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Supply Chain Chapter 4: Ethical & Sustainable Sourcing

Terms in this set (22)

Strategic Sourcing
Managing the firm's external resources to support a firm's long term goals.
Drivers of Strategic Sourcing
- Reduce costs & delivery cycle times
- Improve quality & long-term financial performance
- Increase number of global competitors
- Increase customer focus
- Reduce high costs of globalization & materials
- Deliver more innovative products more frequently & cheaply than competitors
Ethical and Sustainable Sourcing Strategies

Business Ethics

Corporate Social Responsibility
Business Ethics is the application of ethical principles to
business
- Utilitarianism (greatest good for greatest number of people)
- Rights and duties (recognize rights of others and the duties
those rights impose on your actions)

Corporate Social Responsibility is the practice of
business ethics in a corporation
Ethical Sourcing
- Ethical Sourcing is that which attempts to take into account the public consequences of organizational buying or bring about positive social change through organizational buying behavior.
§ Promote diversity
§ Promote good working conditions
§ Promote environmental protection
Ethical Policies should include -
- Determining where all purchased goods originated and the manner in which they were made
- Knowledge of the suppliers' workplace principles
- Inclusion of ethics as a performance rating
- Independent verification of vendor compliance
- Report of supplier compliance to stakeholders
- Provision of detailed ethical sourcing expectations to suppliers
Ethical Trading Initiative Base Code
1. Employment is freely chosen (no forced labor)
2. Freedom of association & collective bargaining
3. Safe and Hygienic working conditions
4. No child labor used
5. Living wages are paid
6. Working hours are not excessive
7. No discrimination (hiring, wages, opportunity)
8. Regular employment is provided
9. No harsh or inhumane treatment
Sustainable Sourcing
a process of purchasing goods and services that takes into account the long term impact on people, profits and the planet.
Green Purchasing

Sustainability
- Green purchasing is aimed at ensuring products or materials meet environmental objectives <energy conservation, waste reduction, hazardous material elimination, reuse & recycling>

- Sustainability is the ability to meet current needs of the supply chain without hindering the ability to meet future needs in terms of economic, environmental, and social challenges
§ Environmental stewardship
§ Social Responsibility (worker safety, wages, working
conditions, human rights)
§ While making economic sense
Sustainable Sourcing Strategies should seek to
- "Grow revenues"
§ New sustainable product introduction

- "Reduce costs"
§ Increase resource efficiencies, rethink distribution design

- "Manage risk"
§ Link brand to social consciousness of consumer

- "Build intangible assets"
§ Enhance brand through social and environmental
responsibility
Framework for ethical and sustainable sourcing strategy development
Step 1 - Establish corporate ethical and sustainable sourcing strategies

Step 2 - Train purchasing staff and implement policies

Step 3 - Prioritize items based upon ethical and sustainability opportunities and ease of implementation

Step 4 - Develop performance measurement system

Step 5 - Monitor progress and make improvements. Increase use of green and fair trade products

Step 6 - Expand focus to include other departments
Supply Chain Strategy Framework
Step 1: Classify purchased items & their suppliers
Step 2: Define supply chain goals for each item
Step 3: Identify capabilities & improvement opportunities
Step 4: Develop work plans linked to goals
Step 5: Execute plans to achieve results
Step 6: Monitor progress & make adjustments

Strategies of "squeezing" suppliers for a lower price hurts TCO
Supply Base Rationalization
Supply base rationalization (supply base reduction or
supply base optimization) is often the initial supply chain management effort
Buyer-supplier partnerships are easier with a rationalized supply base & result in -
- Reduced TCO (lower price, lower supply costs, improved quality)
- Fewer supplier management problems
- Closer & more frequent interaction between buyer & supplier
- Greater levels of quality & delivery reliability
Early Supplier Involvement is a highly effective supply chain integrative technique
1. Key suppliers become more involved in the *internal
operations* of the firm, particularly with respect to
new product & process design, concurrent engineering & design for manufacturability techniques.

2. These value engineering activities help the firm to
*reduce cost, improve quality & reduce new product
development time.*

3. Supplier *locks in their role and future business in the
new product*
Vendor Managed Inventories (VMI)
Suppliers manage buyer inventories to reduce inventory carrying costs & avoid stockouts for buyer.
From the buyer-firm's perspective

Supplier's perspective
From the buyer-firm's perspective:
- Supplier tracks inventories
- Determines delivery schedules and order quantities
- Buyer can take ownership at stocking location.

From the supplier's perspective:
- Avoids ill-advised customer orders
- Supplier decides inventory set up & shipments
- Opportunity for supplier to educate customers about other products.
Strategic Alliance Development
Alliance development, an extension of supplier development refers to increasing the firm's key or strategic supplier's capabilities.
Supplier alliances result in:
Supplier alliances result in:
•better market penetration
•access to new technologies & knowledge
•higher return on investment
•Collaboration resulting in mutual benefits

Alliance development eventually extends to a firm's
second-tier suppliers, as the firm's key suppliers begin
to form their own alliances.
Rewarding Supplier Performance
Rewarding suppliers provides an incentive to *surpass
performance goals.*

Punishment, a negative reward, may be to reduce future
business; or )a bill-back amount equal to the incremental costs resulting from a late delivery or poor quality.

*Strategic supplier agreements can reward suppliers
by allowing:*
- A share of the cost reductions (from collaboration)
- More business and/or longer contracts (for performing)
- Access to in-house training seminars & other resources
- Company & public recognition (awards)
The purchasing function is one of the most value enhancing functions in any organization
- A firm must periodically monitor the purchasing function's performance against set standards, goals, and/or industry benchmarks.

- Surveys & audits can be administered as self-assessments among purchasing staff as part of the annual evaluation process.

- 3rd party firms can audit or even take over the purchasing function (Outsource)
Skill set requirements of purchasing professionals have been changing. Purchasing personnel must today exhibit world-class skills such as
1. Teamwork
2. Leadership
3. Interpersonal communication
4. Analytical skills
5. Negotiation skills
6. Customer centricity
7. Influencing & persuasion skills
8. Understanding broad business conditions
Benchmarking

Best Practices
Benchmarking - comparing what you do to other businesses that do it best and implementing changes to improve
Normally looking at statistics (TAT, cost, productivity
measures)

Best Practices - copying what other businesses do best and
implementing in your organization
Watch for culture and organizational fit
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