Sustainability Implications of Supply Chain Responsiveness

Abstract

Problem definition: A critical decision made by firms is whether to adopt a responsive supply chain (prioritizing speed) or an efficient supply chain (prioritizing cost). We consider the environmental implications of this choice, distinguishing between responsiveness achieved via three pathways: responsive offshore supply chains increase speed by using expedited production and distribution methods; responsive nearshore supply chains increase speed by reducing the physical distance between source and destination for all production; and hybrid nearshore supply chains produce in multiple locations simultaneously, increasing speed by reducing distance on some portion of production. Methodology/results: Using a model wherein responsiveness increases fixed and marginal costs, decreases leadtimes, and changes the per-unit environmental impact of production and distribution, we identify several results. First, all types of responsiveness can decrease environmental impact relative to an efficient supply chain, showing any form of responsiveness has potential to improve sustainability. Second, despite this, all types of responsiveness can also increase environmental impact relative to an efficient supply chain, particularly if demand variability is high. This is precisely when responsiveness is most profitable to the firm, indicating a tension between firm and environmental preferences. Third, a win-win outcome in which responsiveness both maximizes firm profit and minimizes environmental impact is most likely to occur when demand variability is high and unsatisfied customers substitute with a product that generates high environmental impact. Fourth, the firm may have incentive to choose a supply chain that does not minimize (and may maximize) environmental impact, especially at low-to-moderate demand variability. Managerial implications: While responsive supply chains can improve sustainability, they also generate the potential for misalignment of profit and environmental performance. We discuss the implications of this for firms and for policymakers seeking to encourage firms to use supply chains that generate the least environmental impact. Supplemental Material: The e-companion is available at https://doi.org/10.1287/msom.2022.0152 .