How the German car industry became more sustainable and what to learn from it 

This article is brought to you thanks to the collaboration of The European Sting with the World Economic Forum.

Author: Florian Wissuwa, PhD candidate, Research Assistant, Chair of Supply Chain and Operations Management, Berlin campus of ESCP Business School, Christian F. Durach, Full Professor, Chair of Supply Chain and Operations Management, Berlin campus of ESCP Business School

• The German car industry increased its effort to implement ‘SSCM’ (sustainable supply chain management) after it was shaken by an emission scandal in 2015.
• Global supply chains often lack transparency and are prone to sustainability breaches, which can have severe consequences for business reputations and performance. This is why sustainable supply chain management (SSCM) is becoming increasingly more important.
• Here’s a framework to implement SSCM through a process of organizational change, enabling companies to turn their own supply chains into sponsors for sustainability.

Numerous firms have sought to sustain their competitive advantage by establishing efficient, globe-spanning supply chains. In financial terms, those supply chains are sound, but from a sustainability standpoint, some have turned out to be non-transparent and prone to sustainability breaches, with potentially severe consequences for a firm’s reputation and performance.

A perfect setting to examine SSCM implementation

Shaken by the emission scandal and the resulting stakeholder pressures, German automotive firms increased their efforts to implement what is called sustainable supply chain management (SSCM). SSCM can be understood as a focal firm’s management of its supply chain’s operations by integrating economic, environmental, and social issues.

It constitutes a powerful tool to proactively address sustainability breaches and to meet rising stakeholder demands. Unfortunately, however, SSCM implementation is anything but an easy task, requiring an established organization to dismantle existing structures and to undergo a fundamental organizational change – both in mind and action. How such an SSCM implementation process is performed yet remains unclear. In our research, we set out to answer the following questions:

1. What are the individual actions taken by German automotive firms to implement SSCM within their supply chains over time?

2. Which chronological sequence characterizes the change process of SSCM implementation in German automotive supply chains?

We chose this context because global automotive supply chains are seen to be less responsive, integrated, and visible compared to other sectors. This very well applies to the German car industry, which is further characterized by complex supply networks, high dependence on upstream supply chain entities, highly formalized buyer-suppliers relationships and, finally, extensive external sustainability pressures triggered by the emission scandal. With all these characteristics demanding the implementation of SSCM, the German automotive sector serves as the perfect setting for our investigation.

A process of organizational change

We collected and analysed 54 sustainability reports from 2014 –2019 taken from three supply chain triads representing major automotive original equipment manufacturers and a few of their largest suppliers in Germany. We identified nine distinct measures which we categorized in three change phases, showing a comprehensive SSCM implementation framework emerging:

First stage: planning

The ‘planning’ phase focused exclusively on early-stage measures, which served to prepare for the forthcoming change. Its goal was to dismantle the existing organizational structures, routines, and beliefs and to reduce any prevailing inertia that could possibly hamper the impending change process. The planning phase consisted of three steps:

First, the firms developed a clear strategy, related goals, and liabilities to systematically plan and guide the change process. Doing so, they set the frame for their overall SSCM implementation process early on.

Second, firms tried to establish cooperation with competitors and other external parties. By participating in industry associations or sustainability initiatives, firms can harness the already existing knowledge of other firms, networks or NGOs, thereby improving the quality of their SSCM measures as well as achieving higher levels of standardisation within their supply chain or even across whole industries too.

Third and finally, the firms defined minimum sustainability requirements for their suppliers, which were usually laid down in one comprehensive standard. This standard usually referred to all three dimensions of sustainability – social, ecological, and economic – and as such formed the basis for all further SSCM evaluation and implementation efforts.

Second stage: execution

The ’execution’ phase included all intermediate measures taken to perform the desired change. The goal of this phase was to familiarize both the internal and external affected parties with the newly introduced values, behaviours and processes; it thus marked a transition from the old to the new state.

The executing phase consisted of five steps:

First, the automotive firms installed efficient communication tools and procedures. This enabled them to pass on the defined sustainability requirements to their suppliers, but also to systematically collect responses and feedback on the newly-introduced processes.

Second, initial sustainability risk assessments were carried out throughout the whole supply base. Given that focal firms cannot address all suppliers simultaneously, these audits exposed the most urging needs for action and allowed a corresponding planning of SSCM measures.

Third, focal firms conducted comprehensive compliance checks wherever the risk assessment revealed serious sustainability concerns. Different measures including the signing of a Code of Conduct, self-evaluations or comprehensive external audits were performed, as required.

Fourth, firms developed standard escalation processes that included pre-defined resolutions measures for dealing with non-compliant behaviour.

Fifth and finally, both internal and supplier personnel needed to be trained carefully on how to apply the newly-introduced requirements, tools, and processes. This was done in parallel to all other steps of the ‘execution’ phase.

Third stage: stabilization

The ’stabilization’ phase consisted of the late-stage measures needed to deeply anchor the new beliefs, goals, and processes within the organization. This prevented the involved parties from falling back into their old habits, and challenged them to continuously question and improve the new course of action.

The stabilization phase consisted of one step: automotive firms continuously monitored, reassessed, and improved SSCM in their supply chains, keeping close track of its status quo. Beyond that, they regularly repeated the whole change process, thereby continuously questioning their SSCM strategy, goals, standards, measures and so on.

Lessons for all

These results can provide orientation to practitioners in the automotive industry and others who face the challenge of implementing or retrospectively assessing and improving their own organization’s change process towards the implementation of SSCM. This framework might support executives in developing a change process that follows the basic nine steps of SSCM implementation, while still allowing for the selection of individual measures that best fit their own organization’s needs – eventually enabling them to turn their own supply chains into sponsors for sustainability.