Impact Podcast | Rethinking sustainable supply chains: Three myths businesses must consider

Kanina Blanchard (KB)
Exclusive insights, actionable strategies and ideas that ignite change. You're listening to the Ivey Impact Podcast from Ivey Business School.

Julian Birkinshaw (JB)
Hello and welcome to dialog with the Dean, the flagship series on the Ivy impact podcast. I'm Julian Birkinshaw, dean of the Ivey Business School. In this series, I speak with Ivey's leading faculty to explore the research, shaping business and society. Today, on this episode, we're taking on a question that's rising to the top of boardroom and policy agendas around the world. Are the supply chains we rely on actually compatible with a sustainable future. And more importantly, can businesses truly transform them in a meaningful way, or are we simply hoping that they will? To explore that, I'm joined by Jury Gualandris, Associate Professor of Operations Management and Sustainability, endowed Abell Hodgson Chair in Regenerative Agriculture and academic director of Ivey's Building Sustainable Value Centre. In today's conversation, Jury unpacks three widely held myths about sustainability and explains what it really takes to build supply chains that don't just reduce harm, but to help regenerate the social and ecological systems we all depend on. Importantly, he'll share practical insights we just can start applying right away. Jury welcome to Dialogue with Dean, it's a pleasure to have you here.

Jury Gualandris (JG)
Thank you Julian. 

JB
So before we get going, just give us a sense of what we're going to talk about for the next 20 or 30 minutes. What should listeners expect to learn from this episode?

JG
In my research, I consider businesses to be nested in society, which is nested in the ecology. Oftentimes, though, businesses design their products, their supply chains, and their business models, disregarding the fact that they are nested in these systems. So through through conversation, I hope we can unpack a few logics that help businesses to think about nature and society in an integrated fashion when they design the products, the processes, and their business models.

JB
Got it. So we're going to go through a couple of your recent academic papers, but obviously in a very practical way. The first one is called When does upcycling mitigate climate change? You're going to have to explain what upcycling means, first. what is upcycling? 

JG
Absolutely. I will use an example to explain that. Do you like beer?

JB
Yep. 

JG
So every liter of beer creates one kilogram of spent grains. So basically all the nice flavor and nutrients are extracted from the grains. And what's left behind is these, spent grains that are often discarded in the past where they were just sent to landfill. Now, you can dry it, mill it and they become flour. And the flour can then be mixed with the pulp from juicing, which is another type of byproduct that is often not used. And you have pulp and flour mixed together, 100% waste-based cookies that are very delicious, nutritious. That's upcycling. 

JB
So that sounds like a good thing to do. In other words, you take all this stuff which we would otherwise have thrown away, and we turn it into products that you and I actually want to consume. So the and so upcycling sounds like a good idea. And I think you're now going to tell me that maybe it is and maybe it's not under all circumstances. So what is this academic research you did on upcycling. Look at it. 

JG
Absolutely. So upcycling well requires activities. And these activities themselves consume natural resources. You know, if you think about the drying, the milling you use energy. How clean is that energy? You need to collect the waste and then ship it. So how far are you shipping it? What modes of transportation are you using? And so in using resources that are going to waste and giving them new life, you are still, pursuing activities that have ecological impacts. Those are environmental costs that are associated with upcycling, right? There are environmental savings associated with upcycling. The saving is that you are not farming the land to create the grains that goes into the cookies. You are using the spent grain, right? So you can look at what the carbon footprint of a virgin product on the market would be and if the sum of the environmental cost through the process of collecting, transforming this waste into a valuable resource is cumulatively lower than the cost of the virgin, then you are saving your, the ecology. But that is dependent upon how environmentally friendly the virgin product is and our environmentally friendly your upcycling is. 

JB
So you actually did a study where you looked at the carbon footprint, essentially of a bunch of different ways of either upcycling or throwing away or other. What are the other options here, if you're upcycling is a good one.

JG
I'm going to introduce the concept of the food recovery hierarchy. The food recovery hierarchy. So many people may have heard about reusing and recycling, recovering. The hierarchy in food is a similar framework that suggests first, you reuse what reusing means in a food context is that the food is about to expire. You distributed to those that needed some food banks. So there's no transformation as such is only redistribute ship. Some claim that upcycling is one form of reusing. One tier down, so less optimal, at least according to the framework there is, well I'm not giving it to humans, I'm giving it to animals. Like the spent grain. I can introduce that spent grain as part of the diet of a cow and that reduces the uptake of, virgin grain. So that also creates ecological savings by reducing the pressure on land, while still feeding cows the nutrients and the fibres, that they need. One level down, you can create value through upcycling, through plants and nature. So, for example, composting. Through a composting process, you try to return the nutrients to the land. An alternative model of nutrient cycling and energy cycling is, anaerobic digestion. So you have a process that anaerobic, that produces undigested, which is the residues that are highly nutritious, that can be used as soil amendment but also produces green energy. 

JB
So the hierarchy makes sense to me. And it's kind of been baked into the way we think about the whole issue of regeneration.

JG
Correct. Except that the hierarchy was never studied empirically. So it was introduced in 75, through so the European Commission deliberation, even in that document, it was written that this was a general guideline, but in some specific context, solutions that are 1 or 2 years down might be superior than solutions that are 1 or 2 years up. So we did a study where we looked at more than 100 different pathways for using polarizing waste. Some of these pathways involved upcycling to humans, some of these pathways even included upcycling to animals. We consider cows, pigs, insects, for proteins. And then some of it would consider composting anaerobic digestion down to incineration and landfilling. What we found is that upcycling, on average, and across the range of different impacts that you can have, is not ecologically superior than giving it to animals or processing it through composting and anaerobic digestion. So in comparative terms, you might be choosing a suboptimal pathway when you go to upcycling. The main reason is that our technology, as efficient as it might be, has been evolving the past ten years. Animals have been transforming nutrients into protein and   calories for much longer. So nature has evolved over a much longer period of time, and sometimes it's more efficient than our technologies.

JB
And this is an analysis, obviously, around the carbon footprint of these, of these different choices. This doesn't even take into account the actual costs, the actual financial costs. Or is that is that a whole separate...

JG
Its a whole separate conversation. So the model is the models are similar. So we are talking about lifecycle assessment. We run over, we collected data from over 100 cases and then we model all of that through lifecycle assessment from point of waste collection to the point where the new product is introduced in the market, all the activities in between. We started with ecological cost first and so we published this study. Now we are just finishing, a new study that looks at the same pathways also actually a larger variety of pathways, including national production, to look at what is the value add of each one of these pathways, and is the hierarchy supported from an economic perspective? Maybe the hierarchy is not supported ecologically, but it is economically. 

JB
So there are huge implications. I'm a company that is trying to do the right thing. I mean, I need to do the right thing for my shareholders as well. But I want to do the right thing for society, for people. And you're saying, let's make sure we actually understand the full costs, set of costs,full set of options and the full set of costs, the costs, financial costs and the cost in terms of the carbon footprint, and often the carbon footprint is way more complicated. There are many more pieces to it than we think. And how can a listener who is working one of these companies then make good choices? Because you are not unreasonably saying, it's quite complicated. You know, you've got to take a lot of things into account. How can I then choose. 

JG
Our research was actually, was hoping to boil down the complexity to a set of values, clear principles and thresholds. That's what I've been doing the last year, because this research is informing the first national standard on food loss and waste, measurement and management. So the standard which is will be a voluntary standard, will include this basic principle that I'm going to share with you in a second. So first we found that upcycling, can save 25 to 30% of the carbon footprint that is associated to a comparable virgin product. If three conditions are respected: one, from the point of collection of the waste to point of where it goes in the market, there are only 300 kilometers. So across the entire lifecycle. So from collection to processing, from processing to injection in the market, the second one that all the technologies that are used need to consume a maximum of 12 to 1500 kilowatt hour per tonne of material that is being processed and that energy profiles should be rather clean, similar to what we have in Ontario and Quebec. The third condition is that we also looked at the fiber content and profiles and the calories, content and profile, because otherwise you're comparing apples and oranges. So, you should not compare apples and oranges. So the product that comes out, the cookie or the flour need to have, comparability in the order of 85% of the quality of the final product.

JB
Okay. So you can boil it down to comparing situation to three criteria or whatever we want to call it. And then obviously you can to some degree industry by industry, then make some slightly more kind of precise recommendations about what needs to be done. 

JG
We did that with CSA, sponsored the project that we fulfilled is... 

JB
CSA is the Canadian Standards Authority... 

JG
Canadian Standard Association. We started with food. This work was picked up as quite prominent and informative, and they asked us to do it with fiber and with construction materials. So we done it across nine, different materials wood, concrete. And we, we have specific thresholds for each one of these materials. 

JB
And it's nice to see your research being actually picked up and put into practice.

MUSICAL BREAK

JB
Let's move to the second paper. And the second myth, the paper is called unchanging supply chains. That's an easy, so snappy kind of concept. And the way I think of it is that we've been kind of taught over the years, and we teach as a business school, right, that we want to make our supply chains efficient. And we teach the Toyota production method and just in time, ways of essentially creating a set of link companies that deliver value to customers, which is, you know, very, very high, because we've eliminated all of that waste in an efficiency in the system. That has been the kind of the orthodoxy. I think you are challenging that orthodoxy. And tell me how. Tell me where that orthodoxy goes wrong. What is the problem with a kind of Toyota style, just in time system? 

JG
First of all, I want to say that, Toyota did many things right and continues to do many things right. So it's not a general accusation towards models that we use is mostly recognizing how far we push them. So efficiency is good. To a point. But to a point, yeah. Responsiveness is good to a point. So it is about balancing out principles that we have taken for granted, and we thought that we could push them. Yeah. You know, to the infinite level. Yeah. Recognize that beyond certain points, efficiency actually does hurt, Maybe not yourself, but someone around the system, maybe your suppliers, maybe the local communities that operate around your facilities, maybe the natural environment. 

JB
So I want to buy a cheap car. I don't want a high quality car. Yeah, but that comes at a cost to people outside of that immediate system. And so give us give us an example where a really efficient supply chain creates some of these knock on problems.

JG
So, maybe I can use, the example of EVs. Electric vehicles. So every EV, I mean, it depends on the energy it uses and how it is manufactured. But let's consider, an electric vehicle in comparison to a combustion engine vehicle over the lifecycle of that vehicle from both production of the vehicle and use saves a certain amount of carbon and, ecological resources. So we became so efficient in making cars that we are driving much more and much longer. Such that the total cumulative effect is actually we are consuming more resources overall than we would with a less efficient apparatus, but use more frugally. So this is called the Javon paradox. It's not something I invented gave you.

JB
Javons I think it was Javons. 

JG
Jevons paradox, which basically says that, with efficiency gains, prices tend to go down, consumption go up, and then we have consumed much more and impacted much more that we wanted to. This is an example of efficiency is good. Yeah. But it could create rebound effects that are really, really, you know, important.

JB
Now we live in a consumerist world and people like buying stuff. People like consuming stuff. And you're saying up to a point that's actually fine. But if we take it too far, we're damaging our environment in too much. Is that is that right? 

JG
Yeah. And you can see you can see that in an altruistic way. Meaning I do care about the environment and I respect it as such. You know, as an entity, I want to protect it. That's a moral. But you can even approach it instrumentally. Like what we have been learning in, in this research is that, many, managers and leaders, don't realize that actually the efficiencies that they achieve are only possible if nature continues to do its work. So, you know, there are cleaning, processes in nature that clean air or clean water or they provide wood at a certain rate or that provide, you know, electricity at a certain rate. You dismantle those infrastructures, ecological infrastructures you don't have the services that you were used to depend upon, and suddenly your efficiency drops. The problem is, is that and this is discussed into the climate and ecological literature, there is distance between you going very efficient and paying the consequences for them. There is a temporal distance and sometimes a spatial distance. You make a mess here and someone else's somewhere else pays the cost. 

JB
So we have grown used in society to accepting the fact that that companies build efficiency through essentially creating costs for others to absorb. And sometimes those costs are not felt for a long time in terms of global warming, some of those costs are borne by governments and by society. And the argument is that the companies should sort of accept all of the costs of what they're doing. Is that is that correct? I mean, I mean, I want us to edge towards solutions because you're always going to have some people who buy the moral argument and want to act morally. You're always going to have some people who say, that's a problem. But I know it's not my problem, right? I my, my problem is I've got to, you know, create an efficient, profitable company. Yeah. So how how do we create the sort of societal solutions to this, particularly to address the latter?

JG
I have a couple of, ideas here to share. One is maybe an example, but okay. And then is a solution. Right. The example is around almonds and where they come from. Right. And the model through which we produce and trade almonds around the world is a model that, basically relies upon, economic theory specifically, the comparative advantage that Ricardo and the absolute advantage of Smith documented in their research where if in different countries or in different country companies, we are better at something we should specialize in something and then trade. And in that way the market will gain, overall higher efficiency. That's right. Input resource being equal to this produce more. 

JB
This is what we teach in business, right.

JG
But even in those models someone might not realize. Yeah. When we learn those models, the emphasis is put on the efficiency gains. But we don't realize that even in those models that we're upper thresholds. Even workers in the wineries in Portugal, which was one of the example that was used by Ricardo, had a maximum level of productivity with the resources they were given. We never ask ourselves, what is that maximum? And we lost the ability to sense for it in our ecological models are coming in and saying we have planetary boundaries that we need to respond to. So we are getting better, measuring within certain ecosystems. How much can we do? And is about, real productivity gains, because if you go beyond that limit, you're not gaining any productivity. You're maybe gaining immediate efficiency at the organizational level at the expense of the system. How that works in let me ask you a question. Do you like almonds? 

JB
Sure, I like almonds. Yeah. For sure. 

JB
80% of the almonds in the world come from one state in the US. Well, California. 

JB
Okay, I didn't know that.

JG
California is great to grow. Almonds has the light, the right soil, the right, and water resources right. Now, let me ask you a question. What do you need to grow almonds. 

JB
I've no idea. You need sunshine. You need water. You need nutrients in the soil. You need some almond seeds, I that's okay. 

JG
Yes. Let's say the seeds you have, the trees the tree grows, you have the water to, you know, nurture them. You have the sunlight to create photosynthesis. At some points, you have flowers, right? What happens between flowers and fruit? 

JB
I have no idea. 

JG
Pollination. 

JB
Oh, I see

JG
So do you think that we have 80% of the bees in the world in California? 

JB
And probably not. 

JG
Probably not. So our parallel supply chain was built to collect all the beehives in the States and shipped them to California over a six weeks window because pollination need to happen. And so do you think bees like to be collected and shipped in different climates? 

JB
You know, probably not. 

JG
So there is an epidemic of pollinator in the US. Are we experiencing that collapse right now? No, but eventually can kick in. And that collapse comes at the expense of other things that need to be pollinated.

JB
No, it's a nice example because, you know, your point is, in order to maximize the efficiency of that particular supply chain, you sometimes see companies doing things which are actually clearly damaging in other places. And that is a problem that we've got to find a solution to. And this is a bigger question than perhaps this podcast. 

JG
A quick one. Yeah. Often times, middle management in those companies know the problem and know the limits, right. They just are not being given voice. For example, even in in there are other examples that I can make, but oftentimes in all the case studies that I've done with companies, when I was talking to, to middle managers, they were able to recognize the point after which they would start to put unnecessary pressure on workers or the natural environment. But there is often separation in our organizations between who made the decisions.

JB
So there is an organizational challenge here as well. I get it. And of course, I mean, it's a kind of a little bit of a cliche, but, you know, top executives are trying to maximize shareholder value. There was a lot of people in the organization who, as you say, have a point of view, which perhaps gets a little bit drowned out. I mean, I do think that, certainly we teach this at Ivey, I do think that executives now get it that maximizing shareholder value at the expense of everything else is a kind of a narrow view of the world. Now, whether that understanding actually feeds into their decisions is, I guess, a secondary question. 

JG
Yeah. And I you know, I don't I never blamed and my research never focus on the willingness to do the right thing. It focused on the ability to do the right thing, what enables us to do the right thing. And the organizational problem is not only that, you know, executives are optimizing for something else that middle of management is also even if they wanted to optimize for the right outcomes, and they may have lost the senses, they might not have the right information to do so because they are too far detached from where the process happens.

JB
Got it. So higher quality information transparency around consequences is good for decision makers. It's good for investors, which is a whole separate conversation.

MUSICAL BREAK

JB
Okay, I want to move to the third. The third paper, the Organization of Regenerative Supply Chains and the third myth. We do this one quite quickly because there's some overlap. If myth number two was around efficiency of supply chain is everything. Myth number three is that the kind of the customer is always right. In other words, this notion that everything should sort of start with what it is the customers need, and let's build a that could change. Yeah, some sort of solution to their customers problems. And you're saying that that is not actually always the right logic. Do you want to elaborate on that?

JG
Absolutely. So what you said it exactly right. Very often the logic, the frame we use in business is there is customer X, but the need of customer X is Y What type of supply chains do I put in place to serve that need at the right time, at the right place? And I source and process resources in a way that optimizes that goal. In regenerative supply chains, that I've seen in there are different examples that I can offer, they flip their logic on whatever resources that we have, and we waste. What value can be made out of it? So they search the customer after they have created the resource in order to target what that resource can be used for. In entrepreneurship, we often refer to this example of I want to have, carbonara pasta. That's the need I want, I need to solve. I go and buy the exact ingredients in the right proportions. I cook it to spec. But, my grandma, I'm Italian, so my grandma would open the fridge or would look at what was available in that season and say, what can I make out of these ingredients that is tasty. So I think we have once again leaned over the demand driven supply chain approach and forgot about the supply driven one.

JB
No, it's I mean it's a good point. Right. Which academics have words for everything we talk about sometimes about the resource based view of the firm, thinking of the company in terms of what it's good at, what its resources are, and figuring out what they can do with those resources. And you're saying that that's actually a much more environmentally sustainable view of the world. Do you want to give us an example of a company that's doing that well.

JG
I can do a couple. So Inversa, is this company that we started to follow a couple of years ago. This company was founded by scuba divers. They realized that in this ecosystem that they were, visiting for fun. There were, invasive species, so species of fish that shouldn't be there. They are not native of that ecosystem. And because they are non-native, they don't have a natural predator in that ecosystem. If you don't have that a natural predator, the proportions grow beyond what they should, and the entire ecosystem breaks down. So they started to think, what can we do with this invasive species that has value? So they started to fish them, and then they started to think about what can we make out of it? And they had the idea of we can make leather. And now they are making and selling high quality leather around the world.

JB
Leather?

JG
Yes. For fashion, for clothing. And they, but the supply chain works differently because it's not so much the type of leather that the customer wants is a type of leather that is currently available based on tackling certain invasive species. And then you need to search the customer that want that type of leather, that wants that type of quality.

JB
And then obviously through some clever marketing campaign, you can remind customers that this is actually a much better product in terms of absolute sustainability. And it may be something that they wanted they didn't even realize. And you can find a way of typically marketing that quite effectively. 

JG
Exactly. So companies tend to think in terms of, well, we do something and then we minimize the impacts of it. Yet in this model you're actually starting from the positive impact and you are coupling the business logic. So for every purchase that the customer does the environment gets better. It's not about getting less worse. As for every single purchase I'm doing something good for specific ecosystems.

MUSICAL BREAK

JB
You've been leading a project, we call it CAP. It is the Collective Action for Generative Agriculture Program. And that's what I would think of as a sort of an action research project. I mean, it's research, but it's very much working with companies in partnership. Just tell us a bit about that research project.

JG
I don't know if you remember, a couple of months ago, our Prime minister gave a speech, that was very much focused on, the international order and the dynamics between powerful and less powerful. 

JB
That's right. This was at the Davos World Economic Forum. 

JG
Correct. And, in that speech, he's basically saying that integration shouldn't become coercion. And that's what has been happening with, the president of the United States currently. And but he makes a point that is highly generalizable and for which we have evidence in business. Individuals that are powerful or countries that are powerful or companies that are powerful tend to be individualistic. Tend to be leaning towards exploitation. When you are less powerful the only thing you can do for your own sake and survival is to form coalitions. And those coalitions need to function in a way that does that, face tensions and conflict purposefully, like they don't hide, but they are able to work through those conflicts, and different opinions and different ideas to converge towards valuable solutions that bring value to all of them. Some more, some less. But all of them gain. No one loses. The Collective Action Program does that. It helps to think about how you bring together individuals or organizations that, have different goals but complementary means. And they need to be, if you like, supported in finding a way to build consensus and to approach decision making processes that are enriching for all at the table rather than diminishing for some and gaining for others. 

JB
I mean, I love the fact that you start with that Mark Carney speech, because everyone can relate to the fact that Canada is in his language, a middle power, and we have to face the fact that there are super powers who just do what they like. And Donald Trump views on the environment are consistent with that sort of we're going to do what we like you. If you are a middle power, you've got to figure out ways of working with others in order to actually assemble, if you like, the critical mass of capability and people that you can actually do what's right for the whole rather than what's right for one country. And I think that analogy does actually work quite nicely. So just tell us where you are on that project. So you're working with what were local farmers in Southwestern Ontario, I believe.. 

JG
That is correct. So we have mapped the entire farming community around Ivey. There are three different bioregions that Ivey is connected to. And, among those farmers that we mapped, we are talking about hundreds and, we studied their social relationships through both interviews and social media networks. We identified 11 farms that were already those outliers. Highly progressive. They found a way to make it work. Not at a large scale, but nonetheless. So we are covering about 4000 acres of land with these 11 farms. They are highly diversified farms, dairy, beef, crop, flowers. And what they told us is that even though they, they know each other, they were never able to work together. That inability to work together, is not happening at random. First, our educational systems are often individualistic or focused on specific organizations. If you think about our courses here at Ivey, most of them are focused on individual goal setting, individual planning, individual. We don't, except for a few courses where they have group projects. We rarely, help them to figure out how to approach goal setting collectively. What organizational structure should be put in place, what governance mechanisms? So one, education is not supportive of collective approaches. Two: Southwestern Ontario is wealthy and healthy, meaning that in terms of climate change, it has been manifesting around the world but precipitation patterns and availability of water resources is rich here. We are in the Great Lakes area, so farmers don't really need each other to sustain themselves. And because of the regulations that we have in place, many farmers, I wouldn't say they're rich, but they are wealthy. They can manage on their own. So in an individualistic culture, healthy and wealthy, why should people come together? So we are choosing this context to bring people together because if we are able to support them, to find a way to work together through experiential practices, experiences, apologies, then we will be able to build those coalitions that Carney's talking about everywhere.

JB
And the hope is that they will change their actions as a result of better understanding the interconnections between all their parts. I mean, do you have any sense of where this might actually be? 

JG
You are perfectly right. They are starting to see opportunities that they wouldn't have otherwise. They start to realize that the byproduct of one can be the input of the other. They are starting to realize that each one of them, instead of having individual channels to market, they can continue to have those individual channels to market. They can also create a regional brand under which they all sell and offer a much more diversified portfolio of products. They are starting to engage with the city thinking about, a frugal cold chain infrastructure. The city has many underutilized buildings. Yeah, you can put a fridge in it and that becomes a distribution chain for this for these regional farmers selling into, you know, critical mass city like London.

JB
I think that's a great point on which to finish. You've been listening to Dialogue with the Dean from the Ivey Business School. Many thanks to Jury Gualandris for sharing his research and insights, and to you, our listeners, for being part of this important conversation. If you enjoyed today's episode, be sure to subscribe, share, and stay tuned for more conversations with Ivey faculty on ideas shaping business and society. Until next time, goodbye.

KB
This was Dialogue with the Dean on the Impact Podcast series. For more insights from Ivey, including thought leadership on critical issues and additional podcast episodes, visit Ivey impact or subscribe on your preferred podcast platform. Thanks for tuning in.