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What Is Socially Responsible Purchasing Management Essay

2396 word (10 pages) essay in Management

5/12/16 Management Reference this

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Introduction

The role of companies in contemporary world is changing. Apart from making profits to shareholders, they tend to put more non-economics strategy onto “social responsibilities”. In past few decades, there were several scandals in the use of sweatshop or child labour (Henkel, 2005; Nijhof, Forterre et al., 2008 cited in Mont, O. and Leire, C. (2009), in apparel industry, criticism of oil companies being engaged in the activities that drive people away from their settlement or sponsoring military actions in some developing countries (Frynas and Scott, 2003, cited in Mont and Leire (2009). Some other industries such as toy and mobile manufacturers were also scrutinized of for breaking international conventions on labour’ rights and working conditions (Chan, de Haan et al., 2008 cited in Mont and Leire (2009). Not only private sectors that were criticized on those issues, but even public organizations are also getting attention from people in that community, as an example case of street stones used for road construction in Sweden were produced under inadequate working conditions in China (Johnson, Huitfeldt et al., 2006 cited in Mont and Leire (2009). Over time, public attention has forced the organization to unify their corporate strategy with social well-being efforts. According to Carter and Jenkins (2004) cited in Carter (2005) that recently, researches have broaden to study activities of Socially Responsible Purchasing (SRP) and define it meaning as “the practice of SRP includes environmental purchasing, sourcing from minority-owned suppliers, human rights, safety and philanthropy issues relating to supply management”. As you may notice from websites, billboards, advertisement on various media and even on their product package which usually has something to promote their environmental protection initiatives. Corporates around the world is promoting “Corporate Social Responsibility” to help them getting better reputation and image from consumers and also for cost reduction and improved performance and a lot of well-known firms has incorporated purchasing and procurement practices into their criteria (Mont and Leire (2009).

What is Socially Responsible Purchasing (SRP)?

There are various words which have same or very similar in their meaning so they can be used interchangeably. For example; Purchasing Social Responsibility (Carter, 2005), Corporate Social Responsibility in the Supply Chain (Maloni and Brown, 2006), Socially-Responsible Buying (Maignan, Hillebrand et al., 2002), Responsible Procurement (Allen, 2006), and Ethical Purchasing (Wells, 2004). Some other terms are used specially for public procurement such as Ethical Public Procurement, Green Public Procurement, Fair Trade Public Procurement (EFTA, 2007). In conclusion, we may infer its meaning of SRP as a practice that contributing positively toward the society, customers, welfare of their employees, and to reduce the impact to the environment.

In the paper, the term “Socially Responsible Purchasing (SRP)” will be used throughout the report.

Drivers for Socially Responsible Purchasing

Business organizations have caught more attention from social, media, political on assessing business ethics of a firm. They are the driven force to push Socially Responsible Purchasing Program into existence and gaining more awareness from both corporations and public sectors. According to a study by Mont and Leire (2009), they have found the drivers of organizations towards SRP in two following main factors, external and internal drivers. Below we will conclude their findings as follows.

External Drivers

Consumers

Consumer is the most important element that drives companies to engage SRP in the organization. Mont and Leire (2009) shows a recent report from Co-Op Bank (2007) that in the last five years UK consumers have increased their household expenditure on ethical product almost double. There was an increase of 81 percent in ethical purchase compared to year 2002 (from £336 to £664 per household). There is also 3 times increase in ethical shopping by UK shoppers. Vassallo and Cacciatore (2008) quoted by Mont and Leire (2009) shows that there are an increasing number of business consumer and retailers in shifting their buying preferences toward companies that have a proven record of Corporate Social Responsibility. Without consumer awareness on ethical purchasing, there will be only a few chances for companies to engage into the SRP program. As organizations have noticed consumer trend towards purchasing practice within the firm, they then develop SRP practice to gain good reputation from consumers and earn more market share from consumers and public sector. However, in other parts of the world, degrees of engaging in SRP practice is still low, for example, a few people in the Asian countries have just begun to realize the purpose of Corporate Social Responsibility (CSR). They also do not consider buying ethical products unless the price is cheaper.

Media

Media has increasingly become the driver in SRP practice of an organization in recent years. They are most powerful industry which can influence politicians and people. News broadcasted or published to raise awareness of consumers can create either positive or negative image of a company. Companies also use media to communicate with consumers about their practice of Corporate Social Responsibility (CSR) in which SRP is one component of it. We may notice from their advertisement over the media which usually incorporate some parts of CSR or SRP when being broadcasted in a television program or newspaper or magazine. But on the downside, media can also be used as a tool to hide inappropriate practice of companies from public attention, for example, sponsoring a big event like sports, exhibitions, to draw attention from people.

NGO

NGO is one of the growing forces that push companies’ shape in business practice. They have significant power in international affairs for a few decades (Guay, Doh et al. 2004: p.129 cited by Mont and Leire (2009). NGO like Greenpeace has caught our attention for decades for the act toward environmental protection campaigns. NGO actions have raised public knowledge of some improper practices by a company. However in some countries like in Thailand, the power NGO is primarily on protesting without a clear purpose and can sometimes stop development of the country.

Investors

Socially responsible investors are becoming important. However, influence of investors on SRP practice of a company does not have significant impact on its strategy to SRP. There are only certain industries like manufacturing and trading companies that going forward to SRP, while mining and retails have only small proportion but it is becoming important more in the future.

Internal Drivers

Mont and Leire (2009) have found several research papers discovering various reasons on internal drivers of an organization. The internal drivers arise when SRP is presented as the “correct thing to do” and create future benefits in term of building trust and increase commitment between buyer-supplier relationship, which increase organizational learning in the supply chain and improve supplier performance resulting in cost reduction. However, a study by Graanfland and Eijffinger (2004) cited by Mont and Leire (2009) found that 111 Dutch companies looked for a long term financial success.

Maintain reputation

To avoid risk to brand names and reputation, implementing SPR practice can help to protect their image. Consumers also expect corporations to think more socially and environmentally. (Robert, 2003, Webb, Mohr et al. 2008) cited by Mont and Leire (2009). In Australia, they found that large companies is being driven by “intangible” with over 65 percent of drivers are intangible. This includes organizational reputation and brand, employee, supplier and etc. These drivers provide financial incentive for companies to implement SRP. (CIPS Australia). Nevertheless, there are other alternative practices which may result in more efficient form of gaining reputation like providing educational support for the poor such as scholarships or sponsoring charities which is much less complicated than implementing SRP in the organization

Competitive advantage

SRP also provide potential opportunity for company to work with suppliers in order to develop/innovate new technology that has minimal impact to the environment (CIPS Australia). There are some researches which support above mentioned by Whitehouse (2006) cited by Mont and Leire (2009) that some companies believe that SPR practice help them gaining more competitive advantage over competitors. The SRP practice will differentiate them from the other. Another study from Maignan, Hillebrand et al. (2002) found that the competitive advantage can benefit them in term of improving supplier performance or finding new alternative suppliers, new innovation, new marketing opportunities and improved production process (cited by Mont and Leire (2009).

Employee

Levi Strauss & Co. 2008 concludes that employee’s concern about working condition since late 1980s. Other firms may also find that SRP increase organizational commitment of employee (Mont and Leire (2009). Nevertheless, companies which is recently in China, still force employee to work on overtime while earn only small amount of money in return. This might be because of workers in Eastern countries have lower power than workers in Europe or the America.

External Barriers

Apart from drivers of SRP, implementation of SRP also encounters various internal and external issues as will be explained throughout the list below.

Lack of resource

As we can observe that there is a problem between focal organization and suppliers in difficulties when imposing changes and checking the performance beyond first tier suppliers because its lack of resource, not recognition the possibility of problems upstream (Welford and Frost 2009 claimed by Mont and Leire (2009). But on the other hand, in large organizations and suppliers, lack of resource should not be an issue since they usually have budget to support SRP implementation.

Audits

Audits require substantial input of time and financial resources from the organization. Their choice is usually to hire external auditors, but due to high competition of auditing firms, which sometime result in lower auditing quality. So it may unsatisfy the quality of conducted work (Welford and Frost (2006) claimed by Mont and Leire (2009). In this aspect, auditing firms are usually accredited internationally to carry out this task, there should not be main concern.

Decrease competitiveness

To reduce high auditing costs, company may seek for the opportunities to reduce suppliers and establish long term relation with some suppliers which may be working on SRP practice. This will help to reduce auditing cost. But on the other hands, small and medium suppliers will have no chance to compete with larger competitors. (Mont and Leire (2009).

Internal Barriers

Changes in the focal organization

SRP practice may require significant changes in the focal organization, such as process and system for supplier selection, level of employee training, procedures of verification and performance assessment. The changes may also impact product design, logistics and maintenance process as well as skill level of procurement staff (Vassalla, Cacciatore et al. 2008 cited by Mont and Leire (2009)

Lack of top management commitment

A survey conducted by CIPS Australia discovered that “many Australian companies ‘talk’ about their commitment to CSR more than they actually implement it” (CIPS Australia) In some organizations SRP initiatives needed to be agreed by the board of director based on its cost and benefits to the company (Whitehouse 2006, claimed by Mont and Leire (2009). SRP practice will not be successful without support by top management as it needs to be incorporated in corporate strategic planning.

Additional cost

Increasing investment in SRP practice does concern many buying firms for an additional purchasing cost and subsequently decrease their competitiveness. The most serious obstacle to effective “SRP” is the high cost in environmental program (Min and Galle, 1997). However, according some researches cited in Carter (2005) found that there are performance improvement aspects both at suppliers and buying organization such as improved quality, decreased cycle time.

Lack of training and information

The organization may lack of training and information in social and ethical aspects in the supply chain. They may have advanced system for dealing with social issues within the organization but have very little understanding of issues arise to upstream supply chain and how they can affect the reputation and how to develop a system for dealing with supply chain related issues. (Mont and Leire (2009). But in fact, when a company begin SRP program, training is a core process before it can fully run thus lack of training will be eliminated.

Management style

Culture of management style also acts as a barrier. Mont and Leire (2009) mentioned a study of Welford and Frost (2006) that fire-fighting style (solving problem as they come) of management in Asia. Lack of strategic planning and preventive approaches. However, this barrier can be solved by providing training and changing work attitude.

External barriers on suppliers

Following barriers have been discovered by Welford and Frost (2006) and claimed by Mont and Leire (2009) that the audits are not only problematic at buying organization but also for audited companies. This is because they might lack of understanding of social aspects or find Code of Conduct to be nuisance. Some other problems found at supplier are raising cost to oblige the Code of Conduct while prices are asked to keep down. Suppliers also complain about a number of Code of Conduct to adhere because sometime they have contradictory requirement between each buying companies. Suppliers also complain for their time and different set of requirements while being audited. Some other concerns are that suppliers need to cheat on their document in order to comply with the Code of Conduct, for example, record of overtime work. In many cases employees are happy to work overtime because it means higher incomes but it maybe undisclosed due to non-conformance to the Code of Conduct.

Conclusion

Even though, SRP implementation is still an on-going process in organizations around the world. There are a big gap of implementation and real practice in company level as well as national level in some countries across the globe. Most developed countries have advanced the SRP concept to most of sectors in their countries while developing countries are still far behind in term of practical knowledge and implementation. Human capital plays most important role to bring SRP concept into practice but they still lack of training, knowledge and support from concerned parties, either companies, local and national government. However, our findings have indicated that the SRP practice is becoming popular discussion topic within organizations, especially in multinational firms. This will help to promote the SRP concept in particular area where this practice is still unsettled down. Everything has its starting point and barriers to overcome during the pathway to accomplishment.

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