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CBS International Business School, 19 June 2021

Coronavirus's impact on supply chain & climate - Interview with Prof. Dr. Lisa Fröhlich

coronavirus-impact-on-supply-chain-and-climate-change-interivew-with-lisa-froehlich

Empty streets and skies without planes during the Coronavirus Lockdown seemed at first glance as the perfect solution for climate protection, however, the coronavirus pandemic has also posed significant challenges for supply chains globally and it proved how fragile the supply chains are. How can we use this wake-up call to rethink sustainability? We spoke with Prof. Dr. Lisa Fröhlich, Professor of Strategic Supply Management and President of CBS International Business School, about Corona, climate change, sustainability, and supply chains. She gave a keynote speech on these topics on June 9, 2021, at a panel discussion of the Cologne Science Roundtable (KWR). A recording of the Livestream is available at the bottom of the page.

CBS: How much of an impact has Corona had on supply chains?

Prof. Lisa Fröhlich: 40 percent of supply chains did not hold up in the Corona pandemic, and when they did hold up, there were sometimes long delays. So more or less every company became acutely aware that their supply chains are not robust, how dependent they are on commodity markets and logistics, and how severely they can be affected by production stoppages at suppliers and in their own companies. That was kind of a wake-up call.

CBS: What were the consequences of this involuntary stress test?

Prof. Dr. Lisa Fröhlich: In a study, 83 percent of companies said they are now keeping a closer eye on supply chain risks. Companies are thinking more about resilience and sustainability. That's good because we've had empirical evidence for some time that a sustainable supply chain is also more resilient, and that a more resilient supply chain is more sustainable. What's new, however, is that advancing digitization and real-time data can provide additional gains in efficiency and security.

CBS: But wasn't Corona also good for climate protection?

Prof. Dr. Lisa Fröhlich: The easiest way to more sustainability, and thus climate protection, is lockdown - you might think. We still remember the beautiful photos from Venice, where the dolphins dared to enter the city or the blue skies above China's industrial regions. Except that a lockdown is not the solution. Corona can't stop climate change. At the peak of the lockdown in April and May 2020, CO2 emissions did drop by 26 percent. But even that won't be enough; according to the United Nations UNEP study, a global greenhouse reduction of 55 percent from 1990 levels is needed to mitigate climate change. Even the global lockdown "experiment" ultimately failed to help achieve sustainability goals. Germany did achieve its self-imposed climate targets in 2020 "thanks" to the lockdowns, among other things through lower energy consumption and less traffic, but this was accompanied by an economic slump. That can't be a lasting solution.

CBS: How can companies achieve sustainability goals?

Prof. Dr. Lisa Fröhlich: Our old answers no longer work. In classic process optimization, you specify a goal, plan the way to get there, and check whether the key figures are achieved. In the end, there is a result, but unfortunately, that does not necessarily lead to a sustainable supply chain. We have always tried to make existing things better, more efficient - in other words, less bad. Just think about packaging. Is it enough to make a plastic bottle even thinner? Or if you use a different material for a plastic bag?

You can't go on as before. So we need something different: sustainable transformation, where a different way of thinking leads to innovation. In doing so, you should start with much deeper questions, you have to question a production and supply chain from the ground up, sometimes even the business model.

CBS: Is this the chance for a new beginning?

Prof. Dr. Lisa Fröhlich: Politically and socially, there is a lot going on. NGOs are successfully suing the state because it was not precise enough in its climate legislation. Another example is the Supply Chain Act, which obliges German companies to comply with fair and environmentally sound production conditions, which also has a major impact on business, and then there are overarching regulations such as the EU's "European Green Deal." So as a company, you can't avoid a new departure, because it's already being triggered by a variety of extrinsic influences. So it's better to take the new departure intrinsically into your own hands and stay one step ahead of regulations and the market.

CBS: Can the state support the new departure?

Prof. Dr. Lisa Fröhlich: We have to stimulate the economy again now. There are ideas such as investment packages so that certain industries can recover again, or so that new industries can form. Some business sectors or services will no longer exist because they are no longer needed due to post-pandemic behavioral changes and digitization, while other business models will emerge and be successful. The new beginning, the investments associated with it, should be bindingly linked to compliance with relevant environmental and social standards.

CBS: Is a change in thinking taking place among companies?

Prof. Dr. Lisa Fröhlich: In the hot phases of the Corona lockdowns, many companies were concerned about their economic existence, so sustainability and climate change understandably did not play the main role. But now we are in the phase of reflection: Three out of five companies see that a company that is not managed ethically and sustainably represents a significant business risk, four out of five companies see the topic of sustainability as an opportunity to drive product and service innovations, and 85 percent are planning very specific investments in more sustainability.

CBS: But sustainable transformation is not a foregone conclusion, is it?

Prof. Dr. Lisa Fröhlich: That's right, you have to approach transformation strategically, and there are proven models for this. In the first step, the exposure to sustainability problems should be determined, i.e., a systematic review of all steps from raw material procurement to production and product use to disposal. In the second step, real solutions to problems can be devised, which may also be radical and do not yet have to be economical. Only in the third step are these solutions optimized to such an extent that they are marketable and create value for the company. The result is the simultaneous achievement of the sustainability goals and the business goals.

CBS: Which area of the company is central?

Prof. Dr. Lisa Fröhlich: If you look at the sourcing and logistics issues in the Corona pandemic and superimpose sustainability issues such as the Supply Chain Act on top of that, we come to the area that I mainly deal with in research and teaching, namely procurement. Whether raw materials, intermediate products, or services are procured internally or externally, the pandemic has shown that a supply chain must first and foremost function. This is also a task of purchasing, but one that is still treated very stepmotherly. Often, purchasing is assigned the main goal of cost reduction. Supporting the achievement of sustainability goals is then, if at all, of secondary importance. Here, a strategically aligned purchasing department can make an important contribution: if the company wants to have a robust and sustainable supply chain, purchasing has the key function. When selecting suppliers and products, it can ensure that human rights are observed at the supplier - which quite pragmatically makes the occurrence of wildcat strikes and thus delivery interruptions less likely - or think about local manufacturing and vertical integration in parts of the supply chain, which can save transport effort and thus CO2. Purchasing is also in demand when it comes to the top topic of digitization, because most companies have to procure services and products on the market here. When the business model is turned upside down, procurement becomes even more central. And to return to the example of plastic water bottles: Here, the thinner plastic bottle is not the solution; here, manufacturers and consumers are switching to water spray systems, water filters, and beverage syrup, which is interesting for sustainability and climate protection reasons, but is also an attractive business model. As a result, plastic bottle blank producers then come under pressure, forcing them to look for innovative, more sustainable solutions.

CBS: Does a sustainable transformation also have risks?

Prof. Dr. Lisa Fröhlich: Yes, there can be rebound effects. If we actually need a lot fewer resources to produce something, then the price drops, creating a market incentive that causes consumption to rise so much that, in the end, more resources are consumed than before due to the increased demand - and CO2 emissions rise. The example here would be the thinner disposable plastic bottles, which become cheaper to produce and transport, causing the price to drop so much compared to reusable glass bottles or water sprinkler systems that the plastic bottle gains market share. Then nothing is gained from a sustainability point of view. This means we have to think holistically so that by solving one problem we don't create five new problems that are then even harder to fix. But it may also be the case that by solving one major problem, three other problems are solved by themselves.

CBS: How will entrepreneurship change?

Prof. Dr. Lisa Fröhlich: Companies have to ask themselves how they want to define value creation in the future. Is it still enough to improve a few tenths of a percent here and there, or do we have to think in terms of value-creating problem solutions? I think that entrepreneurial behavior will change. This is also where universities are needed, especially business schools. We are called upon to research in these directions and train the management talent of tomorrow.

CBS: How is CBS preparing for the sustainable transformation?

Prof. Dr. Lisa Fröhlich: First of all: Practice what you preach. Sustainability and carbon neutrality are topics that are also about being a role model and credibility. That's why CBS is a climate-neutral university, among other things. We have been integrating sustainability into teaching since 2013, and in 2016 we founded our Center for Advanced Sustainable Management. In the study programs, sustainability always plays a small or large role in the Bachelor's programs. In the popular Bachelor's degree in International Business, "Business Ethics and CSR" are already a topic in the first semester, and in the second semester, it is about "Sustainable Procurement", among other things. Those interested in a Master's degree can study sustainable management "Nachhaltigkeitsmanagement" or take an English-language Strategic Management and Consulting Master's program, in which great emphasis is placed on content such as CSR, corporate governance, and sustainable supply chain management.

CBS: Thank you very much for the interview!

 

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CBS International Business School is a state-recognised private university of applied sciences for business. We offer accredited Bachelor's, Master's and MBA degree programmes in German and English on a full-time or part-time basis. Throughout Germany, the university is represented at three locations in Cologne, Mainz, and Potsdam.

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