**Environmental and Social Sustainability in the Fresh Fruit and Vegetables Supply Chain: A Competitiveness' Asset**

Nadia Tecco, Nicole Giuggioli , Vincenzo Girgenti and Cristiana Peano

Additional information is available at the end of the chapter

http://dx.doi.org/10.5772/63377

#### **Abstract**

[47] Zanoni S, Zavanella L Chilled or frozen? Decision strategies for sustainable food supply chains. International Journal of Production Economics 2012; 140: 731–736.

[48] Lazaridesa HN Food processing technology in a sustainable food supply chain.

[49] Al-Busaidi MA, Jukes DJ Assessment of the food control systems in the Sultanate of

[50] Tuljak Suban D, Bogataj M An optimal ordering cycle at interactions of fuzzy param‐ eters and high disposal fees of food or drug supply systems. IFAC-PapersOnLine 2015;

Procedia Food Science 2011; 1: 1918–1923.

Oman. Food Control 2015; 51: 55–69.

48: 2374–2379.

120 Sustainable Supply Chain Management

The concern for products that meet the requirements of sustainability is a key factor that drives consumers and can be the engine of a successful economy in the food businesses. In the specific case of the fresh fruit and vegetables, more than ever, sustainability understood as a greater focus on the social and environmental performance of the product and of its supply chain, can be considered as a tool to counter the consumer's disaffec‐ tion. The communication of the product's sustainability can indeed represent a tool to bring out the fruit and vegetable products from the anonymity, a strategy to will make it 'remember', relying not only on the traditional values recognized to the segment, but also on a set of the supply chain attributes that can differentiate it. However, how to get effectively to the consumer by using a multidimensional and complex concept as the product's sustainability of the product, how to make the sustainability attribute a factor to be considered in the final purchasing choices, how to involve the different stakehold‐ ers in the building of a sustainable supply chain (regardless of its length) are still open discussion topics. After presenting the main sustainability certification and communica‐ tion tools adopted till nowadays for the fresh fruit and vegetables supply chain, the chapter investigates the relative potentialities and criticisms in order to turn them into a real competitiveness' asset.

**Keywords:** Sustainability, Fructicolture, Certification, Stakeholders, labels

© 2016 The Author(s). Licensee InTech. This chapter is distributed under the terms of the Creative Commons Attribution License (http://creativecommons.org/licenses/by/3.0), which permits unrestricted use, distribution, and reproduction in any medium, provided the original work is properly cited.

#### **1. Introduction**

Even in one of the most important food categories—fresh fruit and vegetables—there is a current trend whereby consumers are increasingly looking for a sustainable form of trade. The agri‐food industry1 —and the fruit and vegetable sector in particular—must meet require‐ ments that vary geographically and overtime as a result of changing technology and consumer behaviour.

Eating habits have always been an important element of culture [1]. Numerous models have been adopted by different scientific disciplines to describe the choices and behaviour of food buyers [2–6]. Whereas in the past food choices were largely dictated by the necessity of satisfying a basic physiological need, nowadays the motivation is more social in nature [7], suggesting that external factors can affect what we choose to eat [8]. Of these new requirements, the 'emotional' aspects (security, love, esteem and self‐fulfilment) are undoubtedly among the most interesting when it comes to understanding changes in food consumption [9,10]. Sociodemographic variables no longer seem sufficient to explain the behaviour of the modern consumer, who instead must be viewed with a multidisciplinary approach that takes addi‐ tional aspects into consideration. This evolution has spawned the modern consumer of fruit and vegetables, who is more conscious of environmental sustainability and socio‐economic issues and relies on these factors to inform his or her choices. More specifically, factors such as the type of product, its qualitative aspects, packaging [11] and distribution channel, although very different from one another, have become fundamental in guiding the purchas‐ ing behaviour of consumers [12,13]. Now more informed consumers tend to buy products that can be classed as sustainable, a definition that over time has become multidimensional [14]. This information is particularly relevant for the credence attributes of fruit and vegetables, which cannot be ascertained even after the consumption experience. These include, for example, aspects such as the local provenance of the product, how organic it is, producer support and respect for workers' rights [15]. In this case, the consumer's decision is based solely on how much confidence he or she has in the information on the label, the brand or other elements that help to build the product's reputation by sharing some of its extrinsic qualities. As a result, the information asymmetry is reduced and the credence attribute becomes a search attribute, which means that some information may be known to consumers before they buy, regardless of the consumption experience.

The increased focus on social and environmental balance and how to convey these aspects properly thus have considerable implications for the fruit and vegetable supply chain. To differentiate or promote new products, consideration must be given to the use of natural resources, as well as minimising the impact of farming on the environment and on the local community, how and where the produce is grown, the characteristics and socio‐economic and environmental impact of processing, the health benefits of the product, its distribution channel, and finally waste recycling and management. Meeting these consumer expectations requires an industry‐wide commitment to maintain, improve and promote the qualitative aspects of

1 Defined as a group of activities between companies and sectors linked by business relations designed to add value to food on the journey from field to fork.

the product and producer, which in turn becomes an incentive for corrective action and improved performance by supply chain actors. The purpose of this paper is therefore to describe those instruments that have been developed thus far within the fruit and vegetable supply chain, discussing their main benefits, limitations and drawbacks.

### **2. An overview of certification schemes and communication tools for F&V**

To address this growing demand for sustainability in a way that is appropriate and commen‐ surate with the consumer's needs, a wide variety of schemes have been developed over the past decade—both in the fruit and vegetable supply chain and elsewhere—that differ in terms of their objectives, structure and operating methods. These consist of optional certification tools (voluntary product certification and standards), as well as self‐declaration. The main examples are listed in **Table 1**. These schemes are not intended to demonstrate compliance with legal requirements. However, when used by operators to facilitate the transition with other actors in the fruit and vegetable supply chain by indicating conformity with legal requirements, it is clear that this type of tool cannot be used to differentiate products on the market.

#### **2.1. Certification and standards**

**1. Introduction**

122 Sustainable Supply Chain Management

agri‐food industry1

regardless of the consumption experience.

food on the journey from field to fork.

behaviour.

1

Even in one of the most important food categories—fresh fruit and vegetables—there is a current trend whereby consumers are increasingly looking for a sustainable form of trade. The

ments that vary geographically and overtime as a result of changing technology and consumer

Eating habits have always been an important element of culture [1]. Numerous models have been adopted by different scientific disciplines to describe the choices and behaviour of food buyers [2–6]. Whereas in the past food choices were largely dictated by the necessity of satisfying a basic physiological need, nowadays the motivation is more social in nature [7], suggesting that external factors can affect what we choose to eat [8]. Of these new requirements, the 'emotional' aspects (security, love, esteem and self‐fulfilment) are undoubtedly among the most interesting when it comes to understanding changes in food consumption [9,10]. Sociodemographic variables no longer seem sufficient to explain the behaviour of the modern consumer, who instead must be viewed with a multidisciplinary approach that takes addi‐ tional aspects into consideration. This evolution has spawned the modern consumer of fruit and vegetables, who is more conscious of environmental sustainability and socio‐economic issues and relies on these factors to inform his or her choices. More specifically, factors such as the type of product, its qualitative aspects, packaging [11] and distribution channel, although very different from one another, have become fundamental in guiding the purchas‐ ing behaviour of consumers [12,13]. Now more informed consumers tend to buy products that can be classed as sustainable, a definition that over time has become multidimensional [14]. This information is particularly relevant for the credence attributes of fruit and vegetables, which cannot be ascertained even after the consumption experience. These include, for example, aspects such as the local provenance of the product, how organic it is, producer support and respect for workers' rights [15]. In this case, the consumer's decision is based solely on how much confidence he or she has in the information on the label, the brand or other elements that help to build the product's reputation by sharing some of its extrinsic qualities. As a result, the information asymmetry is reduced and the credence attribute becomes a search attribute, which means that some information may be known to consumers before they buy,

The increased focus on social and environmental balance and how to convey these aspects properly thus have considerable implications for the fruit and vegetable supply chain. To differentiate or promote new products, consideration must be given to the use of natural resources, as well as minimising the impact of farming on the environment and on the local community, how and where the produce is grown, the characteristics and socio‐economic and environmental impact of processing, the health benefits of the product, its distribution channel, and finally waste recycling and management. Meeting these consumer expectations requires an industry‐wide commitment to maintain, improve and promote the qualitative aspects of

Defined as a group of activities between companies and sectors linked by business relations designed to add value to

—and the fruit and vegetable sector in particular—must meet require‐

With regard to F&V certification schemes, a special arrangement whereby a certificate is issued by a third party guarantees compliance with a certain number of characteristics or attributes of the product or its production method or system, as defined in a standard. These include a wide range of initiatives at different points along the food chain (either before or after leaving the farm, along the entire food chain or in part of it, in all sectors or in a particular market segment).

**Table 1.** Summary of the main certificates and other tools used in the fruit and vegetable supply chain.

Their use is particularly apt, given how complex the operator's commitments are, set out in detailed standards that require periodic verification.

Among the voluntary standards certified by third parties, Global Gap (until 2007 EurepGap), an initiative of the Euro‐Retailer Produce Working Group (EUREP), is currently one of the initiatives with the most members in Europe and worldwide [17]. Certification is based on compliance with Good Agriculture Practices (hence the acronym GAP) for agricultural produce of plant origin. This addresses consumer expectations in terms of food safety, traceability, the environment and health and safety of workers. The protocol can be adopted for individual phases or for the entire supply chain, with a module‐based certification system in which option 1 is for farms, while option 2 includes quality system management by commercial farms and F&V packaging, which take place downstream of agricultural produc‐ tion.

In addition to third‐party certification, certification schemes may use labels or logos (the latter sometimes registered trademarks) as a communication tool. The labels used fall into the following classifications and descriptions of the International Standards Organisation (ISO):

In the case of the Type I label used in the fruit and vegetable supply chain, the majority of organic production logos and the European environmental quality logo (Ecolabel) fall into this category for the primary sector. The other label in this category is the carbon neutral label; this is becoming increasingly widespread, especially among operators who produce and market tropical fruit.

In the case of AgroFair, the first farming cooperative in the world to market tropical fruit such as bananas and pineapple under the fair trade and welfare banner, the goal has been to extend fair trade and welfare recognition through additional certification demonstrating zero‐ emissions production. A similar approach has been taken by Dole Costa Rica to comply with environmental strategies defined according to the Costa Rica Carbon Neutral Strategy 2021 [18].

The EPD® (Environmental Product Declaration), a document that quantifies a product's environmental performance through appropriate categories of parameters calculated with LCA methodology, is considered Type III labelling. One example of the application to the F&V supply chain is Italian apples, produced under the aegis of the Italian Association of Apple Producers (Assomela). Here, an LCA was used to quantify the environmental impacts associated with the life cycle of apples in relation to the 2012, 2013 and 2014 harvest [19].

#### **2.2. Self‐declaration**

**Tipology Standard of**

Social responsibility Voluntary third-party

124 Sustainable Supply Chain Management

Food security management system

Good Agricultural

Practices (GLOBALGAP)

British Retail Consortium (BRC)

International Food Standard (IFS)

Eco management and Audit Scheme (EMAS)

Environmental Product Declaration (EPD®)

Self-declared environmental claims certification

certification

standard

standard

standard

certification

labelling

labelling

Source: Re-elaboration with permission from Tecco et al. [16].

detailed standards that require periodic verification.

Voluntary third-party

Voluntary third-party

Voluntary third-party

Voluntary third-party

Voluntary third-party

Type II environmental

Type III environmental

**reference**

ISO 22000 (2005), HACCP (FAO/OMS *Codex Alimentarius*)

*Chain of Custody Standard*

*BRC Global Standard*

GFSI Global Food Safety Standard

*Food*

**Table 1.** Summary of the main certificates and other tools used in the fruit and vegetable supply chain.

Their use is particularly apt, given how complex the operator's commitments are, set out in

Among the voluntary standards certified by third parties, Global Gap (until 2007 EurepGap), an initiative of the Euro‐Retailer Produce Working Group (EUREP), is currently one of the initiatives with the most members in Europe and worldwide [17]. Certification is based on compliance with Good Agriculture Practices (hence the acronym GAP) for agricultural produce of plant origin. This addresses consumer expectations in terms of food safety, traceability, the environment and health and safety of workers. The protocol can be adopted

SA 8000 Ethics

**Key features**

Food security

farm

food defence

ISO 14021 Environmental: defined once for once, for example recyclable

UNI ISO 14025:2006 Environmental: quantified product life cycle

UNI EN ISO 14001 Environmental efficiency

The certificate covers the process from farm inputs like feed or seedlings and all the farming activities until the product leaves the

Senior management commitment and continuous improvement, hazard and risk analysis, quality management system, site and building standards, vehicle operating standards, facility management, good operating practices, personnel

Senior management responsibility, quality and food safety management systems, resource management, production process,

measurements, analysis, improvements and

environmental performance information

Another scheme in the fruit and vegetable sector is self‐declaration. Membership of these schemes is through self‐declaration or selection by the operator of the scheme. Self‐declaration

2 The use of the term 'ecolabel' for this category can be confusing, since the European Union also has an Ecolabel scheme.

is generally regarded as suitable for relatively basic information concerning particular environmental aspects of the product, such as the absence of substances that are harmful to the environment, recycled content or biodegradability. It is also based on the use of a label or logo, although no external bodies are involved.

The labels used for this scheme are again covered by the ISO classification and are described as follows:

**•** Type II Label (ISO 14021)—Self‐declared environmental claims. This is effectively done by the producers, importers and distributors of the products [20]. According to ISO 14021, self‐ certification must include clear information that is not misleading or open to misinterpre‐ tation, and which can be certified if necessary (for example, if asked to produce the documentation certifying the label, these must be supplied).

There has been widespread uptake of this tool in the fruit and vegetable supply chain for the self‐certification of organic production, in parallel with the development of Participatory Guarantee Systems [21].

### **3. Benefits distribution of voluntary socially and environmentally responsible behaviour along the fruit and vegetables supply chain**

The use of such schemes offers potential across the fruit and vegetable supply chain in terms of increased competitiveness, which benefits producers, intermediaries and end consumers.

**Table 2.** Benefits of regimes according to the actors' categories.

is generally regarded as suitable for relatively basic information concerning particular environmental aspects of the product, such as the absence of substances that are harmful to the environment, recycled content or biodegradability. It is also based on the use of a label or

The labels used for this scheme are again covered by the ISO classification and are described

**•** Type II Label (ISO 14021)—Self‐declared environmental claims. This is effectively done by the producers, importers and distributors of the products [20]. According to ISO 14021, self‐ certification must include clear information that is not misleading or open to misinterpre‐ tation, and which can be certified if necessary (for example, if asked to produce the

There has been widespread uptake of this tool in the fruit and vegetable supply chain for the self‐certification of organic production, in parallel with the development of Participatory

The use of such schemes offers potential across the fruit and vegetable supply chain in terms of increased competitiveness, which benefits producers, intermediaries and end consumers.

**•** Increased market access, market share and profit margins for certified products

**•** A guarantee that supports the continuity of distribution agreements

**3. Benefits distribution of voluntary socially and environmentally responsible behaviour along the fruit and vegetables supply chain**

logo, although no external bodies are involved.

documentation certifying the label, these must be supplied).

**•** Increased efficiency

**•** Reduction in transaction costs **•** Enhanced reputation and image

**•** Enable premium price obtaining

**•** Reduced civil liability risk

**•** Enhanced reputation and image

**•** A closer partner (supplier) relationship

**•** Emphasis on uniqueness and local provenance

**•** IGuarantee of compliance with certain standards

**•** Protection in terms of product liability and reputation

as follows:

Guarantee Systems [21].

126 Sustainable Supply Chain Management

**Actors' categories Benefits**

Producers

Intermediaries/retailers

However, the distribution of these benefits within the fruit and vegetable supply chain is linked to the methods and frequency with which such tools are used by operators, as well as their visibility.

For this purpose, it is worth considering a further distinction, which allows the tools to be classified according to the type of relationship created: *Business to Business* (B2B), in the case of business‐to‐business relationships where the final recipient of the information is internal to the supply chain, or *Business to Consumer* (B2C), for relationships between distributors and consumers (**Table 3**).

**Table 3.** Classifications of schemes according the kind of audience.

B2B tools are not shared with end consumers, who are often unaware of their existence. GlobalGAP, International Food Standard and ISO 22000 certification are all B2B standards whose goal in the fruit and vegetable supply chain, as well as in the food industry as a whole, is to facilitate trade between industry operators by offering assurances to buyers based on certifiable standards that form the basis of a common language on which to build trade relations.

B2C certification is a useful tool to show the market (customers, consumers, public opinion in general) that the products meet the stated requirements. The choice of requirements is therefore strategic for the success of the product and the certification, as the product takes on associations and becomes recognisable depending on the information conveyed.

Supermarket distribution, as the most important retail channel for fruit and vegetable produce with a market share of between 60 and 90%, depending on the Member State3 [23], is the party that relies the most on the use of such schemes, both as a recipient of information via B2B certification, and as a provider of information to its own customers with B2C tools. By consulting the database of best practices in environmental and social sustainability, developed as part of the Retailers' Environmental Action Plan (REAP)4 and adopted by leading European retailers, we can see how the initiatives taken by Delhaize Group, Eurocoop, Mercador, Kaufland and Rewe Group in the F&V supply chain signal an approach designed to support and communicate improvements in production and consumption systems, using certification as a dual means of assurance and communication. The intention of minimising the impacts of direct activities throughout the F&V supply chain is apparent, for example in the preference for products that wherever possible satisfy the requirements of the green economy, in the priority given to products that meet certain production standards, and in the optimisation of transport efficiency.

The use of B2C tools currently prevails in Europe [24]. The use of certification schemes that cover both applications using trademarks is also growing. The label used by Coop Italia for its own‐brand fresh produce (**Figure 1**) is a good example of this combined approach. Quality assurance and product safety are certified by third‐party controls that focus on four comple‐ mentary aspects:

In the F&V supply chain, therefore, it seems fairly obvious that environmental and social sustainability has now become an asset for competitiveness, especially in supermarket distribution, due both to its role as a hub or bottleneck [24] within the F&V supply chain, and for its ability to respond more quickly to this challenge, seizing the advantages [25] through third‐party certification and the private label.

3 More so in northern Europe than in the south.

4 The outcome of this project, launched by the European Commission in 2009, was the construction of a multi-stakeholder platform to facilitate the virtual exchange of such actions among European supermarket operators. http://ec.europa.eu/ environment/industry/retail/reap/browse-by-category\_en.html

**Figure 1.** Coop logo on fresh produce.

whose goal in the fruit and vegetable supply chain, as well as in the food industry as a whole, is to facilitate trade between industry operators by offering assurances to buyers based on certifiable standards that form the basis of a common language on which to build trade

B2C certification is a useful tool to show the market (customers, consumers, public opinion in general) that the products meet the stated requirements. The choice of requirements is therefore strategic for the success of the product and the certification, as the product takes on

Supermarket distribution, as the most important retail channel for fruit and vegetable produce

that relies the most on the use of such schemes, both as a recipient of information via B2B certification, and as a provider of information to its own customers with B2C tools. By consulting the database of best practices in environmental and social sustainability, developed

retailers, we can see how the initiatives taken by Delhaize Group, Eurocoop, Mercador, Kaufland and Rewe Group in the F&V supply chain signal an approach designed to support and communicate improvements in production and consumption systems, using certification as a dual means of assurance and communication. The intention of minimising the impacts of direct activities throughout the F&V supply chain is apparent, for example in the preference for products that wherever possible satisfy the requirements of the green economy, in the priority given to products that meet certain production standards, and in the optimisation of

The use of B2C tools currently prevails in Europe [24]. The use of certification schemes that cover both applications using trademarks is also growing. The label used by Coop Italia for its own‐brand fresh produce (**Figure 1**) is a good example of this combined approach. Quality assurance and product safety are certified by third‐party controls that focus on four comple‐

In the F&V supply chain, therefore, it seems fairly obvious that environmental and social sustainability has now become an asset for competitiveness, especially in supermarket distribution, due both to its role as a hub or bottleneck [24] within the F&V supply chain, and for its ability to respond more quickly to this challenge, seizing the advantages [25] through

 The outcome of this project, launched by the European Commission in 2009, was the construction of a multi-stakeholder platform to facilitate the virtual exchange of such actions among European supermarket operators. http://ec.europa.eu/

[23], is the party

and adopted by leading European

associations and becomes recognisable depending on the information conveyed.

with a market share of between 60 and 90%, depending on the Member State3

as part of the Retailers' Environmental Action Plan (REAP)4

**1.** the provenance of products from integrated farming;

**2.** chemical residues 70% below the legal limits; **3.** the absence of post‐harvest chemical treatment;

**4.** strict control from field to point of sale.

third‐party certification and the private label.

environment/industry/retail/reap/browse-by-category\_en.html

More so in northern Europe than in the south.

relations.

128 Sustainable Supply Chain Management

transport efficiency.

mentary aspects:

3

4

#### **4. Drawbacks of the status Quo across the fruit and vegetables supply chain**

Looking then at the distribution of benefits among stakeholders and the relationships between them along the F&V supply chain, it is possible to present this synthetically, as proposed in **Figure 2**.

As well as demonstrating the dominant position of the retailer as a major beneficiary of the voluntary adoption of socio‐environmental responsibility behaviours, the diagram shows the subordinate position both of producers and consumers in relation to the retailer.

As confirmation of the general trend observed in the spread and effectiveness of corporate sustainability strategies [26], even in the fruit and vegetable supply chain, the competitive outcome appears to be closely related to the mechanisms that link the various stakeholders and their sustainability enhancement actions.

Despite the predominance of B2C tools and the development of multi‐information labels (**Figure 1**), a segmented communication strategy is emerging within the sector, as well as a lack of multidimensional cross‐cutting tools with a 360° approach to sustainability.

The diversity and fragmentation of the fruit and vegetable production system, coupled with inconspicuous own‐brand policies, lead to a situation in which the adoption of responsibility behaviours in terms of sustainability, and the resulting product differentiation is mostly dictated by the demands of supermarket chains [27], instead of being designed from the ground up to showcase the unique aspects and local nature of the production system. While this ensures that producers meet high standards and encourages the renewal of retailer distribution agreements, at times even securing a premium price (net of expenses and additional costs), the level of visibility and recognition of producers among final consumers

**Figure 2.** Illustration of the benefits distribution resulting from the voluntary adoption of socio‐environmental respon‐ sibility behaviours and the reciprocal position within the F&V supply chain. Source: authors' elaboration.

remains low. The situation is even more complicated for producers who must join several schemes to fulfil their buyers' requirements. Producers who do not participate in the main certification schemes (through choice or due to difficulties inherent in the country of origin, in the case of the tropical fruit sector) face the risk of exclusion from the market. Non‐adoption can therefore translate as a market barrier.

Even the act of purchasing 'sustainable' produce is beset by a series of difficulties linked to effective communication, from consumer motivation/education to the knowledge‐action gap and behaviour‐impact gap problems [28].

Strict communication rules require information to be presented clearly and concisely, given the limited space on the label. This physical limitation can lead to distortions, misleading consumers in a context where the meaning of sustainability attributes could be ambiguous for the end user [29]. On the one hand, the complexity of sustainability risks being reduced to a few synthetic messages/actions with purely cosmetic content [30]. In cases where compliance is certified with minimum requirements or by self‐declaration, doubts may arise over the credibility of the information or the transparency of the requirements envisaged.

On the other hand, more information in a single label can be confusing, given the consumer's gaps, thus defeating the very purpose of the label [20,31]. Where the consumer is more socially and environmentally motivated, the buying decision will be more informed and the buyer more likely to use the information on the label correctly. In other words, the communicative effect of the label does not influence the 'average' consumer, but tends to work mainly with consumers who are already motivated [29]. Behavioural change is difficult when the infor‐ mation given is too complex to decipher or is based on conflicting values: in these situations, consumers have a tendency to seek refuge in their usual buying habits [28].

Furthermore, it is now known that discrepancies exist between the expected (stated) behaviour and the observed (actual) behaviour of consumers when making a purchase, fostering the creation of a gap between knowledge and action (the 'knowledge‐to‐action gap'). This inconsistency is linked to the fact that the judgement and selection criterion for a sustainable product have to compete with contingent factors influencing the intrinsic and extrinsic opinion of the product, such as sensory quality, nutritional value, price, brand and quantity, in which the sustainability of the product and/or the production process is merely seen as one of many final characteristics of the product category. A choice seen as sustainable does not always have the desired effect, leading to a gap this time between behaviour and impact (the 'behaviour‐ impact gap') [32]. In this case, information and cognitive barriers prevail alongside rebound effects [33] attributable to the presence of negative external factors within the supply chain or its interaction with the outside world. This risks having a marginal or zero effect on the commitment of parties who have adopted environmentally and socially responsible behav‐ iours [32] and those who support them by buying their products.

#### **5. Future challenges**

remains low. The situation is even more complicated for producers who must join several schemes to fulfil their buyers' requirements. Producers who do not participate in the main certification schemes (through choice or due to difficulties inherent in the country of origin, in the case of the tropical fruit sector) face the risk of exclusion from the market. Non‐adoption

**Figure 2.** Illustration of the benefits distribution resulting from the voluntary adoption of socio‐environmental respon‐

sibility behaviours and the reciprocal position within the F&V supply chain. Source: authors' elaboration.

Even the act of purchasing 'sustainable' produce is beset by a series of difficulties linked to effective communication, from consumer motivation/education to the knowledge‐action gap

Strict communication rules require information to be presented clearly and concisely, given the limited space on the label. This physical limitation can lead to distortions, misleading consumers in a context where the meaning of sustainability attributes could be ambiguous for the end user [29]. On the one hand, the complexity of sustainability risks being reduced to a few synthetic messages/actions with purely cosmetic content [30]. In cases where compliance is certified with minimum requirements or by self‐declaration, doubts may arise over the

On the other hand, more information in a single label can be confusing, given the consumer's gaps, thus defeating the very purpose of the label [20,31]. Where the consumer is more socially and environmentally motivated, the buying decision will be more informed and the buyer more likely to use the information on the label correctly. In other words, the communicative effect of the label does not influence the 'average' consumer, but tends to work mainly with consumers who are already motivated [29]. Behavioural change is difficult when the infor‐ mation given is too complex to decipher or is based on conflicting values: in these situations,

Furthermore, it is now known that discrepancies exist between the expected (stated) behaviour and the observed (actual) behaviour of consumers when making a purchase, fostering the creation of a gap between knowledge and action (the 'knowledge‐to‐action gap'). This inconsistency is linked to the fact that the judgement and selection criterion for a sustainable

credibility of the information or the transparency of the requirements envisaged.

consumers have a tendency to seek refuge in their usual buying habits [28].

can therefore translate as a market barrier.

130 Sustainable Supply Chain Management

and behaviour‐impact gap problems [28].

Although in recent years certification schemes, as a means of private regulation and commu‐ nication of the corporate sustainability commitment, have diverged enormously to increase the transparency of results and the disclosure of actions taken by producers in terms of their operating processes, significant efforts still need to be made before these become a win–win strategy for stakeholders in the fruit and vegetable supply chain. The greatest obstacle is fragmentation, in the sense of a compartmentalized and linear vision of the supply chain and an interpretation of sustainability based on size and components.

The predominance of a vertical approach represents a drag on the harmonisation process. The lack of horizontal relationships leads to unfair competition and undermines the effectiveness of these tools, especially for the end user.

While the general objective is to improve the sustainability of the fruit and vegetable supply chain, a systemic approach is needed in which—according to Nash's game theory—the best result is achieved when each stakeholder in the supply chain does what is best for itself and for the group at the same time. These represent the preconditions for a transition from the social responsibility of individual enterprises to that of an integrated supply chain or territory (depending on our point of view), in keeping with a social responsibility approach in which competitiveness derives not only from the ability to respond to the market, but also from a commitment to achieve adequate levels of sustainability guaranteed throughout the supply chain and to contribute to the economic development of the local area. In this sense, the supply chain builds and adds value, providing content and relational continuity for market transac‐ tions.

In this respect, power should be redistributed along the value chain and more consideration given to each end of the supply chain—that is producers upstream and consumers downstream —to respond to the needs of the fruit and vegetable sector by anticipating its needs.

The challenge is therefore to embrace and increasingly involve in this education and commu‐ nication process the 'custodians' of sustainability, in other words operators engaged in day‐ to‐day farming, who manage agricultural production inputs and control more or less consciously the impacts for the end consumer.

It is essential therefore that producers, individually or—better still—through producer organisations, as stakeholders with direct experience of the product on the ground, succeed in having a more active and visible role, so that socio‐environmental responsibility behaviours are targeted as a worthwhile and strategic competitive advantage. The potential in terms of the reservoir of capital that can be tapped is considerable, ranging from human and organi‐ sational to relational and symbolic capital [26].

To communicate the potential for innovation and the creation of added value for the final market—and so for products that meet the 'green and social requirements'—the consumer must also be fully equipped to decipher the information contained in the label and to recognise its objectivity and verifiability.

This approach means adopting new mechanisms for coordination between stakeholders, with appropriate forms of control such as industry codes of conduct [34,35], collaborative practices such as participatory certification systems aimed at building trust, cross‐cutting assessments and analysis tools for the sector, using F&V life cycle analysis not only to assess the environ‐ mental impacts, but to consider their social [16] and economic implications. The life cycle thinking approach is part of the broader theoretical framework of life cycle sustainability analysis (LCSA) [36–38]. It paves the way for the construction of an interdisciplinary method‐ ology aimed at combining and integrating the assessment of sustainability issues.

All of these developments are desirable, even when examined as part of the transition towards an increasingly circular economy within agri‐food systems [39].

#### **6. A meaningful case study: Delizie di Bosco del Piemonte**

In the light of these initial points and considerations, below is a summary of a green marketing initiative [25], that we consider significant, both because it is promoted directly by a group of small producers in an upland area in the Province of Cuneo (in the Piedmont region of northwest Italy), and because the marketing content is designed to convey to the end consumer the multidimensional nature of sustainability practices and responsibility (both environmental and social). The Agrifrutta cooperative, a member of the Ortofruitalia producer organisation (PO), in a bid to bolster its image and promote its small‐fruit production, decided to reduce the environmental impact of its cultivation techniques, simultaneously quantifying the actions taken so that compensatory measures could be adopted if necessary. First and foremost, the production processes and practices related to cultivation and post‐harvest management of strawberries [40] and small fruits [41] were analysed and evaluated using the life cycle assessment (LCA) tool. The relevance of this technique consisted of the possibility of evaluating all phases of the strawberry and small‐fruit production process as interrelated and interde‐ pendent, and of having an objective evaluation and quantification method to analyse the different components of the impacts associated with strawberry and small‐fruit production.

This has effectively meant a renewed approach to the existing production/commercial system, resulting in the adoption of new practices more suited to reducing the environmental/social impact (such as reducing the volumes of substrate used in the nursery, and using biodegrad‐ able and compostable films for mulching and packaging), communicated to consumers by creating the 'Delizie di Bosco di Piemonte' brand (**Figure 3**).

**Figure 3.** Agrifrutta cooperative logo for strawberries and small fruit.

It is essential therefore that producers, individually or—better still—through producer organisations, as stakeholders with direct experience of the product on the ground, succeed in having a more active and visible role, so that socio‐environmental responsibility behaviours are targeted as a worthwhile and strategic competitive advantage. The potential in terms of the reservoir of capital that can be tapped is considerable, ranging from human and organi‐

To communicate the potential for innovation and the creation of added value for the final market—and so for products that meet the 'green and social requirements'—the consumer must also be fully equipped to decipher the information contained in the label and to recognise

This approach means adopting new mechanisms for coordination between stakeholders, with appropriate forms of control such as industry codes of conduct [34,35], collaborative practices such as participatory certification systems aimed at building trust, cross‐cutting assessments and analysis tools for the sector, using F&V life cycle analysis not only to assess the environ‐ mental impacts, but to consider their social [16] and economic implications. The life cycle thinking approach is part of the broader theoretical framework of life cycle sustainability analysis (LCSA) [36–38]. It paves the way for the construction of an interdisciplinary method‐

All of these developments are desirable, even when examined as part of the transition towards

In the light of these initial points and considerations, below is a summary of a green marketing initiative [25], that we consider significant, both because it is promoted directly by a group of small producers in an upland area in the Province of Cuneo (in the Piedmont region of northwest Italy), and because the marketing content is designed to convey to the end consumer the multidimensional nature of sustainability practices and responsibility (both environmental and social). The Agrifrutta cooperative, a member of the Ortofruitalia producer organisation (PO), in a bid to bolster its image and promote its small‐fruit production, decided to reduce the environmental impact of its cultivation techniques, simultaneously quantifying the actions taken so that compensatory measures could be adopted if necessary. First and foremost, the production processes and practices related to cultivation and post‐harvest management of strawberries [40] and small fruits [41] were analysed and evaluated using the life cycle assessment (LCA) tool. The relevance of this technique consisted of the possibility of evaluating all phases of the strawberry and small‐fruit production process as interrelated and interde‐ pendent, and of having an objective evaluation and quantification method to analyse the different components of the impacts associated with strawberry and small‐fruit production.

This has effectively meant a renewed approach to the existing production/commercial system, resulting in the adoption of new practices more suited to reducing the environmental/social

ology aimed at combining and integrating the assessment of sustainability issues.

an increasingly circular economy within agri‐food systems [39].

**6. A meaningful case study: Delizie di Bosco del Piemonte**

sational to relational and symbolic capital [26].

its objectivity and verifiability.

132 Sustainable Supply Chain Management

Following the impact assessment of production supply chains, a form of carbon offsetting was proposed through the development of silvicultural systems properly managed by the same small‐fruit producers (**Figure 4**).

**Figure 4.** Offsetting scheme for the strawberry and small‐fruit industry adopted by the Agrifrutta cooperative.

Indeed, unlike other primary sectors, agriculture is not only a source of carbon dioxide emissions, but has the undeniable advantage of being able to perform CO2 sequestration, thus enabling internal carbon offsetting. The differentiated production model of the farms consid‐ ered, which rotate different crops each season and comprise areas of woodland, pasture or meadow, makes them natural holders of a 'green credit' and thus able to offset fully the carbon dioxide generated in their production cycle. This allows them to create an environmental business plan which forms the basis for the conservation of the characteristic landscape and agro‐biodiversity of the production area. The approach taken has prepared the ground for producer members and various industry stakeholders to forge stronger ties with the local area, and to leverage this to build a reputation capable of establishing new and lasting agreements with communities, distribution channels (supermarkets) and end consumers. The brand has strengthened the image of the product and the producer community. Creating a brand addressed the requirements imposed by a new market structure that requires ever greater product differentiation. It has also raised its profile in national and international markets, emphasising its close links with the surrounding area; even in national and international supermarket distribution, the cooperative's products can be identified and recognised, and thus distinguished from similar products.

The decision to offset emissions through management of existing local areas, as well as contributing to climate change mitigation, is also an opportunity to improve woodland management, environmental protection and the development of rural and mountain areas.

#### **Acknowledgements**

The authors acknowledge support from the Lagrange Project of the ISI Foundation funded by the CRT Foundation.

#### **Author details**

Nadia Tecco\* , Nicole Giuggioli, Vincenzo Girgenti and Cristiana Peano

\*Address all correspondence to<EMAIL_ADDRESS>
Department of Agricultural, Forest and Food Sciences, University of Turin, Turin, Italy

#### **References**

[6] Shepherd R. Influences on food choice and dietary behavior. Forum Nutr. 2005;(57):36– 43.

strengthened the image of the product and the producer community. Creating a brand addressed the requirements imposed by a new market structure that requires ever greater product differentiation. It has also raised its profile in national and international markets, emphasising its close links with the surrounding area; even in national and international supermarket distribution, the cooperative's products can be identified and recognised, and

The decision to offset emissions through management of existing local areas, as well as contributing to climate change mitigation, is also an opportunity to improve woodland management, environmental protection and the development of rural and mountain areas.

The authors acknowledge support from the Lagrange Project of the ISI Foundation funded by

, Nicole Giuggioli, Vincenzo Girgenti and Cristiana Peano

Department of Agricultural, Forest and Food Sciences, University of Turin, Turin, Italy

[1] Harris M. Good to eat: riddles of food and culture [Paperback] [Internet]. 2nd ed. Long

[2] Axelson ML, Brinberg D. A social‐psychological perspective on food‐related behavior.

[3] Glanz K, Hewitt AM, Rudd J. Consumer behavior and nutrition education: an integra‐ tive review. J Nutr Educ [Internet]. 1992;24(5):267–77. Available from: http://

[4] DeVault ML, Mennell S, Murcott A, van Otterloo AH. The sociology of food: eating,

[5] Shepherd R. Overview of factors influencing food choice. BNF Nutr Bull. 1990;15(Suppl

www.sciencedirect.com/science/article/pii/S0022318212812441

thus distinguished from similar products.

\*Address all correspondence to<EMAIL_ADDRESS>
Grove, Illinois, USA: Waveland Pr Inc; 1998.

diet and culture. Contemp Sociol. 1993. 22:871.

New York: Springer‐Verlag; 1989.

**Acknowledgements**

134 Sustainable Supply Chain Management

the CRT Foundation.

**Author details**

Nadia Tecco\*

**References**

1):12–30.

[18] Kilian B, Hettinga J, Jiménez GA, Molina S, White A. Case study on Dole's carbon‐

[19] Environmental Product Declaration of Italian Apples [Internet]. 2015. Available from:

[20] Horne RE. Limits to labels: the role of eco‐labels in the assessment of product sustain‐ ability and routes to sustainable consumption. Int J Consum Stud [Internet]. 2009;33(2):

[21] Sacchi G. The evolution of Participatory Guarantee Systems for organic agriculture: a comparison among experiences through the world (orig. title L'evoluzione dei Partic‐ ipatory Guarantee Systems per l'agricoltura biologica: esperienze mondiali a confron‐

[22] European Commission. EU best practice guidelines for voluntary certification schemes for agricultural products and foodstuffs (2010/C 341/04). Off J Eur Union. 2010;5–11.

[23] Promedio P, Venta MDE, February US. Fruit and vegetables in Europe (orig. title Frutas

[24] Gawron J‐C, Theuvsen L. Agrifood Certification Schemes in an Intercultural Context: Theoretical Reasoning and Empirical Findings. Eur Assoc Agric Econ Semin Sept 3–6, 2009, Chania, Crete, Greece [Internet]. 2009;15. Available from: http://purl.umn.edu/

[25] Peano C, Baudino C, Tecco N, Girgenti V. Green marketing tools for fruit growers associated groups: application of the Life Cycle Assessment (LCA) for strawberries and berry fruits ecobranding in northern Italy. J Clean Prod [Internet]. 2015;104:59–67; Elsevier Ltd. Available from: http://www.sciencedirect.com/science/article/pii/

[26] Perrini F, Vurro C. Corporate sustainability, immaterial resources and competitiveness advantage (orig. title *Sostenibilità aziendale, risorse immateriali e vantaggio competitivo*),

[27] Sodano V, Hingley M. A case study from the market for fresh produce Channel Management and differentiation strategies?: a case study from the market for fresh

[28] Gorgitano MT, Sodano V. Sustainable food consumption: concept and policies. Qual

[29] Grunert KG, Hieke S, Wills J. Sustainability labels on food products: consumer motivation, understanding and use. Food Policy [Internet]. 2014 Feb [cited 2014 Sep 3]; 44:177–89. Available from: http://www.sciencedirect.com/science/article/pii/

Symphonya, Emerging isuues in managment, 2010;2:33–45.

Access Success. 2014;15(suppl 1):207–12.

http://gryphon.environdec.com/data/files/6/9832/epd369en\_2015.pdf

175–82. Available from: doi:10.1111/j.1470‐6431.2009.00752.x

neutral fruits. J Bus Res. 2012;65(12):1800–10.

to) Economia Agro-alimentare, 2015; 17:77–92.

Y Hortalizas En Europa), 2016.

58018

136 Sustainable Supply Chain Management

S095965261500462X

produce. 2007.

S0306919213001796

**Performance Evaluation, Modelling and Optimization**

## **Performance Evaluation for the Sustainable Supply Chain Management**

Xuemei Fan and Shujun Zhang

Additional information is available at the end of the chapter

http://dx.doi.org/10.5772/63065

#### **Abstract**

Supply chain SC activities transform natural resources, raw materials, and compo‐ nents into various finished products that are delivered to end customers. A high efficient SC would bring great benefits to an enterprise such as integrated resources, reduced logistics costs, improved logistics efficiency, and high quality of overall level of services. In contrast, an inefficient SC will bring additional transaction costs, information management costs, and resource waste, reduce the production capacity of all enterpris‐ es on the chain, and unsatisfactory customer relationships. So the evaluation of a SC is important for an enterprise to survive in a competitive market in a globalized business environment. Therefore, it is important to research the various methods, performance indicator systems, and technology for evaluating, monitoring, predicting, and optimizing the performance of a SC. A typical procedure of the performance evalua‐ tion (PE) of a SC is to use the established evaluation performance indicators, employ an analytical method, follow a given procedure, to carry out quantitatively or qualitative‐ ly comparative analysis to provide the objective and accurate evaluation of a SC performance in a selected operation period. Various research works have been carried out in proposing the performance indicator systems and methods for SC performance evaluations. But there are no widely accepted indicator systems that can be applied in practical SC performance evaluations due to the fact that the indicators in different systems have been defined without a common understanding of the meanings and the relationships between them, and they are nonlinear and very complicated.

In this chapter, the conception of SC performance is first presented, then relevant theories about supply chain performance evaluation are discussed and several common methods of supply chain performance evaluation are discussed. Finally, an evaluation model is presented for SC performance evaluation using 5 dimensional balanced scorecard (5DBSC) and Levenberg–Marquardt Back‐propagation (LM‐BP) neural network algorithm.

**Keywords:** SCM, sustainability, performance evaluation, KPI, neural network, 5DBSC, LM‐BP

© 2016 The Author(s). Licensee InTech. This chapter is distributed under the terms of the Creative Commons Attribution License (http://creativecommons.org/licenses/by/3.0), which permits unrestricted use, distribution, and reproduction in any medium, provided the original work is properly cited.

#### **1. Introduction**

Served as one of the three major US automobile companies, Chrysler Corporation was founded in 1912. After establishment, the company made a rapid growth due to the constant new car model strategies and shrewd management decisions. Without losing opportunities, a series of cars that can keep pace with the time were designed, developed, and launched. All those efforts demonstrated the courage of the company and have greatly enhanced the company's reputa‐ tion. As a result, Chrysler was hailed as the designing leader of automobile industry. However, on 30 April 2009, as the company was in crisis, Chrysler Corporation filed for bankruptcy protection. Since then, Chrysler entered bankruptcy proceedings.

In fact, the term "bankruptcy" was not new for this century‐old enterprise. In the company's history, there were several times that it was on the verge of bankruptcy, but it had always survived. The economic crisis in 1930s and recession in 2000 had seriously undermined development of the company. The financial deficit forced Chrysler to have massive layoffs, cut back production, and close factories. Rumors about bankruptcy of Chrysler were spread out every now and then. But by taking product diversification strategies and optimizing promotion channels, Chrysler overcame difficulties again and again.

People may ask, what is the exact reason of Chrysler going nearly into bankruptcy frequently?

General view of the US automobile industry is that even if not influenced by financial crisis, the problems that Chrysler accumulated over the years cannot be resolved overnight. The statistical figure shows that compared with BMW, Toyota, and some other automobile companies, extra cost of a single vehicle produced by Chrysler was more than 2000 dollars. In addition to the recognized "high labour costs," Chrysler was also overwhelmed by excessive welfare and retirement policy adopted in 20th century. The most unacceptable problem to the US customers is that Chrysler was never bored with launching high‐emission cars Jeep, which was contrary to the historical trend of saving oil and reducing emission. In short, the unsatis‐ factory performance of the supply chain (SC) made Americans believe that Chrysler will not recover again.

From the above discussion, it can be seen that SC performance evaluation and management are essential for an enterprise if it wants to develop in a long‐term stable way. In this chapter, the conception of SC performance is first presented, then relevant theories about SC perform‐ ance evaluation are discussed, and several common methods of SC performance evaluation are discussed. Finally, an evaluation model is presented for SC performance evaluation using 5 dimensional balanced scorecard (5DBSC) and Levenberg–Marquardt Back‐propagation (LM‐BP) neural network algorithm.

#### **2. Discussion of performance evaluation of SCM**

The biological law—natural selection and survival of the fittest—proposed by Darwin can also be applied to today's fierce business competition environment. Whether an enterprise has the ability to adapt rapid market demand change or not and whether it can deal with the increasing competition pressure depend on if the enterprise has an effective way of SC management. In order to achieve an effective SC management, SC performance should be evaluated first.  Concept of SC performance evaluation**

**1. Introduction**

142 Sustainable Supply Chain Management

recover again.

(LM‐BP) neural network algorithm.

**2. Discussion of performance evaluation of SCM**

Served as one of the three major US automobile companies, Chrysler Corporation was founded in 1912. After establishment, the company made a rapid growth due to the constant new car model strategies and shrewd management decisions. Without losing opportunities, a series of cars that can keep pace with the time were designed, developed, and launched. All those efforts demonstrated the courage of the company and have greatly enhanced the company's reputa‐ tion. As a result, Chrysler was hailed as the designing leader of automobile industry. However, on 30 April 2009, as the company was in crisis, Chrysler Corporation filed for bankruptcy

In fact, the term "bankruptcy" was not new for this century‐old enterprise. In the company's history, there were several times that it was on the verge of bankruptcy, but it had always survived. The economic crisis in 1930s and recession in 2000 had seriously undermined development of the company. The financial deficit forced Chrysler to have massive layoffs, cut back production, and close factories. Rumors about bankruptcy of Chrysler were spread out every now and then. But by taking product diversification strategies and optimizing

People may ask, what is the exact reason of Chrysler going nearly into bankruptcy frequently? General view of the US automobile industry is that even if not influenced by financial crisis, the problems that Chrysler accumulated over the years cannot be resolved overnight. The statistical figure shows that compared with BMW, Toyota, and some other automobile companies, extra cost of a single vehicle produced by Chrysler was more than 2000 dollars. In addition to the recognized "high labour costs," Chrysler was also overwhelmed by excessive welfare and retirement policy adopted in 20th century. The most unacceptable problem to the US customers is that Chrysler was never bored with launching high‐emission cars Jeep, which was contrary to the historical trend of saving oil and reducing emission. In short, the unsatis‐ factory performance of the supply chain (SC) made Americans believe that Chrysler will not

From the above discussion, it can be seen that SC performance evaluation and management are essential for an enterprise if it wants to develop in a long‐term stable way. In this chapter, the conception of SC performance is first presented, then relevant theories about SC perform‐ ance evaluation are discussed, and several common methods of SC performance evaluation are discussed. Finally, an evaluation model is presented for SC performance evaluation using 5 dimensional balanced scorecard (5DBSC) and Levenberg–Marquardt Back‐propagation

The biological law—natural selection and survival of the fittest—proposed by Darwin can also be applied to today's fierce business competition environment. Whether an enterprise has the ability to adapt rapid market demand change or not and whether it can deal with the increasing

protection. Since then, Chrysler entered bankruptcy proceedings.

promotion channels, Chrysler overcame difficulties again and again.

Nowadays, individual competition among enterprises has turned into group competition among different SCs. During the implementation process of SC management, a great deal of manpower, materials, and financial resources will be consumed and both internal and external pressure from SC partners will have to be dealt with. Hence, a strict SC performance evaluation must be conducted so that shortcomings can be found and corrected. By doing so, SC will be competitive. Serving as a significant part of supply strategy management, performance evaluation will help the enterprise or the organization to understand the daily activity performance of the SC, based on which, a long‐term development strategy can be made.

Therefore, it is not difficult to understand the definition of SC performance evaluation: adopting certain SC performance evaluation indices, compared with a unified evaluation standard, using quantitative methods of statistics and operations research to comprehensively evaluate SC performance and costs in a period of time in accordance with regulated procedures in an objective, just and accurate way[1].

SC performance evaluation should serve the goal of the SC. Evaluation objects should cover the whole SC as well as each member of SC. Also, interior and exterior performance of an enterprise and comprehensive SC performance are involved in the performance evaluation which are revealed by all kinds of indicators relating to operation and relationships. From the time point of view, evaluation can be classified as prior, middle, and afterwards evaluation [1].

#### **2.2. Principles and function of SC performance evaluation**

Operation performance of the whole SC and members of the SC can be revealed by a good SC performance evaluation system: if logistics processes among the enterprises are reasonable, whether the quality and costs of the SC products are ideal or not. For example, if one supplier on the SC is individually evaluated, then the lower the product price is the better. However, considering such a low‐priced raw material will jeopardize final product quality, increase production costs, and overall profit of the whole SC will be damaged, choosing this supplier will not be an appropriate decision.

In order to evaluate operation performance of logistics system objectively and accurately, some following principles must be complied with [2]:

1. Deficiencies and shortcomings can be found and relevant improving measures can be identified.

2. Serve as evaluation indicators of SC business processes reengineering, setting up time, cost, and performance‐based SC optimized system will provide decision basis for sustainable SC management.

3. By evaluating the member enterprise of a SC, excellent enterprises will be motivated, troubled enterprises will be removed, and new partners will be attracted. Meanwhile, partnerships will be evaluated too during SC performance evaluation.

#### **3. Performance evaluation indicators**

Companies not only have to concern themselves about environment issues but also have to deal with social performance pressures such as social reputation and social responsibility. As a result, although SSCM is a relatively new concept, it developed rapidly in the recent years.

Concept of sustainable SC should be understood before conducting management. There is not a unified definition about sustainable SC yet, but some of the definitions are recognized by most scholars, which are shown as follows.

Seuring and Müller defined SSCM as the management of material, information, and capital flows as well as cooperation among companies along the SC while taking goals from all three dimensions of sustainable development, that is, economic, environmental, and social, into account which are derived from customer's and stakeholder's requirements [3].

Carter and Rogers believed that SSCM can be defined as the strategic, transparent integration, and achievement of an organization's social, environmental, and economic goals in the systemic coordination of key interorganizational business processes for improving the long‐ term economic performance of the individual company and its SCs [4].

Based on conceptions mentioned above, it is not difficult to find out that the inclusion of sustainability into the theory of SCM is most often based on the triple bottom line approach [5] that calls for equal consideration of all three pillars of sustainability, namely, environment performance, economic performance, and social performance. This means evaluation indica‐ tors can be chosen accordingly.

#### **3.1. Environment indicators**

**3.** Indicators should not only reflect the performance of an individual enterprise but also the subsystem and the whole SC. This is important to achieve the sustainable SC management

**4.** Immediate evaluation methods should be used as much as possible, for doing so is more

**5.** Make sure that goal of SC performance evaluation and goal of the overall SC strategy are consistent, otherwise, SC performance will not make considerable contributions to the

**7.** One of the final targets of each SC is to make customers satisfied. In order to fulfill the real demand of customer, it is necessary for managers to understand what the demands are; meanwhile, they should also have a clear understanding about the SC performance from the customer point of view. Effective SC performance evaluation can play the following

1. Deficiencies and shortcomings can be found and relevant improving measures can be

2. Serve as evaluation indicators of SC business processes reengineering, setting up time, cost, and performance‐based SC optimized system will provide decision basis for

3. By evaluating the member enterprise of a SC, excellent enterprises will be motivated, troubled enterprises will be removed, and new partners will be attracted. Meanwhile,

Companies not only have to concern themselves about environment issues but also have to deal with social performance pressures such as social reputation and social responsibility. As a result, although SSCM is a relatively new concept, it developed rapidly in the recent years.

Concept of sustainable SC should be understood before conducting management. There is not a unified definition about sustainable SC yet, but some of the definitions are recognized by

Seuring and Müller defined SSCM as the management of material, information, and capital flows as well as cooperation among companies along the SC while taking goals from all three dimensions of sustainable development, that is, economic, environmental, and social, into

Carter and Rogers believed that SSCM can be defined as the strategic, transparent integration, and achievement of an organization's social, environmental, and economic goals in the

account which are derived from customer's and stakeholder's requirements [3].

partnerships will be evaluated too during SC performance evaluation.

(SSCM).

144 Sustainable Supply Chain Management

strategic goal.

identified.

meaningful than analyzing afterward.

roles in the SC management process [2]:

sustainable SC management.

**3. Performance evaluation indicators**

most scholars, which are shown as follows.

**6.** Indicators that support the strategic goal should be chosen.

In the area of SSCM, environment performance has been given a lot of attention. Sometimes, there are tradeoffs between environment performance and economic performance. For instance, ecofriendly materials may cost more so that it will have impact on economic per‐ formance. However, environment performance can positively influence economic perform‐ ance. For example, waste products or some certain emissions can be recycled as raw materials for other products, and minimizing waste can also help to saving cost. In addition, an eco‐ friendly production method will save companies from a large amount of pollution control costs or environmental penalty. Therefore, in order to achieve a win‐win target rather than tradeoffs, managers should evaluate SSC from an integration point of view and achieve balance between environment investment and cost efficiency. Here are some possible indicators for the environment performance evaluation: greenhouse gas emission, water usage, energy con‐ sumption, waste generation, the use of hazardous and toxic substance, waste recycle etc [6].

#### **3.2. Economic indicators**

Whether in SSCM or in SCM, economic performance has been paid a lot of attention. One final goal of a SC management is to make profit. Otherwise, it will be eliminated from the market. When considering sustainability of a SC, focal companies might be able to justify the long‐term economic benefits of designing environmental and social initiatives at the supply‐chain level and present a business case for sustainability, where firms benefitted financially from engaging in sustainability practices [7]. Various studies using SC modelling have traditionally focused on the economic aspects of the SC with cost minimization (or profit maximization) and service level maximization as the most predominant objectives. Here are some possible indicators for economic performance evaluation: SC cost (SC costs may include the cost of procurement, production, opening, and operating facilities as well as transportation and storage costs), cost reduction, service level (service level may include customer satisfactory, product/quantity flexibility, and backorders), SC revenue, SC profit, etc [8].

#### **3.3. Social indicators**

Among all the three aspects in SSCM, social performance is the most difficult one to assess, the indicators of which are not easy to be quantified and are often prone to subjectivity. However, social performance evaluation is indispensable. Not only can social issues threaten the company's brand image but they also impact the economic viability of the entire SC [8]. Several instances of this nature have been frequently reported in the past, jeopardizing the reputation of large multinational corporations such as Wal‐Mart, Nike, Gap, and H&M through the violation of union rights and the use of underaged workers [9]. In the other way round, a well‐performed social practice is capable of enhancing a company's image and reputation, which serves as a significant resource in the SC, and helps to increase market adaptability of products and services. Here are some possible indicators for social performance evaluation: labour practice and decent work, gender diversity and harassment, human rights, occupational health and safety, fair trade, fair labor metrics, etc [10].

SC performance evaluation has traditionally been dominated by indicators such as cost, quality, delivery, and flexibility. In the circumstances of considering sustainability, these indicators are still very important but not necessarily in a dominant role. Also, indicators introduced in this section are relatively rough and only give a general idea of SSC performance evaluation. Detailed indicators are explicated according to different performance evaluation theories in Section 4.

#### **4. Performance evaluation theory and method**

Due to the fact that SC combines suppliers, manufacturers, distributors, dealers, and customers with information flow feed forward and material flow feedback, it is largely different from the current enterprise management model as from enterprise operation performance evaluation and analysis.

Based on the basic features and goal of SC management, SC performance evaluation is capable of properly reflecting the overall SC performance as well as of each member enterprise on the SC rather than a single supplier. During the evaluation process, not only performance of a certain member enterprise of SC should be evaluated but also the influences that the certain member enterprise has on the upper or lower SC member enterprises should be evaluated. SC performance evaluation normally includes the following aspects: the overall SC performance, each member enterprise performance, partnership among member enterprises of the SC, and incentive level toward member enterprises.

To fulfill above targets, ordinary enterprise performance evaluation theories are not fully applicable; this section will mainly illustrate several common SC performance theories, and they are using driving factors to evaluate SC performance, key performance indicator, SC balanced scorecard, and SC operations reference model.

#### **4.1. Using driving factors to evaluate SC performance**

Sunil Chopra from Northwestern University of America and Peter Meindl from Stanford University proposed the following idea: by deeply studying the cross function driving factors that influence SC performance (facilities, inventory, transportation, information, purchasing, and pricing), SC performance can be improved through responsiveness and efficiency of the SC logistics [11].

#### *4.1.1. Facilities*

Several instances of this nature have been frequently reported in the past, jeopardizing the reputation of large multinational corporations such as Wal‐Mart, Nike, Gap, and H&M through the violation of union rights and the use of underaged workers [9]. In the other way round, a well‐performed social practice is capable of enhancing a company's image and reputation, which serves as a significant resource in the SC, and helps to increase market adaptability of products and services. Here are some possible indicators for social performance evaluation: labour practice and decent work, gender diversity and harassment, human rights,

SC performance evaluation has traditionally been dominated by indicators such as cost, quality, delivery, and flexibility. In the circumstances of considering sustainability, these indicators are still very important but not necessarily in a dominant role. Also, indicators introduced in this section are relatively rough and only give a general idea of SSC performance evaluation. Detailed indicators are explicated according to different performance evaluation

Due to the fact that SC combines suppliers, manufacturers, distributors, dealers, and customers with information flow feed forward and material flow feedback, it is largely different from the current enterprise management model as from enterprise operation performance evaluation

Based on the basic features and goal of SC management, SC performance evaluation is capable of properly reflecting the overall SC performance as well as of each member enterprise on the SC rather than a single supplier. During the evaluation process, not only performance of a certain member enterprise of SC should be evaluated but also the influences that the certain member enterprise has on the upper or lower SC member enterprises should be evaluated. SC performance evaluation normally includes the following aspects: the overall SC performance, each member enterprise performance, partnership among member enterprises of the SC, and

To fulfill above targets, ordinary enterprise performance evaluation theories are not fully applicable; this section will mainly illustrate several common SC performance theories, and they are using driving factors to evaluate SC performance, key performance indicator, SC

Sunil Chopra from Northwestern University of America and Peter Meindl from Stanford University proposed the following idea: by deeply studying the cross function driving factors that influence SC performance (facilities, inventory, transportation, information, purchasing, and pricing), SC performance can be improved through responsiveness and efficiency of the

occupational health and safety, fair trade, fair labor metrics, etc [10].

**4. Performance evaluation theory and method**

incentive level toward member enterprises.

balanced scorecard, and SC operations reference model.

**4.1. Using driving factors to evaluate SC performance**

theories in Section 4.

146 Sustainable Supply Chain Management

and analysis.

SC logistics [11].

Facilities refer to the actual location of the SC, storage sites, assembly, or processing sites. Production sites and storage sites are the main two facilities. Decisions about facilities role, location, production capacity, and flexibility have a significant influence on SC performance. For instance, to improve responsiveness, an automotive parts distributor will locate their warehouse close to their customer, although it may lower their efficiency. Or a distributor with high efficiency will decrease their warehouses to maintain efficiency despite that it will influence responsiveness.

Here are some indicators to evaluate facilities performance [11]:

#### *4.1.2. Inventory*

Inventory consists of raw material inventory, work in progress (WIP), and finished goods. Changing inventory strategy will greatly influence SC efficiency and responsiveness. For example, clothing retailers may own a large amount of stock to quickly respond and satisfy customer demands. However, enormous stock will increase retailer's cost so that efficiency will be decreased, which will have an undesirable influence of responsiveness in return.

Increasing inventory helps SC to improve responsiveness toward customers. A high level of inventory makes an enterprise easier to take advantage of economies of scale, lower cost of production, and transportation, yet by doing so inventory carrying costs will be increased. Managers should review the following inventory indicators that influence SC performance [11].

#### *4.1.3. Transportation*

Using a rapid mode of transport will increase responsiveness and transportation cost, but the advantage is stock carrying cost can be decreased. Managers should review the following transportation indicators that influence SC performance [11].

**1.** Average inbound transportation costs—certain percentage of product sales or sales costs that are put into manufacturing facilities. It is ideal but very difficult to measure this indicator by units that are invested in. Average inbound transportation costs are often included in sales costs. It is beneficial to allocate these costs by a supplier.

#### *4.1.4. Information*

*4.1.2. Inventory*

148 Sustainable Supply Chain Management

[11].

value.

Inventory consists of raw material inventory, work in progress (WIP), and finished goods. Changing inventory strategy will greatly influence SC efficiency and responsiveness. For example, clothing retailers may own a large amount of stock to quickly respond and satisfy customer demands. However, enormous stock will increase retailer's cost so that efficiency will be decreased, which will have an undesirable influence of responsiveness in return.

Increasing inventory helps SC to improve responsiveness toward customers. A high level of inventory makes an enterprise easier to take advantage of economies of scale, lower cost of production, and transportation, yet by doing so inventory carrying costs will be increased. Managers should review the following inventory indicators that influence SC performance

**1.** Average inventory—average volume of carrying inventory during a period of time. Average inventory should be measured according to unit, demand days, and monetary

**2.** Overdue inventory products—a great number of stocks owned by an enterprise. This indicator may be used to identify oversupplied products or the reason for high level of

**4.** Average safety inventory—the average quantities of stocks when replenishment arrives. Average replenishment quantities were measured by SKU. Cargo unit and demand days should also be known. Average replenishment quantities were measured by SKU. Cargo

**5.** Seasonal inventory—cycle stocks and safety stocks carried by an enterprise to meet the

**6.** Fulfillment ratio—ratio between orders were fulfilled on time by inventory and total orders. Fulfillment ratio is determined by the average demands units (per thousand,

**7.** Out of stock time ratio—ratio between time of a certain product which has no stock and time it has inventory. This ratio can be used to estimate the demand during the period of

Using a rapid mode of transport will increase responsiveness and transportation cost, but the advantage is stock carrying cost can be decreased. Managers should review the following

**1.** Average inbound transportation costs—certain percentage of product sales or sales costs that are put into manufacturing facilities. It is ideal but very difficult to measure this indicator by units that are invested in. Average inbound transportation costs are often

included in sales costs. It is beneficial to allocate these costs by a supplier.

**3.** Average replenishment quantities—average quantities of each supplement orders.

inventory (price discount or a low delivery speed).

unit and demand days should also be known.

million) rather than average time to fulfill the order.

transportation indicators that influence SC performance [11].

seasonally changing demand.

out of stock.

*4.1.3. Transportation*

Effective information is capable of helping an enterprise improve its responsiveness and efficiency. Information factor may optimize performance of other factors. Usage of information was based on a strategy orientation supported by other factors. Accurate information not only helps an enterprise improve their efficiency by decreasing inventory and transportation costs but also optimizes responsiveness by adjusting supply and demand on the SC. Managers should review the following information indicators that influence SC performance [11].

**6.** Ratio between demand changing and order changing—standard deviation of coming demand and supply orders. If the standard deviation is less than 1, it suggests "bullwhip effect" may exist.

#### *4.1.5. Purchasing*

The target of making a decision to purchase is to increase the total profit that is shared by the SC. Purchasing has an influence on sales, service, production cost, transportation cost, and total profit. If a third‐party logistics can make more profit than first and second logistics, outsourcing logistics is meaningful. In comparison, if third‐party logistics is not able to increase SC profit or it is very risky to outsource logistics, the enterprise should remain the function of SC. Managers should review the following purchasing indicators that influence SC perform‐ ance [11].

#### *4.1.6. Pricing*

All the target of pricing decision should be focused on increasing profit for the enterprise. To achieve the target, it is necessary to understand the cost structure of SC activities and values that are created by those activities. For instance, daily low‐cost strategy is able to stabilize demand and result in an efficient SC. Some other pricing strategy may reduce SC costs and maintain an even earn market share. Price discrimination is able to attract different customers with different demands. As long as these strategies are conducive to increasing revenue or reducing costs, enterprises should adopt a bit of both.

Managers should review the following pricing indicators. For menu pricing, each indicator should be reviewed respectively according to each section of the menu [11].

**1.** Profit margin—profit percentage of revenues. Enterprises need to look at various profit margin indicators in order to optimize pricing. Specific indicator dimension including type of profit margin (gross profit margin, net profit margin, etc.), profit scope (cargo unit, product series, department, enterprise, etc.), and type of customers.

**2.** Sales unpaid days—average time to receive cash after sales.

**6.** Ratio between demand changing and order changing—standard deviation of coming demand and supply orders. If the standard deviation is less than 1, it suggests "bullwhip

The target of making a decision to purchase is to increase the total profit that is shared by the SC. Purchasing has an influence on sales, service, production cost, transportation cost, and total profit. If a third‐party logistics can make more profit than first and second logistics, outsourcing logistics is meaningful. In comparison, if third‐party logistics is not able to increase SC profit or it is very risky to outsource logistics, the enterprise should remain the function of SC. Managers should review the following purchasing indicators that influence SC perform‐

**1.** Due days—days from which the supplier finished their tasks until they get paid.

**2.** Average purchasing price—the average price of purchasing a certain product or a service. When calculating average purchasing price, final result should be based on quantity‐

**3.** Range of purchasing price—it refers to price fluctuation during a period of time. This indicator is used to make sure if purchasing price is related to purchasing quantity.

**4.** Average purchasing quantity—average quantity of each purchasing. This indicator is used to make sure if the total quantities of purchasing from each region are adequate.

All the target of pricing decision should be focused on increasing profit for the enterprise. To achieve the target, it is necessary to understand the cost structure of SC activities and values that are created by those activities. For instance, daily low‐cost strategy is able to stabilize demand and result in an efficient SC. Some other pricing strategy may reduce SC costs and maintain an even earn market share. Price discrimination is able to attract different customers with different demands. As long as these strategies are conducive to increasing revenue or

Managers should review the following pricing indicators. For menu pricing, each indicator

**1.** Profit margin—profit percentage of revenues. Enterprises need to look at various profit margin indicators in order to optimize pricing. Specific indicator dimension including type of profit margin (gross profit margin, net profit margin, etc.), profit scope (cargo unit,

should be reviewed respectively according to each section of the menu [11].

product series, department, enterprise, etc.), and type of customers.

**5.** Due deliver ratio—ratio between due deliver time and total deliver time.

**6.** Supply quality—product quality provided by the suppliers.

reducing costs, enterprises should adopt a bit of both.

**7.** Supply lead time—days from ordering until successful delivery.

effect" may exist.

150 Sustainable Supply Chain Management

weighted of each price.

*4.1.5. Purchasing*

ance [11].

*4.1.6. Pricing*

Driving factors and indicators are summarized in the following **Table 1**

**Table 1.** Driving factors and indicators of a SC€.

#### **4.2. Key performance indicator**

Serve as a monitor of the macro strategy implementation result, key performance indicators (KPI) refer to operational tactical target that are decomposed from macro strategy of an enterprise and have impact on strategy development as well as overall performance of a company [12]. KPI is a popular international tool of measuring company operation perform‐ ance and managing strategic target, the establishment of which will form a responsibility oriented system management mode. In addition, KPI is quantifiable and is agreed in advance, meanwhile, it is also a significant indicator system that is used to reflect the degree of organ‐ ization target accomplishment. Briefly, KPI is an effective management tool which can motivate a company to create more value. The specific functions of KPI are as follows [12]:

**1.** As company strategy target decomposed, senior managers are able to have a clear understanding about the business operating conditions of company's most critical value creation.

**Driving factors of SC Indicators**

152 Sustainable Supply Chain Management

Information Forecasting period

Purchasing Due days

Pricing Profit margin

**Table 1.** Driving factors and indicators of a SC€.

**4.2. Key performance indicator**

Transportation Average inbound transportation costs

Average scale of loading stocks to storage

Average outbound transportation costs

Transportation mode ratio

Average purchasing price Range of purchasing price Average purchasing quantity

Due deliver ratio Supply quality Supply lead time

Sales unpaid days

Average selling price Average ordering quantities

Selling price range

Increment of fixed cost of each ordering Increment of variable costs per unit

Range of sales volume in a period of time

Serve as a monitor of the macro strategy implementation result, key performance indicators (KPI) refer to operational tactical target that are decomposed from macro strategy of an enterprise and have impact on strategy development as well as overall performance of a company [12]. KPI is a popular international tool of measuring company operation perform‐ ance and managing strategic target, the establishment of which will form a responsibility oriented system management mode. In addition, KPI is quantifiable and is agreed in advance, meanwhile, it is also a significant indicator system that is used to reflect the degree of organ‐ ization target accomplishment. Briefly, KPI is an effective management tool which can motivate a company to create more value. The specific functions of KPI are as follows [12]:

Update frequency Prediction error Seasonal factor Planning fluctuation

Loading costs of inbound transportation of each time

Average loading scale of outbound transportation Loading costs of outbound transportation of each time

Ratio between demand changing and order changing

To fulfill the above functions, choosing KPI should be in line with the following principles: indicators should be easy to understand, explain, and convey. They should be clear rather than ambiguous, instead of random ones. Meanwhile, it is necessary that indicators should be able to control and enforce, not just some decorations. Finally, they should be quantifiable and trustworthy [12].

To deal with the fierce competition, a lot of manufacturing enterprise outsource their logistics operation. As a result, evaluating performance of a logistics service provider is particularly important, which is also a basis of supplier selection. In an organization system, the majority of large manufacturing enterprises have set up SC management department or logistics operation department to be in charge of logistics‐related business. In large manufacturing enterprises, line transportation, warehouse management, and regional distribution are the three relatively independent logistics segments. Hence, to evaluate SC performance, KPI can be chosen from the three segments. Summarization of indicators is in **Table 2**.

**Table 2.** Indicators of logistics operation performance.

#### *4.2.1. KPI of line transportation*

Focused on the two eternal themes of logistics service security and punctuality, following indicators of line transportation are chosen [12–15].

(1) Plan execution rate *P* (Vehicle arrival rate)—This indicator refers to ratio between program execution time of logistics service provider within response time and program number (Vehicles arrive on time and comply with loading requirement). Response time means the time that vehicles of logistics service provider or company's own supply department need to arrive assigned location and loading cargo after delivery plans were issued by logistics department. Response time of a forwarding station in a whole nation is two days. Program execution rate P1 on the first day must reach 85%, the rest must all be finished on the second day which means accumulated program execution rate on the second day must be 100%. Plans cannot be finished on the day must be recorded in remaining plan table. Plans that cannot be finished in two days must be otherwise recorded and make a special (urgent) plan.

#### (2) Plan remaining rate *R*

This indicator mainly assesses the plans remaining time of logistics service provider or SC department when they carry out plans. Plans that cannot be finished on the first day can be seen through plan execution rate of the second day, but plans that also cannot be finished on the second day cannot be shown. So plan remaining rate is used for reviewing time and days of remaining plan.

#### (3) Delivery delay rate *D*

Since the moment cargo has been loaded on the vehicle, logistics service provider or SC department will urge driver to deliver cargo to the destination safety, timely, and completely except for the force majeure (war, earthquake, large collapsed pavements, and mountains covered by snow). Other reasons (traffic jam, broken vehicles, and traffic accidents) cannot be served as exceptions. Ratio between delayed deliver plans and the total plans of a certain month is called delivery delay rate *D*. Punctual delivery ratio will be 1‐*D*.

#### (4) Accidental freight *A*

**Category Indicators**

154 Sustainable Supply Chain Management

**Table 2.** Indicators of logistics operation performance.

indicators of line transportation are chosen [12–15].

must be otherwise recorded and make a special (urgent) plan.

*4.2.1. KPI of line transportation*

(2) Plan remaining rate *R*

of remaining plan.

(3) Delivery delay rate *D*

KPI of regional distribution Fulfilled orders on time rate *F*

Stock damaged ratio *Q* Warehouse quality *W* Customer satisfaction *M*

Accidental freight *A* Document accuracy *E*

Timely transfer document rate *T*

Focused on the two eternal themes of logistics service security and punctuality, following

(1) Plan execution rate *P* (Vehicle arrival rate)—This indicator refers to ratio between program execution time of logistics service provider within response time and program number (Vehicles arrive on time and comply with loading requirement). Response time means the time that vehicles of logistics service provider or company's own supply department need to arrive assigned location and loading cargo after delivery plans were issued by logistics department. Response time of a forwarding station in a whole nation is two days. Program execution rate P1 on the first day must reach 85%, the rest must all be finished on the second day which means accumulated program execution rate on the second day must be 100%. Plans cannot be finished on the day must be recorded in remaining plan table. Plans that cannot be finished in two days

This indicator mainly assesses the plans remaining time of logistics service provider or SC department when they carry out plans. Plans that cannot be finished on the first day can be seen through plan execution rate of the second day, but plans that also cannot be finished on the second day cannot be shown. So plan remaining rate is used for reviewing time and days

Since the moment cargo has been loaded on the vehicle, logistics service provider or SC department will urge driver to deliver cargo to the destination safety, timely, and completely except for the force majeure (war, earthquake, large collapsed pavements, and mountains covered by snow). Other reasons (traffic jam, broken vehicles, and traffic accidents) cannot be served as exceptions. Ratio between delayed deliver plans and the total plans of a certain

month is called delivery delay rate *D*. Punctual delivery ratio will be 1‐*D*.

Customer satisfaction *M*

It can be divided into accident loss ratio and freight accident ratio. Ratio between accident lost value and cargo total value is called accident loss ratio. Freight accident ratio refers to the ratio between accident times and total delivery times.

(5) Timely transfer document rate *T*

This indicator mainly assesses if the following documents are transferred timely by the forwarding station—statistic document, daily plan remaining document, overdue vehicle statistic document, reimbursement, and statistic document of delivery list.

```
(6) Document accuracy E
```
Documents must be filled in according to required format and should be kept clear and tidy. For those hand‐filled documents, handwriting should be clear, neat, and without alterations. After documents are filled in, they should be strictly and carefully checked to eliminate mistakes.

(7) Service quality *S*

This indicator is mainly used to review service awareness and service attitude of logistics service provider or SC department.

#### *4.2.2. KPI of warehouse (transit warehouse)*

Warehouse management focuses on customer service, which is mainly about customer satisfaction and warehouse management quality. Six indicators and relevant daily used documents are determined [12‐15].

(1) Correctness of cargo receiving and sending out *C*

Total amount of receiving and sending out cargo minus wrong receiving and sending out cargo amount, than compared to the total amount, the proportion of which will be correctness of cargo receiving and sending out.

(2) Document accuracy *E*

This indicator has the same meaning with "Document accuracy *E*" in transportation indicators.

(3) Timely transfer document rate *T*

This indicator mainly assesses if the following documents are timely transferred by transit warehouse: receiving list, product inventory daily report, transit warehouse shipments feedback form, spare and ware out parts daily form, damaged cargo maintenance monthly form, finished product age analysis monthly form, spare and ware out parts monthly form, inventory of advertising materials monthly report, defective products processed monthly report, etc.

#### (4) Stock damaged ratio *Q*

Ratio between amount of goods damaged in warehouse and total amount of goods. Because damage occurred in warehouse, warehouse manager should take responsibility for the loss.

(5) Warehouse quality *W*

It is expressed as the storage environment, fire safety, cargo stacking, and goods identification should comply with certain provisions of the transit warehouse management. Performance of this indicator can be evaluated through onsite inspection. Storage environment refers to inside and outside hygiene of a warehouse, pest control, storage temperature and humidity control, and cargo maintenance in warehouse. Fire safety is determined by whether the firefighting facilities are complete and useful and whether the firefighting measures can be implemented without any potential risks. Cargo stacking and goods identification should be in line with warehouse management rules.

#### (6) Customer satisfaction *M*

Customer satisfaction is quantified by number of effective customer complaints. In reality, customer satisfaction consist of four aspects: loading waiting time, service attitude of ware‐ house management (including guards, warehouse keeper, billing staff, and porters), ability to deal with abnormal situations, and time of repeated complaints.

#### *4.2.3. KPI of regional distribution*

Indicators of regional distribution focus on distribution network, promptness of delivery is considered, and five indicators and related documents are determined [12–15].

#### (1) Fulfilled orders on time rate

On time refers to cargo that were delivered to the destination within the requested time (e.g., 24 hours) after orders were received. Fulfillment refers to the delivered cargo that can meet the requirement of the order in respect to SKU standard and quantity. Delivery time will be counted after logistics supervisor issues delivery list. Cargo must be delivered within request‐ ed time (e.g., 200 km within 12 hours, 200 km–400 km within 24 hours, more than 400 km within 36 hours ) to the specific department or the customer.

#### (2) Accidental freight *A*

This indicator has the same meaning with "Accidental freight *A*" in transportation indicators.

#### (3) Document accuracy *E*

This indicator has the same meaning with "Document accuracy *E*" in transportation indicators.

(4) Timely transfer document rate *T*

This indicator mainly assesses if the following documents are transferred on time: second distribution process control report, second distribution daily report, and second distribution summarization report.

#### (5) Customer satisfaction *M*

(4) Stock damaged ratio *Q*

156 Sustainable Supply Chain Management

(5) Warehouse quality *W*

warehouse management rules.

*4.2.3. KPI of regional distribution*

(1) Fulfilled orders on time rate

(2) Accidental freight *A*

(3) Document accuracy *E*

(4) Timely transfer document rate *T*

(6) Customer satisfaction *M*

Ratio between amount of goods damaged in warehouse and total amount of goods. Because damage occurred in warehouse, warehouse manager should take responsibility for the loss.

It is expressed as the storage environment, fire safety, cargo stacking, and goods identification should comply with certain provisions of the transit warehouse management. Performance of this indicator can be evaluated through onsite inspection. Storage environment refers to inside and outside hygiene of a warehouse, pest control, storage temperature and humidity control, and cargo maintenance in warehouse. Fire safety is determined by whether the firefighting facilities are complete and useful and whether the firefighting measures can be implemented without any potential risks. Cargo stacking and goods identification should be in line with

Customer satisfaction is quantified by number of effective customer complaints. In reality, customer satisfaction consist of four aspects: loading waiting time, service attitude of ware‐ house management (including guards, warehouse keeper, billing staff, and porters), ability to

Indicators of regional distribution focus on distribution network, promptness of delivery is

On time refers to cargo that were delivered to the destination within the requested time (e.g., 24 hours) after orders were received. Fulfillment refers to the delivered cargo that can meet the requirement of the order in respect to SKU standard and quantity. Delivery time will be counted after logistics supervisor issues delivery list. Cargo must be delivered within request‐ ed time (e.g., 200 km within 12 hours, 200 km–400 km within 24 hours, more than 400 km

This indicator has the same meaning with "Accidental freight *A*" in transportation indicators.

This indicator has the same meaning with "Document accuracy *E*" in transportation indicators.

considered, and five indicators and related documents are determined [12–15].

deal with abnormal situations, and time of repeated complaints.

within 36 hours ) to the specific department or the customer.

Customer satisfaction is quantified by a number of effective customer complaints. Service awareness and service attitude of carrier are the main concerns.

#### **4.3. SC balanced scorecard**

The conception of balanced score card (BSC) was first proposed by Robert S Kaplan and David P Norton in 1992. BSC clearly stress on enterprise vision and motivator to accomplish enterprise strategy. Then, strategy motivators are transferred into specific target and measureable indicators which include external and internal measurement as well as objective and subjective factors. BSC consist of four distinctive aspects: financial aspect, customer aspect, internal business aspect, innovation, and learning aspect (**Figure 1**) [16]. Meanwhile, BSC can be used to decompose target of the whole enterprise into targets of each level of the enterprise.

**Figure 1.** Balanced Scorecard.

BSC can be used not only as a tool of behavior controlling and historical performance estimation but also for clarifying and spreading corporate strategy and individual plan, department plan, and organization plan. These plans can be linked together so that their common goal can be accomplished. BSC emphasizes on integration of financial and nonfinancial measurement, and these indicators must be blended into every management level so that managers can understand their factors that lead to decisions and behaviors. A propagating, communicating, and learning system is constructed rather than a simple traditional controlling system to keep the goals in consistency due to the fact that performance indicators are shared in the management system. Hence, BSC has become a foundation of new strategic management system and become a bridge which correlate long‐term strategy and short‐term behavior (**Figure 2**) [16].

**Figure 2.** Relations of Balanced Scorecard and Enterprise Vision.

Since 1998, with the condition of new economics which was represented by information technology, BSC has the ability to promote enterprises to expand and grow and has been vigorously applied in strategy management. Before BSC was invented, there was no standard framework or systematic theory about SC performance evaluation methods. Application of BSC exactly covered this shortage. Brewer and Speh were the first ones to explore how to apply BSC in SC performance and proposed a new tool to evaluate SC performance, SC balanced scorecard (SCBSC). Based on SC business processes, SCBSC start from enterprise strategy and can be used to evaluate enterprise operation performance comprehensively by linking performance indicators and enterprise strategy together. As a result, core competitiveness of the enterprise is fostered. Framework of SC performance was connected to the four dimensions of BSC by Brewer and Speh so that basic structure of SCBSC was defined (**Figure 3**) [17].

**Figure 3** shows that, Brewer and Speh set up a connection framework between SCM and BSC. SC performance management including four aspects: (1) goal of SC management, (2) customer profit, (3) financial benefits, (4)SC improvement. There is a one‐to‐one correspondence between chain performance management and 4 aspects of BSC [17]. For example, the ability of a SC to fulfill its goal can be revealed from its inner operation. Emergence of SCBSC is a breakthrough in SC performance evaluation. Beforehand, BSC and SCM were seen as two separate management tool. Employees are incented to work correctly under the background of SC concept when managers aware that evaluation process of BSC can be adopted into SC performance evaluation [17].

Thus, advantages of SCBSC can be further indicated as follows [17]:

**1.** SC itself is a combination of multi departments or multi organizations. Its executive performance must be reached by the members working together from inside and outside of an organization. The causal relationship of 4 aspects of BSC makes a clear description about how an effective cooperation can be reached by members from different organiza‐ tions and how multi‐functional operations can be coordinate to achieve their mutual goal.

**Figure 3.** Connection between SC Management and BSC.

Since 1998, with the condition of new economics which was represented by information technology, BSC has the ability to promote enterprises to expand and grow and has been vigorously applied in strategy management. Before BSC was invented, there was no standard framework or systematic theory about SC performance evaluation methods. Application of BSC exactly covered this shortage. Brewer and Speh were the first ones to explore how to apply BSC in SC performance and proposed a new tool to evaluate SC performance, SC balanced scorecard (SCBSC). Based on SC business processes, SCBSC start from enterprise strategy and can be used to evaluate enterprise operation performance comprehensively by linking performance indicators and enterprise strategy together. As a result, core competitiveness of the enterprise is fostered. Framework of SC performance was connected to the four dimensions of BSC by Brewer and Speh so that basic structure of SCBSC was defined (**Figure 3**) [17].

**Figure 2.** Relations of Balanced Scorecard and Enterprise Vision.

158 Sustainable Supply Chain Management

**Figure 3** shows that, Brewer and Speh set up a connection framework between SCM and BSC. SC performance management including four aspects: (1) goal of SC management, (2) customer profit, (3) financial benefits, (4)SC improvement. There is a one‐to‐one correspondence between chain performance management and 4 aspects of BSC [17]. For example, the ability of a SC to fulfill its goal can be revealed from its inner operation. Emergence of SCBSC is a breakthrough in SC performance evaluation. Beforehand, BSC and SCM were seen as two separate management tool. Employees are incented to work correctly under the background of SC concept when managers aware that evaluation process of BSC can be adopted into SC

**1.** SC itself is a combination of multi departments or multi organizations. Its executive performance must be reached by the members working together from inside and outside of an organization. The causal relationship of 4 aspects of BSC makes a clear description about how an effective cooperation can be reached by members from different organiza‐ tions and how multi‐functional operations can be coordinate to achieve their mutual goal.

Thus, advantages of SCBSC can be further indicated as follows [17]:

performance evaluation [17].

Some indicators of the 4 aspects were proposed to reflect goals and tasks of different SCBSC angles. These indicators are not comprehensive even deficient for some specific SCs. Most of the indicators are rarely used in BSC, instead, they are more maneuverability in the diagnosis level.

#### *4.3.1. Internal business aspect*

An outstanding process decision of an organization will generate outstanding customer performance, which means optimizing internal business process is very crucial for an enter‐ prise. Combining internal business process, finance, and customer goal, SC should focus on two kinds of brand new internal business process operation [17]:(1) to rationalize existing relationship of each member in each process and shorten operation process cycle while reducing cost. α(12)Forecast and respond to customer demand. SC operation should not be confined to a short‐term point of view but should develop market and make product innova‐ tion so that customers can be attracted.

#### (1) Product improvement and innovation process evaluation [16–19]

In a traditional SC, R&D is considered to be some kind of a subsidiary or a support to a business rather than a fundamental factor to determine pricing. The existing problem is that, on the one hand, the input–output relationship is ambiguous, on the other hand, there is insufficient attention paid to product innovation and product development and design are neglected. However, serving as a long‐term influence factor to SC value, R&D is necessarily to be evaluated. Indicators including ratio between new product sales and total sales, time that need to develop new product and percentage of first time designed product that can meet all the requirements of customers.

#### (2) Operation process evaluation [16–19]

Operation process is a short‐cycle process, which contains all the contents starting from receiving customer orders and ending at putting the product on sale or offering service. Detailed evaluation indicators consist of efficiency of SC effective leading time, flexibility of SC production time, target cost reaching rate, SC operation quality, and perfect order com‐ pletion rate.

#### *4.3.2. Customer aspect*

One of the main goals of SC management is to provide its customer persistent and stable profit. Therefore, one core of SC management is customer management, which means fully under‐ standing customer demand and evaluating to what extent the customer demand has been satisfied. Customers are mainly concerned with four aspects [17]: time, quality, function, and service cost. The total circulation time of SC order fulfillment can measure the time that SC needs to meet the customer demand.  Function and service costs are significant factors to maintain customers and attract new customers. In addition to these aspects, customers are very sensitive to their product cost. During transaction process, product price is only part of cost, transaction cost that happened when dealing with suppliers is also part of cost. When chosen, these indicators mainly reflect customer demand. Indicators are not only those that reveal customer value or customer feedback but also can be those that reveal some specific aspects such as service quality, flexibility, and cost.

#### (1) Total circulation time of SC order fulfillment [16–19]

This indicator evaluates overall respond time to customer orders of a SC, which includes ordering and receiving time, time of placing material to production, time of goods from production until ready to be delivered, time of goods delivered and customer signing receipts, and time of customer confirming that goods have been received.

(2) Customer maintenance rate [16–19]

two kinds of brand new internal business process operation [17]:(1) to rationalize existing relationship of each member in each process and shorten operation process cycle while reducing cost. α(12)Forecast and respond to customer demand. SC operation should not be confined to a short‐term point of view but should develop market and make product innova‐

In a traditional SC, R&D is considered to be some kind of a subsidiary or a support to a business rather than a fundamental factor to determine pricing. The existing problem is that, on the one hand, the input–output relationship is ambiguous, on the other hand, there is insufficient attention paid to product innovation and product development and design are neglected. However, serving as a long‐term influence factor to SC value, R&D is necessarily to be evaluated. Indicators including ratio between new product sales and total sales, time that need to develop new product and percentage of first time designed product that can meet all the

Operation process is a short‐cycle process, which contains all the contents starting from receiving customer orders and ending at putting the product on sale or offering service. Detailed evaluation indicators consist of efficiency of SC effective leading time, flexibility of SC production time, target cost reaching rate, SC operation quality, and perfect order com‐

One of the main goals of SC management is to provide its customer persistent and stable profit. Therefore, one core of SC management is customer management, which means fully under‐ standing customer demand and evaluating to what extent the customer demand has been satisfied. Customers are mainly concerned with four aspects [17]: time, quality, function, and service cost. The total circulation time of SC order fulfillment can measure the time that SC needs to meet the customer demand.  Function and service costs are significant factors to maintain customers and attract new customers. In addition to these aspects, customers are very sensitive to their product cost. During transaction process, product price is only part of cost, transaction cost that happened when dealing with suppliers is also part of cost. When chosen, these indicators mainly reflect customer demand. Indicators are not only those that reveal customer value or customer feedback but also can be those that reveal some specific aspects such as service quality,

This indicator evaluates overall respond time to customer orders of a SC, which includes ordering and receiving time, time of placing material to production, time of goods from

tion so that customers can be attracted.

160 Sustainable Supply Chain Management

requirements of customers.

pletion rate.

*4.3.2. Customer aspect*

flexibility, and cost.

(1) Total circulation time of SC order fulfillment [16–19]

(2) Operation process evaluation [16–19]

(1) Product improvement and innovation process evaluation [16–19]

Persistent profit of a SC comes from the core customer. If a SC wants to remain or increase market share, the most convenient thing to do is to maintain existing customers, try to manage relationship with customers and satisfy customers as much as possible. Customers should be allowed to participate in production design and development so that they will become a lasting profit source. In addition to keeping existing customers, customer loyalty should be analyzed during SC management. Of course, if an enterprise wants to gain more profit, constantly strategy of expanding customer scope should be made on the basis of existing customers.

#### (3) Customer acceptance to SC respond flexibility [19]

This indicator is used to evaluate the acceptance degree of SC customization and respond flexibility.

(4) Customer sales growth and profit [16–19]

It is shown as SC product annual customer sales increment and profit rate. These kind of indicators mainly reflect performance of three aspects of downstream of the SC: (1)annual sales growth year by year, (2)if profit of service provided to special customer will increase as partnership enhanced, (3)if service accepted base is increasing. Expanding sales and attracting new customers are both new profit increase points.

#### *4.3.3. Financial Aspect*

Although SC evaluation is process‐oriented and focus on nonfinancial indicators, financial still is the center of SCBSC, which means final success of a SC should also be a financial one. Achieving operation goal by greatly lower cost and increase marginal income ratio so that cash flow is optimized and more profit will be gained, at the same time, a higher capital recovery ratio will be gained. Improved performance in the other three aspects can guarantee a long‐ term benefit in the financial aspect, hence, optimizing this aspect of a SC is still a priority.

(1) Capital return rate of a SC

Divide customer profit by the average used assets of the SC during a period of time, and capital return rate can be calculated, which reflects degree of value‐added of the asset.

#### (2) SC profitability

This indicator shows profitability of a SC and is an important indicator in evaluating financial performance. By measuring the ratio between net profit and total income, SC profit can be effectively calculated so that overall performance of a SC will be promoted to improve. Therefore, evaluating this indicator will help an enterprise to have a clear understanding about finance contribution rate of the SC.

#### (3) Cash turnover ratio

Cash turnover ratio is a key indicator which links all the processes of a SC. It mainly evaluates cash flow condition of all the processes including raw material, labor, WIP, finished goods, and profit gained of the SC.

#### (4) SC total inventory cost

In a SC, inventory cost includes raw material cost, WIP cost, finished product cost as well as in‐transit inventory cost [2]. Nowadays, due to the more and more demanding customer requirements, inventory management becomes more and more important to lower SC cost.

#### (5) SC inventory days

SC inventory days indicate the days that capital are occupied as inventory in SC operation.

#### *4.3.4. Innovation and learning aspect*

There are mainly three sources for innovation and growth: talents, system, and organization procedure [2]. In these three aspects, the goal of BSC is to reveal the gap between existing talents, systems, procedures, and the required ability to accomplish breaking performance [2]. SC's sustainable competitiveness is directly correlated with SC's future development ability. In the evaluation model, finance evaluation, customer evaluation, and inner business process evaluation are mainly to analyze current competitiveness of the SC, but the goal of success is changing constantly, and SC performance must be capable of indicating sustainable compet‐ itiveness. A SC has to make continuous improvement and innovation, explore and integrate internal and external resources of the SC while improving existing procedures, product/service quality, and new product develop ability due to the increasingly tough global competition. SC improvement and innovation are a dynamic process. Each SC needs to pay attention to potential threats and opportunities in external market at any time and redefine core value. This includes redesigning products and its processes through SC integration, effective regulation on interorganizational activities as well as continuous improvement in SC information process management, and SC partners can all share precise information that are needed for decision‐ making. The following indicators are chosen.

#### (1) Profit growth rate

Profit growth rate indicates development potential of an enterprise. Difference between profit of current period and previous period divided by profit of previous period is profit growth rate.

#### (2) Information sharing degree

It is believed by most scholars that "bullwhip effect" can be avoided by information sharing from upstream and downstream so that SC performance can be improved [2, 11–12]. Sales, forecast data, and technology data are shared by members of dynamic alliance to prevent information distortion, improve customer feedback efficiency so that supply and demand can be connected, coordinated, and be quickly responded.

(3) New product research and development cycle

This indicator consists of two aspects, one is the ability of replacing product and the other one is the ability of innovating processes. The ability of replacing product includes new product quantity, product technology reservation, and patent application. The ability of innovating processes is understanding about individual demand tendency of customer of the SC and on the basis of which to adjust processes. This innovation include not only restructuring process but also selecting the superior member and eliminating the inferior member.

#### **4.4. The SC operations reference model**

Cash turnover ratio is a key indicator which links all the processes of a SC. It mainly evaluates cash flow condition of all the processes including raw material, labor, WIP, finished goods,

In a SC, inventory cost includes raw material cost, WIP cost, finished product cost as well as in‐transit inventory cost [2]. Nowadays, due to the more and more demanding customer requirements, inventory management becomes more and more important to lower SC cost.

SC inventory days indicate the days that capital are occupied as inventory in SC operation.

There are mainly three sources for innovation and growth: talents, system, and organization procedure [2]. In these three aspects, the goal of BSC is to reveal the gap between existing talents, systems, procedures, and the required ability to accomplish breaking performance [2]. SC's sustainable competitiveness is directly correlated with SC's future development ability. In the evaluation model, finance evaluation, customer evaluation, and inner business process evaluation are mainly to analyze current competitiveness of the SC, but the goal of success is changing constantly, and SC performance must be capable of indicating sustainable compet‐ itiveness. A SC has to make continuous improvement and innovation, explore and integrate internal and external resources of the SC while improving existing procedures, product/service quality, and new product develop ability due to the increasingly tough global competition. SC improvement and innovation are a dynamic process. Each SC needs to pay attention to potential threats and opportunities in external market at any time and redefine core value. This includes redesigning products and its processes through SC integration, effective regulation on interorganizational activities as well as continuous improvement in SC information process management, and SC partners can all share precise information that are needed for decision‐

Profit growth rate indicates development potential of an enterprise. Difference between profit of current period and previous period divided by profit of previous period is profit growth

It is believed by most scholars that "bullwhip effect" can be avoided by information sharing from upstream and downstream so that SC performance can be improved [2, 11–12]. Sales, forecast data, and technology data are shared by members of dynamic alliance to prevent information distortion, improve customer feedback efficiency so that supply and demand can

and profit gained of the SC.

162 Sustainable Supply Chain Management

(4) SC total inventory cost

(5) SC inventory days

*4.3.4. Innovation and learning aspect*

making. The following indicators are chosen.

be connected, coordinated, and be quickly responded.

(3) New product research and development cycle

(1) Profit growth rate

(2) Information sharing degree

rate.

In 1996, in order to help enterprises to implement a more effective SC and to transit from function management to process management, two consulting companies from Boston, America, Pittiglio Rabin Todd & McGrath (PRTM) and AMR Research (AMR) led to the establishment of SC Council (SCC), and illustrated the SC operations reference model (SCOR) in the very year. This model integrated well‐known business process reengineering (BPR), benchmarking and process measurement, and a multifunctional SC performance evaluation system was constructed. Currently, SCOR model has been released in eight editions, which are the first standard SC operation reference models that can served as diagnose tool of SC and covers all the industries.

**Figure 4.** SC Operations Reference‐Model.