Ethical and Sustainable Sourcing

Ethical and Sustainable Sourcing

• Focuses on ethical practices, green sourcing, and sustainable natural resource usage in supply chains.
• Supply management personnel must locate, assess & develop the right suppliers.

Sourcing

• Encompasses all a firm's activities to manage external resources.

Strategic Sourcing

• Involves managing the firm's external resources to achieve long-term goals, emphasizing ethical practices, green sourcing, and sustainable resource management.

Implementation of Strategic Sourcing

• Involves ethical sourcing initiatives, managing supplier relationships, identifying environmentally conscious suppliers, monitoring performance, developing supplier relationships across tiers, and using technology.

Drivers of Strategic Sourcing

• Strategic sourcing focuses on reducing costs and cycle times, improving quality and financial performance, addressing global competition, increasing customer focus, cutting globalization costs, and delivering innovative products cheaper than competitors.

Assessing and Improving Sourcing Function

• This is a value-enhancing function, monitor the purchasing function’s performance against set standards and industry benchmarks.

Ethical and Sustainable Sourcing Defined

• Corporate Social Responsibility is fundamentally the practice of business ethics.
• Ethical Sourcing: Considers public consequences and promotes positive social change through organizational buying behavior.

Examples of CSR and Ethical Sourcing

• UK Cadbury has a CSR committee.
• Reebok launched an ethical sourcing program in the 1990s emphasizing workplace conditions and human rights.
• Nike had bad practice. They contracted with Pakistani factories using child labor and unfair labor practices in the mid 1990's

Risks of Unethical Sourcing

• Purchasing from unethical suppliers lead to negative publicity, boycotts, tarnished image, brand degradation, lower employee morale, and stock prices.

Ethical Policies

• Should include origin determination, knowledge of suppliers' workplace principles, ethics in performance rating, compliance verification, supplier compliance reporting, and clear ethical expectations to minimize risks.

Fair Trade

• Is a sourcing activity: Fair trade products are manufactured by disadvantaged producers in developing countries and certified by organizations such as Fairtrade Foundation.

Green Purchasing

• Aims to reduce waste and environmental impact throughout the purchasing process.

Sustainability

• The ability to meet current supply chain needs without hindering future needs in economic, environmental, and social aspects.

Doing the Right Thing

• Sustainability is doing the right thing and makes economic sense
• Example: Walmart reducing packaging.
• High quality goods are demanded at reasonable prices, with evidence of social responsibilities.

Sustainable Sourcing

• Is a process of purchasing with consideration for the long-term impact on people, profits, and the planet: To accomplish these goals, companies must rely upon suppliers and customers.
• Reducing packagaing can reduce shipping and fuel costs, using renewable energy, zero waste can reduce total costs.

Sustainable Sourcing Strives To

• Grow revenues with sustainable products, reduce costs with resource efficiencies, manage risks by linking the brand to social consciousness, and build social and environmental responsibility.

Confusion around Ethical and Sustainable Sourcing

• Ethical and sustainable sourcing concepts can be confusing.
• Green Purchasing reduces greenhouse emissions, with growing market for green products.

Best Practices

• Include efficient raw material management, optimized transportation, plant-based products, and renewable energy use.

Developing Ethical and Sustainable Sourcing Strategies

• Functional Products: focus on dependable suppliers with low prices.
• Innovative Products: evaluate suppliers on quality, delivery speed, flexibility, and communication.

Supply Base Rationalization Programs

• Reduce poor-performing suppliers and increase purchases from top performers in order to reduce purhcase prices and improve quality: Active supply chain management aims to reach these programs.
• Scan and select suppliers based on ethical/ sustainable behavior.

Supply Base Rationalization

• The initial supply chain management is usually the effort to have better quality and lowercost.
• Building socially responsible supplier relationships yields reduced spending, quality improvement, and enhanced reputation.
• Ford found better quality, lower costs, and improved innovation.

Ethical and Sustainable Supplier Certification Programs

• Certification programs identify strategic alliance candidates, using in-house programs and ISO certifications.
• Buyers monitor quality assurance, acceptance sampling and specify type of statistical process.
• Strategic alliances are a formalized collaborative relationship, sharing commitments.

Outsourcing

• Allows firms to focus on core capabilities, reduce staffing, accelerate reengineering, reduce managing problems, and improve flexibility.
• Buyers are beginning to make outsourcing decisions because the marketing value of sustainability, an example is the Petrochemical industry.

Risks associated with Outsourcing.

• Loss of control, increased reliance on suppliers, needs for managing suppliers.

Early Supplier Involvement

• Key suppliers can manage customers' inventories and participate in new product and process design.
• ESI can improve decision making for purchasing and trading.

Supplier Representative

• They are an individual that serves on the customer’s new product development team
• They can reduce costs, improve quality, and reduce development time
• ESI key suppliers are more involved in internal operations for new product and process design techniques.
• Share design and manufacturing information, and establish a level of trust, they will working together.

Vendor Managed Inventory (VMI)

• Suppliers manage buyer inventories to reduce costs and avoid stockouts
• Supplier tracks inventories and determine delivery schedules/ quantities
• Buyer can take ownership, risk minimize of running out of stock
• Supplier can decides inventory and educate about products
• Al Marai monitors Carrefour's inventory levels and decides when to restock ensuring products available.
• IT plays a role in VMI as its important in visibility.
• Co-managed inventories that is a collaborative form of VMI.
• Buyers and sellers reach an agreement on demand forecasts.

Considerations for Co-Managed Inventories

• Buyer is still assessing the supplier’s ability to take full responsibility for the order fulfillment process.

Supplier Co-location

• It is an extension of VMI.
• A dedicated extension of VMI with embedded employee in purchasing department who forecasts, monitors, and places orders.
• It is require high levels of trust.
• Spirit AreoSystems is located at Boeing for aircraft parts to assist purchasing department.

Advantages to Supplier Co-location

• Include secured purchases, learns of rapid design changes, solve production problems.
• Purchaser gets cost free employee and reduced lead time, especially in JIT arrangement.

Rewarding Supplier Performance

• You can provide incentives for marginal suppliers to improve and reward those who share with their own suppliers, surpassing goals.
• It can stimulate capital investment.

The Importance of Incentives

• They help information sharing and prevents the supply chain from being stunted
• You can allow a share of cost reductions, more business, access to resources, recognize the company publicly and privately

Benchmarking

• Measures what other businesses do best to improv supply chain performance through both formal and informal processes.
• Gain experience from things the firms work well with
• Can obtain data formally from surveys and formally form discussions
• The Center for Advanced Purchasing Studies (CAPS) is a resource for learning about and implementing sourcing practices, best practices include software sharing, R&D, reducing supplies, alliances, central data, continues, and ethics.
• The Supply-Chain Council helps improve costs by discussing best practices.