Ethics Final - Chapter 17

Integrated supplier scorecards rate suppliers on multiple dimensions: *Traditional - such as ? *Newer - such as ?

*cost, quality, and timelines *social, ethical, and environmental performance

Firms invest in supplier social responsibility in order to:

- Create a positive customer image and enhance brand equity - Reduce costs - Satisfy government regulations - Avoid disruptions - Increase sales - Allay public criticism

Reasons a company might not switch suppliers:

1) A supplier may have critical capabilities. 2) The lead firm may feel a moral obligation to the workers and local community not to cause job loss. 3) Other suppliers may not be readily available to take over the contract.

Impacts of Supply chain transparency:

1) Can enhance brand loyalty among consumers concerned about social, ethical, and environmental responsibility. 2) Technology increasingly makes this possible at the point of purchase. 3) Consumers can see how and where a product was made in startling detail.

Top 3 social and environmental responsibility issues that are most important?

1) Health and safety 2) Ethical issues 3) Product integrity

Choices in carrying out a supply chain audit:

1) Internal audit 2) External audit or a third-party audit

Reasons for Private Regulation

1) Lack of jurisdiction of home country governments 2) Weak regulatory capacity in developing countries 3) Limited enforcement power of transnational institutions

Private governance is most likely to emerge in global supply chains under several conditions:

1) Large lead firms have leverage over smaller suppliers 2) Firms and products have highly visible brands *Therefore more vulnerable damaging their reputation 3) Civil society is exerting pressure for responsible practices *example = Campaigns, boycotts, or shareholder resolutions 4) A strong business case can be made for social and environmental responsibility.

Most suppliers share an interest in obtaining orders that will enable them to:

1) Make money 2) Use their productive capacity efficiently 3) Build long-term, stable relationships with business customers

Drawbacks of audits:

1) On-site inspections are expensive and time-consuming *therefore cannot be scaled to cover a brand's entire supply chain. 2) Audits are not always unannounced *in many cases, suppliers receive advance notice and are able to stage conditions to pass the inspection. 3) Workers sometimes distrust auditors, not knowing if the inspectors represent the supplier, the brand, or an independent third party *therefore are reluctant to share their experiences.

Nike has introduced a Manufacturing Index which measures and rewards suppliers on four dimensions:

1) Quality 2) On-time delivery 3) Cost 4) Sustainability

Three key issues in global supply chains:

1) Social issues 2) Ethical issues 3) Environmental issues

Business challenges in global supply chains are:

1) To assure that their suppliers pay wages that are perceived as fair 2) To permit workers and their families to achieve a decent standard of livingTerms and conditions of work varies across cultures and economies 3) Finding the right balance can be a challenge (should overtime be permitted) 4) Child labor 5) Worker health and safety in supplier factories

Supplier development may take several forms:

1) Training 2) Joint problem-solving 3) Investing in equipment or infrastructure

Lead Firm Responses to Supply Chain Audits of Social, Ethical, and Environmental Performance:

1. Shared Value 2. Capability Building 3. Monitoring and Remediation

Supplier development

Activities undertaken by companies to improve the performance of firms in their supply chains.

Supplier

An organization that provides goods or services to another organization.

_______________________________________ when a supplier of raw materials, parts, or finished goods contributes to climate change, dumps toxic chemicals, emits air pollution, or reduces biodiversity *This can threaten the reputation of companies at the top of the supply chain.

Environmental issues arise

Example of companies have invested directly in improving the lives and professional skills of their suppliers' workers?

Gap Inc., the apparel retailer, supports a program called Personal Advancement and Career Enhancement, or P.A.C.E.

_______________________________________ among them are the wages, working conditions, and health and safety of employees in supplier factories

Global supply chains have many social impacts

Tier-1 suppliers (sometimes called contractors)

Hired to manufacture products and provide them directly to the company. These may in turn work with

Supply Chain

The multiple steps involved in the movement of a product or service from the most distant supplier to the customer.

Suppliers are an important market stakeholder of business because?

They provide critical inputs. They often manufacture entire products that companies then sell to customers under their own brand.

[True / False] Due to complexity firms sometimes refer to their supply webs or networks, rather than use the term supply chain, which implies a simple, linear relationship

True

[True / False] A company will terminate a supplier, if the supplier is unwilling to change or the deficiencies are egregious. *48% of companies in a recent survey said they would terminate a supplier in certain cases if violations were found.

True

[True / False] A supplier that is a sole source for a key component or natural resource naturally has more leverage than one which is not.

True

[True / False] As the manufacturing supply chain has become increasingly globalized, its regulation has become more fragmented and ineffective.

True

[True / False] Companies have developed organizational mechanisms to resolve differences in priorities internally, and tried to communicate expectations more clearly to suppliers.

True

[True / False] In the absence of effective public regulation, many companies and industries have established rules for their suppliers through their own voluntary supply chain codes of conduct.

True

[True / False] Lead firms decide to engage in capability-building because the cost of switching suppliers may be too high

True

[True / False] Most audits turn up at least some instances in which a company's global operations are not in compliance.

True

[True/ False] Private regulation is also called private governance

True

[True / False] Transnational companies that depend on resources that are farmed, extracted, or mined are particularly at risk for human rights abuses by their suppliers

True *A specific human rights challenge in global supply chains is sourcing minerals and other valuable commodities from conflict zones.

Sweatshops

a derogatory term referring to factories where workers toil long hours, at low wages, and under unsafe conditions

Companies that set up operations in countries with ___________________ , repressive regimes can be caught up in violations of human rights. *Some governments require foreign firms to partner with state-owned companies in order to do business there, adding another ____________-

anti-democratic , level of risk

A lead firm may choose instead to invest time and resources to build the supplier's _________________ rather than ____________ a supplier.

capabilities , punish

Private regulation often takes the form of ____________ and _______________ codes of conduct

company , industry-wide

Internal audit

company hires and trains its own staff of auditors whose job is to inspect factories to determine whether or not they are in compliance.

disadvantage of an external audit (third-party)

company may find that the information is delayed, and it does not directly control the quality of the audit.

Root cause analysis

determine the underlying cause of repeated violations of particular code requirements or standards

Impact on stock prices of ______________________________ will adversely impact operating income, return on sales, and return on assets and firms did not recover quickly

disruptions in companies' supply chains

Suppliers may have both _____________ and ______________ power.

economic , informational

[Supplier Development and Capability Building] Capability-building initiatives work best where interactions between buyer and supplier are ______________ and _________________.

frequent , ongoing

Crowd-sourced audit

gathers information about factory conditions directly from workers using their mobile phones. *workers provide information directly by responding to questions generated by a recorded voice on their mobile phones when they are away from work

External Audit (third-party)

hire another organization to carry out the audit and report back to the company

Common standards improve ________________ , since suppliers are not faced with myriad ________________________

improve , conflicting demands

Advantage of an external audit (third-party)

it is often perceived by stakeholders as more objective and credible.

Some companies have responded to environmental concerns by ________________ and __________________

local sourcing , improve efficiency in their supply chains

Tier-2 suppliers (sometimes called subcontractors)

may in turn work with even more distant suppliers

Common standards reduce the costs of _______________ since brands can share audit results.

monitoring

Supply Chain Auditing

monitors a supplier's performance to determine if it is in compliance with the relevant code of conduct.

Private regulation occurs when companies set ___________________ for themselves and their business partners.

rules of behavior

Local sourcing

seeking to source from nearby suppliers where practical

Companies are working together to audit major suppliers and to _____________

share results

Research shows that when companies invest in suppliers and their employees, exchange knowledge, and collaborate on improvements, they create _________________ that benefits _____________

shared value , both parties

[Supplier Development and Capability Building] Suppliers are more likely to engage when lead firms are prepared to offer them _______________ and ______________ contracts.

stable , long-term

Disadvantage of an internal audit

stakeholders might view reports based on an internal audit as less credible because the company would have an interest in casting itself and its suppliers in a favorable light.

Advantage of an internal audit

the company controls and manages the process. It can determine what factories need to be audited, and learn immediately about any problems uncovered.

Lead firms often categorize their suppliers according to ________, or _______.

tier , level

Suppliers are also known as ____________ or ______________

vendors , contractors

When does audit fatigue occur?

when supplier factories must endure audit after audit conducted by different buyers.

Example of companies and industries that have established rules for their suppliers through their own voluntary supply chain codes of conduct.

Levi Strauss, a U.S. apparel maker

_________________ are one of the main reasons that brands contract with suppliers in developing countries.

Low wages *They reduce overall costs and enable brands to price their products more competitively. *Low wages are not necessarily unethical.

Human trafficking

Modern-day slavery—the illegal recruitment and movement of people against their will, usually to exploit them for economic gain

Private Regulation of the Business - Supplier Relationship

New institutions have arisen to fill the void created by the inability of governments in both developed and developing countries to police the far-flung operations of large transnational corporations and their global supply chains.

Private regulation

Non-governmental institutions that govern, enable and constrain economic activities

supply chain transparency

Occurs when a company's supply chain is fully disclosed to its stakeholders.

Example of Human trafficking

Of the estimated 2.5 million victims of trafficking in the world, about 80 percent are women and girls forced into prostitution

Example of supply chain auditing being used to spare companies from duplicating efforts and incurring unnecessary costs?

Sustainable Compliance Initiative (SCI)

An example of a current trend in Common Industry-wide Standards?

The Electronics Industry Citizenship Coalition Code of Conduct

Example of major transnational firms can have an enormous number of suppliers?

Intel has 16,000 suppliers in 100 countries

Example of a crowd-sourced audit

LaborVoices