04 - Ethical & Sustainable Sourcing

IE 407
Principles of Logistics
Evelyn M. Eviota
Ethical
&
Sustainable
Sourcing
ETHICAL & SUSTAINABLE SOURCING
INTENDED LEARNING OUTCOMES:
1. Understand and appreciate the trends in ethical
and sustainable sourcing.
2. Define and describe the terms used in ethical
sourcing.
3. Describe the differences in ethical and
sustainable sourcing.
4. Understand how ethical and sustainable
strategies are developed and implemented.
5. Understand the use of environmental supplier
certifications.
6. Discuss the benefits of strategic supplier
alliances.
INTENDED LEARNING OUTCOMES:
7. Describe how and why sourcing practices are
benchmarked.
8. Discuss why firms would want to assess their
sourcing capabilities.
What is Strategic Sourcing?
- the management of the firm’s external resources
in ways that support the long term goals of the
firm.
- it includes the development of ethical and
sustainable sourcing initiatives, managing and
improving supplier relationships and capabilities,
identification and selection of environmentally
and socially conscious suppliers, monitoring and
rewarding supplier performance.
What is Business Ethics?
- the application of ethical principles to business
situations.
What is Corporate Social Responsibility?

- the practice of business ethics.
Approaches to Deciding Whether an Action is
Ethical:
1. Utilitarianism – an ethical act creates the
greatest good for the greatest number of
people.
2. Rights & Duties – states that some actions are
right in themselves without regard for the
consequences. This approach maintains that
ethical actions recognized the rights of others
and the duties those rights impose on the ones
performing the actions.
What is Ethical Sourcing?
- is sourcing that takes into account the public
consequences of organizational buying or bringing
about positive social change through
organizational buying behavior.
- it includes promoting diversity by intentionally
buying from small firms, ethnic minority
businesses, and women-owned enterprises;
discontinuing purchases from firms that used
child labor, and other unacceptable labor
practices; or sourcing from firms in
underdeveloped nations.
Ethical Sourcing Policies Should Include:
1. Determining where all purchased goods came
from and how they are made.
2. Knowing if suppliers promote basic workplace
principles.
3. Use of ethical ratings for suppliers alongside the
other standard performance criteria.
4. Use of independent verification of vendor
compliance.
5. Reporting of supplier compliance performance
to shareholders
6. Providing detailed ethical sourcing expectations
to vendors.
Ethical Trading Initiative (ETI):
- is an alliance of organizations seeking to take
responsibility for improving working conditions
and agreeing to implement the “ETI Base Code”.
ETI Base Code:

- a standard for ethical practices for the firm and
its suppliers
The Ethical Trading Initiative’s (ETI) Base
Code:
1. Employment is freely chosen.
2. Freedom of association and the right to
collective bargaining are respected.
3. Working conditions are safe and hygienic.
4. Child labor shall not be used.
5. Living wages are paid.
6. Working hours are not excessive.
7. No discrimination is practiced.
8. Regular employment is provided.
9. No harsh or inhumane treatment is allowed.
What is Sustainability?
- as applied to supply chain, is a broad term that is
defined as the ability to meet the needs of
current supply chain members without hindering
the ability to meet the needs of future
generations in terms of economic, environmental
and social challenges.
- its aim is to support the 3 P’s (people, planet
and profit), which means sustaining the world
we live in, as well as the employees and balance
sheet of the company.
What is Sustainable Sourcing?
- is a process of purchasing goods and services that
takes into account the long-term impact on
people, profits and the planet.
- it includes “green purchasing”, defined as
making environmentally conscious decisions
throughout the purchasing process, beginning
with product and process design, and through
product disposal. 1
1Institute of Supply Management

Companies Into Green Purchasing:
Goals of Companies Practicing Sustainable
Sourcing:
1. Grow revenues by introducing new and
differentiated sustainable products and services;
2. Reduce costs by increasing resource efficiencies,
avoiding use of non-compliant suppliers, and re-
thinking transportation and distribution designs;
3. Manage risk by managing brand and reputation,
developing approaches for meeting regulations
and for capturing socially and environmentally
conscious customers;
4. Build intangible assets by further enhancing
brand and reputation through social and
environmental responsibility.
Framework for Ethical & Sustainable
Sourcing Strategy:
1. Establish corporate ethical and sustainable
sourcing policies.
2. Train purchasing staff; implement policies
among users and suppliers.
3. Prioritized items based on ethical and
sustainability opportunities and ease of
implementation.
4. Develop a performance measurement system.
5. Monitor progress, make improvements. Increase
use of certified fair trade and green products
and services.
6. Expand focus to include other departments and
customers. Increase brand value.
Ethical & Sustainable Sourcing Initiatives:
1. Ethical & sustainable supplier certification
programs - in many cases, are based on
internationally recognized certifications such as
ISO (ISO 9000 and/or ISO 14000).
2. Supply base rationalization programs - also
referred to as supply base reduction or supply
base optimization, an activity that seeks to
reduce purchases from marginal or poor-
performing suppliers, while increasing and
concentrating purchases among the more
desirable, top-performing suppliers.
3. Outsourcing products and services – is the
practice when one company provides products
or services to another company which could also
be provided in-house. Outsourcing to a suppliers
with outstanding ethical and sustainable
credentials and not just low cost.
4. EArly supplier involvement - buyers and
suppliers working together, sharing proprietary
design and manufacturing information,
establishes a level of trust & cooperation
resulting in many future collaborative and
potentially successful projects.
5. Vendor managed inventories - a progressive
partner-based approach to controlling inventory
and reducing supply chain costs. Customers
provide information to the key supplier including
historical usage, current inventory levels,
min/max stock levels, sales forecasts and
promotions, who then takes on the responsibility
and risk for planning, managing and monitoring
the replenishment of inventory.
6. Supplier co-location - refers to a situation
wherein a supplier’s employee is permanently
housed in the purchasing department of the
buyer’s organization, acting as both buyer and
supplier representative. This person is given all
the rights and duties of an employee for the
buyer organization—she forecasts demand,
monitors inventory levels and places purchase
orders, and has access to all of the files and
records of the buyer organization.
Strategic Alliance Development:
- is an extension of supplier development and
refers to increasing the firm’s key or strategic
supplier’s capabilities.
Benefits of Strategic Alliances:

1. Can result to better market penetration
2. Access to new technologies and knowledge
3. Higher returns on investments than competitors
with no such alliances
Maintaining a Successful Strategic Alliance
Program:
1. Determine the key strategic parameters to
organize around.
2. Facilitate the dissemination of information.
3. Elevate the importance of the strategic alliance
program.
4. Provide continuous evaluation of alliance
performance, visibility and support.
5. Reward suppliers as performance merits.
Collaborative Negotiations:
- also called integrative or win-win negotiations,
the process that occurs when both sides (buyer
and supplier) work together to maximize the
joint outcome.
Distributive Negotiations:
- the process that occurs when the outcome favors
primarily one side’s interests.
Steps in Developing a Collaborative Negotiation
Infrastructure:
1. Build a preparation process – gain an
understanding of both parties’ interest;
brainstorm value maximizing solutions and
terms; identify objective criteria wherein both
sides evaluate fairness of an agreement.
2. Develop a negotiation database – review
previous negotiations to catalogue standards,
practices, precedents, metrics, creative
solutions used and lessons learned.
3. Design a negotiation launch process – create
an environment allowing parties to focus first on
how they will work together to create a shared
vocabulary, building work relationships, and map
out a shared decision-making process.
4. Institute a feedback mechanism – create a
debriefing process to provide feedback to
negotiating teams and capture lessons learned.
Rewarding Supplier Performance:
- rewarding suppliers for improving or maintaining
high levels of performance aims to:
● provides a continuous incentive to all suppliers
to meet and surpass specific performance
goals.
● provides an incentive for marginal/unrewarded
suppliers to achieve a level of performance
that will upgrade their supplier status,
resulting in rewards
● gives suppliers an incentive to create and share
rewards with their suppliers.
Benefits of Rewarding Suppliers:
1. Share of the cost reductions resulting from
supplier improvements.
2. Share of the cost savings resulting from
supplier’s suggestions made to the focal firm.
3. More business and/or longer contracts for high
performance.
4. Access to in-house trainings, seminars and other
resources.
5. Company and public recognition in the form of
awards.
What is Benchmarking?
- the practice of copying what other businesses do
best, a very effective way to quickly improve
sourcing practices and supply chain performance.
Some Successful Sourcing Practices:

1. Use of a central database to access information
on parts, suppliers, lead times, and other
purchasing information.
2. Software application for sharing information
with suppliers.
3. Use of the internet for supplier searches.
4. Alliances with key suppliers for specific
components.
5. Supplier certification and the elimination of
incoming quality checks for key supplier
deliveries.
6. Involving suppliers in the research and
development processes of new products.
7. Reducing the firm’s supply base.
8. Continuous measurement of supplier
performance, and establishing supplier
improvement targets.
9. Creating an ethical and sustainable supply
chain.
Criteria in Assessing & Improving the Firm’s
Sourcing Function:
1. Participating in and leading multifunctional
teams
2. Participating in value engineering/value analysis
efforts
3. Finding and evaluating ethical and sustainable
suppliers
4. Optimizing the supply base
5. Managing and developing local, regional and
global suppliers
6. Creating early supplier involvement initiatives
7. Creating strategic supplier alliances.
8. Furthering the integration and development of
existing key suppliers.
9. Contributing to new product development
efforts.
10.Initiating supplier cost reduction programs.
11.Contributing to the improvement of purchased
products and service quality.
12.Improving time to market.
13.Maintaining and improving internal cooperative
relationships.

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IE 407

What is Corporate Social Responsibility?

ETI Base Code:

1Institute of Supply Management

Benefits of Strategic Alliances:

Some Successful Sourcing Practices:

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