qxd 16/11/2007 03:35PM Page 193 PART 3 STRATEGIC ISSUES IN SUPPLY CHAIN MANAGEMENT Chapter 14 Environmental and ethnical issues in supply management 195 Chapter 15 Involving suppliers in new project development 216 Chapter 16 Public and regulated supply management 227 Chapter 17 Electronic supply 246 Chapter 18 The relevance of commodities 259 Chapter 19 Services procurement 273 STRS_C14.qxd 16/11/2007 03:35PM Page 194 STRS_C14.qxd 16/11/2007 03:35PM Page 195 Chapter 14 Environmental and ethical issues in supply management1 Aim of chapter The aim of this chapter is to provide readers with a clear understanding of the growing importance of environmental and ethical concerns to purchasing and supply management Learning outcomes At the end of this chapter, readers will: n understand why purchasing and supply management should be concerned with environmental and ethical supply issues; n have a clear understanding of the contribution purchasing and supply management can make to environmental soundness; n be able to identify a range of implementations issues that are important to ‘green supply’. Introduction The purpose of this chapter is to explore the connections between the sourcing decisions made within purchasing and supply and some of the effects those deci- sions have on the world, in terms of biophysical (for example, air, water and soil pollution), economic (for example, loss of habitat and even warfare) and ethical (for example, the use of slavery and child labour). Traditionally, little attention would have been given to such remote and exotic issues within the Purchasing office. Now, however, the issues are increasingly real challenges for the Supply Strategist.
We shall demonstrate why purchasing and supply professionals should be con- cerned about the environmental2 aspect of supply chain management, defining such concepts as sustainable development, corporate social responsibility and environ- mental soundness. We shall discuss the Supply Strategist’s potential contribution to increasing environmental soundness. Lastly, the chapter identifies and discusses several important implementation issues.qxd 16/11/2007 03:35PM Page 196 196 Part 3 · Strategic issues in supply chain management Why should Purchasing be concerned? In October 2000, as part of its weekly investigative programme Panorama, the BBC aired an exposé on supply chains in the sports clothing industry. The pro- gramme televised scenes of children in Cambodian factories making products for well-known global brands (in this instance for Nike® and The Gap®).3 The episode was widely discussed by the British media and engendered considerable public out- cry.
The two companies’ purchasing strategies were immediately front-page news; both immediately sought to quell the adverse publicity with promises to remove such practices from their supply chains. A year later, the American journalist Eric Schlosser published Fast Food Nation in which he exposed abusive labour prac- tices in the factories processing the hamburgers and potatoes served in US restau- rants. The book cites damage to American agriculture as a result of the massive commercial power of a small number of large firms (seemingly in league with federal and state governments). In addition, Schlosser describes several very un- savoury and possibly dangerous ingredients in the food that Americans consume.
While several large industrial food companies immediately criticised Schlosser, they were unable to cite any specific errors in the damning book he had written (Schlosser, 2002: 276). The book was widely reviewed in the international media, generating much exposure and considerable public discussion. The debate in the connection between obesity and fast food was fuelled by the evidence Schlosser provided, driving some chains to reduce the excessive portions and introduce salads as alternatives to hamburgers. In the UK, the code on child labour in the supply chain developed by the high- street retailer Marks and Spencer has become something of a general standard.4 In the food industry, issues such as the BSE crisis5 have led to stringent legislation and control of supply.
The public, it seems, have begun to realise that their pur- chasing decisions have an impact on the earth and its inhabitants. Before the early 1990s, the notion that Purchasing and Supply managers might have a significant interest in environmental or ethical issues was barely evident – it was limited to the activists of non-governmental organisations (NGOs) such as Greenpeace or Friends of the Earth. Managers in Purchasing and Supply were able to maintain this ‘hands-off’ approach because organisations had for some time cre- ated specialist environmental science departments, to whom, it was assumed, all such issues could be referred. By the end of the twentieth century, this approach often proved untenable.
Firms increasingly assessed their own environmental ‘footprints’ and those of their suppliers. A standard emerged – first as BS7570 and then ISO 14000 – as a reference or proxy for good environmental practices. These standards became widely accepted by industry as a business ‘totem’, much like the ISO 9000 quality stand- ard two decades earlier, and were used as promotional points for those firms that gained accreditation. For example, a visitor to Toyota’s massive Takaoka plant near Nagoya in Japan in 1998 would be greeted first not by a showroom of new cars but by the proud display of the factory’s accreditation to ISO 14000.
(See http://www.uk/ and Carter and Narasimham 1998.) This was a major part of the giant firm’s strategy between 1996 and 2000, signalling its intention to position itself as the leader in developing cars that used fewer natural resources.qxd 16/11/2007 03:35PM Page 197 Chapter 14 · Environmental and ethical issues in supply management 197 From using the accreditation of its factories as a marketing device, Toyota went on to develop and successfully market a ‘hybrid-powered’ car (the petrol/electric Prius), sold on the benefits of its reduced biophysical impact and fuel economy. The popular press further highlighted environmental and ethical concerns. For example, rainforest destruction in South America was linked to garden furniture bought by British consumers. Television exposés such as Panorama documented the role of African slave labour in the production of coffee beans destined for European cafés.6 The European Union subsequently established Directives on re- cycling consumer products – including motor cars and packaging/packaging waste.
Such emerging concern for the environmental impacts and ethics associated with purchasing decisions mirrors the concern for quality, health and safety that emerged in the 1970s. These concerns are clearly vital to sustainable business but were viewed as nuisances and unwelcome extra costs. Yet in the 1970s it became increasingly clear that quality management could be self-financing (through reductions in costs of non-quality). The question facing Operational managers and Supply managers in the early part of the twenty-first century is whether environmental and ethical concerns in the supply chain could also be self-financing.
While goods, materials and services acquired by an organisation may be assessed in terms of their biophysical or social impacts – even if this is limited to the imperfect understanding of the issues in the minds of consumers – the difficulty for Purchasing and Supply managers is establishing the scope of their respons- ibility for activities in the operations of their direct and indirect suppliers. There appear to be two good reasons for acting in a responsible way in this matter. The first is a genuine concern for the sustainability of the Earth’s ecology. The second is improved risk management – avoiding the penalties associated with breaking civil or criminal law.
We will now turn to a discussion of both. In many Western countries (especially in the member states of the European Union), businesses face mounting pressures from consumers, regulators and even stock markets to assume more responsibility for their environmental performance. These pressures appear to fit a cyclical trend that is closely correlated with economic pros- perity (Downs, 1973). As the effects of pollution become more visible and affect more people over time, it is likely that the peak of concern at the last cycle will form the base level of concern for the next cycle.
This trend is visible even in the more laissez-faire, market-driven Anglo-Saxon economies. In North America in the early 1990s, 75 per cent of consumers held that their purchasing decisions were affected by a company’s environmental reputation; 80 per cent would pay more for environmentally ‘friendlier’ goods (Drumwright, 1994). A British government survey of public attitudes, conducted in 1994 by Environmental Data Services Ltd (ENDS), revealed that concern for the environment was third on a list of the most important issues that the public believed government should be addressing, ranked just below unemployment and health but above crime, education and the economy in general. The survey also showed a dramatic shift of public opinion in favour of a ‘polluter pays’ principle, even if enforcing such a principle resulted in paying higher prices for goods and services (62 per cent).
Eighty-seven per cent of respondents wanted more infor- mation from companies on the environmental impact of their products, and 88 per cent wanted better labeling to enable consumers to make more informed buy- ing decisions (ENDS 232, 1994). Other studies, however, have concluded that while STRS_C14.qxd 16/11/2007 03:35PM Page 198 198 Part 3 · Strategic issues in supply chain management consumers claim these preferences in surveys, their buying activities do not reflect these preferences in practice. Ten years on, there is still no evidence that anyone will pay a ‘green premium’. It appears likely, nevertheless, that faced with a choice between two otherwise identical products, consumers would buy the more envir- onmentally sound of the two.
Although consumers may not explicitly ask for ethically produced items, Knight (1996: 65) argues they expect them. When consumers suspect or discover that goods are not environmentally sound, they become disappointed. As Knight points out, disappointment is vastly inferior to the aim of ‘customer satisfaction’, and even further from that of ‘customer delight or excitement’.7 These are the necessary con- ditions to encourage repeat buying and personal recommendation of a product/ service. These may have been the concerns in the boardrooms and Purchasing offices of Nike and the Gap after the Panorama broadcast.
Environmental and ethical problems are thus intrinsically linked to supply chains. While these problems are manifested at one point in the chain – for example, disposal of electrical goods with harmful chemicals – their root cause is often located two or three links earlier in the chain.8 Thus, a Supply manager’s perspective must include provision for potential problems – and opportunities – elsewhere in his or her organisation’s respective supply network. Policies and strategies must be formu- lated accordingly, to address several complicated issues. For example, what is meant by terms such as ‘environmentally friendly’, ‘environmentally sound’, ‘sustainable development’ and ‘corporate social responsibility’? Even a brief encounter with the subject area reveals an amazing lack of clarity and considerable ambiguity.
Sustainability, green, and environmental soundness The environmental pressures that affect a business may come from sources inside and outside the firm. External sources include industry requirements (i. customers and suppliers), financial institutions, regulatory authorities and public bodies (i. local, national, regional and even global authorities and other organisations).
These pressures form the external environmental context in which a business operates and that its overall strategy should be designed to address. Internal pressures, how- ever, are increasingly important. Internal sources include the desires of marketing departments to ‘green’ their respective organisation’s image; the legal mandates of health and safety inspectors; the fiduciary and stewardship concerns of board members; and the desire of employees who feel the effects of pollution personally not to be associated with recognised polluters. Employee motivation is a key fac- tor in business productivity.
Although companies may be expected to withstand these pressures to some degree, there are limits to this resilience (see Cramer, 1996). Developing environmentally sound supply chain policies and strategies to address the related market needs therefore requires a clear understanding of each of the stakeholders’ perspectives and priorities. This should be fitted into a frame- work that may be used to guide the firm’s activities. For the Purchasing and Supply manager, this framework would serve as the basis for formulating the firm’s environmental supply strategy.