Responsible Procurement and

Ethics in supply Management

What is Responsible procurement?
• Responsible Purchasing is:
• a process whereby organisations meet their needs for goods, services, works and
utilities in a way that achieves value for money on a whole life basis in terms of
generating benefits not only to the organisation, but also to society and the economy,
while minimising damage to the environment.”
• Good, stable, long term relationships with the suppliers.
• Clear, timely, honest communication.
• Price calculation and the establishment of sustainable prices, which covers the cost of
production, living wages and enables the supplier to make a level of profit.
• Clear lead time and on time, in full payments.
• Respect for Human Rights in the supply chain
• Support to the small groups of farmers and workers in the supply chain
• Source: www.responsible-purchasing.org
Responsible Purchasing
• Responsible Purchasing should consider the environmental, social and
economic consequences of:
• design
• non-renewable material use
• manufacture and production methods
• logistics
• service delivery
• ...
 Responsible Procurement
• use of product in life
• operation
• maintenance
• material reuse
• recycling options
• Disposal
• A barrier to RP is separation of capital and revenue budgets
• Purchase cost
• Direct running costs
• Indirect costs
• Administration costs
• Training
• Recyclability
• Refurbishment / maintenance
• Cost of disposal
 Sustainable Procurement Policy
• treat suppliers fairly and objectively at all times.
• ensure that major supply contracts are reviewed in line with our purchase
strategy and that appropriate suppliers have an equal opportunity to win our
business at all times.
• pay suppliers in accordance with the agreed terms and deal with exceptions
in a timely manner.
• select suppliers without consideration of the gender of their employees or
their ethnic origin.
 Sustainable Procurement Policy

• select suppliers without consideration of the number of their employees or

their location, unless this would create unacceptable risk to Legal & General.
• maintain an active programme of engagement of which Legal & General's CSR
Guidelines for suppliers form an integral part.
• work with our suppliers to support improvements in their social and ethical
practices.
• continuously improve our knowledge of socially and environmentally
responsible supply chain management practices.
 People
1.Sustainable procurement champion to be identified. Key procurement
staff have to receive basic training in sustainable procurement principles.
Sustainable procurement must be included as part of a key employee
induction programme.
2. All procurement staff may be have basic training in sustainable
procurement principles. Key staff may have advanced training on
sustainable procurement principles
 People
3. Target refresher training on latest sustainable procurement
principles. Performance objectives and appraisal include sustainable
procurement factors. Simple incentive programme to be in place.
4. Sustainable procurement to be included in competencies and
selection criteria. Sustainable procurement to be included as part of
employee induction programme.
5. Achievements are to be publicised to attract procurement
professionals. Focus is on benefits to be achieved. Good practice to
be shared with other organisations
 Strategy, Policy and communication
1. Agree on overarching sustainability objectives. Simple sustainable
procurement policy must be in place endorsed by CEO. Communicate
to staff and key suppliers.
2. Review and enhance sustainable procurement policy, in particular
consider supplier engagement. Ensure it is part of a wider Sustainable
Development strategy. Communicate to staff, suppliers and key
stakeholders.
3.Augment the sustainable procurement policy into a strategy covering
risk, process interrogation, marketing, supplier engagement,
measurement and a review process. Strategy to be endorsed by CEO.
 Strategy, Policy and communication

3. Frame Review and enhance the sustainable procurement strategy,

in particular recognising the potential of new technologies. Try to
link strategy and include in overall corporate strategy.
4. Strategy is: reviewed regularly, externally scrutinised and directly
linked to organisations’ strategy. A detailed review is to be
undertaken to determine future priorities and a new strategy is
produced beyond this work.
 Procurement process
1. Expenditure analysis to be undertaken and key sustainability impacts to be identified. Key contracts may
start to include where appropriate general sustainability criteria. Where possible contracts to be awarded
on the basis of value-for-money, not lowest price.
2.  Detailed expenditure analysis to be undertaken, key sustainability risks to be assessed and used for
prioritisation. Sustainability is to be considered at an early stage in the procurement process of most
contracts. Whole-life-cost analysis to be adopted.
3. All contracts are to be assessed for general sustainability risks and management actions identified.
Risks are to be managed throughout all stages of the procurement process. Targets to improve
sustainability are agreed with key suppliers.
4. Detailed sustainability risks to be assessed for high impact contracts. A life-cycle approach to
cost/impact assessment has to be applied.
5. Life-cycle analysis can be undertaken for key commodity areas. Sustainability Key Performance
Indicators has to be agreed with key suppliers. Progress is to be rewarded or penalised based on
performance. Barriers to sustainable procurement have to be removed. Best practice may be shared
with other organisations.
 Engaging supplier
1.Key suppliers spend analysis to be undertaken and high sustainability impact suppliers has to be
identified. Key suppliers may be targeted for engagement and views on procurement policy are to be
sought.
2.Detailed suppliers spend analysis to be undertaken. Initiate General programme of supplier engagement,
with senior manager involvement.
3.Target supplier engagement programme in place, promoting continual sustainability improvement. Two
way communications between procurer and supplier must exist with incentives. Supply chains for key
spend areas have been mapped.
4. Key suppliers may be targeted for intensive development. Sustainability audits and supply chain
improvement programmes must be in place. Achievements are to be formally recorded. CEO to be
involved in the supplier engagement programme.
5. Suppliers must be recognised as essential to delivery of organisations’ sustainable procurement strategy.
CEO engages with suppliers. Best practice are to be shared with other/peer organisations. Suppliers
must recognise they must continually improve their sustainability profile to keep the clients business.
 Measurement
1.Key sustainability impacts of procurement activity have been identified.
2.Detailed appraisal of the sustainability impacts of the procurement activity has to be
undertaken. Measures may be implemented to manage the identified high risk impact areas.
3.Sustainability measures refined from general departmental measures to include individual
procurers and are linked to development objectives.
4. Measures are to be integrated into a balanced score card approach reflecting both input
and output. Comparison can be made with peer organisations. Benefit statements are to
be produced.
5. Measures are to be used to drive organisational sustainable development strategy direction.
Progress formally benchmarked with peer organisations. Benefits from sustainable
procurement are clearly evidenced. Independent audit reports available in the public
domain.
Summary on Responsible procurement
• Responsible Purchasing requires:
• Commitment to sustainability
• Recognition that barriers exist to be overcome in moving towards
RP/sustainability
• Recognition that environmental pressures are exercising themselves on the
supply chain
• Recognition of what can be done and what good practise looks like
• A structured approach
Sustainability in Operations
• Sustainable development as “meeting the needs of the present without
compromising the ability of future generations to meet their own needs. This
relates to sustainability of environment, resources of all kinds, social and
cultural systems as well as economic development. (United Nations report
(WCED, 1987) by former Norwegian prime minister Gro Harlem Brundtland)
• Before this, ‘sustainability’ in business context means steady growth of a
company in terms of profit, market share, and shareholders value.
• Sustainability is also used to describe corporate social responsibility works
related to protection of environment.
 Two levels of Sustainability

Sustainability is addressed in two levels:

• First at organization level, how operations strategy can
contribute to organization strategy on sustainability of business in
the long run.
• At second level, how operations strategy can contribute to
sustainability of environment, resources of all kinds, social and
cultural systems as well as economic development.
 Two levels of Sustainability

Sustainability is addressed in two levels:

• First at organization level, how operations strategy can
contribute to organization strategy on sustainability of business in
the long run.
• At second level, how operations strategy can contribute to
sustainability of environment, resources of all kinds, social and
cultural systems as well as economic development.
 Resources sustainability

• To compete in a sustainable manner through operations, the resources

sustainability become important. The resources include
• Natural resources like minerals, water, air etc.,
• Human resources
• New processes and technologies
• Aligning these resources and related capabilities become more important
so that competitive products and services can be delivered to the market in
a sustainable manner Capabilities on these resources should be monitored
continuously and strategic actions should be taken accordingly.
 Resources sustainability

• To compete in a sustainable manner through operations, the resources

sustainability become important. The resources include
• Natural resources like minerals, water, air etc.,
• Human resources
• New processes and technologies
• Aligning these resources and related capabilities become more important
so that competitive products and services can be delivered to the market in
a sustainable manner Capabilities on these resources should be monitored
continuously and strategic actions should be taken accordingly.
 Important dimensions of a market
a. Customers’ expectations are always changing
b. Technology grow at a break-neck speed
c. Infrastructure grows with better connectivity
d. The demographic profile of customers keep on changing
e. More choices for customers due to competition and entry of foreign
companies
f. Growth of E-Commerce in different categories of market
g. Indian companies face competition from China. Korea, Europe and USA
companies due to globalization.
Sustainable Alignment
 Sustainable Alignment
• The process of continually reconciling operational resources with market dynamic
requirements is called Sustainable alignment
• Uncertainties exists in markets as well as availability of resources. So, the process of
attaining alignment between the market and resources is even difficult due to
uncertainty.
• Different parts of a firm controls different form of resources and co-ordination of these
departments is required for achieving alignment.
• Based on market situations, the competitive priorities changes and to compete based
on certain competitiveness like cost, quality etc., the organization must deploy right kind
of resources on time to succeed in the market.
• The competitive strategic process decides on mix of competitive priorities to be
deployed in the market. To match this, the resources deployment also fine-tuned with
strategy formulation.
 Economic sustainability

• Sustainability in terms of profit, market share and shareholders value is

called as economic sustainability.
• Economic sustainability results from creating sustainable competencies.
• Operations management practices are at the core of these competencies.
• Resource alternatives, productivity improvements, quality practices,
process technologies and methods can give competitive advantage to
organizations and they can grow continuously
 Social sustainability
• It deals with choices made by organizations that will affect current
and future generations to live a healthy life.
• This means that organization should operate in a responsible
manner to take care of its customers, employees, immediate
community and society in general.
• It should consider health, safety and quality of life of its employees,
community and society.
• Operations employ more people and it is responsible for them and
their extended families.
 Environmental sustainability
• It refers to the capability of organization to produce products and services
without compromising the natural systems and living beings.
• Both Operation practices and supply chain practices need to adopt to
environmental sustainability.
• Earth provides us lot of resources which we indiscriminately use and waste
them.
• These resources cannot be sustained for long time, if we practice only
economic sustainability and ignore environmental sustainability.
• The existence of an organization itself will be a question mark if we do not
protect and nurture our environment.
Strategy for sustainability
 Good? The Triple Bottom Line

Social
Performance
Environmental
Performance

Sustainability

Best

Better Better

Economic
Performance

Adapted from: Carter, CR, and DS Rogers. 2008. A

framework of sustainable supply chain management:
Moving toward new theory. International Journal of
Physical Distribution & Logistics Management 38 (5):360-
387.
Triple Bottom Line
Supporting Factors
Transparency and Risk
Management
•Anticipate harm from
activities
•Stakeholder Engagement
•Supplier Operations Organizational Culture
•Deeply Ingrained
•Organizational Citizenship
Strategy •Values and Ethics
•Sustainability as part of
an integrated strategy
 Drivers of Sustainable Procurement

• Regulations
• Customers
• Competitors
• Suppliers
 Creating a Sustainable Sourcing Organization

• Align sustainable procurement and core business strategies

• Institute sustainable procurement policies
• Create a sustainable supplier roadmap
• Engage supplier management in Goal setting
• Document baseline performance
• Training and capacity building
• Monitor and measure supplier performance
 Sustainable Internal Operations

• Sustainable product design

• Sustainable processes and activities
• Lean and Green operations
• Community development
• Employee health and safety
• Ethical practices in Operations
Sustainable consumption, Disposal and Reverse flow

Reverse supply chain

• How to collect recoverable products from the former user?
• Where to inspect and grade collected products?
• Where to locate re-processing facility?
• Whether to use existing facility or need new facility?
• Whether to outsource re-processing or do itself?
 Options in Reverse supply chain

• Open loop system

• Closed loop system
• Integrated networks
• Bi-directional open-loop supply chain networks (BDOLSCN)
 Sustainable Society and Environment

• The social and community sustainability can be enhanced through

corporate social responsibility (CSR) activities.
• This can be multi-fold and make the organization water positive,
emission neutral, energy neutral and cultural and society positive.
• These activities make the organization more sustainable but also
create synergy and harmony between organization and its
environment, the immediate community and nature.
 Framework for collection Networks

  OEM Network Independent Network

INDUSTRIAL Automotive Batteries Paper
PRODUCTS Machine Tools Plastic

CONSUMER Cameras Printer Cartridges

PRODUCTS Televisions
Refrigerators
 Sustainable Transportation

• Transportation and sustainability

A. Change of transport mode
B. Reduction freight transportation
C. Reduction in emission from current mode of transportation
D. Alternative fuels
E. Information technology and Emission reduction in Freight
Transportation
 Sustainable Warehousing
• The most widely practiced popular standards for assessing the sustainability of
warehouse design are LEED (the Leadership in Energy and Environmental Design
framework from the US green building council) and BREEAM (the Building Research
Establishment Environmental Assessment Method) from the Building Research
Establishment (BRE) based in the UK.
• For example, LEED categories warehouses sustainability from ‘certified’ to ‘platinum’.
LEED is suggesting the following weighted factors for warehouse sustainability
• Water Efficiency
• Material and resources
• Indoor environmental quality
• Sustainable sites
• Energy and atmosphere
Product Liability
• Refers to liability of any or all parties along the manufacturing supply
chain for damage caused by that product
• Includes
• the manufacturer of component parts
• an assembling manufacturer
• the wholesaler
• the retail store owner
• Liability suits filed over inherent defects in products that harmed
consumers
 Growing Importance of
Product Safety and Liability
 Government regulations/oversight increase and
judicial interpretations of laws favor plaintiffs
 Lawsuits, large settlements, greater public awareness
 Regulations/oversight are reduced or eliminated
leading to lax control within/among supply
chains
 Large product recalls

 Global supply chain growth; difficulties managing

safety/ quality across borders and
legal/regulatory systems
 Increase in the risk of harm to consumers
Three Types of Product Defects
• Design defects
• a product may perform its function but is inherently dangerous due to a
design flaw

• Manufacturing defects
• occur during construction or production

• Defects in marketing
• improper instructions and failures to warn consumers of latent dangers in the
product
Alternative Dispute Resolution
• Any means of settling disputes outside of the courtroom, including
• Arbitration
• Mediation
• Internal escalation

• Provide an opportunity to reach negotiated settlements and maintain

working professional relationships
 Summary

• Sustainability used to refer as means towards steady growth of a

company in terms of profit, market share, and shareholders value.
• Sustainability is also used to describe corporate social responsibility
works related to protection of environment.
• With triple bottom line namely economic, social and environmental
accounting and reporting becoming a norm, stakeholders from
customers to investors are looking at sustainability in operations as
a comprehensive approach.
• Apple Inc. Case Study Presentation by Alison Headrick (prezi.com)
• iPhone - Analytics in supply chain decisions – YouTube
• The Logistics of Apple – YouTube
• A Case Study on Managing Global Supply Chain at Apple Inc. – YouTub
e
• Apple accused of failing to protect workers – YouTube
• Foxconn: An Exclusive Inside Look – YouTube
• The hidden cost of Apple. – YouTube
• The Struggle of the Original iPhone - The Untold Story - YouTube