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IBM is a company of more than 430,000 employees, doing business in nearly 170 countries. IBM manages a supply chain of more than 20,000 suppliers and engages in a vast network of stakeholders, clients, employees, business partners, to investors. Their work do not impact only individual companies' business success, but the efficiency and innovation of countries, cities, governments, communities and our planet's critical infrastructure. (http://www.ibm.com/ibm/responsibility/2011/ibms-approach/index.html)
Over 100 years of IBM's existence, the corporation has developed and refined a thoughtful and comprehensive approach to corporate citizenship which has aligned its values and maximized their positive impact as a global enterprise. IBM has diversified its focus on varying and specific societal issues, while exploring ways to protect and improve the environment, spurring community economic development, and improving education and healthcare. IBM's four guiding principles include:
To identify and act upon new opportunities to while making a difference by applying their technology and expertise to societal problems
To scale their existing programs and initiatives to achieve maximum benefit by measuring their results and adjusting their approaches
To empower their employees and others by building their skills to better serve their communities
To integrate their commitment to corporate responsibility into every aspect of their company.
These approach stirs direction and collaboration. IBM believes it providing community efforts, they aim at providing leadership with an emphasis on accountability and excellence. These commitments are fostered by IBM board of Directors (BODs) and committees. Day to day coordination of CSR is in the hands of executives from across the corporation and is chaired by the vice president corporate citizenship & corporate affairs that doubles up as president for IBM International Foundation.(see source page below)
IBM strives operate its business consistently with the highest standards of corporate responsibility, from how they support and empower their employees; to how they work with their clients, and to how they govern the corporation. The Corporations Longstanding commitment to CSR can be attributed to two points; The Corporations aspect of enabling innovation and the cross branding of corporations products with the environment. This commitment is fostered throughout the company and led by senior management, which is ultimately responsible for their economic, environmental and societal performance, as well as compliance with laws, regulations and other various codes of conduct. On a day-to-day basis, IBM's CSR activities are coordinated by a steering committee made up of executives from all relevant functions across IBM. Its chair is IBM's vice president of Corporate Citizenship & Corporate Affairs, who also serves as president of the IBM International Foundation.
In line with what scholars like Schmidt et al., 2001; Bakker and Nijhof 2002, Virginia M. Rometty IBMs president and CEO in her Corporate Responsibility summary report of 2011 quotes;
"The measure of any enterprise or institution is not what it says about itself, but what others say about it, and whether they choose to affiliate with it - as employees, as clients, as investors, as neighbors, as fellow global citizens."
IBM like any Organisation has a strategy which guides them in the execution of their business obligations. IBMs strategy is grounded in a deep understanding of the global forces that have changed their industry and the global economy. "In anticipation, IBM has transformed its mix of products and services by exiting commoditized businesses and making strategic acquisitions; amassed industry expertise and reinvented the ways of deploy it, accelerated global integration of its operations, as well as improved its own efficiencies while improving service quality".(source http://www.ibm.com/annualreport/2009/2009_ibm_annual.pdf)
Supply chain and supplier selection at IBM
IBM supply chain can be dated to as far back as 1968 when it first established global supply chain diversity. IBMs diverse suppliers not only provide them talents, but add stability to the supply chain as well as promote growth. Since IBMs conception of its own Supply and Diversity Program, the corporation has received more than a hundred awards from stakeholders and society from local to international entities. IMB manages a $37 billion worth supply chain with more than 20.000 suppliers located in close to 100 countries. To be effective, the corporation works closely with its suppliers. The work begins with requirements for suppliers, to create an implement EMSs which encourage suppliers to set voluntary goals, measure performance and report publicly. IBM has a managed structure called Supply-Chain Network Optimization Workbench (SNOW) which is an IBM-developed supply chain modeling and optimization tool that supports decision-making process across the entire supply chain, from material sourcing, supply and production to finished goods distribution. This system effectively supports engagements of various complexities, and enables amongst the following;
Lower total cost of ownership and accelerated time to benefit
Centralized point of control for the entire solution landscape
A business focus (implementation, operation, optimization) that delivers advantages
Supports and enables technical integration
Through its long practices and innovations, IBM realised that a sustainable program was needed as well as a good management system for its suppliers. In April this year, IBM established a new management system for suppliers to address their societal and corporate responsibilities. Tier one suppliers are required:
1. To define, deploy, and sustain a corporate responsibility and environmental management system that identifies significant aspects of the supplier's intersections with these matters, including those articulated in IBM's Supplier Conduct Principles and the Electronic Industry Citizenship Coalition Code of Conduct
2. To establish programs (within the management system) to control operations that intersect with these matters and confirm compliance with applicable law, regulation and any particular contractual requirements
3. To measure performance associated with supplier's significant environmental aspects where applicable and include at a minimum each of the following aspects common to virtually all businesses:
scope 1 and scope 2 greenhouse gas emissions *
waste management and recycling
4. To set voluntary environmental goals to achieve positive results associated with significant aspects where applicable and include at a minimum one in each of the three aspects cited in item 3 above
5. To make available to the public the results of its voluntary environmental goals and other sustainability issues from the management system, including any regulatory fines or penalties that they may have occurred
6. To train employees who are responsible for performing this work
7. To conduct self-assessments and audits as well as management reviews
8. To implement this set of requirements to their suppliers who offer services that is material to the supply of goods and services being supplied to IBM
Scope 1 greenhouse gas emissions: direct emissions generated by the company
Scope 2 greenhouse gas emissions: indirect emissions that are associated with the generation of electricity that is purchased and consumed by the company
Suppliers are expected to deploy a system that set goal, measures performance, and reports results in a way that crosshatches their relationship to CSR and the environment. This requirements need to be disseminated down their supply chain by tier one suppliers addressing sustainable issues such as work safety, waste reduction and energy efficiency.
Over the years, IBMs network of suppliers have increased all over the world. In the realm of sourcing materials, companies go beyond national boundaries in other to get a constant flow of materials from their suppliers. With an eye on their activities from pressure groups, NGO's and stakeholders, multinationals have as a priority to do business in an environmentally friendly manner and put in place social conditions which are applicable to its suppliers. IBM's codes of conducts have grown over time. With a vast network of over 20.000 suppliers it became vital for them to put in place control points which can be used to check compliance and be environmentally friendly on the part of suppliers.
As the first worlds multinational to have earned a single world registration of ISO 14001 on Environmental Management, IBM has been striving to keep up to standards and getting into more agreements and getting recognition from other awarding institutes. The commitment to sustainability has been deeply entrenched in the culture of the organisation. Below is a list of IBM certifications over the past years.
Service Provider Comments
Area of Focus
Corporate certificate # 82346.
ISO/IEC 12207 & ISO/IEC 15504
These are software lifecycle processes.
Corporate certificate # 48320.
ISO 27001:2005 (17799)
IBM is certified in BS7799-Part 2 (now known as ISO 27001 and previously as ISO 17799). This does not mean that services supplied to all customers will be automatically ISO 27001 certified. ISO 27001 covers how to apply and implement BS7799-2, and, critically, how to implement and maintain an Information Security Management System (ISMS).
[IBM ITCS329 Security Policy (q.v.) is designed to align with ISO 27001 external industry standards.]
Information Security Management
Service Management / ITIL Standards
IBM Supply Chain Social Responsibility (SCSR)
IBM spends $36.5billion a year on its global suppliers, including $3.2billion yearly on diverse suppliers (http://www.ibm.com/ibm/responsibility/). In 2010 IBM introduced its Social and Environmental Management Systems(S&EMS) to its world Supply chain. This system was designed to define and sustain a system that addresses CSR issues, set environmental goals which are quantifiable and can be measured, and performance closely monitored, make available results of the management systems and environmental goals public and for Tier one suppliers to disseminate to their own suppliers the designated requirement.
In 2012 a plan was set to execute this Management system and to check compliance on the part of suppliers. Baselines were set for what was considered appropriate in terms of performance and suppliers were notified of the outcome.
Supply Chain Social Responsibility (SCSR) is part of IBM's Corporate Citizenship activity and is a requirement for all IBM suppliers. This is supported by the chief Procurement officer and Procurement Managers/staff. The SCSR-Code Provision is a requirement for all suppliers. IBM has a set of Conducts or Supplier code which Suppliers must adhere to them in order for them to stay within standards.
In 2011 IBM recorded the largest single-year activity with 462 Audits on suppliers in 25 countries. These Audits were based compliance to IBM supply code or Electronic Industry Citizen Coalition (EICC).This Audit brought IBM to a total of 1100 audit for suppliers in the past 8yrs.The Audits results are presented below.
(Source: Supply Chain Social Responsibility (SCSR) Services & General Procurement Suppliers, SCSR S&GP Supplier Presentation 5/9/2011)
(Audits performed in the following countries: Argentina, Brazil, Chile, China, Czech Rep, Hong Kong, Hungary, India, Indonesia, Kenya, Korea, Malaysia, Mexico, Nigeria, Philippines, Poland, Romania, Russia, Singapore, Slovakia, South Africa, Taiwan, Thailand, Turkey and Vietnam)
The goal of this analysis was to check supplier's compliance with EICC and IBMs supply codes. The bases used by IBM to check this compliance was based on the principle guidelines which IBM's uses as code for selecting its suppliers. These codes fall under 13 headings among the following which are just highlighted
Forced or Inventory Labor
Wages and Benefits
Respect and Dignity
Freedom of Association
Health and Safety
Protection of the Environment
Laws including Regulations and other Legal Requirements
(Source: IBM Supply code Principle-Version 2.0 - Released November, 2004. Added provisions for Freedom of Association, Communications, and Monitoring/Record Keeping. (SCSR S&GP supplier Presentation)
Results indicate that compliance has significantly improved in 2011 in the areas of Working hours with that of respect for dignity. These positive results are as a result of supplier education on EICC code of conduct and suppliers commitment to better working conditions across their supply chain.
SCSR Audit Progrogr
IBM has as one of its goals to measure supplier performance and provide feedback to suppliers so that situations are redressed and areas which need concerns are targeted. In this way IBM seeks to measure how well suppliers meet CSR compliance and implementations. Suppliers are encouraged to provide feedbacks to IBM in the capacity of customers so that IBM can do assessments of itself. This assessment serves as basis of discussion and on improving business relationships. IBM tries to establish a series of checks and Balances on its suppliers through its Supply chain audit program. This Program Aids IBMs procurement and supply chain social responsibility team to determine Suppliers to be audited. This program results to Suppliers improvement Plans (SIPs) which is reviewed and accepted by the SCSR team and all improvements implemented within 6months.Re-audit sustainability takes place 6 months after implementing SIP. Furthermore they do have a monthly review of SIP acceptance framework with expectations for suppliers to be fully compliant with no major nonconformance to the code of conduct.
Auditing Suppliers IBM's model
Auditing suppliers at IBM is a long process which has steps to be followed by the audit committee. Suppliers are audited based on the 13 provisions of the IBM supplier code conduct and adherence to ISO 14001. Audits take place within prevailing laws on personal and data privacy. The reason why IBM does an audit is to quickly identify areas of improvements on the part of the suppliers and how these issues can be addressed and therefore enhance continuous improvement and sustainability. The main reason why IBM does not want to be seen as supporting suppliers who do not adhere to practices of CSR, and since IBM views it suppliers as another part of them, they as umbrella organisations will be held responsible for environmental and CSR malpractices exercised by their global supply chain or third party logistic providers, and intermediaries over which they have no ownership as stipulated by scholars like (Maloni and Brown, 2006; Business for Social Responsibility, 2001).This also falls in line with Melinda Johnson philosophy who is head of Policy, Chartered institute of Purchasing and supply states
''You have got to consider what is going on the supply chain as a whole. You need to think about how our own manufacturers treat their staff. The going concern for companies to drive cost weighs the impact of poor working condition on quality and on their reputation'' (Boyd et al 2004). These audits are conducted by 3rd part audit firms. This process is carried onsite of the supplier. Below is a stage process of the audit process carried out by IBM on its suppliers.
This process begins with a review of the supplier's data by the audit team to review if the proposals to the last audits have been implemented? If implemented then no audit if not a meeting is scheduled with the suppliers. From the diagram below we see the first step is an opening meeting with the supplier. Here is basically familiarization of the supplier by the audit team and verification of information, explaining the purpose of the audit and briefing suppliers of the standards and requirements. Then proceeds the document review stage which reviews personal files, employees labour contracts, labour policies, business registration license, payment records, working hours records, health safety and environment documents and IBM expects all documents to be provided to the auditors on their request.
The next step is an interview with representative samples of workers selected from personal lists and from the facility tour by the auditors. This sample is not limited to workers but also contractors as well. Private interviews are carried out with consent of the employees and confidentiality respected. Then they move to facility tour which seeks to observe the working condition of workers, verifying supplier's policies and procedures, verifying First Aid and the number of kits available, injuries records kept, communications amongst which include employees training to emergency response, and general working conditions such as lighting, ventilation, and structures amongst others. Finally stage is the closing meeting stage. Here suppliers are explained the reporting process which information flows from the 3rd party auditor > IBM > supplier. Unresolved supplier questions are answered, contacts exchanged. Results of the audits are reviewed by IBM supply chain executives.
SCRS Audits Observations
A numbers of issues are seen in emerging market countries;
-Health & Safety
-Wages & Benefits
-Management systems are weak relative to social responsibility and law regulatory compliance
-corporate citizenship remains a new concept
some issues are pervasive and country specific
However some best practices have been observed in the management of the supply chains of IBM's suppliers of which are the following
-Frequent Health and safety worker re-training
-Management systems include all elements of the supplier conduct Principles
-Open management- worker communications channels
-Detailed pay with full disclosure of calculations
-Written policies on HR, Health& Safety, Nondiscrimination, Ethics
-Senior Management directly involved in Corporate responsibility
Supplier Improvement Plan Guidance
This supplier improvement plans (SIP) is required in order to provide response to the audit findings. SIPS are used to effectively address audit findings by focusing on the development and implementation of management systems, processes, and worker - based knowledge. Health and safety issues are given priority. All SIPs must have an 'owner' assigned implementation responsibility and address the cause of the nonconformance. "Root cause analysis'' is a method used to understand the initial cause and subsequent casual events leading to nonconformance. This medium is therefore used to correct or eliminate the cause and prevent recurrence. If a root cause is not conducted, or poorly conducted, time and resources are wasted addressing symptoms of a problem rather than the real issue. SIPs need to be provided to IBM within 30days of report summary receipt and all actions implemented within six months. Later each action is re-assessed to determine effectiveness and expectations is 100% compliance for continued IBM business. Suppliers are then expected to implement improvements in a manner proposed to them by IBM and within the timelines agreed to the improved SIP. The supplier is required to keep IBM informed of the progress made towards the implementation of the SIP actions. Any changes to the approved SIP must be reviewed and approved by IBM
IBM CSRs has been deeply embedded in the corporation's culture and has cut across the entire organisation. The supply chain has not been left out either. Some scholars (Schmidt et al., 2001; Bakker and Nijhof 2002) have strongly supported this assertion that to be able to understand the level of commitment of a corporation to CSR, you need to understand how its concept is applicable to the said organisation like in our case across IBMs supply chain. The case of IBM shows its level of commitment as we can see from its certifications it has gained over time and the continuous improvement to be more environmentally friendly in its current programs. Understanding the problems faced by the Supply chain has been of paramount concern to IBM supply chain executives. A detail understanding of the problem is a stepping stone to knowledge enhancement.
In the past 5years, IBM has spent close to $106.9 million in capital and $508.5 million in operating expenses destined to build, maintain, and upgrade the infrastructure for environmental in order to protect and manage its worldwide environmental program.
In 2011, the company recorded environmental expenses to the tone of $114.5 million. These expenses were a result of increment in the tracking of environmental expenses associated with environmental legal requirements, costs for product noncompliance and product refunds with recycling. As a result of the corporations commitment to environmental leadership programs, ongoing savings from previous years which arise as a result of avoidance cost which are costs which will have likely been incurred if the corporation if they did not engage in Environmental Management Programs has earned the corporation an estimated $139.1 million worldwide in 2011.
2011 Estimated Environmental Savings and Cost Avoidance Worldwide
($ in millions)
Location pollution prevention operations*
Environmentally preferable materials usage
Energy conservation and cost avoidance
Superfund and site remediation efficiencies
Spill remediation cost avoidance**
Compliance cost efficiency***
Potential fines, penalty and litigation avoidance****
* Savings or costs avoided by having internal professional staff and tools versus using external consultants andÂ tools.
** These savings are estimates based upon certain assumptions. The figure for spill remediation cost avoidance is estimated considering IBM's actual experience with remediationÂ costs.
*** Compliance cost efficiency considers costs avoided through proactive efforts to stay ahead of environmental regulations andÂ requirements.
**** The estimation for the avoidance of potential fines, penalties and litigation does not include cost avoidance of potential business interruption or fines related to noncompliance with product environmental laws and regulations (e.g., E.U. REACH or RoHSÂ requirements).
Challenges in IBMs Supply chain
An internal analysis carried out by IBM across 400 supply chain executives across 25 countries reveals that IBM faces 5 strategic challenges. These 5 challenges are listed in order of importance to the executives;
Supply Chain Visibility-Visibility both inside and outside the supply chain is key. This visibility include customers, transportation and logistics providers, suppliers,(considered inside) and financial institutions and Governments (considered outside).IBM executives were able to project lack of ability to make sense out of information despite available integrated operating systems like Enterprise Resource Planning (ERP)Systems, real-time data capture to mention a few. The executives saw there was lack of collaboration between suppliers, manufacturers, logistic providers as a result of organizational bottlenecks and the customer is always last in the list of preference
Risk Management-Risk of disruption and interruptions manifested around the supply chain. This risk was outside financial control and financial risk. Process, data, & technology are identified as the roadblocks to good risk management, yet they are the key enablers.
Customer Intimacy- IBM executives identified that they are failing to talk with customers as a result not including them or seeking their opinion in product design, risk mitigation strategy, and the demand driven policies to help them maneuver demand and supply. The executives realized customer interaction is vital to the success of IBMs supply chain in the form of demands for the right products. IMB customer's collaboration rate presently stands at 68%.
Cost Contamination-increment in fuel prices around the world has its effects visible in the supply chain of most companies globally. Recent is also the financial crises. This cost contamination is of paramount interest to the IBM supply chain executives because it is difficult to manage and anticipate these cost effects.
Globalisation- Results have shown by IBM's supply chain analyst that due to growth markets, one third of its supply chains experience an increase in operational cost, inconsistencies, longer lead days for deliveries as a result of sourcing materials globally and also as a result of the delivery structures used.
Sustainability and green supply chain programs
IBMs executives revealed their compliance to green supply chains in the following table below
Sustainability practices differ by region. Supplier selection based upon compliance is more prevalent in Asia Pacific. Sustainability practices in Europe focuses on carbon reduction in manufacturing & transportation. North America has lower sustainability practices around low carbon distribution network design and supplier selection is based on carbon capabilities
IBMs vision for the future which lies in the hands of supply chain executives is that of ensuring a SMARTER supply chain by transforming the current supply chains to smarter chain by INTERCONNECTION, INTELLIGENCE and INSTRUMENTATION.
1) INTERCONNECT. IBM needs to be integrated and collaborate with decision making with their customers. With Interdependency and interconnection with members of the supply chain, IBM will be able to establish SMART connections (instrumentation) and be less involved in the day to day functioning of the entire system
2) INTELLIGENCE. Being Intelligent in all their actions and using models and advanced simulations. In that way the supply chain is based on information delivered from customers, suppliers and inventory. In this light information gotten is accurate and not rely on "what if" hypothesis. Models will be developed to predict an outcome of a market through scenario planning to understand demand and supply maneuvers.
3) INSTRUMENTED-There is need for the supply chain to be instrumented by the use of sensors, SMART devices like (RFID) to automate the supply chain. This system is an automated process which counts inventories in the warehouses and articles purchased in shops. So there is a continuous monitor which brings information on visibility to real time.
Executives have to consider their role as being strategic, since they are engaged in pulling together all resources within the supply chain around the globe. They equally have to assume the role of optimization at every point in time. Doing this means they have to be in collaboration with all partners of the supply chain and its constituents since their commitment is to greening the environment and the supply chain.
There is need for supply chain executives to work with Chief Financial Officers (CFO) and C-Suit executives of governments in managing risks, developing mitigation strategies and policies as well as controlling them. Decrying that corporation need well defined strategies and policies across supply chains with its constituents
Flexibility is vital in containing costs and balancing costs. Reasons being that the more flexible and variable your supply chain is, you can turn on and off cost structures accordingly. IBM executives anticipate a "Ramp Up" in periods of high customer demands and "Ramp Down" during low customer demands. Effects of this action will be alleviating fluidity in various cost factors.
In the Wake of Globalisation, MNCs are seen as legitimate agents who are better placed to implement CSR compliance and implementation across their supply chains. This is advocated because of their diverse operations in economic, legal and social conditions. Emmelhainz & Adams (1999); Amaeshi et al (2008) argue that "shifts in global supply chains and competition comes from extended chains of responsibility on the part individual firms". With this regards IBM has a vast and increasing global supply chain evident from its 20.000 suppliers worldwide. IBM has an upper hand in its supply chain and therefore has continued to stand as a leader in its field. As the first company to have single handedly obtained an ISO 14001, IBM has over the years has tried to keep up standards and be a benchmark for other companies in the light of conserving and moving to green supply chain. IBM has schooled its suppliers to engage in a management system which calls for accountability and measure of performance as well as disclosure of their suppliers commitments to sustainable supply chains.
As a world leader in information technology, IBM supplier codes of conducts which the corporation has established, alongside ISO 14001 have been tested amongst its supplies and re-adapted to set up quantifiable standards which can be used as yardsticks to evaluate suppliers on their compliance to sustainability within their supply chain. It is therefore logical conclude that IBM considers its suppliers as part of its very own structure though not owned by them but due to its influence, is able to control the activities on this supplier companies. Which is a good example for other multinationals to benchmark?
IBM has proven that innovation and dedication to sustainability is part of the company's culture and the going concern for green supply chains is evident from the challenges being posed to Supply chain executives in IBM. These executives are already anticipating future challenges of green supply chain and how to address them. November 2011 IBM hosted a summit bringing together academia's, suppliers, leaders of Supply chain management with the aim of brainstorming and increasing awareness to green supply chain and how future green supply chains problems can be addressed.
We can therefore conclude that this research finding is limited to this focal company but its application and deep seated culture of CSR can be used as a benchmark for other companies