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SA companies jeopardise competitive advantage with lack of environmental concern
A recent study into the supply chain and logistics practices of a number of industries in South Africa revealed that the majority of the country’s companies are not implementing environmentally sustainable business strategies. This goes against international best practice, which sees sustainable development as a fundamental business imperative for long-term growth, and jeopardises the global competitiveness of South African business.
The SCIR is an annual, independent and international study into the supply chain and logistics practices of emerging economies around the world. Developed and compiled by Terra Nova Research, the 2009 South African edition saw over 200 senior company officials – from both a strategic and supply chain perspective – participate in an in-depth survey.
All major industries in the country were represented, including the automotive, food and beverage, mining, construction, transportation and chemical industries.
The study incorporated the Complexity Masters theorem, developed and published by Deloitte in 2003, which holds that companies with complex value chains, and importantly, the capability to properly manage those complex value chains, are 67% more profitable than their peers.
A section of the survey focused specifically on what business in South Africa is doing to ensure environmental sustainability.
A list of several KPIs (key performance indicators) around environmental sustainability was drawn up and respondents were asked to indicate whether any of the KPIs on the list provided “are or will be forming part of [their] supply chain measurement metrics within the next 12 months”.
When Terra Nova analysed the overall results, a significant 41.3% of the sample of companies did not have, or had no plans to incorporate metrics to measure their impact on the environment. This revelation is significant, considering the long-publicised and growing concern about the environment globally.
In stark contrast, however, were the results of the Complexity Masters (the most complex, capable and successful companies in the country), with 88.6% of these companies having planned or already introduced metrics to measure their impact on the environment.
The implementation of sustainable business practices as a business imperative by the Complexity Masters is arguably a contributing factor to their overall success.
South African Complexity Masters (Refer to graph below)
The various industries that took part in the survey were then analysed, giving a clear indication of how each industry is faring in terms of their sustainability strategies when compared to the overall sample, and the Complexity Masters.
Automotive industry
Just over a third (34.3%) of the respondents from the automotive industry reported that the environmental KPIs are not a current or future KPI. While this is an improvement on the 41.3% for the total sample, it is still alarming that such a large portion of the sample reported this fact, particularly in light of the South African energy crisis and rising Eskom tariffs.
Similarly, just under half of the respondents said that metrics around water consumption and carbon dioxide emissions are also not current or future KPIs (47.6% for both).
As the automotive industry is a global industry, with all of the original equipment manufacturers having mother companies located abroad, and parts and components manufactured and shipped around the world, international pressure (particularly from Europe and the United States) would cause South African motor companies to monitor and report on the impact their operations have on the environment in the forthcoming years.
Mining and quarrying industry
From the mining and quarrying sub-sample, 50.5% of the respondents reported that the various environmental KPIs are not a current or future KPI, i.e. energy consumption from supply chain operations (50.0%), CO2 emissions from supply chain operations (60.0%), water consumption from manufacturing operations (35.7%), infrastructure simplification (46.7%) and reverse logistics (60.0%).
The unwillingness to adopt these new and important KPIs is quite surprising, considering that mining is one of the industries which not only has a significant impact on the environment and South Africa’s precarious energy situation itself, but felt a dramatic impact during the country’s energy crisis in 2008.
Oil, gas and chemicals industries
From the oil, gas and chemicals sub-sample, 44.6% of respondents reported that the various environmental KPIs are not a current or future KPI for them – an amount similar to that of the total sample (41.3%), but significantly different than the Complexity Masters (11.4%).
Interestingly though, the same respondents said that environmental issues are an important factor in their decisions in their business (57.1%). If this is true, then the question is: which environmental factors form part of their decision and do they have metrics in place to monitor their effectiveness?
Construction industry
From the construction sub-sample, 35.6% reported that the various environmental KPIs are not a current or future KPI for them – an improvement on the total sample (41.3%), but significantly different than the Complexity Masters (11.4%).
FMCG and retail industries journal
When examined by sub-sample, the FMCG sector seems to be slightly more in tune with the market’s concern about the environment, with 33.3% of the respondents reporting no future plans to incorporate the listed environmental KPIs in their management systems, compared to 35.8% for the retail sector.
Similarly, when asked about which factors are considered important when making decisions about new products or markets, 55.6% of FMCG respondents said that environmental issues are critical in decision-making, compared to a significantly lower 38.1% for the retail sector.
Perhaps it is because the FMCG sector has more stringent regulations governing its operations and impact on the environment, or maybe it is because many are part of multi-national companies and are required to adhere to the standards imposed by other international communities.
Alternatively, it could be because the FMCG manufacturers are more aware of the changing market and are trying to ensure the longevity of their relationships with their consumers.
Sustainability is no longer merely a buzzword or an accessory to doing business. Measures of success and the day-to-day operations of business are undeniably and rapidly changing to incorporate sustainable practices, and importantly, are considered to become a major component of competitive advantage.
The Complexity Masters in South Africa have made strides in adopting the necessary strategies, pre-empting an inevitable change in legislation. However, over 40% of South African companies have not – this includes major industries such as mining and quarrying and oil, gas and chemicals.
Ultimately, as put forward in the King III Commission released early this September, sustainability is now the primary moral and economic imperative and it is one of the most important sources of both opportunities and risks for businesses.
SCIR 2009 clearly indicates that a shift in thinking is required by South African companies and directors in terms of their sustainability strategies, should they want to turn risk into opportunity and improve their competitive advantage in this ever increasing global world.
Article supplied by Terra Nova
For more information on SCIR 2009,
or to order a copy of the full report, contact:
Monika Oosthuizen
Tel: (011) 463 5713
E-mail:
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