In 2010, DHL, a leading international express courier based in Germany, and the National University of Singapore (NUS) established the Sustainable Supply Chain Centre of Asia Pacific in Singapore to develop and promote thoughtful leadership around sustainable supply chains in Asia. The concept of sustainability includes three pillars that must be in balance with each other: social, environmental, and economic aspects. Consequently, this case examines the competitive industry motivations and civil society pressures behind DHL's decision to engage in this partnership, as well as motivations for NUS' involvement. Overall, readers are encouraged to explore how this collaboration will benefit both parties as globalization affects not only industry, but also higher education. Moreover, it asks readers to consider whether and what particular international conditions and multiple stakeholders' interests might lead to a “Race to the Top.”
The purpose of this case study is to enable students to:
- Consider and analyze the negative externalities of global supply chains together with their sustainable business solutions.
- Understand how the concept of sustainability is practically applied in a global business context.
- Learn about and consider the importance of the roles of multiple stakeholders, including civil society organizations, in business.
- Consider whether a “Race to the Top” is possible under these conditions, and how it may occur.
- Analyze the potential future for and pitfalls of an international collaboration.
DHL's worldwide package delivery service faces vigorous global competition. The Germany-based company must cope with fierce competition from well-branded US firms such as FedEx and UPS. A Dutch firm, TNT Express, is another newer, but strong competitor. These firms offer essentially the same repertoire of delivery services in almost the same set of over two hundred countries. DHL has a slightly stronger reputation in international delivery for its brave “go anywhere” guiding principle but it is also viewed as slightly more expensive. It is also weaker than the other two US firms in the large US domestic market, but has learned some strategies on which to compete. Thus, the express delivery providers find challenges in differentiation. While emerging economies and online ordering via the internet offer vast market expansion opportunities, recent advances in technology have the potential to shrink the market for express delivery as affordable three-dimensional (3D) printers become more widely available in the decade ahead. The Asian market is of high importance due to its growing size and, while on one hand, recognition for sustainability may be a positive basis for differentiation for gaining market share in Asia, it could also become, like all other aspects of this business, a basic expectation. Thus, although a “Race to the Bottom” on business ethics and sustainability, as part of globalization, seems to be a norm in most industries, we may be seeing a “Race to the Top” in this one. Other forces, such as international civil society organizations could be part of this movement. This case explores the motivations of DHL and the National University of Singapore (NUS) for partnering to establish the Sustainable Supply Chain Centre of Asia Pacific in Singapore. It also considers some aspects of partnership dynamics and investigates what conditions in global markets may lead to a “Race to the Top.”
Sustainable Supply Chain Stakeholders: Considering the Views of Civil Society
A supply chain is a connected order of processes that result in the production and distribution of a commodity. Such chains connect companies globally in a complicated and often massive international coordination effort to provide products and services in a most cost effective manner, on time to customers. Just-in-time (JIT) is an important supply chain business philosophy, often attributed to the Japanese for their implementation of it. It is understood to support modern production and delivery systems so as to reduce costs across systems by conceptualizing them in an integrated way. For example, minimizing inventory carrying costs can be achieved by taking small, frequent deliveries from suppliers only as needed, determined by sophisticated customer demand and logistics prediction and tracking systems to which suppliers are also connected. It is a challenge to effectively manage what can be depicted on a map as a worldwide structure of inter-linkages known as a “spaghetti system,” that is, a model of interconnected activities in which the connections joining the specific activities in the supply chain look like noodles.
Unfortunately, it is difficult to directly incorporate the externalities of supply chain systems into supply chain maps or the cost calculations related to these systems. Third parties, especially nongovernmental and inter-governmental organizations (NGOs and IGOs) are quick to identify these sustainability issues. They are concerned with sustainable development as defined in “Our Common Future,” a document produced by the World Commission on Environment and Development (WCED) for the United Nations:
Sustainable development is development that meets the needs of the present without compromising the ability of future generations to meet their own needs. It contains within it two key concepts:
- the concept of “needs,” in particular the essential needs of the world's poor, to which overriding priority should be given; and
- the idea of limitations imposed by the state of technology and social organization on the environment's ability to meet present and future needs. (WCED, 1987, p. 41)
An externality is a positive or negative consequence of an economic activity that is not reflected in the cost of the goods or services produced by the activity. Identifying negative externalities is essential for improving supply chain systems and for developing an understanding of their real costs. These unaccounted-for-costs are exceedingly important to address as the world pays for them, through devastating consequences to people and the environment, instead of the firms that generated them. For example, firms outsource labor to low cost countries where health and safety regulations, if they exist, are not well enforced. In some cases, this has allowed for inhumane working conditions. As supply chains cross oceans, transportation, whether by ship or plane, involves burning of voluminous amounts of fossil fuels and increasing greenhouse gas (GHG) emissions at very low prices. Prices are too low considering that they do not internalize the global chain of consequences.
Many international civil society organizations, NGOs and IGOs, are working to support nations in their efforts for sustainable development and supply chains are an important part of this. Many parts of or affiliated organizations with the United Nations are paying attention and have put programs into place, as have others. It is interesting to consider whether or how DHL's initiative with the NUS may be aligned with these organizations' goals.
The United Nations Environment Programme (UNEP) has several initiatives with business in mind, including those related to supply chains. For example, it is focusing on improving the ICT (information and communications technology) sector's activities. The UNEP is working with the Global E-Sustainability Initiative (GeSI), an ICT industry specific collaboration that works with NGOs to improve the sustainability of their members' and other supply chains. The UNEP is turning to standards and codes such as ETI (Ethical Trading Initiative Base Code), EICC (Electronics Industry Citizen Coalition Code of Conduct), SA 8000 (an accreditation system developed by Social Accountability International), OSHSAS 18000 (an occupational health and safety management system specification), and ISO 14001 (standards for an environmental management system (EMS)) to support the collaborative changes. These standards and codes apply universally to all supply chains. Other examples of UNEP efforts include pilot projects in agriculture and fishery supply chains. They map the international supply chains to understand every actor's motivations and potential for engaging in sustainable practices since cooperation of every part is essential.
The International Labour Organization (ILO) is a specialized agency of the United Nations, whereas the Fair Labor Association (FLA) is independent but has similar goals. These organizations have many programs, but for example, the ILO is concerned with the rights of migrant workers, labor migration and remittances, and youth employment. They produce a global wage report and examine the gap in wages between developed countries and other parts of the world, a major driver for international supply chains; companies source internationally often because of the lower cost expertise. However, when an emerging economy's workforce starts to expect higher wages, as in China, companies often move their operations to places of lesser fortune and they are often other nearby Asian countries. Thus, the ILO and the FLA face some difficult challenges to solve. We have yet to see whether changes in technology will improve these labor dynamics. In the future, 3D printing may hinder much of this company migration (slowing the “Race to the Bottom”) because using this technology, manufacturing can be easily customized and locally implemented with vastly reduced labor requirements as manual operations are almost eliminated. If manufacturing goes local, not only will the labor issues that the ILO and FLA have to deal with change, but also international freight and logistics services demand will drop.
The FLA is a collaborative organization made up of universities, companies and civil society organizations concerned about preventing and stopping abusive labor practices. They engage in audits, respond to and investigate complaints, and attempt to initiate their preventative work through risk assessments of facilities likely to violate workers' rights. The FLA's projects are worldwide and they will work in any industry. Like the UNEP, some of their projects include supply chain mapping. Concern for workers at risk and lowering these risks is an important aspect of developing sustainable supply chains, an important issue in Asia as it develops. DHL seems to be focused on the environmental aspects of sustainability and it is not clear what NUS is most concerned about or whether these parties will take a holistic view of sustainability, considering social and environmental issues, as well as the interconnections.
The United Nations Global Compact is a voluntary association that companies may sign up for. They must be willing to abide by ten core principles related to human rights, labor, environment, and anti-corruption and regularly report on their policies and practices. According to the Global Compact reporting site, DHL and TNT Express, both European firms, are members in good standing whereas UPS and FedEx, both American firms, are not members. The organization also publishes a Global Corporate Sustainability Report each year and has recently published a report called Supply Chain Sustainability: A Practical Guide for Continuous Improvement. It applies the principles of the Global Compact to supply chain sustainability, providing advice and guidance to firms that engage significantly in sourcing activities. The report encourages corporations to use their purchasing power to influence sustainable practices in the firms from which they source.
The Fairtrade Foundation, originating out of the UK, works for a better deal for farmers and agricultural workers, worldwide, on social and environmental grounds through a fairer trading system. It is associated with several entities that work towards the overall goals of fair trade. For example, FLOCERT is an independent body that certifies goods as Fairtrade. You may choose to buy goods with the Fairtrade Mark on them, thus creating a market for these items. It puts the decision of whether to support sustainable development or not directly into the hands of consumers. Fairtrade International works out of Bonn, Germany, to coordinate the international efforts.
The International Green Purchasing Network (IGPN) is another NGO that promotes environmentally friendly purchasing choices to support sustainable production and consumption. The IGPN was inspired by Agenda 21 from the 1992 United Nations Conference on Environment and Development (UNCED Earth Summit) where green purchasing was emphasized as an important strategy. The IGPN is based in Asia, having council members from Japan, Malaysia, India, etc. and most events are held in Asia. They seek to increase awareness and educate through workshops, international conferences, collecting and disseminating information on best practices, and by offering tools and guidelines to support the implementation of green purchasing practices and systems. The IGPN has also considered the impact of 3D printing on manufacturing supply chains, having posted at their website an article in the Guardian (Kaltenbrunner, 2014).
The last organization to be mentioned here, among many possible ones, is the World Wildlife Fund (WWF) having aims to protect many species and spaces, as well as addressing impactful issues and trends, such as climate change. The interference and impacts of human activities on ecosystems is well documented and supply chains are one of those many types of human activities making an impact. WWF hosted a sustainable sourcing conference and much of WWF's related activities have been around sustainable fisheries and forestry.
Overall, these organizations are working to raise the standards of treatment of people and the planet. They all recognize the negative externalities of supply chains and work on partnerships with firms to reduce them. With so many possible interested civil society partners that the new Sustainable Supply Chain Centre of Asia Pacific could engage with and benefit from for input and advice, how many and which ones will the center want to work with? If it truly wants to be a global player, the new center may need to develop a stakeholder strategy to help it manage its many potential partners. Moreover, DHL and NUS may each think about what stakeholder strategy will benefit them and could these separate desires lead to a clash between the partners or will they be aligned? How can they work to maintain an alignment in their choices?
Recent Background on DHL
DHL is a main division of Deutsche Post DHL, a German parent headquartered in Bonn. DHL began in 1969 in the US with a delivery from San Francisco to Honolulu. It was acquired by the German company in 2002. Today, Deutsche Post DHL is a mail and international express delivery service that also deals with freight and handles logistics including warehousing and distribution. Management is centralized at a German corporate center with Dr Frank Appel as the CEO. The firm has four main divisions: 1) mail; 2) express; 3) global forwarding, freight; and 4) supply chain. It has a network of 220 countries and serves 2.7 million customers through 40,000 service points using 31,000 vehicles and 250 dedicated airplanes. DHL, with about 480,000 employees around the globe, is a profitable public company with positive cash flow and an increasing dividend according to their 2013 annual report, which is a flashy document emphasizing their logistics customers in the world of high fashion. Their report also mentions their dedication to sustainability and social responsibility, consequently enabling the firm to offer disaster management services. In addition, their 2014 interim report for the first nine months indicates that they remain a solid and stable business and are expected to be going forward. Parcel delivery is successful because of growing e-business.
DHL designed a strategic plan in 2009 called Strategy 2015. The firm aims to be the postal service for Germany and the logistics company for the world. The firm prioritizes its stakeholders including customers, investors and employees. Although the firm promotes sustainability, its annual report states upfront that the firm will focus on increasing profitability and generating cash. This is a very traditional point of view for a firm, and it is inconsistent with the main principle of sustainability, which requiring balancing environmental, economic and social aspects. DHL's annual report sends a message that this firm is focused on the economic dimension. This raises questions as to how seriously it takes its so-called commitments to the other pillars, if these are not a focus of its goals and it does not report on a triple bottom line basis. It may not be “greenwashing,” exactly, but at most, its social and environmental activities are side activities that may take place only if they support the profit and cash flow goals.
DHL reports on its corporate social responsibility (CSR) and environmentally related activities separately from its main annual report. They answer to their stakeholders through the GRI (Global Reporting Initiative) and Global Compact reporting. They state that CSR is an integral part of corporate strategy, but it is not a significant part of the annual report. To the firm's credit, this secondary report pays respect to the UN Global Compact, the UN Declaration of Human Rights, the OECD Guidelines for multinationals, and the ILO. The firm uses language that recognizes its stakeholders because as the German postal service, it answers to the German public. It is also listed on the FTSE4Good and MSCI sustainability indices and is listed in the CDP Global 500 Climate Disclosure Leadership. DHL is the only transport company to be rated AAA on the MSCI index. The transport sector, which includes the logistics industry, emits 23% of the world's energy-related greenhouse gases. DHL is one of the ten largest employers in the world, with most of their workforce from Europe and some in the Americas, Asia Pacific, and other regions. In addition, their report addresses diversity issues and states that they are working to improve their statistics, especially mentioning the imbalance in women's employment and in women in the upper ranks. The firm also ascribes to a Supplier Code of Conduct, in addition to its own Code of Conduct, to support responsible procurement consistent with the principles as per the earlier mentioned international organizations in this report, listed above.
DHL has initiated sustainability programs and they will be outlined next. The GoGreen climate protection program has a goal of comprehensively improving carbon efficiency by 30%, compared to 2007, by 2020 and the firm is on track to meet this target. Through this program, the firm also offers carbon and climate neutral products to customers. Moreover, in their calculations, they consider the impacts of their supply chain partners, e.g., their subcontracted transport partners such as shippers. The GoGreen program considers all environmental aspects of their business, not only carbon emissions, and about 47% of their locations are ISO 14001 certified, having an EMS. They run a GoTeach program which supports education and training for children and young adults around the world, especially in developing nations. They also offer GoHelp, which is a disaster management partnership with the UN. With the UNDP, DHL helps airports prepare for disasters. Also, DHL offers free logistics support in the event of a disaster, with an ability to mobilize 400 volunteers, as a humanitarian partner with the UN.
DHL's Global Competition
DHL's main competitors, UPS, FedEx, and TNT Express, are competing on sustainability initiatives and this could be one motivation for the firm's own unique initiatives, such as a partnership with a university. Each firm is briefly described next so as to provide context to DHL's business and sustainability ambitions.
UPS, with approximately 397,000 employees and about USD$55 billion in revenues, is a close, financially stable competitor originating in the United States. It continues to build global networks, including a hub in Germany, and is investing in emerging markets. In contrast to DHL, approximately 75% of UPS's revenues are derived from the US and only 25% from international customers. UPS ascribes to sustainability and is involved in similar types of initiatives comparable with its competitors. The Carbon Disclosure Project named UPS to its “Carbon Disclosure Leadership Index,” and it was added to the Dow Jones North American and World Sustainability Indices. UPS also produces a separate CSR report in accordance with the GRI (Global Reporting Initiative). It aims to reduce carbon intensity by 20% relative to a 2007 baseline by 2020. They have installed renewable energy and increased the energy efficiency of their facilities. However, UPS lacks a diverse workforce and little change in the imbalances is expected.
FedEx, with 300,000 employees and about $45 billion in revenues, is not as large as DHL, but like DHL, it has four divisions: FedEx Ground, Express, Freight, and Services. A financially stable company, it cites increasing fuels costs as one of the challenges that it is addressing and flexibility as one of its important strengths. The main difference between DHL and FedEx is that the former is stronger in Europe and the latter is stronger in the US. Both are finding that e-business is a positive business driver and both ascribe to sustainability in operations and emphasize the importance of being a good employer. FedEx produces a Global Citizen Report that is aligned with the GRI (Global Reporting Initiative), separate from their annual report. It conducts its own “Earthsmart” program and has goals to reduce CO2 emissions. Although FedEx also lacks diversity, it has some programs to suggest this might change, although slowly.
TNT Express, a Dutch firm, is a much smaller competitor, having roughly a tenth of the revenues of the others; however, it is financially stable and global with about 53,000 employees. About two thirds of revenues are from Europe and the rest are dispersed internationally. TNT aims to acquire more business in Europe and has a focus on SMEs and particular segments: industrial, automotive, high-tech and healthcare. In 2012, UPS attempted to takeover TNT and the offer was initially accepted, but the European Commission denied it on the basis of competition concerns. The TNT Express reports in accordance with the GRI. TNT Express is included in the Dow Jones Sustainability World Index and is in the Carbon Disclosure Project. TNT reports on diversity and while it also shows imbalances, some statistics are slightly better than other competitors.’
National University of Singapore
Singapore's knowledge-based economy is supported by many local and internationally renowned universities. One of its major local research universities is the NUS, having approximately 30,000 students and ranking among the top universities worldwide. This globally connected university began as a medical school and today offers a full range of faculties from Arts and Science to Law, Engineering, Business, and more.
It is focused on building on its global strategy, so the supply chain initiative with DHL, a global delivery company, fits the university's mandate. As they educate students to become global citizens, supply chain opportunities are attractive to graduates who would like to maintain and grow their international linkages. On innovation, the university has strengths to bring to the partnership with DHL. Although the university does have programs and courses related to sustainability, the environment, and corporate social responsibility, this does not appear to be an area of strength or focus. Today, universities are competing globally for students and recognition. Moreover, many well-known foreign universities have set up campuses in Singapore. Given that climate change is widely considered the greatest global issue of our time, a university is hard-pressed if not top notch in this field, especially one that espouses a global strategy. So, where NUS is an innovative and globally oriented university with pre-existing strengths in supply chain, DHL brings to it a focus on the importance of integrating sustainable business practices and a mandate to continue to innovate in the supply chain space.
The Collaboration: Sustainable Supply Chain Centre of Asia Pacific
In 2010, DHL and NUS announced their Sustainable Supply Chain Centre of Asia Pacific in Singapore. Singapore is a major trading hub with world class infrastructure. The intention is to promote sustainability in Asian supply chains. The center engages in research, surveys, education, and conferences to embed sustainability into Asian supply chain curricula, to benchmark best practices in sustainable logistics, and for the development of intellectual property related to sustainable supply chains. DHL's advanced sustainability best practices are a baseline for the center. It has several full-time employees running the center together with oversight by a board composed of representatives from DHL, NUS, and the Singapore Economic Development Board (EDB) and industry partners from Accenture and Dell.
In 2012, DHL won the “Green Supply Chain Award” at the Supply Chain Asia Logistics Awards because the company has integrated sustainability into its practices and has made a contribution to greening the industry. Of several highlights of their achievements recognized were the Asia Pacific center and a program arising from the center called, “Green Freight Asia Network.” The center has brought a group of private companies together with the aim of increasing fuel and CO2 efficiency in road transportation.
The global delivery and logistics industry is highly competitive. DHL has two large US competitors close behind it, especially FedEx from an international services perspective, but UPS is attempting to grow its international business, seeing the vast opportunities in emerging economies. TNT Express has the advantage of a European base and already, an international reach that UPS attempted to acquire. How does DHL currently compare to its competitors and how will it continue to compete and differentiate itself?
The center in Singapore may be one way to establish and grow DHL's presence in Asia, relative to its competitors. As all of these firms compete directly in similar business activities, they also consider their reputations through CSR initiatives. As they grow internationally, they increase risks to their reputations especially because they become exposed to lower environmental and labor standards around the world, directly or through other contracted partners' activities. Many NGOs and IGOs are watching over this globalizing landscape and the related negative externalities.
Moreover, DHL has established this Asian center focusing on the environmental side of sustainability, but will it also need to work with NUS more broadly on sustainability in supply chains, including labor issues, for example? NUS must include advanced sustainability research and programs in its curricula to be a globally competitive research and educational institution. However, if firms are arriving to Asia for low cost labor, in a Race to the Bottom, whereas sustainability promotes a Race to the Top, how will NUS and other Asian institutions and organizations reconcile these competing pressures? NUS will be working with globally recognized foreign firms, such as DHL, Dell, and Accenture, that are bound by their home countries, unions, civil society, and their reputations to engage in not only green practices, but also fair labor practices. The new center will bring East and West together and the parties may discover that they have some issues to work on, including a more holistic view of sustainability and partnerships with international civil society, stakeholders that have not been listed as part of the new center, but who could help them work on developing improved sustainable supply chains in Asia.
- Provide a characterization of the global express package delivery and logistics industry.
- Discuss how the SCOR (Supply Chain Operations Reference) model could facilitate DHL's business.
- Why would DHL engage in sustainable practices and why would it want to set up the center with NUS?
- How do DHL's competitors compare on sustainable practices and how do they capitalize on these activities?
- Are sustainable practices in conflict with the goals of a firm in terms of maximizing shareholder wealth or is it actually in a firm's interest to maximize on a broader set of stakeholder interests through sustainable practices?
- What are, potentially, some of the conditions in an industry that may lead to a Race to the Top?
- How does the partnership with DHL, through the Sustainable Supply Chain Centre of Asia Pacific, benefit the University of Singapore? What are its concerns?
- Considering all of the various international civil society organizations interested in sustainable supply chains, mentioned in the case and otherwise, should the new Sustainable Supply Chain Centre of Asia Pacific engage with them, and if so, which ones and how?
- How should DHL and NUS work together within the new center? What aims should they set for it, considering both parties' interests? How might DHL use the center to address the 3D printing challenge to its business?
- Identify some industries that seem to be in a Race to the Bottom and discuss, based on what you have thought about in this case, whether they may change to engage in a Race to the Top—what conditions might change?
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