Business stakeholders continuously demand social, environmental and economic sustainability. It is also well known that mismanagement of suppliers can damage business reputation.
A case study of multinational enterprise in manufacturing environment was conducted by Uta Juettner et.al in 2019. The study identified several implementation challenges in relationships between the suppliers and the organisation. Proposed framework can support enterprises in developing sustainability strategies and implementing them in the supplier network.
The framework integrates supplier sustainability risk, quality management and relationships.
Introduction
Businesses are encouraged to contribute to their triple bottom line of social, environmental and economic responsibility. Sustainability is linked with appropriately defined policies, partnerships, practices and processes. Research stress for sustainability development to be incorporated into business strategy. Why?
For example, Amazon has been exposed to immense negative headlines due to the unethical and illegal labour standards of its supplier, Foxconn. Adidas and Nike have been criticised for working with a Chinese textile supplier charged for discharging toxins into a river. This proves that in many organisations the largest part of the social responsibility is outside of its control. Many of the risks in the supply chains are, therefore, absorbed by the suppliers.
The challenges
The subject of the study has been struggling with sustainability risks in:
* greenhouse and hazardous substance emission,
* health and safety,
* social responsibilities.
The overall findings from the case study reveals also several management challenges. These are:
* building trust,
* goal alignment and
* information asymmetry.
Managers have had difficulties in setting requirements that could be measured. There are several missing criteria to"blacklisting" of suppliers is experienced. There is lack of ecological and social performance targets.
“Corporate targets are missing. This [environmental] dimension is strongly driven by the customer. If the customer plans ecologically, our mobility solutions are more ecological.” ( Uta Juettner, 2019)
"There is lack of sense of urgency and incentive provision to implement the sustainable goals. This is of course increasing the risks of reliance only on the financial KPIs when suppliers are selected and neglecting the corporate ecological and social codes of conduct."
"There are also inconsistencies recorded in implementing sustainability requirements across different regions. It is difficult to create a ranking of KPIs. "
Decreasing information asymmetry
There could be mechanisms employed to reduce the imbalance of more or better information between the buyer and supplier. This could be done through the improvement of transparency, planning and controlling of suppliers.
Built Trust
There could be mechanisms employed to establish and maintain trust between the buyer and the supplier. This can be done through two-way communication strategies.
Goal congruence
There could be mechanisms employed to align the goals of the buyer and the supplier. This can be done through ensuring goals compatibility. Potentially linking people and planet to profit. The KPIs should be set that are applicable across all regions and trying to link the social and environmental dimension to financial KPIs.
“Making a ranking of quality KPIs is difficult. Take the example of logistics. If I am situated in Asia, Indonesia, I have a completely different problem with the KPI on-time delivery with all these islands as opposed to North America where logistic infrastructure is well developed.” ( Uta Juettner, 2019)
There are differences across regions in mindset, understanding, level of implementation of sustainability programmes.
There are also significant difficulties of balancing different dimensions of trade-offs. For example, between the efficacy and the risk and between the volume and resilience.
Pursuing efficacy is important from economic perspective and a necessity when dealing with many suppliers. Small suppliers, will generally be of higher risks due to lack of transparency from social and ecological perspective. Small suppliers glitches can cause media outbreaks and operational disruptions. However, because the regions have already risk-based assessments the guidance for supplier selection is addressed at regional level.
The businesses try to improve the transparency, planning and controlling. Often IT-based systems are introduced across business suppliers that can provide a level of visibility and enforce global standards. Codes of conduct are created to be signed.
KPI definition is also important. Some KPIs cannot be consistently measured across the regions due to context specificities. Therefore, only globally recognised applicable performance indicators apply. Some attempts are made to enforce and communicate social and environmental performance as well as the financial performance. This way, we can determine that the supplier cares for people and planet in the same way as it cares about the profits.
There are also challenges for managers to ensuring that suppliers meet the corporate sustainability standards. Often there is not enough suitable resources and capacity to incorporate sustainability guidelines in the supplier relationships. Often managers have no time to spent quality time with suppliers to get them improve their processes in more ecological friendly manner. In the same way, lack of resources result in suppliers not being able to meet the KPIs and standards. This issues are even bigger with smaller local suppliers.
The framework proposition
The following framework was suggested.
Source: Juettner U. and Windler K. (2019), "Implementing supplier management strategies for supply chain sustainability risks in multinational companies" accessed from https://www.emerald.com/insight/content/doi/10.1108/TQM-05-2019-0136/full/pdf?title=implementing-supplier-management-strategies-for-supply-chain-sustainability-risks-in-multinational-companies ( accessed on 17/07/2022)
Supply chain sustainability risk
The first layer propose orientation towards sustainability risks within the Three Pillars: Environment, Economics and Social. As we know, currently the focus is mainly on the Environmental risks and Social sustainability issues are particularly hard to address. The priority should be defining and addressing all potentially damaging practices within the economic, social and ecological environment. There also should be a distinction between traditional supply chain risks as well as disruption-related risks. It will derive from the risk identification and assessment. It will, of course, depend on the industry and geographical coverage. In some areas social and environmental risks may be more relevant. For the identification and assessment of sustainable supply chain risks, the tools and techniques proposed in the literature on traditional SCRM may be applied (e.g. Chapman, 2006).
2. Supplier Quality Management
The second layer suggests that consistent implementation of the corporate sustainability strategy across different regions and countries is a highly demanding task. Different literature provides guidelines for metrics, standards for measurements and tools in order to establish priorities (Bastas and Liyanage, 2018).The framework therefore suggests to adopt supply chain quality management practices - SCQM (Robinson and Malhotra, 2005). Firstly, we need to identify supplier quality requirements and their priority. The local perspective needs to be considered in the supplier definition. The quality requirements should be the stakeholders requirements, mainly stakeholders specification-based performance indicators. Next to improvements and sustainability requirements, the relationship with supplier. needs attention. Specifically in the light of resource constraints.
A shift from traditional product quality orientation to process orientation is essential. Process designs for sustainability strategies evaluations are imperative. This relies on active involvement in internal and external knowledge, open dialogue supporting the sustainability discussions of the current and future stakeholders needs. It relies on creativity and capacity to meet sustainability targets and avoid risks. This should also include the importance of HR and people management.
3. Relationship based implementation
The third layer conceptualises the relationship context of the strategy. It links to the people management side. There has to be incentive for the whole organisation to follow one path. This particularly relates to the purchasing agents. There need to be a consistent communication and information on the targets that will guide and give priority. Transparency is the necessity to give the information. IT-supported transparency enables setting of the sustainability requirements. It allows for accomplishing the goals and sharing information.
Bibliography
Bastas, A. and Liyanage, K. (2018), “Sustainable supply chain quality management: a systematic review”, Journal of Cleaner Production, Vol. 181, pp. 726-744
Chapman, R.J. (2006), Simple Tools and Techniques for Enterprise Risk Management, Wiley, Chichester.
Juettner U. and Windler K. (2019), "Implementing supplier management strategies for supply chain sustainability risks in multinational companies" accessed from https://www.emerald.com/insight/content/doi/10.1108/TQM-05-2019-0136/full/pdf?title=implementing-supplier-management-strategies-for-supply-chain-sustainability-risks-in-multinational-companies ( accessed on 17/07/2022)
Robinson, C.J. and Malhotra, M.K. (2005), “Defining the concept of supply chain quality management and its relevance to academic and industrial practice”, International Journal of Production Economics, Vol. 96 No. 3, pp. 315-337.
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