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Nearly 40 years ago Friedman (1970) stated there is only one social responsibility companies have to take care of: to increase profits. This was the goal of any entrepreneur and it still is. Although the Chairman of the Board of Standard Oil (now Exxon), Frank Abrams, already requested managers to become "good citizens" in the early fifties (Abrams, 1951). It took quite a long time till companies realised the possibilities of a corporate social responsibility (CSR) (Burke & Logsdon, 1996; McWilliams et al., 2006).
The objective of this essay is to answer the question - What would you consider the most important elements of a socially responsible purchasing programme? The essay will present the development of purchasing and corporate social responsibility first. Second, different approaches to a socially responsible purchasing programme will be critically evaluated and the most important element will be demonstrated.
Purchasing has been a means to an end for companies. It was responsible for the sourcing process to purchase the goods and services the production needed (Chopra & Meindl, 2010). The "5 rights" have been the objectives and scope of purchasing (Prabhu & Baker, 1986).
Within these objectives the purchasing departments had the responsibility to achieve the best solutions (Zheng et al., 2007). Traditionally these were doable. The action range, resulting from these solutions, could be combined in a few sentences or tables. The core tasks were to select the source, maintain the contact to suppliers, determine contract terms and conditions, and ensure to have low supplier switching costs (Cavinato, 1984). Based on these objectives companies started purchasing worldwide, with little adjustments according to foreign regulations and international competition, when the globalisation started.
Corporate Social Responsibility
One of the first definitions of corporate social responsibility is about how to contribute economic, legal, ethical and philanthropic responsibilities (Carroll, 1991). displays a structure which provides companies with the possibility to rank these responsibilities according to their relevance for companies.
Figure : The Pyramid of Corporate Social Responsibility
(Source: adopted from Carroll, 1991)
In addition to this it must be considered that a functional CSR system is not implemented in isolation. Single business principles for each department which are not standardised in the company and the entire supply chain network may not achieve the real goal (van Weele, 2010). Therefore programmes are set up to be valid for the entire firm or concern. Although the principles are more important to certain departments than to others. Departments which have more contact to suppliers tend to be those important ones. Out of this group the purchasing departments were spending the largest single amount in doing business. Some studies estimated the purchasing share of total revenues to be 60% of Northern American companies (Leenders & Blenkhorn, 1988). For Europe Chadwick and Rajagopal (1995) reported similar figures. Stock and Lambert argued in 1993 that this amount is estimated to exceed $2 trillion dollars which were spent annually (Stock & Lambert, 1993).
Socially Responsible Purchasing Programme
Generations ago a customer was able to buy all products which were on the market either in the shops in town or directly in the factories. Nowadays factories for normal life products are not around the corner anymore (Chopra & Meindl, 2010). The starting globalisation gave the entrepreneurs the possibility to move their production to low-wage countries to increase profits (Asgary & Walle, 2002). The profit margin is one driver for globalisation. Others are international competition, going abroad to compete against international competitors, regulations, it might be forbidden to manufacture in a certain country, and in new expanding markets (Long, 2003). In addition to this the customer himself has to be taken into account. Requesting products at lowest possible price made companies to relocate the factories (Kearney, 1994).
The globalisation came along with a development in media (van Weele, 2010). People getting more and more interested in what is happening on the other side of the world. Maybe they were just considering holidaying there sometime or they realized that the television they were watching the news on was produced on that side of the world. Because of this global media business is more transparent than ever. Customers became aware that some of their products were produced with outstanding external costs (Straube et al., 2010). Knowing this some consumers are willing to pay more so that companies can reduce these external production costs by abolishing the "one-size-fits-all mindset" (Gattorna, 2010, p. 124). Simultaneously the prices for natural resources, especially oil, and global regulations, for example CO2 trade, are rising (Straube et al., 2010). Due to this development and the increasing end-user production expectations a socially responsible purchasing is gaining more importance (Ellen et al., 2006).
Keeping this in mind it makes sense that companies attitude towards purchasing has changed. Svahn and Westerlund (2009) stated that purchasing has become a key element of competitive advantage. The approach to structure the spending can here be different from company to company or supply chain to supply chain depending on how well they are connected.
People, Planet, Profit
Combined with his pyramid of corporate social responsibility Carroll (1991) argued that a sustainable profitability serves the needs of people, planet, and profit. The latter was definitely most important to him. As shown in it is his basis to build on. It should include a sustainable financial development over a long time, profitability in respect of all stakeholders (Lantos, 2001).
Second, are in equal measures people and planet. Companies can implement a safety, health, and environment (SHE) policy to improve their behaviour towards with the stakeholders. Furthermore companies should serve the planet. A reasonable usage of natural sources of energy, raw materials, and other natural resources is recommend. In addition to this a waste disposal, reuse of scrap and surplus materials, and reserve logistics should be considered (van Weele, 2010).
Institute for Supply Management
Another general approach for social responsibility was made by the institute for supply management (ISM). It generated principles to encourage its members and beyond that all supply chain participants to reconsider their behaviour towards sustainability and social responsibility. Companies, governments and non-profit organizations should complement existing policies or use those principles as a starting point (Institute for Supply Chain Management, 2008).
Compared with Carroll´s principles these do not include the responsibility to gain profit. However health and safety should be considered as well as the environment. In this approach the three principles are not combined into one bullet point. The environment is defined separately. It should guarantee not only an environmental protection within the organization but also the environment the company is working with. In addition to these mentioned elements the ISM added seven more and set up a ranking for the implementation of a social responsible programme:
Diversity and Inclusiveness - Supply Base
Diversity and Inclusiveness - Workforce
Ethics and Business Conduct
Health and Safety
There some bullet points which make allowance for purchasing programmes. Ranked second the supply base should be considered by organizations. According to the ISM (2008) it is important to engage the suppliers in the process of material or service sourcing. Furthermore it is in important to protect the environment an organization is work in and gain an ethical and business behaviour. In addition to this universal human rights should be respected as well as a sustainable treatment of resources.
Four years before the above mentioned principles have been released the ISM published an early version. When comparing these two editions it obvious that two bullet points were added. First is the splitting of diversity and inclusiveness in two separate parts. Second is the adding of sustainability (Chadwick T. , 2010). Both amendments have an impact on the purchasing process. The single bullet point for diversity in supply emphasises the development of purchasing becoming a key element of competitive advantage (Svahn & Westerlund, 2009). Sustainability should encourage organizations to source with respect of future generations.
Philips Electronics Inc., Daimler AG and Toyota
As spending the largest single amount in doing business purchasing departments are often responsible to promote a social responsibility upstream (Bowen et al., 2001; Chen & Paulraj, 2004).The question appears how one organization is able to make its suppliers working socially responsibly or even setting up a social responsible programme themselves? Companies, for example in Scotland, which are able to answer this task are still rare (Preuss, 2001). It is possible to impose pressure upon suppliers by threaten to change to another supplier. However, if the company is not in a non-risk or leverage relationship with its supplier the vendor will not be willing to spend time and money in unreasonable partnership (Kraljic, 1983). Therefore companies in a leverage relationship are best known for their socially responsible purchasing programme.
One of those companies is Philips Electronics Inc. (van Weele, 2010). 2003 the board of directors decided to set up a standard which every supplier had to meet. As part of this standard a questionnaire was send to all suppliers containing the following topics
General (is there a company police dealing with the following topics?)
Health and safety
Collective bargaining and right to organize
After Philips received the answers audits were scheduled to ensure the correctness of the given details and to encourage the suppliers to keep on improving. In case companies were not able or willing to do so they were dismissed. In connection with this programme the amount of suppliers was reduced by 20 000 to now about 30 000 (van Weele, 2010).
In addition to this programme Philips promotes actions to protect the community and the planet. These actions are combined beyond the topic of sustainability (Philips Electronics, 2010).
A similar approach is done by Daimler AG. It advertises its sustainable management by providing information online. Besides this it also released a guideline for sustainability ("Richtlinie zur Nachhaltigkeit") for its purchasing departments and the suppliers (Daimler AG, 2010). This guide contains four major elements. Labour conditions, environment standards, ethical and business conduct and information / communication. In addition to this last topic Daimler states in its argumentation for this guide that it is willing to achieve sustainability in collaboration with its suppliers.
The world´s largest carmaker, Toyota, introduced an environmental responsibility in its business plan in 1992. Since 2000 suppliers must have an environmental management system and accept a ban on 450 chemicals if they are willing to do business with Toyota (Zachary, 2001). A further cooperation such as those carried out by Daimler or Philips is not stipulated. The behaviour to pass on the pressure seems to be common practise for many customers (McIntyre, 2010).
International Council of Chemical Associations
Dealing with chemicals has always been seen as a risky business (Preuss, 2001). The handling of explosive, flammable or toxic goods does require a responsibility while doing business. As a result of major accidents stakeholders are highly interested in a responsible behaviour of the industry (Duffy et al., 1999).
The Canadian Chemicals Manufacturers Association introduced in 1991 a Responsible Care Programme to improve its social image (Preuss, 2001). This programme became a cornerstone for the current Responsible Care® Global Charter (ICCA, 2010). This charter includes elements which commits the members to continuously improve their safety, health and environment management. Furthermore the charter encourages increasing the cooperation among the supply chain to improve the social responsibility and establish long-term partnerships.
This handling is not respected worldwide. Otherwise manmade catastrophes such as Deepwater Horizon and Kolontar both in this year could have been avoided (BBC, BBC News - BP oil disaster: BP spill well 'effectively dead' , 2010; BBC, BBC News: The company behind Hungary's toxic spill, 2010). Both companies have not signed up on the Responsible Care® Global Charter.
The examples, especially Daimler, show the understanding that an effective relationship is necessary. The question is how can you motivate your own organization to enter a partnership when this might mean to enter a single sourcing relationship? It is possible to limit the turnover share with one supplier. However, is this still a win-win situation (Kearney, 1994)? Especially small companies tend to struggle when it comes to this decision (Pressey et al., 2007). Assuming the organization is able to maintain a multi sourcing relationship. Do they inquire when there is an actual demand only? Further problems may occur in terms of handling of price information (van Weele, 2010).
Establishing a trustful partnership is one of the major goals for an efficient social responsible purchasing programme (Gadde & Håkansson, 2001). A corporate social responsible programme build on trust and competence is able to provide the answers for above mentioned questions. Carter et al. (2000) argue that this includes working in cross-organizational teams.
However, this is only the answer to the relationship between an original equipment manufacturer (OEM) and its first-tier supplier. Companies like Philips do encourage its suppliers whether they request evidence from their subcontractors in terms of environmental control (van Weele, 2010). This control has to be carried on to the raw materials producers. These manufactures are the first link in a supply chain. Thus a socially responsible purchasing programme has to encourage not only its first-tier suppliers but also all subcontractors. Reebok for example did not control these subcontractors and had to found out that of some those employed children for manufacturing (Cowton & Low, 2002).
To achieve this one option is to increase the requirements for supplied goods and services hopping that the supplier has to change its subcontractor requirements and so on (Preuss, 2001). However, this is no partnership anymore.
The Most Important Elements
The answer for these shortcomings as well as the problem for motivating one organization itself could be corporate planning, forecasting and replenishment (CPFR). CPFR has to bee seen as development of efficient consumer response (ECR) (Skjoett-Larsen et al., 2003) and is defined as:
â€ža cross-industry initiative designed to improve the supplier/manufacturer/retailer relationship through co-managed planning processes and shared information" (Grant, 2010, p. 17)
In most of the times a web connection between the partners along a supply chain is used to exchange sales data and forecasts (Fliedner, 2003). Thus companies or supply chains which are use to cooperate can extend the existing partnership by a corporate socially responsible programme. A department which is looking for a cornerstone to promote its socially responsible purchasing programme within its organization or the supply chain can use the well-known CPFR (Skjoett-Larsen et al., 2003). Doing so it automatically addresses not only the first-tier suppliers but their subcontractors as well.
To understand what the most important element of a socially responsible purchasing programme is you have to understand what influenced purchasing to become a key competitive advantage. In this essay it is shown that the function purchasing developed from a means to an end to the largest single expenditure in doing business. Meanwhile the globalisation and parallel developments increased the expectations especially customers have from a purchasing department.
The introduction of a corporate social responsible programme has been discussed for many years. It was stressed out that organizations which have a solution how to implement such a system a rare. However, some non-profit organizations provide principles or even guidelines how to proceed. Furthermore it was shown that companies which are in a leverage relationship with their suppliers have fewer difficulties. The example companies do use their purchasing programmes to guarantee quality of and sustainability to suppliers.
All presented programmes encourage organizations to set up systems within their organization or supply chain. These systems are all based on establishing a partnership build on trust and commitment. A collaboration which sometimes already exists in terms of CPFR. Only a trustful relationship along the supply chain is able to encourage companies to take the collaboration to next level, a socially responsible purchasing programme.