Exam 2 - SCM 406

Getting to Know Your Supplier Chain: provide incentives for identifying, disclosing, and addressing problems

-Chinese suppliers often don't see the need to disclose an environmental problem -effectiveness of audits (no improvement in performance and bribery) -to promote Chinese suppliers to look for and disclose deficiencies themselves -Nike and Levi Strauss cases*

Globalization Overview: Did you know that?

-95% of the world's population lives outside the US -80% of the world's GDP is produced beyond America's borders -India's middle class is larger than Americas

Characteristics of Sustainability Leaders

-CEO commitment to (S) -a separate function of (S) ---CSO -a separate (S) reporting process ---operational key performance indicators tied to (S) such as energy & water use, waste generation, sales of environmentally innovative products, etc. ---executive pay is tied to performance of financial AND non-financial measures ---a link between (S)and financial incentives ---Global Reporting Initiative (GRI) -long term goals

CSR in the Supply Chain

-CSR is no longer the individual company's domain; increasingly, it encompasses the entire supply chain -global competition places a particular pressure on MNCs to examine not only their own labor practices, but those of the entire supply chain -MNCs are increasingly working with their suppliers to comply with social and environmental standards

CDP

-Carbon Disclosure Project -helps organizations and their suppliers capture data on climate change, water, and forests management -collects info and makes it available to all

U.S. 15 Biggest Trading Partners Graph

-China, Canada, Mexico, Japan, and Germany -China exports 4x the amount we import (PROBLEM) -we must think in the long-term for a solution to lessen this gap

Getting to Know Your Supplier Chain: make use of improving Chinese government data to augment internal supply chain transparency efforts

-Chinese govt's efforts measure more ACCURATELY environmental problems and progress -if reliability of data increases, buyers would use that as a second info about partners and potential partners

Sustainable Procurement: contracts

-Chrysler: supplier minority program that covers tier 1/2 suppliers -HP: RBA (responsible business alliance) code of conduct -Patagonia: private supplier code of conduct -contracts are used to keep suppliers accountable for what they agreed on -code on conduct can be individual or industry-wide (RBA is for tech companies)

Sustainable Procurement: the setting of sustainability goals

-Coca Cola and Chrysler: supplier minority program that covers tier 1/2 suppliers -J&J: requires that its top suppliers set 2 public (S) goals depending on their processes -Walmart, Loreal, and Apple: demand that their suppliers report their carbon emission through a global platform (CDP) -help suppliers analyze their own risks and suppliers will develop their own (S) goals

Who are the Leaders in Sustainability?

-Europe -North America -Australia/New Zealand

CSR Example Apple-Foxconn

-Foxconn's suicides are a reminder of the human cost that can come with the low-cost manufacturing US tech companies demand -unsafe working conditions -overtime exceeds Chinese laws -no green product -human right violations -illegal student workers in Foxconn plants

Achieving Excellence in GS: what are the major differences between international purchasing and global sourcing?

-IP: a transaction; you have a need and you find a supplier -GS: integration with a supplier

Sustainable Procurement: development of "green" products and packaging

-Kimberly Clark: goal is to have 25% of sales coming from green products -Starbucks: improved the life cycle value of disposal coffee cups 0 -Dell: new compostable packaging made from bamboo and mushrooms -Walmart: provide carbon footprint info on products

Worldwide Trade War

-NAFTA contract allows products to be moved between Canada, US, and Mexico with no costs -Trump imposed tariffs on most countries

CSR Example Deloitte in South Africa

-Project Siyakula is run by trainee accountants employed by Deloitte across South Africa to help disadvantaged pupils from townships to learn skills in accounting and mathematics -Reults: assisted more than 1000 students in 2008

Sustainable Procurement: supplier selection and evaluation

-TaTa Group: ISO 14000 certification -Walmart: suppliers are evaluated on energy and climate, material efficiency, nature and resources, and community -IKEA: potential suppliers should commit to not using child labor in their operations

US China Trade War

-Trump posed a tariff at $34B for Chinese products -customers pay tariffs -tech companies are heavily impacted, you are now buying more expensive products -What would you do as a tech company? ---reach suppliers in other countries with the same capabilities

International Trade Gap Graphs

-US map: imports > exports ; we buy more products than we sell -EU map: imports = exports ; ideal situation -China map: exports > imports ; even better situation ; they sell more than they buy (a lot of nations depend on China)

CSR Example Nike-Hytex

-Vietnam 1996: violation of minimum wages and overtime laws -Cambodia and Pakistan 1990s: child labor -Malaysia 1998: squalid living conditions and forced labor -2005: its president publicity apologizes and announced several longterm measures to improve working conditions at Nike supplier factories -2009: suppliers are being audited

Be Proactive: Code of Conduct

-a document stating a number fo social and environmental standards that a firm's suppliers are expected to fulfill (introduced in contracts) -how to make it effective? there is a gap btwn the ethical standards expressed in the code and the actual conditions of the supplier -Example: Inditex ---how a company "demands" certain practices versus how they "develop" these requirements together with suppliers ---partnerships with the Ethical Training Initiative (NGO) ---code of conduct

Sustainalytics

-a global provider of environmental, social, governance (ESG) and corporate governance data, research, and analysis

Oekom Research AG

-a provider of information on the social and environmental performance of companies, sectors, and countries

Getting to Know Your Supplier Chain: collaborate with non-governmental group (NGO) to facilitate monitoring and help suppliers self-identify problems

-a shift from adversarial to collaborative relationships -evaluation and monitoring of second-tier suppliers -Timberland case: Beijing-based Friends of Nature and Institute of Public and Environmental Affairs (IPE) -Apple case: In 2003, 59/200 biggest suppliers were reporting in the IPE database with 114 violations

Globalization Overview: From a buyer's perspective

-access to goods and services worldwide -cost benefits in terms of materials, labor, etc. `

Why is Sustainability Important?

-enhanced company image and goodwill ---gain legitimacy ---build a strong (S) brand reputation -competitive advantage ---increased profit, growth and market share ---a source of innovation -customer loyalty -employee engagement ---higher employee retention and satisfaction ---lower costs of recruiting, retention and training

MSCI ESG Ratings

-aim to measure a company's resilience to long-term, financially relevant ESG risks -helps companies based on the material risk int he sector and geography, and company size

RobecoSAM

-assesses the (S) performance of companies ratings are used in the Dow Jones (S) Index

Getting to Know Your Supplier Chain: encourage environmental transparency as an efficiency tool

-buyers with more knowledge can design a better supply chain

Cost: trade off

-common to both global and domestic sourcing -direct labor materials decrease -lead time, transportation, inventory increase

5 Risks of Global Sourcing

-communication and cultural barriers -pipeline inventory issues -quality issues -distance -staffing

Going Beyond a Firm's Four Walls

-companies are responsible for the (S) of their suppliers

Risk: quality issues

-companies may have to increase their quality control processes and supplier audits, which consume more financial resources -most companies select suppliers with quality in mind

Achieving Excellence in GS: what drives companies to move from domestic to international purchasing?

-competitors abroad have an advantage (lower cost) -the raw materials needed are abroad -currency exchange rates

Drivers of Sustainability

-consumers prefer (S) products/services -legislative/political pressure -resource scarcity -competitors increased commitment to (S) -stricter requirements from partners along the supply chain

Criticisms and Concerns of CSR

-corporations are ONLY responsible to their shareholders and not to society as a whole -some corporations start CSR programs for the COMMERCIAL BENEFIT they enjoy through raising their reputation. However, these programs distract the public form ethical questions posed by companies' core operations -companies claim to promote CSR and be committed to sustainable development but simultaneously engage in harmful business practices -better governmental and international regulation and enforcement, rather than voluntary measures, are necessary to ensure that companies behave in a socially responsible manner

benefits of global sourcing

-cost/price -availability -competition to domestic sources -presence in foreign market -access to technology -quality

Risk: pipeline inventory issues

-delays -disruptions -ex: natural disaster

3 Pillars of Sustainability

-economic -environmental -social -implementation is the base and (S) is the roof

Top Risks for CPOs

-economic downturn and deflation -internal complexity -managing complexity risk with mega-suppliers -trade war -managing digital transportation

Quantitative Elements Associated with Global Sourcing

-exchange rate uncertainties -direct cost of importing goods (transportation and transaction costs) -indirect cost of important goods (utilization of fixed assets, pipeline inventories, managerial time, engineering support)

Cost: foreign cost

-exclusively global sourcing costs -duty charges -customs fees -import fees -currency exchange

Achieving Excellence in GS: characteristics of outstanding GS

-executive commitment to GS -rigorous and well-defined processes -availability of needed resources -integration through information technology -supportive organizational design -structured approaches to communication -methodologies for measuring savings

currency exchange rates

-extremely important to consider with GS because foreign purchases may cost more or less depending on fluctuations in the currency markets -since it is difficult to predict, it is important to evaluate the performance of the dollar over the length of the contract -if it is weak, the final cost of the goods tends to be relatively more than originally agreed upon -if it is strong, a firm can realize savings through exchange rates -buy more when the dollar is stronger even if the price doesn't change

Risk: staffing

-firms must either hire experts or develop specialists who have experience in global purchasing mgmt, quality control, international business law, and accounting -we have to work closely with others

Globalization Overview: From a seller's perspective

-global brands is the present -the creation of market segments that cross geographical and cultural boundaries --> increased competition -the market for China and India are huge

Cost: administrative cost

-higher in global sourcing -identification -qualification -travel -brokers fee -costs of selecting a supplier

US Trade with China Graph

-how can we reduce the trade deficit? ---tariffs ---developing our own capabilities in the US BUT US labor is expensive (no one wants to work in factories) ^ obstacles of closing the gap

Pillar: Environment

-impact of business on the quality and quantity of natural resources -improved pollution and emissions management -minimize waste, emissions, pollution, etc. -reduction in energy consumption -investment in clean technologies -recycling

Risk: communication and cultural barriers

-important info can get lost or altered in translation -companies may not understand business norms across cultures -bribery

Improving Environmental Performance in Your Chinese Supply Chain: facts

-in July 2011, Greenpeace International singled out Nike and Adidas for doing business with a big Chinese textile group found to be discharging toxins into a local river -In July 2009, Friends of Nature detected that two major material Chinese suppliers of Timberland violate levels of pollution standards -how can MNCs avoid such embarrassments?

Achieving Excellence in GS: What are the differences between level 4 and 5?

-in level 5, integration occurs not only among worldwide buying locations but also cross functional groups -in level 5, they work to standardize their supply management processes and practices worldwide

Be Proactive: Collaboration

-international and local authorities: the United Nations, the International Labor Organization -NGOs: IPE, FLA, Unicef, etc. -suppliers, customers, and competitors -Example: Volkswagon ---partnerships with ILO and GTZ in 2004 ---VW employed teams of consultants, factory inspectors, and planners to address health and safety issues in its supply chain ---VW created cross interdisciplinary teams

Global Sourcing (GS)

-it is a practice of sourcing from the global market for goods and services worldwide -many organizations strategically deploy global sourcing to remain competitive and survive in today's competitive markets -choosing global suppliers is different than choosing local ones

barriers of global sourcing

-lack of skills -culture, customs, language -currency fluctuations -increased supply risk (corruption, politics, natural disasters) -longer lead times -resistance to change

Sustainable Procurement: sustainability scorecard

-main issue is the accuracy of the scorecard -implementation is difficult -environmental, social, and economic indicators

How to Implement CSR? Be Proactive

-map your supply network -identify where problems/opportunities might be -evaluate alternatives: what is the social, environmental, and economic impact of each alternative? -use companies tools and policies ---collaboration ---training (buyers and suppliers) ---code of conduct (terms of conditions in contracts) ---supplier self assessment tools (company or industry) ---supplier (S) databases provided by 3rd parties (smelters) ---supplier (S) scorecard -continually measure performance of any initiative

What is Sustainability?

-meeting the needs of the present without compromised the ability of future generations to meet their own needs

Getting to Know Your Supplier Chain: work with multibrand forums to standardize Chinese supplier audit data at first-tier and lower-tier suppliers

-multibrand forums to create STANDARDIZED social and environmental audit protocols -FLA is creating a standardized audit for EHS and labor compliance and a database with relevant info

Summary of CSR

-organizations are not only responsible for environmental and social practices within their own premises, but increasingly also for the environmental and social performance of their suppliers, and ultimately the entire supply chain -organizations should pursue broader structural changes and take a holistic approach to make environmental and social practices a reality -organizations should promote: ---internal practices including employee training, creation of employee volunteering opportunities, sharing experience among employee groups, etc. ---external practices including training of personnel at the supplier facilities, fostering incentives for suppliers in terms of long-term contracts and enlarged volume if they implement codes of conduct, regular plan audits, etc.

Improving Environmental Performance in Your Chinese Supply Chain: getting to know your supplier chain

-provide incentives for identifying, disclosing and addressing problems -collaborate with NGOs to facilitate and help suppliers self-identify problems -make use of improving Chinese govt data to augment internal supply chain transparency efforts -work with multibrand forums to standardize Chinese supplier audit data at first-tier and lower-tier suppliers -encourage environmental transparency as an efficiency tool

EcoVadis

-provides environmental, social, and ethical performance ratings for global supply chains and purchasers -suppliers fill out their environmental survey with evidence

Sustainable Procurement: development of inter-firm processes

-reusable pallets/containers ---Hershey: removed a lot of plastic from their supply chain -recycling programs ---Phillips: helped Chinese suppliers implement a recycling program

Sustainability on Managers' Agendas Chart

-skyrocketed after 2005

Sustainable Procurement: sustainability supplier award

-suppliers feel a lot of pressure because we are constantly asking them for more -to incentivize them, there are rewards -competitors of the winner to try to win the award the next year

Companies Doing Well by Doing Good

-the development of greener cups (MIT) and promotion of reusable cups -the CAFE program: ---workers pay has to meet minimum wage levels ---adequate health, safety and living conditions for workers ---prohibitions on child labor ---limits on agricultural chemicals ---Starbucks buys first from certified farmers and suppliers and pay premium price to top scores and those who show continual improvement -Loan Programs: ---Starbucks offers loans to farmers trying to achieve high scores and provides training and support to ones failing to do so -Supplier Diversity Program: ---by seeking out women and minority-owned businesses to purchase form and by promoting outreach projects sponsored by Women's Business Enterprise Council and National Minority Supplier Development Council -Results: ---Starbucks has locked in high-quality suppliers that are environmentally and socially responsible and that are willing to continuously improve

What is Corporate Social Responsibility (CSR)?

-the idea that organizations have an obligation to society that extends beyond compliance with regulations/laws -CSR means that a company's business model should be socially responsible and environmentally sustainable ---activities should benefit society ---activities should not harm the environment -goal: to embrace responsibility for the company's actions and encourage a positive impact through its activities on the environment, consumers, employees, communities, etc.

Qualitative Elements Associated with Global Sourcing

-the impact of national interest (when we outsource, we don't create jobs in the US) -the ethical consequences of "sweat shop" labor (we know conditions are bad but we do it anyways) -hazardous working conditions in foreign countries should be evaluated

Risk: distance

-time zones and physical location -internet capabilities are a partial solution, but face-to-face contact is preferred over sensitive issues

Be Proactive: Training

-to organize courses and workshops in health and safety, social responsibility, environmental mgmt, etc. -to promote cross-functional teams with your professionals and those of your suppliers -to foster supplier visits -Example: Starbucks' Support Centers ---established Farmer Support Centers to help local farmers with the resources and expertise that help lower production cost, reduce fungus infections, improve coffee quality, etc.

Procurement Implications of GS

-to search, evaluate, and work with suppliers around the world -to develop efficient operations and maintain controlled risks with these suppliers -to keep cost down!

3 costs of global sourcing

-trade off -administrative costs -exclusive global sourcing costs

Social Concerns in the Supply Base

-use of child labor -dangerous working conditions -excessive working hours and poor wages -union rights -race and gender discrimination -supplier diversity

Achieving Excellence in GS: 5 levels of sourcing

1. domestic only 2. international as needed 3. international as part of sourcing strategy 4. GS strategies integrated across worldwide locations 5. GS strategies integrated across worldwide locations and functional groups

6 ways to make sure your Suppliers are Sustainable

1. supplier selection and evaluation 2. sustainability scorecard 3. the development of "green" products/inter-firm processes 4. the setting of sustainability goals 5. sustainability supplier awards 6. contracting and tendering

Improving Environmental Performance in Your Chinese Supply Chain: 7 Ways to Act on Knowledge from Improved China Efficiency

1. to encourage the TRAINING of more Chinese environmental professionals 2. to put skin in the game (Nike) 3. to learn from your suppliers and facilitate learning among suppliers 4. to collaborate with other buyers to drive change in your common suppliers 5. to find like-minded buyers with whom to build collaborative auditing and remediation processes at shared factories 6. to reach lower-tier suppliers 7. to tailor programs to local realities

Why CSR is Important?

Potential Benefits: -reputation enhancement -creation of trust among customers, NGOs, investors -recruiting high quality employees -charging a premium price

Can smaller companies with fewer resources implement (S) too?

YES - My Green Pizza -pizza from organic ingredients and local farmers -charges a higher price -key processes: product design, operations and supply mgmt ---product design: "ingredient philosophy" which stipulates that the ingredients in their products must be both all-natural and genuine ---purchasing: buying locally grown produce creates supply variability. the company pays significantly above market prices for produce to guarantee both quality and supply. ---operations: the company tries to reduce energy use in pizza delivery, packaging and restaurant operations