. This
Materiality analysis. The materiality analysis investigates each study divides the operational risk, social risk, and environmental
stage's risk from another viewpoint comprising Location-Based risk into LBR and ABR, and then conduct the materiality analysis of
Risk (LBR) and Activity-Based Risk (ABR). The supplier's location LBR and ABR to prioritize the sustainability risk of different stages
and manufacturing activity are two main factors considered by within a supply chain.
practical supply chain design and management. This study defines First, each type of risk is classified into LBR and ABR. Then, the
 M. Xu et al. / Journal of Cleaner Production 225 (2019) 857e867 863

LBR and ABR extracted from operational risk, social risk, and consumer preference. Moreover, engine manufacturing has high
environmental risk of one stage are added up separately as the total intellectual property risk, because the engine manufacturing is
LBR score and total ABR score of this stage. In the apparel case, the expanding globally especially in developing countries. Thus, intel-
data for social risk are only relevant to suppliers' location, while the lectual properties can be at risks due to the lack of stringent
data for operational and environmental risks are only related to the regulation and enforcement in these countries.
suppliers' manufacturing activities. Therefore, all LBRs come from This finding indicates that engine manufacturing is the key stage
the social risk, and all ABRs come from operational and environ- to reduce operational risk of the global automotive supply chain.
mental risks. LBR and ABR scores are further normalized for the six This is consistent with the fact that the engine is the core and the
stages in the apparel supply chain through percentile ranking. most valuable part of a vehicle. Automotive industry stakeholders
Finally, the six stages are plotted in the four quadrants of Fig. 4B to should pay special attention to changes in consumer preferences of
reveal the relative materiality of each stage's risk. powertrain, intellectual property protection in engine
Although dyeing has the highest supply chain sustainability risk manufacturing, and process management in engine manufacturing.
in the RAS analysis, the materiality analysis (Fig. 4B) reveals that the Social risk. Social risk score of each stage of the global auto-
fiber production and the weaving stages should be prioritized due motive supply chain is calculated using data from all 45 countries/
to their relatively high LBR and ABR. The tailoring and spinning regions shown in Appendix B. Table B4-1 shows that the assembly
stages have relatively high LBR, and they should implement stage has the highest social risk, while the body shell
location-related measures such as relocating suppliers in new manufacturing stage has the lowest social risk.
places with lower risks. The dyeing stage have high ABR, and it Further analysis in Fig. B4-1 indicates that, although four
should implement activity-related measures such as improving developing countries (i.e., India, Indonesia, China, and Thailand)
suppliers’ manufacturing efficiency. Fig. 4B also shows that the raw only supply 22% of electric system parts in the global automotive
material production stage has relatively low LBR and ABR. For the industry, their social risk scores are above or near 60 out of 100
fiber production and the weaving stages, they should consider both maximum. Developed countries with much lower social risk supply
location-related and activity-related measures. near 80% of electric systems. On the other hand, Fig. B4-2 shows
that almost 50% of vehicles around the world are assembled in
3.2. Broad-structure supply chain: automotive industry developing countries which have social risk scores lower than 50.
The assembly stage arguably has the highest social risk in the global
3.2.1. Supply chain mapping automotive supply chain.
The global automotive supply chain is divided into six stages: Environmental risk. Table B3-1 shows the environmental risk
engine, body shell, transmission, tire, electric system, and assembly scores of each stage of the global automotive supply chain. The
(Association of Auto Part Recyclers (ARPAC), 2013; Ghadimi et al., engine, electric system, and door and body manufacturing are the
2012). Fig. 5 shows the main results of the global automotive top three stages with high environmental risk. For the engine
supply chain mapping (Appendix B for details). manufacturing, aluminum-based engine components such as
blocks, cylinders, and crankshafts contribute about 43% of the
overall environmental risk. The global automotive industry
3.2.2. Supply chain sustainability risk quantification increasingly uses light-weighting aluminum to substitute steel in
Operational risk. Table B1-6 shows the operational risk of the engine and body shells to achieve better fuel economy. However,
automotive industry supply chain. The engine manufacturing stage since aluminum smelting is high energy intensive, environmental
has the highest operational risk, while the electric system risk is simply shifted from the use phase to upstream supply chains
manufacturing stage has the lowest risk. The highest operational if aluminum is used to replace steel. Details about the environ-
risk of the engine manufacturing comes from its high demand risk, mental risk are shown in Appendix B.
corporate-level risk, and process risk. In addition, the engine
manufacturing stage has high risks derived from changes in

Fig. 5. Supply chain mapping for the global automotive industry.

864 M. Xu et al. / Journal of Cleaner Production 225 (2019) 857e867

Fig. 6. Supply chain sustainability risk analysis of the global automotive industry.

3.2.3. Supply chain sustainability risk analysis involved in the assembly stage, a significant portion of assembly are
RAS analysis. Fig. 6A (data in Table B5-2) shows that engine located in developing countries where environmental regulation is
manufacturing has the highest overall supply chain sustainability relatively less stringent and less strictly enforced and decent
risk (143%), followed by assembly (109%), tire (89%), transmission working conditions are less guaranteed compared with the devel-
(85%), electric system (83%), and body shell (57%). As in the case of oped world.
apparel industry, a closer look reveals different natures of sus- The automotive industry is has higher entry barriers and most of
tainability risks faced by different stages in the automotive supply the suppliers of the automotive supply chain are large companies.
chain. The high sustainability risk of engine manufacturing mainly Thus, it is relatively easy to monitor suppliers and implement
comes from its high operational and environmental risks, the latter sustainability-improving measures. Effective measures to mitigate
of which is mainly driven by the manufacturing processes of cast supply chain sustainability risk for the global automotive industry
iron and aluminum alloys. On the other hand, the high sustain- include enhancing industrial standards, supplier codes, and sup-
ability risk of assembly is mainly due to social risk and, to a lesser plier auditing targeting suppliers, paying special attention to both
extent, operational risk. Despite fewer environmental concerns the stages with high overall sustainability risk and key contributing
 M. Xu et al. / Journal of Cleaner Production 225 (2019) 857e867 865

factors to the risk faced by a particular stage. automotive industry to coordinate multiple suppliers. It is however
Materiality analysis. Fig. 6B shows that no stage of the global easier for the automotive industry to monitor upstream suppliers
automotive supply chain has relatively high LBR and ABR simulta- which are generally large companies. Engaging with first-tier direct
neously. The body shell manufacturing, assembly, and tire suppliers (e.g., engine manufacturers) and addressing supplier
manufacturing stages have relatively high LBR, while engine codes and auditing may be key strategies for the automotive in-
manufacturing has relatively high ABR. Transmission dustry to mitigate its supply chain sustainability risk.
manufacturing has medium-level LBR and ABR, while the electric This study takes the global-level industries as demonstration.
system manufacturing stage has relatively low LBR and medium The proposed framework however can be flexibly applied to in-
ABR. dustries at national, subnational, and local scales with region-
Overall, the engine manufacturing stage should implement specific data.
activity-related measures such as improving suppliers’ In addition, the framework proposed in this study focuses on
manufacturing efficiency to mitigate sustainability risk. However, industry-level activities rather than corporate-level operations,
for stages such as body shell manufacturing, assembly and tire mainly because it is easier to obtain publicly available data for in-
manufacturing, it is difficult to relocate these activities in lower-risk dustries than for corporates. However, customizing our framework
areas, because plants are usually built close to emerging markets for corporate-level applications is still the main, most impactful
which typically have high LBRs for localization and cost-saving application of the framework. We give the following suggestions to
purposes. Reducing the risk from those emerging markets is make sure that this proposed framework can function well at the
important to supply chain sustainability of the global automotive corporate level.
industry and is an important future research avenue. Stakeholder preference. The developed framework assumes
that operational risk, social risk, and environmental risk are of the
4. Discussion and conclusions same importance in the supply chain sustainability risk assessment.
However, stakeholders of a company may have different preference
This study develops a framework to assess the supply chain on these three risks. For example, a company might care more
sustainability risk taking into account the triple bottom line. Two about environmental issues if it regards the environmental risk as
case studies representing two distinct types of supply chains are more relevant to its business. As a result, it will likely assign a
used to demonstrate the application of the developed framework. higher weight to the environmental risk. New methods are needed
The apparel industry is used to represent the deep-structure supply from relevant fields to appropriately assign weights based on
chain, while the automotive industry is used to represent the stakeholder preference.
broad-structure supply chain. Company-specific data and indicators. The data in the case
As shown in the supply chain mapping, differences between studies are from publicly available sources for industry-scale as-
these two main supply chain structures come from the complexity sessments. When companies uses this framework, they should
of their products (Bowersox et al., 2002). The apparel supply chain supply company-specific data and even change some of the in-
has a deep-structure, because its product is relatively simple and dicators to refine the framework based on their own characteristics.
the success of a stage within the supply chain depends on the With the incorporation of stakeholder preference and company-
completeness of the stages before it. Since technical content and specific data and indicators, the supply chain sustainability risk
capital requirement of the apparel industry are relatively low, entry assessment results can offer companies important insights on
barriers for each stage are low and most of the players are hence “hotspots” in their supply chains that pose significant risk due to
small- and medium-sized companies. On the contrary, the auto- sustainability factors. Some of those sustainability risk hotspots
motive industry has a broad-structure supply chain, mainly due to identified are external which the company does not have too much
its multi-component attribute of its product (vehicles). Each leverage to change. In such cases, companies should consider
component has high technical and capital requirements and thus diversify their supply chain or even relocate part of their supply
high entry barriers. Therefore, most players in the automotive chain to other places to mitigate risk. When the identified sus-
supply chain are large companies. Moreover, most of the compo- tainability risk hotspots are internal, the company might be able to
nents can be produced separately in automotive industry without mitigate the risk by incorporating solutions in their managerial
relying on the completeness of the others. In general, complex practices.
products tend to have broad supply chains, while simple products There are four key limitations of the supply chain sustainability
tend to have deep supply chains. Hybrid supply chain structure risk framework developed which represent important future
exist in other industries where products are moderately complex. research directions for improvement.
The distinctions in supply chain structure and the size of com- Limited supply chain scope. Currently, the scope of the supply
panies within the supply chain are two key factors for decision chains in our proposed framework does not include the usage and
making in the apparel and automotive industries for supply chain recycling stages (Tian et al., 2017). However, our framework can be
sustainability management. The deep structure and small- and extended to cover these two stages in future studies with sufficient
medium-sized companies in apparel supply chain make it chal- data.
lenging to monitor upstream suppliers. Although consumer brands Weighting. It is challenging to determine the appropriate
strive to address operational and environmental risks in dyeing weights for various indicators, as different stakeholders have
mills, it is challenging for them to track back to indirect suppliers, different preferences. For simplicity, this work uses equal weights
because most of their direct suppliers (e.g., the tailoring mills) are for most indicators. Future studies may improve using methods
small companies with low level of operational and environmental such as analytic hierarchy process (AHP) to develop more appro-
performance. This means that, unless the base on their balance priate and flexible weighting system based on by involving stake-
sheets is touched, social and environmental damages are purely holders (Saaty, 1977; Vaidya and Kumar, 2006).
externalities to them. Thus, utilizing the purchasing power from the Interdependence of indicators. The sub-category level in-
consumer brands to improve industrial standards and third-party dicators selected in this study are not mutually exclusive. There
enforcement is a possible way to internalize environmental and exist interdependence between some indicators. For example,
social risks in their upstream suppliers. On the other hand, the supply chain visibility and IT systems in the corporate-level risk
broad structure and product complexity make it challenging for the sub-category can also affect yield and inventory in process risk.
866 M. Xu et al. / Journal of Cleaner Production 225 (2019) 857e867

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